UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant _X_
Filed by a Party other than the Registrant __
Check the appropriate box:
_ Preliminary Proxy Statement
_ Confidential, for Use of the Commission Only (as permitted by
Rule 14a- 6(e)(2))
X Definitive Proxy Statement
_ Definitive Additional Materials
_ Soliciting Material Pursuant to Section 240.14a-12
KENTUCKY BANCSHARES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required
_ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
_ Fee paid previously with preliminary materials.
_ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
KENTUCKY BANCSHARES, INC.
339 Main Street
Paris, KY 40361
(859) 987-1795
Notice of Annual Meeting of Shareholders
to be held May 13, 2009
April 10, 2009
To Our Shareholders:
The annual meeting of the shareholders of Kentucky Bancshares, Inc. will be
held as follows:
Date: Wednesday, May 13, 2009
Time: 11:00 a.m., Eastern Daylight Time
Place: Kentucky Bank
Main Office
339 Main Street
Paris, Kentucky
Purpose: To elect four Class I directors,
To vote on a new stock award plan, and
To transact such other business as may properly come
before the meeting or any adjournment thereof.
Record Date: Close of business on March 20, 2009.
All Shareholders are cordially invited to attend the Annual Meeting.
Whether or not you expect to attend the Annual Meeting in person, please sign
and date the enclosed Proxy and return it promptly so your shares of stock
may be voted.
Thank you for your time and consideration. Please feel free to contact
my office should you have any questions.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Gregory J. Dawson
Gregory J. Dawson
Secretary, Kentucky Bancshares, Inc.
YOUR VOTE IS IMPORTANT
Please mark, sign, date and return the accompanying proxy immediately even if
you plan to attend the Annual Meeting.
Information about Attending the Annual Meeting
If you plan to attend the meeting, please bring the following:
1. Proper identification.
2. Acceptable Proof of Ownership if your shares are held in
"street name."
Street Name means your shares are held of record by brokers, banks or other
institutions.
Acceptable Proof of Ownership is (a) a letter from your broker stating that
you owned Kentucky Bancshares, Inc. stock on the record date or (b) an
account statement showing that you owned Kentucky Bancshares, Inc. stock on
the record date.
Only shareholders of record on the record date may attend or vote at our
Annual Meeting of Shareholders.
KENTUCKY BANCSHARES, INC.
339 Main Street
Paris, KY 40361
The 2008 Annual Report to Shareholders, including financial statements,
is being mailed to shareholders together with these proxy materials on or
about April 10, 2009.
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Kentucky Bancshares, Inc. (the
"Company") for use at our Annual Meeting of Shareholders to be held on May
13, 2009, and at any adjournments (the "Annual Meeting").
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be Held on May 12, 2009.
This proxy statement, form of proxy and our 2008 Annual Report to
Shareholders, including financial statements, are available at
www.cfpproxy.com/5407.
Directions to Shareholder Meeting.
Our shareholder meeting will be held at Kentucky Bank's main office
located at 339 Main Street, Paris, Kentucky. If you need directions, please
contact our Secretary at Kentucky Bancshares, Inc., 339 Main Street, Paris,
Kentucky 40361, Attention: Gregory J. Dawson or call our office at (859)
988-1303.
Who Can Vote; Voting Rights.
Each share of our common stock that you held on the record date
entitles you to one vote on any matter, other than the election of directors
that may properly come before the Annual Meeting. In the election of
directors, each holder of shares of our common stock has "cumulative voting
rights."
"Cumulative voting rights" means each holder is entitled to vote the
number of shares of common stock he or she owns multiplied by four (the
number of directors to be elected at the Annual Meeting) by casting all of
his or her votes for one candidate or by distributing such votes among two or
more candidates.
On the record date, there were 2,749,443 shares of our common stock
issued and outstanding.
Votes Required and Quorum.
Votes Required. Our corporate secretary will count votes cast at the
Annual Meeting. Our directors are elected by cumulative voting of the votes
cast at the Annual Meeting. The four director nominees receiving the most
votes for director positions expiring in 2012 will be elected directors. All
other matters, including the proposal to approve the stock award plan, will
be approved if the votes cast for the proposal exceed the votes cast against
the proposal at the Annual Meeting, except as otherwise provided by statute,
our articles of incorporation or our bylaws. Abstentions as to all such
matters to come before the Annual Meeting will not be counted as votes for or
against and will not be included in calculating the number of votes necessary
for approval of those matters.
Brokers, banks and other institutions holding shares of record for
customers generally are not permitted to vote on certain matters unless they
receive voting instructions from their customers. When brokers, banks and
other institutions do not receive voting instructions from their customers,
they notify the Company on the proxy form that they lack voting authority.
The votes that could have been cast on the matter in question by brokers,
banks and other institutions who did not receive voting instructions are
called "broker non-votes." Broker non-votes will not be counted as votes for
or against a matter and will not be included in calculating the number of
votes necessary for approval on those matters.
Quorum. A quorum at the Annual Meeting is at least a majority of the
outstanding shares of our common stock entitled to vote present in person or
represented by proxy. Shares of our common stock represented by properly
executed and returned proxies will be treated as present at the Annual
Meeting. Shares of our common stock present at the Annual Meeting that
abstain from voting or that are the subject of broker non-votes will be
counted as present for purposes of determining a quorum.
How Your Proxy Will Be Voted.
The Board of Directors is soliciting a proxy in the enclosed form to
provide you with an opportunity to vote on all matters scheduled to come
before the Annual Meeting, whether or not you attend in person.
How To Vote. Shareholders may vote at the Annual Meeting in person or
by proxy. If your shares of common stock are registered in your name, then
you can vote your shares by proxy by signing, dating and mailing the enclosed
proxy card.
If your shares are held in "street name" (through a broker, bank or
other institution), you may receive a separate voting instruction form, or
you may need to contact your broker, bank or other institution to determine
whether you will be able to vote electronically using the internet or the
telephone.
You may also attend the Annual Meeting in person and vote by ballot,
which would cancel any proxy that you previously submitted. If you wish to
vote in person at the Annual Meeting but hold your stock in "street name,"
then you must have a proxy from the broker, bank or institution in order to
vote at the meeting.
