<PAGE>
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
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
TRANS FINANCIAL BANCORP, 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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / 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>
TRANS FINANCIAL, INC.
500 EAST MAIN STREET
BOWLING GREEN, KENTUCKY 42101
March 3, 1998
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Trans Financial, Inc. (the "Company"), scheduled for 10:00 a.m., Central Time,
on Monday, April 20, 1998 at the Bowling Green - Warren County Convention
Center, 1021 Wilkinson Trace, Bowling Green, Kentucky. Holders of the Company's
outstanding shares of common stock as of February 18, 1998 are entitled to vote
at the Annual Meeting.
Accompanying this letter are a notice of the meeting, a proxy statement
relating to the meeting, a proxy card and the Annual Report of the Company. The
proxy statement contains information relating to the actions to be taken at the
meeting. We urge you to review the Annual Report and the proxy statement in
their entirety in order that you may be fully informed about the matters to be
considered at the meeting. After reviewing the enclosed materials, we urge you
to complete the proxy card and return it to us in the enclosed envelope.
In addition to the specific matters set forth in the enclosed notice of the
meeting, we look forward to discussing with you at the meeting any questions you
may have concerning the operation of the Company during the past year.
Whether or not you plan to attend the meeting in person, please mark, sign
and return the enclosed proxy card. If you do attend the meeting and desire to
vote in person, you may do so even though you have previously sent in a proxy
card.
Sincerely,
[SIGNATURE]
Thomas R. Wallingford
Chairman of the Board
[SIGNATURE]
Vince A. Berta
President and Chief Executive Officer
<PAGE>
TRANS FINANCIAL, INC.
500 EAST MAIN STREET
BOWLING GREEN, KENTUCKY 42101
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of Trans
Financial, Inc. (the "Company") will be held on Monday, April 20, 1998, at 10:00
a.m., Central Time, at the Bowling Green - Warren County Convention Center, 1021
Wilkinson Trace, Bowling Green, Kentucky, for the following purposes:
1. For the election of three Class I directors of the Company to hold
office in accordance with the terms and conditions set forth in the
accompanying proxy statement;
2. To consider a proposal to approve the Trans Financial, Inc. 1998
Stock Incentive Plan; and
3. To consider and act upon such other matters as may properly come
before the meeting or any adjournment or adjournments thereof.
Whether or not you plan to attend the Annual Meeting in person, please mark,
sign and return the enclosed proxy card as soon as possible in the enclosed
stamped, addressed envelope. If you do attend the Annual Meeting and desire to
vote in person, you may do so even though you have previously sent in a proxy
card. Only shareholders of record at the close of business on February 18, 1998
will be entitled to notice of, and to vote at, the meeting. The stock transfer
books of the Company will not be closed.
By Order of the Board of Directors,
[SIGNATURE]
Jay B. Simmons
Senior Vice President
General Counsel and Secretary
March 3, 1998
<PAGE>
TRANS FINANCIAL, INC.
500 EAST MAIN STREET
BOWLING GREEN, KENTUCKY 42101
----------------
PROXY STATEMENT
MARCH 3, 1998
---------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Trans Financial, Inc. (the "Company") of proxies for the
Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held
on April 20, 1998, at the Bowling Green - Warren County Convention Center, 1021
Wilkinson Trace, Bowling Green, Kentucky, at 10:00 a.m. It is anticipated that
this Proxy Statement will first be mailed to the shareholders on March 3, 1998.
Anyone executing and delivering a proxy has the power to revoke it at any
time prior to the establishment of a quorum at the Annual Meeting. Such
revocation must be in writing and delivered to the Secretary of the Company
prior to the time the presence of a quorum has been determined and declared. Any
valid and unrevoked proxy will be voted as specified in the proxy. IF NO
SPECIFICATION TO THE CONTRARY IS MADE, THE PROXY WILL BE VOTED FOR THE NOMINEES
FOR DIRECTORS, AND FOR THE PROPOSAL TO APPROVE THE TRANS FINANCIAL, INC. 1998
STOCK INCENTIVE PLAN, ALL IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH
IN THIS PROXY STATEMENT.
The solicitation of proxies will be made primarily by mail, and the Company
will bear the cost thereof. Certain officers and directors of the Company and
persons acting under their instructions, who will not be specifically
compensated for such services, may also solicit proxies on behalf of management
by means of telephone, personal interviews and mail. The cost of such additional
solicitation, if any, will not be material. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in doing so. In addition, the Company has retained Georgeson &
Company Inc. to assist in the solicitation of proxies from the Company's
shareholders. The fees to be paid to such firm for such services by the Company
are not expected to exceed $8,500, plus reasonable out-of-pocket costs and
expenses.
At the Annual Meeting, shareholders will elect three directors to serve as
Class I directors of the Company. In addition, as disclosed in the Notice of the
Annual Meeting, a proposal will be submitted to shareholders at the Annual
Meeting to approve a new stock incentive plan. Only shareholders of record at
the close of business on February 18, 1998 (the "Record Date") are entitled to
notice of, and to vote at, the Annual Meeting.
SHARES AND VOTING
On the Record Date, there were issued and outstanding 11,641,651 shares of
common stock of the Company ("Common Stock"). Holders of Common Stock are
entitled to one vote for each share held on the Record Date on all matters
presented to the shareholders at the Annual Meeting, except that, in the
election of directors, cumulative voting rules will apply. Under cumulative
voting, each shareholder is entitled to cast the number of votes equal to the
number of shares of Common Stock owned by him or her, multiplied by the number
of directors to be elected. Each shareholder, or his or her proxy, may cast all
of his or her votes (as thus determined) for a single nominee for director or
may distribute them among two or more nominees, in the shareholder's discretion.
Under cumulative voting, the three nominees receiving the most votes cast for
the election of directors at the Annual Meeting will be elected, which means
that abstentions and broker
<PAGE>
non-votes will have no effect on the outcome of the vote. The authority of the
persons named as proxies in the accompanying proxy card to cumulate votes is
described in the section entitled "ELECTION OF DIRECTORS" below.
Shareholders are being asked to approve the Trans Financial, Inc. 1998 Stock
Incentive Plan. An affirmative vote of a majority of the shares of the Company's
Common Stock represented in person or by proxy at the Annual Meeting and
entitled to vote on the proposal is necessary for approval. Abstentions and
broker non-votes will have the effect of a "No" vote.
VOTING SECURITIES AND OWNERSHIP
As of the Record Date, to the knowledge of the Company, no person or entity
beneficially owned more than five percent (5%) of the issued and outstanding
shares of Common Stock, which is the only class of stock of the Company entitled
to vote at the Annual Meeting, except as follows:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS NUMBER OF CLASS
TITLE OF CLASS OF BENEFICIAL OWNER OF SHARES OUTSTANDING
- ----------------- ------------------------------------------------------------------- ------------ ---------------
<S> <C> <C> <C>
Common Stock Trans Financial Bank, National Association, as Trustee of the Trans 838,411(1) 7.20%
Financial Savings Investment Plan and as Trustee of the Trans
Financial Employee Stock Ownership Plan
500 East Main Street
Bowling Green, Kentucky 42101
</TABLE>
- ------------
(1) Includes 360,315 shares (or 3.10% of those outstanding) held as Trustee
under the Trans Financial Savings Investment Plan ("Savings Investment
Plan") and 478,096 shares (or 4.11% of those outstanding) held as Trustee
under the Trans Financial Employee Stock Ownership Plan ("ESOP"). The Common
Stock was acquired in open market transactions pursuant to the terms of the
Savings Investment Plan and the ESOP. Shares of Common Stock allocated to
the accounts of ESOP partici-pants are voted by the participants, and the
Bank disclaims beneficial ownership of these shares. As of the Record Date,
shares aggregating 512,116 (or 4.40% of those outstanding) held in the
Savings Investment Plan or held in the ESOP and not yet allocated to
participants' accounts may be voted by the Trustee.
4
<PAGE>
The following table sets forth information as of the Record Date relating to
the ownership of Common Stock by each director and nominee, by the Company's
Chief Executive Officer and each of the other "Named Executive Officers" (as
such term is defined in the section entitled "EXECUTIVE COMPENSATION AND OTHER
INFORMATION" below) employed by the Company as of the Record Date, and by all
directors, nominees for director and executive officers of the Company as a
group. Except where otherwise stated, sole voting and investment power are held
by the beneficial owners named.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF CLASS
NAME BENEFICIAL OWNERSHIP OUTSTANDING
- ------------------------------------------------------------------------- ---------------------- -----------------
<S> <C> <C>
Vince Berta 65,639(1) 0.56%
Barry D. Bray 81,145(2) 0.70%
James G. Campbell 8,519(3) 0.07%
Mary D. Cohron 21,917 0.19%
John K. Davis II 4,987(4) 0.04%
Floyd H. Ellis 29,572 0.25%
David B. Garvin 4,588(5) 0.04%
Wayne Gaunce 31,441(6) 0.27%
C.C. Howard Gray 9,298 0.08%
Charles A. Hardcastle 52,176(7) 0.45%
Carroll Knicely 30,242(8) 0.26%
C. Cecil Martin 60,609(9) 0.52%
Edward R. Matthews 12,943(10) 0.11%
James D. Scott 152,004(11) 1.31%
Ronald Szejner 37,698(12) 0.32%
William B. Van Meter 100,422(13) 0.86%
Thomas R. Wallingford 43,798(14) 0.38%
Directors, nominees for director and executive officers as a group 849,878(15) 7.30%
(24 persons)
</TABLE>
- ------------
(1) Includes 3,594 shares held by the Savings Investment Plan, 1,878 shares
held by the ESOP, 3,500 shares owned by Mr. Berta's wife, and 37,166 shares
subject to options granted under the Company's stock option plans that Mr.
Berta could exercise within 60 days of the Record Date.
(2) Includes 15,372 shares held by the Savings Investment Plan, 9,802 shares
held by the ESOP, and 2,133 shares owned by Mr. Bray's wife.
(3) Includes 3,575 shares held by the Savings Investment Plan, 1,510 shares
held by the ESOP, and 3,334 shares subject to options granted under the
Company's stock option plans that Mr. Campbell could exercise within 60 days
of the Record Date.
(4) Includes 175 shares held by the Savings Investment Plan, 190 shares held by
the ESOP, and 2,000 shares subject to options granted under the Company's
stock option plans that Mr. Davis could exercise within 60 days of the
Record Date.
(5) Includes 4,162 shares owned by Mr. Garvin's children. Does not include
400,541 shares held by a trust of which Mr. Garvin is the sole beneficiary.
(6) Includes 23,557 shares owned by Mr. Gaunce's wife.
(7) Includes 8,137 shares owned by Mr. Hardcastle's wife and 26,612 shares
owned by B.G. Chemicals, Inc., of which Mr. Hardcastle is a 30% owner.
(8) Includes 7,480 shares owned by Mr. Knicely's wife.
(9) Includes 29,319 shares owned by Mr. Martin's wife and 3,333 shares owned by
Center of Insurance, Inc., of which Mr. Martin is a 50% owner.
5
<PAGE>
(10) Includes 1,204 shares held by the Savings Investment Plan, 1,073 shares
held by the ESOP, and 8,366 shares subject to options granted under the
Company's stock option plans that Mr. Matthews could exercise within 60 days
of the Record Date.
(11) Includes 35,310 shares owned by Mr. Scott's wife.
(12) Includes 698 shares held by the ESOP, and 37,000 shares subject to options
granted under the Company's stock option plans that Mr. Szejner could
exercise within 60 days of the Record Date.
(13) Includes 3,500 owned by a partnership, of which Mr. Van Meter is a 50%
owner.
(14) Includes 5,618 shares owned by a revocable trust for the benefit of Mr.
Wallingford's wife, of which Mr. Wallingford is the sole trustee.
(15) Includes 109,528 shares subject to options granted under the Company's
stock option plans that executive officers could exercise within 60 days of
the Record Date.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors and persons who own more
than ten percent (10%) of the Company's Common Stock to file with the Securities
and Exchange Commission ("SEC") reports of ownership and changes in ownership.
Based solely on its review of the forms filed with the SEC, or written
representations from certain reporting persons that no Forms 5 were required for
those persons, the Company believes that everyone who was an executive officer,
director or greater than 10% beneficial owner at any time during 1997 complied
with all filing requirements applicable to them during 1997, with the following
exceptions. Mr. Campbell was late in filing one report covering four
transactions. Mr. Davis was late in filing one report covering one transaction.
Gregg Hall, who became an executive officer in December of 1997, failed to list
one option on his report of initial ownership on Form 3. Mr. Van Meter was late
in filing one report covering one transaction.
PROPOSAL I:
ELECTION OF DIRECTORS
The Articles of Incorporation and Bylaws of the Company provide that the
Board of Directors shall be composed of not less than nine nor more than twenty
members, with the exact number to be determined each year by resolution of a
majority of the full Board of Directors. The Board of Directors has fixed the
number of directors for the ensuing year at ten.
