EXHIBIT 2.1
AFFILIATION AGREEMENT
This Affiliation Agreement (this "Agreement") dated as of July 23, 2002 is
entered into by and among FIFTH THIRD BANCORP, a corporation organized and
existing under the General Corporation Law of the State of Ohio (the "OGCL")
with its principal office located in Cincinnati, Ohio ("Fifth Third"), FIFTH
THIRD FINANCIAL CORPORATION, a corporation organized and existing under the OGCL
and a wholly owned subsidiary of Fifth Third, with its principal office located
in Cincinnati, Ohio ("Fifth Third Financial"), and FRANKLIN FINANCIAL
CORPORATION, a corporation organized and existing under the Tennessee Business
Corporation Act (the "TBCA") with its principal office located in Franklin,
Tennessee ("Franklin").
W I T N E S S E T H :
WHEREAS, each of Fifth Third and Franklin is a registered financial services
holding company under the Bank Holding Company Act of 1956, as amended, and
Fifth Third, Fifth Third Financial and Franklin desire to effect a merger under
the authority and provisions of the OGCL and the TBCA pursuant to which at the
Effective Time (as herein defined in Article IX) Franklin will be merged with
and into Fifth Third's wholly owned subsidiary, Fifth Third Financial, with
Fifth Third Financial as the surviving corporation (the "Merger");
WHEREAS, the Board of Directors of Franklin has determined that it is in the
best interests of Franklin and its stockholders to consummate the Merger,
subject to the terms and conditions set forth herein;
WHEREAS, the Executive Committee of the Board of Directors of Fifth Third has
determined that it is in the best interests of Fifth Third and its stockholders
to consummate the Merger, subject to the terms and conditions set forth herein;
WHEREAS, the Board of Directors of Fifth Third Financial has determined that it
is in the best interests of Fifth Third Financial and its stockholder to
consummate the Merger, subject to the terms and conditions set forth herein;
WHEREAS, under the terms of this Agreement each share of Common Stock, no par
value per share, of Franklin (the "Franklin Common Stock"), which is issued and
outstanding (excluding any treasury shares) immediately prior to the Effective
Time will at the Effective Time be canceled and extinguished and converted into
shares of Common Stock, without par value, of Fifth Third ("Fifth Third Common
Stock"), all as more fully provided in this Agreement;
WHEREAS, the parties to this Agreement intend that the Merger qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the mutual covenants herein contained, Fifth
Third, Fifth Third Financial and Franklin agree together as follows:
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ARTICLE I. MODE OF EFFECTUATING CONVERSION OF SHARES; EFFECTS OF THE
MERGER
A. The Merger. Upon the terms and conditions set forth in this Agreement,
at the Effective Time, Franklin shall be merged with and into Fifth Third
Financial.
B. Treatment of Fifth Third Stock. At the Effective Time, all of the
shares of Fifth Third and Fifth Third Financial Capital Stock that are issued
and outstanding or held by Fifth Third or Fifth Third Financial as treasury
shares immediately prior to the Effective Time will remain unchanged and will
remain outstanding or as treasury shares, as the case may be, of Fifth Third and
the Surviving Corporation (as hereinafter defined), respectively. Any stock
options, subscription rights, warrants or other securities outstanding
immediately prior to the Effective Time, entitling the holders to subscribe for
purchase of any shares of the capital stock of any class of Fifth Third, and any
securities outstanding at such time that are convertible into shares of the
capital stock of any class of Fifth Third will remain unchanged and will remain
outstanding, with the holders thereof entitled to subscribe for, purchase or
convert their securities into the number of shares of the class of capital stock
of Fifth Third to which they are entitled under the terms of the governing
documents.
C. Treatment of Franklin Stock. 1. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
Franklin Common Stock, subject to this Section I.C.1 and Section I.F., each
share of Franklin Common Stock (excluding treasury shares) that is issued and
outstanding immediately prior to the Effective Time will be converted into .4039
shares of Fifth Third Common Stock (or cash in lieu thereof for fractional
shares, if any, as described in Section I.E. below) subject to adjustment as
determined in accordance with the following (the "Exchange Ratio"):
(i) if the Average Closing Price (as defined in I.D.1
below) is less than or equal to $63.13, the Exchange Ratio will remain at .4039;
(ii) if the Average Closing Price is greater than $63.13
but is less than $66.55, the Exchange Ratio will be adjusted so that the
Exchange Ratio will equal the quotient obtained by dividing $25.50 by the
Average Closing Price; and
(iii) if the Average Closing Price is equal to or greater
than $66.55, the Exchange Ratio will be adjusted so that the Exchange Ratio will
equal .3832.
At the Effective Time, all shares of Franklin Common Stock held as
treasury shares and all shares of Franklin Common Stock owned by Fifth Third or
any of its wholly owned subsidiaries (other than in a fiduciary, custodial or
similar capacity or owned as a result of a debt previously contracted) will be
canceled and terminated and no shares of Fifth Third or other consideration will
be issued in exchange therefor.
2. At the Effective Time, all of the issued and outstanding
shares of Franklin Common Stock (excluding treasury shares), will be converted
as provided in this Article I, canceled and extinguished and the holders of
certificated or uncertificated shares thereof shall cease to have any rights as
shareholders of Franklin, other than the right to receive any dividend or other
distribution with respect to such Franklin Common Stock with a record date
occurring prior to the Effective Time and the right to receive the consideration
provided in this Article I.
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After the Effective Time, there shall be no transfers on the stock transfer
books of Franklin of shares of Franklin Common Stock.
D. Treatment of Franklin Options. 1. At the Effective Time, each award,
option, or other right to purchase or acquire shares of Franklin Common Stock
pursuant to stock options ("Franklin Rights") granted by Franklin under any
stock option plan, agreement, or arrangement ("Stock Plans"), which are
outstanding at the Effective Time, whether or not exercisable, shall
automatically be converted into and become options with respect to Fifth Third
Common Stock, and Fifth Third shall assume each Franklin Right, in accordance
with the same terms and conditions of the Stock Plan and stock option agreement
by which the Franklin Right is evidenced, except that, from and after the
Effective Time, (i) Fifth Third and its Compensation Committee shall be
substituted for the Committee of Franklin's Board of Directors (including, if
applicable, the entire Board of Directors of Franklin) administering such Stock
Plan, (ii) each Franklin Right assumed by Fifth Third may be exercised solely
for shares of Fifth Third Common Stock, (iii) the number of whole shares of
Fifth Third Common Stock subject to such Franklin Right shall be equal to the
number of shares of Franklin Common Stock subject to such Franklin Right
immediately prior to the Effective Time multiplied by the Exchange Ratio
(subject to adjustment pursuant to Section 1.F); and (iv) the per share exercise
price under each such Franklin Right shall be adjusted by dividing the per share
exercise price under each such Franklin Right by the Exchange Ratio (as so
adjusted) and rounding to the nearest four decimal places. Notwithstanding the
provisions of clause (iii) of the preceding sentence, Fifth Third shall not be
obligated to issue any fraction of a share of Fifth Third Common Stock upon
exercise of Franklin Rights and any fraction of a share of Fifth Third Common
Stock that otherwise would be subject to a converted Franklin Right (after
taking into account all Franklin Rights then being exercised) shall represent
the right to receive a cash payment equal to the product of such fraction and
the excess, if any, of the Average Closing Price over the per share exercise
price of such Franklin Right (as adjusted in accordance with subparagraph (iv)
of this Section I.D.1.). In addition, notwithstanding the foregoing, each
Franklin Right which is an "incentive stock option" shall be adjusted as
required by Section 424 of the Code so as not to constitute a modification,
extension or renewal of the option within the meaning of Section 424 (h) of the
Code. Fifth Third agrees to take all reasonable steps which are necessary to
effectuate the foregoing provisions of this Section. The "Average Closing Price"
means the average of the closing prices for a share of Fifth Third Common Stock
on the Nasdaq National Market (as reported in The Wall Street Journal, or, if
not reported thereby, any other authoritative source) for the ten (10)
consecutive trading days ending on the fifth (5th ) trading day preceding the
Effective Time.
2. At or prior to the Effective Time, Fifth Third shall take all
corporate action necessary to reserve for issuance sufficient shares of Fifth
Third Common Stock for delivery upon exercise of Franklin Rights assumed by
Fifth Third in accordance with this Section.
3. As soon as practicable after the Effective Time, Fifth Third
shall file with the SEC a registration statement on the appropriate form with
respect to the shares of Fifth Third Common Stock subject to such options and
shall use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and to maintain the current status of the
prospectus or prospectuses with respect thereto) for so long as such options
remain outstanding.
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E. Exchange Procedures. 1. After the Effective Time, each holder of a
certificate or certificates for shares of Franklin Common Stock as of the
Effective Time, upon surrender of the same duly transmitted to the Corporate
Trust Department of Fifth Third Bank, an Ohio banking corporation, Cincinnati,
Ohio, as exchange agent (the "Exchange Agent") (or in lieu of surrendering such
certificates, in the case of uncertificated shares or lost, stolen, destroyed or
mislaid certificates, upon execution of such documentation as may be reasonably
required by Fifth Third), shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of whole shares of Fifth
Third Common Stock into which such holder's shares of Franklin Common Stock
shall have been converted by the Merger pursuant to the Exchange Ratio, plus a
cash payment for any fraction of a share to which the holder is entitled (after
taking into account all certificates for shares of Franklin Common Stock
delivered by such holder), in lieu of such fraction of a share, without any
interest thereon, equal in amount to the product resulting from multiplying such
fraction by the Average Closing Price (such certificates and cash being
hereinafter collectively referred to as the "Exchange Fund"). Within fifteen
(15) business days after the Effective Time, the Exchange Agent will send a
notice and transmittal form to each Franklin shareholder of record at the
Effective Time advising such shareholder of the effectiveness of the Merger and
the procedures for surrendering to the Exchange Agent outstanding certificates
formerly evidencing Franklin Common Stock in exchange for new certificates of
Fifth Third Common Stock and cash in lieu of fractional shares, or for receiving
certificates of Fifth Third Common Stock and cash in lieu of fractional shares
with respect to uncertificated shares of Franklin Common Stock. Until so
surrendered, as applicable, each uncertificated share and outstanding
certificate that prior to the Effective Time represented shares of Franklin
Common Stock shall be deemed for all corporate purposes to represent the right
to receive the number of full shares of Fifth Third Common Stock and cash in
lieu of fractional share interests into which the same shall have been
converted; provided, however, that dividends or distributions otherwise payable
with respect to shares of Fifth Third Common Stock into which Franklin Common
Stock shall have been so converted shall be paid with respect to such shares
only when the transmittal form shall have been validly executed and delivered
(and, in the case of certificated shares, the certificate or certificates
evidencing shares of Franklin Common Stock shall have been so surrendered, or in
lieu of surrendering such certificates in the case of lost, stolen, destroyed or
mislaid certificates, upon execution of such documentation as may be reasonably
required by Fifth Third) and thereupon any such dividends and distributions
shall be paid, without interest, to the holder entitled thereto subject,
however, to the operation of any applicable escheat or similar laws relating to
unclaimed funds.
2. Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Franklin for twelve months after the Effective Time shall be
paid to Fifth Third. Any stockholders of Franklin who have not theretofore
complied with this Section I.E. shall thereafter only look to Fifth Third for
payment of the shares of Fifth Third Common Stock and cash in lieu of any
fractional shares deliverable in respect of each share of Franklin Common Stock
such stockholder holds as determined pursuant to this Agreement, without any
interest thereon. Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto shall be liable to any former holder of Franklin Common Stock
for any amount or security delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
F. Adjustments to Exchange Ratio. The Exchange Ratio referred to in
Section I.C. shall be adjusted so as to give the Franklin shareholders the
economic benefit of any stock dividends,
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reclassifications, recapitalizations, split-ups, exchanges of shares, mergers,
combinations or subdivisions of or affecting Fifth Third Common Stock (each, a
"Share Adjustment") effected between the date of this Agreement and the
Effective Time. In particular, without limiting the foregoing, if, prior to the
Effective Time, Fifth Third should effect a split, reclassification or
combination of the Fifth Third Common Stock, or pay or declare a stock dividend
or other stock distribution in Fifth Third Common Stock, as of a record date and
with a payment date prior to the Effective Time, or engage in a merger,
consolidation, combination or share exchange whereby Fifth Third Common Stock is
exchanged for securities of another entity, appropriate and proportionate
adjustments (rounded to the nearest one-ten-thousandth of a share) will be made
to the Exchange Ratio and the total number of shares of Fifth Third Common Stock
or other securities to be issued in the transaction so that each shareholder of
Franklin shall be entitled to receive such number of shares of Fifth Third
Common Stock or other securities as such shareholder would have received
pursuant to such Share Adjustment had the record date and the payment date
therefor been immediately following the Effective Time of the Merger. In the
event of a Share Adjustment with a record date between the date of this
Agreement and the Effective Time but a payment date subsequent to the Effective
Time, Fifth Third shall take all actions necessary such that on such payment
date, any holder of Franklin Common Stock as of the Effective Time shall be
entitled to receive such number of shares of Fifth Third Common Stock or other
securities as such shareholder would have received as a result of such Share
Adjustment if the record date for such Share Adjustment had been immediately
after the Effective Time.
G. Effectiveness of Merger; Surviving Corporation. After all necessary
documents have been filed and received in accordance with the OGCL and the TBCA,
at the Effective Time, the Merger shall become effective, the separate existence
of Franklin shall cease and Franklin shall be merged into Fifth Third Financial
(which will be the "Surviving Corporation"), which shall continue its corporate
existence under the laws of the State of Ohio under the name "Fifth Third
Financial Corporation".
H. Articles of the Surviving Corporation. The Articles of Incorporation of
Fifth Third Financial of record with the Secretary of State of Ohio as of the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation, until further amended as provided by law.
I. Directors and Officers of the Surviving Corporation. 1. The Directors
of Fifth Third Financial who are in office at the Effective Time shall be the
directors of the Surviving Corporation, each of whom shall continue to serve as
a Director for the term for which he was elected, subject to the Regulations of
the Surviving Corporation and in accordance with applicable law.
2. The officers of Fifth Third Financial who are in office at the
Effective Time shall continue as officers of the Surviving Corporation, subject
to the Regulations of the Surviving Corporation and in accordance with
applicable law.
J. Regulations of the Surviving Corporation. The Regulations of Fifth
Third Financial at the Effective Time shall be the Regulations of the Surviving
Corporation, until amended as provided therein and in accordance with applicable
law.
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K. Effects of the Merger. At the Effective Time, the effects of the Merger
shall be as provided by the applicable provisions of the laws of Ohio and, to
the extent applicable, Tennessee. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time: the separate existence of
Franklin shall cease; Fifth Third Financial as the Surviving Corporation shall
possess and have title to all assets and property (including all real estate) of
every description, and every interest therein, wherever located, without
reversion or impairment, and the rights, privileges, immunities, powers,
franchises and authority, of a public as well as a private nature, of each of
Fifth Third Financial and Franklin, and all obligations owing by or due each of
Fifth Third Financial and Franklin shall be vested in, and become the
obligations of, Fifth Third Financial, without further act or deed; and all
rights of creditors of each of Fifth Third Financial and Franklin shall be
preserved unimpaired, and all liens upon the property of each of Fifth Third
Financial and Franklin shall be preserved unimpaired, on only the property
affected by such liens immediately prior to the Effective Time.
L. Further Actions. From time to time as and when requested by the
Surviving Corporation, or by its successors or assigns, the officers and
Directors of Franklin in office immediately prior to the Effective Time shall
execute and deliver such instruments and shall take or cause to be taken such
further or other action as shall be necessary in order to vest or perfect in the
Surviving Corporation or to confirm of record or otherwise, title to, and
possession of, all the assets, property, interests, rights, privileges,
immunities, powers, franchises and authority of Franklin and otherwise to carry
out the purposes of this Agreement.
M. Filing of Documents. A certificate of merger shall be filed and/or
recorded in accordance with the requirements of each of the laws of the States
of Ohio and Tennessee, as provided in Article IX. Such filing shall not be made
until, but shall be filed promptly after, all of the conditions precedent to
consummating the Merger as contained in Article VI of this Agreement shall have
been fully satisfied or effectively waived at the Closing contemplated by
Article IX hereof.