How Proxies Will Be Voted. If you properly return a proxy as specified
above, your shares will be voted in accordance with the instructions you
provide. If you vote without providing contrary instructions, your proxy
will be voted in the following manner:
FOR the proposed director nominees (or, if deemed appropriate by the
individuals appointed in the proxies, cumulatively voted for less than
all of the Board's nominees);
FOR the proposed stock award plan; and
FOR the transaction of such other business as may properly come before
the Annual Meeting.
We expect no matters to be presented for action at the Annual Meeting
other than the items described in this proxy statement. By signing and
returning the enclosed proxy, however, you will give to the persons named as
proxies therein discretionary voting authority with respect to any other
matter that may properly come before the Annual Meeting, and they intend to
vote on any such other matter in accordance with their best judgment.
Revoking a Proxy. You may revoke or change your proxy at any time
before it is exercised by (i) filing with the Secretary of the Company
written notice of revocation bearing a later date than the proxy (Gregory J.
Dawson, Secretary, Kentucky Bancshares, Inc., 339 Main Street, Paris,
Kentucky 40361); (ii) submitting to the Secretary a duly-executed proxy
bearing a later date relating to the same shares of our common stock; or
(iii) appearing at the Annual Meeting and (after having given the Secretary
notice of your intention to vote in person) voting your shares of our common
stock in person. If your shares are held in "street name" (through a broker,
bank or other institution) please contact your broker, bank or other
institution to revoke or change your proxy.
Proxy Solicitations.
We will pay all of the expenses of this solicitation of proxies. We
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending the proxy materials to
the beneficial owners of our common stock. In addition to solicitations by
mail, our directors, officers, and employees may solicit proxies personally
or by telephone without additional compensation.
Multiple Shareholders Sharing the Same Address.
One copy of our Annual Report to Shareholders, including financial
statements, and one proxy statement is being delivered to multiple
shareholders sharing an address unless we have received contrary instructions
from the affected shareholders. If at any time, you would prefer to receive
a separate proxy statement as well as a separate copy of our Annual Report to
Shareholders, including financial statements, then please notify your broker
or other institution or direct your written request to Kentucky Bancshares,
Inc., 339 Main Street, Paris, Kentucky 40361, Attn: Gregory J. Dawson,
Secretary.
Shareholders' Proposals for 2010 Annual Meeting.
We presently contemplate that the 2010 Annual Meeting of Shareholders
will be held on or about May 12, 2010. If you want us to consider including
a proposal in next year's proxy statement, you must deliver it in writing by
no later than December 11, 2009 (the date 120 days prior to the first
anniversary of the date of the 2009 annual meeting proxy statement) to:
Kentucky Bancshares, Inc., 339 Main Street, Paris, Kentucky 40361, Attention:
Gregory J. Dawson, Secretary. We recommend that you send any proposals by
certified mail, return receipt requested.
If you want to present a proposal at next year's annual meeting but do
not wish to have it included in our proxy statement, you do not need to
contact us in advance. Our bylaws do not contain any requirement for
shareholders to provide advance notice of proposals or nominations they
intend to present at the Meeting. However, if you do not notify us on or
before February 23, 2010 of any matter that you wish to present at next
year's annual meeting, then the shareholders' proxies that we solicit in
connection with our 2010 Annual Meeting of Shareholders will confer on the
proxy holders discretionary authority to vote on the matter that you present
at our 2010 Annual Meeting.
Corporate Governance.
Code of Ethics. Ethical business conduct is a shared value of our
Board of Directors, management and employees. Our Code of Ethics applies to
our employees and officers, including the principal executive officer and
principal financial officer.
Our Code of Ethics covers all areas of professional conduct, including,
but not limited to, conflicts of interest, disclosure obligations, insider
trading and confidential information, as well as compliance with all laws,
rules and regulations applicable to our business. We encourage all
employees, officers and directors to promptly report any violations of the
Code of Ethics to the appropriate persons identified in the Code. You may
obtain a copy of our Code of Ethics, free of charge, by sending a written
request to Kentucky Bancshares, Inc., 339 Main Street, Paris, Kentucky 40361,
Attention: Gregory J. Dawson, Secretary.
Board Structure and Committees. As of the date of this proxy statement,
our Board of Directors consists of eleven (11) members. Our Board of
Directors held four meetings during 2008, consisting of four regularly
scheduled meetings. All directors, except Mr. Hinkle and Mr. Van Meter,
attended at least 75% of the total number of board meetings and the meetings
of the committees to which they belonged. Our Board of Directors does not
have a specific policy for director attendance at our annual meeting of
shareholders. Four of our directors attended our 2008 annual meeting.
Our Board of Directors has a standing Audit Committee and Compensation
Committee but does not have a standing nominating committee.
Audit Meetings
Committee Members Functions of the Committee in 2008
Robert G. Thompson Monitors the integrity of our financial
(Chairman) reporting processing and systems of 17
internal controls regarding finance,
Theodore Kuster accounting, and legal compliance
Betty J. Long Selects our independent auditor and
determines such auditor's compensation
Edwin S. Saunier
Monitors the independence and performance
of the independent auditor, management
and the internal audit department
Provides an avenue of communication among
the independent auditors, management, the
internal audit department and the Board of
Directors
Compensation Meetings
Committee Members Functions of the Committee in 2008
William Arvin Please refer to the sections in this
(Chairman) proxy statement entitled "Compensation 4
Henry Hinkle Discussion and Analysis" and the "Report
Ted McClain of the Compensation Committee"
Edwin S. Saunier
Committee Charters. Only our Audit Committee has a charter. We
attached a copy of the Audit Committee's charter to our proxy statement that
we sent to our shareholders last year for our 2008 Annual Meeting of
Shareholders. The Board of Directors does not limit the number of audit
committees for other corporations on which its audit committee members may
serve. None of the committee members currently serves on another audit
committee for a publicly-held entity.
Board and Committee Independence. The Board has determined that each
of its members is independent as defined by the rules of NASDAQ except for
its employee directors: Mr. Caudill, Mr. Prichard and Mr. Woodford. While
our Board determined that Mr. Arvin, Mr. McClain and Mr. Van Meter are each
independent under the rules of NASDAQ, it did have to consider the Company's
payments to their companies. Mr. Arvin is the sole owner of his law firm.
The aggregate amount the Company paid to Mr. Arvin's company was below the
$120,000 threshold set by NASDAQ. Mr. McClain owns 40% of The Hopewell
Company, Inc., which is a family business. The aggregate amount the Company
paid to The Hopewell Company, Inc. for property or services during each of
2008, 2007 and 2006 did not exceed 5% of Hopewell Insurance Company's
consolidated gross revenues for the applicable last completed fiscal year.
