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APPROVAL OF EMPLOYEE STOCK OWNERSHIP PLAN On April 9, 1991, Franklin's Board of Directors unanimously adopted, subject to the approval of Franklin's stockholders and the OTS, an Employee Stock Ownership Plan (the "ESOP"). The primary purpose of the ESOP is to enable participants to acquire a stock ownership interest in Franklin. Management believes that an ESOP offers employees an additional incentive to promote the interests of Franklin. If approved by stockholders and the OTS before June 30, 1991, the ESOP is expected to become effective as of July 1, 1990. If approved during the 1992 fiscal year, the ESOP will become effective as of July 1, 1991. The ESOP provides for the establishment of a trust (the "ESOP Trust") to hold the assets of the ESOP, primarily consisting of Franklin's common stock. Under certain circumstances, the ESOP may also be permitted to hold Franklin's preferred stock. The ESOP Trust will be administered by a Trustee to be appointed by the Board of Directors. The Trustee shall manage the assets held under the ESOP Trust as provided in the Employee Ownership Trust Agreement. The ESOP will be administered by a committee (the "Committee") to be appoint ed by the Board of Directors. Committee members will serve at the pleasure of the Board of Dire ctors and without compensation. They have authority to control and manage the operation and administration of the ESOP to extent such operation and administration has not been dele gated to the Trustee. The Committee is also responsible for directing the Trustee as to the investment of the Trust assets. The Committee and/or the Trustee may be made up of officers and/or Directors of Franklin. Franklin may contribute cash and/or shares of Franklin's common or qualifying preferred stock to the ESOP Trust, subject to the condition that such contributions must be fully deduc tible for federal income tax purposes. The ESOP does not require or permit contributions by participants. Cash or stock contributions by Franklin to the ESOP may be used to assist Franklin in meeting and maintaining capital requirements. Cash contributions by Franklin to the ESOP Trust may also be used to purchase Franklin's common or qualifying preferred stock in the open market at prevailing prices. The ESOP Trust may also borrow funds to acquire (i) Franklin's common or qualifying preferred stock (subject to certain requirements) in the open ma rket or (ii) newly issued shares from Franklin. Such loans, if any, will be repaid by future contributions by Franklin to the ESOP Trust and may be secured by Franklin common or qualifying preferred stock acquired by the ESOP Trust. Franklin's contributions to the ESOP Trust are limited to a maximum of 15% of participa nt compensation. Participation in the ESOP requires completion of at least 1,000 hours of servic e during any Plan year (July I to June 30) and attainment of age - 21. A participant's intere st in the ESOP assets allocated to his account become one hundred (100%) percent vested after six yea rs of service. Service credit is given for employment prior to the effective date of the ESOP for purposes of determining vesting. Accordingly, any employee who meets the eligibility requirements of the Plan on the day the Plan is adopted and who has six or more years of servi ce as of the effective date of the Plan with Franklin will be one hundred (100%) percent vested. Assuming no changes in employment through June 30, 1991, as of March 31, 1991, there were six executive officers and eight employees who would be one hundred (100%) percent vested upon approval of the ESOP. At March 31, 1991, there were an aggregate of 73 employees (excluding executive officers) who would be eligible to participate in the ESOP.Pursuant to the Internal Revenue Code of 1986 (the "Code"), it appears that the ESOP will constitute a "top-heavy plan" at the time it becomes effective. Generally, t his means that the aggregate of the accounts of key employees (as defined under the Code) under the ESOP exc eeds 60% of the aggregate of the accounts of all employees under the ESOP. There are special rules for top-heavy plans, including a required minimum contribution allocation provision. The minimum allocation must be made even though a participant would not otherwise be e ntitled to receive an allocation or would have received a lesser allocation because of his fa ilure to complete 1,000 hours of service. In addition, the minimum contribution rules apply to each participant regardless of whether the participant is classified as active or inac tive for purposes of the ESOP, The Trustee of the ESOP Trust will make distributions from the ESOP Trust only as directed by the Committee. Distribution of a participant's benefit will be made in whole shares of common or preferred stock, cash or a combination thereof, as determined by the Committee , subject to the participant's right to demand a distribution in stock. Subject to the then current price of the common stock, the distribution of common stock to employees of Franklin may result in dilution to stockholders. Shares of Franklin's common stock which have been allocated to participants shall be vot ed by the Trustee of the ESOP Trust only in accordance with directions from each participa nt. Any allocated Franklin common stock with respect to which voting directions are not given and any Franklin common stock which has not been allocated to participants will be vot ed by the Trustee as directed by the Committee. If the Trustee and/or the Committee is ma de up of officers and/or Directors of Franklin. the authority to direct the vote of such shares may create a confl ict. The Committee and Trustee, however, are under a fiduciary duty to act in the best inte rests of the participants. Adoption of the ESOP may also be considered an "anti-takeover" device since the ESOP may become the owner of a sufficient percentage of the total outstanding common stock of Franklin so that the vote of the Trustee (as directed by the Committee) or of parti cipants may be used in defense of a contested takeover. Under the ESOP, Franklin may make any amendment which does not cause any part of the Trust fund to be used for or diverted to any purpose other than the exclusive benefit of participants. However, no amendment may have the effect of decreasing a participant's a ccrued benefit. Franklin may also make any amendment it determines necessary or advi sable, with or without retroactive effect, to comply with the Employee Retirement Income Sec urity Act of 1974, as amended ("ERISA") or the Code. Amendments to the ESOP wfll not be presented to the stockholders for approval. In the event of a merger, consolidation, reorganization or formation of a holding company, the ESOP and the ESOP Trust may be continued by the successor who will assume all t he liabilities of the ESOP and have all the powers, duties and responsibilities of Franklin under the ESOP. Franklin may terminate the ESOP any time. In the event of termination, the a ccrued benefit of each affected participant becomes fully vested as of the date of termination. The ESOP is intended to satisfy the applicable requirements of the Code and ERISA. In addition, the ESOP may become subject to additional regulatory and administrative review and filing responsibilities depending on the amount of ownership or control it acquires through acquisition of voting stock of Franklin. These include, among others, laws and regulations under the Securities Exchange Act of 1934, the Home Owner's Loan Act (as relates to regulati on of holding companies and acquisition of control of savings assomitions) and, as applicable, the Bank Holding Company Act, as amended. The foregoing is a summary of the ESOP. This discussion is qualified by applicable provisions of the Code and ERISA and is subject in all respects to the full text of the ESOP and ESOP Trust which are annexed to this Proxy Statement as Exhibits A and B, respectively, a nd incorporated herein by reference. Approval of the ESOP requires the affirmative vote of the holders of the majority of the tot al votes eligible to be cast present (in person or by proxy). THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED ESOP IS IN THE BEST INTERESTS OF FRANKLIN AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE ESOP.