SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
STATE OF FRANKLIN BANCSHARES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the Appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No:
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3) Filing Party:
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4) Date Filed:
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STATE OF FRANKLIN BANCSHARES, INC.
1907 North Roan Street
Johnson City, Tennessee 37601
April 20, 2004
To the Shareholders of
STATE OF FRANKLIN BANCSHARES, INC.
You are cordially invited to attend the annual meeting of shareholders of
State of Franklin Bancshares, Inc., which will be held at our offices at 1907
North Roan Street, Johnson City, Tennessee, on Monday, May 24, 2004, at 11:00
a.m., Eastern Time.
At the meeting, you will be asked to:
o elect four directors to serve until the 2007 annual meeting of
shareholders;
o ratify the appointment of Baylor and Backus as our independent
accountants and auditors for 2004; and
o transact other business that properly comes before the meeting or any
adjournment of the meeting.
We have enclosed a notice of the annual meeting of shareholders, a proxy
statement, and a form of proxy. The matters listed in the notice of annual
meeting are more fully described in the proxy statement.
It is important that your shares are represented and voted at the meeting,
regardless of the size of your holdings. Accordingly, we would appreciate your
completing the enclosed form of proxy whether or not you plan to attend the
meeting. If you are present at the meeting and wish to vote your shares
personally, your form of proxy can be revoked upon your request prior to
balloting. If you wish to vote personally at the meeting, but your shares are
held in the name of a broker, trust, bank or other nominee, you should bring
with you a form of proxy or letter from the broker, trustee, bank or nominee
confirming your beneficial ownership of the shares.
We urge you to return your form of proxy by mailing it in the enclosed
postage-paid envelope to be received no later than 5:00 p.m. on May 21, 2004.
Upon request, we will provide to you, without charge, a copy of our annual
report on Form 10-KSB for the year ended December 31, 2003 as filed with the
SEC. Requests should be directed to Becky Mominee, Secretary, by mail to State
of Franklin Bancshares, Inc., 1907 North Roan Street, Johnson City, Tennessee
37601, or by telephone to (423) 926-3300.
Sincerely yours,
/s/CHARLES E. ALLEN, JR. /s/ RANDAL R. GREENE
CHARLES E. ALLEN, JR. RANDAL R. GREENE
Chairman President
and Chief Executive Officer
STATE OF FRANKLIN BANCSHARES, INC.
1907 North Roan Street
Johnson City, Tennessee 37601
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held May 24, 2004
The regular annual meeting of shareholders of State of Franklin Bancshares,
Inc. will be held at our offices at 1907 North Roan Street, Johnson City,
Tennessee, on Monday, May 24, 2004, at 11:00 a.m., Eastern Time, for the
following purposes:
1. Election of Directors. To elect four directors to serve until the 2007
annual meeting of shareholders or until their successors have been
duly elected and qualified.
2. Ratification of Auditors. To ratify the appointment of Baylor and
Backus as our independent accountants and auditors for 2004.
3. Other Business. To transact such other business as may properly come
before the meeting or any adjournment of the meeting.
Shareholders of record at the close of business on March 31, 2004, are
entitled to notice of and to vote on all matters presented at the annual meeting
of shareholders. On that day 1,465,512 shares of common stock were outstanding.
Each share entitles the holder to one vote.
By Order of the Board of Directors
/s/ BECKY MOMINEE
BECKY MOMINEE
Secretary
April 20, 2004
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YOUR VOTE IS IMPORTANT
Whether or not you expect to attend the meeting and regardless of
the number of shares you own, please mark, sign, date and return
the enclosed form of proxy as promptly as possible in the enclosed envelope.
You may nevertheless vote in person if you attend the annual meeting.
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STATE OF FRANKLIN BANCSHARES, INC.
1907 North Roan Street
Johnson City, Tennessee 37601
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
Your vote is very important. For this reason, the Board is requesting that,
if you are not able to attend the annual meeting of shareholders, you allow your
common stock to be represented at the meeting by the proxies named in the
enclosed proxy card. This proxy statement and the form of proxy are being sent
to you in connection with this request and are being mailed to all shareholders
beginning on April 20, 2004.
Information About the Annual Meeting
When is the annual meeting?
Monday, May 24, 2004, 11:00 a.m. Eastern Time.
Where will the annual meeting be held?
State of Franklin Savings Bank, 1907 North Roan Street, Johnson City,
Tennessee.
What items will be voted upon at the annual meeting?
You will be voting upon the following matters:
1. Election of Directors. To elect four directors to serve until the 2007
annual meeting of shareholders or until their successors have been
duly elected and qualified.
