Class B Stockholders Agreement

EXHIBIT 10.5


FRANKLIN BANK CORP.


CLASS B STOCKHOLDERS AGREEMENT


This Franklin Bank Corp. Class B Stockholders Agreement (the "Agreement") is made and entered into by and among Franklin Bank Corp., formerly BK2 Inc., a Delaware corporation (the "Company"); the holders of Class B common stock, par value $0.01 per share ("Class B Common Stock"), of the Company whose names appear on the signature pages of this Agreement under the caption "Class B Common Stock Holders" or who, in connection with the Franklin Merger, have elected to receive, or have been deemed to have elected to receive, Class B Common Stock in the Company; and if applicable, the respective spouses of the Holders.


1. INTRODUCTION. The Company and the Holders believe that it is in their respective best interests to restrict transfers of the Class B Common Stock with a view to, among other things, (i) minimizing the likelihood of discord and deadlocks and (ii) otherwise assuring the orderly continuity of management, the non-attainment of either of which would result in adverse consequences to the Company. Accordingly, in consideration of the mutual promises contained herein, and on the terms and subject to the conditions set forth herein, the parties hereto have agreed and do hereby agree as follows:


2. CERTAIN DEFINITIONS. As used in this Agreement:


2.1 The term "Acquisition Proposal" shall mean a bona fide written proposal to a Holder for the acquisition of Stock by the person or entity making such proposal.


2.2 The term "Affiliate" with respect to any individual Holder shall mean (i) any Estate Planning Entity of such individual Holder, and (ii) the legal representative or guardian of such individual Holder appointed during such Holder's lifetime and not as a result of death.


2.3 The term "Board" shall mean the Board of Directors of the Company. All determinations by the Board required to be made by the Board pursuant to this Agreement shall be conclusive and binding on the Company and the Holders.


2.4 [intentionally omitted]


2.5 The term "control," including the correlative terms "controlling," "controlled by," and "under common control with," shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person (whether through ownership of securities or any partnership or other ownership interest, by contract or otherwise).


2.6 The term "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute ("Code") .


2.7 The term "Control Disposition" shall mean a Disposition or a series of Related Dispositions that would have the effect of transferring to any transferee or group (as defined for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act")) of persons (a "Group") beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of a number of shares of outstanding Class B Common Stock that, in the aggregate, exceeds 50% of the then outstanding shares of Class B Common Stock on a fully-diluted basis (after giving effect to any then exercisable right to acquire shares of Class B Common Stock).


2.8 The term "Disposition" shall mean any direct or indirect transfer, assignment, sale, gift, pledge, hypothecation, encumbrance or other disposition of Stock (or any interest therein) or of all or part of the voting power (other than the granting of a revocable proxy) associated with the Stock (or any interest therein) whatsoever, or any other transfer of beneficial ownership of Stock, whether voluntary or involuntary, by operation of law or judicial decree, including, without limitation, any such disposition or transfer as a part of any liquidation of the Holder's assets or any reorganization of a Holder pursuant to the United States or any other bankruptcy law or other similar debtor relief laws. The term "Disposition" shall include a Control Disposition, but shall not include a transfer by Control Offerees (as defined in Section 5.2) pursuant to Section 5.2 and dispositions permitted under Sections 6.8 and 6.9.


2.9 The term "Effective Date" shall mean the effective date of the closing of the Franklin Merger.


2.10 The term "Eligible Offerees" shall mean the Company and (i) for the purposes of Section 3.1 or Section 3.6, all Class B Common Stock Holders other than the Offeror; (ii) for the purposes of Section 3.2, all Class B Common Stock Holders except the Divorced Holder and the Divorced Spouse; (iii) for purposes of Section 3.3, all Class B Common Stock Holders other than the Surviving Holder and the estate of the Deceased Spouse; (iv) for the purpose of Section 3.4, all Class B Common Stock Holders other than the Holder required to make the Offer, and (v) for the purpose of Section 3.5, all Class B Common Stock Holders other than the Deceased Holder.


2.11 The term "Estate Planning Entity" with respect to any individual Holder shall mean any inter vivos trust, limited partnership, corporation or limited liability company that, at the time of the Disposition of Stock to such inter vivos trust, limited partnership, corporation or limited liability company, is entirely owned beneficially and of record by: (i) such individual Holder, and/or (ii) any one or more inter vivos trusts, limited partnerships, corporations or limited liability companies that is or are entirely owned beneficially and of record by such individual Holder, or (iv) any one or more persons or entities named in clauses (i) or (ii) above.