N. Tax Treatment. The parties intend that the Merger qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. The Agreement
is intended to be a "plan of reorganization" within the meaning of the
regulations promulgated under the Code and for purposes of Section 354 and 361
of the Code.
O. No Dissenters' Rights. No holder of Fifth Third Common Stock, Fifth
Third Financial Capital Stock, or Franklin Common Stock shall be entitled to
relief as a dissenting shareholder pursuant to the TBCA, the OGCL or otherwise.
P. Consolidation of Entities; Changes to Form of Merger. The parties agree
to cooperate and take all reasonable requisite action prior to or following the
Effective Time to merge or otherwise consolidate legal entities (effective at or
after the Effective Time) to the extent desirable in Fifth Third's good faith
judgment for commercial, regulatory or other reasons, and further agree that
Fifth Third may, at any time, change the legal method of effecting the Merger
(including without limitation the provisions of Article I hereof) if and to the
extent Fifth Third reasonably deems such change to be desirable, including,
without limitation, to provide for the merger of Franklin with another
wholly-owned subsidiary of Fifth
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Third or Fifth Third Financial or the merger of the Bank Subsidiary (as defined
in Section II.B) with a bank subsidiary of Fifth Third; provided, however, that
no such change shall (A) alter or change the amount or kind of the consideration
for the Merger to be received by the shareholders of Franklin in the Merger, (B)
adversely affect the tax treatment to shareholders of Franklin, or (C)
materially impede or delay receipt of any approvals referred to herein or the
consummation of the transactions contemplated hereby. Franklin shall, if
requested by Fifth Third, enter into one or more amendments to this Agreement
prior to the Effective Time in order to effect such a change.
Q. Plan or Articles of Merger. At the request of Fifth Third, Franklin
shall enter into a separate plan of merger or articles of merger reflecting the
terms hereof (including Section I.P. hereof) for purposes of any filing required
by any applicable law.
R. Disclosure Schedule. Franklin has delivered to Fifth Third a
confidential schedule (the "Disclosure Schedule"), executed by Franklin and
Fifth Third concurrently with the delivery and execution hereof, setting forth,
among other things, in each case with respect to specified sections of this
Agreement, items the disclosure of which shall be necessary or appropriate
either in response to an express disclosure requirement contained in a provision
hereof or as an exception to one or more representations or warranties contained
in Article II hereof. Franklin shall supplement or amend the Disclosure
Schedule, and add additional references to the Disclosure Schedule to its
representations and warranties contained in this Agreement, with respect to any
matter arising after the date hereof or discovered between the date hereof and
the date of the Closing; provided, however, that no such additional information
so disclosed to Fifth Third shall be deemed an exception to any of the
representations, warranties, covenants or agreements of Franklin or the
conditions to the obligations of the parties under this Agreement unless Fifth
Third, in its sole discretion, agrees in writing to accept such exception. A
copy of the amended or supplemented Disclosure Schedule and the additional
Disclosure Schedule references shall be promptly provided to Fifth Third.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF XXXXXXXX
Xxxxxxxx represents and warrants to Fifth Third and Fifth Third Financial that:
A. Organization; Capitalization; Subsidiaries. 1. Franklin (i) is duly
incorporated, validly existing and in good standing as a corporation under the
TBCA and is a registered financial services holding company under the Bank
Holding Company Act; (ii) is duly authorized, in all material respects, to
conduct the business in which it is engaged in all material respects; (iii) has
an authorized capital stock consisting entirely of 500,000,000 shares of
Franklin Common Stock; (iv) has no outstanding securities of any kind, nor any
outstanding options, warrants or other rights, contracts, understandings or
commitments entitling another person to acquire or to receive consideration
based on the value of any securities of Franklin of any kind, other than (a)
7,906,731 shares of Franklin Common Stock, which are authorized, duly issued and
outstanding as of June 1, 2002, all of which shares are fully paid and
non-assessable, (b) options to purchase a total of not more than 2,278,075
shares of Franklin Common Stock as of June 30, 2002, which were granted to and
are currently held by the present and former employees, officers, Directors and
advisory directors of Franklin or the Franklin Subsidiaries (as defined below),
and (c) a number of shares not to exceed 600 per calendar quarter issuable
pursuant to Franklin's 2000 Stock Purchase Plan. Since the date referred to in
clause (iv) of the preceding sentence to the date hereof, Franklin has not
issued any shares, except in connection with the exercise of the
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outstanding options referred to in clause (iv)(b). The Disclosure Schedule sets
forth a correct and complete list of all options referred to in clause (iv)(b),
together with the name of the holder, the date of issuance, the exercise price,
and vesting information.
2. The Disclosure Schedule sets forth a complete and correct list
of all of Franklin's subsidiaries (the "Franklin Subsidiaries") in addition to
(a) a description of their businesses, (b) their respective states of
incorporation, and (c) the location of the principal office of each Franklin
Subsidiary. Except for the capital stock and securities referred to in the
immediately following sentence, there are no outstanding shares of capital stock
or other equity securities of any such Franklin Subsidiary, options, warrants,
stock appreciation rights, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights convertible
into, shares of any capital stock or other equity securities of any such
Franklin Subsidiary, or contracts, commitments, understandings or arrangements
by which any such Franklin Subsidiary may become bound to issue additional
shares of its capital stock or other equity securities, or options, warrants,
scrip or rights to purchase, acquire, subscribe to, calls on or commitments for
any shares of its capital stock or other equity securities. Except as set forth
on the Disclosure Schedule, all of the outstanding shares of capital stock or
other securities evidencing ownership of the Franklin Subsidiaries are validly
issued, fully paid and (except as otherwise required by law) non-assessable and
such shares or other securities are owned by Franklin or its wholly-owned
Franklin Subsidiaries free and clear of any lien, claim, charge, option,
encumbrance, mortgage, pledge or security interest with respect thereto. Other
than as set forth on the Disclosure Schedule, Franklin does not own (other than
in a bona fide fiduciary capacity or in satisfaction of a debt previously
contracted) beneficially, directly or indirectly, shares or equity securities or
similar interests of any person or any interest in a partnership or joint
venture of any kind, other than shares, securities and interests as are not
material.
B. Bank Subsidiary. Franklin National Bank ("Bank Subsidiary") is duly
incorporated, validly existing and in good standing as a national banking
association, and has all the requisite power and authority to conduct the
banking business as now conducted by it. Each of the other Franklin Subsidiaries
is duly incorporated, validly existing and in good standing in its jurisdiction
of incorporation, and has all the requisite power and authority to conduct its
business as now conducted.
C. Financial Statements; Regulatory Reports. 1. Franklin has previously
furnished to Fifth Third its audited, consolidated balance sheet, statement of
operations and statement of shareholders' equity and cash flows as of December
31, 2001, and for the year then ended, together with the opinion of its
independent certified public accountants associated therewith. Franklin has made
available to Fifth Third the Call Reports as filed with the Office of the
Comptroller of the Currency (the "OCC") of the Bank Subsidiary as of December
31, 1999, 2000 and 2001. Franklin has also made available to Fifth Third (i) its
unaudited, consolidated condensed financial statements as of and for the quarter
ended March 31, 2002, and (ii) the Bank Call Report as filed with the OCC for
the quarter ended March 31, 2002. Such audited and unaudited consolidated
financial statements of Franklin fairly present the consolidated financial
condition, results of operations and cash flows of Franklin as of the date
thereof, and for the years or periods covered thereby, in conformity with
generally accepted accounting principles ("GAAP"), consistently applied (except
as stated therein and except for the omission of notes to unaudited statements
and except for normal (in nature and amount) year-end adjustments to
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interim results). There are no material liabilities, obligations or indebtedness
of Franklin or any of the Franklin Subsidiaries required to be disclosed in the
financial statements (or in the footnotes to the financial statements) so
furnished other than the liabilities, obligations or indebtedness disclosed in
such financial statements (including footnotes). Since March 31, 2002, Franklin
and the Franklin Subsidiaries have not incurred any liabilities outside the
ordinary course of business consistent with past practice.
2. The financial statements of Franklin to be provided to Fifth
Third pursuant to Section V.D.3. hereof will fairly present, as applicable, the
consolidated financial condition, results of operations and cash flows of
Franklin as of the dates thereof and for the years or periods covered thereby,
in conformity with GAAP, consistently applied (for quarterly financial
statements only and except as stated therein and except for the omission of
notes to unaudited statements and except for normal (in nature and amount)
year-end adjustments to interim results).
3. Franklin has made available to Fifth Third an accurate and
complete copy (including all exhibits and all documents incorporated by
reference) of each of the following documents as filed by Franklin with the
Securities and Exchange Commission ("SEC"): (a) each final registration
statement, prospectus, report, schedule and definitive proxy statement filed
since January 1, 2000 by Franklin or any Franklin Subsidiary with the SEC,
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or
the Securities Exchange Act of 1934 (the "Exchange Act") (the "Franklin
Reports"), and (b) each communication mailed by Franklin to its stockholders
since January 1, 2000. Since January 1, 2000, Franklin has timely filed (and
will timely file after the date of this Agreement) all reports and other
documents required to be filed by it under the Securities Act and the Exchange
Act, and, as of their respective dates, all such reports complied (and, in the
case of all reports and other documents filed after the date of this Agreement,
will comply) in all material respects with the published rules and regulations
of the SEC with respect thereto. As of the date of filing or mailing, as the
case may be, no such registration statement, prospectus, report or proxy
statement contained (and no registration statement, prospectus, report or proxy
statement filed or mailed after the date of this Agreement will contain) any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information as of a later date (but filed before the date hereof)
shall be deemed to modify information as of an earlier date. No event has
occurred subsequent to December 31, 2000 which Franklin is required to describe
in a Current Report on Form 8-K other than the Current Reports heretofore
furnished by Franklin to Fifth Third. None of the Franklin Subsidiaries has any
class of securities registered, or is obligated to register any class of
securities, under Section 12 of the Exchange Act.
4. Franklin and the Franklin Subsidiaries have filed all material
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1999 with any applicable industry self-regulatory organization or stock exchange
("SRO") and any other federal, state, local or foreign governmental or
regulatory agency or authority (collectively with the SEC and the SROs,
"Regulatory Agencies"), and all material other reports, registrations and
statements required to be filed by them since January 1, 1999, including,
without limitation, any material report or
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statement required to be filed pursuant to the laws, rules or regulations of the
United States, any state, or any Regulatory Agency, and have paid all fees and
assessments due and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency in the regular course of the
business of Franklin and the Franklin Subsidiaries, or as set forth in the
Disclosure Schedule, no Regulatory Agency has initiated any proceeding or, to
the Knowledge of Franklin, investigation into the business or operations of
Franklin or the Franklin Subsidiaries since January 1, 1999. To the Knowledge of
Franklin, there is no unresolved violation, or material criticism or exception,
by any bank Regulatory Agency with respect to any report, registration or
statement relating to any examinations of Franklin or the Franklin Subsidiaries.
As used herein, the term "Knowledge" as used with respect to an entity
(including references to such entity being aware of a particular matter) shall
mean the actual personal knowledge of each of the executive officers of such
entity and such knowledge as such individual would reasonably be expected to
obtain upon completion of a reasonable investigation of materials pertinent to
such subject matter as would be available to such individual in the ordinary
course of performing his or her duties for such entity.
D. Title to Properties. Franklin and the Franklin Subsidiaries have good
and marketable title to all of the material properties and assets reflected in
Franklin's statement of financial condition as of December 31, 2001, other than
properties and assets sold in the ordinary course of business since that date,
and each has good and marketable title to all material properties and assets
acquired by it after such date (other than properties and assets subsequently
sold in the ordinary course of business), subject to (i) any liens and
encumbrances that do not materially adversely impair the use of the property,
(ii) statutory liens for taxes not yet due and payable, and (iii) minor defects
and irregularities in title that do not materially adversely impair the use of
the property. Notwithstanding the foregoing, certain assets located on
Franklin's premises or currently owned by Franklin as such are listed on the
Disclosure Schedule are and will be deemed to be personal assets of Xx. Xxxxxx
Xxxxx, or will be conveyed to him prior to the Effective Time and shall not be
deemed to be assets of Franklin.
E. No Material Adverse Effect. To the Knowledge of Franklin, since
December 31, 2001, no event has occurred and no fact or circumstance has come to
exist or come to be known which, directly or indirectly, individually or taken
together with all other facts, circumstances and events (described in any
paragraph of this Article II or otherwise), has had, or is reasonably likely to
have, a Material Adverse Effect with respect to Franklin. As used in this
Agreement, the term "Material Adverse Effect" means, with respect to Franklin or
Fifth Third, any effect that (i) is, or is reasonably expected to be, material
and adverse to the financial condition, results of operations or business of
Franklin and its subsidiaries taken as a whole, or Fifth Third and its
subsidiaries taken as a whole, respectively, or (ii) would materially impair the
ability of either Franklin or Fifth Third to perform its obligations under this
Agreement or would otherwise materially threaten or materially impede the
consummation of the Merger and other transactions contemplated by this
Agreement; provided, however, that Material Adverse Effect shall not be deemed
to include the impact of (a) changes in banking and similar laws of general
applicability or interpretations thereof by courts or governmental authorities,
(b) changes in GAAP or regulatory accounting requirements applicable to banks
and their holding companies generally, and (c) any modifications or changes to
valuation or reserve policies and practices in connection with or in
anticipation of the Merger.
10
F. Litigation; Regulatory Action. 1. There are no actions, suits,
proceedings, investigations or assessments of any kind pending, or to the
Knowledge of Franklin, threatened, against Franklin or any Franklin Subsidiary
which reasonably can be expected to have a Material Adverse Effect on Franklin.
The Disclosure Schedule lists all pending or, to the Knowledge of Franklin,
threatened claims and proceedings which, in each case, seek, or would be
reasonably likely to result in, damages or other amounts payable by Franklin or
the Franklin Subsidiaries, in excess of $50,000.
2. Except as set forth in the Disclosure Schedule, there are no
actions, suits, claims, proceedings, investigations or assessments of any kind
pending, or to the Knowledge of Franklin, threatened against any of the
Directors or officers of Franklin or any Franklin Subsidiary in their capacities
as such, and no Director or officer of Franklin or any Franklin Subsidiary
currently is being indemnified or seeking to be indemnified by either Franklin
or any Franklin Subsidiary pursuant to applicable law or applicable articles of
incorporation, bylaws or other constituent documents or any indemnity
agreements.
3. Except as set forth in the Disclosure Schedule, neither
Franklin nor any of the Franklin Subsidiaries is subject to any cease-and-desist
or other order issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by,
or, since January 1, 1999, has been a recipient of any supervisory letter from
or has adopted any board resolutions at the request of, any Regulatory Agency or
other governmental entity, that restricts the conduct of its business or has
resulted, or could reasonably be expected to result, in a liability or that in
any manner relates to its capital adequacy, its credit policies, its management
or its business (each a "Franklin Regulatory Agreement"), nor has Franklin or
any Franklin Subsidiary been advised since January 1, 1999 by any Regulatory
Agency or other governmental entity that it is considering issuing or requesting
any such Franklin Regulatory Agreement. To the Knowledge of Franklin, there is
no pending or threatened regulatory investigation that is reasonably likely to
result in a Franklin Regulatory Agreement.
G. Ordinary Course of Business. Except as disclosed in the Franklin
Reports filed prior to the date hereof, since December 31, 2001, Franklin and
the Franklin Subsidiaries have each been operated in the ordinary course of
business, have not made any changes in their respective capital or corporate
structures, nor any material changes in their methods of business operations and
have not provided any increases in employee salaries or benefits other than
increases in the ordinary course of business consistent with past practice, and
have not instituted or made any announcements to institute or amend any existing
employee benefit plan, policy or arrangement or any employment contract or
policy. Except as disclosed in the Franklin Reports filed prior to the date
hereof, since December 31, 2001 to the date hereof, Franklin has not declared or
paid any dividends nor made any distributions of any other kind to its
shareholders except for its regular quarterly cash dividends of $0.055 per
share, which have been paid consistent with its past practice.
