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 the 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 ss. 240.14a-11(c) or ss. 240.14a-12
HFB FINANCIAL CORPORATION
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
$125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
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:
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2. Aggregate number of securities to which transaction applies:
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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)
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4. Proposed maximum aggregate value of transaction:
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5. Total fee Paid:
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[_] 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:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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<PAGE>
September 25, 2000
Dear Stockholder:
We invite you to attend the 2000 Annual Meeting of Stockholders of HFB
Financial Corporation (the "Corporation"), the holding company of Home Federal
Bank, Federal Savings Bank, to be held at Pine Mountain State Resort Park,
Pineville, Kentucky, on Tuesday, October 31, 2000 at 2:00 p.m.
The Meeting has been called for the election of directors. Enclosed is
a proxy statement, a proxy card and an Annual Report to Stockholders for the
2000 fiscal year. Directors and officers of the Corporation, as well as
representatives of the Corporation's independent auditors, will be present to
respond to any questions the stockholders may have.
Your vote is important, regardless of the number of shares you own. On
behalf of the Board of Directors, we urge you to please sign, date and return
the enclosed proxy card in the enclosed postage-prepaid envelope as soon as
possible, even if you currently plan to attend the annual meeting. This will not
prevent you from voting in person, but will assure that your vote is counted if
you are unable to attend the Meeting.
Sincerely,
/s/ David B. Cook
-----------------
David B. Cook
President
<PAGE>
HFB FINANCIAL CORPORATION
1602 CUMBERLAND AVENUE
MIDDLESBORO, KENTUCKY 40965
(606) 248-1095
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 31, 2000
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders
(the "Meeting") of HFB Financial Corporation (the "Corporation"), the holding
company of Home Federal Bank, Federal Savings Bank, will be held at Pine
Mountain State Resort Park, Pineville, Kentucky on Tuesday, October 31, 2000 at
2:00 p.m.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Corporation; and
2. Approval of the HFB Financial Corporation 2000 Long-term
Incentive Compensation Plan; and
3. Such other matters as may properly come before the Meeting or
any adjournment thereof.
NOTE: The Board of Directors is not aware of any other business to come before
the Meeting.
Any action may be taken on any one of the foregoing proposals at the
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the Meeting may be adjourned. Pursuant to the
Bylaws of the Corporation, the Board of Directors has fixed the close of
business on September 15, 2000, as the record date for determination of the
stockholders entitled to vote at the Meeting and any adjournments thereof.
You are requested to fill in and sign the enclosed form of proxy which
is solicited by the Board of Directors and to mail it promptly in the enclosed
envelope. The proxy will not be used if you attend and vote at the Meeting in
person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Frank W. Lee
----------------
Frank W. Lee
Secretary
Middlesboro, Kentucky
September 25, 2000
IMPORTANT: PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY. THE PROMPT RETURN
OF PROXIES WILL SAVE YOUR CORPORATION THE EXPENSE OF FURTHER REQUESTS FOR
PROXIES IN ORDER TO INSURE A QUORUM. AN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
OF
HFB FINANCIAL CORPORATION
1602 CUMBERLAND AVENUE
MIDDLESBORO, KENTUCKY 40965
(606) 248-1095
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 31, 2000
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of HFB Financial Corporation
(the "Corporation"), the holding company of Home Federal Bank, Federal Savings
Bank ("Home Federal" or the "Bank"), to be used at the Annual Meeting of
Stockholders of the Corporation (the "Meeting") which will be held at Pine
Mountain State Resort Park, Pineville, Kentucky, on Tuesday, October 31, 2000 at
2:00 p.m. The accompanying Notice of Annual Meeting and this Proxy Statement are
being first mailed to stockholders on or about September 25, 2000.
Revocation and Voting of Proxies
Stockholders who execute proxies retain the right to revoke them
at any time. Unless so revoked, the shares represented by such proxies will be
voted at the Meeting and all adjournments thereof. Proxies may be revoked by
written notice to the Secretary of the Corporation, the filing of a later proxy
prior to a vote being taken on a particular proposal at the Meeting or by
attendance at the Meeting and voting in person. A written notice revoking a
previously executed proxy should be sent to HFB Financial Corporation, 1602
Cumberland Avenue, Middlesboro, Kentucky 40965 -- Attention: Frank W. Lee,
Secretary.
Proxies solicited by the Board of Directors of the Corporation
will be voted in accordance with the directions given therein. Where no
instructions are indicated, proxies will be voted for the nominees for directors
set forth below and in favor of each of the other proposals set forth in this
Proxy Statement for consideration at the Meeting.
The proxy confers discretionary authority on the persons named
therein to vote with respect to the election of any person as a director where
the nominee is unable to serve or for good cause will not serve, and with
respect to matters incident to the conduct of the Annual Meeting. If any other
business is presented at the Annual Meeting, proxies will be voted by those
named therein in accordance with the determination of a majority of the Board of
Directors, subject to applicable securities laws.
Proxies marked as abstentions will not be counted as votes cast.
In addition, shares held in street name which have been designated by brokers on
proxy cards as not voted will not be counted as votes cast. Proxies marked as
abstentions or as broker no-votes, however, will be treated as shares present
for purposes of determining whether a quorum is present.
Voting Securities and Security Ownership
Holders of record of the Corporation's common stock, par value
$1.00 per share (the "Common Stock"), as of the close of business on September
15, 2000 (the "Record Date") are entitled to one vote for each share then held.
As of the Record Date, the Corporation had 1,299,147 shares of Common Stock
issued and outstanding. The presence, in person or by proxy, of at least a
majority of the total number of shares of the Common Stock outstanding on the
Record Date will be required to constitute a quorum at the Meeting.
<PAGE>
The following table sets forth information as of the Record Date (i)
with respect to any person who was known to the Corporation to be the beneficial
owner of more than 5% of the Common Stock and (ii) with respect to the
beneficial ownership of Common Stock by each director or nominee of the
Corporation, by each executive officer of the Corporation who is not a Director,
and by all directors and executive officers of the Corporation as a group.
<TABLE>
<CAPTION>
Amount and Nature Percent of Shares
of Beneficial of Capital Stock
Beneficial Owner Ownership (1)(2) Outstanding
---------------- --------------- -----------
<S> <C> <C>
Frank W. Lee, Director 30,810 2.37%
Charles A. Harris, Director 38,034 2.93
Frances Coffey Rasnic, Director 8,644 .66
David B. Cook, Director and Executive Officer 81,599 6.28
Earl Burchfield, Director 39,272 3.02
E.W. Nagle, Director 22,424 1.73
Robert V. Costanzo, Chairman of the Board 18,666 1.43
Stanley Alexander, Jr., Executive Officer 12,928 1.00
Kenneth V. Jones, Executive Officer 4,767 .37
All directors and executive
officers as a group (9 persons) 257,144(3) 19.58
</TABLE>
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(1) As to the Corporation's directors and executive officers, includes 7,225,
7,225, 4,767 and 19,017 shares which may be 2acquired by Messrs. Costanzo,
Jones, Ms. Rasnic and all directors and executive officers as a group upon
the exercise of stock options granted under the HFB Financial Corporation
1992 Stock Option Plan.
(2)Includes 21,985 shares, 6,809 shares, 4,661 shares, 11,693 shares, 1,392
shares and 46,539 shares held for the benefit of Directors Lee, Harris,
Cook, Burchfield, Costanzo and all directors and executive officers as a
group, respectively, through trusts established under the Bank's
discontinued and current deferred compensation plans for directors. In
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, a person is deemed to be the beneficial owner, for purposes of this
table, of any shares of Common Stock if he or she has or shares voting or
investment power with respect to such Common Stock or has a right to acquire
beneficial ownership at any time within 60 days from the Record Date. As
used herein, "voting power" is the power to vote or direct the voting of
shares and "investment power" is the power to dispose or direct the
disposition of shares. Except as otherwise noted, ownership is direct, and
the named individuals and group exercise sole voting and investment power
over the shares of the Common Stock.
(3)Includes shares held by certain directors and executive officers as
custodians under Uniform Transfers to Minors Acts, by their spouses and
children and for the benefit of certain directors and executive officers
under individual retirement accounts ("IRAs"). Includes 46,539 shares owned
by directors and executive officers through trusts established under the
Bank's discontinued and current deferred compensation plans for directors.
<PAGE>
PROPOSAL I - ELECTION OF DIRECTORS
General
The Corporation's Board of Directors has seven members, with
approximately one-third elected annually in accordance with the Corporation's
bylaws. At the Meeting, three persons nominated by the Board of Directors, who
currently are directors and whose terms expire in 2000, will stand for election.
The Board of Directors has nominated David B. Cook and Earl Burchfield
to serve as directors for a three-year period or until their respective
successors have been elected and shall qualify. It is intended that the persons
named in the proxies solicited by the Board will vote for the election of the
named nominees. If any nominee is unable to serve, the shares represented by all
valid proxies will be voted for the election of such substitute as the Board of
Directors may recommend. At this time, the Board knows of no reason why any
nominee might be unavailable to serve.
The Board of Directors unanimously recommends a vote "FOR" election of
each of the nominees.
The following table sets forth for each nominee and for each director
continuing in office, such person's name, age as of June 30, 2000, the year he
or she first became a director of the Bank or the Corporation and the year his
or her current term as a director will expire. All such persons became directors
of the Corporation in 1992, upon the Corporation's organization, except Ms.
Rasnic, who was appointed a director of the Corporation in 1996.
YEAR FIRST CURRENT
ELECTED OR TERM
AGE AS OF APPOINTED TO
NAME JUNE 30, 2000 DIRECTOR EXPIRE
---- ------------- ---------- ------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2002
David B. Cook 50 1974 2000
Earl Burchfield 70 1976 2000
DIRECTORS CONTINUING IN OFFICE
E. W. Nagle 88 1961 2001
Robert V. Costanzo 44 1989 2001
Frank W. Lee 87 1952 2002
Charles A. Harris 66 1987 2002
Frances Coffey Rasnic 51 1996 2002
The principal occupation of each Director and Executive Officer of the
Corporation during the last five years is set forth below.
Frank W. Lee currently serves as Secretary/Treasurer of the Bank and
the Corporation. He has a law degree and is a member of the Kentucky Bar
Association. Mr. Lee is a retired pharmacist and is the past owner of Lee's Drug
Store in Middlesboro, Kentucky. Mr. Lee is a former director of a local bank.