2.12 The term "Franklin Merger" shall mean the merger of BK2 Bank, S.S.B., an interim Texas state savings bank and a wholly-owned subsidiary of the Company ("Merger Subsidiary"), with and into Franklin Bank, S.S.B., a Texas state savings bank ("Franklin"), as contemplated by the Agreement and Plan of Reorganization dated as of October 3, 2001, as amended and supplemented, by and among the Company, Merger Subsidiary and Franklin (the "Reorganization Agreement").


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2.13 The terms "Holder" and "Holders" shall mean the Class B Common Stock Holders.


2.14 The term "Initial Public Offering" shall mean an underwritten public offering of Class B Common Stock, or securities into which the Class B Common Stock is, or will be, convertible, pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"), after the Franklin Merger; PROVIDED, however, that the term "Initial Public Offering" shall not include any registration statement (i) relating to any capital stock of the Company or options, warrants or other rights to acquire any such capital stock issued or to be issued primarily to directors, officers or employees of the Company, (ii) relating to any employee benefit plan or interests therein, (iii) filed in connection with any business combination or other Rule 145 transaction under the Securities Act or any successor or similar provision, (iv) relating solely to any preferred stock or debt securities of the Company, or (v) first filed prior to the Effective Date.


2.15 The term "Other Permitted Transferee" shall mean with respect to any Holder who is a natural person:


(i) any person related by lineal consanguinity to such Holder or to the spouse of such Holder; and


(ii) the spouse of such Holder or of any person described in clause (i) above.


For purposes of this definition of Other Permitted Transferee (i) adopted persons shall be considered the natural born child of their adoptive parents; and (ii) lineal consanguinity is that relationship that exists between persons of whom one is descended in a direct line from the other, as between son, father, grandfather, and great-grandfather.


2.16 The term "Private Placement" means the receipt by the Company of gross proceeds of not less than $35 million in the Financing, as that term is defined in Section 8.1 of the Reorganization Agreement.


2.17 The term "Purchase Price" shall mean (i) with respect to the purchase of the Shares Subject to the Offer under Section 3.1, the price per share set forth in the Acquisition Proposal; (ii) with respect to the purchase of shares of Class B Common Stock that are Shares Subject to the Offer under Sections 3.2, 3.3, 3.4 and 3.6, and the purchase of the Class B Common Stock purchased by a Divorced Holder or a Surviving Holder under Sections 3.2 and 3.3, the net book value per share of the Class B Common Stock, as determined in good faith by the Board with the assistance of the Company's independent public accountants, as of the end of the month immediately preceding the making of the Offer (as defined in Sections 3.2 through 3.4 and Section 3.6); (iii) with respect to the purchase of Shares Subject to the Offer under Section 3.5, the fair market value per share of the Class B Common Stock, as determined in good faith by the Board, as of the end of the month immediately preceding the date of the Deceased Holder's death; and (iv) with respect to any foreclosure or transaction in lieu of foreclosure occurring as a result of a Disposition permitted by Section 6.10, the net book value per share of the Class B Common Stock, as determined in good faith by the Board, as of the end of the month


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immediately preceding the foreclosure or transaction in lieu of foreclosure. Neither the Company nor any director, officer or employee thereof shall have any liability with respect to the valuation of any Stock bought or sold at the Purchase Price, as determined pursuant to this Section 2.17, even though the Purchase Price as so determined may be more or less than the actual fair market value thereof.


2.18 The term "Related Disposition" shall mean a Disposition or series of Dispositions of Stock or rights to acquire Stock by the Company and/or one or more Holders to any person or Group (i) within any 120-day period or (ii) pursuant to a common agreement or plan of disposition among the sellers, whether written or oral.


2.19 The term "Required Voting Percentage" shall mean seventy percent (70%) of the shares of Class B Common Stock outstanding and subject to this Agreement as of the date that the vote is taken.


2.20 The term "Shares Subject to the Offer" shall mean (i) with respect to an Offer under Section 3.1, all shares of Stock subject to the Acquisition Proposal; (ii) with respect to an Offer under Section 3.2, all shares of Stock transferred to, retained by, or vested in the Divorced Spouse (as defined therein) and not elected to be purchased by the Divorced Holder (as defined therein) within the time limits specified therein; (iii) with respect to an Offer under Section 3.3, all shares of Stock vesting in or transferable to any heir or legatee of the deceased spouse (other than the Surviving Holder) and not elected to be purchased by the Surviving Holder (as defined therein) within the time limits specified therein; (iv) with respect to an Offer under Section 3.4, all shares of Stock owned by the Holder making such Offer, (v) with respect to an Offer under Section 3.5, such shares of Stock owned by the Deceased Holder (as defined therein) which would be transferable to any heir or legatee of the Deceased Holder except an Other Permitted Transferee, (vi) with respect to an Offer under Section 3.6, all shares of Stock owned by the Holder who has effected the Indirect Disposition (as defined in Section 3.6), and (vii) with respect to any foreclosure or transaction in lieu of foreclosure described in Section 6.10 of this Agreement, all of the shares of Class B Common Stock constituting the Collateral (as defined in Section 6.10).


