<PAGE>
<PAGE>
SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Subsection 240.14a-11(c) or
Subsection 240.14a-12
[ ] Confidential, For Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
CUMBERLAND MOUNTAIN BANCSHARES, INC.
- ----------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- ----------------------------------------------------------------
(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
14a-6(i)(1) 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:
_________________________________________________________________
4. Proposed maximum aggregate value of transaction:
_________________________________________________________________
[ ] 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:
____________________________________________
2. Form, Schedule or Registration Statement No.:
____________________________________________
3. Filing Party:
____________________________________________
4. Date Filed:
____________________________________________
<PAGE>
<PAGE>
September 18, 1998
Dear Stockholder:
We invite you to attend the 1998 Annual Meeting of the
Stockholders of Cumberland Mountain Bancshares, Inc. to be held
at the main office of Middlesboro Federal Bank, Federal Savings
Bank, 1431 Cumberland Avenue, Middlesboro, Kentucky, on
Wednesday, October 21, 1998 at 2:00 p.m., Eastern Time.
The accompanying notice and proxy statement describe the
formal business to be transacted Enclosed with this proxy
are a proxy card and an Annual Report to Stockholders for the
1998 fiscal year. Directors and officers of the Company, as well
as representatives of Marr, Miller & Myers, PSC, the Company's
independent auditors, will be present at the Annual Meeting to
respond to any questions the stockholders may have.
You are cordially invited to attend the Annual Meeting.
REGARDLESS OF WHETHER YOU PLAN TO ATTEND, WE URGE YOU TO SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE EVEN
IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING. This will
not prevent you from voting in person but will assure that your
vote is counted if you are unable to attend the meeting.
To help us with our planning, please check the box on the
proxy card if you plan to attend the meeting in person.
Sincerely,
/s/ James J. Shoffner
James J. Shoffner
President
<PAGE>
<PAGE>
_________________________________________________________________
CUMBERLAND MOUNTAIN BANCSHARES, INC.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
(606) 248-4584
_________________________________________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 21, 1998
_________________________________________________________________
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders (the "Annual Meeting") of Cumberland Mountain
Bancshares, Inc. (the "Company"), will be held at the main office
of Middlesboro Federal Bank, Federal Savings Bank, 1431
Cumberland Avenue, Middlesboro, Kentucky 40965 at 2:00 p.m.,
Eastern Time, on Wednesday, October 21, 1998.
The Annual Meeting is for the purpose of considering and
acting upon:
1. The election of one director for a one-year term and the
election two directors for three-year terms;
2. The ratification of auditors;
3. The approval of the Cumberland Mountain Bancshares, Inc.
1998 Stock Option and Incentive Plan;
4. The approval of the Cumberland Mountain Bancshares, Inc.
Management Recognition Plan; and
5. The transaction of such other matters as may properly
come before the Annual Meeting or any adjournments thereof.
Any action may be taken on any one of the foregoing
proposals at the Annual Meeting on the date specified above or on
any date or dates to which, by original or later adjournment, the
Annual Meeting may be adjourned. Stockholders of record at the
close of business on September 8, 1998 are the stockholders
entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
The Company's Proxy Statement for the Annual Meeting
accompanies this Notice and a form of proxy is enclosed herewith.
You are requested to fill in and sign the enclosed proxy card
which is solicited by the Board of Directors and to mail it
promptly in the enclosed envelope. The proxy will not be used if
you attend and vote at the Annual Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ J.D. Howard
J. D. HOWARD
SECRETARY
Middlesboro, Kentucky
September 18, 1998
_________________________________________________________________
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR COMPANY
THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A
QUORUM. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
_________________________________________________________________
<PAGE>
<PAGE>
PROXY STATEMENT
OF
CUMBERLAND MOUNTAIN BANCSHARES, INC.
1431 CUMBERLAND AVENUE
MIDDLESBORO, KENTUCKY 40965
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 21, 1998
_________________________________________________________________
GENERAL
_________________________________________________________________
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Cumberland
Mountain Bancshares, Inc. (hereinafter called the "Company") to
be used at the 1998 Annual Meeting of Stockholders of the Company
(hereinafter called the "Annual Meeting"), which will be held at
the main office of Middlesboro Federal Bank, Federal Savings
Bank, 1431 Cumberland Avenue, Middlesboro, Kentucky on Wednesday,
October 21, 1998, at 2:00 p.m., Eastern Time. The accompanying
Notice of Annual Meeting and form of proxy and this Proxy
Statement are being first mailed to stockholders on or about
September 18, 1998.
_________________________________________________________________
VOTING AND REVOCABILITY OF PROXIES
_________________________________________________________________
Proxies solicited by the Board of Directors of the Company
will be voted in accordance with the directions given therein.
WHERE NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE VOTED FOR
THE NOMINEES FOR DIRECTOR NAMED BELOW AND FOR THE OTHER PROPOSALS
TO BE PRESENTED AS DESCRIBED HEREIN. The proxy confers
discretionary authority on the persons named therein to vote with
respect to the election of any person as a director where the
nominee is unable to serve or for good cause will not serve, and
with respect to matters incident to the conduct of the Annual
Meeting. If any other business is presented at the Annual
Meeting, proxies will be voted by those named therein in
accordance with the determination of a majority of the Board of
Directors. Proxies marked as abstentions will not be counted as
votes cast. In addition, shares held in street name which have
been designated by brokers on proxy cards as not voted will not
be counted as votes cast. Proxies marked as abstentions or as
broker no votes, however, will be treated as shares present for
purposes of determining whether a quorum is present.
Stockholders who execute proxies retain the right to revoke
them at any time. Unless so revoked, the shares represented by
properly executed proxies will be voted at the Annual Meeting and
all adjournments thereof. Proxies may be revoked by written
notice to the Secretary of the Company at the address above or by
the filing of a later dated proxy prior to a vote being taken on
a particular proposal at the Annual Meeting. A proxy will not be
voted if a stockholder attends the Annual Meeting and votes in
person. The presence of a stockholder at the Annual Meeting will
not revoke such stockholder's proxy.
_________________________________________________________________
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
_________________________________________________________________
The securities entitled to vote at the Annual Meeting
consist of the Company's common stock, $.01 par value per share
(the "Common Stock"). Stockholders of record as of the close of
business on September 8, 1998 (the "Record Date") are entitled to
one vote for each share of Common Stock then held. As of the
Record Date, there were 678,800 shares of Common Stock issued and
outstanding.<PAGE>
<PAGE>
Persons and groups beneficially owning in excess of 5% of
the Common Stock are required to file certain reports with
respect to such ownership pursuant to the Securities Exchange Act
of 1934 (the "Exchange Act"). The following table sets forth, as
of the Record Date, certain information as to the Common Stock
beneficially owned by all persons who have filed the reports
required of persons beneficially owning more than 5% of the
Common Stock or who were known to the Company to beneficially own
more than 5% of the Common Stock outstanding at the Record Date
and the shares of Common Stock beneficially owned by all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
NAME AND ADDRESS BENEFICIAL COMMON STOCK
OF BENEFICIAL OWNER OWNERSHIP (1) OUTSTANDING
------------------- ------------- ------------
<S> <C> <C>
James J. Shoffner 59,168 (2) 8.71%
1431 Cumberland Avenue
Middlesboro, Kentucky 40961
Cumberland Mountain Bancshares, Inc. 120,379 17.73%
Employee Stock Ownership Plan
1431 Cumberland Avenue
Middlesboro, Kentucky 40961
Jeffrey L. Gendell 67,116 9.89%
Tontine Management, L.L.C.
Tontine Financial Partners, L.P.
Tontine Overseas Associates, L.L.C.
200 Park Avenue, Suite 3900
New York, New York 10166
Sandler O'Neill Asset Management, LLC 65,000 9.58%
Malta Partners, L.P.
Malta Hedge Fund, L.P.
Malta Partners II, L.P.
Malta Hedge Fund II, L.P.
SOAM Holdings, LLC
Terry Maltese
712 Fifth Avenue
22nd Floor
New York, New York 10019
All Executive Officers and 128,048 (3) 18.66%
Directors as a group (8 persons)
</TABLE>
__________
(1) For purposes of this table, a person is deemed to be the
beneficial owner of any shares of Common Stock if he or she
has or shares voting or investment power with respect to
such Common Stock or has a right to acquire beneficial
ownership at any time within 60 days from the Record Date.
As used herein, "voting power" is the power to vote or
direct the voting of shares and "investment power" is the
power to dispose or direct the disposition of shares.
Except as otherwise noted, ownership is direct, and the
named persons exercise sole voting and investment power
over the shares of the Common Stock.
(2) Includes 523 shares which Mr. Shoffner has the right to
acquire pursuant to the exercise of options.
(3) Includes 7,526 shares which directors and officers have the
right to acquire pursuant to the exercise of options.
-2-<PAGE>
<PAGE>
_________________________________________________________________
PROPOSAL I -- ELECTION OF DIRECTORS
_________________________________________________________________
The Company's Board of Directors is currently composed of
six members. Under the Company's Charter, directors are divided
into three classes and elected for terms of three years each and
until their successors are elected and qualified. At the Annual
Meeting, one director will be elected for a term to expire at the
Annual Meeting in 1999 and two directors will be elected for a
term expiring at the Annual Meeting to be held in the year 2001.
The Board of Directors has nominated Barry Litton to serve for a
term to expire at the 1999 Annual Meeting . Mr. Litton was
appointed to the Board of Directors in November 1997. Under
Tennessee law, newly-appointed directors serve only until the
next Annual Meeting of Stockholders. The Board of Directors has
also nominated Reecie Stagnolia, Jr. and Raymond C. Walker, each
to serve for an additional term of three years and until their
successors are elected and qualified. Under Tennessee law,
directors are elected by a plurality of the votes present in
person or represented by proxy at the Annual Meeting and entitled
to vote in the election of directors.
Unless contrary instruction is given, the persons named in
the proxies solicited by the Board of Directors will vote each
such proxy for the election of the named nominee. If the nominee
is unable to serve, the shares represented by all properly
executed proxies which have not been revoked will be voted for
the election of such substitute as the Board of Directors may
recommend. At this time, the Board knows of no reason why the
nominee might be unavailable to serve.
The following table sets forth, for the nominee and each
continuing director, his name, age as of the Record Date, the
year he first became a director of the Bank, the expiration of
his current term as a director of the Company and the number and
percentage of shares of Common Stock beneficially owned. All of
the Company's current directors were initially appointed as
directors in 1996 in connection with the incorporation and
organization of the Company. Each director of the Company also
is a member of the Board of Directors of the Bank. There are no
arrangements or understandings between the Company and any
director or nominee pursuant to which such person has been
selected as a director or nominee for director of the Company,
and, except for J. Roy Shoffner and James J. Shoffner who are
father and son, no director, nominee or executive officer is
related to any other director, nominee or executive officer by
blood, marriage or adoption.
-3-<PAGE>
<PAGE>
The Board of Directors recommends a vote "FOR" the nominees
listed below.
<TABLE>
<CAPTION>
SHARES OF
YEAR FIRST COMMON STOCK
AGE AS ELECTED AS CURRENT BENEFICIALLY
OF THE DIRECTOR TERM OWNED AS OF THE PERCENT
NAME RECORD DATE OF THE BANK TO EXPIRE RECORD DATE (1) OF CLASS
- ---------- ----------- ----------- --------- --------------- --------
BOARD NOMINEE FOR TERM TO EXPIRE
AT THE 1999 ANNUAL MEETING
<S> <C> <C> <C> <C> <C>
Barry Litton 47 1997 1998 1,467 0.21%
BOARD NOMINEE FOR TERMS TO EXPIRE
AT THE 2001 ANNUAL MEETING
Reecie Stagnolia, Jr. 62 1993 1998 15,151 (2) 2.23%
Raymond C. Walker 68 1985 1998 13,470 (3) 1.98%
DIRECTORS CONTINUING IN OFFICE
J. Roy Shoffner 70 1961 2000 11,696 (4) 1.72%
Robert R. Long 77 1965 2000 22,841 (5) 3.35%
James J. Shoffner 37 1988 1999 59,168 (6) 8.71%
</TABLE>
__________
(1) In calculating percentage ownership for a named individual
or group, the number of shares outstanding is deemed to
include shares which the named individual or group has the
right to acquire pursuant to the exercise of options.
(2) Includes 9,154 shares held jointly with Mr. Stagnolia's
wife, 2,266 shares held in Mr. Stagnolia's IRA and 3,065
shares held in his wife's IRA. Includes 666 shares which
Mr. Stagnolia has the right to acquire pursuant to the
exercise of options.
(3) Includes 10,664 shares held jointly with Mr. Walker's wife.
Includes 1,000 shares which Mr. Walker has the right to
acquire pursuant to the exercise of options.
(4) Includes 2,826 shares of Common Stock which Mr. Shoffner
has the right to acquire pursuant to options exercisable
within 60 days of the Record Date. Does not include 59,168
shares beneficially owned by Mr. Shoffner's adult children
as to which he disclaims beneficial ownership.