Article VIII of the Company's Articles of Incorporation provides for the
division of the Board into three classes as permitted by the laws of Kentucky.
Election of directors to each of the three classes is staggered in order that
one class of directors will be elected at each annual meeting. Under the laws of
Kentucky, the three classes should be as equal in number as practicable.
Accordingly, three Class I directors will be elected at the upcoming Annual
Meeting.
Class II directors will be elected at the 1999 Annual Meeting of
Shareholders, and Class III directors will be elected at the 2000 Annual Meeting
of Shareholders.
6
<PAGE>
The following table contains information concerning all of the current
directors whose terms extend beyond the date of the Annual Meeting and of all
nominees for director of the Company, including their positions held with Trans
Financial Bank, National Association located in Bowling Green, Kentucky
("TFBNA"), and Trans Financial Mortgage Company located in Tullahoma, Tennessee
("TFMC"), and identifies those individuals who will be nominated for election at
the Annual Meeting. The Class I directors will be elected to serve for a term of
three years and until their successors have been elected and qualified.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE
POSITION AND OFFICE POSITION AND DURING PAST FIVE DIRECTOR OF
HELD WITH OFFICE HELD YEARS AND OTHER COMPANY
NAME AND AGE SUBSIDIARIES WITH COMPANY DIRECTORSHIPS HELD OR BANKS SINCE
- ------------------------ -------------------- ------------------ ---------------------------- --------------
<S> <C> <C> <C> <C>
CLASS I DIRECTORS NOMINATED FOR ELECTION AT THE ANNUAL MEETING:
Mary D. Cohron, Director of TFBNA Director, Class I Employee and Consultant, 1979
age 50 Kentucky School Boards
Association; Owner,
Greencastle Farms, Inc.;
Former Owner, The Aerobic
Workout
David B. Garvin, Director of TFBNA Director, Class I Owner, Ironwood Farm; Former 1989
age 55 Chairman of the Board,
Camping World, Inc.
James D. Scott, Director of TFBNA Director, Class I Chairman of the Board, 1994
age 60 Scotty's Contracting and
Stone Company; President,
Scotty's Development
Company
DIRECTORS WHOSE TERMS OF OFFICE EXTEND BEYOND THE ANNUAL MEETING:
Wayne Gaunce, Director of TFBNA Director, Class II President, Gaunce 1977
age 64 Management, Inc.,
Caveland, Inc.; Director,
Papa John's International,
Inc.
Charles A. Hardcastle, Director of TFBNA Director, Class II President, B.G. Chemicals, 1982
age 65 Inc., B.G. Paper Company,
Consolidated Sanitary
Supply, Ashley Center,
Inc., Shoppers Warehouse,
Inc., and H.H. Hooper Co.,
Inc.; Director, Southern
Foods, Inc., Southland
Manufacturing, Inc.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE
POSITION AND OFFICE POSITION AND DURING PAST FIVE DIRECTOR OF
HELD WITH OFFICE HELD YEARS AND OTHER COMPANY
NAME AND AGE SUBSIDIARIES WITH COMPANY DIRECTORSHIPS HELD OR BANKS SINCE
- ------------------------ -------------------- ------------------ ---------------------------- --------------
<S> <C> <C> <C> <C>
William B. Van Meter, Director of TFBNA Director, Class II Chairman, Van Meter 1992
age 50 Insurance Agency, Inc.;
Owner, Van Meter
Investments; President,
American Superior Holding
Company, L.C., American
Superior Insurance Company
Vince A. Berta, Director and Director, Class President and Chief 1996
age 39 Executive Vice III; President and Executive Officer of the
President of TFBNA; Chief Executive Company since June 4,
Director of TFMC Officer 1996; formerly Executive
Vice President, Senior
Vice President and Chief
Financial Officer of the
Company, beginning in
April 1993; formerly Vice
President, PNC Financial
Corp.
C.C. Howard Gray, Director of TFBNA Director, Class President, James N. Gray 1977
age 48 III Construction Co., Inc.
Carroll Knicely, Director of TFBNA Director, Class President, Associated 1977
age 69 III Publications, Inc.; Real
estate developer
C. Cecil Martin, Director of TFBNA Director, Class President, Center of 1990
age 42 III Insurance, Inc.
</TABLE>
- ------------
If any of the nominees named above should become unwilling or unable to
serve, the individuals named as proxies on the enclosed proxy form (the
"Proxies") shall have the right to vote the shares represented by the proxy form
for any substitute nominee that may be proposed by the Board of Directors. No
circumstances are now known that would prevent any of the nominees named above
from serving. The Proxies may also cumulatively vote the shares represented by
the proxy form, and spread such votes among the nominees in any manner, if they
deem such action appropriate; provided, however, that the Proxies may not vote
the shares represented by the proxy forms for more than three nominees.
There are no family relationships between any director or executive officer
of the Company or any nominee. Except as otherwise described herein, there are
no arrangements or understandings regarding the election of any of the foregoing
nominees as directors. All nominations for membership on the Board of Directors
originated with the Board of Directors.
The Company has an Audit Committee consisting of directors Cohron, Ellis,
Gray, Hardcastle, Knicely, Scott and Wallingford. It is the responsibility of
the Audit Committee annually to cause audits to be made by auditors responsible
only to the Board of Directors; to review the audits and operational procedures
of the Company and its subsidiaries (the "Subsidiaries"); to ascertain whether
the Subsidiaries are being operated in compliance with the requirements of the
various regulatory authorities having jurisdiction over the Subsidiaries'
operations; to review reports of examinations made by federal and state bank
examiners and ascertain that any and all operational deficiencies set forth in
such reports are satisfactorily corrected; to
8
<PAGE>
review the annual reports submitted by the internal auditors and ascertain that
the internal auditors are carrying out internal audit programs that are adequate
to verify that the policies and procedures formulated for the operation of the
Company and the Subsidiaries are being followed and that a sufficient system of
internal control is being maintained; and to report its findings to the Board of
Directors. The Audit Committee met five times in 1997.
The Company has a Compensation Committee consisting of directors Gaunce,
Knicely, Martin, Van Meter and Wallingford. It is the responsibility of the
Compensation Committee to review and approve issues pertaining to executive
compensation and stock options granted or to be granted to the executive
officers and employees of the Company and the Subsidiaries. The Compensation
Committee met four times during 1997.
The Company has no Nominating Committee. All nominations for membership on
the Board of Directors originate with the Board of Directors.
During 1997, there were fourteen meetings of the Company's Board of
Directors. Each of the directors attended at least seventy-five percent (75%) of
the aggregate of (1) the total number of meetings of the Board of Directors held
during the period for which he or she was a director, and (2) the total number
of meetings held by all committees of the Board on which he or she served.
9
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries for the fiscal
years ended December 31, 1995, 1996 and 1997, to or on behalf of (i) the
Company's Chief Executive Officer, (ii) the other four most highly compensated
executive officers of the Company (determined as of the end of 1997), and (iii)
an officer of the Company who ceased to be an executive officer, for purposes of
Item 401(b) of Regulation S-K promulgated under the federal securities laws,
during 1997, but would have been one of the other four most highly compensated
executive officers of the Company if he had been an executive officer at the end
of 1997. These officers are referred to herein as the "Named Executive
Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION
------------------------------------- AWARDS
OTHER ------------- ALL OTHER
YEAR ANNUAL SECURITIES COMPENSATION(1)
--------- COMPEN- UNDERLYING ----------------
NAME AND PRINCIPAL POSITION SALARY BONUS SATION(2) OPTIONS(#)
- --------------------------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vince A. Berta, President and 1997 $ 251,248 $ 125,000 -- 37,000 $ 6,567(3)
Chief Executive Officer 1996 175,000 70,000 -- 25,000 9,194
1995 170,000 -- -- 44,000 12,203
Barry D. Bray, Executive Vice 1997 $ 153,120 $ 50,000 -- 8,554 $ 11,847(4)
President and Chief Credit 1996 168,100 10,000 -- 2,000 9,590
Officer 1995 168,100 -- -- 5,000 12,557
James G. Campbell, Executive Vice 1997 $ 135,714 $ 47,721 -- 17,000 $ 5,052(5)
President and General Sales 1996 135,000 35,000 $ 42,362(6) 37,500 8,436
Manager 1995 109,615 8,350 -- 6,000 9,496
Edward R. Matthews, Executive 1997 $ 135,304 $ 62,755 -- 15,000 $ 4,903(7)
Vice President and Chief 1996 125,595 $ 35,000 -- 41,000 7,275
Financial Officer 1995 117,048 -- -- 4,000 4,931
John K. Davis II, Senior Vice 1997 $ 127,089 $ 50,000 -- 14,000 $ 5,757(9)
President and Chief Information 1996 126,762 12,500 -- 10,000 2,561
Officer (8) 1995 35,577 57,160 $ 49,400(10) 6,000 32
Ronald Szejner, Executive Vice 1997 $ 153,437 $ 57,526 -- -- $ 19,748(12)
President (11) 1996 150,000 36,056 $ 30,232(13) 12,500 9,015
1995 108,400 58,065 -- 37,000 7,738
</TABLE>
- ------------
(1) Information concerning the Company's annual contribution to the ESOP for
1997 is not yet available.
(2) No disclosure regarding items included in this column is required unless
the amount in any year exceeds the lesser of $50,000 or 10% of the total
annual salary and bonus reported for any Named Executive Officer
(3) Consists of the Company's matching contribution to the Savings Investment
Plan in the amount of $6,333, and premiums in the amount of $234 paid by the
Company for term life insurance for the benefit of Mr. Berta.
10
<PAGE>
(4) Consists of the Company's matching contribution to the Savings Investment
Plan in the amount of $6,617, premiums in the amount of $585 paid by the
Company for term life insurance for the benefit of Mr. Bray, and $4,645 paid
to Mr. Bray upon termination of his Deferred Compensation Agreement (see
"Employment Contracts and Termination of Employment and Change of Control
Agreements" below).
(5) Consists of the Company's matching contribution to the Savings Investment
Plan in the amount of $4,879 and premiums in the amount of $173 paid by the
Company for term life insurance for the benefit of Mr. Campbell.
(6) Consists of $32,884 in moving expense reimbursement paid to Mr. Campbell
pursuant to the human resource policies of the Company, and $9,478 for
reimbursement of taxes payable on moving expense reimbursements.
(7) Consists of the Company's matching contribution to the Savings Investment
Plan in the amount of $4,792 and premiums in the amount of $111 paid by the
Company for term life insurance for the benefit of Mr. Matthews.
(8) Mr. Davis joined the Company in September 1995.
(9) Consists of the Company's matching contribution to the Savings Investment
Plan in the amount of $5,504, premiums in the amount of $153 paid by the
Company for term life insurance for the benefit of Mr. Davis, and $100 paid
to Mr. Davis under the Company's employee referral plan.
(10) Consists of $34,177 in moving expense reimbursement paid to Mr. Davis
pursuant to the human resource policies of the Company, and $15,223 for
reimbursement of taxes payable on moving expense reimbursements.
(11) Mr. Szejner joined the company in March 1995. In September 1997, Mr.
Szejner ceased to be an executive officer of the Company for purposes of
Item 401(b) of Regulation S-K promulgated under the federal securities laws.
(12) Consists of the Company's matching contribution to the Savings Investment
Plan in the amount of $4,400, premiums in the amount of $348 paid by the
Company for term life insurance for the benefit of Mr. Szejner, and $15,000
paid in connection with an employment agreement with Mr. Szejner (see
"Employment Contracts and Termination of Employment and Change of Control
Arrangements" below).
(13) Consists of $18,910 in moving expense reimbursement paid to Mr. Szejner
pursuant to the human resource policies of the Company, and $11,322 for
reimbursement of taxes payable on moving expense reimbursements.
STOCK OPTIONS GRANTED
The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ending December
31, 1997.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------ ANNUAL RATES OF
PERCENT OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME OPTIONS GRANTED FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
- ----------------------------- -------------------- ------------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
2,000(1) 0.76% $ 29.125 8/18/2007 $ 36,634 $ 92,836
15,000(2) 5.67% $ 34.75 12/2/2007 327,750 830,700
20,000(3) 7.56% $ 41.70 12/2/2007 298,000 968,600
Vince A. Berta
Barry D. Bray 4,554(1) 1.72% $ 29.125 8/18/2007 $ 83,416 $ 211,388
4,000(2) 1.51% $ 34.75 12/2/2007 87,400 221,520
James G. Campbell 2,000(1) 0.76% $ 29.125 8/18/2007 $ 36,634 $ 92,836
5,000(2) 1.89% $ 34.75 12/2/2007 109,250 276,900
10,000(3) 3.78% $ 41.70 12/2/2007 149,000 484,300
John K. Davis II 4,000(2) 1.51% $ 34.75 12/2/2007 $ 87,400 $ 221,520
10,000(3) 3.78% $ 41.70 12/2/2007 149,000 484,300
Edward R. Matthews 5,000(2) 1.89% $ 34.75 12/2/2007 $ 109,250 $ 276,900
10,000(3) 3.78% $ 41.70 12/2/2007 149,000 484,300
Ronald Szejner --
</TABLE>
- ------------
(1) Option granted August 18, 1997 under the Company's 1996 Consolidated Stock
Option Plan. One-third of the option may be exercised on or after August 18,
1999, a second one-third may be exercised on or after August 18, 2000, and the
final one-third may be exercised on or after August 18, 2001. The exercise date
of the option may be accelerated upon the occurrence of a Change in Control of
the Company, as defined in the Plan. See "Employment Contracts and Termination
of Employment and Change in Control Arrangements."