H. Taxes. 1. Franklin and each Franklin Subsidiary have timely filed all
federal, state and local tax returns required to be filed (after giving effect
to all extensions) by them, respectively, and have paid or provided for all tax
liabilities shown to be due thereon or which have been
11
assessed against them, respectively. All tax returns filed by Franklin or any
Franklin Subsidiary through the date hereof are complete and accurate in all
material respects. Except as set forth on the Disclosure Schedule, none of
Franklin, Bank Subsidiary, nor any of the other Franklin Subsidiaries is
currently under audit nor have any of them been contacted for an audit by any
taxing authority. None of Franklin, Bank Subsidiary, nor any of the Non-Bank
Subsidiaries is engaged in any appeal proceeding in connection with any tax
return.
2. Franklin has no reason to believe that any conditions exist
that might prevent or impede the Merger from qualifying as a "reorganization"
within the meaning of Section 368(a) of the Code.
3. Since December 31, 2001, except insofar as required by a
change in GAAP, there has been no material change in any accounting methods,
principles or practices of Franklin or the Bank Subsidiary.
I. Contracts. Except as set forth on the Disclosure Schedule, neither
Franklin nor any of the Franklin Subsidiaries is a party to or bound by any
contract, arrangement, commitment or understanding (a) as of the date hereof,
with respect to the employment, termination or compensation of any directors,
executive officers, employees or material consultants (other than oral contracts
of employment at will or engagement of consultants which may be terminated
without material penalty), (b) which is a "material contract" (as such term is
defined in Item 601(b)(10) of Regulation S-K of the SEC) that has not been filed
with or incorporated by reference in the Franklin Reports, (c) which contains
any material non-compete or exclusivity provisions with respect to any business
or geographic area in which business is conducted by Franklin or any of the
Franklin Subsidiaries or which restricts the conduct of any business by Franklin
or any of the Franklin Subsidiaries or any geographic area in which Franklin or
any of the Franklin Subsidiaries may conduct business or requires exclusive
referrals of any business, (d) except as contemplated by Article I or Section
V.E.5., or as required by any Benefit Plan, any of the benefits of which will be
increased, or the funding, vesting or payment of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement (either alone or together with any other event), or the value of any
of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement or (e) which would prohibit or
materially delay the consummation of the Merger. Franklin has previously made
available to Fifth Third true and correct copies of all employment, termination,
compensation, change of control, and similar agreements (including deferred
compensation) with executive officers, key employees or material consultants
which are in writing and to which Franklin or any of the Franklin Subsidiaries
is a party. Each contract, arrangement, commitment or understanding of the type
described in this Section II.I., whether or not set forth in the Disclosure
Schedule, is referred to herein as a "Franklin Contract", and neither Franklin
nor any of the Franklin Subsidiaries has Knowledge of, or has received notice
of, any violation of any Franklin Contract by it or any of the other parties
thereto.
J. Loan Losses. Since December 31, 2001, to the date hereof, except as
disclosed in Franklin Reports filed prior to the date hereof, none of the
Franklin Subsidiaries has incurred any unusual or extraordinary loan losses
which could reasonably be expected to have a Material Adverse Effect on
Franklin. To the Knowledge of Franklin and in light of each of the Bank
Subsidiaries' historical loan loss experience and its management's analysis of
the quality and
12
performance of its loan portfolio, as December 31, 2001, its reserve for loan
losses was, in the opinion of Franklin, adequate to absorb potential loan losses
determined on the basis of management's continuing review and evaluation of the
loan portfolio and judgment as to the impact of economic conditions on the
portfolio.
K. Broker. Other than Trident Securities, a division of McDonald
Investments, Inc., neither Franklin nor any of the Franklin Subsidiaries has a
direct or indirect commitment to any investment banker, broker, or finder in
connection with this transaction and neither has incurred or will incur any
obligation for any investment banker's, broker's or finder's fee or commission
in connection with the transactions provided for in this Agreement.
L. Board Approval; Corporate Authority; No Breach. 1. The Directors of
Franklin, by resolution adopted by the unanimous vote of all Directors present
at a meeting duly called and held in accordance with applicable law, have duly
approved this Agreement. The Directors of Franklin have recommended the
Agreement to the shareholders of Franklin and have directed that the Agreement
be submitted to a vote of Franklin's shareholders at the annual or a special
meeting of the shareholders to be called for that purpose.
2. Franklin has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder subject to required
regulatory approvals and, in the case of consummation of the Merger, subject to
approval by the holders of a majority of the outstanding shares of Franklin
Common Stock, which is the only approval of shareholders required. This
Agreement has been duly authorized and constitutes the valid and binding
obligation of Franklin, enforceable in accordance with its terms, except to the
extent that (i) enforceability thereof may be limited by insolvency,
reorganization, liquidation, bankruptcy, readjustment of debt or other laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the availability of certain remedies may be precluded
by general principles of equity.
3. Neither the execution of this Agreement, nor the consummation
of the transactions contemplated hereby (either alone or together with any other
event), (i) conflicts with, results in a breach of, violates or constitutes a
default under, (x) Franklin's Charter or By-laws or, to the Knowledge of
Franklin, any federal, state or local law, statute, ordinance, rule, regulation
or court or administrative order, or (y) any material agreement, arrangement, or
commitment, to which Franklin or the Franklin Subsidiaries is subject or bound;
(ii) to the Knowledge of Franklin, results in the creation of or gives any
person the right to create any material lien, charge, encumbrance, or security
agreement or any other material rights of others or other material adverse
interest upon any material right, property or asset belonging to Franklin or any
Franklin Subsidiary; (iii) terminates or gives any person the right to
terminate, amend, abandon, or refuse to perform any material agreement,
arrangement or commitment to which Franklin or any Franklin Subsidiary is a
party or by which Franklin's or any Franklin Subsidiary's material rights,
properties or assets are subject or bound; or (iv) to the Knowledge of Franklin,
accelerates or modifies, or gives any party thereto the right to accelerate or
modify, the time within which, or the terms according to which, Franklin or any
Franklin Subsidiary is to perform any duties or obligations or receive any
rights or benefits under any material agreements, arrangements or commitments.
For purposes of clauses (iii) and (iv) immediately preceding, material
agreements, arrangements or commitments exclude (without limitation) agreements,
arrangements or commitments having a term expiring less than twelve (12) months
13
from the date of this Agreement or which do not require the expenditure of more
than $50,000 over the term of the agreement, arrangement or commitment (but
shall include all agreements, arrangements or commitments pursuant to which
credit has been extended by any Bank Subsidiary).
4. As of the date hereof, Franklin is not aware of the existence
of any factor that would materially delay or materially hinder issuance of any
of the required regulatory approvals necessary to consummate the Merger or the
other transactions contemplated hereby.
M. Articles and By-laws. Complete and accurate copies of the (i) Charter
and By-laws of Franklin and (ii) the charter and bylaws of each Franklin
Subsidiary in force as of the date hereof have been delivered to Fifth Third.
N. Compliance with Law. To the Knowledge of Franklin, neither Franklin nor
any of the Franklin Subsidiaries nor any employee, officer or Director of any of
them acting in such capacity has engaged in any activity or omitted to take any
action which, in any material way, has resulted or could reasonably be expected
to result in the violation of, or material failure to comply with the regulatory
requirements of (i) any local, state or federal law (including without
limitation the Bank Secrecy Act, the Community Reinvestment Act, applicable
consumer protection and disclosure laws and regulations, including without
limitation, Truth in Lending, Truth in Savings and similar disclosure laws and
regulations, and equal employment and employment discrimination laws and
regulations) or (ii) any regulation, order, injunction or decree of any court or
governmental body, the violation of either of which could reasonably be expected
to have a Material Adverse Effect, individually or in the aggregate, on
Franklin, and neither Franklin nor any of the Franklin Subsidiaries has received
notice of any violation of any of the above that is reasonably likely to have a
Material Adverse Effect on Franklin. To the Knowledge of Xxxxxxxx, Xxxxxxxx and
the Franklin Subsidiaries possess all material licenses, franchises, permits and
other authorizations necessary to continue to conduct such businesses as they
are presently conducted following the Effective Time without material
interference or interruption.
O. Environmental Matters. 1. Franklin has no Knowledge of any actions,
proceedings or investigations pending before any environmental regulatory body,
with respect to or threatened against or affecting Franklin or any Franklin
Subsidiary in respect of, any "facility" owned, leased or operated by any of
them (but excluding any "facility" as to which the sole interest of Franklin or
any Franklin Subsidiary is that of a lienholder or mortgagee, but including any
"facility" to which title has been taken pursuant to mortgage foreclosure or
similar proceedings and including any "facility" in which Franklin or any
Franklin Subsidiary ever participated in the financial management to a degree
sufficient to influence, or have the ability to influence, the facility's
treatment of hazardous waste) under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or under any
Federal, state, local or municipal statute, ordinance or regulation in respect
thereof, in connection with any release of any toxic or "hazardous substance",
pollutant or contaminant into the "environment", nor, to the Knowledge of
Franklin, is there any reasonable basis for the institution of any such actions
or proceedings or investigations which is probable of assertion, nor are there
any such actions or proceedings or investigations in which Franklin or any
Franklin Subsidiary is a plaintiff or complainant. Neither Franklin nor any
Franklin Subsidiary has been determined by
14
any court or Regulatory Agency to be, nor to the Knowledge of Franklin does
there exist any facts or circumstances which could reasonably lead to Franklin
or a Franklin Subsidiary being held, liable in any material respect under any
applicable law for any release by any of them or for any release by any other
"person" of a hazardous substance caused by the spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing of hazardous wastes or other chemical substances, pollutants or
contaminants into the environment, nor has Franklin or any Franklin Subsidiary
been determined by any court or Regulatory Agency to be, nor to the Knowledge of
Franklin does there exist any facts or circumstances which could reasonably lead
to Franklin or a Franklin Subsidiary being held, liable for any material costs
(as a result of the acts or omissions of Franklin or any Franklin Subsidiary or,
to the Knowledge of Franklin, as a result of the acts or omissions of any other
"person") of any remedial action including, without limitation, costs arising
out of security fencing, alternative water supplies, temporary evacuation and
housing and other emergency assistance undertaken by any environmental
regulatory body having jurisdiction over Franklin or any Franklin Subsidiary to
prevent or minimize any actual or threatened release by Franklin or any Franklin
Subsidiary of any hazardous wastes or other chemical substances, pollutants and
contaminants into the environment which would endanger the public health or the
environment. All terms contained in quotation marks in this paragraph and the
paragraph immediately following shall have the meaning ascribed to such terms,
and defined in, CERCLA.
2. To the Knowledge of Franklin, each "facility" owned, leased or
operated by Franklin or any Franklin Subsidiary (but excluding any "facility" as
to which the sole interest of Franklin or the Franklin Subsidiary is that of a
lienholder or mortgagee, but including any "facility" to which title has been
taken pursuant to mortgage foreclosure or similar proceedings and including any
"facility" in which Franklin or any Franklin Subsidiary ever participated in the
financial management to a degree sufficient to influence, or have the ability to
influence, the facility's treatment of hazardous waste) is, in all material
respects, in compliance with all applicable Federal, state, local or municipal
statutes, ordinances, laws and regulations and all orders, rulings or other
decisions of any court, administrative agency or other governmental authority
relating to the protection of the environment, except to the extent a failure to
comply would not have a Material Adverse Effect on Franklin and the Franklin
Subsidiaries taken as a whole.
P. Employment Matters. 1. Benefit Plans. The Disclosure Schedule lists the
name of each Benefit Plan (as herein defined), together with an indication of
the type of plan (i.e., defined benefit, defined contribution, health and
welfare, etc.) and funding status (e.g., funded trust, unfunded obligation or
insurance policy). For purposes hereof, the term "Benefit Plan" shall mean any
plan, program, policy, practice, arrangement, agreement or system, whether
written or unwritten for the benefit of employees, former employees, directors
or former directors, or independent contractors or former independent
contractors which is or was contributed to or maintained presently or at any
time in the last four (4) years by Franklin or any of the Franklin Subsidiaries
in respect of which Franklin, or any of the Franklin Subsidiaries, are a party
or have any liability (contingent or otherwise) and shall include, without
limitation, (a) any retirement plan such as a pension, profit sharing, stock
bonus plan or employee stock ownership plan ("ESOP"), (b) any plan, program or
arrangement providing deferred compensation, bonus deferral, stock option or
other equity based compensation, change in control payments or benefits or
incentive benefits, whether funded or unfunded, and (c) any welfare plan,
program or
15
policy providing vacation, severance, salary continuation, supplemental
unemployment, disability, life, health coverage, retiree health, Voluntary
Employees' Beneficiary Association, medical expense reimbursement or dependent
care assistance benefits, in any such foregoing case without regard to whether
the Benefit Plan constitutes an employee benefit plan under Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the
number of employees covered under such Benefit Plan. The term "Benefit Plan" for
all purposes of this Agreement shall include each Predecessor Plan (as
hereinafter defined). For purposes hereof, "Predecessor Plan" shall mean any
plan, program, policy, practice, arrangement, agreement or system as otherwise
described herein which was maintained, contributed to or resulted in liability
to any predecessor employer of Franklin or any Franklin Subsidiary since January
1, 1998. For purposes hereof, "predecessor employer" shall mean any employer,
entity, or business operation acquired by Franklin or any Franklin Subsidiary in
any type of acquisition (including without limitation, mergers, stock
acquisitions and asset acquisitions). Through the date of this Agreement,
neither Franklin nor any of the Franklin Subsidiaries have made or have
committed to make any contributions to any Benefit Plan outside the ordinary
course of business and inconsistent with past practice with regard to amounts.
None of the Benefit Plans is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
2. Plan Documents, Reports and Filings. Either Franklin or a
Franklin Subsidiary has provided to Fifth Third true, complete and correct
copies of all plan documents comprising each Benefit Plan, or, if no plan
document exists, a description of such Benefit Plan, together with, when
applicable, (a) the most recent summary plan description and any material
modifications thereto, (b) the trust agreement insurance contract or other
documentation of any related funding arrangement, (c) the most recent actuarial
and financial reports and the most recent annual reports filed with any
governmental agency, including without limitation all Forms 5500 and all
schedules thereto, and (d) all Internal Revenue Service ("IRS") or other
governmental agency rulings and determination letters or any open requests for
IRS rulings or letters with respect to Benefit Plans issued within five years of
the date of this Agreement and any material communications to or from any
governmental agency with respect to such Benefit Plans.
3. Qualified Retirement Plan Compliance. With respect to each
Benefit Plan which is an employee pension benefit plan (as defined in Section
3(2) of ERISA) other than any such plan that meets the "top-hat" exception under
Section 201(1) of ERISA (a "Qualified Benefit Plan"): (a) the IRS has issued a
determination letter which determined that such Qualified Benefit Plan (as
amended by any and all amendments other than the GUST amendment referred to
below) satisfies the requirements of Section 401(a) of the Code, as amended by
all the laws referred to in Section 1 of Revenue Procedure 93-39, such
determination letter has not been revoked or threatened to be revoked by the
IRS, and the scope of such determination letter is complete and does not exclude
consideration of any of the requirements or matters referred to in Sections 4.02
through 4.04 of Revenue Procedure 93-39; (b) such Qualified Benefit Plan has
been timely amended and submitted to the IRS with a timely application for
determination letter to meet the requirements of "GUST" (i.e., all the
legislation referred to in IRS Announcement 2001-77), and Franklin has taken or
will take all actions necessary to obtain the favorable IRS determination
letter; (c) except as listed in the Disclosure Schedule, such Qualified Benefit
Plan has been maintained in accordance with and continues to be in material
compliance with all qualification requirements of Section 401(a) of the Code;
(d) such Qualified Benefit Plan has
16
been maintained in accordance with and continues to be in substantial compliance
with all notice, reporting and disclosure requirements of ERISA and the Code;
(e) any Qualified Benefit Plan which is an ESOP as defined in Section 4975(e)(7)
of the Code (an "ESOP Qualified Benefit Plan") is in material compliance with
the applicable qualification requirements of Section 409 of the Code; (f) any
Qualified Benefit Plan terminated within the last five years was terminated in
material compliance with the requirements of ERISA and the Code, has received a
favorable determination letter therefor, and the liabilities of such Qualified
Benefit Plan and the requirements of the Pension Benefit Guaranty Corporation
("PBGC") were fully satisfied; and (g) any and all plan documents and amendments
to the Qualified Benefit Plans not covered by an IRS determination letter should
not adversely affect the qualified and tax exempt status of such plans and there
are no amendments that are required to continue such tax exempt status.