(5) Includes 18,629 shares held jointly with Mr. Long's
children. Includes 2,511 shares which Mr. Long has the
right to acquire pursuant to the exercise of options.
(6) Includes 523 shares which Mr. Shoffner has the right to
acquire pursuant to the exercise of options. Mr. Shoffner
disclaims beneficial ownership of any shares held by his
father.
Presented below is certain information concerning the
nominee and directors continuing office. Unless otherwise
stated, all directors and the nominee have held the positions
indicated for at least the past five years.
BARRY LITTON owns and manages Litton's Market, a restaurant
located in Knoxville, Tennessee.
REECIE STAGNOLIA, JR. is currently Vice President and the
Branch Manager and Loan Officer at the Cumberland Branch (Tri-
City Office), of the Bank, a position he has held since 1989.
He previously worked for the Harlan County Board of Education as
a teacher, Assistant Principal and Principal, Assistant
Superintendent and Superintendent from 1962 to 1988. Mr.
Stagnolia is currently a member of the Board of Directors of the
Center for Rural Development, Harlan County Airport, Kentucky
Coal Mine Museum, Tri-City Chamber of Commerce, Cumberland Lions
Club, Sleepy Hollow Country Club, Inc., and Chairman of
Cumberland Tourism Board.
-4-<PAGE>
<PAGE>
RAYMOND C. WALKER served as president of the Mutual Holding
Company's subsidiary, Home Loan Mortgage Corporation from
October, 1991 to October, 1996. He worked for the Middlesboro
Daily News as Advertising Director for 24 years, worked at
National Bank as Business Development Director for seven years
and served five years as manager of 120 units of the Section 8
Federally Funded Housing. Mr. Walker served as mayor of the
city of Middlesboro and served as Vice President and Treasurer
of the Bank.
J. ROY SHOFFNER is currently Chairman of the Board and
Chief Executive Officer of the Company and of Middlesboro
Federal, a position he has held since 1994. He is a graduate of
Lincoln Memorial University and a veteran USAF pilot of four
years. Mr. Shoffner owns and operates Shoffner Realty, a real
estate development company and also owns JRS Restaurant
Corporation. Mr. Shoffner is the past owner of a local plastic
pipe manufacturing company and is active in real estate and
business properties. Mr. Shoffner is the father of James J.
Shoffner.
ROBERT R. LONG currently serves as Vice Chairman of the
Board of Directors. He retired as regional manager of Sterchi
Brothers retail furniture chain in 1983. Mr. Long is a graduate
of Lincoln Memorial University and Northwestern University
Business School. He served in the U.S. Army Air Corps in World
War II as a B-24 Liberator Pilot.
JAMES J. SHOFFNER joined Middlesboro Federal in 1994 as
Vice President and Chief Operating Officer and became President
and Chief Managing Officer in March 1996. He also serves as
President of the Company. He also has served as President of
Home Mortgage Loan Corporation since 1996. Prior to joining the
Bank as a full-time officer, Mr. Shoffner is the President of
JRS Restaurant Corporation. He graduated from Middlesboro High
School and attended the University of Kentucky. He is
President-elect and a member of the Board of Directors of the
Bell County Chamber of Commerce and is a Deacon in the First
Baptist Church of Middlesboro. Mr. Shoffner is a member of the
Middlesboro Kiwanis Club and serves on the Advisory Board to the
Debusk School of Business at Lincoln Memorial University. He
has also previously served on the Board of the Middlesboro YMCA
and as Chairman for the Bell County Chapter of the March of
Dimes. Mr. Shoffner continues to serve as Chairman and
President of JRS Restaurant Corporation. He has served on the
Board of Directors of Middlesboro Federal since June 6, 1988.
Mr. Shoffner is the son of J. Roy Shoffner.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following sets forth information including their ages
as of the Record Date with respect to executive officers of the
Company who do not serve on the Board of Directors. Executive
officers are appointed annually by the Board of Directors.
J. D. HOWARD, age 37, has been Vice President of the Bank
since July 1996 and was appointed Chief Financial Officer in
October 1996. He also serves as Secretary/Treasurer for the
Company. Prior to joining the Bank, Mr. Howard was an internal
auditor and compliance officer at Home Federal of Middlesboro
for two years. Prior to that he was Chief Financial Officer of
First Federal Savings Bank, Pineville, Kentucky for 11 years.
DIANA MIRACLE, age 36, has been Vice President and Chief
Operating Officer of the Bank since October 1996. Mrs. Miracle
joined the Bank as a compliance officer in August 1995. Prior
to that time, she was employed at Security First Network Bank in
Pineville, Kentucky.
-5-<PAGE>
<PAGE>
________________________________________________________________
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
________________________________________________________________
The business of the Company is conducted at regular and
special meetings of the full Board and its standing committees.
The standing committees consist of the Executive, Audit,
Compensation, Finance, Insurance, Investment and Loan
Committees.
During fiscal year 1998, the Board of Directors held 12
regular meetings and 2 special meetings called in accordance
with the bylaws. No director attended less than 75% of said
meetings and the meetings held by all committees of the Board of
Directors on which he served.
The Executive Committee is comprised of any three directors
with one senior officer. The Executive Committee reviews
management decisions during the intervals between the regular
monthly meetings of the Board of Directors and reports to the
full Board of Directors at the regular meetings. The Executive
Committee met 12 times during the fiscal year ended June 30,
1998.
The Audit Committee consists of Directors R.R. Long, Barry
Litton and Raymond C. Walker. This committee regularly meets on
a quarterly basis with the internal auditor to review audit
programs and the results of audits of specific areas as well as
other regulatory compliance issues. In addition, the Audit
Committee meets with the independent certified public
accountants to review the results of the annual audit and other
related matters. The Audit Committee met six times during the
fiscal year ended June 30, 1998.
The Compensation Committee is comprised of any three non-
employee directors and one senior officer who does not
participate in deliberations regarding his compensation. The
Compensation Committee annually reviews the compensation of the
officers of the Bank and makes recommendations to the Board of
Directors. The Committee reports to the full Board of Directors
at the regular meetings. The Compensation Committee met twice
during the fiscal year ended June 30, 1998.
The Loan Committee is made up of any two directors and one
senior officer. The committee meets weekly to review and ratify
management's approval of loans made within the scope of its
authority since the last committee meeting and approve mortgage
loans up to $250,000. The committee also approves consumer and
business loans up to $5,000. The Loan Committee met 52 times
during the fiscal year ended June 30, 1998.
Under the Company's Bylaws, the Board of Directors serves
as a nominating committee for selecting management's nominees
for election as directors. While the Board of Directors will
consider nominees recommended by stockholders, it has not
established any procedures for this purpose. The Board of
Directors met twice in its capacity as the nominating committee
during the fiscal year ended June 30, 1998.
________________________________________________________________
DIRECTOR COMPENSATION
________________________________________________________________
DIRECTOR FEES. The members of the Board of Directors
receive $1,100 for regular monthly Board meetings and committee
meetings attended and $100 for each special meeting attended.
The Chairman receives $1,300 monthly for regularly scheduled
Board meetings and committee meetings and $125 for special
meetings.
DIRECTOR RETIREMENT PLAN. The Bank has adopted the
Middlesboro Federal Bank, Federal Savings Bank Retirement Plan
for Directors (the "Directors' Plan") pursuant to which
directors of the Bank are entitled to receive, upon retirement,
60 monthly payments in the amount of 75% of the average monthly
fees that the respective director received for service on the
Board during the 12-month period preceding termination of
service on the Board, subject to a 20 year vesting schedule. In
connection with the adoption of the Directors' Plan, the Bank
incurred an expense of $169,061 which was recognized during the
fiscal year 1997.
-6-<PAGE>
<PAGE>
In fiscal year 1997, the Bank's Board converted the
Directors' Plan from a defined benefit type of plan to a defined
contribution type. Under the Directors' Plan, as amended, a
bookkeeping account in each participants' name is credited, on
an annual basis with an amount equal to the sum of the accrual
attributable to the participant equal to the investment return
which would have resulted if such deferred amounts had been
invested in either Common Stock or the Bank's highest annual
rate of interest on certificates of deposit having a one-year
term.
Each participant's account has been credited with an amount
equal to the present value of the benefits in which the
participant has a fully vested interest before its amendment.
This amount was determined based on the participant's years of
service and 75% of average fees paid to directors in the year
prior to the participant's retirement. In addition, beginning
July 1, 1996, each participant's account is credited with $1,516
for each year of service until a maximum of 20 years worth of
credits is reached, including past service credits. Benefits
are payable from the Bank's general assets, although the Bank
may establish a grantor trust that will purchase Common Stock
that will be held to help the Bank meet its liabilities
associated with the Directors' Plan.
Upon a "Change in Control" the present value of each
participant's benefits will become payable in one lump-sum
payment within ten days. "Change in Control" generally refers to
(a) any "person" (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities of the Bank or the Company
representing twenty percent (20%) or more of the combined voting
power of the Bank's or the Company's outstanding securities
except for any securities of the Bank purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who
constitute the Board of the Bank or the board of directors of
the Company on the date hereof ("Incumbent Board") cease for any
reason to constitute at least a majority thereof; provided that
any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's stockholders was
approved by the same nominating committee serving under an
Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or
(c) the occurrence of a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of
the Bank or the Company or similar transaction in which the Bank
or the Company is not the resulting entity. A Change in Control
will not occur as the result of acquisitions of Common Stock by
Messrs. J. Roy Shoffner and James J. Shoffner.
________________________________________________________________
EXECUTIVE COMPENSATION AND OTHER BENEFITS
________________________________________________________________
SUMMARY COMPENSATION TABLE. The following table sets forth
the cash and noncash compensation for each of the last three
fiscal years awarded to or earned by the Chief Executive Officer
who receives no compensation other than his fees as director and
chairman. No executive officer of the Company earned a salary
and bonus during fiscal year 1998 exceeding $100,000 for
services rendered in all capacities to the Bank.
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
Annual Compensation -----------------------
Name and ------------------------------------- Restricted Securities
Principal Fiscal Other Annual Stock Underlying All Other
Position Year Salary Bonus Compensation Award(s) Options Compensation(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Roy Shoffner 1998 $ 52,000 $ -- $ -- $ -- $ -- $ 13,450
Chairman 1997 13,000 (2) -- -- -- -- 11,425
1996 -- -- -- -- -- 10,200
</TABLE>
(1) Consists of director's fees.
(2) Mr. Shoffner began receiving a salary from the Company in
the fourth quarter of fiscal year 1997.
-7-<PAGE>
<PAGE>
OPTION YEAR-END VALUE TABLE. The following table sets forth
information concerning the value of options held by the Chief
Executive Officer at June 30, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End (1)
-------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Roy Shoffner 2,826 -- $ 26,494 $ --
</TABLE>
__________
(1) Based on aggregate fair market value of the shares of
Common Stock underlying the options at June 30, 1998 less
aggregate exercise price. For purposes of this
calculation, the fair market value of the Common Stock at
June 30, 1998 is assumed to be equal to the last known
sale price of $16.875 per share. All options granted to
Mr. Shoffner were granted at an adjusted exercise price of
$7.50 per share.
________________________________________________________________
CERTAIN TRANSACTIONS
________________________________________________________________
During the fiscal year ended June 30, 1998, certain loans
made by the Bank were outstanding in an amount exceeding $60,000
to certain directors and executive officers and associates of
directors and executive officers. All of such loans were made
in the ordinary course of business, were made on substantially
the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of
collectibility or present other unfavorable features.
________________________________________________________________
PROPOSAL II -- RATIFICATION OF APPOINTMENT OF AUDITORS
________________________________________________________________
Marr, Miller & Myers, PSC, which was the Company's
independent certified public accounting firm for the 1998 fiscal
year, has been retained by the Board of Directors to be the
Company's auditors for the 1999 fiscal year, subject to
ratification by the Company's stockholders. A representative of
Marr, Miller & Myers, PSC is expected to be present at the
Annual Meeting to respond to stockholders' questions and will
have the opportunity to make a statement if he so desires. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF MARR, MILLER & MYERS, PSC AS
THE COMPANY'S AUDITORS FOR THE 1999 FISCAL YEAR.
________________________________________________________________
PROPOSAL III -- APPROVAL OF 1998 STOCK OPTION AND INCENTIVE PLAN
________________________________________________________________
The Board of Directors of the Company is seeking
stockholder approval of the Cumberland Mountain Bancshares, Inc.
1998 Stock Option and Incentive Plan (the "Option Plan"). The
Option Plan is attached hereto as Exhibit A and should be
consulted for additional information. All statements made
herein regarding the Option Plan, which are only intended to
summarize the Option Plan, are qualified in their entirety by
reference to the Option Plan.
PURPOSE OF THE OPTION PLAN
The purpose of the Option Plan is to advance the interests
of the Company by providing directors and selected key employees
of the Company and its affiliates, including the Bank, with the
opportunity to acquire shares of Common Stock. By encouraging
such stock ownership, the Company seeks to attract, retain, and
motivate the best available personnel for positions of
substantial responsibility and to provide additional incentive
to directors and key employees of the Company and its affiliates
to promote the success of the business.