(2) Option granted December 2, 1997 under the Company's 1996 Consolidated Stock
Option Plan. One-third of the option may be exercised on or after December 2,
1999, a second one-third may be exercised on or after December 2, 2000, and the
final one-third may be exercised on or after December 2, 2001. The exercise date
of the option may be accelerated upon the occurrence of a Change in Control of
the Company, as defined in the Plan. See "Employment Contracts and Termination
of Employment and Change in Control Arrangements."
(3) Option granted December 2, 1997 under the Company's 1995 Executive Stock
Option Plan. The option may be exercised on or after December 2, 2000. The
exercise date of the option will be accelerated upon the occurrence of a Change
in Control of the Company, as defined in the Plan. See "Employment Contracts and
Termination of Employment and Change in Control Arrangements."
STOCK OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named Executive
Officers concerning the exercise of options during the last fiscal year ending
December 31, 1997, and unexercised options held as of December 31, 1997:
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL YEAR END(#) OPTIONS AT
SHARES VALUE ------------------- FISCAL YEAR END($)(2)
ACQUIRED ON REALIZED EXERCISABLE/ ------------------------
NAME EXERCISE (#) ($)(1) UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------- ------------- ------------- ------------------- ------------------------
<S> <C> <C> <C> <C>
Vince A. Berta 1,500 $ 32,250 4,833/105,667 $116,304/$1,486,309
Barry D. Bray 625 $ 17,266 33,729/14,878 $929,734/$206,946
James G. Campbell 6,666 $ 107,990 0/59,834 $0/$821,848
John K. Davis II 2,000 $ 33,750 0/28,000 $0/$308,000
Edward R. Matthews -- -- 5,333/60,667 $123,991/$839,134
Ronald Szejner -- -- 0/49,500 $0/$1,044,750
</TABLE>
- ------------
(1) Market price at time of exercise less exercise price.
(2) Market value of underlying securities at December 31, 1997 minus the
exercise price at December 31, 1997.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
In the past, various officers of the Company and its subsidiaries, including
Messrs. Bray, Berta and Campbell, had nonqualified deferred compensation
agreements with the Company or the Subsidiaries, whereby the officers would
receive deferred compensation upon retirement at age 65, death prior to age 65,
or termination for any reason following a change in control of the Company.
These agreements presented an administrative and financial burden to the
Company, with limited perceived value on the part of the participants. In August
of 1997, the Company offered to each of these officers the alternative to
receive, in exchange for releasing the deferred compensation agreements, either
(1) incentive stock options to be issued under the Company's 1996 Consolidated
Stock Plan, or (2) a combination of cash and incentive stock options under that
Plan. The amount of cash offered to each officer was based on the amount deemed
necessary for the officer to obtain term life insurance to replace the death
benefit offered by his or her deferred compensation agreement. The number of
option shares offered to each officer was calculated using a recognized
valuation method for stock options, using the current realizable cash value
under the officer's deferred compensation agreement, less the cash to be
received (if any), divided by the calculated value per share of the options to
be granted. All of the executive officers of the Company with deferred
compensation agreements chose to receive either the incentive stock options, or
the combination of cash and incentive stock options. As a result, none of the
executive officers of the Company currently have deferred compensation
agreements with the Company.
On September 30, 1997, the Company entered into an agreement with Mr.
Szejner concerning his continued employment with the Company and severance
benefits after the termination of his employment. Pursuant to the agreement, Mr.
Szejner will be employed with the Company through March 31, 1998, at an annual
salary rate of $150,000. Under the terms of the agreement, Mr. Szejner received
$57,526 of a potential $62,750 bonus for 1997 under the Company's 1997
Leadership Incentive Plan, $26,146 of which was paid at the time the agreement
was signed, and the remaining $31,380 of which was paid in January of 1998 at
the normal time for the payment of bonuses under the 1997 Leadership Incentive
Plan. In addition, at the time the agreement was signed, Mr. Szejner received an
additional $15,000. After the termination of Mr. Szejner's employment with the
Company on March 31, 1998, he will receive three months of severance pay, and
will be covered under the Company's group health plans during the three month
severance period.
13
<PAGE>
Each of the Company's stock option plans have provisions regarding the
acceleration of the exercise dates of outstanding options upon a Change in
Control (as defined below), as follows:
1995 EXECUTIVE STOCK OPTION PLAN. Upon a Change in Control of the Company,
the exercise dates of all outstanding options under the Company's 1995 Executive
Stock Option Plan will accelerate automatically. For purposes of the 1995
Executive Stock Option Plan, a Change in Control of the Company means:
(a) any share exchange or merger or consolidation to which the Company or a
Significant Subsidiary (meaning a subsidiary of the Company that meets
either of the following: (i) the assets of the subsidiary exceed 40% of the
total consolidated assets of the Company as of the end of the most recently
completed fiscal year; or (ii) the subsidiary's income from continuing
operations before income taxes and extraordinary items exceeds 40% of the
consolidated income of the Company as of the most recently completed fiscal
year) is a party, or any purchase or other acquisition of substantially all
of the business or assets of the Company or any significant Subsidiary, in
any transaction or series of transactions, by another corporation or entity,
if either (i) the Company will not be the surviving or acquiring corporation
or will not own 100% of the outstanding capital stock of the surviving,
acquiring or transferee corporate entity immediately following the
consummation of the transactions contemplated by the plan or agreement of
exchange, merger, consolidation, or sale of assets; or (ii) there will be a
25% change in the proportionate ownership of outstanding shares of voting
stock of the Company as a result of the transactions contemplated by such
plan or agreement of exchange, merger or consolidation or sale of assets;
(b) any person (as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (the "Exchange Act")) is or becomes the beneficial owner (as that
term is used in Section 13(d) of the Exchange Act) of stock of the Company
entitled to cast more than 20% of the votes at the time entitled to be cast
generally for the election of directors;
(c) more than 50% of the members of the Board shall not be Continuing Directors
(meaning the directors of the Company (i) who were members of the Board on
February 1, 1995, (ii) who subsequently became directors of the Company by a
vote of the majority of the Continuing Directors then on the Board of
Directors, or (iii) whose election or nomination for election by the
Company's shareholders was approved by a vote of a majority of the
Continuing Directors then on the Board of Directors); or
(d) the Board or the shareholders of the Company approve, adopt, agree to
recommend, or accept any agreement, contract, offer or other arrangement
providing for, or any series of transactions resulting in, any of the
transactions described above.
1996 CONSOLIDATED STOCK OPTION PLAN. Upon the occurrence of a Change in
Control, all options granted under the 1996 Consolidated Stock Option Plan prior
to the Change in Control will become immediately exercisable, unless the Change
in Control happens on or before April 28, 1999 and is intended to be reflected
as a pooling of interests for purposes of accounting. If both of these
conditions are met, the Board of Directors may revoke the provisions of the plan
regarding acceleration of the right to exercise. In addition, if the Company
engages in a transaction on or before April 28, 1999 that does not constitute a
Change in Control but which the Company intends to reflect as a pooling of
interests for accounting purposes, then the Board of Directors may, at any time
prior to a Change in Control, revoke the provisions regarding acceleration of
the right to exercise upon a Change in Control, with respect to Options granted
before the transaction. If the Board of Directors exercises the right to revoke
the provisions regarding acceleration of the right to exercise, each option
previously granted under the 1996 Plan will become exercisable in accordance
with the schedule provided for at the time of granting of that option. For this
purpose, a Change in Control of the Company means:
(a) any share exchange or merger or consolidation to which the Company or a
Significant Subsidiary is a party, or any purchase or other acquisition of
substantially all of the business or assets of the Company or any
Significant Subsidiary, in any transaction or series of transactions, by
another corporation or
14
<PAGE>
entity, if there will be a change of 25% or more in the proportionate
ownership of outstanding shares of voting stock of the Company as a result
of the transactions contemplated by such plan or agreement of exchange,
merger or consolidation or sale of assets;
(b) any person (as that term is used in Sections 13(d) and 14(d) of the Exchange
Act ) is or becomes the beneficial owner (as that term is used in Section
13(d) of the Exchange Act) of stock of the Company entitled to cast more
than 20% of the votes at the time entitled to be cast generally for the
election of directors;
(c) more than 50% of the members of the Board shall not be Continuing Directors
(meaning the directors of the Company (i) who were members of the Board on
December 10, 1996, or (ii) who subsequently became directors of the Company
by a vote of the majority of the Continuing Directors then on the Board of
Directors, or whose election or nomination for election by the Company's
shareholders was approved by a vote of a majority of the Continuing
Directors then on the Board of Directors); or
(d) the Board or the shareholders of the Company approve, adopt, agree to
recommend, or accept any agreement, contract, offer or other arrangement
providing for, or any series of transactions resulting in, any of the
transactions described above.
PRIOR STOCK OPTION PLANS. Under the Company's 1988 Stock Option Plan, 1990
Stock Option Plan, 1992 Stock Option Plan and 1994 Stock Option Plan
(collectively, the "Prior Plans"), upon a Change of Control of the Company the
exercise dates of outstanding options may be accelerated, at the discretion of
the Compensation Committee. For purposes of the Prior Plans, a Change in Control
of the Company means:
(a) any share exchange or merger or consolidation of the Company or a
significant subsidiary of the Company if either (i) the Company will not be
the surviving or acquiring corporation or will not own 100% of the
outstanding capital stock of the surviving or acquiring corporation
following the consummation of the transactions contemplated by the plan or
agreement of exchange, merger or consolidation, or (ii) there will be a
substantial change in the proportionate ownership of outstanding shares of
voting stock of the Company as a result of the transactions contemplated by
such plan or agreement of exchange, merger or consolidation;
(b) any sale, lease, exchange, transfer or other disposition of all or any
substantial part of the assets of the Company or a subsidiary of the Company
followed by a liquidation of the Company;
(c) the commencement of any tender offer, exchange offer or other purchase offer
for, and/or any agreement to purchase, as much as (or more than) 25% of the
outstanding Common Stock of the Company or a subsidiary of the Company; or
(d) the Board or the shareholders of the Company approve, adopt, agree to
recommend, or accept any agreement, contract, offer or other arrangement
providing for, or any series of transactions resulting in, any of the
transactions described above.
To the extent that exercise dates of outstanding options are accelerated
under any of these plans, each affected option may be exercised on or after the
date of the Change in Control. In addition, the shares subject to the Company's
stock option plans will be automatically converted into and replaced by shares
of the common stock of the successor, or other equity securities having rights
and preferences no less favorable than the common stock of the successor, and
the number of shares subject to the options and the purchase price per share
upon exercise of the options will be correspondingly adjusted so that there will
be no change in the aggregate purchase price payable upon exercise of any such
option.
For a description of the provisions regarding a Change in Control included
in the Company's proposed 1998 Stock Incentive Plan, see the section entitled
"PROPOSAL II" below.
15
<PAGE>
REPORT OF COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
This report reflects the Company's compensation policies with respect to its
executive officers, as endorsed by the Compensation Committee of the Board of
Directors, and the resulting actions taken by the Company for the reporting
periods shown in the various compensation tables supporting this report.
The Company through its executive compensation policies seeks to provide
compensation that will enable the Company to compete for and retain talented
executives who are critical to the Company's long-term success, support a
pay-for-performance policy, motivate key senior officers to achieve strategic
business initiatives and reward them for their achievements, and align the
interests of executives with the long-term interests of shareholders through
opportunities that can result in ownership of Common Stock. At present, the
executive compensation program of the Company is comprised of salary, annual
cash incentive opportunities, long term incentive opportunities in the form of
stock options, and certain broad-based employee benefit plans in which the
executive officers participate, primarily the Company's Savings Investment Plan
and Employee Stock Ownership Plan. In addition, the shareholders are being asked
to approve the 1998 Stock Incentive Plan, as a method of providing additional
long-term incentives to the Company's employees in the form of compensation tied
to the performance of the Company's Common Stock. See the section entitled
"PROPOSAL II" below.