4. General Plan Compliance. With respect to each Benefit Plan,
except as noted on the Disclosure Schedule: (a) such Benefit Plan, if it is
intended to provide favorable tax benefits to plan participants, has been
maintained and continues to be in material compliance with applicable Code
provisions; and (b) such Benefit Plan has been and continues to be operated in
substantial compliance with its terms and all applicable laws, including,
without limitation, ERISA and the Code, and to the extent such Benefit Plan is a
group health plan subject to the requirements of Section 4980B of the Code
("COBRA") and/or the Health Insurance Portability and Accountability Act of
1996, as amended ("HIPAA"), has been and continues to be operated in substantial
compliance with such COBRA and HIPAA requirements and (c) all payments due from
Franklin or any of the Franklin Subsidiaries to date with respect to each
Benefit Plan have been timely made.
5. Prohibited Transactions. No prohibited transaction under
Section 406 of ERISA or 4975 of the Code and not exempt under Section 408 of
ERISA or 4975 of the Code has occurred with respect to any Benefit Plan which
would result, with respect to any person, in (a) the imposition, directly or
indirectly, of a material excise tax under Section 4975 of the Code or (b)
material fiduciary or other liability under Section 409 or 502(i) of ERISA.
6. Lawsuits or Claims. No actions, suits or claims that would
reasonably be expected to have a Material Adverse Effect on Franklin are pending
or, to the Knowledge of Franklin, threatened against any Benefit Plan or against
Franklin or any of the Franklin Subsidiaries with respect to any Benefit Plan.
7. Disclosure of Unfunded Liabilities. All material Unfunded
Liabilities (as defined below) with respect to each Benefit Plan have been
recorded and disclosed on the most recent financial statement of Franklin and
the Franklin Subsidiaries or, if not, in the Disclosure Schedule. For purposes
hereof, the term "Unfunded Liabilities" shall mean any amounts properly accrued
to date under GAAP in effect as of the date of this Agreement, or amounts not
yet accrued for GAAP purposes but for which an obligation exists for payment in
the future which is attributable to any Benefit Plan, including but not limited
to (a) severance pay benefits, (b) deferred compensation or unpaid bonuses, (c)
any liabilities on account of the change in control which will result from this
Agreement, including any potential liabilities relating to excess parachute
payments under Section 280G of the Code, (d) any unpaid pension contributions
for the current plan year, owed by Controlled Group Members (as defined below),
(e) any authorized but unpaid profit sharing contributions or contributions
under Section 401(k)
17
and Section 401(m) of the Code, (f) retiree health benefit coverage, (g) unpaid
premiums for contributions required under any group health plan to maintain such
plan's coverage through the Effective Time, (h) bonuses, (i) variable
compensation, (j) contractual payments, (k) accruals and (l) any other off
balance sheet items relating to payments to employees, former employees or
directors.
8. Defined Benefit Pension Plan Liabilities. Franklin, the
Franklin Subsidiaries and any entity treated as a single employer with Franklin
and any of the Franklin Subsidiaries in accordance with Section 414(b), (c), (m)
and (o) of the Code (hereinafter a "Controlled Group Member") (or any pension
plan maintained by any of them) have not incurred any material liability to the
PBGC or the IRS with respect to any employee pension plan which is a defined
benefit pension plan, except for the payment of PBGC premiums pursuant to
Section 4007 of ERISA, all of which if due prior to the date of this Agreement
have been fully paid, and no PBGC reportable event under Section 4043 of ERISA
has occurred with respect to any such pension plan. Except as otherwise
disclosed in the Disclosure Schedule, the benefit liabilities, as defined in
Section 4001(a)(16) of ERISA, of each such employee pension plan subject to
Title IV of ERISA, using the actuarial assumptions that would be used by the
PBGC in the event of termination of such plan, do not exceed the fair market
value of the assets of such plan and no such plan which is subject to section
302 of ERISA or section 412 of the Code has incurred any "accumulated funding
deficiency" (as defined in section 302 of ERISA and section 412 of the Code,
respectively), whether or not waived. Neither Franklin, any of the Franklin
Subsidiaries nor any Controlled Group Member participates in, or has incurred
any liability under Sections 4201, 4063 or 4064 of ERISA for a complete or
partial withdrawal from a multiple employer plan or a multi-employer plan (as
defined in Section 3(37) of ERISA). No employee, former employee, plan
participant or any other party (other than Franklin or the Franklin
Subsidiaries) has any entitlement (under the terms of any plan document or
otherwise) to any surplus assets in any Qualified Benefit Plan which is a
defined benefit plan as defined in Section 414(j) of the Code.
9. Third Party Plans. Franklin and the Franklin Subsidiaries (a)
have not breached any duties assumed in connection with acting as an independent
trustee, custodian, agent, investment manager, investment advisor or otherwise
with respect to any employee benefit plan (as defined in Section 3(3) of ERISA)
and have complied in all material respects with all applicable law, except for
any breach or non-compliance that could not give rise to any material liability,
(b) have not incurred any asserted or, to the Knowledge of Franklin, unasserted
material liability for breach of duties assumed in connection with acting as an
independent trustee, custodian, agent, investment manager, investment advisor or
otherwise with respect to any employee benefit plan (as defined in Section 3(3)
of ERISA), (c) have not authorized nor knowingly participated in a material
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code
not exempt under Section 408 of ERISA and (d) have not received notice of any
material actions, suits or claims (other than routine claims for benefits)
pending or threatened against the sponsor or any other fiduciary of any such
plan or against Franklin or the Franklin Subsidiaries.
10. Retiree Benefits. Except as listed on the Disclosure Schedule
and identified as "Retiree Liability", Franklin and the Franklin Subsidiaries
have no obligation to provide health benefits, or life insurance benefits to or
with respect to retirees, former employees, individuals on
18
disability or any of their relatives, except for any continuation coverage
provided in accordance with COBRA.
11. Right to Amend and Terminate. Either Franklin or a Franklin
Subsidiary has all power and authority necessary to amend or terminate each
Benefit Plan without incurring any penalty or liability provided that, in the
case of an employee pension benefit plan (as defined in Section 3(2) of ERISA),
benefits accrued as of the date of amendment or termination are not reduced.
12. Consummation of Transactions. Except as set forth in the
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement (alone or together with any other event which, standing alone, would
not by itself trigger such entitlement or acceleration) will not (i) entitle any
person to any benefit under any Benefit Plan, (ii) accelerate the time of
payment or vesting, or increase the amount, of any compensation due to any
person under any Plan or (iii) result in the payment of any "excess parachute
payment" under Section 280G of the Code or any other payment that is not
deductible for any reason by the Franklin or any of the Franklin Subsidiaries or
their successors.
13. Labor. Neither Franklin nor any Franklin Subsidiary is a party
to any collective bargaining agreements. There are no labor unions or other
organizations representing, purporting to represent or attempting to represent,
any employee of Franklin or the Franklin Subsidiaries.
14. Independent Contractors. Neither Franklin nor any Franklin
Subsidiary has any material liability, whether absolute or contingent, including
any obligation under any employee benefit plans with respect to any
misclassification of a person as an independent contractor rather than as an
employee and no individual has been treated by the Company or any subsidiary of
the Company as a "leased employee" (within the meaning of Section 414(n) of the
Code).
Q. Investment Portfolio. The investment portfolios of Franklin and the
Franklin Subsidiaries consist in all material respects of securities in
marketable form. Since December 31, 2001 to the date hereof neither Franklin nor
any Franklin Subsidiary has incurred any material and unusual or extraordinary
losses in its investment portfolio, and, except for matters of general
application to the banking industry (including, but not limited to, changes in
laws or regulations or GAAP) or for events relating to the business environment
in general, including market fluctuations and changes in interest rates,
Franklin is not aware of any events which are reasonably certain to occur in the
future and which reasonably can be expected to result in any material adverse
change in the quality or performance of Franklin's and the Franklin
Subsidiaries' investment portfolio on a consolidated basis.
R. Derivative Instruments. All swaps, caps, floors, futures, forward
contracts, option agreements, and any other derivative financial instruments,
contracts or arrangements, whether entered into for Franklin's own account, or
by Franklin for the account of one or more of the Franklin Subsidiaries or for
their respective customers, were entered into (i) in the ordinary course of
business, (ii) in accordance with prudent banking practices and all applicable
laws, rules, regulations and regulatory policies and (iii) with counter-parties
reasonably believed by Franklin to be financially responsible at the time; and
each of them constitutes the valid and
19
legally binding obligation of Franklin or one of the Franklin Subsidiaries,
enforceable in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles), and are in full
force and effect (except to the extent that they have been fully performed or
terminated) in all respects material to Franklin. Franklin and each of the
Franklin Subsidiaries have duly performed in all material respects all of their
obligations thereunder to the extent that such obligations to perform have
accrued, and, to Franklin's Knowledge, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
S. Fairness Opinion. On or before the date hereof, Trident Securities, a
division of McDonald Investments, Inc., has delivered its opinion to Franklin's
Board of Directors that the consideration to be received by the shareholders of
Franklin pursuant to this Agreement is fair, from a financial point of view, to
the holders of the Franklin Common Stock, a true and correct form of which has
been delivered to Fifth Third.
T. Transactions with Affiliates. Except as disclosed in the Franklin
Reports filed prior to the date hereof, from January 1, 2001 through the date
hereof there have been no transactions, agreements, arrangements or
understandings between Franklin or any of the Franklin Subsidiaries, on the one
hand, and Franklin's affiliates (other than wholly-owned subsidiaries of
Franklin) or other persons, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.
U. Expiration of Representations and Warranties. All representations and
warranties contained in this Article II shall expire at the Effective Time, and,
thereafter, Franklin shall have no further liability or obligations with respect
thereto.
V. Anti-Takeover Provisions. No dissenters' rights, control share
acquisition or similar anti-takeover statute enacted under the laws of the State
of Tennessee applies to the Merger or the transactions contemplated by this
Agreement.
W. No Untrue Statements. Neither this Agreement nor any report, statement,
list, certificate or other information furnished by Franklin or the Franklin
Subsidiaries to Fifth Third or its agents in connection with this Agreement or
any of the transactions contemplated hereby contains or shall contain an untrue
statement of material fact or omits or shall omit to state a material fact
required to be stated therein and necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading.
X. Employment, Severance and Change in Control Agreements. The Disclosure
Schedule sets forth (i) each employment or severance agreement to which Franklin
or any Franklin Subsidiary is party and (ii) each other agreement pursuant to
which Franklin, a Franklin Subsidiary or Fifth Third will be obligated to make
any payment as a result of the change of control of Franklin effected by the
Merger.
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ARTICLE III. REPRESENTATIONS AND WARRANTIES OF FIFTH THIRD AND FIFTH
THIRD FINANCIAL
Fifth Third and Fifth Third Financial, each jointly and severally, represents
and warrants to Franklin that as of the date hereof or as of the indicated date,
as appropriate:
A. Organization. Each of Fifth Third and Fifth Third Financial is duly
incorporated, validly existing and in good standing as a corporation under the
OGCL, is a registered financial services holding company under the Bank Holding
Company Act of 1956, as amended, and is duly authorized to conduct the business
in which it is engaged.
B. Capitalization. 1. Pursuant to Fifth Third's Second Amended Articles of
Incorporation, as amended, the total number of shares of capital stock Fifth
Third is authorized to have outstanding is 1,300,500,000, of which 1,300,000,000
shares are classified as Common Stock, without par value, and 500,000 shares are
classified as Preferred Stock, without par value, of which 7,250 shares are
designated, issued and outstanding as Series D Perpetual Preferred Stock $1,000
stated value per share, and 2000 shares are designated, issued and outstanding
as Series E Perpetual Preferred Stock, $1,000 stated value per share. As of the
close of business on June 30, 2002, 580,985,828 shares of Fifth Third Common
Stock were issued and outstanding and 2,441,276 shares were held in its
treasury. Fifth Third does not have outstanding any stock options, subscription
rights, warrants or other securities entitling the holders to subscribe for or
purchase any shares of its capital stock other than options granted and to be
granted to employees and Directors under its stock option plans or shares to be
issued or purchased by employees or shareholders under its deferred
compensation, dividend reinvestment, and stock purchase plans. At June 30, 2002,
40,225,173 shares of Fifth Third Common Stock were reserved for issuance in
connection with outstanding options granted under its stock option plans and
10,013,255 shares were reserved for issuance under options to be granted in the
future.
2. The authorized capital stock of Fifth Third Financial consists
of 800 shares of common stock, of which, as of the date of this Agreement, 100
shares were issued and outstanding and all such 100 shares were beneficially
owned by Fifth Third.
C. Due Issuance. All shares of Fifth Third Common Stock to be received by
the shareholders of Franklin as a result of the Merger pursuant to the terms of
this Agreement shall be, upon transfer or issuance, duly and validly issued,
fully paid and non-assessable, and will not, upon such transfer or issuance, be
subject to the preemptive rights of any shareholder of Fifth Third.
D. Financial Statements. 1. Fifth Third has previously furnished to
Franklin its audited, consolidated balance sheet, statement of operations and
statement of shareholders' equity and cash flows as of and at December 31, 2001,
and for the year then ended, together with the opinion of its independent
certified public accountants associated therewith. Fifth Third has also
furnished to Franklin its unaudited, consolidated condensed financial statements
as at March 31, 2002 and June 30, 2002, and for the periods then ended. Such
audited and unaudited consolidated financial statements of Fifth Third fairly
present the consolidated financial condition, results of operations and cash
flows of Fifth Third as of the date thereof and for the year covered thereby, in
conformity with GAAP, consistently applied (except as stated therein and except
for the omission of notes to unaudited statements and except for normal (in
nature
21
and amount) year-end adjustments to interim results). There are no material
liabilities, obligations or indebtedness of Fifth Third or any of its
subsidiaries required to be disclosed in the financial statements (or in the
footnotes to the financial statements) so furnished other than the liabilities,
obligations or indebtedness disclosed in such financial statements (including
footnotes). Since June 30, 2002, Fifth Third and its subsidiaries have not
incurred any liabilities outside the ordinary course of business consistent with
past practice.
2. The financial statements of Fifth Third to be provided to
Franklin pursuant to Section V.D.4. hereof will fairly present, as applicable,
the consolidated financial condition, results of operations and cash flows of
Fifth Third as of the dates thereof, and for the periods covered thereby, in
conformity with GAAP, consistently applied (except as stated therein and except
for the omission of notes to unaudited statements and except for normal (in
nature and amount) year-end adjustments to interim results).
E. No Material Adverse Effect. Since June 30, 2002, no event has occurred
and no fact or circumstance shall have come to exist or come to be known which,
directly or indirectly, individually or taken together with all other facts,
circumstances and events (described in any paragraph of this Article III or
otherwise), has had, or is reasonably likely to have, a Material Adverse Effect
with respect to Fifth Third.
F. Board Approval; Corporate Authority; No Breach. 1. The Executive
Committee of the Board of Directors of Fifth Third, by resolution adopted by the
members present at a meeting duly called and held, at which meeting a quorum was
at all times present and acting, has approved this Agreement, including
reserving for issuance to Franklin shareholders in accordance with this
Agreement, a sufficient number of shares of Fifth Third Common Stock. The
Executive Committee of the Board of Directors of Fifth Third is empowered to act
in these matters for the full Board of Directors of Fifth Third under Ohio law
and the Articles of Incorporation and Code of Regulations of Fifth Third.
Approval and adoption of this Agreement by the shareholders of Fifth Third is
not required under Ohio law or under the Articles of Incorporation or Code of
Regulations of Fifth Third. Approval and adoption of this Agreement by the
shareholder of Fifth Third Financial is not required under Ohio law or under the
Articles of Incorporation or Code of Regulations of Fifth Third Financial. The
directors of Fifth Third Financial have duly and validly approved and adopted
this Agreement.
