Pikeville National Corporation
208 North Mayo Trail
Pikeville, Kentucky 41501
PROXY STATEMENT
Annual Meeting of Shareholders
to be held April 23, 1996
INTRODUCTION
This Proxy Statement and accompanying proxy are furnished in
connection with the solicitation of proxies by the Board of Directors
of Pikeville National Corporation (the "Company") for use at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Tuesday, April 23, 1996, at 6:00 p.m. (EDT), at the Landmark
Convention Center, South Mayo Trail, Pikeville, Kentucky, and any
adjournments thereof. A copy of the Company's 1995 Annual Report to
Shareholders accompanies this Proxy Statement.
The cost of solicitation of proxies will be borne by the Company.
In addition to the use of the mails, proxies may be solicited in
person, by telephone and other means of communication by directors,
officers, and other employees of the Company, none of whom will
receive additional compensation for such services. The Company will
also request brokerage houses, custodians and nominees to forward
soliciting materials to the beneficial owners of stock held of record
by them, and will pay the reasonable expenses of such persons for
forwarding such materials. This Proxy Statement and the accompanying
proxy are first being mailed or given to shareholders of the Company
on or about March 20, 1996.
RECORD DATE AND VOTING SECURITIES
The Common Stock of Pikeville National Corporation ("Common Stock")
is the only class of outstanding voting securities. Only holders of
Common Stock of record at the close of business on February 29, 1996
(the "Record Date") are entitled to notice of and to vote at the
Annual Meeting. At the Record Date, there were 9,124,314 shares of
Common Stock outstanding. In the election of directors, shareholders
have cumulative voting rights. Accordingly, each shareholder will
have the right to cast as many votes in the aggregate as equals the
number of shares of Common Stock held by the shareholder multiplied by
the number of directors to be elected at the Annual Meeting. Each
shareholder may cast all of his or her votes for one candidate, or
distribute such votes among two or more candidates. Shareholders will
be entitled to one vote for each share of Common Stock held of record
on the Record Date with regard to any other matters that may properly
come before the Annual Meeting or any adjournment thereof.
Each proxy, unless the shareholder otherwise specifies, will be
voted in favor of the election of the 10 nominees for director named
herein. Where a shareholder has appropriately specified how the proxy
is to be voted, it will be voted accordingly. If considered
desirable, cumulative voting will be exercised at the discretion of
persons named in the proxy to elect as many of such nominees as
possible. As to any other matter which may properly be brought before
the Annual Meeting or any adjournment thereof, a vote may be cast
pursuant to the accompanying proxy in accordance with the judgment of
the person or persons voting the proxy. A shareholder may revoke his
or her proxy at any time prior to its exercise. Revocation may be
effected by written notice to the Company, by a subsequently dated
proxy received by the Company, or by oral revocation in person at the
Annual Meeting or any adjournment thereof, or by voting in person at
the Annual Meeting or any adjournment thereof.
A majority of the outstanding shares present in person or by proxy
is required to constitute a quorum to transact business at the Annual
Meeting. Abstentions will be treated as present for purposes of
determining a quorum, but as unvoted shares for purposes of
determining the approval of any matter submitted to the shareholders
for a vote. If a broker indicates that it does not have discretionary
authority as to certain shares to vote on a particular matter, such
shares will not be considered as present and entitled to vote with
respect to such matter.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information as to each shareholder
known by the Company to beneficially own more than five percent of the
Common Stock as of the Record Date.
Beneficial Owners Amount and Nature Percent
Name and Address of Beneficial Ownership of Class
Trust Company of Kentucky, 750,520 (1) 8.2%
as Fiduciary
P. O. Box 2560
Ashland, Kentucky 41105
(1) The shares indicated are held by Trust Company of Kentucky, a
subsidiary of the Company, in fiduciary capacities as trustee,
executor, agent or otherwise. Of the shares indicated, Trust Company
has sole voting rights with respect to 139,183 shares, shared voting
rights with respect to 31,325 shares and no voting rights with respect
to 580,012 shares. Trust Company has shared investment power with
respect to 48,688 shares and sole investment power with respect to
701,832 shares.