-8-<PAGE>
<PAGE>
DESCRIPTION OF THE OPTION PLAN
Effective Date. The Option Plan became effective on August
18, 1998, (the "Effective Date"), although its effectiveness is
contingent on approval now by the Company's stockholders.
Administration. The Option Plan is administered by a
committee (the "Committee"), appointed by the Board of
Directors, consisting of at least two directors of the Company
who are "non-employee directors" within the meaning of the
federal securities laws. The Committee has discretionary
authority to select participants and grant awards, to determine
the form and content of any awards made under the Option Plan,
to interpret the Option Plan, to prescribe, amend and rescind
rules and regulations relating to the Option Plan, and to make
other decisions necessary or advisable in connection with
administering the Option Plan. All decisions, determinations,
and interpretations of the Committee are final and conclusive on
all persons affected thereby. Members of the Committee will be
indemnified to the full extent permissible under the Company's
governing instruments in connection with any claims or other
actions relating to any action taken under the Option Plan. It
is expected that the Committee will initially consist of
Directors Litton, Long and Walker.
Eligible Persons. Under the Option Plan, the Committee has
discretionary authority to grant stock options ("Options") and
stock appreciation rights ("SARs") (collectively, "Awards") to
such employees and directors as the Committee shall designate.
In addition, the Option Plan specifies the automatic grants
described below (see "Automatic Grants" below). As of the
Record Date, the Company and its affiliates had 32 employees and
four non-employee directors who were eligible to participate in
the Option Plan.
Shares Available for Grants. The Option Plan reserves
43,973 shares of Common Stock for issuance upon the exercise of
Options or SARs. Such shares may be authorized but unissued
shares or shares held in a grantor trust. In the event of any
merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of
shares, or similar event in which the number or kind of shares
is changed without receipt or payment of consideration by the
Company, the Committee will adjust both the number and kind of
shares under the Option Plan and the exercise prices of such
Options. If Awards should expire, become unexercisable or be
forfeited for any reason without having been exercised, the
shares of Common Stock subject to such Awards shall, unless the
Option Plan shall have been terminated, be available for the
grant of additional Awards under the Option Plan.
Options; Exercise Price. Options may be either incentive
stock options ("ISOs") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or options that
are not ISOs ("Non-ISOs"). The exercise price as to any Option
may not be less than the fair market value (determined under the
Option Plan) of the optioned shares on the date of grant. In
the case of an optionee who owns more than 10% of the
outstanding Common Stock on the date of grant, such option price
may not be less than 110% of fair market value of the shares.
As required by federal tax laws, to the extent that the
aggregate fair market value (determined when an ISO is granted)
of the Common Stock with respect to which ISOs are exercisable
by an optionee for the first time during any calendar year
(under all incentive stock option plans of the Company and of
any affiliate) exceeds $100,000, the Options granted in excess
of $100,000 will be treated as Non-ISOs, and not as ISOs. The
exercise price of shares subject to any outstanding Option will
be proportionately adjusted upon the payment of a special large
and nonrecurring dividend that has the effect of a return of
capital to the stockholders, provided that the Committee did not
elect to pay the amount of such nonrecurring dividend to the
optionee upon exercise of the Option.
<PAGE>
Automatic Grants. On the Effective Date, certain employees
and directors of the Company and the Bank received one-time
grants of Options to purchase shares of Common Stock at an
exercise price per share equal to its fair market value on that
date (see "-- Proposed Stock Option Grants" and "New Plan
Benefits" below).
SARs. An SAR may be granted in tandem with all or part of
any Option granted under the Option Plan, or without any
relationship to any Option. An SAR granted in tandem with an
ISO must expire no later than the ISO, must have the same
exercise price as the ISO and may be exercised only when the ISO
is exercisable and when the fair market
-9-<PAGE>
<PAGE>
value of the shares subject to the ISO exceeds the exercise
price of the ISO. For SARs granted in tandem with Options, the
optionee's exercise of the SAR cancels his or her right to
exercise the Option, and vice versa. Regardless of whether an
SAR is granted in tandem with an Option, exercise of the SAR
will entitle the optionee to receive, as the Committee
prescribes in the grant, all or a percentage of the difference
between (i) the fair market value of the shares of Common Stock
subject to the SAR at the time of its exercise, and (ii) the
fair market value of such shares at the time the SAR was granted
(or, in the case of SARs granted in tandem with Options, the
exercise price). The exercise price as to any particular SAR
may not be less than the fair market value of the optioned
shares on the date of grant.
Exercise of Options and SARs. The exercise of Options and
SARs will be subject to such terms and conditions as are
established by the Committee in a written agreement between the
Committee and the optionee. Unless the Committee specifically
eliminates any vesting requirement or imposes a different
vesting schedule in an agreement granting an Option, each Option
grant shall be vested and exercisable with respect to 33 % of
the optioned shares subject to the Option upon the participant's
completion of each of three years of service after the date of
the award, provided that an Option will become fully (100%)
exercisable immediately upon termination of the participant's
continuous service due to the participant's disability or death,
as well as immediately upon a change in control (as defined in
the Company's Management Recognition Plan as in effect on the
Effective Date) or execution of a written agreement to effect a
change in control of the Bank or the Company. In the absence of
Committee action to the contrary, an otherwise unexpired Option
shall cease to be exercisable upon (i) an optionee's termination
of employment for "just cause" (as defined in the Option Plan),
(ii) the date that is one year after an optionee terminates
service for a reason other than just cause or death (iii) the
date that is two years after an optionee's death.
An optionee may exercise Options or SARs, subject to
provisions relative to their termination and limitations on
their exercise, only by (i) written notice of intent to exercise
the Option or SAR with respect to a specified number of shares
of Common Stock, and (ii) in the case of Options, payment to the
Company (contemporaneously with delivery of such notice) in
cash, in Common Stock, or a combination of cash and Common
Stock, of the amount of the exercise price for the number of
shares with respect to which the Option is then being exercised.
Common Stock utilized in full or partial payment of the exercise
price for Options shall be valued at its market value at the
date of exercise, and may consist of shares subject to the
Option being exercised.
Conditions on Issuance of Shares. The Committee will have
the discretionary authority to impose, in agreements, such
restrictions on shares of Common Stock issued pursuant to the
Option Plan as it may deem appropriate or desirable, including
but not limited to the authority to impose a right of first
refusal or to establish repurchase rights or both of these
restrictions. In addition, the Committee may not issue shares
unless the issuance complies with applicable securities laws,
and to that end, may require that a participant make certain
representations or warranties.
Transferability. Holders of Awards may transfer their
Awards to family members or trusts under specified
circumstances. Awards may not otherwise be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution.
In addition, Common Stock that is purchased upon the exercise of
an Option or SAR may not be sold within the six-month period
following the grant date of that Option or SAR, except in the
event of the participant's death or disability.
<PAGE>
Effect of Dissolution and Related Transactions. In the
event of (i) the liquidation or dissolution of the Company, (ii)
a merger or consolidation in which the Company is not the
surviving entity, or (iii) the sale or disposition of all or
substantially all of the Company's assets (any of the foregoing
to be referred to herein as a "Transaction"), all outstanding
Awards, together with the exercise prices thereof, will be
equitably adjusted for any change or exchange of shares for a
different number or kind of shares or other securities which
results from the Transaction. However, any such adjustment will
be made in such a manner as to not constitute a modification,
within the meaning of Section 424(h) of the Code, of outstanding
ISOs.
-10-<PAGE>
<PAGE>
Duration of the Option Plan and Grants. The Option Plan
has a term of 10 years from the Effective Date, after which date
no Awards may be granted. The maximum term for an Award is 10
years from the date of grant, except that the maximum term of an
ISO (and an SAR granted in tandem with an ISO) may not exceed
five years if the optionee owns more than 10% of the Common
Stock on the date of grant. The expiration of the Option Plan,
or its termination by the Committee, will not affect any Award
then outstanding.
Amendment and Termination of the Option Plan. The Board of
Directors of the Company may from time to time amend the terms
of the Option Plan and, with respect to any shares at the time
not subject to Awards, suspend or terminate the Option Plan. No
amendment, suspension, or termination of the Option Plan will,
without the consent of any affected holder of an Award, alter or
impair any rights or obligations under any Award previously
granted.
Financial Effects of Awards. The Company will receive no
monetary consideration for the granting of Awards under the
Option Plan. It will receive no monetary consideration other
than the exercise price for shares of Common Stock issued to
optionees upon the exercise of their Options, and will receive
no monetary consideration upon the exercise of SARs. Under
applicable accounting standards, recognition of compensation
expense is not required when Options are granted at an exercise
price equal to or exceeding the fair market value of the Common
Stock on the date the Option is granted.
The granting of SARs will require charges to the income of
the Company based on the amount of the appreciation, if any, in
the average market price of the Common Stock to which the SARs
relate over the exercise price of those shares. If the average
market price of the Common Stock declines subsequent to a charge
against earnings due to estimated appreciation in the Common
Stock subject to SARs, the amount of the decline will reverse
such prior charges against earnings (but not by more than the
aggregate of such prior charges).
FEDERAL INCOME TAX CONSEQUENCES
ISOs. An optionee recognizes no taxable income upon the
grant of ISOs. If the optionee holds the shares purchased upon
exercise of an ISO for at least two years from the date the ISO
is granted, and for at least one year from the date the ISO is
exercised, any gain realized on the sale of the shares received
upon exercise of the ISO is taxed as long-term capital gain.
However, the difference between the fair market value of the
Common Stock on the date of exercise and the exercise price of
the ISO will be treated by the optionee as an item of tax
preference in the year of exercise for purposes of the
alternative minimum tax. If an optionee disposes of the shares
before the expiration of either of the two special holding
periods noted above, the disposition is a "disqualifying
disposition." In this event, the optionee will be required, at
the time of the disposition of the Common Stock, to treat the
lesser of the gain realized or the difference between the
exercise price and the fair market value of the Common Stock at
the date of exercise as ordinary income and the excess, if any,
as capital gain.
The Company will not be entitled to any deduction for
federal income tax purposes as the result of the grant or
exercise of an ISO, regardless of whether or not the exercise of
the ISO results in liability to the optionee for alternative
minimum tax. However, if an optionee has ordinary income
taxable as compensation as a result of a disqualifying
disposition, the Company will be entitled to deduct an
equivalent amount.
Non-ISOs. In the case of a Non-ISO, an optionee will
recognize ordinary income upon the exercise of the Non-ISO in an
amount equal to the difference between the fair market value of
the shares on the date of exercise and the option price (or, if
the optionee is subject to certain restrictions imposed by the
federal securities laws, upon the lapse of those restrictions
unless the optionee makes a special tax election within 30 days
after the date of exercise to have the general rule apply).
Upon a subsequent disposition of such shares, any amount
received by the optionee in excess of the fair market value of
the shares as of the exercise date will be taxed as capital
gain. The Company will be entitled to a deduction for federal
income tax purposes at the same time and in the same amount as
the ordinary income recognized by the optionee in connection
with the exercise of a Non-ISO.
-11-<PAGE>
<PAGE>
SARs. The grant of an SAR has no tax effect on the
optionee or the Company. Upon exercise of the SARs, however,
any cash or Common Stock received by the optionee in connection
with the surrender of his or her SAR will be treated as
compensation income to the optionee, and the Company will be
entitled to a business expense deduction for the amounts treated
as compensation income.
PROPOSED STOCK OPTION GRANTS
Set forth below is certain information relating to all
Options which are to be granted to the specified individuals and
groups of individuals on the Effective Date of the Option Plan.
All such Options (i) will be subject to the terms and conditions
described above, and are contingent on, and not exercisable
until, the Option Plan receives stockholder approval, and (ii)
will automatically expire ten years after the date of their
grant. The exercise price for these Options is $16.00 per
share, which equaled the per share fair market value of the
Common Stock on the date of grant.
<TABLE>
<CAPTION>
Number of Shares
Participant or Group Subject to Options
- -------------------- ------------------
<S> <C>
James J. Shoffner, President 10,993
Diana Miracle, Vice President 5,496
J.D. Howard, Vice President 5,496
J. Roy Shoffner, Chairman of the Board 2,198
Robert R. Long, Vice Chairman of the
Board of Directors 2,198
Raymond C. Walker, Director 2,198
Reecie Stagnolia, Jr., Vice President 2,198
Barry Litton, Director 2,198
All executive officers as a group 24,183
All directors who are not executive
officers as a group 8,792
All employees, including all current officers
who are not executive officers, as a group --
</TABLE>
For additional information relating to proposed option
grants, see "New Plan Benefits" below.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors has determined that the Option Plan
is desirable, cost effective, and produces incentives which will
benefit the Company and its stockholders. The Board of
Directors is seeking stockholder approval of the Option Plan in
order to assure their support for the Option Plan, as well as to
satisfy the requirements of the Code for favorable tax treatment
of ISOs.
Stockholder approval of the Option Plan requires the
affirmative vote of the holders of a majority of the votes cast
at the Annual Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" APPROVAL OF THE OPTION PLAN.