Mr. Van Meter is the sole owner of a company that rents parking space to us.
The aggregate amount the Company paid to Mr. Van Meter's company was below
the $120,000 threshold set by NASDAQ.
Audit Committee Financial Expert. Our Board of Directors has
determined (in accordance with Securities and Exchange Commission Regulation
S-K 407(d)) that Mrs. Betty J. Long satisfies the qualifications of financial
expert and Mrs. Betty J. Long accordingly has been designated as the Audit
Committee financial expert.
Consideration of Director Nominees. We do not have a standing
nominating committee. The members of our Board who are independent directors
under NASDAQ rules determine the nominees for director to be presented for
election based upon their review of all proposed nominees for the Board,
including those proposed by shareholders. The independent members of the
Board of Directors select qualified candidates based upon the criteria set
forth below and review their recommendations with the Board, which decides
whether to invite the candidate to be a nominee for election to the Board.
Board members must possess the acumen, education and experience to make
a significant contribution to the Board and bring a diverse range of skills
and perspectives to satisfy the perceived needs of the Board at a particular
time. Board members must have the highest ethical standards, a strong sense
of professionalism, independence and an understanding of our business.
Additionally, Board members must have the aptitude and experience to fully
appreciate the legal responsibilities of a director and the governance
processes of a public company, a willingness to commit, as well as have,
sufficient time to discharge their duties to the Board and such other factors
as the independent members of the Board of Directors determine are relevant
in light of the needs of the Board and the Corporation.
For a shareholder to submit a candidate for consideration as a
director, a shareholder must notify our secretary. To be considered for
nomination and inclusion in our proxy statement at the 2010 Annual Meeting, a
shareholder must notify our secretary no later than December 11, 2009 (the
date 120 days prior to the first anniversary of the date of the 2009 annual
meeting proxy statement). Notices should be sent to: Kentucky Bancshares,
Inc., 339 Main Street, Paris, Kentucky 40361, Attention: Gregory J. Dawson,
Secretary.
Communications with the Board. Our Board of Directors has established
a process for shareholders to communicate with the Board or an individual
director. Shareholders may contact the Board or an individual director by
writing to the attention of one or more directors at our principal executive
offices at Kentucky Bancshares, Inc., 339 Main Street, Paris, Kentucky 40361,
Attention: Gregory J. Dawson, Secretary. Each communication intended for the
Board of Directors or an individual director will be forwarded to the
specified party.
Director Compensation.
We use a combination of cash and equity-based incentive compensation to
attract and retain qualified candidates to serve on our Board of Directors.
Additionally, each director of the Company is also a director of Kentucky
Bank, our operating subsidiary. In setting director compensation, we
consider the significant amount of time directors expend in fulfilling their
duties to the Company as well as the skill-level required by the Company to
be an effective member of the Board.
The form and amount of director compensation is reviewed by the
Compensation Committee, which makes recommendations to the full Board.
Cash Compensation. Each Director receives an annual fee of $1,500.
The Audit Committee Chairman receives an additional annual fee of $2,000.
Each Director receives a fee of $400 for attending each Company board meeting
and each Kentucky Bank board meeting, including $400 for one paid absence per
year. Non-employee Directors are paid $100 for each committee meeting of the
Company and of Kentucky Bank that he or she attends (for which he or she is a
member).
Equity-Based Compensation. Non-employee Directors have received
equity-based compensation under our 1993 Non-Employee Directors Stock
Ownership Incentive Plan. Pursuant to this plan, non-employee directors have
been granted options to purchase shares of our common stock following each
year in which Kentucky Bank has a return on assets of one percent (1%) or
greater. If options were granted, then the options were typically awarded on
the first business day in March following the year the performance goals were
met, have terms of ten years, vest immediately and are exercisable at a
strike price equal to 100% of the closing market price of a share of our
common stock on the grant date. Exercise rights expire 90 days after
resignation or retirement (before age 72) from the Board and one (1) year
after death, disability or mandatory retirement from the Board (age 72).
This plan has expired.
2008 Director Summary Compensation Table
The table below summarizes the total compensation paid to or earned by
our non-employee Directors during 2008. The compensation of Messrs. Caudill,
Prichard and Woodford is reflected in the Summary Compensation Table under
Executive Compensation.
Fees Earned
or Paid Option All Other
Name of Director in Cash Awards(1) Compensation(2) Total
William Arvin $11,200 $ 238 $17,209 $28,647
Henry Hinkle 7,850 238 - 8,088
Theodore Kuster 10,350 238 - 10,588
Betty J. Long 12,900 238 - 13,138
Ted McClain 10,600 238 - 10,838
Edward Saunier 13,400 238 - 13,638
Robert G. Thompson 12,900 238 - 13,138
Woodford Van Meter 10,300 238 6,000 16,538
____________
(1) Amounts reflect the compensation cost recognized in 2008 for
stock options in accordance with FAS 123(R), which reflects the fair value of
all stock-based compensation in earnings based on immediate vesting. For
additional information relating to the assumptions made by us in valuing
these awards for 2008, refer to Note 14 of our financial statements in our
Annual Report on Form 10-K for the year ended December 31, 2008. These
amounts do not necessarily equate to the income that will ultimately be
realized by the Directors for these awards. The grant date fair value of
each stock option granted in 2008 was $2.38. The aggregate number of stock
options held by our directors as of December 31, 2008 was 4,900.
(2) The amount for Mr. Arvin reflects the amount we paid his legal
firm, of which he is the sole owner, for legal services he provided to the
Company during 2008. As described in "Transactions with Related Persons,"
Mr. McClain is a partial owner of The Hopewell Company, Inc., which received
$392,324 from the Company for the provision of insurance services. Because
these fees are not paid directly to Mr. McClain, we have not included them in
the table. The amount paid to Mr. Van Meter reflects the amount we paid him
for parking lot rent.
Election of Directors.
Classified Board. Under our Amended and Restated Articles of
Incorporation, our Board of Directors consists of three different classes
(Class I, Class II and Class III) as nearly equal in number as the then total
number of directors constituting the Board permits. The directors in each
class serve for a term of three years, and one class is elected annually.
At the Annual Meeting, you will be asked to elect four directors for a
term to expire at the Annual Meeting of Shareholders to be held in 2012. Any
vacancies that occur after the directors are elected may be filled by the
Board of Directors in accordance with law for the remainder of the full term
of the vacant directorship.