ELECTION OF DIRECTORS AND SECURITY OWNERSHIP OF MANAGEMENT
The Company's directors are elected at each annual meeting of the
shareholders and hold office until the next election of directors or
until their successors are duly elected and qualify. The persons
named below, all of whom currently serve as directors of the Company
have been nominated for election to serve until the 1997 Annual
Meeting of Shareholders. The following table sets forth certain
information respecting the persons nominated to be directors of the
Company:
<TABLE>
<CAPTION>
Amount and
Positions Nature of
and Director Principal Beneficial Percent
Name and Age (1) Offices * Since Occupation (2) Ownership (3) of Class
<S> <C> <C> <C> <C> <C> <C>
Charles J. Baird; 46 Director 1988 Baird, Baird, Baird 70,726 (5) (4)
& Jones, P.S.C.,
Attorneys
Burlin Coleman; 66 Chairman of 1980 Chairman of Board 306,883 (6) 3.4%
Board of of Directors -
Directors Pikeville National
Corporation
Terry N. Coleman; 44 President, 1993 President & CEO - 14,812 (7) (4)
Chief Executive Pikeville National
Officer, Chief Corporation
Operating Officer
& Director
Nick A. Cooley; 62 Director 1980 President - Unit 31,645 (4)
Coal Corporation
William A. Graham, Jr.; 59 Director 1990 Chairman - 100,560 (8) 1.1%
Farmers-Deposit Bank
Jean R. Hale; 49 Executive VP, 1993 President & CEO - 24,572 (9) (4)
Secretary & Pikeville National
Director Bank and Trust Company
<PAGE>
Brandt Mullins; 68 Vice Chairman 1980 Retired President - 79,876 (10) (4)
& Director Pikeville National
Bank and Trust Company
M. Lynn Parrish; 46 Director 1993 President - Knott 55,091 (11) (4)
Floyd Land Co., Inc.
Ernest M. Rogers; 68 Director 1980 President and General 52,741 (12) (4)
Manager - Rogers
Petroleum Services, Inc.
Porter Welch; 70 Director 1995 Chairman - The 80,714 (13) (4)
Woodford Bank and
Trust Company
All directors and executive officers as a group 879,619 (14) 9.6%
(13 in number, including the above named individuals)
<FN>
<F1>
* Burlin Coleman is also a director of Pikeville National Bank and
Trust Company, Farmers National Bank, First American Bank, Community
Trust Bank FSB and Trust Company of Kentucky. Terry N. Coleman is
also a director of Pikeville National Bank and Trust Company,
Commercial Bank, Middlesboro, The Woodford Bank and Trust Company and
Trust Company of Kentucky. Jean R. Hale is also a director of
Pikeville National Bank and Trust Company and Trust Company of
Kentucky. William A. Graham, Jr. is also a director of Farmers-
Deposit Bank. Brandt Mullins is also a director of First Security
Bank & Trust Co., Commercial Bank, West Liberty, Exchange Bank of
Kentucky and Farmers-Deposit Bank. Porter Welch is also a director of
The Woodford Bank and Trust Company.
<F2>
(1) The ages listed are as of February 29, 1996.
<F3>
(2) Each of the nominees has been engaged in the principal
occupation specified above for five years or more.
<F4>
(3) Under the rules of the Securities and Exchange Commission, a
person is deemed to beneficially own a security if the person has or
shares the power to vote or direct the voting of such security, or the
power to dispose or to direct the disposition of such security. A
person is also deemed to beneficially own any shares which that person
has the right to acquire beneficial ownership within sixty days.
Shares of Common Stock subject to options exercisable within sixty
days are deemed outstanding for computing the percentage of class of
the person holding such options but are not deemed outstanding for
computing the percentage of class for any other person. Unless
otherwise indicated, the named persons have sole voting and investment
power with respect to shares held by them.
<F5>
(4) Less than 1 percent.
<F6>
(5) Includes 34,226 shares in trust for W. J. Baird's grandchildren
over which Mr. Baird is trustee with the power to vote and invest such
shares.
<F7>
(6) Includes the following shares beneficially owned by Burlin
Coleman: 240,752 shares held in trust over which Mr. Coleman has sole
voting and investment power; 65,131 shares in which Mr. Coleman shares
voting power pursuant to a power of attorney; and 990 shares held
directly by Mr. Coleman. Excludes 8,770 shares held by Mr. Coleman's
wife, over which Mr. Coleman has no voting or investment power.
<F8>
(7) Includes 1,143 shares held in trust, 8,620 shares which Terry
N. Coleman may acquire pursuant to options exercisable within sixty
days of the Record Date and 1,980 shares held in the Company's
Employee Stock Ownership Plan ("ESOP"), which Mr. Coleman has the
power to vote. Excludes 1,636 shares held by Mr. Coleman's wife, over
which Mr. Coleman has no voting or investment power.
<F9>
(8) Includes 5,334 shares that Mr. Graham may acquire pursuant to
options exercisable within sixty days of the Record Date and 833
shares held in the ESOP, which Mr. Graham has the power to vote.
<F10>
(9) Includes 8,620 shares which Mrs. Hale may acquire pursuant to
options exercisable within sixty days of the Record Date and 1,980
shares held in the ESOP, which Mrs. Hale has the power to vote.
Excludes 3,537 shares held by Mrs. Hale's husband, over which Mrs.
Hale has no voting or investment power.
<F11>
(10) Includes 75,751 shares held in trust, which Mr. Mullins has the
power to vote. Excludes 22,875 shares held by Mr. Mullins' wife, over
which Mr. Mullins has no voting or investment power.
