EXHIBIT 10.4
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") by and between Franklin
Bank Corp., a Delaware corporation (the "Company"), and ▇▇▇▇▇▇▇ & Co., Inc., a
Delaware corporation (the "Consultant"), is dated as of the 4th day of November,
2002.
W I T N E S S E T H
WHEREAS, on April 9, 2002, the Company acquired all of the outstanding
capital stock of Franklin Bank, S.S.B., a Texas state savings bank (the "Bank"),
pursuant to the terms of an Agreement and Plan of Reorganization dated as of
October 3, 2001, as amended (the "Reorganization Agreement"); and
WHEREAS, the Reorganization Agreement imposes certain restrictions upon
the operations of the Company until such time as the Company raises an
additional $35 million in capital through a private placement in which certain
of the former shareholders of the Bank are entitled to participate; and
WHEREAS, the Company has received a proposal from Friedman, Billings,
▇▇▇▇▇▇ & Co., Inc. ("FBR") pursuant to which the Company would receive gross
proceeds of approximately $75 million from an offering made through FBR to
qualified institutional investors, institutional accredited investors and
persons living outside the United States, as well as the individual accredited
investors having participation rights under the Reorganization Agreement (the
"Offering"); and
WHEREAS, the Company believes that the Offering is in the best
interests of the Company and its stockholders and desires to proceed with the
Offering; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its stockholders
to retain the services of the Consultant on the terms and conditions set forth
below to assist the Company in the deployment of the additional capital proposed
to be raised in the Offering over the Company's original expectation, and the
Consultant desires to render such services;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CONSULTING PERIOD. Subject to earlier termination in
accordance with Section 3 hereof or cancellation in accordance with Section 9
hereof, the Consultant shall make available to the Company employees of
Consultant for the purpose of rendering consulting services, on the terms and
conditions set forth in this Agreement, for the period beginning on the date of
closing of the Offering (or another capital raising transaction in which the
Company receives at least $80 million)(the "Commencement Date") and ending on
the third anniversary of the date of the closing (the "Consulting Period").
2. CONSULTING SERVICES. During the Consulting Period, the
Consultant's employees shall devote such time as may be necessary to render such
consulting services as may reasonably
be requested from time to time by the Board of Directors and/or the Chief
Executive Officer of the Company, including, without limitation: strategic
planning advice and guidance; asset and liability management advice (including,
for example, reviewing Asset/Liability Committee materials and providing input
thereon upon request); advice regarding capital markets transactions and issues;
advice regarding merger and acquisition opportunities in the financial services
industry; and representing the Company's interests in the affairs of the
financial services industry. The Consultant's services shall be performed at
such times and locations as shall be mutually convenient to the Consultant and
the Company.
3. TERMINATION. Consultant agrees that it will perform its
services hereunder in conformity with the highest business, trade and
professional standards and will apply to such services the degree of skill, care
and supervision necessary to ensure that the services shall be delivered in a
timely fashion and shall be of the highest quality and in accordance with the
business, trade and professional standards customary in the industry. If the
Company determines that services by Consultant pursuant to this Agreement do not
satisfy the standard of care set forth in this section, the Company may by
written notice of termination specifying the deficiencies and providing
Consultant 20 days to cure all such deficiencies. At the end of such 20-day
period, the Company shall provide Consultant with a written notice either (a)
withdrawing the notice of termination previously delivered and confirming that
the specific delinquencies have been cured, or (b) stating that the
delinquencies have not been cured and confirming termination of the Agreement
effective immediately upon delivery to Consultant of such confirmation. In
addition to the foregoing, Consultant may at any time by written notice to the
Company terminate this Agreement and Consultant's services hereunder effective
15 days after delivery of such notice. Upon termination of this Agreement
pursuant to this Section, Consultant shall be entitled to retain the cash
portion of the Consulting Fee (as hereinafter defined) previously paid or
accrued plus reimbursement for any expenses previously incurred, all to the date
of such termination, but shall forfeit the right to any future payments pursuant
to this Agreement, and shall forfeit the Option (as hereinafter defined) to the
extent not previously exercised.