-12-<PAGE>
<PAGE>
________________________________________________________________
PROPOSAL IV -- APPROVAL OF MANAGEMENT RECOGNITION PLAN
________________________________________________________________
GENERAL
The Board of Directors of the Company is seeking approval
of the Cumberland Mountain Bancshares, Inc. Management
Recognition Plan (the "MRP"). A copy of the MRP is attached
hereto as Exhibit B, and should be consulted for additional
information. All statements made herein regarding the MRP,
which are only intended to summarize the MRP, are qualified in
their entirety by reference to the MRP.
PURPOSE OF THE MRP
The purpose of the MRP is to reward and retain personnel of
experience and ability in key positions of responsibility by
providing employees and directors of the Company, the Bank and
their affiliates with a proprietary interest in the Company, and
as compensation for their past contributions to the Bank, and
with an incentive to make such contributions in the future.
DESCRIPTION OF THE MRP
Effective Date. The MRP became effective on August 18,
1998 (the "Effective Date"), although its effectiveness is
contingent upon approval now by the Company's stockholders.
Administration. The MRP will be administered by an MRP
Committee consisting of not less than two non-employee members
of the Board who are "non-employee directors" within the meaning
of the federal securities laws. Except as limited by the
express provisions of the MRP or by resolutions adopted by the
Board, the MRP Committee has sole and complete authority and
discretion (1) to grant MRP awards to such employees as the MRP
Committee may select, (2) to determine the form and content of
MRP awards to be issued under the MRP, (3) to interpret the MRP,
(4) to prescribe, amend, and rescind rules and regulations
relating to the MRP, and (5) to make other determinations
necessary or advisable for the administration of the MRP. The
MRP provides that members of the MRP Committee shall be
indemnified and held harmless for actions taken under the MRP in
good faith and which he or she reasonably believed to be in the
best interests of the Company and its affiliates. As of the
Record Date, the MRP Committee consists of Directors Litton,
Long and Walker.
MRP Trust; Purchase Limitations. The assets of the MRP
will be held in a trust (the "MRP Trust"), as to which Directors
Litton, Long and Walker act as trustees ("MRP Trustees") and
thereby have the responsibility to invest all funds contributed
to the MRP Trust by the Company or the Bank. With funds
contributed by the Company, the MRP Trust may purchase, in the
aggregate, up to 17,589 shares of Common Stock. The number of
shares is the maximum that the MRP Trust may purchase. Such
shares may be authorized but unissued shares, (ii) shares held
in a grantor trust. In the event an MRP award is forfeited for
any reason or additional shares are purchased by the MRP Trust
associated with the MRP, the MRP Committee may make awards with
respect to such shares.
Types of Awards; Eligible Persons. The MRP Committee may
make awards, in the form of restricted stock, with respect to
shares held in the MRP Trust. The MRP Committee has the
discretion to select employees of the Company and/or of the Bank
who will receive discretionary MRP awards. In selecting those
employees to whom MRP awards will be granted and the number of
shares covered by such awards, the MRP Committee will consider
the position, duties and responsibilities of the eligible
employees, the value of their services to the Company and its
affiliates (including the Bank), and any other factors the MRP
Committee may deem relevant. In addition, the MRP specifically
provides for automatic awards on the Effective Date to officers
James J. Shoffner, Diana Miracle, and J.D. Howard who have each
received a one-time award of 4,221, 1,408 and 1,407 shares,
respectively. (see "New Plan Benefits" below.)
Vesting. Pursuant to the MRP, freely transferable shares
of Common Stock will be transferred to participants as they
become vested in their MRP awards. Unless the Committee
specifically eliminates any vesting requirement or
-13-<PAGE>
<PAGE>
imposes a different vesting schedule, MRP awards will become 33
% vested upon completion of each of three years of service after
the date of the award. All shares of Common Stock subject to
outstanding awards will be immediately 100% earned and
nonforfeitable upon a participant's death or disability (as
defined in the MRP) or upon a change in control (as defined in
the MRP) or execution of a written agreement to effect a change
in control of the Bank or the Company. If a participant
terminates employment for reasons other than death, disability,
or a change in corporate control, the participant forfeits all
rights to the shares then under restriction.
Distributions of Shares; Voting. As MRP awards vest, the
MRP Trustees will distribute shares of Common Stock from the MRP
trust. One share of Common Stock will be given for each share
earned, with stock dividends also included. Payments
representing cash dividends (and earnings thereon) will be made
in cash. The MRP Trustees vote all shares of Common Stock held
by the MRP Trust (whether or not subject to an MRP award) in the
same proportion as the trustee of the Company's Employee Stock
Ownership Plan trust votes Common Stock held therein. In the
absence of any such voting, those shares will be voted in the
manner directed by the Board of Directors.
Dividends. Whenever shares of Common Stock are paid to an
award recipient or beneficiary thereof, such recipient or
beneficiary shall also be entitled to receive, with respect to
each share paid, an amount equal to any cash dividends
(including special large and nonrecurring dividends, including
one that has the effect of a return of capital to the Company's
stockholders) and a number of shares of Common Stock equal to
any stock dividends declared and paid with respect to a share of
Common Stock between the date the relevant MRP award was
initially granted to such participant and the date the shares
are being distributed. There shall also be distributed an
appropriate amount of net earnings, if any, of the MRP Trust
with respect to any cash dividends so paid out.
No Plan Shares may be distributed from the MRP Trust prior
to the date which is three years from the date of the Bank's
conversion from mutual to stock form to the extent the recipient
would after receipt of such shares own in excess of 10% of the
issued and outstanding shares of Common Stock, unless such
action is approved in advance by a majority vote of non-employee
directors of the Company's Board of Directors. Any shares
remaining undistributed solely by reason of the operation of
this rule shall be distributed to the recipient on the date
which is five years from the date of the Bank's conversion from
mutual to stock form.
Transferability. MRP awards are transferable only (i) by
participants to family members or trusts under specified
circumstances and (ii) by will or the laws of dissent and
distribution. MRP awards and rights to shares held in the MRP
Trust are not otherwise transferable by participants in the MRP,
and during the lifetime of a participant, shares held in the MRP
Trust may only be earned by and paid to the participant.
Taxation. Participants will recognize ordinary income when
their interest vests, or at an earlier date pursuant to a
participant's election to accelerate recognition pursuant to
Section 83(b) of the Internal Revenue Code. Whenever
participants recognize ordinary income, the Company may deduct
a compensation expense for the same amount.
Financial Effects of Awards. Neither the Company nor the
Bank will receive any monetary consideration for the granting of
awards under the MRP. Under current accounting standards, when
MRP awards are granted, the Company must recognize compensation
expense based on the fair market value of the Common Stock on
the date the MRP awards are granted, with such amount being
amortized over the expected vesting period for the award.
Adjustments for Capital Changes. In the event of any
merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of
shares, or similar event in which the number or kind of shares
is changed without receipt or payment of consideration by the
Company, the MRP Committee will adjust both the number and kind
of shares of stock which may be purchased under the MRP, and the
number and kind of shares of stock subject to outstanding MRP
awards. In the event of (i) the liquidation or dissolution of
the Company, (ii) a merger or consolidation in which the Company
is not the surviving entity, or (iii) the sale or disposition of
all or substantially all of the Company's assets, all
outstanding MRP awards shall be adjusted for any change or
exchange of shares of Common Stock for a different number or
kind of shares or other securities which results from the
transaction.
Amendment and Termination of the MRP. The Company's Board
of Directors may, by resolution, at any time amend or terminate
the MRP, provided that no amendment or termination of the MRP
will, without the written consent of any affected holders of an
MRP award, impair any rights or obligations under any MRP award
previously granted. The power to amend or terminate includes
the power to direct the MRP Trustees to return to the Company
all or any part of the assets of the MRP Trust, including shares
of Common Stock held in the plan share reserve of the MRP.
However, the termination of the MRP Trust may not affect a
participant's right to earn outstanding MRP awards and to
receive Common Stock relating thereto, including earnings
thereon, in accordance with the terms of the MRP and the
particular MRP award made to the participant.
Duration of the MRP. The MRP and MRP Trust will remain in
effect until the earlier of (i) termination by the Company's
Board of Directors, or (ii) the distribution of all assets of
the MRP Trust. Termination of the MRP will not affect any
awards previously granted, and such MRP awards will remain valid
and in effect until they have been earned and distributed from
the MRP Trust, or by their terms expire or are forfeited.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors has determined that the MRP is
desirable, cost effective, and produces incentives which will
benefit the Company and its stockholders. The Board of
Directors is seeking stockholder approval of the MRP in order to
assure their support for the MRP.
Approval of the MRP requires the affirmative vote of the
holders of a majority of the votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
MRP.
________________________________________________________________
NEW PLAN BENEFITS
________________________________________________________________
The following table sets forth certain information
regarding the benefits to be received under the Option Plan and
the MRP.
<TABLE>
<CAPTION> Option
Plan MRP (1)
-------------------------------------------------
Dollar Number Dollar Number
Name and Position Value ($)(2) of Units Value ($)(3) of Units
- ----------------- -------------------------------------------------
<S> <C> <C> <C> <C>
James J. Shoffner, President of the $ -- 10,993 $ 67,536 4,221
Company and the Bank
J.D. Howard, Vice President and
Chief Financial Officer of the Bank -- 5,496 22,512 1,407
Diana Miracle, Vice President and
Chief Operating Officer of the Bank -- 5,496 22,528 1,408
All current executive officers
as a group -- 21,986 112,576 7,036
All current directors who are not
executive officers as a group -- 10,990 -- --
All other employees, including all
current officers who are not
executive officers, as a group -- -- -- --
(Footnotes on following page)
</TABLE>
-15-<PAGE>
<PAGE>
__________
(1) None of the shares of Common Stock awarded pursuant to the
MRP currently is vested. For information regarding the
vesting of shares awarded pursuant to the MRP, see
"Proposal IV -- Approval of Management Recognition
Plan."
(2) All Options were granted at an exercise price
equal to the fair market value ($16.00 per share) of the
underlying shares of Common Stock on the date of the
grant.
(3) Based on the Common Stock's fair market value
of $16.00 per share.
________________________________________________________________
OTHER MATTERS
________________________________________________________________
The Board of Directors is not aware of any business to come
before the Annual Meeting other than those matters described
above in this Proxy Statement and matters incident to the
conduct of the Annual Meeting. If any other matters should
properly come before the Annual Meeting, it is intended that
proxies in the accompanying form will be voted in respect
thereof in accordance with the determination of a majority of
the Board of Directors.
________________________________________________________________
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
________________________________________________________________
Pursuant to regulations promulgated under the Exchange Act,
the Company's officers, directors and persons who own more than
ten percent of the outstanding Common Stock are required to file
reports detailing their ownership and changes of ownership in
such Common Stock, and to furnish the Company with copies of all
such reports. Based on the Company's review of such reports
which the Company received during the last fiscal year, or
written representations from such persons that no annual report
of change in beneficial ownership was required, the Company
believes that, during the last fiscal year, all persons subject
to such reporting requirements have complied with the reporting
requirements with the exception of Director Litton who failed to
timely file a Form 3 upon becoming a director.
________________________________________________________________
MISCELLANEOUS
________________________________________________________________
The cost of soliciting proxies will be borne by the
Company. The Company will reimburse brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses
incurred by them in sending proxy materials to the beneficial
owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Company may
solicit proxies personally or by telegraph or telephone without
additional compensation.
The Company's 1998 Annual Report to Stockholders, including
financial statements, has been mailed to all stockholders of
record as of the close of business on the Record Date. Any
stockholder who has not received a copy of such Annual Report
may obtain a copy by writing to the Secretary of the Company.
Such Annual Report is not to be treated as a part of the proxy
solicitation material or as having been incorporated herein by
reference.
________________________________________________________________
STOCKHOLDER PROPOSALS
________________________________________________________________
In order to be eligible for inclusion in the Company's
proxy materials for next year's Annual Meeting of Stockholders,
any stockholder proposal to take action at such meeting must be
received at the Company's executive office at 1431 Cumberland
Avenue, Middlesboro, Kentucky 40961 no later than May 21, 1999.
Any such proposals shall be subject to the requirements of the
proxy rules adopted by the Securities and Exchange Commission
under the Exchange Act.
-16-<PAGE>
<PAGE>
Stockholder proposals, other than those submitted pursuant
to the Exchange Act, must be submitted in writing, delivered or
mailed by first class United States mail, postage prepaid, to
the secretary of the Company not fewer than 30 days nor more
than 60 days prior to any such meeting; provided, however, that
if notice or public disclosure of the meeting is given fewer
than 40 days before the meeting, such written notice shall be
delivered or mailed to the secretary of the Company not later
than the close of the 10th day following the day on which notice
of the meeting was mailed to shareholders.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ J.D. Howard
J. D. HOWARD
SECRETARY
Middlesboro, Kentucky
September 18, 1998
________________________________________________________________
FORM 10-KSB
________________________________________________________________
A COPY OF THE COMPANY'S FORM 10-KSB FOR THE FISCAL YEAR
ENDED JUNE 30, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS
OF THE RECORD DATE UPON WRITTEN REQUEST TO THE STOCKHOLDER
RELATIONS, CUMBERLAND MOUNTAIN BANCSHARES, INC., 1431 CUMBERLAND
AVENUE, MIDDLESBORO, KENTUCKY 40961.
