FRANKLIN FINANCIAL SERVICES CORPORATION (OTCMKTS:FRAF) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01 and8.01Entry into a Material Definitive Agreement/Other Events

On April 11, 2018, Farmers and Merchants Trust Company of Chambersburg ("F&M Trust"), the wholly-owned commercial bank subsidiary of Franklin Financial Services Corporation (the "Registrant"), entered into a Settlement Agreement and Release dated as of March 28, 2018 (the "Class Settlement Agreement") with the named plaintiffs in the Kalen, et. al., v. Farmers and Merchants Trust Company of Chambersburg, et. al. (Case No. 2:15-CV-01435 WB) case filed in United States District Court for the Eastern District of Pennsylvania and described in our current reports on Form 8-K filed July 29, 2016, July 28, 2017, November 3, 2017 and January 2, 2018.

Also on April 11, 2018, the named plaintiffs filed with the court a motion for preliminary approval of the Class Settlement Agreement.On April 12, 2018, the court entered an order setting a hearing on the motion for preliminary approval on May 4, 2018.

The Kalan case was brought by the named plaintiffs as a putative class action on behalf of certain employee health and welfare benefit plans whose assets are held by trusts known as the Regional Employers Assurance League Voluntary Employee’s Beneficiary Association and the Single Employer Welfare Benefit Plan, and the participants and beneficiaries of those plans.The named plaintiffs alleged that Community Trust Company, which F&M Trust acquired by merger in 2008, and F&M Trust, after the merger, served as trustee of the trusts and failed to perform its fiduciary duties in accordance with the prudent man standard of care, knowingly participated in and facilitated misconduct by its co-fiduciaries, and failed to take reasonable steps to prevent or remedy any fiduciary breaches of its co-fiduciaries. F&M Trust denies any and all wrongdoing and liability and has vigorously defended against the named plaintiffs’ claims.

In connection with the Class Settlement Agreement, F&M Trust also entered into on April 11, 2018 a second Settlement Agreement and Release with certain of the other remaining defendants in the case – Lawrence Koresko, Koresko Financial, LP (incorrectly identified in court documents as Koresko Financial, LLP) and Freedom Brokers, LLC (collectively, the “LK Defendants”), and a third Settlement Agreement and Release with David I. Lefkowitz, Esquire, on behalf of himself and the Palisades Law Group, P.C. and the Palisades Law Group Health and Welfare Benefit Plan (collectively, the “Lefkowitz Parties”).

The three Settlement Agreements were entered into by the parties to make definitive the terms and conditions of settlement set forth in the Class Action Settlement Term Sheet entered into by the parties on December 29, 2017, described in our current report on Form 8-K filed January 2, 2018, following a mediation of the case held to a Stipulation for Selection of Mediator submitted jointly by the parties and approved by the court, described in our current report on Form 8-K filed November 3, 2017.

The Class Settlement Agreement provides for F&M Trust to make a settlement payment of $10,000,000 in full and final settlement of all claims that the named plaintiffs and members of the Settlement Class have brought or could have brought against F&M Trust.The settlement payment is to be made within ten (10) business days following the court’s issuance of an order preliminarily approving the Class Settlement Agreement.The Class Settlement Agreement further provides for a general release of claims by the named plaintiffs and the members of the Settlement Class against F&M Trust and a general release of claims by F&M Trust against the named plaintiffs and the members of the Settlement Class.

The Settlement Agreement with the LK Defendants provides for a general release of claims by F&M Trust against the LK Defendants and a general release of claims by the LK Defendants of F&M Trust.The Settlement Agreement with the LK Defendants further provides for a general release of claims by the named plaintiffs of the LK Defendants and a general release of claims by the LK Defendants of the named plaintiffs.The Settlement Agreement with the LK Defendants also provides for the dismissal of the named plaintiffs’ claims against the LK Defendants, the dismissal of F&M Trust’s cross claims against the LK Defendants and the dismissal of the LK Defendants’ cross claims against F&M Trust.