2. Each of Fifth Third and Fifth Third Financial has corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder subject to certain required regulatory approvals. This
Agreement has been duly executed and delivered and constitutes the valid and
binding obligation of each of Fifth Third and Fifth Third Financial, enforceable
in accordance with its terms, except to the extent that (i) enforceability
hereof may be limited by insolvency, reorganization, liquidation, bankruptcy,
readjustment of debt or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the
availability of certain remedies may be precluded by general principles of
equity.
3. Neither the execution of this Agreement, nor the consummation
of the transactions contemplated hereby, does or will (i) conflict with, result
in a breach of, violate or constitute a default under, either Fifth Third's or
Fifth Third Financial's Articles of Incorporation, or Code of Regulations or, to
the Knowledge of Fifth Third, any federal, foreign,
22
state or local law, statute, ordinance, rule, regulation or court or
administrative order, or any agreement, arrangement, or commitment to which
Fifth Third or Fifth Third Financial is subject or bound; (ii) to the Knowledge
of Fifth Third, result in the creation of or give any person the right to create
any material lien, charge, encumbrance, security agreement or any other material
rights of others or other material adverse interest upon any material right,
property or asset belonging to Fifth Third or any of its subsidiaries; (iii)
terminate or give any person the right to terminate, amend, abandon, or refuse
to perform any material agreement, arrangement or commitment to which Fifth
Third or Fifth Third Financial is a party or by which Fifth Third's or Fifth
Third Financial's rights, properties or assets are subject or bound; or (iv)
accelerate or modify, or give any party thereto the right to accelerate or
modify, the time within which, or the terms according to which, Fifth Third or
Fifth Third Financial is to perform any duties or obligations or receive any
rights or benefits under any material agreement, arrangements or commitments.
4. As of the date hereof, Fifth Third is not aware of the
existence of any factor that would materially delay or materially hinder
issuance of any of the required regulatory approvals necessary to consummate the
Merger or the other transactions contemplated hereby.
G. Articles and Regulations. Complete and accurate copies of (i) the
Articles of Incorporation, and (ii) the Code of Regulations of each of Fifth
Third and Fifth Third Financial in force as of the date hereof have been
delivered to Franklin.
H. Compliance with Law. To the Knowledge of Fifth Third and except as
disclosed by Fifth Third to Franklin, neither Fifth Third nor any of its
subsidiaries has knowingly engaged in any activity or omitted to take any action
which, in any material way, has resulted or could result in the violation of (i)
any local, state or federal law (including without limitation the Bank Secrecy
Act, the Community Reinvestment Act, applicable consumer protection and
disclosure laws and regulations, including without limitation, Truth in Lending,
Truth in Savings and similar disclosure laws and regulations, and equal
employment and employment discrimination laws and regulations) or (ii) any
regulation, order, injunction or decree of any court or governmental body, the
violation of either of which could reasonably be expected to have a Material
Adverse Effect on Fifth Third. To the Knowledge of Fifth Third, Fifth Third and
its subsidiaries possess all licenses, franchises, permits and other
governmental authorizations necessary for the continued conduct of their
businesses without material interference or interruption.
I. SEC Filings; Regulatory Reports. 1. Fifth Third has made available to
Franklin an accurate and complete copy (including all exhibits and all documents
incorporated by reference) of each of the following documents as filed by Fifth
Third with the SEC: (a) each final registration statement, prospectus, report,
schedule and definitive proxy statement filed since January 1, 2000 by Fifth
Third with the SEC, pursuant to the Securities Act or the Exchange Act, and (b)
each communication mailed by Fifth Third to its stockholders since January 1,
2000. Since January 1, 2000, Fifth Third has timely filed (and will timely file
after the date of this Agreement) all reports and other documents required to be
filed by it under the Securities Act and the Exchange Act, and, as of their
respective dates, all such reports complied (and, in the case of all reports and
other documents filed after the date of this Agreement, will comply) in all
material respects with the published rules and regulations of the SEC. As of the
date of filing or mailing, as the case may be, no such registration statement,
prospectus, report, schedule, proxy
23
statement or communication contained (and no registration statement, prospectus,
report, schedule, proxy statement or communication filed or mailed after the
date of this Agreement will contain) any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date (but
filed before the date hereof) shall be deemed to modify information as of an
earlier date, or omitted any material exhibit required to be filed therewith. No
event has occurred subsequent to June 30, 2002 which Fifth Third is required to
describe in a Current Report on Form 8-K other than the Current Reports
heretofore furnished by Fifth Third to Franklin.
2. Fifth Third and its subsidiaries have filed all material
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
2000 with any SRO and any other Regulatory Agencies, and all other material
reports, registrations and statements required to be filed by them since January
1, 2000, including, without limitation, any material report or statement
required to be filed pursuant to the laws, rules or regulations of the United
States, any state, or any Regulatory Agency, and have paid all fees and
assessments due and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency in the regular course of the
business of Fifth Third and its subsidiaries, and except as disclosed by Fifth
Third to Franklin, no Regulatory Agency has initiated any proceeding or, to the
Knowledge of Fifth Third, investigation into the business or operations of Fifth
Third or its subsidiaries since January 1, 2000. To the Knowledge of Fifth Third
and except as disclosed by Fifth Third to Franklin, there is no unresolved
violation, or material criticism or exception, by any bank Regulatory Agency
with respect to any report, registration or statement relating to any
examinations of Fifth Third or its subsidiaries.
J. Litigation. There are no actions, suits, proceedings, investigations or
assessments of any kind pending or, to the Knowledge of Fifth Third, threatened
against Fifth Third or any Fifth Third subsidiary, which reasonably can be
expected to result in any material adverse change in the consolidated financial
condition, operations or business of Fifth Third, or reasonably likely to
prevent or delay the consummation of the transactions contemplated by this
Agreement.
K. Loan Losses. Since June 30, 2002 to the date hereof, none of Fifth
Third's banking subsidiaries has incurred any unusual or extraordinary loan
losses which would be material to Fifth Third on a consolidated basis; and to
the Knowledge of Fifth Third, and in the light of any banking subsidiary's
historical loan loss experience and their managements' analysis of the quality
and performance of their respective loan portfolios, as of June 30, 2002, their
consolidated reserves for loan losses are adequate to absorb potential loan
losses determined on the basis of management's continuing review and evaluation
of the loan portfolio and its judgment as to the impact of economic conditions
on the portfolio.
L. Tax Returns. Fifth Third and its subsidiaries have timely filed all
federal, state and local tax returns required to be filed (after giving effect
to all extensions) by them, respectively, and have paid or provided for all tax
liabilities shown to be due thereon or which have been assessed against them,
respectively. All tax returns filed by Fifth Third and its subsidiaries are
complete and accurate in all material respects.
24
M. Broker. Fifth Third has no direct or indirect commitment to any
investment banker, broker or finder in connection with this transaction and has
not incurred and will not incur any obligation for any investment banker's,
broker's or finder's fee or commission in connection with the transactions
provided for in this Agreement.
N. Investment Portfolio. The investment portfolios of Fifth Third and its
subsidiaries and affiliates consist in all material respects of securities in
marketable form. Since June 30, 2002 to the date hereof Fifth Third and its
subsidiaries, on a consolidated basis, have not incurred any material and
unusual or extraordinary losses in their respective investment portfolios, and,
except for matters of general application to the banking industry (including,
but not limited to, changes in laws or regulations or GAAP) or for events
relating to the business environment in general, including market fluctuations
and changes in interest rates, the management of Fifth Third is not aware of any
events which are reasonably certain to occur in the future and which reasonably
can be expected to result in any material adverse change in the quality or
performance of the investment portfolios of Fifth Third and its subsidiaries on
a consolidated basis.
O. Taxes. Fifth Third has no reason to believe that any conditions exist
that might prevent or impede the Merger from qualifying as a "reorganization"
within the meaning of Section 368(a) of the Code.
P. Expiration of Representations and Warranties. All representations and
warranties contained in this Article III shall expire at the Effective Time, and
thereafter, neither Fifth Third nor Fifth Third Financial shall have any further
liability or obligation with respect thereto.
Q. No Untrue Statements. Neither this Agreement nor any report, statement,
list, certificate or other information furnished by Fifth Third or its
subsidiaries to Franklin or its agents in connection with this Agreement or any
of the transactions contemplated hereby contains or shall contain an untrue
statement of material fact or omits or shall omit to state a material fact
required to be stated therein and necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading.
ARTICLE IV. OBLIGATIONS OF FRANKLIN BETWEEN THE DATE OF THIS AGREEMENT
AND THE EFFECTIVE TIME.
A. Shareholders' Meeting. Franklin, in consultation with Fifth Third, will
take all actions necessary to call and hold an annual or a special meeting of
Franklin's shareholders as soon as practicable after the Fifth Third
registration statement relating to the shares of Fifth Third Common Stock to be
issued in the Merger has been declared effective by the SEC and under all
applicable state securities laws for the purpose of approving the Merger (and
any other documents or actions necessary to the consummation of the Merger)
pursuant to law. Franklin shall state in the proxy materials relating to the
annual or special meeting that all Directors of Franklin have indicated their
intent to vote all shares of Franklin Common Stock which they own of record in
favor of approving this Agreement and any such other necessary documents or
actions, and shall include the recommendation of the Board of Directors of
Franklin that the Franklin shareholders vote in favor of approving this
Agreement and any other necessary documents or actions, except as provided in
the next sentence. The Board of Directors of
25
Franklin shall be permitted to withdraw or modify in a manner adverse to Fifth
Third (or not to continue to make) its recommendation to its shareholders if,
but only if, (a) in the reasonable opinion of the Board of Directors of Franklin
upon the advice of its outside counsel, such action is required in order for the
Board of Directors of Franklin to comply with duties applicable to directors
under applicable law, (b) Franklin has given Fifth Third five business days'
prior notice of its intention to withdraw or modify such recommendation and
Franklin's Board of Directors has considered any proposed changes to this
Agreement (if any) proposed by Fifth Third prior to the end of such five day
period, and (c) Franklin has fully and completely complied with Section IV.B.
Without limiting the generality of the foregoing, Franklin agrees that its
obligations pursuant to the first sentence of this Section IV.A. shall not be
altered by the commencement, public proposal, public disclosure or communication
to Franklin of any Acquisition Proposal (as defined below) or a decision by the
Board of Directors of Franklin to withdraw or modify in a manner adverse to
Fifth Third (or not to continue to make) its recommendation to its stockholders
to approve the Merger and the plan of merger contained in this Agreement.
B. No Solicitation. Franklin and its subsidiaries, and the officers,
directors, financial or legal advisors of Franklin and its subsidiaries, will
not, directly or indirectly, (a) take any action to solicit, initiate or
encourage any Acquisition Proposal or (b) engage in negotiations with, or
disclose any nonpublic information relating to Franklin or any of its
subsidiaries or afford access to the properties, books or records of Franklin or
any of its subsidiaries to, any person that may be considering making, or has
made, an Acquisition Proposal; provided that Franklin may receive and, only to
the extent necessary to become adequately informed of the terms thereof, engage
in discussions (but not disclose information or engage in negotiations)
regarding an unsolicited written proposal from a third party with respect to an
Acquisition Proposal if (i) in the reasonable opinion of the Board of Directors
of Franklin upon the advice of its outside counsel, such action is required for
the Board of Directors of Franklin to comply with the duties applicable to
directors under applicable law and (ii) Franklin has received from such third
party an executed confidentiality agreement with terms not materially less
favorable to Franklin than those contained in the confidentiality agreement
entered into between Franklin and Fifth Third dated June 15, 2002. Franklin will
immediately notify Fifth Third orally and will promptly (and in no event later
than 24 hours after the relevant event) notify Fifth Third in writing (which
oral and written notices shall identify the person making the Acquisition
Proposal or request for information and set forth the material terms thereof)
after having received any Acquisition Proposal or request or inquiry relating to
a prospective Acquisition Proposal. Franklin will keep Fifth Third fully and
currently informed of the status and details of any such Acquisition Proposal,
request or inquiry and any related discussions or negotiations. Franklin shall,
and shall cause the Franklin Subsidiaries and its and their directors, officers
and financial and legal advisors to, cease immediately and cause to be
terminated all activities, discussions or negotiations, if any, with any persons
conducted heretofore with respect to any Acquisition Proposal. Nothing in this
Section IV.B. shall prohibit Franklin or its Board of Directors from taking and
disclosing to the stockholders of Franklin a position with respect to an
Acquisition Proposal by a third party to the extent required under the Exchange
Act or from making such disclosure to the stockholders of Franklin which, in the
reasonable opinion of the Board of Directors of Franklin upon the advice of its
outside counsel, is required under applicable law; provided that nothing in this
sentence shall affect the obligations of Franklin and its Board of Directors
under any other provision of this Agreement. For purposes of this Agreement,
26
"Acquisition Proposal" means any offer or proposal for, or any indication of
interest in (a) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of beneficial ownership (the term
"beneficial ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act, and the rules and
regulations thereunder) of securities representing 10% or more of the voting
power of Franklin or more than 25% of any Significant Subsidiary of Franklin,
(b) a purchase, lease or other acquisition or assumption of all or a substantial
portion of the assets or deposits of Franklin or all or a substantial portion of
the assets or deposits of any Significant Subsidiary of Franklin, (c) a merger
or consolidation, or any similar transaction, involving Franklin or any
Significant Subsidiary of Franklin, or (d) any substantially similar
transaction.
C. Valuation Reserve Adjustment. Consistent with GAAP, Franklin agrees
that on or before the Effective Time based on a review of the Franklin
Subsidiaries' loan losses, current classified assets and commercial,
multi-family and residential mortgage loans and investment portfolio, Franklin
will work with Fifth Third with the goal of establishing collection procedures,
internal valuation reviews, credit policies and practices and general valuation
allowances which are consistent with the guidelines used within the Fifth Third
holding company system, provided that no adjustment to general valuation
allowances or reserves shall be made until immediately prior to the Effective
Time and all conditions precedent to the obligations of the parties hereto have
either been satisfied or waived as confirmed by such parties in writing. Fifth
Third shall provide such assistance and direction to Franklin as is necessary in
conforming to such policies, practices, procedures and asset dispositions which
are mutually agreeable between the date of this Agreement until the Effective
Time.
D. Operations in the Ordinary Course; Forbearances. From the date of this
Agreement until the Effective Time, Franklin and the Franklin Subsidiaries will
be operated in the ordinary course of business, and none of them will, without
the prior written consent of Fifth Third, which consent shall not be
unreasonably withheld or unreasonably delayed: make any changes in its Charter,
By-laws, or corporate structures; issue any additional shares of Franklin Common
Stock, share appreciation rights, restricted stock, options or other equity
securities other than pursuant to the exercise of options granted prior to June
30, 2002, in the form of permissible stock dividends (as described below) or as
set forth in Section II.A.1. with respect to Franklin's 2000 Stock Purchase
Plan; or issue as borrower any long term debt or convertible or other securities
of any kind, or right to acquire any of its securities; repurchase any equity
securities, other than (subject to Section VII.H.) the repurchase of shares of
Franklin Common Stock in accordance with past practice (as to timing and amount)
and in compliance with applicable law and the safe harbor requirements of Rule
10b-18 of the Exchange Act; make any material changes in its method of business
operations; make, enter into any agreement to make, or become obligated to make,
any capital expenditures in excess of $50,000 (except as set forth in the
Disclosure Schedule); make, enter into or renew any agreement for services to be
provided to Franklin or the Franklin Subsidiaries or permit the automatic
renewal of any such agreement, other than the agreements identified in the
Disclosure Schedule which are specifically identified on such Schedule as
agreements which Franklin intends to renew, except any agreement for services
having a term of not more than twelve months and requiring the expenditure of
not more than $50,000 (for this purpose the phrase "permit the automatic
renewal" includes the failure to send a notice of termination of such contract
if such failure would constitute a renewal); acquire, become obligated to
acquire, or enter into any agreement to acquire, any banking or non-banking
27
company or any branch offices of any such companies or any material assets or
liabilities outside the ordinary course of business, other than such agreements
existing on the date hereof and previously publicly announced or disclosed in
the Disclosure Schedule; make, declare, pay or set aside for payment any cash
dividends on its own stock other than normal and customary cash dividends per
quarter paid in such amounts and at such times as Franklin historically has done
on its Common Stock and which shall not exceed $0.055 per share, or be paid more
frequently than once per calendar quarter, provided this covenant shall only
apply to Franklin; make any other distributions on its stock; except as set
forth in the Disclosure Schedule, change or otherwise amend any Benefit Plans
other than as required by law or as contemplated herein (including but not
limited to Section V.E.5. hereof); provide any increases in employee salaries or
benefits other than in the ordinary course of business or as set forth in the
Disclosure Schedule; or take any intentional action that is intended or may
reasonably be expected to result in any of its representations and warranties
set forth in this Agreement being or becoming untrue in any material respect at
any time prior to the Effective Time, or in any of the conditions to the Merger
set forth in Article VI not being satisfied or in a violation of any provision
of this Agreement; or engage in any transaction with any employee or
shareholder, except, in every case, as required by applicable law, regulation or
safe and sound banking practices. Franklin agrees that it will not sell,
transfer, mortgage or otherwise dispose of or encumber any of the shares of the
capital stock of the Franklin Subsidiaries which are now owned by it, and
neither Franklin nor any of the Franklin Subsidiaries shall sell, transfer,
mortgage or otherwise dispose of or encumber any other assets, except in the
ordinary course of business consistent with past practice. Franklin agrees that
neither it nor the Franklin Subsidiaries will agree to, or make any commitment
to, take any of the actions prohibited by this Section IV.D.