4. CONSULTING FEE. In consideration of the foregoing, and subject
to the provisions of Sections 3 and 9 hereof, the Company shall pay the
Consultant a consulting fee (the "Consulting Fee") composed of (a) a cash
payment of $500,000 per year, payable in equal monthly installments during the
Consulting Period, and (b) a ten-year option to purchase 570,000 shares, subject
to antidilutive adjustment, of Class A Common Stock of the Company at an
exercise price equal to the fair market value thereof, which is agreed to be the
price at which the Company's Class A Common Stock is offered in the Offering
(the "Option"). The Option shall (x) vest and become exercisable in one-third
increments on each of the three anniversary dates of the Commencement Date, (y)
fully vest and become fully exercisable upon the occurrence of a Change of
Control (as hereinafter defined), and (z) shall be transferable to the extent
permitted by applicable securities laws. The Company also shall reimburse the
Consultant for any reasonable out-of-pocket expenses incurred by the Consultant
in performing services pursuant to this Agreement.
5. NON-EXCLUSIVE ENGAGEMENT. The Company acknowledges that this
engagement is not exclusive on the part of Consultant and, during the Consulting
Period, the Consultant may
-2-
engage in other business endeavors, one or more of which may be competitive with
the businesses of the Company.
6. CONFIDENTIAL INFORMATION. During the Consulting Period and at
all times thereafter, and except as otherwise required by law or legal process,
the Consultant shall not disclose to anyone who, to the knowledge of the
Consultant, is not authorized to receive such information, any confidential
information of the Company and any confidential information relating to the
Company's former or present customers or potential customers of which the
Consultant becomes aware during the Consulting Period, other than any such
information which was or becomes generally available on a nonconfidential basis
(other than as a result of the Consultant's violation of this Section 6) (the
"Confidential Information"). The Company shall be entitled to all equitable
remedies to enforce any breach or threatened breach of this Section 6.
7. INDEMNIFICATION. The Company hereby agrees to indemnify the
Consultant and the employees of Consultant performing services pursuant to this
Agreement to the fullest extent permitted by applicable law from and against any
and all liability, costs and expenses (including attorneys' fees) that may be
incurred by the Consultant as a result of the Consultant's rendering consulting
services to the Company pursuant to this Agreement and as a result of
Consultant's enforcing its rights under this Section 7 against the Company,
other than any such liability which arises as a direct result of the willful
misconduct or gross negligence of the Consultant or its employees performing
services hereunder.
8. STATUS AS INDEPENDENT CONTRACTOR. Consultant and the Company
hereby acknowledge and agree that Consultant's service to the Company hereunder
shall be in the capacity of an independent contractor to the Company and not as
an employee, and that the Consultant is solely responsible for the payment of
all federal, state, local and foreign personal income taxes that are required by
applicable laws or regulations to be paid with respect to the consulting fee.
9. SUCCESSORS; CHANGE OF CONTROL. (a) This Agreement shall not be
assignable by the Company or the Consultant without the prior written consent of
the other; provided, that the Option may be assigned by Consultant to the extent
provided therein. This Agreement shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of the Company and its
permitted successors and assigns.
(b) Upon the occurrence of a Change of Control (as
hereinafter defined), this Agreement (i) shall immediately be cancelled without
any further action on the part of the Company or Consultant and subject to
compliance with this section the parties thereafter shall have no further rights
or obligations pursuant to this Agreement, (ii) the Company shall promptly pay
to the Consultant the accrued but unpaid cash portion of the Consulting Fee and
expenses incurred by the Consultant through the date of the Change of Control
and (iii) the Option shall be fully vested and exercisable by the holder
thereof. For purposes of this Agreement, a "Change of Control" shall mean the
happening of any of the following events:
(1) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
-3-
promulgated under the Exchange Act) of 50% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (b), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (3) of this Section 9(b); or
(2) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason other than the
act of Consultant or an affiliate of Consultant to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(3) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless following
such Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 25% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(4) Approval by the stockholders of the Company
of a complete liquidation or dissolution of the Company; or
-4-
(5) The date on which the Company shall
consummate an underwritten public offering of Common Stock registered under the
Securities Act, and as a result of which a class of the Company's capital stock
is authorized for trading in an automated interdealer quotation system of a
registered national securities association or is listed for trading on a
national securities exchange.
10. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
(c) The Consultant and the Company acknowledge and agree
that this Agreement supersedes any other agreement between them concerning the
subject matter hereof.
IN WITNESS WHEREOF, pursuant to the authorization of their respective
Boards of Directors, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf, all as of the day and year first above
written.
▇▇▇▇▇▇▇ & CO., INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
FRANKLIN BANK CORP.
By: _________________________________
-5-