To assist in the process of establishing salaries for executive officers for
1997, management of the Company obtained surveys of the compensation policies
and levels for companies in the financial services industry nation-wide.
Management focused on information from the surveys with respect to financial
services companies with assets from $900 million to $2 billion, and from $2
billion to $6 billion, in order to determine appropriate ranges of competitive
salaries for the Company's executive officers. Management believed it was
appropriate to use the survey results for these two groups of companies to
establish the appropriate competitive ranges for the salaries of the Company's
executive officers, because the Company's asset size fell in the very top tier
of the lower group of companies. Management then reviewed the salaries of the
Company's executive officers against these ranges, and determined, with certain
exceptions, that the executive officers' salaries were within the established
ranges. Based on these reviews, management recommended to the Compensation
Committee that no salary increases be given to executive officers for 1997, with
the following exceptions. Management recommended that one executive officer be
given an increase in salary because his base salary was significantly below the
range, and the recommended salary increase placed him within the range.
Management recommended that another executive officer be given an increase in
salary based on his individual performance and contributions to the Corporation.
The recommended salary increase left him within the range for his position. In
addition, management suggested that the salary of a third executive officer be
reduced, because his salary was above the established range. The decrease still
left him slightly above the range. The Compensation Committee adopted the
recommendations of management.
Annual cash incentives for the Company's executive officers and certain
other employees for 1997 were determined under the Company's 1997 Leadership
Incentive Plan (the "Incentive Plan"). Under the Incentive Plan, the Company's
and the Subsidiaries' performance for 1997 was measured against goals
established and approved by the Compensation Committee prior to the beginning of
the year, in order to determine the cash incentives to be awarded. Performance
measures were established for the Company in the categories of earnings per
share and operating efficiency. In addition, for certain participants, specific
performance measures were established based on the participant's position within
the Company and the Subsidiaries, and his or her resulting ability to affect the
outcome of the Company and the subsidiaries with respect to those performance
measures. A portion of the cash incentive for each participant was paid
depending on the achievement of the performance measures within each of the
categories applicable to the participant. For each of the categories, various
performance targets were established, with increasing payouts for the higher
performance targets. The cash incentive to be awarded to the participant would
equal the sum of the incentives determined with respect to each category
applicable to that participant. The maximum performance targets for the
categories of earnings per share and operating efficiency were reached, and cash
incentives were paid in January of 1998.
16
<PAGE>
Stock option grants under the Company's stock option plans (other than the
1995 Executive Stock Option Plan as described in the next paragraph) provide the
right to purchase shares of Common Stock at a minimum of the fair market value
on the date of grant. The fair market value for this purpose is defined as the
closing price or the average of the bid and asked price on the previous trading
day. Options under these plans are not exercisable during the first two years
after the date of grant of the option. The number of shares covered by each
grant reflects the Compensation Committee's assessment of the individual's
relative value to the Company, and is purely a subjective determination by the
Committee, with input from the Chief Executive Officer with respect to all
awards other than those to the Chief Executive Officer, with no specific
quantitative criteria considered.
Stock option grants under the Company's 1995 Executive Stock Option Plan
have an exercise price equal to 120% of the fair market value on the date of
grant, and provide an incentive to certain key executive officers of the Company
to remain in the employ of the Company and to use their best efforts on its
behalf. The fair market value for this purpose is defined as the closing price
or the average of the bid and asked price on the previous trading day. Options
granted under this plan are not exercisable during the first three years after
the date of grant of the option. The Compensation Committee determines the
executive officers who will receive options, and the number and terms of options
granted to such executive officers. The recipients of and number of shares
covered by each option grant reflect the Compensation Committee's assessment of
the executive officer's relative value to the Company and is purely a subjective
determination by the Committee, with input from the Chief Executive Officer with
respect to all awards other than those to the Chief Executive Officer, with no
specific quantitative criteria considered.
Awards under the Company's Employee Stock Ownership Plan and Savings
Investment Plan are based on a percentage of the base salary of each of the
executive officers as determined under the respective plan. The Company's
contributions to the Employee Stock Ownership Plan during 1997 were invested in
the Company's Common Stock. The Company's contributions to the Savings
Investment Plan during 1997 were invested at the direction of each participant
among various investment vehicles, including the Company's Common Stock.
The Company generally tries to design and administer its incentive
compensation plans and stock option plans so that income received by the Named
Executive Officers under such plans will be fully deductible by the Company
under Section 162(m) of the Internal Revenue Code. The Company believes that all
income received by the Named Executive Officers under the current Incentive Plan
and under the Company's current incentive stock option plans, except for the
1994 Stock Option Plan, will be fully deductible under Section 162(m). Options
under the 1995 Executive Stock Option Plan are not exercisable by a Named
Executive Officer in any year to the extent that the exercise of the option
would result in income to the Named Executive Officer that would not be
deductible by the Company. The Company intends to design awards under the
proposed 1998 Stock Incentive Plan, to the extent practicable, so that income
received by the Named Executive Officers under such Plan will be deductible
under Section 162(m).
The Chief Executive Officer's salary for 1997 was determined by the Board of
Directors during December 1996 in connection with his appointment as Chief
Executive Officer of the Company. Prior to that time, Mr. Berta served as Acting
Chief Executive Officer, pending an executive search to fill the position of
Chief Executive Officer. The executive search was conducted by a Search
Committee of the Board of Directors, with the help of an executive search
consultant retained by the Company. On December 16, 1996, after the conclusion
of the search and upon the recommendation of the Search Committee, the Board of
Directors elected Mr. Berta President and Chief Executive Officer. The Board of
Directors established Mr. Berta's annual salary at that time at $250,000, which
was lower than the minimum range of salaries previously established by the
Search Committee during the search process. Mr. Berta's salary was not increased
for 1997.
Mr. Berta's cash incentive for 1997 was determined under the Incentive Plan,
based on the Company's performance with respect to goals established by the
Compensation Committee in the categories of earnings
17
<PAGE>
per share and operating efficiency of the Company. Based on the achievement of
these quantitative goals, the Compensation Committee awarded the maximum bonus
available to Mr. Berta under the Incentive Plan.
Submitted by the Compensation Committee of the Board of Directors.
Wayne Gaunce Carroll Knicely
C. Cecil Martin William B. Van Meter
Thomas R. Wallingford
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock against
the cumulative total return of the NASDAQ Market Index and a peer group index
for the period of five fiscal years commencing January 1, 1993 and ending
December 31, 1997. The peer group used in the peer group index, the MG Industry
Group 045-East South Central Banks, consists of Alabama National Bancorp,
AmSouth Bancorporation, Area Bancshares Corp, Banco Central Hispano, Banco Rio
de la Plata, BancorpSouth, Britton & Koontz Capital Corp, CBT Corporation,
Colonial BancGroup, Community Financial Group, Community Trust Bancorp, Compass
Bancshares, Deposit Guaranty Corporation, Eufaula BancCorp, Farmers Capital Bank
Corporation, First American Corporation, First M & F Corporation, First
Tennessee National Corporation, Hancock Holding Company, Mid America Bancorp,
National Commerce Bancorporation, Peoples Banctrust Company, Peoples First
Corporation, Peoples Holding Company, Premier Financial Bancorp, Regions
Financial Corporation, S.Y. Bancorp, South Alabama Bancorp, SouthTrust
Corporation, Trans Financial, Inc., Trustmark Corporation and Union Planters
Corporation.
The performance graph assumes that (i) $100 was invested on January 1, 1993,
and (ii) dividends were reinvested during each fiscal year presented.
PERFORMANCE GRAPH
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS FINANCIAL MG INDUSTRY GROUP INDEX NASDAQ MARKET INDEX
<S> <C> <C> <C>
1992 100 100 100
1993 111.75 105.70 119.95
1994 91.38 106.13 125.94
1995 130.53 142.61 163.35
1996 174.04 184.25 202.99
1997 301.36 326.12 248.30
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Trans Financial, Inc. $ 100 $111.75 $ 91.38 $130.53 $174.04 $301.36
MG Industry Group 045-East $ 100 $105.70 $106.13 $142.61 $184.25 $326.12
South Central Banks
NASDAQ Market Index $ 100 $119.95 $125.94 $163.35 $202.99 $248.30
</TABLE>
18
<PAGE>
DIRECTOR COMPENSATION
Non-employee directors of the Company receive Common Stock in payment for
their services as directors, under the Company's Directors Stock Compensation
Plan. For service rendered during 1997, the amount of Common Stock received by
each director was determined based on the dollar amount of fees that would have
been received by the director, divided by the average closing stock price for
the Common Stock during the year. Fees earned by the directors for purposes of
the Plan were as follows: (i) for service as a director of the Company, an
annual fee of $2,400, plus a fee of $250 for each regular Board of Directors
meeting attended, $350 for each special Board of Directors meeting attended, and
$150 for each Committee meeting attended; (ii) for service as a director of a
bank subsidiary, a fee of $500 for each regular board meeting attended, $350 for
each special board meeting attended, and $150 for each committee meeting
attended; and (iii) for service as a member of an advisory board of bank
subsidiary, a fee of $300 for each advisory board meeting attended. Only one fee
was paid for joint committee meetings.
For 1998, the amount of Common Stock to be received by each director has
been set as follows: (i) 400 shares for service as director of the Company; (ii)
200 shares for service as a director of a bank subsidiary; and (iii) 100 shares
for service as a member of an advisory board of a bank subsidiary. The number of
shares to be received will be prorated for any director serving less than the
full year. This compensation will be paid as a retainer for the services
performed by the directors, including service as members of board committees.
Salaried employees of the Company or of the Subsidiaries who also serve as
directors receive no additional compensation for their services as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors Gaunce, Knicely, Martin, Van Meter and Wallingford served as
members of the Compensation Committee of the Board of Directors during the
Company's last fiscal year ended December 31, 1997.
The spouse of Mr. Martin, a director of the Company and of TFBNA and a
member of the Compensation Committee, is the owner of approximately fifteen
percent (15%) of the Plaza Shopping Center of Elizabethtown, Inc., which leases
a building to TFBNA for use as an operations facility. The aggregate amount of
payments made under the lease in 1997 was $168,150.12, and the aggregate amount
of payments due under the lease for the current term, which expires May 31,
2008, is $1,907,288.
Mr. Martin is the part owner of an insurance agency, Center of Insurance,
Inc., through which the Company and its subsidiaries purchased insurance in
1997. Total insurance premiums paid to Mr. Martin's insurance agency during 1997
were approximately $327,511.
Mr. Van Meter, a director of the Company and of TFBNA and a member of the
Compensation Committee, is part owner of an insurance agency, Van Meter
Insurance Agency, through which the Company purchases insurance. Total insurance
premiums paid for insurance purchased through Mr. Van Meter's insurance agency
during 1997 were $309,886.
Mr. Van Meter is a manager and executive officer of American Superior
Holding Company, L.C., a limited liability company. Mr. Berta also serves as a
manager of American Superior Holding Company, L.C.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Subsidiaries have had, and expect to have in the future, business and
banking transactions in the ordinary course of business with certain of their
directors and executive officers and their associates, as well as with
corporations, partnerships or other entities with which they are connected as
directors, officers or shareholders. The banking transactions between the bank
subsidiaries and the directors and executive officers were on substantially the
same terms, including interest rates and collateral, as those prevailing at
19
<PAGE>
the time for comparable transactions with other persons. In the opinion of
management of the Company and the bank subsidiaries, such banking transactions
do not involve more than the normal risk of collectibility or present other
unfavorable features.
Mr. Hardcastle is part owner of Ashley Center, Inc., which leases a branch
office to TFBNA. The aggregate amount of payments made under the lease in 1997
was $17,110.08, and the aggregate amount of payments due under the lease for the
current term, which expires March 2002, is $69,866.
Other transactions between the directors and the Company or the Subsidiaries
are described under the section entitled "Compensation Committee Interlocks and
Insider Participation" above.
PROPOSAL II: APPROVAL OF TRANS FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
The Company and its shareholders have previously approved the Company's
stock option plans to promote the interests of the Company by providing an
incentive for officers and employees to remain in the employ of the Company and
to use their best efforts on its behalf, and further to aid the Company in
attracting, maintaining, and developing capable personnel of a caliber required
to ensure the continued success of the Company. On January 19, 1998, the Board
of Directors of the Company adopted, subject to the approval of the
shareholders, the Trans Financial, Inc. 1998 Stock Incentive Plan (the "1998
Plan") to serve these same purposes. The Board of Directors believes that it is
important to adopt this more flexible, long-term, stock-based incentive plan,
which will be both competitive with and responsive to rapidly changing financial
services industry standards. In recent years, innovative and sophisticated types
of incentive awards have been created and used by other companies to enhance the
effectiveness of their compensation programs. The 1998 Plan will provide Trans
Financial with the ability to devise incentive programs which are responsive to
the demands of the marketplace.