Mrs. Betty J. Long, Mr. Ted McClain, Mr. Edwin S. Saunier and Mr.
Buckner Woodford are currently serving as directors in the class of directors
whose terms expire at the Annual Meeting. Our Board has nominated each of
Mrs. Long and Messrs. McClain, Saunier and Woodford to serve a 3-year term,
until our 2012 annual shareholders' meeting (or until their successors have
been elected and qualified).
Each of the nominees has agreed to serve as a director if elected.
Unless otherwise directed, each proxy executed and returned by a shareholder
will be voted for the election of these nominees. Abstentions and shares not
voted by brokers and other entities holding shares on behalf of beneficial
owners will not be counted and will have no effect on the outcome of the
election.
If any of the director nominees should be unable or unwilling to stand
for election at the time of the Annual Meeting, the proxies may vote for a
replacement nominee recommended by the Board of Directors, or the Board of
Directors may reduce the number of directors to be elected at the Annual
Meeting. At this time, the Board of Directors knows of no reason why any of
the nominees listed above may not be able to serve as a director if elected.
In accordance with rules of NASDAQ, all of the nominees for director,
and all continuing directors listed below, meet the NASDAQ definition of
"independent" except for Messrs. Caudill, Prichard and Woodford.
Information about Director Nominees and Continuing Directors. The
following tables set forth information with respect to each nominee for
director, and with respect to continuing directors who (by virtue of the
classes in which they serve) are not nominees for re-election at the Annual
Meeting.
Year
Principal Occupations, Other Public Directorships First Elected
Name of Director Age _ and Positions with the Company(1)_________ __a Director__
Class I
Directors Nominated for a 3-Year Term to Expire in 2012
Betty J. Long 61 Retired President and CEO of First Federal 2003
Cynthiana. Director of Kentucky Bank since
2006.
Ted McClain 57 Insurance agent and partial owner of The 2003
Hopewell Company, Inc. Director of Kentucky Bank
since 2002.
Edwin S. Saunier 51 President of Saunier North American, Inc., a 2007
Moving and storage company. Director of Kentucky
Bank since 2007.
Buckner Woodford 64 Chairman of the Board of the Company and 1981
Kentucky Bank. President and CEO of the
Company from 1991-2004. Director of Kentucky
Bank since 1971.
Class II
Continuing Directors Whose Terms Expire in 2010
William Arvin 69 Attorney, Law Office of William Arvin. 1995
Director of Kentucky Bank since 1995.
B. Proctor Caudill 59 Special Projects Manager of the Company since 2006
2006. President and CEO of Peoples Bancorp of
Sandy Hook, Inc. from 1981 to 2006 and President
from 1999 to 2006. CEO of Peoples Bank, (Sandy
Hook, Kentucky) from 1981 to 2006.
Louis Prichard 55 President and CEO of the Company and Kentucky 2003
Bank since 2004. President and Chief
Operating Officer of the Company and Kentucky
Bank from 2003 to 2004. Director of Kentucky
Bank since 2003.
Woodford Van Meter 55 Ophthalmologist. Director of Kentucky Bank 2004
since 2004.
Class III
Continuing Directors Whose Terms Expire in 2011
Henry Hinkle 57 President of Hinkle Contracting Company. 1989
Director of Kentucky Bank since 1989.
Theodore Kuster 65 Farmer and thoroughbred horse breeder. 1985
Director of Kentucky Bank since 1979.
Robert G. Thompson 59 Farmer and thoroughbred horse breeder. 1991
Director of Kentucky Bank since 1991.
____________
(1) Kentucky Bank is our operating subsidiary. We acquired Peoples
Bancorp of Sandy Hook Inc. and Peoples Bank, (Sandy Hook, Kentucky) in 2006.
None of the nominees or continuing directors is a director of any
company with a class of securities registered with the Securities and
Exchange Commission pursuant to Section 12 of the Securities Exchange Act of
1934 or subject to the requirements of Section 15(d) of that Act, or any
company registered as an investment company under the Investment Company Act
of 1940.
The Corporation Board of Directors recommends voting FOR the election of each
of the Nominees for Director.
Stock Ownership of Directors and Executive Officers.
We believe it is important for our Directors and executive officers to
align their interests with the long-term interests of our shareholders.
Although we have encouraged stock accumulation through the grant of equity
incentives to our directors and executive officers, we do not require our
directors and executive officers to own shares of our common stock.
Except as otherwise indicated below, the table below shows the amount
of our common stock each of our Directors and Named Executive Officers (as
defined in the Executive Compensation section below) owned on March 5, 2009.
Unless otherwise indicated, all shares shown are held with sole voting and
investment power.
Number of
Number of Shares Total Number
Shares Not Subject to of Shares
Subject to Exercisable Beneficially Percent of
Name of Beneficial Owner Options Options(1) Owned(2) Class(3)
William Arvin(4) 20,064 850 20,914 *
B. Proctor Caudill, Jr.(5) 129,511 0 129,511 4.7%
Gregory J. Dawson 6,138 1,650 7,788 *
Norman J. Fryman 170 2,300 2,470 *
Henry Hinkle(6) 35,165 850 36,015 1.3%
Theodore Kuster(7) 12,345 750 13,095 *
Betty J. Long(8) 1,800 300 2,100 *
Ted McClain(9) 2,400 600 3,000 *
Louis Prichard(10) 2,530 7,200 9,730 *
Edward S. Saunier 500 400 900 *
Robert G. Thompson(11) 5,700 750 6,450 *
Woodford Van Meter(12) 32,679 400 33,079 1.2%
Buckner Woodford IV(13) 207,033 2,000 209,033 7.6%
Directors and Executive
Officers as a group 503,939 21,960 525,899 19.1%
_________
* Ownership is less than 1.0%
(1) Shares of common stock attributed to a named person by virtue of
options exercisable currently or within sixty days of March 5, 2009.
(2) Total number of shares beneficially owned does not include the
following nonvested shares of restricted stock:
Number of Shares of
Name of Beneficial Owner Restricted Common Stock
B. Proctor Caudill, Jr. 99
Gregory J. Dawson 462
Norman J. Fryman 462
Louis Prichard 980
Executive Officers as a group 2,003
(3) Based on 2,749,879 shares of our common stock outstanding as of
March 5, 2009.