<F12>
(11) Excludes 600 shares held by Mr. Parrish's wife as custodian for
their minor child, over which Mr. Parrish has no voting or investment
power.
<F13>
(12) Excludes 15,344 shares held by Mr. Rogers' wife, over which Mr.
Rogers has no voting or investment power.
<F14>
(13) Includes 79 shares held in ESOP which Mr. Welch has the power
to vote.
<F15>
(14) Includes 27,824 shares which may be acquired by all directors
and executive officers as a group pursuant to options exercisable
within sixty days of the Record Date.
</FN>
</TABLE>
<PAGE>
Unless authority to do so is withheld, it is the intention of the
persons named in the proxy card to vote for the election of each of
the nominees listed above. All nominees have indicated a willingness
to serve and the Company does not anticipate that any of the above
nominees will decline or be unable to serve if elected as a director.
However, in the event that one or more of such nominees is unable,
unwilling or unavailable to serve, the persons named in the proxy
shall have authority, according to their judgement, to vote for such
substitute nominees as they, after consultation with the Company's
Board of Directors, shall determine.
The following persons are executive officers of Pikeville National
Corporation. They are not nominated to serve as directors. Their
security ownership is as follows:
Amount & Nature of Percent
Name Position Beneficial Ownership of Class
John H. Mays Chief Executive Officer - 61,699 (1) (2)
First American Bank & Director
Richard M. Levy Senior Vice President 300 (2)
and Chief Financial Officer
Walter T. Freeman Senior Vice President 0 (2)
and Senior Operations Officer
(1) Includes 5,250 shares which Mr. Mays may acquire pursuant to
options exercisable within sixty days of the Record Date, 1,951 shares
held in the ESOP, which Mr. Mays has the power to vote and 2,924
shares held in trust which Mr. Mays has the power to vote.
(2) Less than 1 percent.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
Directors of the Company, who are not also officers of the Company
are paid $1,000 per meeting of the Board if in attendance or $500 if
not in attendance. Directors who are also officers of the Company do
not receive additional compensation for serving as a director.
The Board of Directors had six meetings during the 1995 fiscal year.
The Board has among other committees, Audit and Asset Quality,
Compensation and Directors Nominating Committees. Nick Cooley, Bryan
Johnson and Brandt Mullins failed to attend at least 75% of the
aggregate number of regularly scheduled Board of Directors meetings
and meetings of committees of the Board on which the director served
during 1995.
The Audit and Asset Quality Committee consists of Earl Gene Johnson,
Leonard McCoy, Nick Cooley, Ernest M. Rogers and E. Bruce Walters. The Audit
and Asset Quality Committee met six times during 1995. The committee reviews
and reports to the Board with respect to various auditing and accounting
matters, including the appointment and performance of the independent
auditors, the scope of audit procedures, general auditing policy matters and
adequacy of internal controls.
The Compensation Committee consists of Brandt Mullins, Ernest M.
Rogers, Burlin Coleman and E. Bruce Walters. The Compensation
Committee, which held two meetings during 1995, reviews the
compensation practices of the Company and its subsidiaries.
The Directors Nominating Committee consists of George F. Johnson,
Brandt Mullins and E. Bruce Walters. This committee met one time in
1995.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In the ordinary course of business the Company, through its wholly-
owned subsidiary commercial banks and savings bank, has in the past
and expects to have in the future, banking transactions, including
lending to its directors, officers, principal shareholders and their
associates. When these banking transactions are credit transactions
they are made in the ordinary course of business,
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with others. In the opinion of the Company's Board of
Directors, such transactions do not involve more than the normal risk
of collectibility or present any other unfavorable features.
<PAGE>
Mr. Charles J. Baird, a director of the Company, is a shareholder
in Baird, Baird, Baird, & Jones, P.S.C., a law firm which provided
services to Pikeville National Corporation and its affiliates during
1995 and has been retained to provide legal services during the
current fiscal year 1996 by Pikeville National Corporation and its
affiliates. Approximately $90,000 in legal fees were paid to Baird,
Baird, Baird, & Jones during 1995.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Act")
requires the Company's executive officers and directors and persons
who own more than ten percent (10%) of the Common Stock, to file
initial reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC") as well as to furnish the
Company with a copy of such report (the Company is not aware of any
beneficial owner of more than 10% of its Common Stock). Additionally,
SEC regulations require the Company to identify in its Proxy Statement
those individuals for whom one of the referenced reports was not filed
on a timely basis during the most recent fiscal year. Earl Gene
Johnson was late filing a SEC Form 5 (annual statement of changes in
beneficial ownership) and E. Bruce Walters, John Shropshire, CEO at
Farmers-Deposit Bank, and Ernest M. Rogers were late filing SEC Form 4
(statement of changes in beneficial ownership) during 1995.