________________________________________________________________<PAGE>
<PAGE>
EXHIBIT A
CUMBERLAND MOUNTAIN BANCSHARES, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of this Plan is to advance the interests of the
Company through providing select key Employees and Directors of
the Bank, the Company, and their Affiliates with the opportunity
to acquire Shares. By encouraging such stock ownership, the
Company seeks to attract, retain and motivate the best available
personnel for positions of substantial responsibility and to
provide additional incentives to Directors and key Employees of
the Company or any Affiliate to promote the success of the
business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company, as such terms are
defined in Section 424(e) and (f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered
into in accordance with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options and SARs,
unless the context clearly indicates a different meaning.
(d) "Bank" shall mean Middlesboro Federal Bank, Federal
Savings Bank.
(e) "Board" shall mean the Board of Directors of the
Company.
(f) "Change in Control" shall mean any one of the
following events: (1) the acquisition of ownership, holding or
power to vote more than 25% of the Bank's or the Company's
voting stock, (2) the acquisition of the ability to control the
election of a majority of the Bank's or the Company's directors,
(3) the acquisition of a controlling influence over the
management or policies of the Bank or the Company by any person
or by persons acting as a "group" (within the meaning of Section
13(d) of the Securities Exchange Act of 1934), (4) the
acquisition of control of the Bank or the Company within the
meaning of 12 C.F.R. Part 574 or its applicable equivalent
(except in the case of (1), (2), (3) and (4) hereof, ownership
or control of the Bank by the Company itself shall not
constitute a "Change in Control"), or (5) during any period of
two consecutive years, individuals (the "Continuing Directors")
who at the beginning of such period constitute the Board of
Directors of the Company or the Bank (the "Existing Board")
cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for
election as a member of the Existing Board was approved by a
vote of at least two-thirds of the Continuing Directors then in
office shall be considered a Continuing Director. For purposes
of this subparagraph only, the term "person" refers to an
individual or a corporation, partnership, trust, association,
joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to
whether a change in control has occurred shall be conclusive and
binding.
(g) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(h) "Committee" shall mean the Stock Option Committee
appointed by the Board in accordance with Paragraph 5(a) hereof.
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<PAGE>
(i) "Common Stock" shall mean the common stock of the
Company.
(j) "Company" shall mean Cumberland Mountain Bancshares,
Inc.
(k) "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee or
Director of the Company or an Affiliate. Continuous Service
shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the
Company, in the case of transfers between payroll locations of
the Company or between the Company, an Affiliate or a successor,
or in the case of a Director's performance of services in an
emeritus or advisory capacity.
(l) "Director" shall mean any member of the Board, and any
member of the board of directors of any Affiliate that the Board
has by resolution designated as being eligible for participation
in this Plan.
(m) "Disability" shall mean a physical or mental
condition, which in the sole and absolute discretion of the
Committee, is reasonably expected to be of indefinite duration
and to substantially prevent a Participant from fulfilling his
or her duties or responsibilities to the Company or an
Affiliate.
(n) "Effective Date" shall mean the date specified in
Paragraph 14 hereof.
(o) "Employee" shall mean any person employed by the
Company, the Bank, or an Affiliate.
(p) "Exercise Price" shall mean the price per Optioned
Share at which an Option or SAR may be exercised.
(q) "ISO" means an option to purchase Common Stock which
meets the requirements set forth in the Plan, and which is
intended to be and is identified as an "incentive stock option"
within the meaning of Section 422 of the Code.
(r) "Market Value" shall mean the fair market value of the
Common Stock, as determined under Paragraph 7(b) hereof.
(s) "Non-Employee Director" shall have the meaning
provided in Rule 16b-3.
(t) "Non-ISO" means an option to purchase Common Stock
which meets the requirements set forth in the Plan but which is
not intended to be and is not identified as an ISO.
(u) "Option" means an ISO and/or a Non-ISO.
(v) "Optioned Shares" shall mean Shares subject to an
Award granted pursuant to this Plan.
(w) "Participant" shall mean any person who receives an
Award pursuant to the Plan.
(x) "Plan" shall mean this 1997 Stock Option and Incentive
Plan.
(y) "Rule 16b-3" shall mean Rule 16b-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
(z) "Share" shall mean one share of Common Stock.
(aa) "SAR" (or "Stock Appreciation Right") means a right to
receive the appreciation in value, or a portion of the
appreciation in value, of a specified number of shares of Common
Stock.
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<PAGE>
(bb) "Year of Service" shall mean a full twelve-month
period, measured from the date of an Award and each annual
anniversary of that date, during which a Participant has not
terminated Continuous Service for any reason.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect
for a term of ten years from the Effective Date, unless sooner
terminated pursuant to Paragraph 16 hereof. No Award shall be
granted under the Plan after ten years from the Effective Date.
(b) Term of Awards. The term of each Award granted under
the Plan shall be established by the Committee, but shall not
exceed 10 years; provided, however, that in the case of an
Employee who owns Shares representing more than 10% of the
outstanding Common Stock at the time an ISO is granted, the term
of such ISO shall not exceed five years.
4. SHARES SUBJECT TO THE PLAN.
(a) General Rule. Except as otherwise required under
Section 11, the aggregate number of Shares deliverable pursuant
to Awards shall not exceed 43,973 Shares. Such Shares may
either be authorized but unissued Shares, Shares held in
treasury, or Shares held in a grantor trust created by the
Company. If any Awards should expire, become unexercisable, or
be forfeited for any reason without having been exercised, the
Optioned Shares shall, unless the Plan shall have been
terminated, be available for the grant of additional Awards
under the Plan.
(b) Special Rule for SARs. The number of Shares with
respect to which an SAR is granted, but not the number of Shares
which the Company delivers or could deliver to an Employee or
individual upon exercise of an SAR, shall be charged against the
aggregate number of Shares remaining available under the Plan;
provided, however, that in the case of an SAR granted in
conjunction with an Option, under circumstances in which the
exercise of the SAR results in termination of the Option and
vice versa, only the number of Shares subject to the Option
shall be charged against the aggregate number of Shares
remaining available under the Plan. The Shares involved in an
Option as to which option rights have terminated by reason of
the exercise of a related SAR, as provided in Paragraph 10
hereof, shall not be available for the grant of further Options
under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be
administered by the Committee, which shall consist of not less
than two (2) members of the Board who are Non-Employee
Directors. Members of the Committee shall serve at the pleasure
of the Board. In the absence at any time of a duly appointed
Committee, the Plan shall be administered by those members of
the Board who are Non-Employee Directors.
(b) Powers of the Committee. Except as limited by the
express provisions of the Plan or by resolutions adopted by the
Board, the Committee shall have sole and complete authority and
discretion (i) to select Participants and grant Awards, (ii) to
determine the form and content of Awards to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan,
(iv) to prescribe, amend and rescind rules and regulations
relating to the Plan, and (v) to make other determinations
necessary or advisable for the administration of the Plan. The
Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to
time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at
any meeting at which a quorum is present, or acts approved in
writing by a majority of the Committee without a meeting, shall
be deemed the action of the Committee.
<PAGE>
(c) Agreement. Each Award shall be evidenced by a written
agreement containing such provisions as may be approved by the
Committee. Each such Agreement shall constitute a binding
contract between the Company and the Participant, and every
Participant, upon acceptance of such Agreement, shall be bound
by the terms and
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<PAGE>
restrictions of the Plan and of such Agreement. The terms of
each such Agreement shall be in accordance with the Plan, but
each Agreement may include such additional provisions and
restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are
not inconsistent with the terms of the Plan. In particular, the
Committee shall set forth in each Agreement (i) the Exercise
Price of an Option or SAR, (ii) the number of Shares subject to,
and the expiration date of, the Award, (iii) the manner, time
and rate (cumulative or otherwise) of exercise or vesting of
such Award, and (iv) the restrictions, if any, to be placed upon
such Award, or upon Shares which may be issued upon exercise of
such Award.
The Chairman of the Committee and such other Directors and
officers as shall be designated by the Committee are hereby
authorized to execute Agreements on behalf of the Company and to
cause them to be delivered to the recipients of Awards.
(d) Effect of the Committee's Decisions. All decisions,
determinations and interpretations of the Committee shall be
final and conclusive on all persons affected thereby.
(e) Indemnification. In addition to such other rights of
indemnification as they may have, the members of the Committee
shall be indemnified by the Company in connection with any
claim, action, suit or proceeding relating to any action taken
or failure to act under or in connection with the Plan or any
Award, granted hereunder to the full extent provided for under
the Company's governing instruments with respect to the
indemnification of Directors.
6. GRANT OF OPTIONS.
(a) General Rule. Only Employees and Directors shall be
eligible to receive Awards. In selecting those Employees to
whom Awards will be granted and the number of shares covered by
such Awards, the Committee shall consider the position, duties
and responsibilities of the eligible Employees, the value of
their services to the Company and its Affiliates, and any other
factors the Committee may deem relevant. Notwithstanding the
foregoing, the Committee shall automatically make the Awards
specified in Paragraph 6(b) hereof.
(b) Automatic Grants. On the Effective Date, each of the
following Employees and Directors shall receive an Option (in
the form of an ISO, to the extent permissible under the Code) to
purchase the number of Shares listed below, at an Exercise Price
per Share equal to the Market Value of a Share on the Effective
Date; provided that such grant shall not be made to an Employee
or Director whose Continuous Service terminates on or before the
Effective Date:
<TABLE>
<CAPTION>
Participant Optioned Shares
----------- ---------------
<S> <C>
James J. Shoffner 10,993
Diana Miracle 5,496
J.D. Howard 5,496
J. Roy Shoffner 2,199
Robert R. Long 2,199
Raymond C. Walker 2,199
Reecie Stagnolia, Jr. 2,199
Barry Litton 2,199
</TABLE>
With respect to each of the above-named Participants, the
Option granted to the Participant hereunder (i) shall vest in
accordance with the general rule set forth in Paragraph 8(a) of
the Plan, (ii) shall have a term of ten years from the Effective
Date, and (iii) shall be subject to the general rule set forth
in Paragraph 8(c) with respect to the effect of a Participant's
termination of Continuous Service on the Participant's right to
exercise his Options.
A-4<PAGE>
<PAGE>
(c) Special Rules for ISOs. The aggregate Market Value,
as of the date the Option is granted, of the Shares with respect
to which ISOs are exercisable for the first time by an Employee
during any calendar year (under all incentive stock option
plans, as defined in Section 422 of the Code, of the Company or
any present or future Affiliate of the Company) shall not exceed
$100,000. Notwithstanding the foregoing, the Committee may
grant Options in excess of the foregoing limitations, in which
case such Options granted in excess of such limitation shall be
Options which are Non-ISOs.
7. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price as
to any particular Option shall not be less than 100% of the
Market Value of the Optioned Shares on the date of grant. In
the case of an Employee who owns Shares representing more than
10% of the Company's outstanding Shares of Common Stock at the
time an ISO is granted, the Exercise Price shall not be less
than 110% of the Market Value of the Optioned Shares at the time
the ISO is granted.
(b) Standards for Determining Exercise Price. If the
Common Stock is listed on a national securities exchange
(including the NASDAQ National Market System) on the date in
question, then the Market Value per Share shall be the average
of the highest and lowest selling price on such exchange on such
date, or if there were no sales on such date, then the Exercise
Price shall be the mean between the bid and asked price on such
date. If the Common Stock is traded otherwise than on a
national securities exchange on the date in question, then the
Market Value per Share shall be the mean between the bid and
asked price on such date, or, if there is no bid and asked price
on such date, then on the next prior business day on which there
was a bid and asked price. If no such bid and asked price is
available, then the Market Value per Share shall be its fair
market value as determined by the Committee, in its sole and
absolute discretion.
8. EXERCISE OF OPTIONS.
(a) Generally. Unless the Committee specifically
eliminates any vesting requirement or imposes a different
vesting schedule in an Agreement granting an Option, each Option
shall become exercisable with respect to 33 1/3% of the Optioned
Shares upon the Participant's completion of each of three Years
of Service after the date of the Award, provided that an Option
shall become fully (100%) exercisable immediately upon
termination of the Participant's Continuous Service due to the
Participant's retirement at or after age 65, Disability, or
death, as well as immediately upon a Change in Control or
execution of a written agreement to effect a Change in Control
of the Bank or the Company. An Option may not be exercised for
a fractional Share.
(b) Procedure for Exercise. A Participant may exercise
Options, subject to provisions relative to its termination and
limitations on its exercise, only by (1) written notice of
intent to exercise the Option with respect to a specified number
of Shares, and (2) payment to the Company (contemporaneously
with delivery of such notice) in cash, in Common Stock, or a
combination of cash and Common Stock, of the amount of the
Exercise Price for the number of Shares with respect to which
the Option is then being exercised. Each such notice (and
payment where required) shall be delivered, or mailed by prepaid
registered or certified mail, addressed to the Treasurer of the
Company at its executive offices. Common Stock utilized in full
or partial payment of the Exercise Price for Options shall be
valued at its Market Value at the date of exercise, and may
consist of Shares subject to the Option being exercised.