2. Ratification of Auditors. To ratify the appointment of Baylor and
Backus as our independent accountants and auditors for 2004.
3. Other Business. To transact such other business as may properly come
before the meeting or any adjournment of the meeting.
Who can vote?
You are entitled to vote your common stock if our records show that you
held your shares as of the close of business on the record date, March 31, 2004.
Each shareholder is entitled to one vote for each share of common stock held on
that date. On March 31, 2004, there were 1,465,512 shares of common stock
outstanding and entitled to vote.
How do I vote by proxy?
If you sign, date and return your signed proxy card before the annual
meeting, we will vote your shares as you direct. For the election of directors,
you may vote for (1) all of the nominees, (2) none of the nominees, or (3) all
of the nominees except those you designate. For the ratification of the
appointment of our auditors, you may vote "For" or "Against" or you may
"Abstain" from voting.
If you return your signed proxy card but do not specify how you want to
vote your shares, we will vote them
o "For" the election of all of our nominees for director; and
o "For" the ratification of Baylor and Backus as our independent
auditors.
The Board knows of no other business to be presented at the annual meeting.
If any matters other than those set forth above are properly brought before the
annual meeting, the individuals named in your proxy card may vote your shares in
accordance with their best judgment.
How do I change or revoke my proxy?
You can change or revoke your proxy at any time before it is voted at the
annual meeting by:
(1) submitting another proxy with a more recent date than that of the
proxy first given;
(2) attending the annual meeting and voting in person; or
(3) sending written notice of revocation to our corporate secretary, Becky
Mominee.
How many votes are required?
If a quorum is present at the annual meeting,
o the director nominees will be elected by a plurality of the votes cast
in person or by proxy at the meeting; and
o the approval of independent auditors and all other matters submitted
to the shareholders will require the affirmative vote of a majority of
the shares of common stock present or represented by proxy at the
meeting.
What constitutes a "quorum" for the meeting?
A majority of the outstanding shares, present or represented by proxy,
constitutes a quorum. A quorum is necessary to conduct business at the annual
meeting. You are part of the quorum if you have voted by proxy. Abstentions,
broker non-votes and votes withheld from director nominees count as "shares
present" at the meeting for purposes of determining a quorum. However,
abstentions and broker non-votes do not count in the voting results. A broker
non-vote occurs when a broker or other nominee who holds shares for another does
not vote on a particular item because the nominee does not have discretionary
authority for that item and has not received instructions from the owner of the
shares.
Who pays for the solicitation of proxies?
We will pay the cost of preparing, printing and mailing material in
connection with this solicitation of proxies. In addition to solicitation by
mail, our regular employees and paid solicitors may make solicitations
personally and by telephone or otherwise. We will, upon request, reimburse
brokerage firms, banks and others for their reasonable out-of-pocket expenses in
forwarding proxy material to beneficial owners of stock or otherwise in
connection with this solicitation of proxies. We have retained the Illinois
Stock Transfer Company to assist in the solicitation for a fee of approximately
$5,000 plus reasonable out-of-pocket expenses.
When are the 2005 shareholder proposals due?
Proposals by shareholders to be considered for inclusion in the proxy
materials solicited by the directors for the annual meeting in 2005 must be
received by the Corporate Secretary, 1907 North Roan Street, Johnson City,
Tennessee 37604, no later than December 20, 2004. The use of certified mail,
return receipt requested, is advised. To be eligible for inclusion, a proposal
must also comply with Rule 14a-8 and all other applicable provisions of
Regulation 14A under the Securities Exchange Act of 1934.
2
The Proposals
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Proposal 1 -- Election of Directors
The Board has nominated the following persons to serve as directors:
Three-year term: Charles E. Allen, Jr. Verrill M. Norwood, Jr.
Vance W. Cheek Stephen K. Gross
We do not anticipate that any of these nominees will be unavailable for
election but, if such a situation arises, the proxy will be voted in accordance
with the best judgment of the named proxies unless you have directed otherwise.
The remaining members of the Board listed below will continue as members of the
Board until their respective terms expire, as indicated below.
Information about the four individuals nominated as directors and the
remaining members of the Board is provided below. Shares of common stock
represented by proxy cards returned to us will be voted for the nominees listed
below unless you specify otherwise. Election of directors requires the
affirmative vote of the holders of a plurality of the shares of common stock
represented at the annual meeting.