EXECUTIVE COMPENSATION
The following table sets forth the total annual compensation paid or
accrued by the Company to or for the account of the Chief Executive
Officer and each of the executive officers of the Company whose total
cash compensation for the fiscal year ended December 31, 1995 exceeded
$100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-Term
Compensation
All Other
Salary Bonus (1) Options (2) Compensation (3)
Name and Principal Position Year ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
Terry N. Coleman 1995 180,000 24,032 1,545 12,590
President, Chief Executive 1994 165,000 35,021 1,467 13,746
Officer and Director 1993 150,000 25,500 1,500 11,069
Jean R. Hale 1995 170,000 24,032 1,545 12,132
Executive Vice President 1994 165,000 35,021 1,467 16,359
Secretary and Director 1993 150,000 25,500 1,500 10,566
John H. Mays 1995 123,810 200 0 16,044
Chief Executive Officer - 1994 140,000 1,000 0 9,784
First American Bank and Director 1993 144,106 1,000 1,500 14,913
Richard M. Levy (4) 1995 104,807 8,312 0 21,357
Senior Vice President 1994 0 0 0 0
and Chief Financial Officer 1993 0 0 0 0
Walter T. Freeman (5) 1995 140,000 8,645 0 3,122
Senior Vice President and 1994 0 0 0 0
Senior Operations Officer 1993 0 0 0 0
<PAGE>
<FN>
<F1>
(1) Bonuses are paid under the Company's employee incentive plan, in
which all full-time employees of the Company and its subsidiaries
participate. Bonuses paid to employees of subsidiary banks are based
on return on assets and growth in average core deposits for their
respective subsidiary bank. Bonuses paid to employees of the Company
are based on the return on assets and growth in average core deposits
for all subsidiary banks. Bonuses are paid as a uniform percentage of
annual salary for all such employees. Affiliate bank CEO's are also
eligible for additional bonuses based on performance. (See report of
the Compensation Committee)
<F2>
(2) These options were granted under the 1989 Stock Option Plan (the
"Option Plan"). The Option Plan permits the grant of options to
employees of the Company and its subsidiaries whose efforts contribute,
or may be expected to contribute materially to the successful performance
of the Company.
<F3>
(3) Amounts in this column include director fees (paid to Mr. John H.
Mays) and contributions by the Company under the ESOP and the 401(K)
Profit Sharing and Trust (the "401 (K) Plan"). Entries for 1995
include (a) Company contributions to the ESOP (Mr. Terry N. Coleman
$6,943, Mrs. Jean R. Hale $6,476, and Mr. John H. Mays $4,951) and (b)
Company contributions to the 401 (K) Plan (Mr. Terry N. Coleman
$4,728, Mrs. Jean R. Hale $4,120 and Mr. John H. Mays $3,983).
Relocation compensation of $20,994 to Richard M. Levy and $2,535 to
Walter T. Freeman is also included. Participation in the 401 (K) Plan
is available to any employee of the Company or its subsidiaries who
has been employed for one year, completed 1,000 hours of service and
has attained the age of 21 ("Participant"). Participants may
contribute 1% to 15% of their annual salary, and the Company will
contribute 50% of the Participant's first 8% of contributions. Any
Participant is also eligible to participate in the ESOP, to which the
Company contributes a percentage of each Participant's salary as
determined annually by the Board of Directors. For 1994 and 1995, the
Company made a contribution to the ESOP in an amount equal to 4% of
the Participants' annual salaries.
<F4>
(4) Richard M. Levy was employed by Pikeville National Corporation on
February 27, 1995. Mr. Levy's title changed to Executive Vice
President adn Chief Financial Officer as of January 23, 1996.
<F5>
(5) Walter T. Freeman was employed by Pikeville National Corporation
on February 20, 1995.
</FN>
</TABLE>
The following table sets forth the information regarding options
granted to the named executive officers during fiscal year 1995.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Individual Grants Price Appreciation
for Option Term (2)
Number of Percent
Securities of Total
Underlying Options/SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted (1) in Price Expiration
Name (#) Fiscal Year ($/SH) Date 5% ($) 10% ($)
Terry N. Coleman 1,545 17.45% 23.13 2/20/2005 22,469 56,941
Jean R. Hale 1,545 17.45% 23.13 2/20/2005 22,469 56,941
John H. Mays 0 0.00% 0.00 N/A N/A N/A
Richard M. Levy 0 0.00% 0.00 N/A N/A N/A
Walter T. Freeman 0 0.00% 0.00 N/A N/A N/A
(1) Options become exercisable in equal 25% installments beginning
one year after the date of the grant and become fully exercisable upon
a change in control of the Company. Options expire if not exercised
ten years after the date of the grant.