E. Filings. Franklin will timely file after the date of this Agreement
all reports and other documents required to be filed by it under the Securities
Act and the Exchange Act, and, as of their respective dates, all such reports
will comply in all material respects with the published rules and regulations of
the SEC with respect thereto. As of the date of filing or mailing, as the case
may be, no such registration statement, prospectus, report, schedule, proxy
statement or communication filed or mailed after the date of this Agreement will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information as of a later date shall be deemed to modify information
as of an earlier date, or omitted any material exhibit required to be filed
therewith. Franklin shall furnish Fifth Third in a timely manner with copies of
all reports filed by Franklin with the SEC subsequent to the date of this
Agreement and until the Closing Date.
ARTICLE V. COOPERATION AND OTHER OBLIGATIONS AND OTHER COVENANTS
A. Registration Statement and Proxy Statement. 1. Each of Fifth Third,
Fifth Third Financial and Franklin agree to cooperate in the preparation of a
registration statement on Form S-4 (the "Registration Statement") to be filed by
Fifth Third with the SEC in connection with the issuance of Fifth Third Common
Stock in the Merger (including the proxy statement and prospectus and other
proxy solicitation materials of Franklin constituting a part thereof (the "Proxy
Statement") and all related documents). The Registration Statement and the Proxy
Statement shall comply as to form in all material respects with the applicable
provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder. Fifth Third, Fifth
28
Third Financial and Franklin agree to each use their best efforts to enable
Fifth Third to file the Registration Statement with the SEC within sixty (60)
days of the date hereof and Fifth Third and Fifth Third Financial agree to
furnish the Registration Statement in draft form for comments to Franklin at
least ten calendar days prior to the anticipated filing. Each party hereto
shall, as promptly as practicable after receipt thereof, provide copies of any
written comments received from the SEC with respect to the Registration
Statement to the other party hereto, and advise the other party hereto of any
oral comments with respect to the Registration Statement received from the SEC.
Each of Fifth Third, Fifth Third Financial and Franklin agrees to use reasonable
best efforts to cause the Registration Statement to be declared effective under
the Securities Act as promptly as reasonably practicable after filing thereof.
As promptly as possible after the Registration Statement is declared effective,
Franklin agrees to mail the Proxy Statement to its shareholders in accordance
with the directions and under the supervision of Fifth Third. Fifth Third also
agrees to use reasonable best efforts to obtain all necessary state securities
law or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by the Agreement. Franklin agrees to furnish to Fifth Third all
information concerning Franklin, its Subsidiaries, officers, directors and
stockholders as may be reasonably requested in connection with the foregoing.
2. Each of Fifth Third, Fifth Third Financial and Franklin
agrees, as to itself and its subsidiaries, that none of the information supplied
or to be supplied by it for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement and each
amendment or supplement thereto, if any, becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and (ii) the Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to shareholders and at the time
of the Franklin shareholder meeting to approve the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
3. Fifth Third agrees to advise Franklin, promptly after Fifth
Third receives notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed, of the issuance
of any stop order or the suspension of the qualification of the Fifth Third
Common Stock for offering or sale in any jurisdiction, of the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information. Franklin agrees to advise Fifth Third of any request by the SEC for
the amendment or supplement of the Proxy Statement or for additional
information.
B. Regulatory Approvals. 1. Fifth Third will prepare and cause to be
filed, at the expense of Fifth Third, such notices, applications and other
documents with the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Ohio Division of Financial Institutions, the
OCC, and any other Regulatory Agencies or stock exchanges as are required to
secure the requisite approvals for the consummation of the transactions provided
for in this Agreement. Fifth Third shall use its reasonable best efforts to file
all such applications within sixty (60) days of the date of this Agreement and
to use all reasonable efforts to secure all such approvals. Franklin agrees that
it will cooperate with Fifth Third and, as promptly as
29
practicable after request and at its own expense, provide Fifth Third with all
information and documents concerning Franklin and the Franklin Subsidiaries, as
shall be required in connection with preparing such notices, applications and
other documents and in connection with securing such approvals.
2. Fifth Third and Franklin shall promptly advise each other upon
receiving any communication from any governmental entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement.
C. Reasonable Best Efforts. Each of the parties hereto agrees to use
its reasonable best efforts and to cooperate with the other party in all
reasonable respects in order to carry out and consummate the transactions
contemplated by this Agreement at the earliest practicable time including,
without limitation, the filing of applications, notices and other documents
with, and obtaining approval from, appropriate governmental regulatory agencies;
provided that nothing in this Agreement shall obligate Fifth Third or Fifth
Third Financial to agree to any conditions, restraints or requirements that
would materially adversely reduce the anticipated economic or business benefits
of the Merger to Fifth Third or Fifth Third Financial or could reasonably be
expected to have a Material Adverse Effect on Franklin (a "Burdensome
Condition").
D. Access to Information. 1. Franklin agrees to permit Fifth Third,
Fifth Third Financial, and each of their officers, employees, accountants,
agents and attorneys, and Fifth Third agrees to permit Franklin, its officers,
employees, accountants, agents and attorneys, to have reasonable access during
business hours to their respective books, records and properties, and those of
its respective subsidiaries as well, for the purpose of making a detailed
examination, or updating and amplifying prior examinations, of the financial
condition, assets, liabilities, legal compliance, affairs and the conduct of the
business of Franklin and the Franklin Subsidiaries or Fifth Third and its
subsidiaries, as the case may be, prior to the Effective Time, and also to
permit the monitoring of the foregoing on an ongoing basis (such rights of
examination and monitoring to be subject to the confidentiality obligations set
forth in Section V.D.2. hereof); provided, however, no investigation by any of
the parties or their respective representatives shall affect the representations
and warranties of the other party set forth herein.
2. Fifth Third will not disclose to others, shall not use in
respect of its (or any of its subsidiaries') business operations, and will hold
in confidence any non-public, confidential information disclosed to it by
Franklin concerning Franklin or the Franklin Subsidiaries. Franklin will not
disclose to others, shall not use in respect of its (or any of its
subsidiaries') business operations, and will hold in confidence any non-public,
confidential information disclosed to it concerning Fifth Third or any of its
affiliates. In the event the Merger is not completed, all non-public financial
statements, documents and materials, and all copies thereof, shall be returned
to Franklin or Fifth Third, as the case may be, and shall not be used by Fifth
Third or Franklin, as the case may be, in any way detrimental to Franklin or
Fifth Third.
3. As soon as they are available, Franklin will provide to Fifth
Third Franklin's unaudited, consolidated balance sheets, statements of
operations and statements of stockholders' equity and cash flows for monthly and
quarterly periods until the Closing Date.
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4. As soon as they are available, Fifth Third will provide to
Franklin Fifth Third's unaudited, consolidated balance sheets, statements of
operations and statements of stockholders' equity and cash flows for monthly and
quarterly periods until the Closing Date. Fifth Third timely shall furnish
Franklin with copies of all reports filed by Fifth Third with the SEC subsequent
to the date of this Agreement and until the Closing Date.
E. Employee Benefit Matters. 1. If Fifth Third so requests, Franklin or
the Franklin Subsidiaries shall develop a plan and timetable for terminating any
or all of the Qualified Benefit Plans, and, with the advance written approval of
Fifth Third, shall proceed with the implementation of said termination plan and
timetable; provided that such terminations of any Qualified Benefit Plans will
not adversely affect qualification of such Qualified Benefit Plans under the
Code.
2. Franklin or the Franklin Subsidiaries shall provide to Fifth
Third at least sixty (60) days prior to the Effective Time, documentation
reasonably satisfactory to Fifth Third demonstrating that the requirements of
Sections 401(a)(4), 404, 410(b), 411, 412, 415, 416, 401(k) and (m) of the Code
have been satisfied by all of its Qualified Benefit Plans for the 1998, 1999,
2000 and 2001 plan years.
3. Franklin or the Franklin Subsidiaries shall provide to Fifth
Third at least sixty (60) days prior to the Effective Time, documentation
reasonably satisfactory to Fifth Third with respect to any Benefit Plan
(including any Predecessor Plan) that was merged, terminated or frozen since
January 1, 1998, demonstrating that all legal requirements pertaining to such
merger, termination or freeze have been satisfied.
4. If Fifth Third so requests, Franklin or the Franklin
Subsidiaries shall take all actions necessary to file an application for
determination letter with the Internal Revenue Service prior to the Effective
Time, for any Qualified Benefit Plan requested by Fifth Third.
5. With respect to any Benefit Plan that provides for vesting of
benefits, there shall be no discretionary acceleration of vesting without Fifth
Third's consent whether or not such discretionary acceleration of vesting is
provided under the terms of the Benefit Plan; provided, however, that
notwithstanding anything to the contrary in this Agreement, Franklin may in its
sole discretion accelerate the exercisability of any or all options to acquire
Franklin Common Stock issued and outstanding as of June 1, 2002, with such
acceleration to be effective, if at all, immediately prior to the Effective
Time.
6. If Fifth Third so requests, Franklin or any of the Franklin
Subsidiaries shall take all actions necessary to freeze any or all Qualified
Benefit Plans as of a date not earlier than one day prior to the Effective Time
such that no further contributions (including employee 401(k) contributions)
shall be made and no further benefits shall accrue under such Qualified Benefit
Plans after such freeze date.
7. Except as provided otherwise pursuant hereto, Franklin and any
of the Franklin Subsidiaries, without the advance written consent of Fifth
Third, which shall not be unreasonably withheld or delayed, shall not (a) adopt
any amendments to the Qualified Benefit Plans after the
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date of this Agreement; or (b) make any distributions from the Qualified Benefit
Plans after the date of this Agreement other than in the ordinary course of
operations of such Qualified Benefit Plans; or (c) make any contributions to the
defined benefit plans maintained by Franklin or discretionary contributions to
any of the Qualified Benefit Plans after the date of this Agreement; or (d) take
any action which would reduce or restrict the availability of surplus (excess of
plan assets over plan liabilities) under any defined benefit plan as defined in
Section 414(j) of the Code.
8. Franklin shall provide to Fifth Third at least sixty (60) days
prior to the Effective Time, documentation reasonably satisfactory to Fifth
Third demonstrating that it has all power and authority necessary to amend
and/or terminate any plan providing retiree medical or life insurance coverage,
thereby reducing or eliminating future liability.
F. State Takeover Statutes. Franklin will take all steps within its
reasonable control necessary to exempt (or continue the exemption of) the
Merger, this Agreement and the transactions contemplated hereby) from any
applicable state takeover law, as now or hereafter in effect.
G. Affiliates. Not later than the 15th day prior to the mailing of
Franklin's Proxy Statement with respect to the Merger, Franklin shall deliver to
Fifth Third a list of each person that, to Franklin's Knowledge, is or is
reasonably likely to be, as of the date of the annual or special meeting called
to approve the Merger, deemed an "affiliate" of it as that term is used in Rule
145 under the Securities Act, or SEC Accounting Series Releases 130 and 135 (the
"Franklin Affiliates"). Franklin shall use its best efforts to cause each
Franklin Affiliate to execute and deliver to Fifth Third on or before the
mailing of such Proxy Statement an agreement in the form of Appendix A hereto.
H. Forbearances of Fifth Third. From the date of this Agreement until
the Effective Time, Fifth Third will not, without the prior written consent of
Franklin, which consent shall not be unreasonably withheld or unreasonably
delayed: make any changes in its Second Amended Articles of Incorporation or
Code of Regulations in a manner adverse to the shareholders of Franklin; make,
declare, pay or set aside for payment any extraordinary cash dividends on its
own stock; or agree to, or make any commitment to, take any of the actions
prohibited by this Section V. H.
I. Coordination of Dividends. Fifth Third and Franklin shall coordinate
the timing of the declaration and payment of dividends payable after the date
hereof so that Fifth Third and Franklin shareholders will receive during each
quarter fair dividends and in no event shall Fifth Third or Franklin
shareholders fail to receive a fair dividend, or receive more than one fair
dividend, during any quarter up to and including the quarter immediately
following the quarter during which the Effective Time occurs.
J. Exemption From Liability Under Section 16(b). Assuming that Franklin
delivers to Fifth Third the Section 16 Information in a timely fashion prior to
the Effective Time, the Board of Directors of Fifth Third, or a committee of
Non-Employee Directors thereof (as such term is defined for purposes of Rule
16b-3(d) under the Exchange Act), shall reasonably promptly thereafter and in
any event prior to the Effective Time adopt a resolution, expressly relying on
Franklin's representation that any such options or other grants were upon their
issuance exempt
32
from liability pursuant to Section 16(b) under the Exchange Act, providing that
the receipt by the Franklin Insiders of Fifth Third Common Stock in exchange for
shares of Franklin Common Stock, and of options to purchase shares of Fifth
Third Common Stock upon conversion of options to purchase shares of Franklin
Common Stock, in each case pursuant to the transactions contemplated hereby and
to the extent such securities are listed in the Section 16 Information, are
intended to be exempt from liability pursuant to Section 16(b) under the
Exchange Act; provided, however, that the Board of Directors of Fifth Third will
be under no obligation to adopt such a resolution unless it may expressly rely
on a written representation by Franklin that any such options or other grants
were, upon their issuance, exempt from liability pursuant to Section 16(b) under
the Exchange Act. "Section 16 Information" shall mean information accurate in
all respects regarding the Franklin Insiders, the number of shares of Franklin
Common Stock held by each such Franklin Insider and expected to be exchanged for
Fifth Third Common Stock in the Merger, and the number and description of the
options to purchase shares of Franklin Common Stock held by each such Franklin
Insider and expected to be converted into options to purchase shares of Fifth
Third Common Stock in connection with the Merger. " Franklin Insiders" shall
mean those officers and directors of Franklin who are subject to the reporting
requirements of Section 16(a) of the Exchange Act and who are listed in the
Section 16 Information.
K. Directors of Bank Subsidiary. Prior to the Effective Time, Fifth
Third shall determine and communicate to Franklin those individuals who shall be
appointed to serve as Directors of the Bank Subsidiary following the Effective
Time, each of whom shall serve as a Director for the term for which he was
appointed, subject to the Charter and Bylaws of Bank Subsidiary and in
accordance with applicable law.
ARTICLE VI. CONDITIONS PRECEDENT TO CLOSING
A. Conditions to the Obligations of Each of the Parties.
The obligation of each of the parties hereto to consummate the transactions
provided for herein is subject to the fulfillment on or prior to the Effective
Time of each of the following conditions:
1. The shareholders of Franklin shall have duly approved the
Merger and the plan of merger contained within this Agreement in accordance with
and as required by law and in accordance with Franklin's Charter and Bylaws.