Charles A. Harris is retired owner of Harris Insurance Agency in
Harlan, Kentucky. Mr. Harris is serving, or has served as President of the
Harlan Lions Club, Chairman of the Harlan County Chapter of American Red Cross
and Volunteer for ARC State Disaster Team, Harlan Chamber of Commerce,
Councilman of City of Harlan, Kentucky, Harlan Volunteer Firefighters, Harlan
School Futures Committee, Advisor to Harlan State Vocational Technical School,
President of the Alumni Association of Harlan Boys Choir, Board Member of Red
Bird Mission, Beverly, Kentucky and Board Member of Harlan County Extension
Service. Mr. Harris is also a member of the Oleika Shrine and the Harlan County
Shrine Club.
Frances Coffey Rasnic has been a lifelong resident of Claiborne County.
She graduated from the University of Tennessee and holds 45 hours above her
Masters in Education. She has served her community in various civic and
<PAGE>
school groups. She has been self-employed in real estate development and in her
previously owned family business, Coffey Funeral Home, in New Tazewell and
Harrogate, Tn. where she is currently employed. She is a businesswoman who
remains active in the Claiborne County Chamber of Commerce and serves this
community as Memorial Secretary of the American Cancer Society and Chairperson
of the Tourism Committee and Board Member of the Clinch-Powell Enterprise
Community. She is a member of the New Tazewell United Methodist Church.
David B. Cook currently serves as president and CEO of Home Federal
Bank FSB in Middlesboro, Kentucky and HFB Financial Corporation, Jacksboro,
Tennessee. A graduate of Western Kentucky University and a member of First
Baptist Church in Middlesboro, Mr. Cook has served as president of both the
Lexington Chapter of the Society of Real Estate appraisers and the ROHO Club of
Middlesboro. He has previously served as a board member on the Bell County
Chamber of Commerce, the Board of Housing Appeals for the city of Middlesboro
and the City Council's Finance Committee. He is a past board member of the
Bluegrass Council of Boy Scouts of America, Lexington, Kentucky. Mr. Cook is
presently on the board of the Bell County Industrial Foundation and Revolving
Loan Committee.
Earl Burchfield is retired as a newspaper publisher. Mr. Burchfield is
a past member of the Middlesboro Rotary Club, a past trustee of Applachian
Hospitals, a past member of Bell County and Claiborne County Chambers of
Commerce and active in the area Gideons organization. He serves as a Nursing
Home Volunteer, as well as church treasurer and Deacon.
E. W. Nagle is retired from the Middlesboro Tanning Company, where he
served as an officer. He is a member of the Lions Club and a Charter Member of
the All Sports Hall of Fame.
Robert V. Costanzo is Chairman of the Board of the Corporation. A 1989
graduate of Salmon P. Chase College of Law, Mr. Costanzo serves as District
Judge of Bell County Kentucky. He is a member of the Kentucky Bar Association
and presently serves on the KBA House of Delegates. He is a member of the
Kiwanis International and St. Julian Catholic Church in Middlesboro.
Executive Officers Who Are Not Directors
The following sets forth information with respect to the executive
officers of the Corporation, including their ages as of the Record Date, who do
not serve on the Board of Directors.
Stanley Alexander, Jr., age 51, is currently the Bank's and the
Corporation's Chief Financial Officer. Mr. Alexander graduated from the Graduate
School of Banking at the University of Wisconsin in 1984 and had 17 years of
banking experience prior to joining the Bank in 1991. He has served as treasurer
of the Middlesboro-Bell County Airport Board, Secretary of the ROHO Club, and as
a member of the "Advisory Group" to the Middlesboro City Council's Finance
Committee.
Kenneth V. Jones, age 43, joined Home Federal Bank in October of 1999
and was appointed Chief Operations Officer on May 15, 2000. Prior to joining
Home Federal Bank, Mr. Jones served as Executive Vice President, Chief Financial
Officer and Director of Citizens Bank, New Tazewell, TN, with 24 years of
experience in both operations and lending. He received his Bachelor of Science
Degree in Business Administration from the University of Tennessee and graduated
with honors from the American Bankers Association Graduate School of Banking.
Ken is very active in the community as chairman of the Claiborne Job Service
Employer Committee, Director of the Health and Educational Facilities Board of
the Town of New Tazewell, Member of the Advisory Board - Lincoln Memorial
University Debusk School of Business, and member of the New Tazewell First
Baptist Church. Mr. Jones also served as president and director of the Claiborne
County Chamber of Commerce. He and his wife Donna have two children, Matthew and
Jacob, and currently reside in Lone Mountain Tennessee.
Committees of the Boards of Directors of the Corporation
The Boards of Directors of the Corporation and the Bank conduct their
business through meetings of the Boards and their committees. During the fiscal
year ended June 30, 2000, the Corporation's Board of Directors held thirteen
meetings. No current director attended fewer than 75% of the total aggregate
meetings of the Corporation's Board of Directors and committees on which such
Board member served during fiscal 2000.
<PAGE>
The Corporation's audit committee is comprised of Directors Burchfield
(Chairman) Rasnic, and Lee. The audit committee meets as needed, to examine and
approve the audit report prepared by the independent auditors of the
Corporation. During fiscal 2000, the Corporation's audit committee met three
times.
The Corporation's Nominating Committee is comprised of the full Board
of Directors for the purpose of evaluating candidates and making nominations for
election as directors. This Committee met once during fiscal 2000 in that
capacity. While the Board of Directors will consider nominees recommended by
stockholders, it has not actively solicited recommendations from the
Corporation's stockholders for nominees nor, subject to the procedural
requirements set forth in the Corporation's Charter and Bylaws, established any
procedures for this purpose.
The Corporation's compensation committee is comprised of Directors Lee
(Chairman), Burchfield and Harris. The Committee meets periodically to evaluate
the compensation and fringe benefits of the directors, officers and employees
and to recommend changes and to monitor and evaluate employee morale. The
compensation committee met once during fiscal 2000.
EXECUTIVE COMPENSATION
Compensation Summary
The Corporation's principal subsidiary is the Bank. The
Corporation has no full time employees, relying instead on employees of the Bank
for the limited corporate services provided. All compensation paid to officers
and other employees is paid by the Bank. Other than as set forth below, no
executive officer's total salary and bonus for the fiscal year exceeded $100,000
for services rendered in all capacities to the Corporation and its subsidiaries.
<TABLE>
<CAPTION>
Long-Term
Name and Principal Annual Compensation(1) Compensation
----------------------- Payout of All Other
Position Year Salary Bonus Restricted Stock Compensation(2)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David B. Cook 2000 $133,750 $15,469 $ --- $25,732
President and Chief 1999 $126,575 $14,987 $ --- $34,721
Executive Officer of the 1998 $118,875 $ 5,989 $19,739 $38,608
Corporation and the Bank
</TABLE>
(1) Excludes perquisites, which did not exceed 10% of each named executive
officer's annual salary and bonus.
(2) Includes fees in the amount of $13,150 in fiscal 2000, $12,400 in fiscal
1999 and $11,200 in fiscal 1998 for Mr. Cook's services as a director for
the Corporation and the Bank. ESOP contributions in fiscal 2000, 1999 and
1998 for the benefit of Mr. Cook were $8,176, $22,321 and $27,408,
respectively.
Pension Plan
The Corporation's principal subsidiary is the Bank. The Bank
participates in a multiple employer defined benefit plan (the "Pension Plan").
Employees who have one year of service and reached age 21 are eligible to
participate in the Pension Plan. They are 100% vested after five years of
service. Employees are entitled to a normal retirement benefit at age 65 equal
to 2% times years of benefit service times the average annual salary (as
defined) for the five consecutive years of highest salary during benefit
service, with annual 1% adjustments for retirees who attain age 66 and older.
The Pension Plan also provides for early retirement benefits (commencing as
early as age 55), disability retirement benefits and death benefits.
Contributions are actuarially determined. The Bank makes all contributions to
the Pension Plan. During 2000, the Bank did not contribute to the Pension Plan.
At June 30, 2000, Mr. Cook had 28 years of credited service under the Pension
Plan.
Employment Agreement
In 1999, the Bank entered into an amended and restated employment
agreement with Mr. Cook as President and Chief Executive Officer. As President
and Chief Executive Officer, Mr. Cook is responsible for overseeing all
operations of the Bank, and for implementing the policies adopted by the Board
of Directors. The employment agreement has a term of three years and, pursuant
<PAGE>
to the terms of the agreement, it shall be extended on each anniversary date
from the date of commencement of the agreement for an additional one-year period
beyond the then effective expiration date, upon a determination by the Board of
Directors that performance of the employee has met the required standards and
that such agreement should be extended. The agreement provides for an annual
base salary of $130,000. The agreement provides for a salary review by the Board
of Directors not less often than annually, as well as inclusion in any
discretionary bonus plans, retirement and medical plans, customary fringe
benefits and vacation and sick leave. The agreement is terminable by the Bank
for "just cause" as defined in the agreement. In the event of termination for
just cause, no severance benefits are available. If the Bank terminates an
employee without just cause, the employee will be entitled to a continuation of
his salary and benefits from the date of termination through the remaining term
of the agreement plus an additional 12-month period, but in no event in excess
of three years' salary. The employee is able to voluntarily terminate his
agreement by providing 90 days' written notice to the Board of Directors, in
which case the employee is entitled to receive only his compensation, vested
rights, and benefits up to the date of termination. In the event of the
employee's death or disability, the employee or his estate will be entitled to a
continuation of his salary and benefits through the remaining term of the
agreement.
The employment agreement contains provisions stating that in the event
of (i) the employee's voluntary termination of employment for any reason within
30 days following a change in control of the Bank or the Corporation, or (ii)
the employee's involuntary termination of employment in connection with, or
within six months before or two years after, any change in control of the Bank
or the Corporation, the employee will be paid within 30 days of such termination
a sum equal to 2.99 times the average annual compensation he received during the
five-year period immediately prior to the date of change in control. "Control"
generally refers to the acquisition, by any person or entity, of the ownership
or power to vote more than 25% of the Bank's or Corporation's voting stock, or
the control of the election of a majority of Directors or the exercise of a
controlling influence over the management or policies of the Bank or
Corporation. The employment agreement also provides for a similar lump sum
payment to be made in the event of the employee's voluntary termination of
employment upon the occurrence, or within 90 days thereafter, of certain
specified events following any change in control, whether approval by the Board
of Directors or otherwise which have not been consented to in writing by the
employee including (i) requiring the employee to move his personal residence or
perform his principal executive functions more than 35 miles from the Bank's
current primary office, (ii) materially diminishing the employee's base
compensation, (iii) failing to maintain existing employee benefit plans,
including material vacation, fringe benefits, stock option and retirement plans,
(iv) assigning duties and responsibilities to the employee which are other than
those normally associated with his position with the Bank, (v) materially
diminishing the employee's authority and responsibility, (vi) failing to
re-elect the employee to the Bank's Board of Directors, and (vii) materially
diminishing the employee's secretarial or other administrative support. The
aggregate payments that would be made to David B. Cook assuming termination of
employment under the foregoing circumstances at June 30, 2000 would have been
approximately $290,900.