(2) These amounts, based on assumed appreciation rates of 5% and 10%
rates prescribed by the Securities and Exchange Commission rules, are
not intended to forecast possible future appreciation, if any, of the
Common Stock price. Moreover, these values do not take into
consideration the provisions of the options providing for
nontransferability, vesting over a period of four years or termination
of the options following termination of employment. The amounts shown
are pre-tax and assume the options will be held throughout the entire
ten year term. Actual gains, if any, are dependent upon the future
performance of the Common Stock, as well as the continued employment
of the option holder through the vesting periods.
<PAGE>
The following table sets forth the number and value of unexercised
options held by the named executive officers at December 31, 1995. No
options or SARs were exercised by the named executive officers during
the 1995 fiscal year. No SARs were held by the named executive
officers at December 31, 1995.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR VALUES
Number of
Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Fiscal Year-End (#) at Fiscal Year-End ($) (1)
Name Exercisable Unexercisable Exercisable Unexercisable
Terry N. Coleman 7,304 3,958 47,104 4,826
Jean R. Hale 7,304 3,958 47,104 4,826
John H. Mays 4,688 1,313 30,791 4,826
Richard M. Levy 0 0 0 0
Walter T. Freeman 0 0 0 0
(1) Based on the closing price of the Common Stock at December 31,
1995.
REPORT OF THE COMPENSATION COMMITTEE
The principal duties of the Compensation Committee are to review the
compensation of executive officers of the Company and make
recommendations to the Board for approval.
The Company's compensation package for executive officers consists
of base salary plus the opportunity to earn a cash bonus and
discretionary stock options. The base salaries of the Company's
executive officers, including its Chief Executive Officer, are set at
levels the Committee believes sufficient to attract and retain
qualified executives. Outside consultants were used in establishing
the base salaries, which the Committee believes to be in line with the
base salaries paid by other companies within the Company's peer group
bank holding companies with total consolidated assets of one to three
billion dollars. This is not the peer group used to construct the
performance graph contained in this proxy statement.
Cash bonuses are based on return on assets and core deposit growth
at each of the Company's subsidiary banks and are paid as a uniform
percentage of annual salary for executive officers and all other
employees. The cash bonuses are determined on the following schedule:
Incentive as a
Return on Assets % of Salary
1.00 and Below Board Discretion
1.01 - 1.05% 5%
1.06 - 1.10% 6%
1.11 - 1.15% 7%
1.16 - 1.20% 8%
1.21 - 1.25% 9%
Each Additional Additional
.05% 1%
Adjustments to the bonus are made if core deposit growth is above or
below 4.0%. For 1995, the Company's executive officers were employees
of the Company or its lead bank, Pikeville National Bank and Trust
Company, and their bonuses were based on the bank's return or the
average of all the banks.
Affiliate bank CEO's are also eligible for non-discretionary stock
options and additional cash bonuses based on performance goals.
Senior managers of the Company and affiliate banks are also eligible
for discretionary stock options.
The salary and bonus of Terry N. Coleman, the Chief Executive
Officer, was tied to the lead bank's return on equity and deposit
growth in fiscal 1995 and was not tied to stock performance. The
Compensation Committee believes the compensation of the Chief
Executive Officer is in line with other companies in its peer group.
<PAGE>
Stock options each were granted under the Option Plan to the
following Company and subsidiary bank officers:
Officer # of Shares
Terry N. Coleman 1,545
Jean R. Hale 1,545
Claude Bentley 229
Ralph Weickel 1,000
Kenneth Earley 500
William A. Graham, Jr. 335
Wayne Darnell 100
Garry McClure 1,000
The option price for all options granted was the bid price per share
of Common Stock on the date each option was granted.
OBRA Deductibility Limitation. The Omnibus Budget Reconciliation Act
of 1994 (OOBRAO) prohibits the deduction by public companies of compensation
of certain executive officers in excess of $1 million, unless certain
criteria are met. The Company has determined not to take any action at
this time with respect to its compensation plans to seek to meet these
criteria.
Compensation Committee:
Burlin Coleman Ernest M. Rogers Brandt Mullins E. Bruce Walters
During 1995, there were no interlocking relationships between any
executive officers of the Company and any entity whose directors or
executive officers serve on the Board of Directors' Compensation
Committee. However, Burlin Coleman was the Chief Executive Officer
and Brandt Mullins the Chief Operating Officer prior to their
retirements in 1994 and 1992, respectively.
COMMON STOCK PERFORMANCE
The following graph shows the cumulative return experienced by the
Company's shareholders during the last five years compared to the
NASDAQ Stock Market and the NASDAQ Bank Index. The graph assumes the
investment of $100 on December 31, 1990 in the Company's Common Stock
and each index and the reinvestment of all dividends paid during the
five year period.