Specifically, the purpose of the 1998 Plan is to encourage the Company's key
executives to have a long range view of corporate performance. The objective is
to provide the executives with a competitive long-term compensation opportunity
which is based on the Company's performance relative to its peers, and which
will be paid in Common Stock.
At the Annual Meeting, the shareholders of the Company will be asked to
approve the 1998 Plan. Approval of the 1998 Plan by the Company's shareholders
is required to provide to those who receive awards under the plan certain
favorable tax treatment afforded under Section 422 of the Internal Revenue Code
(the "Code"), and to satisfy the requirements of the National Association of
Securities Dealers. Unless otherwise instructed, the persons named in the
accompanying form of proxy will vote shares represented by properly executed
proxies in favor of the 1998 Plan.
GENERAL SUMMARY OF THE 1998 PLAN
The description of the 1998 Plan set forth below is a summary, does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the 1998 Plan, a copy of which is attached hereto as Appendix I.
The 1998 Plan authorizes the grant of any of the following types of awards
("Awards") to employees of Trans Financial or its subsidiaries ("Employees"):
(i) stock options which do not constitute "incentive stock options" within the
meaning of Section 422 of the Code ("nonqualified stock options"); (ii)
incentive stock options; (iii) stock appreciation rights ("SARs"); (iv)
restricted shares or units; (v) performance shares or units; (vi) Performance
Stock Awards (as defined below); (vii) dividend or equivalent rights; and (viii)
other similar stock-based types of grants based in whole or in part by reference
to the Common Stock, any of which may be granted on a stand alone, combination
or tandem basis.
The 1998 Plan will be administered by a committee (the "Committee")
consisting of not less than two directors. The Committee is empowered to (i)
select the Employees to whom Awards will be granted;
20
<PAGE>
(ii) determine the type of Awards to be granted; (iii) establish the terms of
each Award, including the vesting schedule, the grant price, the performance
standards, the length of the relevant performance, restriction or option period,
the dividend rights, the post-retirement and termination rights, and the payment
alternatives, such as cash, stock, contingent awards or other means of payment
consistent with the purposes of the 1998 Plan, and (iv) such other terms and
conditions as the Committee deems appropriate. The Committee may designate other
persons to carry out its responsibilities under such conditions and limitations
as it may set; however, the Committee may not delegate its authority with regard
to awards granted to employees who are subject to the reporting requirements of
Section 16 of the Exchange Act ("Reporting Persons").
The Committee may grant Awards under the 1998 Plan to all Employees who, in
the Committee's opinion, are materially responsible for the management of the
Company or have or will materially contribute to the successful performance of
the Company. The Company estimates that there are currently 160 Employees who
would be eligible to receive awards under the 1998 Plan. A total of 150,000
shares of Common Stock will be available for grant of Awards under the Plan. The
number of shares that may be issued or subject to Awards granted in any one year
is subject to the following limits:
AGGREGATE LIMIT. The total number of shares of Common Stock as to which
Awards may be granted in any one year may not exceed one-half of one percent
of the outstanding Common Stock as reported in the Company's Annual Report
on Form 10-K as of year end for the year ending immediately prior to such
year (the "Outstanding Stock"); however, the total number of shares of
Common Stock available for grants of restricted and performance shares and
shares to be issued pursuant to Stock Performance Awards in any year shall
not exceed one-fourth of one percent of the Outstanding Stock. The 1998 Plan
provides that there shall be carried forward and be available for Awards in
each succeeding year, in addition to shares of Common Stock available for
grant as described in the preceding sentence, all of the following: (i) any
unused portion of the limit set forth in the preceding sentence for the two
immediately preceding years; (ii) shares of Common Stock represented by
awards under the 1998 Plan which are canceled, forfeited, surrendered,
terminated or expire unexercised during the current or two immediately
preceding years; and (iii) the excess amount of variable awards under the
1998 Plan which become fixed at less than their maximum limitations during
the current or two immediately preceding years.
INDIVIDUAL LIMIT. The total number of shares of Common Stock as to
which awards may be granted in any one year to any participant may not
exceed one-fourth of one percent of the Outstanding Stock; however, the
total number of shares of Common Stock available for grants of restricted
and performance shares and shares to be issued pursuant to Stock Performance
Awards in any year shall not exceed one-eighth of one percent of the
Outstanding Stock.
For purposes of calculating the number of shares of Common Stock available
for grants of awards, the grant of a performance or restricted share unit Award
is deemed to be equal to the maximum number of shares of Common Stock which may
be issued under the Award, and where the value of an Award is variable on the
date it is granted, the value is deemed to be the maximum limitation of the
Award. Awards payable solely in cash will not reduce the number of shares of
Common Stock available for Awards granted under the 1998 Plan.
For 1998, 57,358 shares of Common Stock will be available for grant to all
participants under the 1998 Plan, and a maximum of 28,679 shares of Common Stock
are available for grant to any one participant, of which 14,339 shares may be
awards of restricted shares or shares to be awarded under Stock Performance
Awards. The Board of Directors anticipates that, in the event of shareholder
approval of the 1998 Plan, shares subject to grants of Awards made in 1998 will
be in an amount substantially less than the maximum permitted for the year.
The Common Stock subject to the provisions of the 1998 Plan shall either be
shares of authorized but unissued Common Stock, shares of Common Stock held as
treasury stock or previously issued shares of Common Stock reacquired by the
Company, including shares purchased on the open market.
21
<PAGE>
GENERAL DESCRIPTION OF AWARDS
The following types of Awards may be granted under the 1998 Plan:
STOCK OPTIONS. The Committee may grant a stock option to an Employee in the
form of an incentive stock option or a nonqualified stock option. The exercise
period for any stock option granted will be determined by the Committee at the
time of grant. The exercise price per share of Common Stock covered by a stock
option may not be less than the fair market value of a share of Common Stock on
the date of grant. The exercise price is payable, at the Committee's discretion,
in cash, in shares of already owned Common Stock, or in any combination of cash
and shares. Each stock option may be exercised in whole, at any time, or in
part, from time to time, after the stock option becomes exercisable.
STOCK APPRECIATION RIGHTS. SARs may be granted independently of any stock
option or in tandem with all or any part of a stock option granted under the
1998 Plan, upon such terms and conditions as the Committee may determine. Upon
exercise, an SAR entitles a participant to receive the excess of the fair market
value of a share of Common Stock on the date the SAR is exercised over the fair
market value of a share of Common Stock on the date the SAR was granted. The
Committee will determine whether the SAR shall be settled in cash, Common Stock
or a combination of cash and common Stock.
RESTRICTED AND PERFORMANCE SHARES. Restricted and performance shares are
shares of Common Stock that are subject to restrictions on transfer or other
incidents of ownership, or subject to specified performance standards, for such
periods of time as the Committee may determine. The recipient of restricted
shares and performance shares may vote the shares and is entitled to receive
dividends thereon, unless the Committee otherwise determines. Dividends may be
paid in cash or in additional restricted or performance shares. Restricted and
performance shares will be legended and deposited with the Company until the end
of the restricted period.
RESTRICTED AND PERFORMANCE SHARE UNITS. Restricted and performance share
units are fixed or variable share or dollar denominated units subject to
conditions of vesting, performance and time of payment as the Committee may
determine, which may be paid in shares of Common Stock, cash or a combination of
both.
DIVIDEND OR EQUIVALENT RIGHTS. The Committee may grant dividend or
equivalent rights with respect to any new or previously existing Award. Dividend
or equivalent rights are rights to receive dividends or their equivalent in
value in shares of Common Stock, cash or in a combination of both.
STOCK PERFORMANCE AWARDS. A Stock Performance Award is the right to receive
shares of Common Stock that are not to be issued to the Employee until after the
end of the performance period established by the Committee, and subject to
satisfaction of the Performance Goals (as defined below) for such performance
period, all as designated by the Committee.
For purposes of the 1998 Plan, "Performance Goals" means, with respect to
any performance period, performance goals based on any of the following criteria
and established by the Committee: earnings or earnings growth; return on equity,
assets or investment; revenues; expenses; stock price; market share;
charge-offs; or reductions in non-performing assets. Such Performance Goals may
be particular to an Employee, and may be based on the performance of the
Employee or the division, department, branch, line of business, subsidiary or
other unit in which the Employee works, or may be based on the performance of
the Company generally.
Stock Performance Awards may be granted to Employees either alone or in
addition to other Awards granted under the 1998 Plan. The Committee shall
determine (i) the Employees to whom Stock Performance Awards shall be awarded
for any performance period, (ii) the duration of the applicable performance
period, (iii) the number of shares to be awarded at the end of a performance
period to Employees if the Performance Goals are met or exceeded, and (iv) the
other terms and conditions of the Stock Performance Awards.
22
<PAGE>
After the end of a performance period, the financial performance of the
Company during such performance period shall be measured against the Performance
Goals. If the Performance Goals are not met, no shares shall be issued pursuant
to the Stock Performance Award. If the Performance Goals are met or exceeded,
the Committee shall certify that fact in writing in the Committee minutes or
elsewhere and certify the number of shares to be issued under each Stock
Performance Award in accordance with the related award agreement.
The Committee may, in its sole discretion, apply Negative Discretion to
reduce the number of shares to be issued under a Stock Performance Award. For
purposes of the 1998 Plan, "Negative Discretion" means other factors to be
applied by the Committee in reducing the number of shares to be issued pursuant
to a Stock Performance Award if the Performance Goals have been met or exceeded
if, in the Committee's sole judgment, such application is appropriate in order
to act in the best interest of the Company and its shareholders. The Negative
Discretion factors may include the achievement of measurable individual
performance objectives established by the Committee, and competitive pay
practices.
To be entitled to receive shares of Common Stock or other compensation under
a Stock Performance Award, an Employee must remain in the employment of the
Company through the end of the Performance Period, except that the Committee may
provide for partial or complete exceptions to this requirement as it deems
equitable in its sole discretion.
OTHER STOCK-BASED AWARDS. The Committee may grant other types of Awards of
Common Stock, or awards based in whole or in part by reference to the Common
Stock ("Other Stock-based Awards"). The Committee shall determine the time at
which grants of such Other Stock-based Awards are to be made, the size of such
Awards, and all other conditions of such Awards, including any restrictions,
deferral periods or performance requirements.
TRANSFERABILITY
Awards granted under the 1998 Plan can be transferred by bequest and the
laws of descent and distribution, or pursuant to qualified domestic relations
orders. At the discretion of the Committee, Awards may also be transferred
(subject to any restrictions under Section 16(b) of the Exchange Act) to (i) the
Employee's spouse or lineal descendants ("Immediate Family Members"), (ii)
trusts for the exclusive benefit of the Employee and/or his or her Immediate
Family Members, or (iii) a partnership or limited liability company in which the
Employee and/or his or her Immediate Family Members are the only partners or
members, as applicable. However, there may be no consideration for any such
transfer, and any transferred Award may not be further transferred.
ADJUSTMENTS
The 1998 Plan provides that the number of shares of Common Stock as to which
Awards may be granted to participants, the number of shares covered by each
outstanding Award, and the price per share in each Award, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, stock dividend, combination
or exchange of shares, exchange for other securities, reclassification,
reorganization, redesignation, merger, consolidation, recapitalization or other
such change. Any such adjustment may provide for the elimination of fractional
shares.
CHANGE IN CONTROL
The 1998 Plan provides that, in the event of a Change in Control, the
following will occur with respect to all Awards: all applicable performance
standards will be deemed to have been satisfied at the maximum level, all
restrictions will lapse, and all time periods relating to the exercise,
realization or vesting of Awards will accelerate, so that all Awards will be
immediately exercisable, realized or vested in full on the date of the Change in
Control, or such other date within 90 days of the Change in Control as the
Committee determines.
23
<PAGE>
In addition, the Committee may, in its sole discretion, make Awards subject
to the following in the event of a Change in Control:
(a) Performance shares or performance units may be paid entirely in cash;
(b) If the Employee's employment terminates for any reason other than
retirement or death following a Change in Control, stock options held by
the Employee may be exercised until the earlier of three months after the
termination of employment or the expiration date of the stock option;
(c) All Awards become non-cancelable.
However, with respect to any Award, the Committee may, in its sole
discretion, provide that any of the required or permissive provisions regarding
Change in Control will be void and unenforceable if (i) a Change in Control or
other business combination occurs within two years following adoption of the
Plan by the shareholders of the Company or the grant of the Award, (ii) the
Change in Control or business combination is intended to be reflected as a
pooling of interests for accounting purposes, and (iii) the Board of Directors
finds that any of such provisions would prevent the Change in Control or
business combination from being reflected as a pooling of interests for
accounting purposes.