Directors' Compensation
Members of the Board of Directors and committees of the Board of
Directors of the Corporation receive a monthly retainer of $900, plus $250 per
regular or special Board meeting attended.
Transactions with Management
All of the Bank's loans to directors and executive officers are
made on substantially the same terms, including interest rates, as those
prevailing for comparable transactions and do not involve more than the normal
risk of repayment or present other unfavorable features. Furthermore, loans
above the greater of $25,000 or 5% of the Bank's capital and surplus (up to
$500,000) to such persons must be approved in advance by a disinterested
majority of the Board of Directors. The Bank does not offer favorable terms on
mortgage loans to directors or officers.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Olive, LLP, which was the Corporation's independent certified public
accounting firm for the 2000 fiscal year, has been retained by the Board of
Directors to be the Corporation's auditors for the 2001 fiscal year. A
representative of Olive, LLP is currently expected to be present at the Annual
Meeting to respond to stockholders' questions and will have the opportunity to
make a statement if he or she so desires.
<PAGE>
PROPOSAL II -- APPROVAL OF THE HFB FINANCIAL CORPORATION
2000 LONG-TERM INCENTIVE COMPENSATION PLAN
General
The Board of Directors of the Company is seeking stockholder
approval of the HFB Financial Corporation 2000 Long-Term Incentive Compensation
Plan (the "LTIP"). A copy of the LTIP is attached hereto as Exhibit A and should
be consulted for detailed information. All statements made herein regarding the
LTIP are only intended to summarize the LTIP and are qualified in their entirety
by reference to the LTIP.
Purpose of the LTIP
The LTIP is being presented for approval because the Company's
existing 1992 stock option plan is about to expire and has depleted its reserve
of shares for future grants. By providing directors and employees of the Company
and its affiliates, including the Bank, with the opportunity to acquire shares
of Common Stock, the Company seeks to attract, retain, and motivate the best
available personnel for these positions of substantial responsibility, and to
promote the success of the business and the interests of stockholders.
Description of the LTIP
Effective Date. The LTIP became effective August 15, 2000 (the
"Effective Date") when it received Board approval, although the effectiveness of
the LTIP and any awards thereunder is contingent on stockholder approval of this
Proposal at the Annual Meeting.
Administration. The LTIP is administered by a committee (the
"Committee") which is appointed by the Board and consists of at least two
directors of the Company who are "non-employee directors" within the meaning of
the federal securities laws. The Committee currently consists of Directors
Harris, Burchfield and Costanzo. The Board may act in lieu of the Committee on
any matter within its discretion or authority, and may eliminate the Committee
at any time in its discretion.
Committee Powers. The Committee has discretionary authority to
select participants and grant awards, to determine the form and content of any
awards granted under the LTIP, to construe and interpret the LTIP, to prescribe
administrative forms relating to the LTIP, and to make other decisions necessary
or advisable for the administration of the LTIP. All decisions, determinations
and interpretations of the Committee are final, binding and conclusive on all
persons affected thereby.
Eligible Persons; Types of Awards. Under the LTIP, the Committee
has discretionary authority to grant stock options ("Options"), equity units,
restricted stock awards, deferred share awards, and other stock-based awards
(collectively, "Awards") to such employees, consultants and directors, including
members of the Committee, as the Committee shall designate. As of the Record
Date, the Company and its subsidiaries had 11employees and 6 non-employee
directors who were eligible to participate in the LTIP.
Shares Available for Grants. The LTIP reserves 65,000 shares of
Common Stock for issuance pursuant to Awards. Such shares may be authorized but
unissued shares, shares held in treasury, or shares held in a grantor trust
established by the Company. In the event of any reclassification, stock
dividend, stock split, reverse stock split, combination of shares, or similar
event in which the number or kind of shares is changed without receipt or
payment of consideration by the Company, the Committee will proportionately
adjust the number and kind of shares reserved for issuance under the LTIP, the
number of and kind of shares subject to outstanding Awards, and their exercise
prices when applicable. To the extent Awards expire, become unexercisable, or
are forfeited for any reason without having resulted in the issuance of Common
Stock to Award holders, those shares shall be available for the grant of
additional Awards.
Options; Exercise Price. Options may be either incentive stock
options ("ISOs") as defined in Section 422 of the Internal Revenue Code, or
Options that are not ISOs ("NQSOs"). The exercise price as to an ISO may not be
less than the fair market value (determined under the LTIP) of the optioned
shares on the date of grant. In the case of a participant who owns more than 10%
of the outstanding Common Stock on the date of receiving an ISO grant, its
exercise price may not be less than 110% of fair market value of the shares. As
required by federal tax laws, to the extent that the aggregate fair market value
<PAGE>
(determined when an ISO is granted) of the Common Stock with respect to which
ISOs are exercisable by a participant for the first time during any calendar
year (under all plans of the Company and of any subsidiary) exceeds $100,000,
the Options granted in excess of $100,000 will be treated as NQSOs. The exercise
price as to a NQSO may not be less than 85% of the fair market value (determined
under the LTIP) of the optioned shares on the date of grant.
Exercise of Options. The exercise of Options will be subject to such
terms and conditions as are established by the Committee in a written agreement
between the Committee and the participant. Only Common Stock is subject to
purchase upon exercise of the Options, and an Option may not be exercised for a
fractional share.
Method for Exercise. A participant may exercise Options, subject to
provisions relative to their termination and limitations on their exercise in an
Option agreement, only by (i) written notice of intent to exercise the Option
with respect to a specified number of shares of Common Stock, and (ii) payment
to the Company (contemporaneously with delivery of such notice) in cash, by
check, by promissory note, by cancellation of Company indebtedness to the
participant, in previously-owned Common Stock, or a combination of cash and
Common Stock, of the amount of the exercise price for the number of shares with
respect to which the Option is then being exercised. Common Stock utilized in
full or partial payment of the exercise price for Options shall be valued at its
market value at the date of exercise, and must consist of Shares owned for more
than 6 months, or such other period prescribed by the Committee. Alternatively,
the Committee may permit a cashless exercise through a broker, or may permit a
participant to surrender shares subject to his or her Award.
Equity Units. The Committee may grant Equity Units which take the form
a right to receive the appreciated value of shares over any exercise price set
by the Committee (all subject to the terms of the Plan). An Award of Equity
Units may relate to or operate in tandem or combination with or substitution for
Options, or other Equity Units, or on a stand-alone basis, and may be payable in
cash or Shares based on the formula set forth in the written agreement
evidencing such Award. Further, the Committee may grant Equity Units that become
exercisable only in connection with a change in control transaction or other
specified event.
Additional Awards. The Plan provides the Committee with the discretion
to provide in an Option award for the granting of an additional option to any
participant who delivers shares in partial or full payment of the exercise price
of the original option. The additional option will be for the number of shares
equal to the number of shares so delivered, will have an exercise price equal to
the fair market value of a share on the date of exercise of the original option,
and will have an expiration date no later than the expiration date of the
original option. The Committee also has the discretion (I) to permit a
participant to exercise unvested Options, in which case the shares issued to the
participant upon exercise of his or her unvested Option will be restricted
shares having the same vesting restrictions as the unvested Options, (II) to
offer to buy out, for cash or shares, an Option based on such terms and
conditions as the Committee shall establish and communicate to the participant
at the time that such offer is made, and (III) to award dividend equivalent
rights with respect to shares subject to Options.
Effect of Termination of Service. Except to the extent otherwise
provided in the Plan or in the applicable Award Agreement (which may
specifically accelerate or extend the period for exercising an Option), Options
or Equity Units will terminate upon termination of the participant's Continuous
Service for any reason (including death), except that an otherwise unexpired
Option or Equity Unit shall cease to be exercisable upon: (i) the date that is 3
months after a participant terminates Continuous Service because of retirement
or a termination for other than disability, death or Just Cause, or (ii) the
date that is two years after a participant's death, or (iii) the date that is
one year after a participant terminates Continuous Service as a result of his or
her disability (as defined in the Plan). If the Committee determines that the
participant's Continuous Service terminated due to Just Cause, the participant's
Option or Equity Unit will lapse immediately and the participant will return to
the Company any payments received under dividend equivalent rights granted
pursuant to the Plan, extending back to the date the Committee determines Just
Cause existed.
Restricted Stock and Deferred Share Awards. The Committee may make
discretionary restricted stock and deferred share awards to select employees and
directors (including members of the Committee). Under the Plan, the Committee
has the discretion not only to determine the conditions for vesting of
restricted stock awards, but also to implement a program for deferred share
awards as part of a deferred compensation program for executives and directors.
Cash dividends that are declared on these Awards will accumulate for
distribution at the time and in the manner selected by the participant for
distribution of the shares subject to his or her Award. Until transferred to a
participant, the Committee will control voting of any shares that are
outstanding and subject to these Awards. Participants cannot receive the shares
subject to these Awards until vesting occurs, but may elect the time for
distribution; provided that a participant must waive the right to 2% of the
<PAGE>
underlying shares if a deferral election is made within 12 months of a
distribution date that would otherwise occur. The Committee is, however,
permitted to approve hardship distributions. A participant may not assign his or
her claim to deferred or restricted shares and associated earning during his or
her lifetime. A participant's right to deferred shares and associated earning
shall at all times constitute an unsecured promise of the Company to pay
benefits as they come due. Neither the participant nor his or her beneficiary
will have any claim against, or rights in, any specific assets of the Company.
Conditions on Issuance of Shares. The Committee will have the
discretionary authority to impose, in agreements, such restrictions on shares of
Common Stock issued pursuant to the LTIP as it may deem appropriate or desirable
to comply with applicable law for the LTIP's proper administration.
Nontransferability. In general, and except as set forth below, Awards
may not be sold, pledged, assigned, hypothecated, transferred, or otherwise
encumbered or disposed of other than by will or by the laws of descent and
distribution. Unless otherwise provided in an Award Agreement, however, any
participant may transfer Awards (other than ISOs) either by gift to Immediate
Family, or by instrument to an inter vivos or testamentary trust in which the
Awards (other than ISOs) are to be passed, upon the death of the grantor, to
beneficiaries who are immediate family (or otherwise approved by the Committee),
subject to such terms and conditions as the Committee deems appropriate. In
addition, Common Stock that is purchased upon the exercise of an Option may not
be sold within the six-month period following the grant date of that Option or
Equity Unit, except in the event of the participant's death or disability, or
such other event as the Board may specifically deem appropriate.