Nominees for Election
(Terms Expiring 2007)
Director, Year First Elected As Director Age Principal Occupation, Business and Directorships
- ---------------------------------------- --- ------------------------------------------------
Charles E. Allen, Jr., 1996 ............... 43 Chairman of the Board and Chief Executive Officer of
State of Franklin; Chairman of the Board and Chief
Financial Officer of State of Franklin Savings Bank
Stephen K. Gross, 1996 .................... 57 Chief Financial Officer and owner of Microporous
Products, LP
Verrill M. Norwood, Jr., 1996.............. 72 Environmental consultant, retired
Vance W. Cheek, 1996....................... 80 Banker, retired
The Board recommends a vote "FOR" the election of the nominees listed above.
(Terms Expiring 2006)
Director, Year First Elected As Director Age Principal Occupation, Business and Directorships
- ---------------------------------------- --- ------------------------------------------------
Charles E. Allen, Sr., M.D., 1996 ......... 73 Physician, retired
Alan R. Hubbard, 2001 ..................... 59 Businessman, retired
Donald R. Jeanes, 1996..................... 58 President of Milligan College
Richard S. Venable, 1996................... 59 Owner and President of RSV Inc., Sullivan County Mayor
since 2002
3
Incumbent Directors
(Terms Expiring 2005)
Director, Year First Elected As Director Age Principal Occupation, Business and Directorships
- ---------------------------------------- --- ------------------------------------------------
Randal R. Greene, 1996 .................... 44 President of State of Franklin; President and Chief
Executive Officer of State of Franklin Savings Bank
Kenneth E. Cutshall, M.D., 1996 ........... 43 Physician
Cameron E. Perry, 1996..................... 74 Banker, retired
Henry J. Williams, M.D., 1996.............. 67 Physician, retired
Except for Mr. Hubbard, all of these persons have served as directors of
State of Franklin Savings Bank since 1996 and as our directors since our
formation in May 1998. Charles E. Allen, Sr., M.D., is the father of Charles E.
Allen, Jr. Verrill M. Norwood, Jr., is the father-in-law of Randal R. Greene.
None of our directors is a director or executive officer of another bank holding
company, bank, savings and loan association, or credit union. The principal
occupations and employments of the persons listed above are for the past five
years.
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Information about the Board of Directors
Role of the Board
Pursuant to Tennessee law, our business, property and affairs are managed
under the direction of our Board. The Board has responsibility for establishing
broad corporate policies and for our overall performance and direction, but is
not involved in day-to-day operations. Members of the Board keep informed of our
business by participating in Board and committee meetings, by reviewing analyses
and reports sent to them regularly, and through discussions with our executive
officers.
Board Structure
Our bylaws provide that the Board shall consist of no fewer than five
nor more than 25 members. The Board is currently limited to 12 members by Board
resolution. The directors are divided into three classes, each of which is equal
in number. The directors in each class hold office for staggered terms of three
years each. Staggered terms make it more difficult for shareholders, including
those holding a majority of our common stock, to force an immediate change in
the composition of a majority of the board of directors. Since the terms of only
one-third of the incumbent directors expire each year, two annual meetings of
shareholders would be required to change a majority of the directors, provided
that no directors resigned, were removed, or died during their terms of office
and the vacancies created thereby were not filled by an affirmative vote of
majority of the board of directors.
2003 Board Meetings
During 2003, the Board held 7 meetings. Our directors also serve as
directors of State of Franklin Savings Bank. The board of directors of State of
Franklin Savings Bank held 12 meetings in 2003. During 2003, no director
attended less than 75% of the meetings held by the Board or by any committee on
which he served.
4
Board Committees
The Board has two committees: the Audit Committee and the Nominating
Committee.
The Audit Committee, consisting of directors Perry, Cheek, Gross, Jeanes
and Allen, Sr., is responsible for the review and evaluation of our internal
controls and accounting procedures. It also periodically reviews audit reports
with our independent auditors and recommends the annual appointment of auditors.
The Audit Committee met 7 times during 2003. The Board has adopted a written
charter for the Audit Committee, a copy of which is attached to this proxy
statement as Appendix A. For more information about the Audit Committee, please
see the section called "Report of the Audit Committee of the Board of
Directors."
The entire Board acts as Nominating Committee for the nomination of members
of the Board. The Board has not adopted a Nominating Committee Charter. The
Board met one time in its capacity as the Nominating Committee during 2003. The
Board does not believe a separate nominating committee is necessary because of
our size and because a majority of the Board is independent. The Board has no
set procedures or policy on the selection of nominees or evaluation of
shareholder recommendations as it has historically considered these issues on a
case-by-case basis. The Board will consider shareholder recommendations for
director nominees that are properly received in accordance with our bylaws and
the applicable rules and regulations of the Securities and Exchange Commission.