Because Mr. Lefkowitz is representing the named plaintiffs as co-counsel in the case, the Lefkowitz Parties, who otherwise would be members of the Settlement Class, are being excluded from the Settlement Class as a condition of the settlement.Consequently, the Settlement Agreement with the Lefkowitz Parties separately provides for a general release of claims by the Lefkowitz Parties against F&M Trust and provides for a general release of claims by F&M Trust against the Lefkowitz Parties.

The general releases set forth in the Settlement Agreements with the LK Defendants and the Lefkowitz Parties are contingent upon the court’s final approval of the Class Settlement Agreement.

All three Settlement Agreements provide that nothing contained in the Settlement Agreements is to be construed or deemed as evidence of or an admission of liability by any of the parties thereto, nor shall it be admissible or offered into evidence in any action or proceeding.

The Class Settlement Agreement requires the named plaintiffs to file with the court a motion for preliminary approval of the Class Settlement Agreement, which the named plaintiffs did on April 11, 2018.In the named plaintiffs’ motion, the named plaintiffs request, among other things, that the court enter an order:

The Class Settlement Agreement provides that either F&M Trust or the named plaintiffs may terminate the Class Settlement Agreement by written notice to counsel for the other party and the court within ten (10) days after any of the following occurs:

In addition, F&M Trust may terminate the Class Settlement Agreement by providing written notice to counsel for the named plaintiffs and the court if the court does not certify the Settlement Class as a mandatory class and any member of the Settlement Class timely requests exclusion from the Settlement Class.

As reported in our current report on Form 8-K filed January 2, 2018 and in our annual report on form 10-K filed March 12, 2018, we recognized the settlement payment as an expense in the fourth quarter of 2017.We expect to fund the settlement payment out of available resources.

The descriptions of the Settlement Agreements in this report do not purport to be complete and are qualified in their entirety by reference to the complete text of the Settlement Agreements, which are incorporated by reference.A copy of the Class Settlement Agreement is attached to this report as Exhibit 10.1; a copy of the Settlement Agreement with the LK Defendants is attached to this report as Exhibit 10.2; and, a copy of the Settlement Agreement with the Lefkowitz Parties is attached to this report as Exhibit 10.3.

Forward Looking Statements

Certain statements in this current report on Form 8-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.These statements are not guarantees and involve certain risks, uncertainties and assumptions that are difficult to predict and often beyond the Corporation's control.You should not place undue reliance on any forward-looking statement and should consider the risks and uncertainties more fully discussed under Part I, Items 1A and 3, “Risk Factors" and "Legal Proceedings," of the Corporation's annual report on Form 10-K for the year ended December 31, 2017 and in any of the Corporation's subsequent filings with the Securities and Exchange Commission.Forward-looking statements speak as of the date made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

FRANKLIN FINANCIAL SERVICES CORP /PA/ Exhibit
EX-10.1 2 fraf-20180413xex10_1.htm EX-10.1 8-K Kalan Exh 101 Exhibit 10.1 SETTLEMENT AGREEMENT AND RELEASE This Settlement Agreement and Release (“Settlement Agreement”) is made and entered into as of March 28,…
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About FRANKLIN FINANCIAL SERVICES CORPORATION (OTCMKTS:FRAF)

Franklin Financial Services Corporation is a bank holding company. The Company conducts its business through its banking subsidiary, Farmers and Merchants Trust Company of Chambersburg (the Bank). The Bank is a Pennsylvania-chartered commercial bank and trust company. It operates over 20 community banking offices in Franklin, Cumberland, Fulton and Huntingdon counties in Pennsylvania. The Bank is engaged in general commercial, retail banking and trust services associated with community banks. The Bank offers a range of services, including accepting and maintaining checking, savings, and time deposit accounts, making loans and providing safe deposit facilities to businesses, individuals and governmental entities. The Company’s subsidiary, Franklin Future Fund Inc., is a non-bank investment company that makes venture capital investments within the Company’s primary market area.