For this purpose, a Change in Control of the Company means:
(a) any share exchange or merger or consolidation to which the Company or a
Significant Subsidiary is a party, or any purchase or other acquisition
of substantially all the business or assets of the Company or any
Significant Subsidiary in any transaction or series of transactions, by
another corporation or entity, if there will be a 25% change in the
proportionate ownership of outstanding shares of voting stock of the
Company as a result of the transactions contemplated by such plan or
agreement of exchange, merger, consolidation or sale of assets;
(b) any person (as that term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than a Subsidiary, any employee benefit plan of the
Company or any of the Subsidiaries, or any person holding Common Stock
for or pursuant to the terms of any such employee benefit plan, is or
becomes the beneficial owner (as that term is used in Section 13(d) of
the Exchange Act) of stock of the Company entitled to cast more than 20%
of the votes at the time entitled to be cast generally for the election
of directors;
(c) more than 50% of the members of the Board of Directors shall not be
Continuing Directors (which term, as used herein, means the directors of
the Company (i) who were members of the Board of Directors on January 1,
1998, or (ii) who subsequently became directors of the Company by a vote
of a majority of the Continuing Directors then on the Board of Directors,
or whose election or nomination for election by the Company's
stockholders was approved by a vote of a majority of the Continuing
Directors then on the Board of Directors); or
(d) the Board of Directors or the shareholders of the Company approve,
adopt, agree to recommend, or accept any agreement, contract, offer or
other arrangement providing for, or any series of transactions resulting
in, any of the transactions described above.
24
<PAGE>
AMENDMENTS AND TERMINATION
The Board of Directors may at any time terminate and, from time to time, may
amend or modify the 1998 Plan. Any such action of the Board of Directors may be
taken without the approval of the Company's shareholders, but only to the extent
that such shareholder approval is not required by applicable law or regulation.
The 1998 Plan will terminate on December 31, 2007, but all Awards granted under
the 1998 Plan before that date shall be enforceable in accordance with the terms
after that date.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the Federal income tax consequences to
participants who may receive grants of awards under the 1998 Plan. The
discussion is based upon interpretations of the Code in effect as of January 1,
1998, and regulations promulgated thereunder as of such date.
NONQUALIFIED STOCK OPTIONS. For Federal income tax purposes, no income is
recognized by a participant upon the grant of a nonqualified stock option under
the 1998 Plan. Upon the exercise of an option, however, compensation taxable as
ordinary income will be realized by the participant in an amount equal to the
number of shares acquired upon exercise times the excess of the fair market
value of a share of Common Stock on the date of such exercise over the exercise
price. A subsequent sale or exchange of such shares will result in gain or loss
measured by the difference between (i) the exercise price, increased by any
compensation reported upon the participant's exercise of the option, and (ii)
the amount realized on such sale or exchange. Under current law, such gain or
loss will be capital in nature if the shares were held as a capital asset and
will be subject to capital gains tax based on the length of time the shares have
been held.
The Company is entitled to a deduction (subject to the provisions of Section
162(m) of the Code) for compensation paid to a participant at the same time and
in the same amount as the participant is considered to have realized
compensation by reason of the exercise of an option.
INCENTIVE STOCK OPTIONS. No taxable income is realized by the participant
upon the grant or exercise of an incentive stock option. Upon exercise of an
incentive stock option, the participant may be subject to alternative minimum
tax on certain items of tax preference.
If shares of Common Stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of two years from the date of
grant or one year from the date of transfer, generally (a) the participant will
realize ordinary income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of the shares at the time of exercise
(or, if less, the amount realized on the disposition of the shares) over the
exercise price, and (b) the Company will be entitled to deduct such amount
(subject to the provisions of Section 162(m) of the Code). Under current law,
any further gain or loss realized will be taxed as capital gain or loss, as the
case may be, subject to capital gains tax based on the length of time the shares
have been held, and will not result in any deduction by the Company.
If shares of Common Stock acquired upon the exercise of an incentive stock
option are disposed of after the expiration of two years from the date of grant
and one year after the date of transfer, (a) upon sale of such shares, under
current law, any amount realized in excess of the exercise price will be treated
as a capital gain and any loss sustained will be a capital loss, subject to
capital gains tax based on the length of time the shares have been held, and (b)
no deduction will be allowed to the Company for Federal income tax purposes.
If an incentive stock option is exercised at a time when it no longer
qualifies as an incentive stock option, the option is treated as a nonqualified
stock option.
STOCK APPRECIATION RIGHTS. No taxable income is recognized by a participant
upon the grant of a SAR under the 1998 Plan. Upon the exercise of a SAR,
however, compensation taxable as ordinary income will be realized by the
participant in an amount equal to the cash received upon exercise, plus the fair
market value on the date of exercise of any shares of Common Stock received upon
exercise. Shares of Common Stock received on the exercise of a SAR will be
eligible for capital gain treatment, with the capital gain holding period
commencing on the date of exercise of the SAR.
25
<PAGE>
The Company is entitled to a deduction (subject to the provisions of Section
162(m) of the Code) for compensation paid to a participant at the same time and
in the same amount as the participant is considered to have realized
compensation by reason of the exercise of a SAR.
RESTRICTED AND PERFORMANCE SHARES. Similar to SARs, awards of restricted or
performance shares will not result in taxable income to the Employee or a tax
deduction to the Company for Federal income tax purposes at the time of grant. A
recipient of restricted or performance shares generally will be subject to tax
at ordinary income rates on the fair market value of the Common Stock at the
time the restricted or performance shares are no longer subject to forfeiture.
However, a recipient who so elects under Section 83(b) of the Code within 30
days of the date of the grant will have ordinary taxable income on the date of
the grant equal to the fair market value of the restricted or performance shares
as if such shares were unrestricted and could be sold immediately. If the
restricted or performance shares subject to such election are forfeited, the
recipient will not be entitled to any deduction, refund or loss for tax purposes
with respect to the forfeited shares. Upon sale of the restricted or performance
shares after the forfeiture period has expired, the holding period to determine
whether the recipient has long-term or short-term capital gain or loss begins
when the restriction period expires. However, if the recipient timely elects to
be taxed as of the date of the grant, the holding period commences on the date
of the grant and the tax basis will be equal to the fair market value of the
restricted or performance shares on the date of the grant as if such shares were
then unrestricted and could be sold immediately.
STOCK PERFORMANCE AWARDS. The award of a Stock Performance Award will not
result in taxable income to the Employee or a tax deduction to the Company for
Federal income tax purposes at the time of grant. A recipient of a Stock
Performance Award generally will be subject to tax at the same time and in the
same manner as applicable to recipients of restricted and performance shares as
described above.
The Company is entitled to a deduction (subject to the provisions of Section
162(m) of the Code) for compensation paid to a participant at the same time and
in the same amount as the participant is considered to have realized
compensation on an award of a Stock Performance Award.
RESTRICTED AND PERFORMANCE SHARE UNITS, DIVIDEND OR EQUIVALENT RIGHTS AND
OTHER STOCK-BASED AWARDS. The Federal income tax consequence of restricted and
performance share units, dividend or equivalent rights and Other Stock-based
Awards will depend on how such awards are structured. Generally, the Company
will be entitled to a deduction (subject to the provisions of Section 162(m) of
the Code) with respect to such awards only to the extent that the recipient
realizes compensation income in connection with such awards. It is anticipated
that such awards will usually result in compensation income to the recipient in
some amount. However, some forms of such awards may not result in any
compensation income to the recipient or any income tax deduction for the
Company.
LIMITS ON DEDUCTIONS. Under Section 162(m) of the Code, the amount of
compensation paid to the Chief Executive Officer and the four other most highly
paid executive officers of the Company in the year for which a deduction may be
claimed by the Company (including the Subsidiaries) is limited to $1,000,000 per
person, except that compensation that is performance-based will be excluded for
purposes of calculating the amount of compensation subject to this $1,000,000
limitation. The ability of the Company to claim a deduction for compensation
paid to any other executive officer or employee of the Company (including its
subsidiaries) is not affected by this provision.
The Company has structured the 1998 Plan so that any compensation for which
the Company may claim a deduction in connection with the exercise of
nonqualified stock options and SARs, the disposition by an optionee of shares
acquired upon the exercise of incentive stock options and the delivery of shares
pursuant to Stock Performance Awards will be performance-based within the
meaning of Section 162(m) of the Code. All other awards under the 1998 Plan are
not performance-based and therefore any amounts for which the Company may claim
a deduction will be subject to the limitations on deductibility in Section
162(m) of the Code.
NEW PLAN BENEFITS
As described above, the selection of the Employees who will receive awards
under the 1998 Plan, if it is approved by shareholders, and the size and type of
awards is generally to be determined by the Committee in
26
<PAGE>
its discretion. No awards have been made under the 1998 Plan, nor are any such
awards now determinable. However, it is the intention of the Committee to grant
Stock Performance Awards to certain executives of the Company after adoption of
the 1998 Plan by the shareholders of the Company.
MISCELLANEOUS
The closing price per share of the Common Stock on February 18, 1998, as
reported in THE WALL STREET JOURNAL, was $39.25.
An affirmative vote of a majority of the shares of the Company's Common
Stock represented in person or by proxy at the Annual Meeting and entitled to
vote on the proposal is necessary for approval. Abstentions and broker non-votes
will have the effect of a "No" vote.
FOR THE REASONS STATED HEREIN, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR APPROVAL OF THE 1998 PLAN.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
For the years ended December 31, 1995, 1996 and 1997, the accounting firm of
KPMG Peat Marwick LLP served as the Company's and the Banks' independent public
accountants and auditors. Upon the recommendation of management, the Board of
Directors has approved the selection of KPMG Peat Marwick LLP to serve as the
Company's independent public accountants and auditors for the year ending
December 31, 1998.
A representative from the firm of KPMG Peat Marwick LLP is expected to be
present at the Annual Meeting and will be available to make a statement should
he desire to do so, and respond to appropriate questions of the shareholders.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
In order to be included in the Company's proxy statement and proxy for the
annual meeting of the shareholders of the Company in 1999, any proposals which a
shareholder intends to present at that meeting must be received by the Secretary
of the Company not later than November 3, 1998.
Any shareholder may strike out the names of the proxies designated by the
Board of Directors on the form of proxy and may write in and substitute the name
of any other person and may deliver the revised form of proxy to such other
person whom the shareholder may wish to designate as proxy for the purpose of
representing the shareholder at the Annual Meeting.
At the time of preparation of this proxy material, the Company knows of no
other matters to be presented for action at the Annual Meeting. If any other
matters are properly brought before the Annual Meeting, the persons named in the
accompanying proxy card intend to vote the shares represented thereby in
accordance with their judgment.
The annual report of the Company filed with the Securities and Exchange
Commission on Form 10-K is available to shareholders, upon written request to
the Company's Secretary, at no cost to the shareholders.
By Order of the Board of Directors,
[SIGNATURE]
Jay B. Simmons
Senior Vice President
General Counsel and Secretary
Bowling Green, Kentucky
March 3, 1998
27
<PAGE>
APPENDIX A
TRANS FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
Trans Financial, Inc. hereby establishes this 1998 Stock Incentive Plan to
promote the interests of the Company by affording an incentive to certain key
employees to remain in the employ of the Company and its Subsidiaries; to use
their best efforts on its behalf and to associate their interests with those of
the Company's shareholders, resulting in increased shareholder value through
profitable growth; and to aid the Company and its Subsidiaries in attracting,
maintaining, and developing capable personnel of a caliber required to ensure
the continued success of the Company and its Subsidiaries.
SECTION 1 -- DEFINITIONS
1.1 AWARD. The term "Award" includes, without limitation, stock options
(including incentive stock options under Section 422 of the Code), stock
appreciation rights, restricted and performance shares, restricted and
performance share units, Performance Stock Awards, dividend or equivalent
rights, or other awards that are valued in whole or in part by reference to, or
are otherwise based on, the Common Stock ("other Common Stock-based Awards"),
all on a stand alone, combination or tandem basis, as described in or granted
under this Plan.
1.2 AWARD AGREEMENT. The term "Award Agreement" means a written agreement
entered into between the Company and a Participant setting forth the terms and
conditions of an Award made to such Participant under this Plan, in the form
prescribed by the Plan Committee.
1.3 BOARD. The term "Board" means the Board of Directors of the Company.
1.4 BUSINESS COMBINATION. The term "Business Combination" means any
business combination between the Company or a Subsidiary and any entity other
than the Company or a Subsidiary, that does not constitute a Change in Control
but which the Company intends to reflect as a pooling of interests for
accounting purposes.