For more information, please see the section entitled "When are the 2005
shareholder proposals due?" above.
Director Compensation
Each director receives a quarterly retainer of $1,000, as well as a $1,350
quarterly retainer from the Savings Bank and $300 for each Board meeting he
attends. Each director also receives a $150 fee for each Committee meeting he
attends.
Director Attendance at Annual Meetings
It is our practice to invite the directors to attend our annual meeting of
shareholders. For the last two years, all members of the Board attended the
annual meeting.
Shareholder Communications with the Board
Shareholders desiring to communicate with the Board should e-mail their
communications to board@sofb.com. The communications will be reviewed by an
independent member of the Board who will make a determination as to how to
proceed.
5
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Proposal 2 -- Ratification of Appointment of Independent Auditors
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The Board has confirmed the appointment by the Audit Committee of Baylor
and Backus as our independent accountants and auditors engaged for 2004. Baylor
and Backus has served as our independent accountants and auditors for the year
ended December 31, 2003. Representatives of the firm will be present at the
annual meeting, will have an opportunity to make a statement if they so desire,
and are expected to be available to respond to appropriate questions by
shareholders.
The affirmative vote of the holders of a majority of the outstanding shares
of common stock present or represented at the annual meeting, if a quorum
exists, entitled to vote at the annual meeting is required to ratify the
appointment of Baylor and Backus as our independent accountants and auditors for
2004.
The Board recommends a vote "FOR" ratification of the appointment of Baylor
and Backus as our independent accountants and auditors for 2004.
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6
State of Franklin Stock Ownership
The following table sets forth certain information regarding the ownership
of the common stock as of March 31, 2004, for (i) each person who owns more than
5% of the common stock, (ii) each director and the executive officers who are
listed in the executive compensation tables in this proxy statement, and (iii)
all executive officers and directors as a group.
Amount and Nature
of Beneficial Ownership Percent
Name of Beneficial Owner (Number of Shares) of Class(1)
------------------------------------------------- ----------------------- -----------
Charles E. Allen, Jr.(2)(3)....................................... 225,183 14.62
Charles E. Allen, Sr., M.D.(4).................................... 36,124 2.45
Vance W. Cheek(5)................................................. 14,624 *
Kenneth E. Cutshall, M.D.(4)...................................... 52,665 3.55
Randal R. Greene(3)(8)............................................ 173,991 11.36
Stephen K. Gross(4)............................................... 32,443 2.20
Alan R. Hubbard(6)................................................ 7,700 *
Donald R. Jeanes(4)............................................... 14,024 *
Verrill M. Norwood, Jr.(5)........................................ 43,124 2.93
Cameron E. Perry(5)............................................... 17,124 1.16
Richard S. Venable(4)............................................. 19,524 1.32
Henry J. Williams, Jr., M.D.(4)................................... 64,894 4.40
Directors and executive officers as a group (12 persons)(7)....... 630,609 37.42
State of Franklin Savings Bank Employee Stock Ownership Plan...... 168,448 11.49
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* Less than 1%
(1) Unless otherwise indicated, beneficial ownership consists of sole voting
and investing power based on 1,465,512 shares issued and outstanding on
March 31, 2004. Options to purchase 219,510 shares are exercisable or
become exercisable within 60 days of March 31, 2004. These shares issuable
under options are deemed to be outstanding for the purpose of computing the
percentage of outstanding shares owned by each person to whom a portion of
these options relate but are not deemed to be outstanding for the purpose
of computing the percentage owned by any other person.
(2) Includes 73,719 shares issuable within 60 days of March 31, 2004 upon the
exercise of options.
(3) Includes 70,811 shares held by the State of Franklin Savings Bank Employee
Stock Ownership Plan for which Mr. Allen and Mr. Greene serve as
co-trustees.
(4) Includes 9,124 shares issuable within 60 days of March 31, 2004 upon the
exercise of options.
(5) Includes 7,124 shares issuable within 60 days of March 31, 2004 upon the
exercise of options.
(6) Includes 3,000 shares issuable within 60 days of March 31, 2004 upon the
exercise of options.
(7) Includes 219,510 shares issuable upon the exercise of options granted under
the Stock Incentive Plan and 70,811 shares held by the State of Franklin
Savings Bank Employee Stock Ownership Plan.
(8) Includes 66,675 shares issuable within 60 days of March 31, 2004 upon the
exercise of options.
Messrs. Charles E. Allen, Jr. and Randal R. Greene serve as executive
officers and directors.