Comparison of 5 Year Cumulative Total Return
among Pikeville National Corporation, NASDAQ Stock Market (U.S.),
and NASDAQ Bank Stocks
Fiscal Year Ending December 31
1990 1991 1992 1993 1994 1995
Pikeville National Corporation 100 100 198 282 259 196
NASDAQ Stock Market (U.S.) 100 161 186 215 210 296
NASDAQ Bank Stocks 100 164 239 272 271 404
<PAGE>
INDEPENDENT AUDITORS
Ernst & Young LLP ("Ernst & Young") has been selected as independent
certified public accountants for 1996 by the Audit and Asset Quality
Committee, subject to approval of the full Board of Directors .
Crowe Chizek & Company of South Bend, Indiana ("Crowe Chizek") were
the independent certified public accountants for the years ended
December 31, 1995, 1994 and 1993. The services rendered to the Company
by Crowe Chizek during these years included the audit of annual
financial statements, review of the Annual Report and reports filed
with the SEC, consultation on Internal Revenue Service examination and
consultation with the internal audit staff concerning documentation
and testing of internal accounting controls.
Ernst & Young replaced Crowe Chizek on January 23, 1996. During the
two most recent fiscal years and interim period prior to January 23,
1996, there have been no disagreements with Crowe Chizek on any matter
of accounting principles or practices, financial statement disclosure
or auditing scope or procedure or any reportable events.
Crowe Chizek's report on the financial statements and notes for the
fiscal years ended December 31, 1995 and 1994 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. The decision to
change independent certified public accountants was recommended by the
Audit and Asset Quality Committee and is subject to approval of the
full Board of Directors. Neither Crowe Chizek nor Ernst & Young is
expected to have a representative present at the meeting.
AMENDMENT OF 1989 STOCK OPTION PLAN
The Company's 1989 Stock Option Plan (the "Plan") provides for the
granting of options to purchase the common capital stock (the "Common
Stock") of the Company (the "Options"). Options permitted under the
Plan include both Incentive Stock Options ("ISO") qualifying for
favorable tax treatment pursuant to Section 422 of the Internal
Revenue Code of 1986 ("Code"), as well as Nonqualified Stock Options
("NSO"). In its current form, the Plan authorizes the issuance of
Options to purchase up to 225,000 shares of Common Stock. One proposed
Plan amendment is to increase the total number of shares available
under the Plan to 450,000 shares of Common Stock. As of January 30,
1996, the Fair Market Value to each share of Common Stock was $20.00
per share.
As of January 30, 1996, Options have been issued under the Plan
granting the right to acquire 126,686 shares of Common Stock with a
market value of $2,044,795 and 28,755 Options have been exercised
pursuant to which 28,755 shares of Common Stock were acquired by
persons eligible under the Plan having a market value of $335,334.
Options are granted under the Plan at the discretion of the
Compensation Committee of the Company's Board of Directors (the
"Committee"). Employees eligible for Options, the number of shares to
be covered by each Option and the character of the Options as either
ISO or NSO is determined by the Committee based upon criteria
including the duties of the employee, the employee's present and
potential contribution to the success of the Company, the employee's
anticipated number of years of active service remaining, and such
other factors as the Committee deems relevant in connection with
accomplishing the purposes of the Plan. In its current form, the Plan
extends the granting of Options through December 31, 1998.
The following are the proposed amendments (the "Amendments") to the
Plan and how the Amendments differ from the Plan as it currently
exists:
A. Increasing the total number of shares of Common Stock for which
Options may be issued from 225,000 to 450,000.
B. Eliminating the annual Plan limitations of granting Options for
the purchase of not more than 20,000 shares.
C. Increasing the percentage of an eligible person's base annual
salary for which ISOs may be granted by the Committee from 50% to 100%
of base salary.
D. Any special grant of an Option or Options by the Committee for
management retention purposes will not be subject to the existing 100%
of base salary limitation.
<PAGE>
E. Special rules will apply to any Option granted to an eligible
person that constitutes a special grant made by the Committee for
management retention purposes. Any such Option granted under the Plan
by the Committee shall survive a Change in Control and the Option will
neither lapse nor become immediately exercisable as a result of the
Change in Control but will continue in accordance with its terms. If
the Optionee incurs a termination of employment subsequent to a Change
in Control, the normal termination of employment provisions will apply
unless the termination of employment is involuntary (other than a
Discharge for Cause) or the termination is as a result of the
Optionee's Change in duties.