(c) Period of Exercisability. Except to the extent
otherwise provided in the terms of an Agreement, an Option may
be exercised by a Participant only while he is an Employee or
Director and has maintained Continuous Service from the date of
the grant of the Option, or within one year after termination of
such Continuous Service (but not later than the date on which
the Option would otherwise expire), except if the Employee's or
Director's Continuous Service terminates by reason of --
A-5<PAGE>
<PAGE>
(1) "Just Cause" which for purposes hereof shall have
the meaning set forth in any unexpired employment or severance
agreement between the Participant and the Bank and/or the
Company (and, in the absence of any such agreement, shall mean
termination because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation
(other than traffic violations or similar offenses) or final
cease-and-desist order), then the Participant's rights to
exercise such Option shall expire on the date of such
termination;
(2) death, then to the extent that the Participant
would have been entitled to exercise the Option immediately
prior to his death, such Option of the deceased Participant may
be exercised within two years from the date of his death (but
not later than the date on which the Option would otherwise
expire) by the personal representatives of his estate or person
or persons to whom his rights under such Option shall have
passed by will or by laws of descent and distribution.
(d) Effect of the Committee's Decisions. The Committee's
determination whether a Participant's Continuous Service has
ceased, and the effective date thereof, shall be final and
conclusive on all persons affected thereby.
(e) Mandatory Six-Month Holding Period. Notwithstanding
any other provision of this Plan to the contrary, Common Stock
that is purchased upon exercise of an Option or SAR may not be
sold within the six-month period following the grant of that
Option or SAR (except in the event of a Participant's death or
Disability).
9. [RESERVED FOR FUTURE USE]
10. SARS (STOCK APPRECIATION RIGHTS)
(a) Granting of SARs. In its sole discretion, the
Committee may from time to time grant SARs to Employees either
in conjunction with, or independently of, any Options granted
under the Plan. An SAR granted in conjunction with an Option
may be an alternative right wherein the exercise of the Option
terminates the SAR to the extent of the number of shares
purchased upon exercise of the Option and, correspondingly, the
exercise of the SAR terminates the Option to the extent of the
number of Shares with respect to which the SAR is exercised.
Alternatively, an SAR granted in conjunction with an Option may
be an additional right wherein both the SAR and the Option may
be exercised. An SAR may not be granted in conjunction with an
ISO under circumstances in which the exercise of the SAR affects
the right to exercise the ISO or vice versa, unless the SAR, by
its terms, meets all of the following requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference
between the Exercise Price of the ISO and the Market Value of
the Shares subject to the ISO at the time the SAR is exercised;
(3) The SAR is transferable only when the ISO is
transferable, and under the same conditions;
(4) The SAR may be exercised only when the ISO may be
exercised; and
(5) The SAR may be exercised only when the Market
Value of the Shares subject to the ISO exceeds the Exercise
Price of the ISO.
(b) Exercise Price. The Exercise Price as to any
particular SAR shall not be less than the Market Value of the
Optioned Shares on the date of grant.
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<PAGE>
(c) Timing of Exercise. Any election by a Participant to
exercise SARs shall be made during the period beginning on the
3rd business day following the release for publication of
quarterly or annual financial information and ending on the 12th
business day following such date. This condition shall be
deemed to be satisfied when the specified financial data is
first made publicly available. In no event, however, may an SAR
be exercised within the six-month period following the date of
its grant.
The provisions of Paragraph 8(c) regarding the period of
exercisability of Options are incorporated by reference herein,
and shall determine the period of exercisability of SARs.
(d) Exercise of SARs. An SAR granted hereunder shall be
exercisable at such times and under such conditions as shall be
permissible under the terms of the Plan and of the Agreement
granted to a Participant, provided that an SAR may not be
exercised for a fractional Share. Upon exercise of an SAR, the
Participant shall be entitled to receive, without payment to the
Company except for applicable withholding taxes, an amount equal
to the excess of (or, in the discretion of the Committee if
provided in the Agreement, a portion of) the excess of the then
aggregate Market Value of the number of Optioned Shares with
respect to which the Participant exercises the SAR, over the
aggregate Exercise Price of such number of Optioned Shares.
This amount shall be payable by the Company, in the discretion
of the Committee, in cash or in Shares valued at the then Market
Value thereof, or any combination thereof.
(e) Procedure for Exercising SARs. To the extent not
inconsistent herewith, the provisions of Paragraph 8(b) as to
the procedure for exercising Options are incorporated by
reference, and shall determine the procedure for exercising
SARs.
11. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) Recapitalizations; Stock Splits, Etc. The number and
kind of shares reserved for issuance under the Plan, and the
number and kind of shares subject to outstanding Awards, and the
Exercise Price thereof, shall be proportionately adjusted for
any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the
Company which results from a merger, consolidation,
recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares, or similar event in
which the number or kind of shares is changed without the
receipt or payment of consideration by the Company.
(b) Transactions in which the Company is Not the Surviving
Entity. In the event of (i) the liquidation or dissolution of
the Company, (ii) a merger or consolidation in which the Company
is not the surviving entity, or (iii) the sale or disposition of
all or substantially all of the Company's assets (any of the
foregoing to be referred to herein as a "Transaction"), all
outstanding Awards, together with the Exercise Prices thereof,
shall be equitably adjusted for any change or exchange of Shares
for a different number or kind of shares or other securities
which results from the Transaction.
(c) Special Rule for ISOs. Any adjustment made pursuant
to subparagraphs (a) or (b)(1) hereof shall be made in such a
manner as not to constitute a modification, within the meaning
of Section 424(h) of the Code, of outstanding ISOs.
(d) Conditions and Restrictions on New, Additional, or
Different Shares or Securities. If, by reason of any adjustment
made pursuant to this Paragraph, a Participant becomes entitled
to new, additional, or different shares of stock or securities,
such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and
restrictions which were applicable to the Shares pursuant to the
Award before the adjustment was made.
<PAGE>
(e) Other Issuances. Except as expressly provided in this
Paragraph, the issuance by the Company or an Affiliate of shares
of stock of any class, or of securities convertible into Shares
or stock of another class, for cash or property or for labor or
services either upon direct sale or upon the exercise of rights
or warrants to subscribe
A-7<PAGE>
<PAGE>
therefor, shall not affect, and no adjustment shall be made with
respect to, the number, class, or Exercise Price of Shares then
subject to Awards or reserved for issuance under the Plan.
(f) Certain Special Dividends. The Exercise Price of
shares subject to outstanding Awards shall be proportionately
adjusted upon the payment of a special large and nonrecurring
dividend that has the effect of a return of capital to the
stockholders, except that this subparagraph (f) shall not apply
to any dividend which is paid to the Participant pursuant to
Paragraph 8(b) or 9(b) hereof.
12. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or
by the laws of descent and distribution. Notwithstanding the
foregoing, or any other provision of this Plan, a Participant
who holds Awards may transfer such Awards (but not Incentive
Stock Options) to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of
one or more of these individuals. Awards so transferred may
thereafter be transferred only to the Participant who originally
received the grant or to an individual or trust to whom the
Participant could have initially transferred the Awards pursuant
to this Paragraph 12. Awards which are transferred pursuant to
this Paragraph 12 shall be exercisable by the transferee
according to the same terms and conditions as applied to the
Participant.
13. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be
the later of the date on which the Committee makes the
determination of granting such Award, and the Effective Date.
Notice of the determination shall be given to each Participant
to whom an Award is so granted within a reasonable time after
the date of such grant.
14. EFFECTIVE DATE.
The Plan shall become effective August 18, 1998, provided
that the effectiveness of the Plan and any Option shall be
absolutely contingent upon the Plan's approval by a favorable
vote of stockholders owning at least a majority of the total
votes cast at a duly called meeting of the Company's
stockholders held in accordance with applicable laws. No Awards
may be made prior to approval of the Plan by the stockholders of
the Company.
15. MODIFICATION OF AWARDS.
At any time, and from time to time, the Board may authorize
the Committee to direct execution of an instrument providing for
the modification of any outstanding Award, provided no such
modification shall confer on the holder of said Award any right
or benefit which could not be conferred on him by the grant of a
new Award at such time, or impair the Award without the consent
of the holder of the Award.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan
and, with respect to any Shares at the time not subject to
Awards, suspend or terminate the Plan. No amendment, suspension
or termination of the Plan shall, without the consent of any
affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
A-8<PAGE>
<PAGE>
17. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common
Stock shall not be issued with respect to any Award unless the
issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law, and
the requirements of any stock exchange upon which the Shares may
then be listed.
(b) Special Circumstances. The inability of the Company
to obtain approval from any regulatory body or authority deemed
by the Company's counsel to be necessary to the lawful issuance
and sale of any Shares hereunder shall relieve the Company of
any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option or SAR, the
Company may require the person exercising the Option or SAR to
make such representations and warranties as may be necessary to
assure the availability of an exemption from the registration
requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the
discretionary authority to impose in Agreements such
restrictions on Shares as it may deem appropriate or desirable,
including but not limited to the authority to impose a right of
first refusal or to establish repurchase rights or both of these
restrictions.
18. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and
keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
19. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise of
Options and/or SARs shall be subject to the Participant's
satisfaction of all applicable federal, state and local income
and employment tax withholding obligations. A Participant may
satisfy the obligation, in whole or in part, by irrevocably
electing to have the Company withhold Shares, or to deliver to
the Company Shares that he already owns, having a value equal to
the amount required to be withheld. The value of the Shares to
be withheld, or delivered to the Company, shall be based on the
Market Value of the Shares on the date the amount of tax to be
withheld is to be determined. As an alternative, the Company
may retain, or sell without notice, a number of such Shares
sufficient to cover the amount required to be withheld.
20. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility
to participate or participation in the Plan create or be deemed
to create any legal or equitable right of the Employee,
Director, or any other party to continue service with the
Company, the Bank, or any Affiliate of such corporations.
Except to the extent provided in Paragraphs 6(b) and 9(a), no
Employee or Director shall have a right to be granted an Award
or, having received an Award, the right to again be granted an
Award. However, an Employee or Director who has been granted an
Award may, if otherwise eligible, be granted an additional Award
or Awards.
21. GOVERNING LAW.
The Plan shall be governed by and construed in accordance
with the laws of the State of Tennessee, except to the extent
that federal law shall be deemed to apply.
A-9<PAGE>
<PAGE>
EXHIBIT B
CUMBERLAND MOUNTAIN BANCSHARES, INC.
MANAGEMENT RECOGNITION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 The Company hereby establishes this Plan upon the
terms and conditions hereinafter stated.
1.02 Through acceptance of their appointment to the
Committee, each member of the Committee hereby accepts his or
her appointment hereunder upon the terms and conditions
hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain
personnel of experience and ability in key positions of
responsibility by providing Employees and Directors of the
Company, the Bank, and their Affiliates with a proprietary
interest in the Company, and as compensation for their past
contributions to the Bank, and as an incentive to make such
contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with
an initial capital letter, shall have the meanings set forth
below unless the context clearly indicates otherwise. Wherever
appropriate, the masculine pronoun shall include the feminine
pronoun and the singular shall include the plural.
3.01 "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company, as such terms are
defined in Section 424(e) and (f), respectively, of the Internal
Revenue Code of 1986, as amended.
3.02 "Bank" means Middlesboro Federal Bank, Federal
Savings Bank.
3.03 "Beneficiary" means the person or persons designated
by a Participant to receive any benefits payable under the Plan
in the event of such Participant's death. Such person or
persons shall be designated in writing on forms provided for
this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence
of a written designation, the Beneficiary shall be the
Participant's surviving spouse, if any or if none, his estate.
3.04 "Board" means the Board of Directors of the Company.
3.05 "Change in Control" means any one of the following
events: (1) the acquisition of ownership, holding or power to
vote more than 25% of the Bank's or the Company's voting stock,
(2) the acquisition of the ability to control the election of a
majority of the Bank's or the Company's directors, (3) the
acquisition of a controlling influence over the management or
policies of the Bank or the Company by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934), (4) the acquisition of control
of the Bank or the Company within the meaning of 12 C.F.R. Part
574 or its applicable equivalent (except in the case of (1),
(2), (3) and (4) hereof, ownership or control of the Bank by the
Company itself shall not constitute a "Change in Control"), or
(5) during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period
constitute the Board of Directors of the Company or the Bank
(the "Existing Board") cease
B-1<PAGE>
<PAGE>
for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for
election as a member of the Existing Board was approved by a
vote of at least two-thirds of the Continuing Directors then in
office shall be considered a Continuing Director. For purposes
of this subparagraph only, the term "person" refers to an
individual or a corporation, partnership, trust, association,
joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to
whether a change in control has occurred shall be conclusive and
binding.