Change in Control, Dissolution and Related Transactions. In the
event of a corporate transaction such as a change in control, dissolution,
merger or sale, each outstanding Award may be assumed or an equivalent award may
be substituted by the successor Corporation or a parent or subsidiary of the
successor corporation. Failing that, each Award will terminate upon consummation
of the transaction; provided that, to the extent outstanding Awards are neither
being assumed nor replaced with equivalent awards by the successor corporation
(a) the Options or Equity Units will accelerate and become exercisable for a
prescribed period immediately prior to the Corporate Transaction and (ii) all
other Awards will become fully vested and the Shares underlying the Awards
distributed immediately prior to the consummation of the transaction (unless the
participant makes a deferral election in accordance with the Plan). In either
case, any repurchase right of the Company applicable to any Shares shall lapse
on consummation of the transaction. Any Award held by a participant who is
involuntarily terminated in connection with, or within 12 months following
consummation of, such a transaction will accelerate and become exercisable, and
any repurchase right of the Company applicable to any Shares will lapse
Duration of the LTIP and Grants. The LTIP has an indefinite duration,
although ISOs may not be granted more than 10 years after its effective date.
The maximum term for an Award is 10 years from the date of grant, except that
the maximum term of an ISO may not exceed five years if the participant owns
more than 10% of the Common Stock on the date of grant. The expiration of the
LTIP, or its termination by the Committee, will not affect any Award then
outstanding.
Modification of Options. At any time, and from time to time, the
Committee may modify any outstanding Award, provided that no such modification
may confer on the holder of the Award any right or benefit which could not be
conferred on him by the grant of a new Award, or materially and adversely impair
the Award without the participant's consent.
Amendment and Termination of the LTIP. The Board of Directors may from
time to time amend the terms of the LTIP and, with respect to any shares at the
time not subject to Awards, suspend or terminate the LTIP. No amendment,
suspension, or termination of the LTIP will, without the consent of any affected
participant, materially and adversely affect any rights of the participant under
any Award previously granted.
Financial Effects of Awards. The Company will receive no monetary
consideration for the granting of Awards under the LTIP. It will receive no
monetary consideration other than the exercise price for shares of Common Stock
issued to participants upon the exercise of their Options, and will receive no
monetary consideration upon the distribution of Common Stock satisfying Deferred
Share Awards. Cash proceeds from the sale of Common Stock issued pursuant to the
exercise of Options will be added to the general funds of the Company to be used
for general corporate purposes.
<PAGE>
Under the intrinsic value method that the Company follows under applicable
accounting standards, recognition of compensation expense is not required when
Options are granted at an exercise price equal to or exceeding the fair market
value of the Common Stock on the date the Option is granted. Disclosure may be
required in financial statement footnotes regarding pro forma effects on
earnings and earnings per share of recognizing as a compensation expense an
estimate of the fair value of such stock-based awards. The Financial Accounting
Standards Board has issued Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation. Interpretation No. 44 clarifies
previous accounting guidance by focusing on the definition of an employee, the
criteria for determining whether a plan qualifies as a non-compensatory plan,
the accounting consequence of various modifications to the terms of a previously
fixed stock option or award and the accounting for an exchange of stock
compensation awards in a business combination.
Among other things, this interpretation grants employee status to outside
members of a Company's Board of Directors, thereby not requiring the recording
of compensation expense for options granted where the exercise price is equal to
the fair value of the stock at the grant day. The requirements to record
compensation expense may apply for options granted to individuals that do not
qualify as employees or directors of the Company.
The granting of Equity Units will require ongoing charges against the
Company's earnings, to the extent the value of the Equity Units appreciates
(with income resulting from depreciation). Restricted Stock and Deferred Share
Awards will require charges to the Company's income over the vesting period, if
any, for the Award (with such expense based on the fair market value, on the
date of award, of the shares of Common Stock credited pursuant to the Award).
Changes in value of the Common Stock after the date of award will not result in
financial expense.
Federal Income Tax Consequences
Summarized below are the federal income tax consequences that the
Company expects (based on current tax laws, rules, and interpretations) with
respect to Awards.
Date of Award. The recipient of an Award will not recognize taxable
income upon its grant. Nor will the grant entitle the Company to a current
deduction.
Subsequent Events. The subsequent tax consequences for Award recipients
differ, as follows, depending on the type of Award. In general, however, the
Company will be entitled to a deduction for federal income tax purposes at the
same time and in the same amount as the ordinary income recognized by the Award
holder.
ISOs. If an Award holder holds the shares purchased upon exercise of an
ISO for at least two years from the date the ISO is granted, and for at least
one year from the date the ISO is exercised, any gain realized on the sale of
the shares received upon exercise of the ISO is taxed as long-term capital gain.
However, the difference between the fair market value of the Common Stock on the
date of exercise and the exercise price of the ISO will be treated by the holder
as an item of tax preference in the year of exercise for purposes of the
alternative minimum tax. If a holder disposes of the shares before the
expiration of either of the two special holding periods noted above, the
disposition is a "disqualifying disposition." In this event, the holder will be
required, at the time of the disposition of the Common Stock, to treat the
lesser of the gain realized or the difference between the exercise price and the
fair market value of the Common Stock at the date of exercise as ordinary income
and the excess, if any, as capital gain.
NQSOs and Equity Units. A holder will recognize ordinary income upon
the exercise of the NQSO in an amount equal to the difference between the fair
market value of the shares on the date of exercise and the option price (or, if
the holder is subject to certain restrictions imposed by the federal securities
laws, upon the lapse of those restrictions unless the holder makes a special tax
election within 30 days after the date of exercise to have the general rule
apply). Upon a subsequent disposition of such shares, any amount received by the
holder in excess of the fair market value of the shares as of the exercise will
be taxed as capital gain.
Deferred and Restricted Shares. Whenever the Company transfers
unrestricted shares of Common Stock or associated earnings to a participant, the
participant will recognize ordinary income equal to the fair market value of the
property transferred. A participant may, however, choose to accelerate taxation
to the date of award pursuant to an election under section 83(b) of the Code,
with any future gain (or loss) being capital gain (or loss).
<PAGE>
Recommendation and Vote Required
The Board of Directors has determined that the LTIP is desirable, cost
effective, and produces incentives that will benefit the Company and its
stockholders. The Board of Directors is seeking stockholder approval of the LTIP
in order to satisfy the requirements of the Internal Revenue Code for favorable
tax treatment of ISOs and to satisfy the listing requirements of the National
Association of Securities Dealers for national market system securities.
Stockholder approval of the LTIP requires the affirmative vote of the
holders of a majority of the votes cast at the Annual Meeting. The Board of
Directors recommends a vote "FOR" approval of the LTIP.
New Plan Benefits
The Board of Directors has determined that the LTIP is desirable, cost
effective, and produces incentives that will benefit the Company. No awards will
be granted under the LTIP prior to the Annual Meeting, and no determination has
been made regarding the grant of awards under the LTIP if it is approved at the
Annual Meeting.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Meeting, it is
intended that proxies in the accompanying form will be voted in respect thereof
in accordance with the direction of the majority of the Board of Directors.
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to regulations promulgated under the Securities Exchange Act
of 1934, as amended, the Corporation's officers, directors and persons who own
more than 10% of the outstanding Common Stock are required to file reports
detailing their ownership and changes of ownership in such Common Stock, and to
furnish the Corporation with copies of all such reports. Based solely on the
Corporation's review of ownership reports received prior to the Record Date, or
written representations from reporting persons that no annual report of change
in beneficial ownership is required, the Corporation believes that, with the
exception the late filing of SEC form 3 by executive officer Kenneth Jones, all
directors, executive officers and stockholders owning in excess of ten percent
of the Common Stock have complied with the reporting requirements for the 2000
fiscal year.
MISCELLANEOUS
The cost of solicitation of proxies will be borne by the Corporation.
In addition to solicitations by mail, directors, officers, and regular employees
of the Corporation may solicit proxies personally or by telegraph or telephone
without additional compensation.
The Corporation's Annual Report to Stockholders is being mailed to all
persons who were stockholders of record as of the close of business on September
15, 2000. Any stockholder who has not received a copy of such Annual Report may
obtain a copy by writing the Corporation. Such Annual Report is not to be
treated as a part of the proxy solicitation material nor as having been
incorporated herein by reference.
A COPY OF THE CORPORATION'S FORM 10-KSB AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF
THE RECORD DATE UPON WRITTEN REQUEST TO STANLEY ALEXANDER, JR., CHIEF FINANCIAL
OFFICER, HFB FINANCIAL CORPORATION, 1602 CUMBERLAND AVENUE, MIDDLESBORO,
KENTUCKY 40965.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the proxy materials of the
Corporation for next year's Meeting of Stockholders, any stockholder proposal to
take action at such meeting must be received at the Corporation's executive
office at 1602 Cumberland Avenue, Middlesboro, Kentucky 40965 no later than May
31, 2001. Any such proposal shall be subject to the requirements of the proxy
rules adopted under the Securities Exchange Act of 1934, as amended. Otherwise,
any stockholder proposal to take action at such meeting must be received at the
Corporation's executive office, at 1602 Cumberland Avenue, Middlesboro, Kentucky
40965 on or before September 22, 2001 (30 days prior to next year's anticipated
annual meeting date). In the event that the date of next year's annual meeting
changes, a stockholder proposal must be received not later than 30 days prior to
the new date of such annual meeting; provided, however, that in the event that
less than 40 days notice of the new date of annual meeting is given or made to
stockholders, notice of a proposal by a stockholder to be timely must be
received not later than the close of business on the tenth day following the day
on which notice of the new date of the annual meeting was mailed. All
stockholder proposals must also comply with the Corporation's bylaws and
Tennessee law.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Frank W. Lee
----------------
Frank W. Lee
Secretary
Middlesboro, Kentucky
September 25, 2000
<PAGE>
Exhibit A
HFB Financial Corporation
2000 Long-Term Incentive Compensation Plan
<PAGE>
Article 1
GENERAL
1.1 Establishment, Purpose. HFB Financial Corporation has established this
2000 Long-Term Incentive Compensation Plan to promote the Company's long-term
growth and profitability. To these ends, this Plan enables the Company to
provide eligible persons with incentives to improve stockholder value, and
thereby to attract, retain, and motivate the best available persons for
positions of substantial responsibility.
1.2 Defined Terms. Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in Appendix A hereto.
1.3 Types of Awards. Awards may be made in the form of:
Section 2.3 Options, which provide Participants with
the long-term right to purchase Shares.
Section 2.4 Equity Units, which provide Participants
with a right to receive the appreciation on
Common Stock between the award date and the
exercise date.
Section 2.6 Restricted Shares, which provide
Participants with a short-term right to
purchase or receive Shares, subject to
certain restrictions.
Section 2.7 Deferred Shares, which provide
Participants with the opportunity to defer
compensation with respect to vested Awards.
Section 2.8 Other Stock-Based Awards.