The classes of persons eligible to participate in the Plan and the
number of persons in each class (the "eligible persons, Employees or
Optionees") as determined by the Committee (the "Committee") from time
to time are as follows:
Class Number of Persons
Executive Class 5
Non-Executive Officer
Employee Group 17
Because of the discretionary authority possessed by the Committee in
granting Options, benefits to be allocated to eligible persons under the
Plan are not capable of being determined prospectively and the benefits
received by eligible persons under the Plan for the fiscal year ended
December 31, 1995 would not have been increased or decreased due to the
proposed amendments. However, the proposed amendments would allow the
Committee to grant greater benefits in future years to persons eligible
under the Plan. The benefits received by eligible persons under the Plan
for the Company's fiscal year ended December 31, 1995 are as follows:
Number of
Name and Position Dollar Value ($) Optioned Shares
Terry N. Coleman
Chief Executive Officer 43,200 2,160
Jean R. Hale
Executive Vice President 43,200 2,160
John H. Mays
Director 0 0
Richard M. Levy
Senior Vice President and
Chief Financial Officer 30,000 1,500
Walter T. Freeman
Senior Vice President and
Senior Operations Officer 0 0
Non-Executive Director Group 0 0
Executive Group 0 0
Non-Executive Officer
Employee Group 90,740 4,537
<PAGE>
The Board may discontinue, amend, alter or suspend the Plan, but may
not, without the approval of the holders of a majority of all the issued
and outstanding Common Stock present either in person or by proxy at a
meeting duly held for that purpose, make any alteration or amendment of
the Plan which operates (a) to withdraw supervision of the administration
of the Plan from the Committee, (b) to increase the total number of shares
of Common Stock for which Options may be granted under the Plan, except
upon changes in capitalization of the Company as provided in Section 9
of the Plan, (c) to extend the maximum Option period provided in Section 7.d
of the Plan, (d) to decrease the minimum Option Price provided in Section 7.c
of the Plan, or (e) to change the definition of "employees" so as to alter
the class of employees eligible to receive Options. A copy of the Plan is
enclosed with this Proxy Statement.
Options granted under the Plan are issued subject to the following
terms and conditions:
* Options shall be granted only to eligible persons and, in the
case of an ISO, shall not be granted to any employee who immediately
after the granting of an Option owns (as defined in Section 424(d) of
the Code) more than 10 percent of the issued and outstanding Common
Stock unless such option is granted at 110 percent of the Fair Market
Value of the Common Stock at the time of the grant of the Option.
Determining the ownership of Common Stock is subject to stock
attribution rules described in detail in the Plan.
* The Option shall not be transferable by the Optionee otherwise
than by will or by the laws of descent and distribution, and shall be
exercisable during the Optionee's lifetime only by the Optionee.
* If the Optionee's employment with the Company terminates for any
reason other than (1) death or permanent and total disability
("Disability"), (2) Discharge for Cause, or (3) as the result of a
Change in Control as described below, the Option then terminates three
months after employment terminates (unless the Optionee dies during
such period), or on the Option's expiration date, if earlier, and
shall be exercisable during such period after termination of
employment only with respect to the number of shares the Optionee was
entitled to purchase on the day preceding the termination of
employment. The Committee may, however, in specific cases and in its
sole discretion, permit the exercise by an Optionee of all or part of
the Options that were not exercisable on the date of termination of
employment within the three-month period after employment terminates.
If the Optionee's employment terminates because of Discharge for
Cause, the Option shall terminate at the time of such Discharge.
* In the event an Optionee who has been granted an Option under the
Plan in conjunction with a special grant by the Board for management
retention purposes, as described in the underlying Option Agreement,
incurs a termination of employment subsequent to a Change in Control
(as described in Section 12 of the Plan), the Option so granted shall
terminate three months after employment terminates (unless the Optionee
dies during such period), or on the Option's expiration date, if
earlier, and shall be exercisable during such period after termination
of employment only with respect to the number of shares the Optionee is
entitled to purchase on the day preceding the termination of employment.
However, if the Optionee's termination of employment is involuntary
(other than a Discharge for Cause), or is as a result of the Optionee's
Change in Duties, the Option shall continue in accordance with its
terms and the Plan until its expiration date. Any Option that continues
beyond the date that is three months after the termination of employment
shall be a Non-Qualified Option. A Change in Duties shall mean any one
or more of the following:
1. a significant change in the nature or scope of the Employee's
authorities or duties from those applicable to him immediately prior
to the date on which a Change in Control occurs;
2. a reduction in the Employee's base annual salary from that
provided to him immediately prior to the date on which a Change in
Control occurs;
3. a diminution in the Employee's eligibility to participate in
bonus, stock option, incentive award and other compensation plans
which provide opportunities to receive compensation, from the greater
of:
* the opportunities provided by the Company for executives with
comparable duties; or
* the opportunities under any such plans under which he was
participating immediately prior to the date on which a Change in
Control occurs;
4. a change in the location of the Employee's principal place of
employment by the Company by more than 25 miles from the location
where he was principally employed immediately prior to the date on
which a Change in Control occurs; or
<PAGE>
5. a reasonable determination by the board that, as a result of
a Change in Control and a change in circumstances thereafter
significantly affecting his position, he is unable to exercise the
authorities, powers, function or duties attached to his position
immediately prior to the date on which a Change in Control occurs.
* If the Option is an ISO, the aggregate Fair Market Value (determined
at the time the ISO is granted) of the Common Stock that is the
subject of the Option, with respect to which Options are exercisable
for the first time by an Optionee during any calendar year under the
Plan or any other plan of the Company, may not exceed $100,000.