3.06 "Committee" means the Management Recognition Plan
Committee appointed by the Board pursuant to Article IV hereof.
3.07 "Common Stock" means shares of the common stock of
the Company.
3.08 "Company" means Cumberland Mountain Bancshares, Inc.
3.09 "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee or
Director of the Company or an Affiliate. Continuous Service
shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the
Company in the case of transfers between payroll locations of
the Company or between the Company, an Affiliate or a successor,
or in the case of a Director's performance of services in an
emeritus or advisory capacity.
3.10 "Date of Conversion" means the date of the
conversion of Cumberland Mountain Bancshares, MHC from mutual to
stock form.
3.11 "Director" shall mean any member of the Board, and
any member of the board of directors of any Affiliate whose
directors the Board has by resolution designated as being
eligible for participation in this Plan.
3.12 "Disability" shall mean a physical or mental
condition, which in the sole and absolute discretion of the
Committee, is reasonably expected to be of indefinite duration
and to substantially prevent a Participant from fulfilling his
or her duties or responsibilities to the Company or an
Affiliate.
3.13 "Effective Date" means the date on which the Plan
first becomes effective, as determined under Section 8.07
hereof.
3.14 "Employee" means any person who is employed by the
Company or an Affiliate.
3.15 "Non-Employee Director" shall have the meaning
provided in Rule 16b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.
3.16 "Participant" means an Employee or Director who
holds a Plan Share Award.
3.17 "Plan" means this Cumberland Mountain Bancshares,
Inc. Management Recognition Plan.
3.18 "Plan Shares" means shares of Common Stock held in
the Trust which are awarded or issuable to a Participant
pursuant to the Plan.
3.19 "Plan Share Award" means a right granted under this
Plan to receive Plan Shares.
3.20 "Plan Share Reserve" means the shares of Common
Stock held by the Trustee pursuant to Sections 5.02 and 5.03.
B-2<PAGE>
<PAGE>
3.21 "Trust" and "Trust Agreement" mean that agreement
entered into pursuant to the terms hereof between the Company
and the Trustee, and "Trust" means the trust created thereunder.
3.22 "Trustee" means that person(s) or entity appointed
by the Board pursuant to the Trust Agreement to hold legal title
to the Plan assets for the purposes set forth herein.
3.23 "Year of Service" shall mean a full twelve-month
period, measured from the date of a Plan Share Award and each
annual anniversary of that date, during which a Participant's
Continuous Service has not terminated for any reason.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE AND POWERS OF THE COMMITTEE. The Plan shall be
administered and interpreted by the Committee, which shall
consist of not less than two members of the Board who are
Non-Employee Directors. In the absence at any time of a duly
appointed Committee, the Plan shall be administered by those
members of the Board who are Non-Employee Directors, and by the
Board if there are less than two Non-Employee Directors.
The Committee shall have all of the powers allocated to it
in this and other Sections of the Plan. Except as limited by
the express provisions of the Plan or by resolutions adopted by
the Board, the Committee shall have sole and complete authority
and discretion (i) to make Plan Share Awards to such Employees
as the Committee may select, (ii) to determine the form and
content of Plan Share Awards to be issued under the Plan, (iii)
to interpret the Plan, (iv) to prescribe, amend and rescind
rules and regulations relating to the Plan, and (v) to make
other determinations necessary or advisable for the
administration of the Plan. The Committee shall have and may
exercise such other power and authority as may be delegated to
it by the Board from time to time. Subject to Section 4.02, the
interpretation and construction by the Committee of any
provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding. The Committee shall act
by vote or written consent of a majority of its members, and
shall report its actions and decisions with respect to the Plan
to the Board at appropriate times, but in no event less than one
time per calendar year. The Committee may recommend to the
Board one or more persons or entity to act as Trustee(s) in
accordance with the provisions of this Plan and the Trust.
4.02 ROLE OF THE BOARD. The members of the Committee
shall be appointed or approved by, and will serve at the
pleasure of, the Board. The Board may in its discretion from
time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to
it in this and other Sections of the Plan, may take any action
under or with respect to the Plan which the Committee is
authorized to take, and may reverse or override any action taken
or decision made by the Committee under or with respect to the
Plan, provided, however, that the Board may not revoke any Plan
Share Award already made or impair a participant's vested rights
under a Plan Share Award. With respect to all actions taken by
the Board in regard to the Plan, such action shall be taken by a
majority of the Board where such a majority of the directors
acting in the matter are Non-Employee Directors.
4.03 LIMITATION ON LIABILITY. No member of the Board or
the Committee or the Trustee(s) shall be liable for any
determination made in good faith with respect to the Plan or any
Plan Shares or Plan Share Awards granted under it. If a member
of the Board or the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of anything done or
not done by him in such capacity under or with respect to the
Plan, the Company shall indemnify such member against expenses
(including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she
acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the Company and its
Affiliates and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
B-3<PAGE>
<PAGE>
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall
determine the amounts (or the method of computing the amounts)
to be contributed by the Company to the Trust, provided that the
Bank may also make contributions to the Trust. Such amounts
shall be paid to the Trustee at the time of contribution. No
contributions to the Trust by Employees shall be permitted.
5.02 INVESTMENT OF TRUST ASSETS; MAXIMUM PLAN SHARE
AWARDS. The Trustee shall invest Trust assets only in
accordance with the Trust Agreement; provided that the Trust
shall not purchase, and Plan Share Awards shall not be made with
respect to, more than 17,589 Shares sold to the public in the
Company's stock offering on the Date of Conversion. Such Shares
may be newly issued Shares, Shares held in Treasury, or Shares
held in a grantor trust.
5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON
PLAN SHARE RESERVES. Upon the allocation of Plan Share Awards
under Section 6.02, the Plan Share Reserve shall be reduced by
the number of Shares subject to the Awards so allocated. Any
Shares subject or attributable to an Award which may not be
earned because of a forfeiture by the Participant pursuant to
Section 7.01 shall be added to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. The Committee shall make Plan Share
Awards only to Employees. In selecting those Employees to whom
Plan Share Awards will be granted and the number of shares
covered by such Awards, the Committee shall consider the
position, duties and responsibilities of the eligible Employees,
the value of their services to the Company and its Affiliates,
and any other factors the Committee may deem relevant.
6.02 ALLOCATIONS. The Committee will determine which
Employees will be granted discretionary Plan Share Awards, and
the number of Shares covered by each Plan Share Award, provided
that in no event shall any Awards be made which will violate the
governing instruments of the Bank or its Affiliates or any
applicable federal or state law or regulation. In the event
Plan Shares are forfeited for any reason or additional shares of
Common Stock are purchased by the Trustee, the Committee may,
from time to time, determine which of the Employees referenced
in Section 6.01 above will be granted additional Plan Share
Awards to be awarded from the forfeited or acquired Plan Shares.
6.03 FORM OF ALLOCATION. As promptly as practicable
after a determination is made pursuant to Section 6.02 that a
Plan Share Award is to be made, the Committee shall notify the
Participant in writing of the grant of the Award, the number of
Plan Shares covered by the Award, and the terms upon which the
Plan Shares subject to the Award may be earned. The date on
which the Committee so notifies the Participant shall be
considered the date of grant of the Plan Share Awards. The
Committee shall maintain records as to all grants of Plan Share
Awards under the Plan.
6.04 AUTOMATIC GRANTS. On the Effective Date, each of
the following individuals shall receive a Plan Share Award as to
the number of Plan Shares listed below, provided that such award
shall not be made to an individual who is not an Employee on the
Effective Date:
<TABLE>
<CAPTION>
Shares Subject to
Participant Plan Share Award
----------- -----------------
<S> <C>
James J. Shoffner 4,221
Diana Miracle 1,408
J.D. Howard 1,407
</TABLE>
B-4<PAGE>
<PAGE>
Plan Share Awards received under the provisions of this
Section shall become vested and nonforfeitable according to the
general rules set forth in subsections (a) and (b) of Section
7.01, and the Committee shall have no discretion to alter said
vesting requirements. Unless otherwise inapplicable or
inconsistent with the provisions of this Section, the Plan Share
Awards to be granted hereunder shall be subject to all other
provisions of this Plan.
6.06 ALLOCATIONS NOT REQUIRED. Notwithstanding anything
to the contrary in Sections 6.01 and 6.02, but subject to
Section 6.04, no Employee or Director shall have any right or
entitlement to receive a Plan Share Award hereunder, such Awards
being at the total discretion of the Committee, nor shall any
Employees or Directors as a group have such a right. The
Committee may, with the approval of the Board (or, if so
directed by the Board) return all Common Stock in the Plan Share
Reserve to the Company at any time, and cease issuing Plan Share
Awards.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Unless the Committee specifically
eliminates any vesting requirement or imposes a different
vesting schedule, 33 1/3% of the Plan Shares subject to a Plan
Share Award shall be earned and become non- forfeitable upon the
Participant's completion of each of three Years of Service
after the date of the Award.
(b) ACCELERATION FOR TERMINATIONS DUE TO DEATH,
DISABILITY, OR CHANGE IN CONTROL. Notwithstanding the general
rule contained in Section 7.01(a) above: (i) all Plan Shares
subject to a Plan Share Award held by a Participant whose
service with the Company or an Affiliate terminates due to the
Participant's death or Disability shall be deemed earned and
100% vested as of the Participant's last day of service with the
Company or an Affiliate, and (ii) all Plan Shares subject to a
Plan Share Award held by a Participant shall be deemed earned
and 100% vested as of a Change in Control or, if earlier, the
execution of an agreement to effect a Change in Control.
7.02 ACCRUAL OF DIVIDENDS. Whenever Plan Shares are paid
to a Participant or Beneficiary under Section 7.03, such
Participant or Beneficiary shall also be entitled to receive,
with respect to each Plan Share paid, an amount equal to any
cash dividends (including special large and nonrecurring
dividends, including one that has the effect of a return of
capital to the Company's stockholders) and a number of shares of
Common Stock equal to any stock dividends, declared and paid
with respect to a share of Common Stock between the date the
relevant Plan Share Award was initially granted to such
Participant and the date the Plan Shares are being distributed.
There shall also be distributed an appropriate amount of net
earnings, if any, of the Trust with respect to any cash
dividends so paid out.
7.03 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as
provided in Subsections (c), and (d) below, the Trustee shall
distribute Plan Shares and accumulated cash from dividends and
interest to the Participant or his Beneficiary, as the case may
be, as soon as practicable after they have been earned. No
fractional shares shall be distributed.
(b) FORM OF DISTRIBUTION. The Trustee shall distribute
all Plan Shares, together with any shares representing stock
dividends, in the form of Common Stock. One share of Common
Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earnings thereon) shall be made
in cash.
<PAGE>
(c) WITHHOLDING. The Trustee shall withhold from any cash
payment made under this Plan sufficient amounts to cover any
applicable withholding and employment taxes, and if the amount
of such cash payment is not sufficient, the Trustee shall
require the Participant or Beneficiary to pay to the Trustee the
amount required to be
B-5<PAGE>
<PAGE>
withheld as a condition of delivering the Plan Shares. The
Trustee shall pay over to the Company or Affiliate which employs
or employed such Participant any such amount withheld from or
paid by the Participant or Beneficiary.
(d) TIMING: EXCEPTION FOR 10% SHAREHOLDERS.
Notwithstanding Subsections (a) and (b) above, no Plan Shares
may be distributed prior to the date which is three (3) years
from the Date of Conversion to the extent the Participant or
Beneficiary, as the case may be, would after receipt of such
Shares own in excess of ten percent (10%) of the issued and
outstanding shares of Common Stock unless such action is
approved in advance by a majority vote of Non-employee Directors
of the Board. To the extent this limitation would delay the
date on which a Participant receives Plan Shares, the
Participant may elect to receive from the Trust, in lieu of such
Plan Shares, the cash equivalent thereof. Any Plan Shares
remaining undistributed solely by reason of the operation of
this Subsection (d) shall be distributed to the Participant or
his Beneficiary on the date which is five years from the Date of
Conversion.
(e) REGULATORY EXCEPTIONS. No Plan Shares shall be
distributed unless and until all of the requirements of all
applicable law and regulation shall have been fully complied
with, including the receipt of approval of the Plan by the
stockholders of the Company by such vote, if any, as may be
required by applicable law and regulations.
7.04 VOTING OF PLAN SHARES. All shares of Common Stock
held by the Trust (whether or not subject to a Plan Share Award)
shall be voted by the Trustee in the same proportion as the
trustee of the Company's Employee Stock Ownership Plan votes
Common Stock held in the trust associated therewith, and in the
absence of any such voting, shall be voted in the manner
directed by the Board.
7.05. DEFERRAL ELECTIONS BY PARTICIPANTS.
(a) ELECTIONS TO DEFER. At any time prior to December 31st
of any year prior to the date on which a Participant becomes
vested in any shares subject to his or her Plan Share Award, a
Participant who is a member of a select group of management or
highly compensated employees (within the meaning of the
Employees' Retirement Income Security Act of 1973) may
irrevocably elect, on the form attached hereto as Exhibit "A"
(the "Election Form"), to defer the receipt of all or a
percentage of the Plan Shares that would otherwise be
transferred to the Participant upon the vesting of such award
(the "Deferred Shares").