2.21 The term "Stock" shall mean (i) all shares of Class B Common Stock owned by each Holder on the Effective Date; (ii) all shares of Class B Common Stock hereafter issued by the Company to or acquired by any Holder, whether in connection with a purchase, issuance, grant, stock split, stock dividend, reorganization, warrant, option, convertible security, right to acquire or otherwise; (iii) all securities of the Company or any other corporation or entity which any Holder acquires in respect of his, her or its shares of Class B Common Stock in connection with any exchange, merger, consolidation, recapitalization, reorganization or other transaction to which the Company is a party; and (iv) all shares of Class B Common Stock owned by any person or entity who becomes subject to this Agreement pursuant to the terms of this Agreement. All references herein to the Stock owned by a Holder include the community interest or similar marital property interest, if any, of the spouse of such Holder in such Stock.


3. GENERAL RULE. No Holder shall make any Disposition of any Stock, directly or indirectly, through an Affiliate or otherwise (regardless of the manner in which such Holder initially acquired such Stock), without compliance with the provisions of this Agreement.


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3.1 ACQUISITION PROPOSAL. If a Holder desires, and is permitted under Section 8, to make a Disposition of any Stock (except as provided in Sections 3.2 through 3.5 or pursuant to the applicable provisions of Section 6), such Disposition may be made only if an Acquisition Proposal is received by such Holder with respect thereto, and then only in compliance with this Agreement. Upon receipt of an Acquisition Proposal that such Holder is permitted hereunder to accept and desires to accept, such Holder (the "Offeror") shall offer ("Offer"), by giving written notice to the Company, to sell the Shares Subject to the Offer to the Eligible Offerees. Offers under this Section 3.1 shall (i) be sent by the Offeror to the Company, which in turn shall deliver copies thereof to the Eligible Offerees within five days after its receipt thereof, (ii) state the consideration offered for and the number of Shares Subject to the Offer, (iii) contain a copy of the Acquisition Proposal, and (iv) be irrevocable for so long as any Eligible Offeree has the right pursuant to the terms of this Agreement to purchase any Shares Subject to the Offer. In addition, the Offeror shall provide to the Company all information required by Section 5.1 and all other information with respect to the Acquisition Proposal and the proposed transferee reasonably requested by the Company to evaluate the Acquisition Proposal and verify the bona fide nature thereof.


3.2 DIVORCE OF HOLDER. If the marital relationship of a Holder is terminated by divorce, and pursuant to such divorce or any property settlement in connection therewith, any Stock previously registered in the name of such Holder (the "Divorced Holder") (or any interest therein) is transferred to, retained by, or vested in the spouse of the Divorced Holder (the "Divorced Spouse"), the Divorced Holder shall promptly notify the Company of such event. The Divorced Holder shall have the option to purchase all or any portion of the Divorced Holder's Stock (and the interests therein) transferred to, retained by, or vested in the Divorced Spouse by virtue of the divorce decree or property settlement or by operation of the community property or similar marital property laws for the Purchase Price, and the Divorced Spouse shall be obligated to sell such Stock (and interests therein) to the Divorced Holder for the Purchase Price. The option must be exercised, and the purchase must be consummated, within 30 days after the earlier to occur of the Stock (or interest therein) being transferred to, retained by, or vested in the Divorced Spouse. The option shall be exercised by the Divorced Holder giving written notice of exercise to the Divorced Spouse, with a copy to the Company. Within five days after the expiration of such 30-day period, the Divorced Holder shall deliver written notice to the Company as to whether the Divorced Holder has purchased all of the Stock (and all interests therein) (the "Divorce Purchase Notice") so transferred to, retained by, or vested in the Divorced Spouse. If the Divorce Purchase Notice states that the Divorced Holder has not purchased all such Stock (and all interests therein), or if no such notice is delivered to the Company within such five-day period, the Divorced Spouse shall be deemed to have made an irrevocable offer ("Offer") of all such Stock (and all interests therein) to the Eligible Offerees to be accepted in accordance with Section 4. The Company shall, and is authorized by the Holders and their respective spouses to, deliver, within five days after the Company's receipt of the Divorce Purchase Notice (if such notice is delivered within the time required) or evidence satisfactory to it that all such Stock (and all interests therein) were not purchased by the Divorced Holder within such 30-day period (if the Divorce Purchase Notice is not delivered within the time required), written notice of the Offer to the Eligible Offerees stating that all such Stock (and all interests therein) are Shares Subject to the Offer pursuant to this Section 3.2.