2. All necessary governmental and regulatory orders, consents,
clearances and approvals and requirements shall have been secured and satisfied
for the consummation of such transactions, including without limitation, those
of the Federal Reserve System, the Ohio Division of Financial Institutions, the
OCC and the Federal Deposit Insurance Corporation to the extent required and, in
the case of Fifth Third's obligation, none of such orders, consents, clearances
and approvals and requirements shall be subject to a Burdensome Condition.
3. Any waiting period mandated by law in respect of the final
requisite approval by any applicable Regulatory Agency of the transaction
contemplated herein shall have expired.
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4. No order or injunction of any federal or state agency or court
shall be in effect preventing, prohibiting or enjoining the transactions
contemplated by this Agreement.
5. Fifth Third shall have registered its shares of Fifth Third
Common Stock to be issued to the Franklin shareholders hereunder with the SEC
pursuant to the Securities Act, and with all applicable state securities
authorities. The registration statement with respect thereto shall have been
declared effective by the SEC and all applicable state securities authorities
and no stop order shall have been issued and be continuing. The shares of Fifth
Third Common Stock to be issued to the Franklin shareholders hereunder shall
have been authorized for trading on the Nasdaq National Market upon official
notice of issuance.
B. Additional Conditions to the Obligations of Fifth Third and Fifth
Third Financial.
The obligation of Fifth Third and Fifth Third Financial to consummate the
transactions provided for herein is subject to the fulfillment at or prior to
the Effective Time of each of the following additional conditions unless waived
by Fifth Third in a writing delivered to Franklin which specifically refers to
the condition or conditions being waived:
1. The representations and warranties of Franklin contained
herein shall be true and correct both as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date.
2. Franklin shall have performed all of the obligations required
of it under the terms of this Agreement in all material respects.
3. Fifth Third shall have received a certificate from Franklin,
executed by its chief executive officer and chief financial officer, dated the
Closing Date, certifying to each of such officers' best knowledge and belief
that the conditions set forth in Section VI.B.1. and VI.B.2. have been
satisfied.
4. No investigation or action by any state or federal agency
shall have been threatened in writing or instituted seeking to enjoin or
prohibit or unwind the transactions contemplated hereby and no governmental
action or proceeding shall have been threatened or instituted before any court
or governmental body or authority, seeking to enjoin or prohibit or unwind, the
transactions contemplated hereby or seeking to impose material sanctions or
penalties as a result thereof (other than investigations, actions and
proceedings which have been withdrawn prior to the Closing without a Material
Adverse Effect on Fifth Third or Franklin, and other than regularly scheduled
regulatory examinations).
5. At or prior to the Effective Time, Fifth Third shall have
entered into written employment, severance and/or non-competition agreements
with each of (a) Xxxxxx Xxxxx, (b) Xxxxx Xxxxx, (c) Xxxxxxx Xxxxxxxxxx, (d)
Xxxxxx X. Xxxx, Xx., and (e) Xxxx Xxxxxxxx on terms satisfactory to Fifth Third
and each of the foregoing individuals.
6. (a) In consideration of the consummation of the Merger, each
of the Directors of Franklin and Bank Subsidiary (except those persons who enter
into an agreement as required by VI.B.5 above) shall receive a cash payment from
Fifth Third in the amount of $5,000, and each Director of Franklin (except those
persons who enter into an agreement as required by VI.B.5
34
above) shall have executed and delivered to Fifth Third an agreement by which
such Directors shall agree for a period of three years after the Effective Time
to refrain from directly or indirectly, whether for his or her own account or
for the account of any other person, firm, corporation, or other business
organization, (i) in the states of Kentucky or Tennessee, engage in providing
Banking Services (as defined below) as an employee, officer, director, or
consultant on behalf of any other business organization who is a competitor of
Fifth Third, (ii) provide Banking Services to any Client (as defined below),
(iii) make any statement or take any actions that may interfere with Fifth
Third's or any Affiliate's business relationships with any Client, (iv) contact
either directly or indirectly any Client or otherwise induce or attempt to
induce any Client to enter into any business relationship with any person or
firm other than Fifth Third or an Affiliate relating to Banking Services of any
type, (v) endeavor or entice away from Franklin or Fifth Third any person who
the Director has actual knowledge that such person is, or was at any time during
the period the Director was employed by Franklin or Fifth Third or during the
Restricted Period, employed by or associated with Fifth Third or Franklin as an
executive, officer, employee, manager, salesperson, consultant, independent
contractor, representative or other agent, or (vi) take any actions that may
interfere with Fifth Third's property rights in lists of Clients or otherwise
diminish the value of such lists to Fifth Third. Notwithstanding any provision
contained in this Section 6, the restrictions contained herein shall not be
applicable to any activity of the Director or any activity of his or her spouse
which existed at the time of this Agreement and which was disclosed by the
Director to Fifth Third, and may be waived by Fifth Third with respect to one or
more Directors in writing at any time and from time to time in Fifth Third's
sole discretion after receipt of a written request from any Director.
(b) The term "Restricted Period" shall mean the period beginning
on the Effective Time and ending three years thereafter.
(c) The term "Banking Services" shall mean retail or commercial
deposit or lending business, including mortgage lending, trust services,
securities brokerage, asset management, data processing, merchant processing and
all other services which are customarily provided by banks or which are
otherwise provided by Fifth Third or its affiliates.
(d) For all purposes of this Agreement, the term "Client" shall
mean all persons or entities who are or were clients of Franklin or Fifth Third
at the Effective Time or at any time during the three-year period ending at the
Effective Time, and any potential clients who to the Director's actual
knowledge, have been identified and contacted by a representative of Fifth
Third. The term "Client" shall not include any member of the Employee's
immediate family, as defined under Rule 16a-1 of the Exchange Act or any trust
of which the Director or any member of his immediate family (as defined in Rule
16a-1 of the Exchange Act) is a trustee or beneficiary.
7. The aggregate amount of consolidated shareholders' equity
(including Common Stock, Additional Paid-In Capital and Retained Earnings and
excluding Treasury Stock) of Franklin immediately prior to the Effective Time,
as shown by and reflected in its books and records of accounts on a consolidated
basis in accordance with GAAP, consistently applied, shall not be less than
$37,000,000. For purposes of this subparagraph, (A) any expenses or accruals
after the date hereof relating to (i) the adjustments contemplated by Section
IV.C. (i) herein, (ii) termination or funding of any of Benefit Plans of
Franklin, and the Franklin Subsidiaries as contemplated herein, (iii) expenses
associated with this Agreement and the transactions contemplated herein, and
(iv) expenses and losses associated with valuing of Franklin's or any of the
Franklin Subsidiaries'
35
investments at current market value as required by GAAP (including SFAS 115)
shall be excluded for purposes of calculation of Franklin's shareholders' equity
as contemplated herein prior to the Effective Time.
8. Fifth Third's independent certified public accountants shall
have reviewed the unaudited consolidated financial statements of Franklin as at
the end of the month immediately preceding the Effective Time (the "Preceding
Month") if such Preceding Month ended at least six days before the Effective
Time or as at the end of the month immediately preceding the Preceding Month if
the Preceding Month ended less than six days before the Effective Time, as well
as the unaudited separate financial statements of Franklin and the Franklin
Subsidiaries as of the same date, performed such other auditing procedures as
may be requested by Fifth Third and reported in good faith that they are not
aware of any material modifications which would have a Material Adverse Effect
on Franklin that should be made in order for such financial statements to (i) be
in conformity with GAAP, consistently applied, excluding the presentation of
footnotes, and (ii) accurately state the financial condition and results of
operations of Franklin and the Franklin Subsidiaries.
9. The total number of issued and outstanding shares of Franklin
Common Stock and shares of Franklin Common Stock issuable upon the exercise of
outstanding options shall not exceed the sum of 10,184,806 and the number of
shares issued between the date hereof and the Closing Date pursuant to the
Franklin 2000 Stock Purchase Plan (which shall not exceed 600 shares per
calendar quarter).
10. Xxxxxx X. Xxxx, Xx., Executive Vice President, Secretary and
General Counsel for Franklin, shall have delivered an opinion addressed to Fifth
Third and Fifth Third Financial in substantially the form attached hereto as
Appendix C.
11. Either (i) Fifth Third shall have entered into an assumption
of lease agreement with Xxxxxx Xxxxx covering all of the buildings presently
leased by Xxxxxx Xxxxx to Franklin that are located in downtown Franklin,
Tennessee (collectively, the "Headquarters"), or (ii) Xxxxxx Xxxxx and Bank
Subsidiary shall have entered into a real estate lease agreement concerning the
Headquarters for a 10-year term with two 5-year options to renew, at lease rates
acceptable to Fifth Third and Xxxxxx Xxxxx.
12. At or prior to the Effective Time, any and all liens, claims,
charges, options, encumbrances, mortgages, pledges or security interests on any
capital stock or other securities evidencing ownership of any Franklin
Subsidiary shall have been satisfied and removed and Franklin or a Franklin
Subsidiary shall own all of the outstanding capital stock or other securities
evidencing ownership of the Franklin Subsidiaries in each case free and clear of
any lien, claim, charge, option, encumbrance, mortgage, pledge or security
interest.
13. Fifth Third shall have received an opinion of Xxxxxxx Head &
Xxxxxxx LLP, counsel to Fifth Third, dated the Closing Date, to the effect that,
on the basis of facts, representations and assumptions set forth in such
opinion, the Merger constitutes a "reorganization" within the meaning of Section
368 of the Code. In rendering its opinion, counsel to Fifth Third may require
and rely upon representations contained in letters from Franklin and Fifth
Third.
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14. On the date of the execution of this Agreement, Xxxxxx Xxxxx
shall have executed and delivered to Fifth Third a Shareholder Support Agreement
in the form of Appendix F Attached hereto, which Shareholder Support Agreement
shall be in full force and effect and which all parties thereto shall be in
compliance at and as of the Closing Date.
C. Additional Conditions to the Obligations of Franklin.
The obligation of Franklin to consummate the transactions provided for herein is
subject to the fulfillment at or prior to the Effective Time of each of the
following additional conditions unless waived by Franklin in a writing delivered
to Fifth Third which specifically refers to the condition or conditions being
waived:
1. The representations and warranties of Fifth Third and Fifth
Third Financial contained herein shall be true and correct both as of the date
of this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date.
2. Fifth Third and Fifth Third Financial shall have each
performed all of the obligations required of it under the terms of this
Agreement in all material respects.
3. Franklin shall have received a certificate from each of Fifth
Third and Fifth Third Financial, executed by its respective chief executive
officer and chief financial officer, dated the Closing Date, certifying to each
of such officers' best knowledge and belief that the conditions set forth in
Section VI.C.1. and VI.C.2. have been satisfied.
4. Xxxx X. Xxxxxxxx, General Counsel for Fifth Third shall have
delivered an opinion addressed to Franklin in substantially the form attached
hereto as Appendix D.
5. Franklin shall have received an opinion of Xxxxx, Xxxxxxxx &
Xxxxxxx, LLP, counsel to Franklin, dated the Closing Date, to the effect that,
on the basis of facts, representations and assumptions set forth in such
opinion, (i) the Merger constitutes a "reorganization" within the meaning of
Section 368 of the Code and (ii) the exchange in the Merger of Franklin Common
Stock for Fifth Third Common Stock will not give rise to gain or loss to the
shareholders of Franklin with respect to such exchange (except to the extent of
any cash received). In rendering its opinion, counsel to Franklin may require
and rely upon representations contained in letters from Franklin and Fifth
Third.
ARTICLE VII. ADDITIONAL COVENANTS
A. Employment Arrangements. 1. Fifth Third shall consider
employing at Fifth Third Financial or other Fifth Third subsidiaries or
affiliates as many of the employees of Franklin and all of the Franklin
Subsidiaries who desire employment within the Fifth Third holding company system
as possible, to the extent of available positions and consistent with Fifth
Third's standard staffing levels and personnel policies. As promptly as
practicable following the Effective Time as Fifth Third shall reasonably
determine, Fifth Third shall provide the full-time employees (in the aggregate
and not individually) of Franklin and all subsidiaries of Franklin ("Transferred
Employees") who become employees of Fifth Third or any of its
37
subsidiaries or affiliates at or immediately subsequent to the Merger as a group
with employee benefit plans that in the aggregate are of comparable value to the
benefit plans provided to similarly situated employees of Fifth Third (excluding
from consideration the Fifth Third Master Retirement Plan which has been frozen
to new participants). Under each employee benefit plan sponsored or maintained
by Fifth Third or its subsidiaries or affiliates in which Transferred Employees
participate, prior service with Franklin and any of the subsidiaries of Franklin
(including service prior to acquisition by Franklin to the extent Franklin takes
such service into account) shall be treated as prior service with Fifth Third
for purposes of eligibility and vesting. Notwithstanding the preceding sentence,
with respect to any payroll practice (such as accrued vacation) where service is
utilized to determine the amount of benefit under such practice, prior service
with Franklin and any subsidiaries of Franklin (including service prior to
acquisition by Franklin to the extent Franklin takes such service into account)
shall be treated as prior service with Fifth Third.
2. Those employees of Franklin and the Franklin Subsidiaries
(other than temporary and/or co-operative employees) who do not have an
employment, change in control or severance agreements and who are not employed
by Fifth Third or who are terminated or voluntarily resign after being notified
that, as a condition of employment, such employee must work at a location more
than thirty (30) miles from such employee's former location of employment or
that such employee's salary will be materially decreased, in any case and in
both cases, within ninety (90) days after the Effective Time, and who sign and
deliver a termination and release agreement in a form attached hereto as
Appendix E, shall be entitled to severance pay equal to, in the case of Franklin
or subsidiaries of Franklin, two (2) weeks of pay for each completed year of
service up to a maximum of twenty-six (26) weeks of pay, plus any earned but not
paid vacation pay. The severance payment referred to above shall be under
Franklin's current severance pay plan, if any, or a new severance pay plan but
in no event shall there be any duplication of severance pay. Fifth Third shall
provide sufficient notification to Franklin of those employees it will not be
hiring in order that such employees terminated by Franklin can be given
appropriate notice of termination in advance of the effectiveness thereof.
Franklin shall cooperate with Fifth Third to effectuate the foregoing and to
comply with, and provide notices regarding, the Workers Adjustment and
Retraining Act or any similar state or local law, including without limitation,
providing notices to employees and government representatives. Nothing contained
in this Section VII.A.2. shall be construed or interpreted to limit or modify in
any way Fifth Third's at will employment policy. In no event shall severance pay
or any severance period be taken into account in determining the amount of any
other benefit (including but not limited to, an individual's benefit under any
pension plan). If, by reason of the controlling plan document, controlling law
or otherwise, severance pay or any severance period is taken into account in
determining any other benefit, the severance pay otherwise payable shall be
reduced by the present value of the additional benefit determined under other
benefit plans attributable to the severance pay or period.
3. Notwithstanding anything herein to the contrary, in lieu of
any severance benefits provided in Section VII.A.2. above, Fifth Third shall
acknowledge and assume, upon consummation of the Merger, the obligations of
Franklin under all existing change in control, severance and employment
agreements. Franklin has specifically identified such agreements in Section II.X
of the Disclosure Schedule.
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B. Director, Officer and Employee Indemnification. 1. From and after
the Effective Time, Fifth Third shall assume the obligations of Franklin and the
Franklin Subsidiaries arising under applicable law in existence as of the date
hereof or as amended prior to the Effective Time and under Franklin's Charter
and By-laws or the Franklin Subsidiaries' respective charters and bylaws as in
effect on the date hereof, to indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof or who becomes,
prior to the Effective Time, an officer or director of Franklin, any Franklin
Subsidiary, or any of their predecessors (the "Indemnified Parties") against
losses, claims, damages, costs, expenses (including reasonable attorneys' fees),
liabilities or judgments or amounts that are paid in settlement (which
settlement shall require the prior written consent of Fifth Third) of or in
connection with any claim, action, suit, proceeding or investigation (a "Claim")
in which an Indemnified Party is, or is threatened to be made, a party or a
witness based in whole or in part on or arising in whole or in part out of the
fact that such person is or was a director or officer of Franklin or any
Franklin Subsidiary if such Claim pertains to any matter or fact arising,
existing or occurring prior to the Effective Time (including, without
limitation, the Merger and the transactions contemplated by this Agreement),
regardless of whether such Claim is asserted or claimed prior to, at or after
the Effective Time. Fifth Third shall pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law and under Franklin's Charter or By-laws or the
Franklin Subsidiaries' respective charters or bylaws. Any Indemnified Party
wishing to claim indemnification under this provision, upon learning of any
Claim shall notify Fifth Third (but the failure to so notify Fifth Third shall
not relieve Fifth Third from any liability which Fifth Third may have under this
Section VII.B. except to the extent Fifth Third is materially prejudiced
thereby). Notwithstanding the foregoing, the Indemnified Parties as a group may
retain only one law firm to represent them with respect to each matter under
this Section VII.B. unless there is, under applicable standards of professional
conduct, a conflict on any one significant issue between the positions of any
two or more Indemnified Parties.