Should an Option granted under the Plan which is intended to be an ISO
exceed such limitation, it shall be treated as an ISO to the extent of
the foregoing limitation and as a NSO to the extent of the excess.
* The terms and conditions of each ISO granted under the Plan to an
Employee shall be interpreted in a manner consistent with Section 422
of the Code and with all regulations issued thereunder.
* The Committee may, in its sole discretion, cause the Company to
convert an ISO to a NSO upon such terms and conditions and in such
manner as the Committee deems equitable.
* The Committee shall have the power, subject to the limitations
contained in the Plan, to prescribe additional terms and conditions in
respect of the granting or exercise of any Option under the Plan and
in particular shall prescribe the following terms and Conditions,
which shall be contained in the Option Agreement for such Option:
1. Whether the Option is an ISO or a NSO.
2. The number of shares of Common Stock to which the Option
pertains.
3. The exercise price of the Option, which shall not be less
than 100 percent of the Fair Market Value of the Common Stock at the
time of the grant of the Option, except as otherwise provided in the
Plan.
4. The term of the Option, which shall not exceed 10 years from the
date on which the Option is granted, unless the Optionee owns more
than 10 percent of the issued and outstanding Common Stock, in which
case the term of an ISO shall not exceed 5 years.
5. The method by which or time when the Option may be exercised in
whole or in part.
6. Whether the Option Price may be paid in whole or in part in
shares of Common Stock then owned by the Optionee.
7. For a NSO, the provisions for the withholding of federal, state
and local income or other taxes that are due in connection with the
exercise of the NSO.
For Federal income tax purposes, the Optionee does not recognize
income, and the Company is not allowed a deduction, upon the grant of
an ISO. The Optionee will not recognize taxable income upon exercise
of an ISO if the Optionee does not dispose of the Common Stock that is
the subject of the ISO within two (2) years of the date the ISO is
granted to the Optionee or within one (1) year of the date the
Optionee exercises the ISO. If the Optionee does not recognize income
with respect to the ISO, then the Company is not allowed a deduction
with respect to the ISO. The Optionee will, however, recognize
taxable income upon the Optionee's ultimate disposition of the shares
which were acquired by the Optionee pursuant to the ISO and the
Company will, at such time, be allowed a deduction in the amount of
the Option Price for the shares that were the subject of the ISO.
An Optionee that is granted a NSO does not recognize income, and the
Company is not allowed a deduction, in the taxable year in which the
NSO is granted. However, the Optionee will recognize taxable income
in the taxable year the Optionee exercises the NSO in an amount equal
to the difference between the value of the Common Stock subject to the
Option on the date the NSO is exercised and the Option Price.
Likewise, the Company will be allowed a deduction in the taxable year
the Optionee exercises the NSO in the amount of the taxable income
recognized by the Optionee.
<PAGE>
The Aggregate Options issued under the Plan and received by the
following groups of eligible persons as of January 30, 1996, are as
follows:
Number of
Name and Position Dollar Value ($) Optioned Shares (1)
Terry N. Coleman
Chief Executive Officer 240,052 13,422
Jean R. Hale
Executive Vice President 240,052 13,422
John H. Mays
Director 83,512 6,000
Richard M. Levy
Senior Vice President and
Chief Financial Officer 30,000 1,500
Walter T. Freeman
Senior Vice President and
Senior Operations Officer 0 0
Non-Executive Director Group 0 0
Executive Group 23,125 1,000
Non-Executive Officer
Employee Group 332,703 19,287
(1) Of this number, 2,880 options have been exercised by members of
the Non-Executive Officer Employee Group pursuant to which 2,880
shares of Common Stock were acquired.
SHAREHOLDER PROPOSALS
It is currently contemplated that the Company's 1997 Annual Meeting
of Shareholders will be held on or about April 22, 1997. In the event
that a shareholder desires to have a proposal considered for
presentation at the Company's 1997 Annual Meeting of Shareholders and
inclusion in the Proxy Statement for such meeting, the proposal must
be forwarded in writing to the Secretary of the Company so that it is
received no later than November 22, 1996. Any such proposal must comply
with the requirements of Rule 14(a)-8 promulgated under the Act.
<PAGE>
MISCELLANEOUS
The Board of Directors of the Company knows of no other business to
be presented to the Annual Meeting. If other matters should properly
come before the Annual Meeting or any adjournment thereof, a vote may
be cast pursuant to the accompanying proxy in accordance with the
judgment of the person or persons voting the proxy. The Board of
Directors urges each shareholder who does not intend to be present
and to vote at the Annual Meeting to complete, sign, and return the
enclosed proxy as promptly as possible.
By Order of the Board of Directors
Burlin Coleman
Burlin Coleman, Chairman of the Board
Terry N. Coleman
Terry N. Coleman, President
Pikeville, Kentucky
March 20, 1996