(4) Includes 7,644 shares held in a retirement account and 11,968
shares held of record by Mr. Arvin's wife, as to which Mr. Arvin disclaims
beneficial ownership.
(5) Includes 19,725 shares held of record by Mr. Caudill's wife, as to
which Mr. Caudill's disclaims beneficial ownership.
(6) Includes 150 shares held by his wife and 675 shares held by
relatives, as to which Mr. Hinkle disclaims beneficial ownership. Includes
31,875 shares held of record by Hinkle Contracting Company, as to which Mr.
Hinkle, as president, has shared voting power.
(7) Includes 6,250 shares held of record by Mr. Kuster's wife of which
Mr. Kuster disclaims beneficial ownership and 350 shares held by a company
solely owned by Mr. Kuster's wife and of which Mr. Kuster disclaims
beneficial ownership.
(8) Includes 1,800 shares held in a retirement account.
(9) Includes 1,000 shares held of record by The Hopewell Company, Inc.
as to which Mr. McClain, as a 40% owner and officer, has voting power.
(10) Includes 2,110 shares held jointly with his wife.
(11) Includes 200 shares held of record by Mr. Thompson's wife, as to
which Mr. Thompson disclaims beneficial ownership.
(12) Includes 2,200 shares held of record by Mr. Van Meter's wife, as
to which Mr. Van Meter disclaims beneficial ownership.
(13) Includes 8,000 shares held by his wife, as to which Mr. Woodford
disclaims beneficial ownership.
Executive Compensation.
Compensation Discussion and Analysis.
Overview of Compensation Program. The Compensation Committee
("Committee") of the Board has responsibility for establishing, implementing
and continually monitoring adherence with our compensation philosophy. The
Committee ensures that the total compensation paid is fair, reasonable and
competitive. The individuals who served as the Company's Chief Executive
Officer and Chief Financial Officer during fiscal 2008, as well as the other
individuals included in the Summary Compensation Table, are referred to as
the "Named Executive Officers."
Compensation Philosophy and Objectives. The Committee believes that the
most effective executive compensation program is one that is designed to
reward the achievement of specific annual, long-term and strategic goals by
the Company, and which aligns executives' interests with those of the
shareholders by rewarding performance above established corporate and
individual goals, with the ultimate objective of improving shareholder value.
The Committee evaluates both performance and compensation to ensure that the
Company maintains its ability to attract and retain superior employees in key
positions and that compensation provided to key employees remains competitive
relative to the compensation paid to similarly situated executives of our
peer companies. To that end, the Committee believes that the executive
compensation packages we provide to our executives, including the Named
Executive Officers, should include both cash and stock-based compensation
that reward performance as measured against established goals. The
Committee, and the President and Chief Executive Officer ("CEO"), evaluate
the information in the annual Kentucky Bankers Association Financial
Institution Compensation Survey ("KBA Survey"), particularly the percentage
increase in compensation, and then use their subjective judgment to determine
a percentage increase in total base pay. Each manager, based on this
aggregate percentage increase, is allocated a pool of funds to allocate
increases among the employees the manager supervises. For 2009, no increases
were granted to the Named Executive Officers. The Committee chose the
following banks from the KBA Survey to review because they were deemed to be
peers of the Company based on their lines of business, asset size and
location:
American Founders Bank, Inc. The Bank of Kentucky, Inc.
Citizens National Bank of Paintsville Community Trust Bank, Inc.
First Federal Savings Bank of Elizabethtown Heritage Bank
Independence Bank of Kentucky Republic Bank and Trust Company
Stock Yards Bank and Trust Company Traditional Bank, Inc.
Role of Executive Officers in Compensation Decisions. The Committee
makes all compensation decisions for the CEO and approves recommendations
regarding equity awards to all officers of the Company. Decisions regarding
the non-equity compensation of other executive officers are made by the CEO,
in his discretion using the pool of funds allocated to the other executive
officers based on the overall corporate percentage increase.
Setting Executive Compensation. Based on the foregoing objectives, the
Committee has structured the Company's annual and long-term incentive-based
cash and non-cash executive compensation to motivate executives to achieve
the business goals set by the Company and reward the executives for achieving
such goals. A significant percentage of total compensation is allocated to
incentives.
The Committee reviews relevant market data and alternatives when making
compensation decisions for the CEO. Up to 50% of base compensation may be
earned in performance-based incentive compensation as a result of the
performance of the Company, compared to established goals.
2008 Executive Compensation Components. For the fiscal year ended
December 31, 2008, the principal components of compensation for Named
Executive Officers were base salary, performance-based incentive
compensation, long-term equity incentive compensation, and retirement and
other benefits.
Currently Paid Compensation Components:
Base Salary. We provide our Named Executive Officers and other
employees with base salary to compensate them for services rendered during
the fiscal year. Base salary ranges for Named Executive Officers are
determined for each executive based on his or her position and
responsibility. Salary levels are typically considered annually as part of
our performance review process as well as upon a promotion or other change in
job responsibility. The Committee and the CEO primarily use the annual KBA
Survey in setting salary ranges on an annual basis. Every five years, the
Committee recalibrates salary ranges based on the overall value of each job
by comparing current market rates of benchmark jobs and assigning all jobs to
salary grades, after considering their market value and internal value.
During his review of base salaries for other executives, the CEO primarily
focuses on the individual's performance.
Performance-Based Incentive Compensation. The Management Incentive
Plan ("MIP") was created to promote high performance by officers of the
Company through achievement of corporate goals and encouragement of growth of
shareholder value. We currently have approximately 62 officers (including
the Named Executive Officers) who are eligible to receive cash awards under
MIP. The MIP provides guidelines for the calculation of annual non-equity
incentive based compensation, subject to Committee oversight and
modification. Annually, the Committee considers whether any changes should
be made with the MIP. The MIP includes various incentive levels based on the
participant's accountability and impact on our operations, with target award
opportunities that are established as a percentage of base salary. These
maximum targets range from 0% of base salary to 50% of base salary for the
Named Executive Officers.
For fiscal 2008, a Named Executive Officer's MIP award was based upon
achievement of corporate financial objectives relating to Company earnings on
a quarterly basis, with goals set for threshold, target and maximum levels.
Payments of awards under the MIP are based upon the achievement of such
objectives for the current year. Named Executive Officers participating in
the MIP receive: 50% of the maximum award if threshold levels are met, 75%
of the maximum award if target levels are met and 100% of the maximum award
if maximum levels are met.