1.4 Persons Eligible for Awards.
1.4.1 General Rule. All Directors, Employees, and Consultants are eligible
for Awards, but Awards are granted by the Committee in its absolute discretion.
1.4.2 No Employment Rights. This Plan shall not confer upon any Participant
any right to continue in an employment, service, or consulting relationship with
the Company, nor shall it affect in any way a Participant's right or the
Company's right to terminate his or her employment, service, or consulting
relationship at any time, with or without Just Cause.
1.5 Administration.
1.5.1 General. This Plan shall be administered by the Board until the Board
shall appoint the members of the Committee pursuant to Section 1.5.2 below;
thereafter, it shall be administered by the Committee, but the Board may act in
lieu of the Committee on any matter within the Committee's discretion or
authority and may eliminate the Committee at any time in its discretion.
<PAGE>
1.5.2 Committee Members. If created, the Committee shall consist of not
less than two Directors. The members of the Committee shall be appointed by, and
serve at the pleasure of, the Board. To the extent required for transactions
under this Plan to qualify for the exemptions available under Rule 16b-3, all
actions relating to Awards to persons subject to Section 16 of the Securities
Act shall be taken by the Board unless each person who serves on the Committee
is a "non-employee director" within the meaning of Rule 16b-3 or such actions
are taken by a sub-committee of the Committee (or the Board) comprised solely of
"non-employee directors." Furthermore, all actions relating to Awards to Named
Executives shall be made by a sub-committee of the Committee (or the Board)
comprised solely of "outside directors" within the meaning of Section 162(m) of
the Code.
1.5.3 Powers of the Committee. Subject to the provisions of this Plan, the
Committee shall have full authority and discretion to take any actions that it
may deem necessary or advisable for the administration of this Plan, including
(a) making Awards and documenting them through Award Agreements, (b) determining
the Fair Market Value of the Common Stock, (c) prescribing administrative forms
to be used under this Plan, (d) construing and interpreting the terms of this
Plan and any Award Agreements; (e) modifying Awards to Participants who are
foreign nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs; and (f) requiring that stock
certificates evidencing Shares issued pursuant to this Plan bear a legend
setting forth applicable restrictions on transferability.
1.5.4 Committee Action. Actions of the Committee shall be taken by a vote
of a majority of its members. Any action may be taken by a written instrument
signed by a majority of the Committee members, and action so taken shall be
fully as effective as if it had been taken by a vote at a meeting.
1.5.5 Committee Determinations Final. The determination of the Committee on
all matters relating to this Plan or any Award Agreement shall be final, binding
and conclusive.
1.5.6 No Liability of Committee Member. No member of the Committee shall be
liable for any action or determination made in good faith with respect to this
Plan or any Award.
1.6 Shares Available for Awards. The maximum aggregate number of shares of
the Company's Common Stock which may be transferred pursuant to Awards granted
under this Plan shall not exceed 65,000 Shares. Shares may be authorized but
unissued Common Stock, authorized and issued Common Stock held in the Company's
treasury, Common Stock acquired by the Company for the purposes of this Plan, or
Common Stock held in a grantor trust established by the Company.
1.7 Adjustments for Changes in Capitalization. Subject to any required
action by the Company's stockholders, the number of Shares covered by
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<PAGE>
each outstanding Award, the number of Shares available for Awards, the number of
Shares that may be subject to Awards to any one Participant, and the price per
Share covered by each such outstanding Award shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of Common Stock, or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the Company
other than the conversion of any convertible securities. Such adjustments shall
be made by the Committee, whose determination in that respect shall be final.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Award. After any adjustment made
pursuant to this Section 1.7, the number of Shares subject to each outstanding
Award shall be rounded to the nearest whole number.
1.8 No Limit on Shares Subject to Award. Any Award made to a Participant
during the term of this Plan may be granted with respect to a number of Shares
up to the full number of Shares available for Awards under this Plan.
Article 2
AWARDS
2.1 Agreements Evidencing Awards. Each Award granted under this Plan
(except an Award of unrestricted stock) shall be evidenced by a written Award
Agreement, which shall contain such provisions as the Committee in its
discretion deems necessary or desirable, including, (a) the Participant's
acknowledgement that such Shares are acquired for investment purposes only, (b)
a right of first refusal exercisable by the Company, (c) a call right
exercisable by the Company, and (d) a provision allowing the Participant to
designate a beneficiary to his or her interest in any Award and the Shares
granted by the Award. By accepting an Award pursuant to this Plan, a Participant
agrees that the Award shall be subject to all of the terms and provisions of
this Plan and the applicable Award Agreement.
2.2 Acquiring Stockholder Rights. A Participant shall not have any of the
rights of a Company stockholder with respect to Shares subject to an Award until
such person has been issued a stock certificate by the Company for such Shares.
2.3 Option Awards. The Committee may grant Incentive Stock Options and
Non-Qualified Stock Options to purchase Shares in such amounts and subject to
such terms and conditions, as the Committee shall determine in its discretion,
subject to the provisions of this Plan. ISOs may only be granted to a person who
is an Employee on the date of grant.
2.3.1 ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs are exercisable
for the first time by an Optionee during any calendar year (under all plans of
the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options
shall be treated as NQSOs. For this purpose, ISOs shall be taken into account in
the order in
3
<PAGE>
which they were granted, and the Fair Market Value of the Shares subject to an
ISO shall be determined as of the date of the Option's grant.
2.3.2 Term. Each Award Agreement shall set forth the periods during which
the Options evidenced thereby shall be exercisable, as determined by the
Committee in its discretion. No ISO (or an Equity Unit granted in connection
with an ISO) shall be exercisable more than 10 years after date of grant. The
term of an ISO granted to an Employee who is a Ten Percent Holder on the grant
date shall not exceed 5 years.
2.3.3 Exercise Price. Each Award Agreement with respect to an Option shall
set forth the Option Exercise Price the Optionee must pay to exercise to the
Option. The Option Exercise Price per Share shall be determined by the Committee
in its discretion, subject to the following special rules:
(a) General Option Rules. In no event shall the Option Exercise Price
be less than the par value of a Share.
(b) ISO Rules. If an ISO is granted to an Employee who at the time of
grant is a Ten Percent Holder, the per Share Option Exercise Price shall be no
less than 110% of the Fair Market Value per Share on the date of grant. If an
ISO is granted to any other Employee, the per Share Option Exercise Price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(c) NQSO Rules. If a NQSO is granted prior to the date on which the
Common Stock becomes a Listed Security, the per Share Option Exercise Price
shall be no less than (i) 110% of the Fair Market Value per Share on the date of
grant if required by Applicable Laws for a grant to a person who is a Ten
Percent Holder at the time of grant, and (ii) 85% of the Fair Market Value per
Share on the date of grant but only if required by Applicable Laws for a grant
to any other eligible person.
(d) Merger Override. The restrictions presented in paragraphs (b) and
(c) above will not apply to Options granted or replaced pursuant to a merger or
other Corporate Transaction as described in Sections 4.2 (relating to
adjustments upon corporate dissolution, merger, and other special events) and
4.6 (relating to substitution of Options) hereto.
(e) Named Executives. For grants on or after the date on which the
Common Stock becomes a Listed Security, the per share Option Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant if (i)
the Optionee is a Named Executive at the time of the grant of such Option, and
(ii) the grant is intended to qualify as performance-based compensation under
Section 162(m) of the Code.
2.3.4 Exercise of Option. Subject to the provisions of this Article 2, the
Committee shall determine the times, circumstances, and conditions under which
an Option shall be exercisable, and shall specify this in the applicable Award
Agreement. Furthermore, once an Option becomes exercisable it shall remain
exercisable until
4
<PAGE>
expiration, cancellation, or termination of the Award. An Option shall be
exercised by the filing of a written notice with the Company, on such form and
in such manner as the Committee shall prescribe. The number of Shares thereafter
available under the Option and this Plan shall be decreased by the number of
Shares as to which the Option is exercised.
2.3.5 Minimum Exercise Requirements. An Option must be exercised for a
whole number of Shares. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent an Optionee from exercising an Option with respect
to the full number of Shares as to which the Option is then exercisable.
2.3.6 Methods of Payment upon Exercise. Payment of the Option Exercise
Price and any applicable withholding taxes shall be accompanied by a properly
executed exercise notice, together with such other documentation as the
Committee shall require. Unless otherwise provided in an Award Agreement, the
Company will accept payment of the Option Exercise Price by any of the following
methods: (a) cash; (b) certified or official bank check (or the equivalent
thereof acceptable to the Company); (c) delivery of a promissory note by the
Optionee with such recourse, interest, security and redemption provisions as the
Committee determines to be appropriate, subject where applicable to the
provisions of Section 153 of the Delaware General Corporation Law (relating to
minimum consideration for stock); (d) cancellation of Company indebtedness to
the Participant exercising the Option; (e) other Shares that have a Fair Market
Value on the date of surrender equal to the aggregate Option Exercise Price of
the Shares as to which the Option is exercised (but, in the case of Shares
acquired, directly or indirectly, from the Company, such Shares must have been
owned by the Optionee for more than 6 months on the date of surrender (or such
other period as may be required to avoid the Company's incurring an adverse
accounting charge)); or (f) any combination of the foregoing methods of payment
or, at the discretion of the Committee and to the extent permitted by law, by
such other provision as the Committee may from time to time prescribe. In
addition, the Committee may provide in an Award Agreement for the payment of the
Option Exercise Price on a cashless basis, by stating in the exercise notice the
number of Shares the Optionee elects to purchase pursuant to such exercise (in
which case the Optionee shall receive a number of Shares equal to the number the
Optionee would have received upon such exercise for cash less such number of
Shares as shall then have a Fair Market Value in the aggregate equal to the
Option Exercise Price due in respect of such exercise). The Committee may, in
its discretion and for any reason, refuse to accept a particular form of
consideration (other than cash or a certified or official bank check) at the
time of any Option exercise.
2.3.7 Delivery of Shares. Promptly after receiving payment of the full
Option Exercise Price and any Consents that may be required pursuant to Section
4.7.2 hereto, the Committee shall deliver to the Optionee, a certificate or
certificates for the Shares for which the Award has been exercised. If the
method of payment employed upon the exercise of the Option so requires, and if
Applicable Laws permit, an Optionee may direct the Company to deliver the
certificate(s) to the Optionee's stockbroker.