1.5 CHANGE IN CONTROL. The term "Change in Control" means: (i) any share
exchange or merger or consolidation to which the Company or a Significant
Subsidiary of the Company is a party, or any purchase or other acquisition of
substantially all the business or assets of the Company or any Significant
Subsidiary in any transaction or series of transactions, by another corporation
or entity, if there will be a 25% change in the proportionate ownership of
outstanding shares of voting stock of the Company as a result of the
transactions contemplated by such plan or agreement of exchange, merger,
consolidation or sale of assets; (ii) any person (as that term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than a Subsidiary of the
Company, any employee benefit plan of the Company or any of its Subsidiaries, or
any person holding Common Stock for or pursuant to the terms of any such
employee benefit plan, is or becomes the beneficial owner (as that term is used
in Section 13(d) of the Exchange Act) of stock of the Company entitled to cast
more than 20% of the votes at the time entitled to be cast generally for the
election of directors; (iii) more than 50% of the members of the Board of
Directors shall not be Continuing Directors (which term, as used herein, means
the directors of the Company (A) who were members of the Board of Directors on
January 1, 1998, or (B) who subsequently became directors of the Company by a
vote of a majority of the Continuing Directors then on the Board of Directors,
or whose election or nomination for election by the Company's stockholders was
approved by a vote of a majority of the Continuing Directors then on the Board
of Directors); or (iv) the Board of Directors or the shareholders of the Company
approve, adopt, agree to recommend, or accept any agreement, contract, offer or
other arrangement providing for, or any series of transactions resulting in, any
of the transactions described above.
1.6 CODE. The term "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
A-1
<PAGE>
1.7 COMMON STOCK. The term "Common Stock" means the Company's common stock
or the common stock or securities of a Successor that have been substituted
therefor.
1.8 COMPANY. The term "Company" means Trans Financial, Inc., a Kentucky
corporation, with its principal place of business at 500 East Main Street,
Bowling Green, Kentucky 42101.
1.9 EMPLOYEE. The term "Employee" means an employee of the Company or of a
Subsidiary.
1.10 ERISA. "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.11 EXCHANGE ACT. The term "Exchange Act" means the Securities Exchange
Act of 1934, and the rules and regulations promulgated thereunder, as amended.
1.12 FAIR MARKET VALUE. The term "Fair Market Value" means the closing
transaction price for the Common Stock in the over-the-counter market, as
reported by the National Association of Securities Dealers Automated Quotation
System National Market, on the trading day immediately preceding the date for
which the Fair Market Value is to be determined. If there were no transactions
in the Common Stock on such date, then the Fair Market Value shall mean the
average of the closing bid and ask quotations in the over-the-counter market on
such date, as reported by the National Association of Securities Dealers
Automated Quotation System National Market.
1.13 NEGATIVE DISCRETION. The term "Negative Discretion" means other
factors to be applied by the Plan Committee in reducing the number of shares or
other compensation to be issued pursuant to an Award if the Performance Goals
with respect to that Award have been met or exceeded, if, in the Plan
Committee's sole judgment, such application is appropriate in order to act in
the best interest of the Company and its shareholders. The Negative Discretion
factors may include, but are not limited to, the achievement of measurable
individual performance objectives established by the Plan Committee, and
competitive pay practices.
1.14 PARTICIPANT. The term "Participant" means an Employee who has been
granted an Award under this Plan.
1.15 PERFORMANCE GOALS. The term "Performance Goals" means, with respect
to any Performance Period, performance goals based on any of the following
criteria: earnings or earnings growth; return on equity, assets or investment;
revenues; expenses; stock price; market share; charge-offs; reductions in non-
performing assets; or any combination of the foregoing. Such Performance Goals
may be particular to an Employee, and may be based on (i) the performance of the
Employee; (ii) the performance of the division, department, branch, line of
business, Subsidiary or other unit in which the Employee works; (iii) the
performance of the Company generally; or (iv) a combination of any of the
foregoing.
1.16 PERFORMANCE PERIOD. The term "Performance Period" means the period of
time designated by the Plan Committee applicable to an Award during which the
Performance Goals for that Award shall be measured.
1.17 PERFORMANCE STOCK AWARD. The term "Performance Stock Award" shall
have the meaning specified in Section 5.7.
1.18 PLAN. The term "Plan" means the Trans Financial, Inc. 1998 Stock
Incentive Plan, as set forth herein, and as amended from time to time.
1.19 PLAN COMMITTEE. The term "Plan Committee" means the committee
appointed by the Board pursuant to Section 3.
1.20 PLAN YEAR. The term "Plan Year" means a twelve-month period beginning
with January 1 of each year.
1.21 REPORTING PERSON. The term "Reporting Person" means an Employee
subject to the reporting requirements of Section 16 of the Exchange Act.
A-2
<PAGE>
1.22 SIGNIFICANT SUBSIDIARY. The term "Significant Subsidiary" means any
Subsidiary which meets either of the following: (i) the assets of the Subsidiary
exceed 40% of the total consolidated assets of the Company as of the end of the
most recently completed fiscal year; or (ii) the Subsidiary's income from
continuing operations before income taxes and extraordinary items exceeds 40% of
the consolidated income of the Company as of the most recently completed fiscal
year.
1.23 SUBSIDIARY. The word "Subsidiary" or "Subsidiaries" means, as defined
in Code Section 424(t), any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the time of the granting
of an Award under the Plan, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock of one of the other corporations
in such chain.
1.24 SUCCESSOR. The word "Successor" means the entity surviving a merger
or consolidation with the Company, or the entity that acquires all or a
substantial portion of the Company's assets or outstanding capital stock
(whether by merger, purchase or otherwise).
SECTION 2 -- SHARES SUBJECT TO PLAN
2.1 SHARES. The shares of Common Stock subject to the provisions of this
Plan shall either be shares of authorized but unissued Common Stock, shares of
Common Stock held as treasury stock, or previously issued shares of Common Stock
reacquired by the Company, including shares purchased on the open market.
2.2 AGGREGATE NUMBER OF SHARES AVAILABLE FOR AWARD. Subject to adjustment
in accordance with the provisions of Section 9, the aggregate number of shares
of Common Stock available for grant of Awards under the Plan shall be 150,000.
For purposes of calculating the aggregate number of shares of Common Stock
subject to Awards already granted, the following shares shall not be included:
(i) shares of Common Stock represented by Awards which have been canceled,
forfeited, surrendered, terminated or expired unexercised at the time of such
calculation; and (ii) the excess amount of variable Awards which have become
fixed at less than their maximum limitations at the time of such calculation.
2.3 NUMBER OF SHARES AVAILABLE FOR AWARD EACH PLAN YEAR. Subject to
adjustment in accordance with the provisions of Section 9, and subject to
Section 2.4, (i) the total number of shares of Common Stock available for grants
of Awards (including, without limitation, Awards of restricted and performance
shares) in any Plan Year shall not exceed one-half of one percent of the
outstanding Common Stock as reported as of year-end in the Company's Annual
Report on Form 10-K for the fiscal year ending immediately prior to such Plan
Year; and (ii) the total number of shares of Common Stock available for grants
of restricted and performance shares (including shares to be issued pursuant to
Performance Stock Awards) in any Plan Year shall not exceed one-fourth of one
percent of the outstanding Common Stock as reported as of year-end in the
Company's Annual Report on Form 10-K for the fiscal year ending immediately
prior to such Plan Year.
2.4 ADDITIONAL AVAILABLE SHARES. There shall be available for Awards under
this Plan in each Plan Year, in addition to shares of Common Stock available for
grant under Section 2.3, all of the following: (i) any unused portion of the
limit set forth in Section 2.3 for the two immediately preceding Plan Years;
(ii) shares of Common Stock represented by Awards which have been canceled,
forfeited, surrendered, terminated or expire unexercised (A) during that Plan
Year, or (B) during the two immediately preceding Plan Years to the extent such
shares have not been used during such two immediately preceding Plan Years; and
(iii) the excess amount of variable Awards which become fixed at less than their
maximum limitations (A) during that Plan Year, or (B) during the two immediately
preceding Plan Years to the extent such shares have not been used during such
two immediately preceding Plan Years.
2.5 SHARES AVAILABLE FOR AWARD TO ONE PARTICIPANT. Subject to adjustment
in accordance with Section 9, (i) the total number of shares of Common Stock
available for grants of Awards in any Plan Year to any one Employee shall not
exceed one-fourth of one percent of the outstanding Common Stock as reported as
of
A-3
<PAGE>
year-end in the Company's Annual Report on Form 10-K for the fiscal year ending
immediately prior to such Plan Year; (ii) the total number of shares of Common
Stock available for (A) grants of restricted and performance shares and (B)
grants of Performance Stock Awards to be issued in any Plan Year to any one
Employee shall not exceed one-eighth of one percent of the outstanding Common
Stock as reported as of year-end in the Company's Annual Report on Form 10-K for
the fiscal year ending immediately prior to such Plan Year, and (iii) the total
number of shares of Common Stock available for grants of stock options
(including Incentive Stock Options) to be issued in any Plan Year to any one
Employee shall not exceed 25,000.
2.6 CALCULATION OF AVAILABLE SHARES. For purposes of calculating the total
number of shares of Common Stock available for grants of Awards, (i) the grant
of a performance or restricted share unit Award shall be deemed to be equal to
the maximum number of shares of Common Stock which may be issued under the
Award; and (ii) where the value of an Award is variable on the date it is
granted, the value shall be deemed to be the maximum limitation of the Award.
Awards payable solely in cash will not reduce the number of shares of Common
Stock available for Awards granted under this Plan.
SECTION 3 -- ADMINISTRATION
3.1 PLAN COMMITTEE. The Plan shall be administered by the Plan Committee,
whose membership shall be determined and reviewed from time to time by the Board
of Directors. The Plan Committee shall consist of not less than two members of
the Board of Directors. The Plan Committee shall periodically make
determinations with respect to the participation of Employees in this Plan and,
except as otherwise required by law or this Plan, the grant terms of Awards
including vesting schedules, price, performance standards (including Performance
Goals), length of relevant performance, restriction or option period, dividend
rights, post-retirement and termination rights, payment alternatives such as
cash, stock, contingent awards or other means of payment consistent with the
purposes of this Plan, and such other terms and conditions as the Plan Committee
deems appropriate. The Plan Committee shall have full power and authority to
construe, interpret, and administer the Plan and may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem proper and
in the best interests of the Company. The interpretation of any provisions of
the Plan by the Plan Committee shall be final, conclusive, and binding upon all
persons, and the officers of the Company shall place into effect and shall cause
the Company to perform its obligations under the Plan in accordance with the
determinations of the Plan Committee in administering the Plan. The decision of
a majority of the members of the Plan Committee shall constitute the decision of
the Plan Committee and the Plan Committee may act either at a meeting at which a
majority of the members of the Plan Committee is present, or by a writing signed
by all of the members of the Plan Committee.
3.2 DELEGATION. The Plan Committee may delegate to one or more persons
other than its members, including without limitation any person who is an
officer of the Company, a Participant and/or a Reporting Person, the authority
to carry out the Plan Committee's responsibilities under such conditions or
limitations as the Plan Committee may set, other than the Plan Committee's
authority with regard to granting Awards to Reporting Persons and determining
the satisfaction of conditions or performance goals with respect to Awards
granted to Reporting Persons.
SECTION 4 -- ELIGIBILITY
All Employees who, in the opinion of the Plan Committee, are from time to
time materially responsible for the management of the business or have
materially contributed, or will in the future materially contribute, to the
successful performance of the Company or of any of its Subsidiaries, shall be
eligible to be granted Awards under the Plan; provided, however, that no
Employee may be granted options under the Plan if, at the time such options are
granted, the Employee owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of its Subsidiaries.
A-4
<PAGE>
SECTION 5 -- AWARDS UNDER THE PLAN
As the Plan Committee may determine, the following types of Awards may be
granted under this Plan to Employees on a stand alone, combination or tandem
basis, to the extent permitted by applicable laws and regulations:
5.1 STOCK OPTION. A right to buy a specified number of shares of Common
Stock at a fixed exercise price during a specified time, all as the Plan
Committee may determine; provided that the exercise price of any option shall
not be less than 100% of the Fair Market Value of the Common Stock on the date
of grant of the Award.
5.2 INCENTIVE STOCK OPTION. An award in the form of a stock option which
shall comply with the requirements of Section 422 of the Code or any successor
Section as it may be amended from time to time.
5.3 STOCK APPRECIATION RIGHT. A right to receive the excess of the Fair
Market Value of a share of Common Stock on the date the stock appreciation right
is exercised over the Fair Market Value of a share of Common Stock on the date
the stock appreciation right was granted.
5.4 RESTRICTED AND PERFORMANCE SHARES. A transfer of shares of Common
Stock to a Participant, subject to such restrictions on transfer, forfeiture
provisions, or other incidents of ownership, or subject to specified performance
standards, for such periods of time as the Plan Committee may determine.
5.5 RESTRICTED AND PERFORMANCE SHARE UNIT. A fixed or variable share or
dollar denominated unit subject to conditions of vesting, performance and time
of payment as the Plan Committee may determine, which may be paid in shares of
Common Stock, cash or a combination of both.
5.6 DIVIDEND OR EQUIVALENT RIGHT. A right to receive dividends or their
equivalent in value in shares of Common Stock, cash or in a combination of both,
with respect to any new or previously existing Award.