Generally, the Committee sets the target level for earnings at the
Company's earnings objective for the current year. Threshold and maximum
levels are set below and above the target level (generally five to seven
percentage points, as applicable). In making the annual determination of the
threshold, target and maximum levels, the Committee may consider the specific
circumstances facing the Company during the coming year. In 2008, the
established targets and actual results for each quarter were:
Threshold Target Maximum Actual
1st quarter $ 1,627,000 $ 1,714,000 $ 1,799,000 $ 1,321,000
2nd quarter 1,648,000 1,734,000 1,821,000 1,616,000
3rd quarter 1,692,000 1,781,000 1,870,000 1,489,000
4th quarter 1,683,000 1,771,000 1,860,000 (224,000)
In 2008 and 2007, this plan was based solely on our earnings. The payout
percentages for the Named Executive Officers of our earnings for 2008 were 0%
and for 2007 was 50% of the participant's maximum. Generally, the Committee
sets the threshold, target and maximum levels such that the relative
difficulty of achieving the target level is consistent from year to year.
Awards made to Named Executive Officers under the MIP for performance
in 2008 are reflected in column (g) of the Summary Compensation Table.
Long-Term Incentive Compensation:
2005 Restricted Stock Grant Plan. The 2005 Restricted Stock Grant Plan
encourages participants to focus on long-term Company performance and
provides an opportunity for executives and other officers to increase their
stake in the Company through restricted grants of our common stock. Starting
in 2006, the Committee utilized the 2005 Restricted Stock Grant Plan to
compensate executives and other officers for sustained increases in our stock
performance. Twenty percent of each grant vests annually on anniversary date
of the grant (assuming the recipient is still in our employ). Vesting
expires 90 days after termination of employment and one (1) year after death,
disability or retirement. Upon a change of control, any restriction period
will expire immediately and the employee will hold the restricted stock free
of any restrictions.
Based on its subjective judgment, the Committee annually establishes
the awards to the executive officers under the 2005 Restricted Stock Grant
Plan based on the salary level of each employee. The Committee, in its
discretion, may also award stock grants to newly hired employees and to
employees who are promoted. These awards are reflected in the Summary
Compensation Table and the Grants of Plan Based Awards Table for our Named
Executive Officers.
1999 Employee Stock Option Plan. This plan expires in May of this
year. The 1999 Employee Stock Option Plan has helped us to enhance the link
between the creation of shareholder value and long-term executive incentive
compensation, to provide an opportunity for increased equity ownership by
executives and to maintain competitive levels of total compensation. Since
the establishment of the 2005 Restricted Stock Grant Plan, the Committee has
not awarded any stock options. Currently, the Committee anticipates that
stock option awards for officers will be used, if at all, for newly hired or
promoted executives. Options are awarded at the current closing price of our
common stock on the date of the grant. The options granted vest at a rate of
20% per year over the first five years of the ten-year option term. Prior to
the exercise of an option, the holder has no rights as a shareholder with
respect to the shares subject to such option, including voting rights and the
right to receive dividends or dividend equivalents. Vesting and exercise
rights expire 90 days after termination of employment and one (1) year after
death, disability or retirement. In the event of a change of control of the
Company, each outstanding option will become fully vested and immediately
exercisable.
Retirement and Other Benefits. All of our employees are eligible to
participate in our Retirement Plan & Trust and the Profit Sharing (401k)
Plan.
Retirement Plan & Trust. The Retirement Plan & Trust was terminated at
December 31, 2008. Under the Retirement Plan & Trust, all full or part-time
employees who had completed five continuous years of employment with us,
including the Named Executive Officers, earned the right to receive certain
benefits upon retirement at the normal retirement age of 65 or upon early
retirement on or after age 55. Retirement benefits were calculated as the
product of 1% times the years of service multiplied by the final average
eligible pay for the five highest consecutive years. If the employee retired
between the ages of 55 and 64, the amount of benefits was reduced such that
if the associate retired at age 55, he or she would be entitled to 50% of the
accrued benefits. The benefits were not subject to a deduction for Social
Security or other offset amounts. Of the Named Executive Officers,
Mr. Woodford and Mr. Fryman were eligible for early retirement benefits under
the Retirement Plan. Transition credits will be earned by employees who have
more than 50 years of combined age plus years of service as of December 31,
2008 and this will be paid through the 401k Plan.
Profit Sharing (401k) Plan. Our Profit Sharing (401k) Plan is
available to all employees, including the Named Executive Officers. We match
100% of the first 6% of pay that is contributed by an employee to the plan.
All employee contributions to the plan are fully-vested upon contribution,
and matching contributions are vested after 3 years of service. We may, at
our discretion, make a profit sharing contribution to the plan. We have not
made a profit sharing contribution since we added the 401(k) feature to the
plan. Due to the termination of the Retirement Plan mentioned above,
transition credits will be earned by employees who have more than 50 years of
combined age plus years of service as of December 31, 2008 and this will be
paid through the 401k Plan.
Employee Stock Gift Program. We provide gifts of shares of our common
stock to our full time employees, including the Named Executive Officers, who
have completed at least 15 years of service. Under the Employee Stock Gift
Program, participants may be awarded an increasing number of shares of common
stock for each five-year anniversary starting with 15 years for their
continued dedicated service to the Company.
Report of the Compensation Committee
The Compensation Committee of our Board of Directors is composed of
four members who are independent, outside directors as defined under NASDAQ
rules. The Compensation Committee has furnished the following report:
We determine the total compensation of the Company's CEO. With input
from the CEO, we also determine the total long-term compensation of the other
executive officers and the total short-term and long-term compensation of the
directors. We do not have power to delegate our authority. We do not have a
charter.
Please refer to "Compensation Discussion and Analysis" above for a more
thorough discussion of the Company's philosophy and procedures. We have
reviewed and discussed the Compensation Discussion and Analysis with
management. Based on our review of the Compensation Discussion and Analysis
and discussions with management, we recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in the Company's
proxy statement for its 2009 Annual Meeting of Shareholders.
Dated: March 27, 2009
William Arvin, Chairman
Henry Hinkle
Ted McClain
Edwin S. Saunier
Summary Compensation Table
The table below summarizes the total compensation paid to or earned by
our CEO, our chief financial officer, and each of our three most highly
compensated executive officers other than the CEO and chief financial
officer.