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2.3.8 Additional Options. The Committee may in its discretion include in
any Award Agreement with respect to an Option (the "Original Option") a
provision awarding an Additional Option to any Optionee who delivers Shares in
partial or full payment of the Option Exercise Price of the Original Option. The
Additional Option shall be for a number of Shares equal to the number of Shares
so delivered, shall have an Option Exercise Price equal to the Fair Market Value
of a Share on the date of exercise of the Original Option, and shall have an
expiration date no later than the expiration date of the Original Option. In the
event that an Award Agreement provides for the grant of an Additional Option,
such Agreement shall also provide that the Option Exercise Price of the Original
Option be no less than the Fair Market Value of a Share on its date of grant,
and that any Shares that are delivered pursuant to Section 2.3.6(e) hereto in
payment of such Option Exercise Price shall have been held for at least 6
months.
2.3.9 Reverse Vesting. The Committee may allow, at its discretion, for a
Participant to exercise unvested Options in which case the Shares issued
pursuant to Section 2.3.7 shall be for Restricted Shares having the same vesting
restrictions as the unvested Options. A Participant wishing to exercise unvested
Options for Restricted Shares shall petition the Committee via written
instrument specifying the number of unvested Options he or she wishes to
exchange for Restricted Shares. The Committee will thereafter notify the
Participant of its decision within 30 days.
2.3.10 Buyout Provisions. The Committee may at any time offer to buy out
for a payment in cash or Shares an Option based on such terms and conditions as
the Committee shall establish and communicate to the Optionee at the time that
such offer is made.
2.4 Equity Units.
2.4.1 Grants. The Committee may grant Equity Units to Participants, in such
amounts and subject to such terms and conditions, as the Committee shall
determine in its discretion, subject to the provisions of this Plan. Equity
Units may be granted in connection with Options or independently, but an Equity
Unit granted in connection with an ISO only may be granted at the same time the
ISO is granted.
2.4.2 Pricing Limits. The pricing restrictions applicable to Options under
Section 2.3 shall also apply to the exercise price of Equity Units granted under
this Plan.
2.4.3 Exercise of Equity Units. Unless the Award Agreement otherwise
provides, an Equity Unit related to an Option will be exercisable at such time
or times, and to the extent, that the related Option is exercisable. An Equity
Unit granted independent of any other Award will be exercisable pursuant to the
terms of the Award Agreement granting the Equity Unit.
2.4.4 Effect on Available Shares. Unless the Award Agreement otherwise
provides, upon the exercise of an Option in connection with which an Equity Unit
has been granted, the number of Shares subject to the Equity Unit shall be
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correspondingly reduced by the number of Shares with respect to which the Option
is exercised.
2.4.5 Calculation of Payment Amount. Unless the Committee otherwise
provides, upon exercise of an Equity Unit and the attendant surrender of an
exercisable portion of any related Award, the Participant will be entitled to
receive payment of an amount equal to (a) the excess of the Fair Market Value of
a Share on the date of exercise of the Equity Unit over (b) the exercise price
of such right as set forth in the Award Agreement (or over the Option Exercise
Price if the Equity Unit is granted in connection with an Option), multiplied by
(c) the number of Shares with respect to which the Equity Unit is exercised.
2.4.6 Form and Terms of Payment. The Committee, in its discretion, will
determine whether to pay the amount determined under Section 2.4.5 hereto,
solely in cash, solely in Shares (valued at Fair Market Value on the date of
exercise of the Equity Unit), or partly in such Shares and partly in cash,
subject to such other terms and conditions as the Committee may impose in the
Award Agreement.
2.4.7 Limited Stock Appreciation Rights. The Committee may grant Equity
Units exercisable only on or in respect of a Corporate Transaction, Change of
Control, or any other specified event. Such limited Equity Units may relate to
or operate in tandem or combination with or substitution for Options, or other
Equity Units or on a stand-alone basis, and may be payable in cash or Shares
based on the spread between the exercise price of such right as set forth in the
Award Agreement (or Option Exercise Price if the Equity Unit is granted in
connection with an the Option to which the Equity Unit relates) and a price
based on or equal to the Fair Market Value of the Shares granted under such
Option during a specified period or a price related to consideration payable to
stockholders generally in connection with the event.
2.5 Termination of Director, Employment or Consultant Relationship.
2.5.1 Committee Determinations. The Committee may in its discretion
determine (a) whether any leave of absence (including a disability absence)
constitutes a termination of Continuous Service, and (b) the impact, if any, of
any such leave of absence on Awards theretofore made under this Plan. The
Committee shall have the right to determine whether the termination of a
Participant's service to the Company is a dismissal for Just Cause and the date
of termination in such case, which date the Committee may retroactively deem to
be the date of the action that is cause for dismissal.
2.5.2 Effect of Termination on Options and Equity Units. Except to the
extent otherwise provided in this Section 2.5.2 or in the applicable Award
Agreement, Options or Equity Units shall terminate upon termination of the
Participant's Continuous Service for any reason (including death). To the extent
that the Participant is not entitled to exercise an Option or Equity Unit at his
or her termination of Continuous Service, or if the Participant does not
exercise the Option or Equity Unit within the time specified in the Award
Agreement or as set forth directly below, the Award shall terminate. Except as
otherwise provided in an Award Agreement:
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(a) Termination other than for Disability, Retirement, Death or Just
Cause. If a Participant's Continuous Service terminates for any reason, other
than disability, retirement, death or Just Cause, the Participant may exercise
any Option or Equity Unit within 3 months following such termination to the
extent the Participant was entitled to exercise it at termination.
(b) Disability. If a Participant's Continuous Service terminates as a
result of his or her disability (within the meaning of Section 22(e)(3) of the
Code, or as otherwise recognized by the Committee in its discretion), the
Participant may exercise an Option or Equity Unit at any time within 1 year
following such termination, but only to the extent the Participant was entitled
to exercise the Option or Equity Unit at termination.
(c) Retirement. If a Participant retires after age 65 under a Company
retirement plan (as determined by the Committee), the Participant shall have the
right to exercise the Option or Equity Unit at any time within 3 months after
termination of Continuous Service to the Company, but only to the extent the
Participant was entitled to exercise the Option or Equity Unit at termination.
(d) Death. If a Participant dies while an Option or Equity Unit
remains exercisable, the Option or Equity Unit may be exercised by the
Participant's estate or by a person who acquired the right to exercise the
Option or Equity Unit by bequest or inheritance at any time within 2 years
following the Participant's death, but only to the extent the Participant was
entitled to exercise the Option or Equity Unit at the time of his or her death.
(e) Just Cause. If the Committee determines that the Participant's
Continuous Service terminated due to Just Cause, the Participant's Option or
Equity Unit shall lapse immediately and the Participant shall return to the
Company any payments received under dividend equivalent rights, pursuant to
Section 2.10 hereto, extending back to the date the Committee determines that
Just Cause existed.
2.6 Restricted Stock Awards.
2.6.1 Awards. The Committee may award Restricted Shares to Participants, in
such amounts, and subject to such terms and conditions as the Committee shall
determine in its discretion, subject to the provisions of this Plan. The
purchase price, if any, of Restricted Shares shall be determined by the
Committee. A Participant shall have no rights with respect to a Restricted Stock
Award unless the Participant accepts the Award within the time period the
Committee specifies by executing the Award Agreement prescribed by the Committee
and, if applicable, pays the purchase price for the Restricted Shares by any
method that is both listed in Section 2.3.6 and is acceptable to the Company.
2.6.2 Issuance of Award. The Company shall issue in the Participant's name
a certificate or certificates for the appropriate number of Shares upon the
Participant's exercise of the Restricted Stock Award pursuant to the terms of
the applicable Award Agreement and this Plan.
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2.6.3 Plan and Regulatory Exceptions. Any certificate issued evidencing
Restricted Shares shall remain in the Company's possession until those Shares
are free of restrictions, except as otherwise determined by the Committee.
2.6.4 Deferral Elections. More than 12 months before a Participant's
Restricted Shares vest, the Participant may elect, with the Committee's consent,
to exchange Restricted Shares for an equivalent Deferred Share Award under
Section 2.7 hereto; provided that elections may be made within 12 months of
vesting if the Participant waives the right to 2% of the Shares.
2.7 Deferred Shares.
2.7.1 Deferral Elections. The Committee may permit any Director,
Consultant, or Employee to irrevocably elect to receive the credits described in
Section 2.7.2 below in lieu of Director fees, salary, or other income from the
Company that the Participant earns after the election; provided that Employees
will only be permitted to make deferral elections if the Committee determines
they are members of a select group of management or highly compensated employees
(within the meaning of the Employee Retirement Income Security Act of 1974).
2.7.2 Deferred Share Credits and Earnings. The Committee shall establish an
internal Plan account for each Participant who makes an election under Section
2.7.1 hereto. At the end of each calendar quarter thereafter, the Committee
shall credit the Participant's account with a number of Deferred Shares having a
Fair Market Value on that date equal to the compensation deferred during the
quarter, and any cash dividends paid during the quarter on Deferred Shares
previously credited to the Participant's account. The Committee shall hold each
Participant's Deferred Shares until distribution is required pursuant to Section
2.7.4 hereto.
2.7.3 Rights to Deferred Shares. A Participant shall at all times be 100%
vested in his or her right to any Deferred Shares and any associated cash
earnings. A Participant's right to Deferred Shares shall at all times constitute
an unsecured promise of the Company to pay benefits as they come due.
2.7.4 Distributions of Deferred Shares and Earnings. The Committee shall
distribute a Participant's Deferred Shares in 5 substantially equal annual
installments in real Shares commencing as of the first day of the calendar year
beginning after the Participant's Continuous Service terminates, provided that
the Committee will honor a Participant's election of a different time and manner
of distribution if the election is made on a form approved by the Committee more
than 90 days before a Change of Control or more than 12 months before the
Participant's Continuous Service terminates (or within such periods if the
Participant waives the right to receive 2% of the Shares that would otherwise be
distributed). Fractional shares shall not be distributed, and instead shall be
paid out in cash.
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2.7.5 Hardship Withdrawals. A Participant may apply to the Committee for an
immediate distribution of all or a portion of his or her Deferred Shares on
account of hardship. The hardship must result from a sudden and unexpected
illness or accident of the Participant or dependent, casualty loss of property,
or other similar conditions beyond the control of the Participant. School
expenses or residence purchases, for example, will not be considered hardships.
Distributions will not be made to the extent a hardship could be relieved
through insurance or by liquidation of the Participant's nonessential assets.
The amount of any distribution hereunder shall be limited to the amount
necessary to relieve the Participant's financial hardship. The determination of
whether a Participant has a qualifying hardship and the amount to be
distributed, if any, shall be made by the Committee in its discretion. The
Committee may require evidence of the purpose and amount of the need, and may
establish such application or other procedures as it deems appropriate.