7
Executive Compensation
The following table sets forth the aggregate cash compensation we paid to
our Chairman and Chief Executive Officer and our President. We did not pay any
other executive officer cash compensation in excess of $100,000 for the years
ended December 31, 2003, 2002 and 2001.
Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------- ------------
Securities Underlying
Name and Position Year Salary ($) Bonus($)(1) Options/SARs(#)
----------------- ---- ---------- ----------- ---------------
Charles E. Allen, Jr............................ 2003 211,636 (2) 18,896 (2)
Chairman and Chief Executive Officer 2002 253,177 (3) 25,117 (3)
2001 159,500 (4) 15,823 (4)
Randal R. Greene................................ 2003 168,000 42,000 --
President 2002 160,000 40,000 --
2001 152,924 38,231
(1) Salary and bonus amounts reflect amounts earned during the stated fiscal
year, even if paid in the subsequent fiscal year. All amounts have been
restated to reflect this position.
(2) Does not include $52,909 in cash compensation in lieu of which Mr. Allen
elected to receive stock options to purchase 18,896 shares. The options
were granted for 2003.
(3) Does not include $63,294 in cash compensation in lieu of which Mr. Allen
elected to receive stock options to purchase 25,117 shares. The options
were granted for 2002.
(4) Mr. Allen elected to receive stock options to purchase 15,823 shares of
common stock in lieu of his 2001 bonus of $39,875. The options were granted
on March 15, 2002.
Option Grants in Last Fiscal Year
% of total options
Number of shares granted to employees Exercise Expiration
Name underlying options in fiscal year price ($/sh) Date
---- ------------------ -------------- ----------- ----
Charles E. Allen, Jr.(1)....... 5,937 100% 18.00 2013
12,959 100% 20.00 2013
- -----------
(1) Mr. Allen elected to receive stock options in lieu of a portion of his cash
compensation in 2003.
8
Aggregated Option/SAR Exercises in Last Fiscal Year And Fiscal Year-End
Option/SAR Values
The following table discloses information regarding stock options held at
the end of or exercised in the year 2003 for each of the executive officers.
Shares Securities underlying Value of unexercised
acquired on Value unexercised options in-the-money options
Name exercise(1) realized (1) at December 31, 2003 at December 31, 2003 (2)
---- ----------- ------------ -------------------- ------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Charles E. Allen, Jr. --- --- 73,719 60,199 $ 624,441 $ 158,030
Randal R. Greene .... --- --- 66,675 7,408 $ 602,800 $ 48,149
- -----------------
(1) As of December 31, 2003, no options have been exercised by the executive
officers under the Stock Incentive Plan.
(2) Based on the appraised value of $20.00 per share of our common stock as of
May 16, 2003.
Equity Compensation Plan Information
The table below includes information with respect to shares subject to
outstanding options granted under our equity compensation plans.
(A) (B) (C)
Number of Number of securities
securities to be Weighted remaining available for
issued upon average future issuance under
exercise of exercise price equity compensation plans
outstanding of outstanding (excluding securities
Plan Category options options reflected in Column A)
------------- ------- ------- ----------------------
Equity compensation plans approved by
shareholders.............................. 332,022 $12.95 167,978
Equity compensation plans not approved by
shareholders.............................. --0-- --0--
9
Report of the Audit Committee of the Board of Directors
The Audit Committee is composed of five directors: Perry, Cheek, Gross,
Jeanes and Allen, Sr. Although our common stock is not listed on the New York
Stock Exchange, we have adopted the definition of an "independent director"
provided in the NYSE rules. Under this definition, all of the members of the
Audit Committee are independent directors except for Charles E. Allen, Sr.,
M.D., who is the father of Charles E. Allen, Jr., our Chairman of the Board.
The functions of the Audit Committee include:
o recommending to the Board the appointment of independent auditors;
o approving the scope of audits and other services to be performed by the
independent and internal auditors; and
o reviewing the results of internal and external audits, the accounting
principles applied in financial reporting and the adequacy of financial and
operational controls.
The Audit Committee reviews our financial reporting process on behalf of
the Board. Management has the primary responsibility for the financial
statements and the reporting process, including the system of internal controls.
In this context, the Audit Committee has met and held discussions with
management and Baylor and Backus, the independent auditors for the year ended
December 31, 2003. Management represented to the Audit Committee that our
financial statements were prepared in accordance with generally accepted
accounting principles, and the Audit Committee has reviewed and discussed the
financial statements with management and with the independent auditors. The
Audit Committee also discussed with the independent auditors matters required to
be discussed by Statement on Auditing Standards No. 61 (Communication With Audit
Committees).