5.7 PERFORMANCE STOCK AWARDS. A right to receive shares (which may consist
of or include restricted shares as defined in Section 5.4) that are not to be
issued to the Employee until after the end of the related Performance Period,
subject to satisfaction of the Performance Goals for such Performance Period.
5.8 OTHER COMMON STOCK-BASED AWARDS. Other Common Stock-based Awards which
are related to or serve a similar function to those Awards set forth in this
Section 5.
In addition to granting Awards for purposes of incentive compensation,
Awards may also be made in tandem with or in lieu of current or deferred
Employee compensation.
SECTION 6 -- PERFORMANCE STOCK AWARDS
6.1 ADMINISTRATION. Performance Stock Awards may be granted either alone
or in addition to other Awards granted under this Plan. The Plan Committee shall
determine the Employees to whom Performance Stock Awards shall be awarded for
any Performance Period, the duration of the applicable Performance Period, the
number of shares to be awarded at the end of a Performance Period to Employees
if the Performance Goals are met or exceeded, and the terms and conditions of
the Performance Stock Award in addition to those contained in this Section 6.
6.2 PAYMENT OF AWARD. After the end of a Performance Period, the financial
performance of the Company during such Performance Period shall be measured
against the Performance Goals. If the Performance Goals are not met, no shares
shall be issued pursuant to the Performance Stock Award. If the Performance
Goals are met or exceeded, the Plan Committee shall certify that fact in writing
in the Plan Committee minutes or elsewhere and certify the number of shares to
be issued under each Performance Stock Award in accordance with the related
Award Agreement. The Plan Committee may, in its sole discretion, apply Negative
Discretion to reduce the number of shares to be issued under a Performance Stock
Award.
A-5
<PAGE>
6.3 REQUIREMENT OF EMPLOYMENT. To be entitled to receive shares or other
compensation pursuant to a Performance Stock Award, an Employee must remain in
the employment of the Company through the end of the Performance Period, except
that the Plan Committee may provide for partial or complete exceptions to this
requirement as it deems equitable in its sole discretion.
SECTION 7 -- OTHER TERMS AND CONDITIONS
7.1 NONTRANSFERABILITY. Awards granted hereunder shall not be transferable
by the Participant otherwise than by bequest or the laws of descent and
distribution, and during the lifetime of the Participant shall be exercisable by
or payable to only the Participant. Notwithstanding the foregoing, an Award
Agreement may provide that a Participant may, subject to any restrictions under
Section 16(b) of the Exchange Act and the Award Agreement, transfer the Award to
(i) the Participant's spouse or lineal descendants ("Immediate Family Members"),
(ii) trusts for the exclusive benefit of the Participant and/or his or her
Immediate Family Members, or (iii) a partnership or limited liability company in
which the Participant and/or his or her Immediate Family Members are the only
partners or members, as applicable; provided that (A) there may be no
consideration for any such transfer, and (B) subsequent transfers of any
transferred Award shall be prohibited other than by bequest or the laws of
descent and distribution. Following transfer, an Award shall continue to be
subject to the same terms and conditions as were applicable immediately before
the transfer, as modified by any provisions in the Award Agreement dealing
specifically with the Award after transfer.
7.2 AWARD AGREEMENT. Each Award under this Plan shall be evidenced by an
Award Agreement.
7.3 RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein or in any
Award Agreement, a Participant shall have no rights as a shareholder with
respect to shares of Common Stock covered by an Award until the date the
Participant or the Participant's nominee (which, for purposes of this Plan,
shall include any third party agent selected by the Plan Committee to hold such
shares on behalf of a Participant), guardian or legal representative is the
holder of record of such shares.
7.4 NO OBLIGATION TO EXERCISE. The grant of an Award shall impose no
obligation upon the Participant to exercise the Award.
7.5 PAYMENTS BY PARTICIPANTS. The Plan Committee may determine that Awards
for which a payment is due from a Participant may be payable: (i) in U.S.
dollars by personal check, bank draft or money order payable to the order of the
Company, by money transfers or direct account debits; (ii) through the delivery
or deemed delivery based on attestation to the ownership of shares of Common
Stock with a Fair Market Value equal to the total payment due from the
Participant; (iii) by a combination of the methods described in (i) and (ii)
above; or (iv) by such other methods as the Plan Committee may deem appropriate.
7.6 TAX WITHHOLDING. The Company shall have the right to withhold from any
payments made under this Plan, or to collect as a condition of payment, an
amount sufficient to satisfy all federal, state and local withholding tax
requirements. At any time when a Participant is required to pay to the Company
an amount required to be withheld under applicable income tax laws in connection
with a distribution of shares of Common Stock pursuant to this Plan, the Company
shall have the right to retain shares of Common Stock otherwise distributable,
in an amount sufficient to satisfy such withholding requirements, before
delivery to the Participant of any certificate(s) for shares of Common Stock
7.7 REQUIREMENTS OF LAW. The granting of Awards and the issuance of shares
of Common Stock upon the exercise of Awards shall be subject to all applicable
requirements imposed by federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any stock
exchanges upon which the Common Stock may be listed. As a condition precedent to
the issuance of shares of Common Stock pursuant to the grant or exercise of an
Award, the Company may require the Participant to take any reasonable action to
meet such requirements.
A-6
<PAGE>
SECTION 8 -- AMENDMENTS
Except as otherwise provided in this Plan, the Board shall have the right at
any time, and from time to time, to amend, suspend or terminate the Plan in any
respect that it may deem to be in the best interests of the Company, except
that, without approval by the shareholders of the Company holding not less than
a majority of the votes represented and entitled to be voted at a duly held
meeting of the Company's shareholders, no amendment shall be made if shareholder
approval is necessary to continue to qualify the Plan under Rule 16b-3 under the
Exchange Act or to maintain the Plan as one under which Incentive Stock Options
may be granted. Any amendment or alteration of the Plan may be limited to, or
may exclude from its effect, any particular class of Participants. No amendment
or alteration of the Plan may, without the consent of the Participant, make any
changes in any outstanding Award theretofore granted under the Plan which would
adversely affect the rights of such Participant.
SECTION 9 -- RECAPITALIZATION
The aggregate number of shares of Common Stock as to which Awards may be
granted to Participants, the number of shares thereof covered by each
outstanding Award, and the price per share thereof in each such Award, shall all
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, stock dividend, combination
or exchange of shares, exchange for other securities, reclassification,
reorganization, redesignation, merger, consolidation, recapitalization or other
such change. Any such adjustment may provide for the elimination of fractional
shares.
SECTION 10 -- NO RIGHT TO EMPLOYMENT
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the Company or a Subsidiary. Nothing in this Plan
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
SECTION 11 -- CHANGE IN CONTROL
11.1 ACCELERATION PROVISIONS. Each Award Agreement shall provide that all
applicable performance standards shall be automatically maximized, all
restrictions shall lapse, and any time periods relating to the exercise,
realization or vesting of such Awards shall accelerate, so that such Awards will
be immediately exercised, realized or vested in full on the date of the Change
in Control, or such other date within 90 days of the Change in Control as the
Plan Committee, in its sole discretion, shall provide in the Award Agreement.
11.2 ADDITIONAL PROVISIONS. The Award Agreements may, in the sole
discretion of the Plan Committee, provide that any or all of the following shall
occur in the event of a Change in Control:
11.2.1 PAYMENT IN CASH. Performance shares or performance units may be
paid entirely in cash.
11.2.2 TERMINATION OF EMPLOYMENT. If a Participant's employment
terminates for any reason other than retirement or death following a Change
in Control, any Options held by such Participant may be exercised by such
Participant until the earlier of three months after the termination of
employment or the expiration date of such Options.
11.2.3 CANCELLATION. All Awards become non-cancelable.
11.3 PLAN COMMITTEE DISCRETION. Notwithstanding the foregoing, the Plan
Committee may, in its sole discretion, provide in any Award Agreement with
respect to an Award, that (i) if (A) a Change in Control occurs within two years
following adoption of the Plan by the shareholders of the Company or the grant
of the Award, (B) the transaction in which the Change in Control occurs is
intended to be reflected as a pooling of interests for accounting purposes, and
(C) the Board of Directors finds that any of the provisions required
A-7
<PAGE>
or permitted under Sections 11.1 and 11.2 above would prevent such transaction
from being reflected as a pooling of interests for accounting purposes, or (ii)
if (A) the Company or a Subsidiary engages in a Business Combination within two
years following adoption of the Plan by the shareholders of the Company or the
grant of the Award, (B) the Business Combination is intended to be reflected as
a pooling of interests for
accounting purposes, and (C)the Board of Directors finds that any of the
provisions required or permitted under Sections 11.1 and 11.2 above with respect
to a subsequent Change in Control would prevent the Business Combination from
being reflected as a pooling of interests for accounting purposes, then the
Board of Directors may declare any or all of the provisions required or
permitted under Sections 11.1 and 11.2 that were included in the Award Agreement
to be null and void with respect to such Award Agreement.
SECTION 12 -- GOVERNING LAW
To the extent that federal laws do not otherwise control, this Plan shall be
construed in accordance with and governed by the laws of the Commonwealth of
Kentucky.
SECTION 13 -- SAVINGS CLAUSE
This Plan is intended to comply in all aspects with applicable law and
regulation, including, with respect to those Employees who are Reporting
Persons, Rule 16b-3 under the Exchange Act. In case any one or more of the
provisions of this Plan shall be held invalid, illegal or unenforceable in any
respect under applicable law and regulation (including Rule 16b-3), the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby and the invalid, illegal or
unenforceable provision shall be deemed null and void; however, to the extent
permissible by laws, any provision which could be deemed null and void shall
first be construed, interpreted or revised retroactively to permit this Plan to
be construed in compliance with all applicable laws (including Rule 16b-3) so as
to foster the intent of this Plan. Notwithstanding anything in this Plan to the
contrary, the Plan Committee, in its sole and absolute discretion, may bifurcate
this Plan so as to restrict, limit or condition the use of any provision of this
Plan to Participants who are Reporting Persons without so restricting, limiting
or conditioning this Plan with respect to other Participants.
SECTION 14 -- EFFECTIVE DATE AND TERM
The effective date of this Plan is January 1, 1998, subject to its approval
by the Company's shareholders at their next annual meeting or at any adjournment
thereof, within twelve months following the date of its adoption by the Board.
This Plan shall terminate on December 31, 2007, and no Awards may be granted
under the Plan after such date, but any Award granted prior thereto shall be
enforced in accordance with its terms.
A-8
<PAGE>
TRANS FINANCIAL, INC.
BOWLING GREEN, KENTUCKY
ANNUAL MEETING OF SHAREHOLDERS
APRIL 20, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder in Trans Financial, Inc., Bowling Green,
Kentucky (the "Corporation") hereby constitutes and appoints Gregg Hall and
Roger Lundin, or either of them, his true and lawful attorneys and proxies, with
full power of substitution in and for each of them, to vote all shares of the
Corporation which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held at the Bowling Green-Warren County Convention Center,
1021 Wilkinson Trace, Bowling Green, Kentucky, on Monday, April 20, 1998, 10:00
a.m. Central Time, or at any adjournment or adjournments thereof, on any and all
of the proposals contained in the Notice of the Annual Meeting of Shareholders,
with all the powers the undersigned would possess if present personally at said
meeting, or at any adjournment or adjournments thereof.
The Directors recommend a vote FOR Proposals 1 and 2.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS
FOR all nominees listed below / / WITHHOLD AUTHORITY / /
(except as marked to the contrary, to vote for all nominees listed
see Instruction below) below
Mary D. Cohron, David B. Garvin and James D. Scott (to be elected as Class
I directors as set forth in the proxy statement).
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW:)
--------------------------------------------------------------------------
2. PROPOSAL TO APPROVE THE TRANS FINANCIAL, INC. 1998 STOCK INCENTIVE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
The above-named proxies are granted the authority, in their discretion, to
act upon such other matters as may properly come before the meeting or any
adjournment or adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE NOMINEES LISTED ABOVE WITH THE DISCRETIONARY AUTHORITY DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT, AND FOR PROPOSAL 2.
<PAGE>
This Proxy may be revoked at any time prior to the time the presence of a
quorum has been determined and declared, by a written notice of revocation
executed by the undersigned and delivered to the Secretary of the Corporation.
Dated _________________________ , 1998
______________________________________
______________________________________
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS AND RETURN THIS PROXY
IMMEDIATELY IN THE ENCLOSED STAMPED
SELF-ADDRESSED ENVELOPE. IF ACTING AS
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, YOU SHOULD SO INDICATE WHEN
SIGNING. IF THE SIGNER IS A
CORPORATION, PLEASE SIGN THE FULL
CORPORATE NAME, BY DULY AUTHORIZED
OFFICER. IF SHARES ARE HELD JOINTLY,
EACH STOCKHOLDER NAMED SHOULD SIGN.