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3.3 DEATH OF SPOUSE. If the spouse of a Holder dies (the "Deceased Spouse") and all or any portion of the Stock registered in the name of such Holder (the "Surviving Holder") vests in or is transferable to any heir or legatee of the Deceased Spouse other than the Surviving Holder, the Surviving Holder shall promptly notify the Company of such event. The Surviving Holder shall have the option to purchase all or any portion of the Stock vesting in or transferable to such heir or legatee for the Purchase Price, and such heir or legatee and the estate of the Deceased Spouse shall be obligated to sell such Stock to the Surviving Holder for the Purchase Price. The option must be exercised, and the purchase must be consummated, within 30 days after the last to occur of (i) the entry of an order of a probate or similar court having jurisdiction over the estate of the Deceased Spouse (A) admitting to probate the will of the Deceased Spouse or (B) determining the heirs of the Deceased Spouse if the Deceased Spouse is determined to have died intestate, or (ii) the appointment of the executor, administrator or legal representative of the estate of the Deceased Spouse. The option shall be exercised by the Surviving Holder giving written notice of exercise to the executor, administrator or legal representative of the Deceased Spouse's estate, with a copy to the Company. Within five days after the expiration of such 30-day period, the Surviving Holder shall deliver written notice to the Company (the "Deceased Purchase Notice") as to whether the Surviving Holder has purchased all of the Stock vesting in or transferable to any such heir or legatee. If the Deceased Purchase Notice states that the Surviving Holder has not purchased all such Stock, or if no Deceased Purchase Notice is delivered to the Company within such five-day period, all such heirs and legatees shall be deemed to have made an irrevocable offer ("Offer") of all such Stock to the Eligible Offerees to be accepted in accordance with Section 4. The Company shall, and is authorized by the Holders and their respective spouses to, deliver, within five days after the Company's receipt of the Deceased Purchase Notice (if such notice is delivered within the time required) or evidence satisfactory to it that all such Stock was not purchased by the Surviving Holder within such 30-day period (if the Deceased Purchase Notice is not delivered within the time required), written notice of the Offer to the Eligible Offerees stating that all such Stock are Shares Subject to the Offer pursuant to this Section 3.3.


3.4 BANKRUPTCY. If any of the following occur:


(i) any Holder shall (A) voluntarily be adjudicated as bankrupt or insolvent, (B) consent to or not contest the appointment of a receiver or trustee for such Holder or for all or any part of such Holder's property, (C) file a petition seeking relief under the bankruptcy, rearrangement, reorganization or other debtor relief laws of the United States, any state, or any other competent jurisdiction, (D) make a general assignment for the benefit of his, her or its creditors, or (E) become insolvent; or


(ii)(A)(1) a petition is filed against a Holder seeking relief under the bankruptcy, rearrangement, reorganization or other debtor relief laws of the United States, any state, or any other competent jurisdiction, or (2) a court of competent jurisdiction enters an order, judgment or decree appointing a receiver or trustee for a Holder or all or any part of such Holder's property, and (B) such petition, order, judgment or decree is not discharged or stayed and does not remain discharged or stayed within a period of 60 days after its entry;


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then such Holder shall promptly notify the Company of such event (the "Bankruptcy Notice"), and such event shall be deemed an irrevocable offer ("Offer") of all Stock owned by such Holder to the Eligible Offerees to be accepted in accordance with Section 4. The Company shall, and is authorized by the Holders and their respective spouses to, deliver, within five days after the Company's receipt of the Bankruptcy Notice (if such notice is delivered) or evidence satisfactory to it that any such event occurred (if the Bankruptcy Notice is not delivered), written notice of the Offer to the Eligible Offerees stating that all such Stock constitutes Shares Subject to the Offer pursuant to this Section 3.4.


3.5 DEATH OF HOLDER. If the Holder dies (the "Deceased Holder") and all or any portion of the Stock registered in the name of the Deceased Holder vests in or is transferable to any heir or legatee of the Deceased Holder other than an Other Permitted Transferee, the executor or administrator of the Deceased Holder shall promptly notify the Company of such event, and such event shall be deemed an irrevocable Offer ("Offer") of such Stock owned by the Deceased Holder to the Eligible Offerees to be accepted in accordance with Section 4. The Company shall, and is authorized by the Holders and their respective spouses to, deliver, within five days after the Company's receipt of such notice (if such notice is delivered) or evidence satisfactory to ...