In addition, the Audit Committee has discussed with Baylor and Backus the
auditor's independence from us and our management, including matters in the
written disclosures and letters provided by Baylor and Backus to the Audit
Committee as required by the Independence Standards Board Standard No. 1
(Independence Discussions With Audit Committees).
The Audit Committee has also discussed with the internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee has met with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, the
evaluations of our internal controls, and the overall quality of our financial
reporting.
The Audit Committee has determined that the fees we paid to Baylor and
Backus do not interfere with the independence of Baylor and Backus. Further, in
reliance upon the reviews and discussions referred to above, the Audit Committee
recommended to the Board, and the Board has approved, that the audited financial
statements be included in our Annual Report on Form 10-KSB for the year ended
December 31, 2003, for filing with the SEC. The Audit Committee and the Board
also have recommended, subject to shareholder approval, the selection of Baylor
and Backus as our independent auditors for the upcoming year.
Members of the Audit Committee:
Charles E. Allen, Sr., M.D.
Vance W. Cheek
Stephen K. Gross
Donald R. Jeanes
Cameron E. Perry
10
Audit Fees
The table below sets out the fees we paid to Baylor and Backus, our
principal independent auditors, for 2002 and 2003.
Audit fees....................................... $38,000 $38,000
Audit-related fees............................... -- --
Tax fees......................................... 4,000 4,000
All other fees................................... ------- -------
Total........................................ $42,000 $42,000
======= =======
Section 16(a) Beneficial Ownership Reporting Compliance
The federal securities laws require our directors and executive officers,
and persons who beneficially own more than 10% of a registered class of our
equity securities, to file with the SEC initial reports of ownership and reports
of changes in ownership of any of our securities. To our knowledge, based solely
on review of the copies of these reports furnished to us and representations by
reporting persons, all of our officers, directors and greater than 10%
beneficial owners made all filings required in a timely manner in 2003, except
for one late filing by each of the State of Franklin Savings Bank Employee Stock
Ownership Plan and Charles E. Allen, Jr., whose filings were timely submitted to
the SEC on paper, but were required to be re-filed electronically.
Transactions with Executive Officers, Directors and Others
We have had and expect to have in the future banking and other business
transactions in the ordinary course of our banking business with directors,
officers, and 10% beneficial owners of our common stock and their affiliates,
including members of their families, or corporations, partnerships, or other
organizations in which the officers or directors have a controlling interest, on
substantially the same terms (including price, or interest rates and collateral)
as those prevailing at the time for comparable transactions with unrelated
parties. Any of these banking transactions will not involve more than the normal
risk of collectability nor present other unfavorable features to us or State of
Franklin Savings Bank.
State of Franklin Savings Bank leases office space from a partnership,
Allen and Allen. Charles E. Allen, Jr., the Chairman of our Board and Charles E.
Allen, Sr., M.D., a director, are principals in Allen and Allen. The 3,000
square foot building houses the Browns Mill Road branch. The annual rent is $13.
49 per square foot or $40,470. This amount includes taxes, insurance and
maintenance. Also, State of Franklin Real Estate, Inc. leases a 4,000 square
foot suite with road frontage from Allen and Allen at $13.49 per square foot and
an additional 2,500 square foot suite for $6.00 per square foot. These amounts
includes taxes, insurance and maintenance.
11
Other Matters
The Board, at the time of the preparation of this proxy statement, knows of
no business to come before the annual meeting other than that referred to
herein. If any other business should come before the annual meeting, the persons
named in the enclosed proxy will have discretionary authority to vote all
proxies in accordance with their best judgment.
Upon the written request of any record holder or beneficial owner of common
stock entitled to vote at the annual meeting, we will provide, without charge, a
copy of our Annual Report on Form 10-KSB for the year ended December 31, 2003 as
filed with the SEC. Requests should be directed to Becky Mominee, Secretary,
State of Franklin Bancshares, Inc., 1907 North Roan Street, Johnson City,
Tennessee 37601, telephone (423) 926-3600.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ BECKY MOMINEE
BECKY MOMINEE
Secretary
Johnson City, Tennessee
April 20, 2004
12
Appendix A
AUDIT COMMITTEE CHARTER
Purpose
The Audit Committee is appointed by the Board to assist the Board in monitoring
(1) the integrity of the financial statements of the Company, (2) the
independent auditor's qualifications and independence, (3) the performance of
the Company's internal audit function and independent auditors, and (4) the
compliance by the Company with legal and regulatory requirements. The Audit
Committee shall prepare the report required by the rules of the Securities and
Exchange Commission (the "Commission") to be included in the Company's annual
proxy statement. Committee Membership
The Audit Committee shall consist of no fewer than three members. The members of
the Audit Committee shall meet the independence and experience requirements of
the New York Stock Exchange, Section 10A(m)(3) of the Securities Exchange Act of
1934 (the "Exchange Act") and the rules and regulations of the Commission. At
least one member of the Audit Committee shall be a financial expert as defined
by the Commission. Audit committee members shall not simultaneously serve on the
audit committees of more than two other public companies. The members of the
Audit Committee shall be appointed by the Board. Audit Committee members may be
replaced by the Board.