Summary Compensation Table
Change in
Pension
Value and
Non-Equity Nonqualified
Incentive Deferred
Stock Option Plan Compensation All Other
Name & Position Year Salary Bonus Awards Awards Compensation Earnings Compensation Total
(1) (2) (3) (4) (5) (6)
Louis Prichard 2008 $206,731 $ - $6,440 $5,000 $ - $26,188 $22,848 $267,207
President, CEO 2007 200,000 - 4,729 7,920 40,000 12,189 24,958 289,796
2006 185,000 - 1,537 7,410 46,250 12,751 21,361 274,309
Gregory J. Dawson 2008 96,218 3,036 940 - 21,803 7,571 129,568
CFO 2007 93,085 2,229 1,326 16,755 10,077 7,715 131,187
2006 90,155 2,700 724 1,449 22,719 11,190 6,369 135,306
Norman J. Fryman 2008 126,295 - 3,036 1,054 - 54,659 9,668 194,712
VP, Sales & 2007 122,183 - 2,229 1,530 18,327 28,776 9,632 182,677
Service 2006 118,051 - 724 1,833 22,303 25,249 7,886 176,046
B. Proctor Caudill, 2008 102,500 - 1,023 - - 4,431 15,891 123,845
Jr., Special 2007 102,500 - 1,023 - 15,375 7,429 15,912 142,239
Project Manager
Buckner Woodford IV 2008 84,870 - 1,989 2,108 - 119,044 14,972 222,983
Chairman 2007 84,870 - 2,229 3,060 12,731 37,470 15,566 155,926
2006 82,800 - 724 3,540 15,566 48,273 13,603 164,506
(1) Represents compensation for work done on special project.
(2) The amounts under this column represent the FAS 123(R) expense
relating to each Named Executive Officer's previously issued restricted stock
awards, which we recognized during 2008 and 2007. The restricted stock will
vest ratably over a five-year period. Please refer to Note 14 of our
financial statements in our Annual Report on Form 10-K for the year ended
December 31, 2008 for an explanation of the assumptions we made to determine
the expense to us for 2006 awards. The grant date fair value of each
restricted stock awarded in 2006 was $29.25, in 2007 was $31.00 and in 2008
was $31.00.
(3) The amounts under this column represent the FAS 123(R) expense
related to each Named executive Officer's previously granted stock options,
which we recognized during 2008 and 2007. The stock options will vest
ratably over a five-year period. Please refer to Note 14 of our financial
statements in our Annual Report on Form 10-K for the year ended December 31,
2008 for an explanation of the assumptions we made to determine the expense
to us for 2006 awards. These amounts do not necessarily equate to the income
that will ultimately be realized by the Named Executive Officers for these
awards. The grant date fair value of each stock option granted in 2002 was
$26.00, in 2003 was $25.50, in 2004 was $33.90 and in 2005 was $30.50.
(4) Represents cash payments from satisfaction of the performance goals
under the MIP plan.
(5) Represents change in value of pension benefits.
(6) The amounts reflected in this column for the Named Executive
Officers include premiums paid for life insurance, a car allowance for Mr.
Prichard, the Company's matching contributions to each Named Executive
Officer's of the first 6% of voluntarily deferred salary contribution into
his 401(k) plan (which was $13,800 for Mr. Prichard) and the following
director fees:
Benefit Mr. Prichard Mr. Caudill Mr. Woodford
Director Fees 7,900 7,500 7,900
Grants of Plan Based Awards Table
The following table contains information regarding incentive
compensation under the Company's MIP plan and the grant of restricted stock
under the 2005 Restricted Stock Grant Plan to the Named Executive Officers
eligible for incentive plan awards during the year ended December 31, 2008.
Grants of Plan Based Awards
All Other
Estimated Future Payments Under Stock Awards: Grant Date
Non-Equity Incentive Plan Awards Number of Fair Value
Grant (1) Shares of of Stock
Name Date Threshold Target Maximum Restricted Stock Awards
(2)
Louis Prichard
Restricted Stock 1/2/2008 350 $10,850
MIP 1/1/2008 $41,346 $62,019 $82,692
Gregory J. Dawson
Restricted Stock 1/2/2008 165 5,115
MIP 1/1/2008 17,319 25,979 34,638
Norman J. Fryman
Restricted Stock 1/2/2008 165 5,115
MIP 1/1/2008 18,944 28,416 37,888
_____________
(1) Represents the three potential management incentive plan
compensation amounts that could be paid to the individual Named Executive
Office depending upon the Company's 2008 earnings. The Company did not meet
the threshold level, so each Named Executive Officer did not receive any
payment with respect to the 2008 MIP awards.
(2) Awards of restricted shares of our common stock in 2008 under our
2005 Restricted Stock Grant Plan. The shares of restricted stock vest
ratably over 5-years.
Outstanding Equity Awards Table
Outstanding Equity Awards at December 31, 2008
___________________Option Awards(1)__ ________ ____Stock Awards(2)____
Market
Number of Number of Number of Value of
Securities Securities Shares or Shares or
Underlying Underlying Units of Units of
Unexercised Unexercised Option Option Stock that Stock that
Grant Options Options Exercise Expiration Have not Have not
Name Date Exercisable Unexercisable Price Date Vested Vested
Louis Prichard 1/2/08 - - - - 350 6,003
1/2/07 - - - - 280 4,802
1/3/06 - - - - 210 3,602
1/3/05 2,400 1,600 30.50 1/3/15
1/2/04 800 200 33.90 1/2/14
1/2/03 3,000 - 25.50 1/2/13
Gregory J. Dawson 1/2/08 - - - - 165 2,830
1/2/07 - - - - 132 2,264
1/3/06 - - - - 99 1,698
1/3/05 300 200 30.50 1/3/15
1/2/04 320 80 33.90 1/2/14
1/2/03 400 - 25.50 1/2/13
1/2/02 150 - 26.00 1/2/12
1/2/01 150 - 23.50 1/2/11
1/13/00 150 - 24.00 1/13/10
1/12/99 1,100 - 20.63 1/12/09
Norman J. Fryman 1/2/08 - - - - 165 2,830
1/2/07 - - - - 132 2,264
1/3/06 - - - - 99 1,698
1/3/05 300 200 30.50 1/3/15
1/2/04 400 100 33.90 1/2/14
1/2/03 500 - 25.50 1/2/13
1/2/02 300 - 26.00 1/2/12
1/2/01 300 - 23.50 1/2/11
1/13/00 300 - 24.00 1/13/10
B. Proctor Caudill, Jr. 1/2/07 - - - - 132 2,264
Buckner Woodford IV 1/2/07 - - - - 132 2,264
1/3/06 - - - - 99 1,698
1/3/05 600 400 30.50 1/3/15
1/2/04 800 200 33.90 1/2/14
__________
(1) The stock options vest ratably over a five-year period and have a
term of ten-years. In the event of a change of control of the Company, each
outstanding option will become fully vested and immediately exercisable.