2.8 Other Stock-Based Awards. The Board may authorize stock-based Awards
other than those specified in Sections 2.3 (Options), 2.4 (Equity Units), 2.6
(Restricted Stock Awards) and 2.7 (Deferred Shares) hereto (including the grant
of unrestricted shares or cash Awards), which the Committee may grant to
Participants, and in such amounts and subject to such terms and conditions, as
the Committee shall determine, subject to the provisions of this Plan. Examples
of types of Awards not specified in this Plan include Stock Unit Awards and
Performance Share Awards.
2.9 Non-Transferability.
2.9.1 General. Except as set forth in Section 2.9.3 below, Awards may not
be sold, pledged, assigned, hypothecated, transferred, or otherwise encumbered
or disposed of other than by will or by the laws of descent or distribution, and
except as specifically provided in this Plan or the applicable Award Agreement.
Furthermore, unless the applicable Award Agreement provides otherwise,
additional Shares or other property distributed to the Participant in respect of
Awards, as dividends or otherwise, shall be subject to the same restrictions
applicable to such Award. An Award may be exercised, during the lifetime of the
Participant, only by such Participant or a transferee permitted by Section 2.9.3
below.
2.9.2 Special Rule for Beneficiaries. The designation of a beneficiary by a
Participant will not constitute a transfer.
2.9.3 Limited Transferability Rights.
(a) Awards Other than ISOs. Unless otherwise provided in an Award
Agreement, any Participant may transfer Awards (other than ISOs) either by gift
to Immediate Family, or by instrument to an inter vivos or testamentary trust in
which the Awards (other than ISOs) are to be passed, upon the death of the
grantor, to beneficiaries who are Immediate Family (or otherwise approved by the
Committee); in all cases subject to such terms and conditions as the Committee
deems appropriate.
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(b) ISOs. ISOs are transferable only by will or by the laws of descent
and distribution, and during the Participant's lifetime, may only be exercised
by the Participant.
2.10 Grant of Dividend Equivalent Rights. The Committee may award dividend
equivalent rights entitling the Participant to receive amounts equal to the
ordinary dividends that would be paid on Shares subject to an unexercised Award
and as if such Shares were then outstanding. In the event such a provision is
included in an Award Agreement, the Committee shall determine whether such
payments shall be made in cash, in Shares, or in another form, whether they
shall be conditioned upon the exercise of the Award to which they relate, the
time or times at which they shall be made, and such other terms and conditions
as the Committee shall deem appropriate.
Article 3
TAXES
3.1 Tax Withholding.
3.1.1 General. As a condition of the transfer of Shares pursuant to this
Plan, the Participant shall make such arrangements as the Committee may require
for the satisfaction of any federal, state, local, or foreign withholding tax
obligations that may arise in connection with an Award or the issuance of
Shares. The Company shall not be required to issue any Shares until such
obligations are satisfied. If the Committee allows the withholding or surrender
of Shares to satisfy a Participant's tax withholding obligations, the Committee
need not allow Shares to be withheld in an amount that exceeds the minimum
statutory withholding rates, including payroll taxes.
3.1.2 Default Rule. An Employee, in the absence of any other arrangement,
shall be deemed to have directed the Company to withhold or collect from his or
her compensation an amount sufficient to satisfy such tax withholding
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.
3.1.3 Cashless Withholding. If permitted by the Committee, a Participant
may satisfy his or her minimum statutory tax withholding obligations by
surrendering to the Company Shares (which may be Shares already owned or subject
to the Award) that have a Fair Market Value equal to the amount required to be
withheld.
3.2 Requirement of Notification of Election Under Section 83(b) of the
Code. A Participant who elects under Section 83(b) of the Code to include in
gross income unvested Awards in the year of transfer shall notify the Company of
such election within 10 days of filing that election with the Internal Revenue
Service.
3.3 Requirement of Notification Upon Disqualifying Disposition Under
Section 421(b) of the Code. If a Participant disposes of Shares issued pursuant
to the exercise of an ISO under the circumstances described in Section 421(b) of
the Code (relating to disqualifying dispositions), the Participant shall notify
the Company of such disposition within 10 days.
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Article 4
MISCELLANEOUS
4.1 Amendment and Termination of Plan; Modification of Awards.
4.1.1 Amendments to Plan. The Board may at any time amend, alter, suspend,
or discontinue this Plan, but no amendment, alteration, suspension or
discontinuation (other than an adjustment pursuant to Section 1.7 hereto) shall
be made that would materially and adversely affect the rights of any Participant
under any outstanding Award, without his or her written consent.
4.1.2 Stockholder Approval. Stockholder approval of any amendment shall be
obtained to the extent necessary to comply with Section 422 of the Code
(relating to ISOs) or other Applicable Laws or regulations.
4.1.3 Modification of Awards. The Committee may modify an Award, accelerate
the rate at which an Award may be exercised, extend or renew outstanding Shares
under an Award, or cancel outstanding Shares under an Award and substitute new
Shares for them. Without the written consent of the Participant, no such change
shall materially reduce the Participant's rights or materially increase the
Participant's obligations as determined by the Committee.
4.2 Adjustments Upon Corporate Dissolution, Merger and Other Special
Transactions.
4.2.1 Corporate Transaction; Change of Control.
(a) General Rule. In the event of a Corporate Transaction, each
outstanding Award may be assumed or an equivalent award may be substituted by
the Successor Corporation or a parent or subsidiary of the Successor
Corporation. Failing that, each Award shall terminate upon the consummation of
the transaction; provided that, to the extent outstanding Awards are neither
being assumed nor replaced with equivalent awards by the Successor Corporation -
(i) such Awards that are Options or Equity Units shall accelerate and become
exercisable for the 20-day period immediately prior to consummation of the
Corporate Transaction, and (ii) all other Awards shall become fully vested and
the Shares underlying the Awards shall be distributed to the Participant
immediately before consummation of the Corporate Transaction unless more than 90
days beforehand, the Participant has executed and delivered to the Committee an
election directing that 2% of his or her Shares be forfeited and 98% of his or
her Shares be distributed in installments over a period longer than 10 years and
not commencing more than two years after the Corporate Transaction (in which
case the Committee shall make distributions in accordance with the Participant's
election). In each case covered by the preceding sentence, any repurchase right
of the Company applicable to any Shares shall lapse on consummation of the
Corporate Transaction. To the extent that an Option or Equity Unit is not
exercised prior to consummation of a Corporate Transaction in which the Award is
not being assumed or substituted, the Award shall terminate upon such
consummation.
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(b) Special Rule for Termination of Employees. In the event a
Participant who holds a Transferred Award is Involuntarily Terminated in
connection with, or within 12 months following consummation of, a Change in
Control, then any Transferred Award held by the terminated Participant at the
time of termination shall accelerate and become exercisable, and any repurchase
right of the Company applicable to any Shares shall lapse. The acceleration of
vesting and lapse of repurchase rights provided for in the previous sentence
shall occur immediately prior to the effective date of the Participant's
termination.
4.3 Nature of Payments.
4.3.1 Consideration. Awards, issuances of Shares, and cash payments
pursuant to this Plan are in consideration of past services for the Company and
the payment of exercise prices.
4.3.2 Awards Separate from Salary. Awards a Participant receives under this
Plan shall be in addition to salary and other compensation payable to the
Participant, but shall not be taken into account for determining any benefits
under any pension, retirement, profit-sharing, bonus, life insurance, or other
benefit plan of the Company or under any agreement between the Company and the
Participant, unless such plan or agreement specifically provides otherwise.
4.4 Non-Uniform Determinations. The Committee's determinations under this
Plan need not be uniform. The Committee shall be entitled, among other things,
to make non-uniform and selective determinations, and to enter into non-uniform
and selective Award Agreements, as to (a) the persons to receive awards under
this Plan, (b) the terms and provisions of awards under this Plan, and (c) the
treatment of leaves of absence pursuant to Section 2.5.1 hereto.
4.5 Effective Date and Term of Plan.
4.5.1 Adoption. Subject to Section 4.8, this Plan was adopted by the Board
and became effective on August 15, 2000.
4.5.2 Termination. Unless sooner terminated by the Board, ISOs may not be
granted under this Plan after the 10th anniversary of the adoption of this Plan
by the Board.
4.6 Substitution of Options. Notwithstanding any inconsistent provisions or
limits under this Plan, in the event the Company acquires (whether by purchase,
merger, or otherwise) all or substantially all of outstanding capital stock or
assets of another corporation, or in the event of any reorganization or other
transaction qualifying under Section 424 of the Code, the Committee may, in
accordance with the provisions of that Section, substitute Options under this
Plan for options issued by plan of the acquired company, provided (a) the excess
of the aggregate Fair Market Value of the shares subject to an Option
immediately after the substitution over the aggregate exercise price of such
Shares is not more than the similar excess immediately before such substitution
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and (b) the new option does not give persons additional benefits, including a
longer exercise period.
4.7 Conditions Incident to Issuance of Shares.
4.7.1 Representations and Warranties. As a condition to the exercise of an
Award, the Committee may require the person exercising the Award to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by law.
4.7.2 Consents. If the Committee shall at any time determine that any
Consent is necessary or desirable as a condition of, or in connection with, the
granting of any Award under this Plan, the issuance or purchase of Shares or
other rights hereunder, or the taking of any other action hereunder (each such
action being hereinafter referred to as a "Plan Action"), then such Plan Action
shall not be taken until the Consent has been done or obtained to the full
satisfaction of the Committee.
4.7.3 No Obligation to Issue Shares. The Company shall not be obligated,
and shall have no liability for failure, to issue or deliver any Shares under
this Plan unless such issuance or delivery would comply with Applicable Laws,
with such compliance determined by the Committee in consultation with the
Company's legal counsel.
4.8 Stockholder Approval. The effectiveness of this Plan and any Awards is
contingent upon the Plan's approval, within 12 months of the Effective Date
specified in Section 4.5.1, by Company stockholders who own a majority of the
Shares voted at a duly held meeting.
4.9 Information and Documents to Optionees and Purchasers. Prior to the
date, if any, on which Common Stock becomes a Listed Security and if required by
the Applicable Laws, the Company shall provide financial statements no less than
annually to each Participant who has an Award or holds Shares acquired pursuant
to this Plan.
4.10 Section Headings. Section headings do not define or limit the contents
of the sections.
4.11 Governing Law and Litigation Expenses. This Plan shall be interpreted,
administered and otherwise subject to the laws of the State of Kentucky
(disregarding choice-of-law provisions), except to the extent that the General
Corporation Law of the State of Delaware shall govern. The Company shall
reimburse a Participant for reasonable legal fees and expenses that the
Participant incurs in order to enforce or defend his or her rights under this
Plan, but only if the Participant receives a judgement or settlement
substantially in the Participant's favor. Reimbursements that are due under this
Section 4.11 shall be paid promptly.
4.12 Severability. Every provision of this Plan is intended to be
severable. Any illegal or invalid term shall not affect the validity or legality
of the remaining terms of this Plan.