Meetings
The Audit Committee shall meet as often as it determines, but not less
frequently than quarterly. The Audit Committee shall meet periodically with
management, the internal auditors and the independent auditor in separate
executive sessions. The Audit Committee may request any officer or employee of
the Company or the Company's outside counsel or independent auditor to attend a
meeting of the Committee or to meet with any members of, or consultants to, the
Committee.
Committee Authority and Responsibilities
The Audit Committee shall have the sole authority to appoint or replace the
independent auditor (subject, if applicable, to shareholder ratification). The
Audit Committee shall be directly responsible for the compensation and oversight
of the work of the independent auditor (including resolution of disagreements
between management and the independent auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related work. The
independent auditor shall report directly to the Audit Committee.
The Audit Committee shall preapprove all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the Company by its independent auditor, subject to the de minimus exceptions for
non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which
are approved by the Audit Committee prior to the completion of the audit. The
Audit Committee may form and delegate authority to subcommittees consisting of
one or more members when appropriate, including the authority to grant
preapprovals of audit and permitted non-audit services, provided that decisions
of such subcommittee to grant preapprovals shall be presented to the full Audit
Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain independent legal, accounting or other advisors. The
Company shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to the independent auditor for the
purpose of rendering or issuing an audit report and to any advisors employed by
the Audit Committee.
A-1
The Audit Committee shall make regular reports to the Board. The Audit Committee
shall review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval. The Audit Committee shall
annually review the Audit Committee's own performance.
The Audit Committee, to the extent it deems necessary or appropriate, shall:
Financial Statement and Disclosure Matters
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1. Review and discuss with management and the independent auditor the annual
audited financial statements, including disclosures made in management's
discussion and analysis, and recommend to the Board whether the audited
financial statements should be included in the Company's Form 10-K.
2. Review and discuss with management and the independent auditor the
Company's quarterly financial statements prior to the filing of its Form
10-Q, including the results of the independent auditor's review of the
quarterly financial statements.
3. Discuss with management and the independent auditor significant financial
reporting issues and judgments made in connection with the preparation of
the Company's financial statements, including any significant changes in
the Company's selection or application of accounting principles, any major
issues as to the adequacy of the Company's internal controls and any
special steps adopted in light of material control deficiencies.
4. Review and discuss quarterly reports from the independent auditors on:
(a) All critical accounting policies and practices to be used.
(b) All alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the independent
auditor.
(c) Other material written communications between the independent auditor
and management, such as any management letter or schedule of
unadjusted differences.
5. Discuss with management the Company's earnings press releases, including
the use of "pro forma" or "adjusted" non-GAAP information, as well as
financial information and earnings guidance provided to analysts and rating
agencies. Such discussion may be done generally (consisting of discussing
the types of information to be disclosed and the types of presentations to
be made).
6. Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.
7. Discuss with management the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies
8. Discuss with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit, including any difficulties encountered in the course of the audit
work, any restrictions on the scope of activities or access to requested
information, and any significant disagreements with management.
9. Review disclosures made to the Audit Committee by the Company's CEO and CFO
during their certification process for the Form 10-K and Form 10-Q about
any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management
or other employees who have a significant role in the Company's internal
controls.
A-2
Oversight of the Company's Relationship with the Independent Auditor
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10. Review and evaluate the lead partner of the independent auditor team.
11. Obtain and review a report from the independent auditor at least annually
regarding (a) the independent auditor's internal quality-control
procedures, (b) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities within the
preceding five years respecting one or more independent audits carried out
by the firm, (c) any steps taken to deal with any such issues, and (d) all
relationships between the independent auditor and the Company. Evaluate the
qualifications, performance and independence of the independent auditor,
including considering whether the auditor's quality controls are adequate
and the provision of permitted non-audit services is compatible with
maintaining the auditor's independence, and taking into account the
opinions of management and internal auditors. The Audit Committee shall
present its conclusions with respect to the independent auditor to the
Board.
12. Ensure the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible for
reviewing the audit as required by law. Consider whether, in order to
assure continuing auditor independence, it is appropriate to adopt a policy
of rotating the independent auditing firm on a regular basis.