2. From and after the Effective Time, the directors, officers and
employees of Franklin and its subsidiaries who become directors, officers or
employees of Fifth Third or any of its subsidiaries, except for the
indemnification rights set forth in Section VII.B.1., shall have indemnification
rights with prospective application only. The prospective indemnification rights
shall consist of such rights to which directors, officers or employees of Fifth
Third or the subsidiary by which such person is employed are entitled under the
provisions of the Articles of Incorporation of Fifth Third or similar governing
documents of Fifth Third or its applicable subsidiaries, as in effect from time
to time after the Effective Time, as applicable, and provisions of applicable
law as in effect from time to time after the Effective Time.
3. The obligations of Fifth Third provided under this Section
VII.B. are intended to benefit, and be enforceable against Fifth Third directly
by, the Indemnified Parties, and shall be binding on all respective successors
of Fifth Third.
4. Fifth Third shall also purchase and keep in force for a
three-year period, a policy of directors' and officers' liability insurance to
provide coverage for acts or omissions of the type currently covered by
Franklin's existing directors' and officers' liability insurance for acts or
omissions occurring on or prior to the Effective Time, but only to the extent
such insurance may be purchased or kept in full force on commercially reasonable
terms taking into account the cost thereof and the benefits provided thereby. It
is agreed that such costs shall be commercially
39
reasonable so long as they do not exceed 150% per annum of the costs currently
paid per annum for such coverage by Franklin.
5. The rights set forth in this Section VII.B. are in addition to
and not in substitution of other indemnification and related rights that such
Indemnified Parties may otherwise be entitled to receive under Franklin's
Charter and By-laws or applicable law.
6. Notwithstanding anything in this Section VII.B to the
contrary, Fifth Third shall not be required to provide any indemnity hereunder
or may make or agree to make any indemnification payment unless that payment is
reasonable and all of the following conditions are met: (1) Fifth Third's Board
of Directors determines in writing that the Indemnified Party acted in good
faith and the best interests of Franklin or the Franklin Subsidiary as the case
may be; (2) the Fifth Third Board of Directors determines that the payment will
not materially affect Fifth Third's or any subsidiary of Fifth Third's safety
and soundness; (3) the payment does not fall within the definition of a
"prohibited indemnification payment"; and (4) the Indemnified Party agrees in
writing to reimburse Fifth Third, to the extent not covered by permissible
insurance, for payments made in the event that an administrative action results
in a final order or settlement in which the Indemnified Party is assessed a
civil money penalty, is removed or prohibited from banking, or is required,
under a final order, to cease an action or take any affirmative action. For
purposes hereof, a "prohibited indemnification payment" is defined to include
any payment or agreement to make a payment by a bank or a bank holding company
to an institution-affiliated party to pay or reimburse such person for any
liability or legal expense in any administrative proceeding brought by the
appropriate federal banking agency that results in a final order or settlement
in which the institution-affiliated party is assessed a civil money penalty, is
removed or prohibited from banking, or is required to cease an action or take
any affirmative action, including making restitution, with respect to the bank
or bank holding company.
C. Notices. All notices, requests, consents, and demands under this
Agreement shall be in writing and shall be sufficient in all respects if
delivered in person or mailed by certified mail, return receipt requested, with
postage prepaid, or by confirmed air courier, and addressed, if to Franklin to
Franklin Financial Corporation, 000 Xxxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxx 00000
with a copy of Xxxxxx X. Xxxxxxxx, Esq., Xxxxx, Xxxxxxxx & Xxxxxxx, LLP, Suite
3100, Promenade II, 0000 Xxxxxxxxx Xxxxxx, X.X., Xxxxxxx, Xxxxxxx 00000-0000 and
if to Fifth Third and Fifth Third Financial to Fifth Third Bancorp, 00 Xxxxxxxx
Xxxxxx Xxxxx, Xxxxxxxxxx, Xxxx 00000, Attention: Xxxxxx X. Xxxxxxxx, Xx., with a
copy to Fifth Third Bancorp, 00 Xxxxxxxx Xxxxxx Xxxxx, Xxxxxxxxxx, Xxxx 00000,
Attention: Xxxx, X. Xxxxxxxx, Executive Vice President and General Counsel Such
notices shall be deemed to be received when delivered in person or when
deposited in the mail by certified mail, return receipt requested with postage
prepaid. If sent by confirmed air courier, such notice shall be deemed to be
given upon the earlier to occur of the date upon which it is actually received
by the addressee or the business day upon which delivery is made at such address
as confirmed by the air courier (or if the date of such confirmed delivery is
not a business day, the next succeeding business day). If mailed, such notice
shall be sent by certified mail, postage pre-paid, return receipt requested.
D. Entire Agreement. This Agreement, together with the written
instruments specifically referred to herein and such other written agreements
delivered by Fifth Third, Fifth Third
40
Financial or Franklin to each other pursuant hereto, constitute the entire
agreement between the parties with regard to the transactions contemplated
herein and supersede any prior agreements, whether oral or in writing. This
Agreement may be hereafter amended only by a written instrument executed by each
of the parties pursuant to Article X hereof.
E. Press Releases. Fifth Third and Franklin shall agree with each other
as to the form and substance of any press release related to this Agreement or
the transactions contemplated hereby and thereby, and shall consult with each
other as to the form and substance of other public disclosures related thereto;
provided, however, that nothing contained herein shall prohibit either party
from making any disclosure which its outside counsel deems required by law; and
provided, further, however, that Fifth Third shall not be required to
incorporate any comments from Franklin into such releases or public filings
unless determined to be appropriate by Fifth Third in good faith.
F. Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, except
that printing and mailing expenses for the Proxy Statement shall be shared
equally between Fifth Third and Franklin and the SEC filing and registration
fees for the Registration Statement shall be paid by Fifth Third.
G. Advice of Changes. 1. Between the date hereof and the Closing Date,
Franklin shall promptly advise Fifth Third in writing of any fact that, if
existing or known at the date hereof, would have been required to be set forth
or disclosed in or pursuant to this Agreement or of any fact that, if existing
or known at the date hereof, would have made any of the representations
contained herein untrue to any material extent; provided, that no such
disclosure shall affect or modify any representation or warranty of Franklin
contained herein or made pursuant hereto.
2. Between the date hereof and the Closing Date, each of Fifth
Third and Fifth Third Financial shall promptly advise Franklin in writing of any
fact that, if existing or known at the date hereof, would have been required to
be set forth or disclosed in or pursuant to this Agreement or of any fact that,
if existing or known at the date hereof, would have made any of the
representations contained herein untrue to any material extent; provided, that
no such disclosure shall affect or modify any representation or warranty of
Fifth Third and Fifth Third Financial contained herein or made pursuant hereto.
3. Each party hereto will promptly notify the other party in
writing of the occurrence of any event which will or may result in the failure
to satisfy any material condition precedent set forth in this Agreement. Between
the date of this Agreement and the Closing Date, each party hereto will notify
the other of the satisfaction of such material conditions precedent as they
occur.
H. Tax Treatment. Neither Fifth Third nor Franklin will take any action
while knowing that such action would, or is reasonably likely to, prevent or
impede the Merger from qualifying as a "reorganization" within the meaning of
Section 368(a) of the Code.
I. Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
41
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, such remedy being
in addition to any other remedy to which any party is entitled at law or in
equity.
J. MPS. Upon the request of Fifth Third and at the sole option of Fifth
Third, Franklin and Bank Subsidiary shall execute and deliver to Midwest Payment
Systems, Inc. ("MPS") an agreement to convert all electronic funds transfer
("EFT") related services to MPS and the Xxxxxx(R) system. Such Agreement shall
provide that MPS will be the exclusive provider of such services to Franklin and
Bank Subsidiary for a period of five (5) years from the date such agreements are
executed. Fifth Third agrees that the cost of the conversion of Franklin and
Bank Subsidiary to EFT provided by MPS and conversion to the Xxxxxx(R) system
(including, without limitation, the cost of all card reissue, signage and
penalties relating to terminating its current EFT relationships) will be paid by
Fifth Third. Fifth Third further agrees that the costs and fees to Franklin and
Bank Subsidiary for the Xxxxxx(R) service shall not exceed those charged by the
current EFT service provider of Franklin and Bank Subsidiary, subject to any
increases in such costs and fees which would otherwise be permitted under their
current EFT processing agreements. In the event this Agreement is terminated
pursuant to Article VIII hereof for any reason except a material breach or
default by Franklin, and if, in such instance, Franklin desires to convert to
another provider of EFT services, Fifth Third shall pay all costs and expenses
associated with such conversion, provided, however, such costs and expenses are
reasonable when compared to costs and expenses ordinarily charged in the EFT
services industry. In no event shall Franklin or Bank Subsidiary be required to
take any actions pursuant to this Paragraph J or otherwise under this Agreement
or the Agreement of merger that are contrary to any applicable law, regulation,
rule or order or which constitute a breach of the fiduciary duties of the
directors of Franklin or Bank Subsidiary.
ARTICLE VIII. TERMINATION
A. Basis for Termination. This Agreement may be terminated at any time
prior to the Effective Time by written notice delivered by Fifth Third to
Franklin, or by Franklin to Fifth Third in the following instances:
1. By Fifth Third or Franklin, if there has been to the extent
contemplated in Section VI.B.1. or VI.B.2. or Section VI.C.1. or VI.C.2. herein,
as the case may be, a breach of a representation or warranty (subject to the
standard in Section I.R.) or a material breach of any covenant on the part of
the other party with respect to the representations, warranties, and covenants
set forth herein and such breach has not been cured within thirty (30) days
after receipt of written notice or is not capable of being cured; provided, the
party in breach or default shall have no right to terminate for its own breach
or default. For purposes hereof, a breach of Sections IV.A. or IV.B. will be
deemed not capable of being cured.
2. By Fifth Third or Franklin, if the merger transaction
contemplated herein has not been consummated by January 31, 2003, provided the
terminating party is not in material breach or default of any representation,
warranty or covenant contained herein on the date of such termination.
42
3. By Fifth Third or Franklin, if the business or assets or
financial condition of the other party, in each case taken as a whole, shall
have materially and adversely changed from that in existence December 31, 2001,
other than any such change attributable to or resulting from any change in law
or regulation or GAAP, changes in interest rates, economic, financial or market
conditions affecting the banking industry generally or changes that occur as a
consequence of actions or inactions that either party hereto is expressly
obligated to take under this Agreement.
4. By the mutual written consent of Fifth Third, Fifth Third
Financial and Franklin.
5. By Fifth Third if any event occurs which renders impossible of
satisfaction one or more of the conditions to the obligations of Fifth Third and
Fifth Third Financial to effect the Merger set forth in Sections VI.A. and VI.B.
herein and non-compliance is not waived by Fifth Third and Fifth Third
Financial.
6. By Franklin if any event occurs which renders impossible of
satisfaction one or more of the conditions of the obligations of Franklin to
effect the Merger as set forth in Sections VI.A. and VI.C. herein and
non-compliance is not waived by Franklin.
7. By Fifth Third if the Board of Directors of Franklin shall
have publicly announced its withdrawal or modification in a manner adverse to
Fifth Third and Fifth Third Financial of its favorable recommendation of the
Merger.
8. By Fifth Third or Franklin if Franklin shareholders, acting at
a meeting held for the purpose of voting upon the Merger, vote not to approve
the Merger in the manner required by law.
B. Effect of Termination. Upon termination as provided in this Article
VIII, this Agreement, except for the provisions of Sections V.D.2., VII.F. or
VII.J. hereof, shall be void and of no further force or effect, and no party
hereto (nor any of their respective officers, directors or subsidiaries) shall
have any liability of any kind to any other party including but not limited to
liability for expenses incurred by the other party in connection with this
transaction; provided that no such termination shall relieve a breaching party
from liability for any uncured willful breach of a covenant, undertaking,
representation or warranty giving rise to such termination, but in no event
shall any party be liable for punitive or exemplary damages.
ARTICLE IX. CLOSING AND EFFECTIVE TIME
The consummation of the transactions contemplated by this Agreement shall take
place at a closing (the "Closing") to be held at the offices of Fifth Third in
Cincinnati, Ohio on a Friday selected by Fifth Third which is not more than 15
days after the satisfaction or waiver of all of the conditions precedent to
consummation of the Merger set forth in Article VI hereof (other than those
conditions which by their nature cannot be satisfied until the Closing),
including the expiration of all regulatory waiting periods, have been fully met
or effectively waived (the "Closing Date"). Pursuant to the filing of a
certificate of merger (which shall be prepared by Fifth Third and reasonably
satisfactory to Franklin) with the Secretary of State of each of the State of
Ohio and the State of Tennessee, respectively, in accordance with law and this
43
Agreement, the Merger provided for herein shall become effective at the close of
business on said day (the "Effective Time"). By mutual agreement of the parties,
the Closing may be held at any other time or place or on any other date and the
effectiveness of the Merger (and the Effective Time) may be changed by such
mutual agreement. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for agreements of the parties which by their
terms are intended to be performed after the Effective Time.
ARTICLE X. AMENDMENT
This Agreement may be amended, modified or supplemented by the written agreement
of Franklin and Fifth Third Financial and Fifth Third upon the authorization of
each company's respective Board of Directors at any time before or after
approval of the Merger and this Agreement by the shareholders of Franklin, but
after any such approval by the shareholders of Franklin no amendment shall be
made (without further shareholder approval) which changes in any manner adverse
to such shareholders the consideration to be provided to such shareholders
pursuant to this Agreement.
ARTICLE XI. GENERAL
Except to the extent that provisions of the TBCA are applicable to the Merger,
this Agreement was made in the State of Ohio and shall be interpreted under the
laws of the United States and the State of Ohio. Each of the parties hereto
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or related to this Agreement or the transactions contemplated
hereby. This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns but, with the exception of Section I.C., Section I.D. and
Section VII.B., none of the provisions hereof shall be binding upon and inure to
the benefit of any other person, firm or corporation whomsoever. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned or transferred by operation of law or otherwise by any party hereto
without the prior written consent of the other party hereto; provided, however,
that the merger or consolidation of Fifth Third or Fifth Third Financial shall
not be deemed an assignment hereunder as long as the provisions of Section I.F.
are complied with. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
ARTICLE XII. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original for all purposes but such counterparts taken
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date hereinabove set forth.
FIFTH THIRD BANCORP
(SEAL) By: /s/ Xxxxxx Xxxxxx
--------------------------------------
Name: Xxxxxx Xxxxxx
--------------------------------------
Title: Executive Vice President
--------------------------------------
Attest: /s/ Xxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxx X. Xxxxxxxx
--------------------------------------
Title: Executive Vice President and Secretary
--------------------------------------
FIFTH THIRD FINANCIAL CORPORATION
(SEAL) By: /s/ Xxxxxx Xxxxxx
--------------------------------------
Name: Xxxxxx Xxxxxx
--------------------------------------
Title: Executive Vice President
--------------------------------------
Attest: /s/ Xxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxx X. Xxxxxxxx
--------------------------------------
Title: Executive Vice President and Secretary
--------------------------------------
FRANKLIN FINANCIAL CORPORATION
(SEAL) By: /s/ Xxxxxx X. Xxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxx
--------------------------------------
Title: Chairman
--------------------------------------
Attest: /s/ Xxxxxx X. Xxxx, Xx.
--------------------------------------
Name: Xxxxxx X. Xxxx, Xx.
--------------------------------------
Title: Secretary
--------------------------------------
45