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HFB Financial Corporation
2000 Long-Term Incentive Compensation Plan
-------------
Appendix A
Definitions
-------------
"Additional Option" means an Option issued by the Company in exchange
for Shares delivered by an Optionee as full or partial payment of the Option
Exercise Price of an Original Option pursuant to Section 2.3.8 of this Plan.
"Affiliate" means an entity other than a Subsidiary which, together
with the Company, is under common control of a third person or entity.
"Applicable Laws" means the legal or Stock Exchange requirements
governing the Plan and Plan Awards, including Section 422 of the Code.
"Award" means any award made pursuant to this Plan, including Options,
Equity Units, Restricted Shares, and Deferred Shares.
"Award Agreement" means any written document setting forth the terms of
an Award, as prescribed by the Committee.
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under the
Securities Act.
"Board" means the Board of Directors of the Company.
"Change of Control" shall have the meaning ascribed to such term in
Section 9 of the 1992 Plan, as in effect on the Effective Date and as
subsequently modified in any manner not adverse to the interests of
Participants.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means one or more committees or subcommittees of the Board
appointed to administer this Plan in accordance with Section 1.5 of this Plan,
or the Board itself, when it is acting in place of the Committee.
"Common Stock" means the Company's common stock, par value $1.00 per
share.
"Company" means HFB Financial Corporation, a Tennessee corporation.
"Consent" with respect to any Plan Action means (i) any listings,
registrations, or qualifications on any securities exchange or under any
federal, state or local law, rule, or regulation, (ii) any written agreements
and representations by the Participant with respect to the disposition of
Shares, or with respect to any other matter, which the Committee
<PAGE>
shall deem necessary or desirable to comply with the terms of any such listing,
registration, or qualification or to obtain an exemption from the requirement
that any such listing, qualification, or registration be made, and (iii) any
consents, clearances and approvals in respect of a Plan Action by any
governmental or other regulatory bodies.
"Consultant" means any person, including an advisor, who is compensated
by the Company or any Parent, Subsidiary, or Affiliate for consulting services.
"Continuous Service" means uninterrupted service as a Director,
Employee or Consultant. Continuous Service shall not be considered interrupted
(unless an Award Agreement otherwise specifies in the case of: (i) any approved
or legally-mandated leave of absence, provided that such leave is for a period
of not more than 90 days, unless reemployment upon the expiration of such leave
is guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy; (ii) changes in status from Director, Employee, or Consultant to
any other aforementioned position with the Company (including changes to
advisory or emeritus status); or (iii) in the case of transfers between
locations of the Company or between the Company, its Parents, Subsidiaries,
Affiliates, or their respective successors.
"Corporate Transaction" means a sale of all or substantially all of the
Company's assets, or a merger, consolidation or other capital reorganization of
the Company with or into another corporation, and includes a Change of Control.
"Deferred Shares" means shares of Common Stock credited under Section
2.7.2 of this Plan.
"Director" means a member of the Board, as well as a member of the
board of directors of a Parent, Subsidiary, or Affiliate.
"Employee" means any person employed by the Company or any Parent,
Subsidiary, or Affiliate, as determined by the Committee. An outside Director is
not an Employee.
"Equity Unit" means the right to receive appreciation in value of
Common Stock pursuant to Section 2.4 of this Plan.
"Fair Market Value" means the fair market value of the Common Stock, as
determined by the Committee in good faith on such basis as it deems appropriate
and applied consistently with respect to the Participants. Whenever possible,
the determination of Fair Market Value shall be based upon the closing price for
the Shares as reported in the Wall Street Journal for the applicable date.
"Immediate Family" means any natural or adopted child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law.
"Incentive Stock Option" means an Option that is intended to qualify
for special federal income tax treatment pursuant to Sections 421 and 422 of the
Code, and which is
A-2
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so designated in the applicable Award Agreement. Any Option that is not
specifically designated as an ISO shall not be an ISO. Any Option that is not an
ISO is referred to herein as a "NQSO."
"Involuntarily Terminated" means that a Participant's Continuous
Service terminated under the following circumstances: (i) termination without
Just Cause by the Company or a Subsidiary, Parent, Affiliate, or successor
thereto, as appropriate; or (ii) voluntary termination by the Participant within
60 days following (A) a material reduction in the Participant's job
responsibilities (however, a mere change in title alone or reassignment
following a Change of Control to a position that is substantially similar to the
position held prior to the Change of Control shall not constitute a material
reduction in job responsibilities), (B) relocation by the Company or a
Subsidiary, Parent, Affiliate, or successor thereto, as appropriate, of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site for the Company at the time of the Change of
Control, or (C) a reduction in Participant's then-current total compensation by
at least 10%, other than as a result of an across-the-board reduction in the
compensation of all other Employees, Directors, or Consultants in positions
similar to the Participant's position by the same percentage amount.
"ISO" means Incentive Stock Option.
"Just Cause" shall have the meaning ascribed to such term in Section 9
of the 1992 Plan, as in effect on the Effective Date and as subsequently
modified in any manner not adverse to the interests of Participants.
"Listed Security" means any security of the Company that is listed or
approved for listing on a national securities exchange or designated or approved
for designation as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
"Management Action" means any event, circumstance, or transaction
occurring during the 6-month period following a Potential Change in Control that
results from the action of a Management Group.
"Management Group" means any entity or group that includes, is
affiliated with, or is wholly or partly controlled by one or more executive
officers of the Company in office before a Potential Change in Control.
"Named Executive" means any individual who, on the last day of the
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer), as determined under the
Securities Act's executive compensation disclosure rules.
"1992 Plan" means the HFB Financial Corporation 1992 Stock Option Plan.
"Non-Qualified Stock Option" means an Option not intended to qualify
as an ISO, as designated in the applicable Award Agreement.
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<PAGE>
"NQSO" means Non-Qualified Stock Option.
"Option" means a stock option granted pursuant to Section 2.3 of this
Plan.
"Optionee" means a Participant who receives an Option.
"Option Exercise Price" means the price for the Shares to be issued by
the Company upon an exercise of an Option by an Optionee.
"Original Option" has the meaning given to such term in Section 2.3.8
of this Plan.
"Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
"Participant" means any holder of one or more Awards, or the Shares
issuable or issued upon exercise of such Awards, under this Plan.
"Performance Share Award" means an Award granting a right to receive
Shares contingent on the achievement of performance or other objectives during a
specified period.
"Person" has the meaning given in Section 3(a)(9) of the Securities
Act, as modified and used in Section 13(d) of that Act, and shall include a
"group," as defined in Rule 13d-5 promulgated thereunder. However, a person
shall not include: (i) the Company or any of its Subsidiaries; (ii) a trustee or
other fiduciary holding securities under this Plan or the employee benefit plan
of any of the Company's Subsidiairies; (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities; or (iv) a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of shares of the Company.
"Plan" means the HFB Financial Corporation 2000 Long-Term Incentive
Compensation Plan.
"Plan Action" has the meaning given to such term in Section 4.7.2 of
this Plan.
"Potential Change in Control" means any of the following has occurred
during the term of this Plan and all Awards issued under this Plan, excluding
any event that is Management Action:
(i) Agreement Signed. The Company enters into an agreement that will
result in a Change of Control.
(ii) Notice of Intent to Seek Change in Control. The Company or any
Person publicly announces an intention to take or to consider
taking actions that will result in a Change of Control.
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<PAGE>
(iii) Board Declaration. With respect to this Plan, the Board adopts a
resolution declaring that a Potential Change in Control has
occurred.
"Reporting Person" means an officer, Director, or a greater than Ten
Percent Holder of the Company within the meaning of Rule 16a-2 under the
Securities Act, who is required to file reports pursuant to Rule 16a-3 under the
Securities Act.
"Restricted Shares" means Shares subject to restrictions imposed
pursuant to Section 2.6 of this Plan.
"Restricted Stock Award" means an Award granted pursuant to Section 2.6
of this Plan.
"Rule 16b-3" means Rule 16b-3 promulgated under the Securities Act, as
amended from time to time, or any successor provision.
"Securities Act" means the Securities Exchange Act of 1934, as
amended.
"Share" means a share of Common Stock.
"Stock Exchange" means any stock exchange or consolidated stock price
reporting system on which prices for the Common Stock are quoted at any given
time.
"Stock Unit Award" means an Award granting the right to receive Shares
in the future.
"Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
"Successor Corporation" means the corporation resulting after a
Corporate Transaction.
"Ten Percent Holder" means a person who owns stock representing more
than 10% of the voting power of all classes of stock of the Company or any
Parent or Subsidiary (as such ownership may be determined for purposes of
Section 422(b)(6) of the Code).
"Transferred Award" means an Award assumed or substituted for another
award by a Successor Corporation pursuant to Section 4.2 of this Plan.
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<PAGE>
REVOCABLE PROXY
HFB FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 31, 2000
The undersigned hereby appoints Robert V. Costanzo, Charles Harris and
Frances Rasnic, with full powers of substitution, to act as attorneys and
proxies for the undersigned, to vote all shares of the common stock of HFB
Financial Corporation which the undersigned is entitled to vote at the Annual
Meeting of Stockholders, to be held at Pine Mountain State Resort Park,
Pineville, Kentucky, on Tuesday, October 31, 2000 at 2:00 p.m. and at any and
all adjournments thereof, as follows:
VOTE
FOR WITHHELD
---- --------
1. The election as directors of all
nominees listed below (except as [ ] [ ]
marked to the contrary below).
David B. Cook
Earl Burchfield
2. Approval of the HFB Financial Corporation 2000 Long-term
Incentive Compensation Plan
INSTRUCTION: To withhold your vote for any individual nominee,
write that nominee's name on the line below.
--------------------------------------------------
The Board of Directors recommends a vote "FOR" the nominees listed
above and approval of the HFB Financial Corporation Long-term Compensation Plan.
This proxy will be voted as directed, but if no instructions are
specified, this proxy will be voted for each of the nominees. If any other
business is presented at such meeting, as to which this proxy confers
discretionary authority, this proxy will be voted as directed by a majority of
the Board of Directors.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and vote at the Meeting or at
any adjournment thereof, then the power of said attorneys and prior proxies
shall be deemed terminated and of no further force and effect. The undersigned
may also revoke his proxy by filing a subsequent proxy or notifying the
Secretary of his decision to terminate his proxy.
The undersigned acknowledges receipt from the Corporation prior
to the execution of this proxy of notice of the Meeting, a Proxy Statement and
an Annual Report to Stockholders.
Dated: , 2000
------------
------------------------------------ ------------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
------------------------------------ ------------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on the enclosed card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
Please complete, date, sign and mail this proxy promptly in the enclosed
postage-paid envelope.