13. Recommend to the Board policies for the Company's hiring of employees or
former employees of the independent auditor who participated in any
capacity in the audit of the Company.
14. Discuss with the national office of the independent auditor issues on which
they were consulted by the Company's audit team and matters of audit
quality and consistency.
15. Meet with the independent auditor prior to the audit to discuss the
planning and staffing of the audit.
Oversight of the Company's Internal Audit Function
- --------------------------------------------------
16. Review the appointment and replacement of the senior internal auditing
executive.
17. Review the significant reports to management prepared by the internal
auditing department and management's responses.
18. Discuss with the independent auditor and management the internal audit
department responsibilities, budget and staffing and any recommended
changes in the planned scope of the internal audit.
Compliance Oversight Responsibilities
- -------------------------------------
19. Obtain from the independent auditor assurance that Section 10A(b) of the
Exchange Act has not been implicated.
20. Obtain reports from management, the Company's senior internal auditing
executive and the independent auditor that the Company and its
subsidiary/foreign affiliated entities are in conformity with applicable
legal requirements and the Company's Code of Business Conduct and Ethics.
Review reports and disclosures of insider and affiliated party
transactions. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations and
with the Company's Code of Business Conduct and Ethics.
21. Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls
or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing
matters.
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22. Discuss with management and the independent auditor any correspondence with
regulators or governmental agencies and any published reports which raise
material issues regarding the Company's financial statements or accounting
policies.
23. Discuss with the Company's General Counsel legal matters that may have a
material impact on the financial statements or the Company's compliance
policies.
Limitation of Audit Committee's Role
- ------------------------------------
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditor.
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STATE OF FRANKLIN BANCSHARES, INC.
1907 North Roan Street
Johnson City, Tennessee 37601
Please complete both sides of the Proxy Card,
detach and return in the enclosed postage-prepaid envelope.
DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS.
The undersigned hereby acknowledges receipt of the notice of the Annual Meeting
and the Related Proxy Statement.
Dated__________________________________
_______________________________________
_______________________________________
(PLEASE SIGN HERE)
Shareholder should sign here exactly as shown on the label affixed hereto.
Administrator, Trustee, or Guardian, please give full title. If more than one
Trustee, all should sign. All Joint Owners should sign.
DETACH ATTENDANCE CARD HERE AND
MAIL WITH PROXY CARD
- --------------------------------------------------------------------------------
STATE OF FRANKLIN
BANCSHARES, INC.
If you plan to personally attend the Annual Meeting of Shareholders, please
check the box below and list names of attendees on reverse side.
Return this stub in the enclosed envelope with your completed proxy card.
I do plan to attend the 2004 meeting. [ ]
- --------------------------------------------------------------------------------
NAMES OF PERSONS ATTENDING
___________________________________________
___________________________________________
___________________________________________
___________________________________________
- --------------------------------------------------------------------------------
Proxy State of Franklin Bancshares, Inc.
The undersigned appoints each of Charles E. Allen, Jr., Randal R. Greene and
Becky Mominee, or any of them, with full power of substitution and revocation as
Proxy to vote all shares of stock standing in my name on the books of State of
Franklin Bancshares, Inc. (the "Company") at the close of business on March 31,
2004, which the undersigned would be entitled to vote if personally present at
the Annual Meeting of Shareholders of the Company to be held at 1907 North Roan
Street, Johnson City, Tennessee, on May 24, 2004, at 11:00 a.m., Eastern Time,
and at any and all adjournments, upon the matters set forth in the Notice of the
meeting. The Proxy is further authorized to vote in his or her discretion as to
any other matters which may come before the meeting. At the time of preparation
of the Proxy Statement, the Board of Directors knows of no business to come
before the meeting other than that referred to in the Proxy Statement.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN BELOW AND WHEN NO INSTRUCTIONS ARE GIVEN WILL BE VOTED FOR
THE PROPOSALS DESCRIBED IN THE ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT AND ON THIS PROXY.
1. Election of four directors to serve a three-year term or until their
successors have been duly elected and qualified.
[ ] FOR all nominees listed below (except as indicated to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
Charles E. Allen, Jr. Vance W. Cheek
Stephen K. Gross Verrill M. Norwood, Jr.
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
such nominee's name in the space provided below.
- --------------------------------------------------------------------------------
2. Ratification of the appointment of Baylor & Backus as the Company's
independent accountants and auditors for 2004.
FOR _____ AGAINST _____ ABSTAIN _____
(Continued and to be signed on other side)