(b) RECORDKEEPING; HOLDING OF DEFERRED SHARES. The MRP
Committee shall establish and maintain an individual account in
the name of each Participant who files an Election Form for the
purpose of tracking deferred earnings attributable to cash
dividends paid on Deferred Shares (the "Cash Account"). On the
last day of each fiscal year of the Company, the Committee shall
credit to the Participant's Cash Account earnings on the balance
of the Cash Account at a rate equal to the dividend-adjusted
total return on Common Stock, as determined from time to time by
the MRP Committee in its sole discretion. The Trustees shall
hold each Participant's Deferred Shares and Deferred Earnings in
the Trust until distribution is required pursuant to the
election set forth in the Participant's Election Form.
(c) DISTRIBUTIONS OF DEFERRED SHARES. The Trustee shall
distribute a Participant's Deferred Shares and Deferred Earnings
in accordance with the Participant's Election Form. All
distributions made by the Company and/or the Trustees pursuant
to elections made hereunder shall be subject to applicable
federal, state, and local tax withholding and to such other
deductions as shall at the time of such payment be required
under any income tax or other law, whether of the United States
or any other jurisdiction, and, in the case of payments to a
beneficiary, the delivery to the Committee and/or Trustees of
all necessary waivers, qualifications and other documentation.
Within 90 days after receiving notice of a Participant's death,
the Trustee shall distribute any balance of the Participant's
Deferred Shares and Deferred Earnings to the Participant's
designated beneficiary, if living, or if such designated
beneficiary is deceased or the Participant failed to designate a
beneficiary, to the Participant's estate. If, on the other
hand, a Participant's Continuous Service terminates for a reason
other than the Participant's death, Disability, early
retirement, or normal retirement, the Participant's Deferred
Shares and Deferred Earnings shall be distributed to the
Participant in a lump sum occurring as soon as reasonably
practicable. The distribution provisions of a Participant's
B-6<PAGE>
<PAGE>
Election Form shall become irrevocable on the date that occurs
(i) one year before the Participant's termination of Continuous
Service for a reason other than death, and (ii) on the
Participant's death if that terminates the Participant's
Continuous Service.
(d) HARDSHIP WITHDRAWALS. Notwithstanding any other
provision of the Plan or a Participant's Election Form, in the
event the Participant suffers an unforeseeable emergency
hardship within the contemplation of this paragraph, the
Participant may apply to the Committee for an immediate
distribution of all or a portion of his Deferred Shares and
Deferred Earnings. The hardship must result from a sudden and
unexpected illness or accident of the Participant or a dependent
of the Participant, casualty loss of property, or other similar
conditions beyond the control of the Participant. Examples of
purposes which are not considered hardships include
post-secondary school expenses or the desire to purchase a
residence. In no event will a distribution be made to the
extent the hardship could be relieved through reimbursement or
compensation by insurance or otherwise, or by liquidation of the
Participant's nonessential assets to the extent such liquidation
would not itself cause a severe financial hardship. The amount
of any distribution hereunder shall be limited to the amount
necessary to relieve the Participant's financial hardship. The
determination of whether a Participant has a qualifying hardship
and the amount which qualifies for distribution, if any, shall
be made by the Committee in its sole discretion. The Committee
may require evidence of the purpose and amount of the need, and
may establish such application or other procedures as it deems
appropriate.
(e) RIGHTS TO DEFERRED SHARES AND EARNINGS. A Participant
may not assign his or her claim to Deferred Shares and Deferred
Earnings during his or her lifetime, except in accordance with
Section 8.03 of this Plan. A Participant's right to Deferred
Shares and Deferred Earnings shall at all times constitute an
unsecured promise of the Company to pay benefits as they come
due. The right of the Participant or his or her beneficiary to
receive benefits hereunder shall be solely an unsecured claim
against the general assets of the Company. Neither the
Participant nor his or her beneficiary shall have any claim
against or rights in any specific assets or other fund of the
Company, and any assets in the Trust shall be deemed general
assets of the Company.
ARTICLE VIII
MISCELLANEOUS
8.01 ADJUSTMENTS FOR CAPITAL CHANGES.
(a) RECAPITALIZATIONS; STOCK SPLITS, ETC. The number and
kind of shares which may be purchased under the Plan, and the
number and kind of shares subject to outstanding Plan Share
Awards, shall be proportionately adjusted for any increase,
decrease, change or exchange of shares of Common Stock for a
different number or kind of shares or other securities of the
Company which results from a merger, consolidation,
recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares, or similar event in
which the number or kind of shares is changed without the
receipt or payment of consideration by the Company.
(b) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE SURVIVING
ENTITY. In the event of (i) the liquidation or dissolution of
the Company, (ii) a merger or consolidation in which the Company
is not the surviving entity, or (iii) the sale or disposition of
all or substantially all of the Company's assets (any of the
foregoing to be referred to herein as a "Transaction"), all
outstanding Plan Share Awards shall be adjusted for any change
or exchange of shares of Common Stock for a different number or
kind of shares or other securities which results from the
Transaction.
<PAGE>
(c) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL, OR
DIFFERENT SHARES OR SECURITIES. If, by reason of any adjustment
made pursuant to this Section, a Participant becomes entitled to
new, additional, or different shares of stock or securities,
such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and
restrictions which were applicable to the shares pursuant to the
Plan Share Award before the adjustment was made. In addition,
the Committee shall have the discretionary authority to impose
on the Shares
B-7<PAGE>
<PAGE>
subject to Plan Share Awards to Employees such restrictions as
the Committee may deem appropriate or desirable, including but
not limited to a right of first refusal, or repurchase option,
or both of these restrictions.
(d) OTHER ISSUANCES. Except as expressly provided in this
Section, the issuance by the Company or an Affiliate of shares
of stock of any class, or of securities convertible into shares
of Common Stock or stock of another class, for cash or property
or for labor or services either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, shall not
affect, and no adjustment shall be made with respect to, the
number or class of shares of Common Stock then subject to Plan
Share Awards or reserved for issuance under the Plan.
8.02 AMENDMENT AND TERMINATION OF PLAN. The Board may,
by resolution, at any time amend or terminate the Plan; provided
that no amendment or termination of the Plan shall, without the
written consent of a Participant, impair any rights or
obligations under a Plan Share Award theretofore granted to the
Participant.
The power to amend or terminate the Plan in accordance with
this Section 8.02 shall include the power to direct the Trustee
to return to the Company all or any part of the assets of the
Trust, including shares of Common Stock held in the Plan Share
Reserve. However, the termination of the Trust shall not affect
a Participant's right to earn Plan Share Awards and to receive a
distribution of Common Stock relating thereto, including
earnings thereon, in accordance with the terms of this Plan and
the grant by the Committee or the Board.
8.03 NONTRANSFERABILITY. Plan Share Awards may not be
sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent
and distribution. Notwithstanding the foregoing, or any other
provision of this Plan, a Participant who holds Plan Share
Awards may transfer such Awards to his or her spouse, lineal
ascendants, lineal descendants, or to a duly established trust
for the benefit of one or more of these individuals. Plan Share
Awards so transferred may thereafter be transferred only to the
Participant who originally received the grant or to an
individual or trust to whom the Participant could have initially
transferred the Awards pursuant to this Section 8.03. Plan
Share Awards which are transferred pursuant to this Section 8.03
shall be exercisable by the transferee according to the same
terms and conditions as applied to the Participant.
8.04 NO EMPLOYMENT OR OTHER RIGHTS. Neither the Plan nor
any grant of a Plan Share Award or Plan Shares hereunder nor any
action taken by the Trustee, the Committee or the Board in
connection with the Plan shall create any right, either express
or implied, on the part of any Employee or Director to continue
in the service of the Company, the Bank, or an Affiliate
thereof.
8.05 VOTING AND DIVIDEND RIGHTS. No Participant shall
have any voting or dividend rights or other rights of a
stockholder in respect of any Plan Shares covered by a Plan
Share Award prior to the time said Plan Shares are actually
distributed to him.
8.06 GOVERNING LAW. The Plan and Trust shall be governed
and construed under the laws of the State of Tennessee to the
extent not preempted by Federal law.
8.07 EFFECTIVE DATE. The Plan shall become August 18,
1998; provided that the effectiveness of the Plan and any Plan
Share Award shall be absolutely contingent upon the Plan's
approval by a favorable vote of stockholders of the Company who
own at least a majority of the total votes cast at a duly called
meeting of the Company's stockholders held in accordance with
applicable laws. In no event shall Plan Share Awards be made
within one year of the Date of Conversion.
<PAGE>
8.08 TERM OF PLAN. This Plan shall remain in effect
until the earlier of (i) termination by the Board, or (ii) the
distribution of all assets of the Trust. Termination of the
Plan shall not affect any Plan Share Awards previously granted,
and such Awards shall remain valid and in effect until they have
been earned and paid, or by their terms expire or are forfeited.
B-8<PAGE>
<PAGE>
8.09 Tax Status of Trust. It is intended that (i) the
Trust associated with the Plan be treated as a grantor trust of
the Company under the provisions of Section 671 et seq. of the
Code, as the same may be amended from time to time, and (ii)
that in accordance with Revenue Procedure 92-65 (as the same may
be amended from time to time), Participants have the status of
general unsecured creditors of the Company, the Plan constitutes
a mere unfunded promise to make benefit payments in the future,
the Plan is unfunded for tax purposes and for purposes of Title
I of the Employee Retirement Income Security Act of 1974, as
amended, and the Trust has been and will continue to be
maintained in conformity with Revenue Procedure 92-64 (as the
same may be amended from time to time).
B-9<PAGE>
<PAGE>
REVOCABLE PROXY
CUMBERLAND MOUNTAIN BANCSHARES, INC.
_________________________________________________
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 21, 1998
_________________________________________________
The undersigned hereby appoints Robert R. Long, J. Roy
Shoffner and James J. Shoffner, with full powers of
substitution, to act as attorneys and proxies for the
undersigned, to vote all shares of Common Stock of Cumberland
Mountain Bancshares, Inc. (the "Company") which the undersigned
is entitled to vote at the Annual Meeting of Stockholders (the
"Annual Meeting"), to be held at the main office of Middlesboro
Federal Bank, Federal Savings Bank, 1431 Cumberland Avenue,
Middlesboro, Kentucky on Wednesday, October 21, 1998 at 2:00
p.m., Eastern Time, and at any and all adjournments thereof, as
indicated below and in accordance with the determination of a
majority of the Board of Directors with respect to other matters
which come before the Annual Meeting.
VOTE
FOR WITHHELD
1. The election as director of the
nominee listed below (except as
marked to the contrary below). [ ] [ ]
For Term to Expire in 1999:
--------------------------
Barry Litton
For Term to Expire in 2001:
--------------------------
Reecie Stagnolia, Jr.
Raymond C. Walker
INSTRUCTION: TO WITHHOLD YOUR VOTE
FOR ANY INDIVIDUAL NOMINEE, INSERT
THAT NOMINEE'S NAME ON THE LINE
PROVIDED BELOW.
_______________________________
FOR AGAINST ABSTAIN
2. Ratification of the appointment of
Marr, Miller & Myers, PSC as
auditors for the 1999 fiscal year. [ ] [ ] [ ]
3. Approval of the Cumberland Mountain
Bancshares, Inc. 1998 Stock Option
and Incentive Plan. [ ] [ ] [ ]
4. Approval of the Cumberland Mountain
Bancshares, Inc. Management
Recognition Plan. [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
LISTED PROPOSITIONS.
________________________________________________________________
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE NOMINEES AND FOR
EACH OF THE OTHER PROPOSALS LISTED ABOVE. IF ANY OTHER BUSINESS
IS PRESENTED AT THE ANNUAL MEETING, THIS PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN ACCORDANCE WITH THE DETERMINATION
OF A MAJORITY OF THE BOARD OF DIRECTORS. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY ON THE HOLDERS THEREOF TO VOTE WITH
RESPECT TO THE ELECTION OF ANY PERSON AS DIRECTOR WHERE THE
NOMINEE IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE AND
MATTERS INCIDENT TO THE CONDUCT OF THE ANNUAL MEETING.
________________________________________________________________<PAGE>
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the
Annual Meeting or at any adjournment thereof and after
notification to the Secretary of the Company at the Annual
Meeting of the stockholder's decision to terminate this proxy,
then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect. The undersigned
hereby revokes any and all proxies heretofore given with respect
to the shares of Common Stock held of record by the undersigned.
The undersigned acknowledges receipt from the Company prior
to the execution of this proxy of a Notice of Annual Meeting,
the Company's Proxy Statement for the Annual Meeting and an
Annual Report for the 1998 fiscal year.
Dated: _____________________, 1998
____________________________ ____________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
____________________________ ____________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on the envelope in
which this card was mailed. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title.
If shares are held jointly, each holder should sign.
Please check here if
you plan to attend
the Annual Meeting [ ]
________________________________________________________________
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
________________________________________________________________