(2) The shares of restricted common stock vest ratably over a five-
year period. In the event of a change in control of the Company, any
restrictions will expire immediately and the employee will thereafter hold
the shares of common stock without any restrictions.
Option Exercises and Stock Vested Table
The following table sets forth certain information regarding the
vesting of restricted stock and the exercise of options by the Named
Executive Officers during calendar year 2008.
_________Option Awards________ ____________Stock Awards_________
Number of Number of
Shares Acquired Value Realized Shares Acquired Value Realized
Name on Exercise on Exercise on Vesting on Vesting
Louis Prichard - - 140 $4,340
Gregory J. Dawson - - 66 2,046
Norman J. Fryman - - 66 2,046
B. Proctor Caudill, Jr. - - 33 1,023
Buckner Woodford IV 6,100 $52,600 66 2,046
___________
Pension Benefits Table
The table below shows the present value of accumulated benefits payable
to each of the Named Executive Officers under our Retirement Plan & Trust.
The values were determined using interest rate and mortality rate assumptions
consistent with those used in our financial statements and included the
number of years of service credited to each such Named Executive Officer
(refer to Note 13 of our financial statements in our Annual Report on Form
10-K for the year ended December 31, 2008).
Number of Years Present Value of Payments During
Name Credited Service Accumulated Benefit(1) Last Fiscal Year
Louis Prichard 6.00 $ 75,349 -
Gregory J. Dawson 22.92 97,060 -
Norman J. Fryman 23.17 252,958 -
B. Proctor Caudill, Jr. 2.00 11,860 -
Buckner Woodford IV 36.33 745,786 -
_____________
(1) The amounts in this column were calculated using a present value
discount rate of 6.0%, an assumed retirement age of 65 and an assumption that
benefits will be paid on a life annuity basis based upon information
contained in the RP-2000 Combined Mortality Table projected to 2010. For
more information regarding our Retirement Plan & Trust, please refer to our
discussion under "Long-Term Incentive Compensation: Retirement Plan & Trust"
found above in the section entitled "Executive Compensation - Compensation
Discussion and Analysis."
Transactions with Related Persons.
Our operating subsidiary, Kentucky Bank, has had and expects in the
future to have banking transactions in the ordinary course of business with
our directors and executive officers and their affiliates. All loans to and
deposits from such persons or their affiliates have been on the same terms,
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with other persons not related to the
lender, and have not involved more than the normal risk of collectability or
other unfavorable features.
Additional information concerning transactions with related persons is
hereby incorporated by reference to Note 4 of our December 31, 2008 audited
consolidated financial statements filed on Form 10-K.
Our practice has been that any transaction that would require
disclosure under Item 404(a) of Regulation S-K of the rules and regulations
of the Securities and Exchange Commission, with respect to a director or
executive officer, must be reviewed and approved, or ratified, annually by
the Board of Directors. Any such related party transactions will only be
approved or ratified if the Board determines that such transaction will not
impair the involved person's service to, and exercise of judgment on behalf
of, the Company, or otherwise create a conflict of interest that would be
detrimental to the Company. The transaction relating to Mr. McClain
described below has been reviewed and approved or ratified by our Board.
The Company paid The Hopewell Company, Inc., a Kentucky corporation,
$392,324 in 2008 for insurance related services it provided to the Company.
Ted McClain owns 40% of The Hopewell Company, Inc. and is also a director and
officer of the company.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires our directors and executive officers and persons who own more than
10% of our common stock to file reports of ownership and changes in ownership
with the SEC. Based solely upon our review of the Forms 3, 4 and 5 filed
during 2008, and written representations from certain reporting persons that
no Forms 5 were required, we reasonably believe that all required reports
were timely filed with the following exceptions: one Form 4 for each of Mr.
Arvin, Mrs. Bragonier, Mr. Dawson, Mr. Fryman, Mr. Henry, Mr. Nyberg, Mr.
Prichard and Mrs. Woodford. Each Form 4 was filed after the prescribed due
date.
Report of the Audit Committee.
The Audit Committee of the Board of Directors has furnished the
following report:
The role and responsibilities of the Audit Committee are set forth in a
written Charter adopted by the Board. A copy of our Audit Committee Charter
is attached to the proxy statement the Company mailed to its shareholders in
2008 for its 2008 Annual Meeting of Shareholders. The Audit Committee will
review and reassess the Charter annually and recommend any changes to the
Board for approval.
Management is responsible for the preparation of the Company's
financial statements. The Company's registered independent public accounting
firm is responsible for the audit of the financial statements. The Audit
Committee is responsible for overseeing the Company's overall financial
reporting process. In fulfilling its responsibilities for the financial
statements for fiscal year 2008, the Audit Committee:
Reviewed and discussed the audited financial statements for the fiscal
year ended December 31, 2008 with management and Crowe Horwath
LLP("Crowe Horwath"), the Company's independent registered public
accounting firm at the time of the audit;
Discussed with Crowe Horwath the matters required to be discussed by
Statement on Auditing Standards No. 61 relating to the conduct, scope
and results of the audit; and
Received written disclosures and the letter from Crowe Horwath
regarding its independence as required by the Public Company Accounting
Oversight Board.
The Audit Committee discussed with Crowe Horwath such firm's
independence. The Audit Committee also discussed with management and Crowe
Horwath the quality and adequacy of the Company's internal controls and the
internal audit function's organization, responsibilities, budget and
staffing. The Audit Committee discussed with the independent auditors their
audit plans, audit scope and identification of audit risks.
Based on the Audit Committee's review of the audited financial
statements and discussions with management and Crowe Horwath, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2008 for filing with the Securities and
Exchange Commission.
AUDIT COMMITTEE
Robert G. Thompson, Chairman
Betty J. Long Theodore Kuster Edwin S. Saunier
Appointment of Independent Registered Public Accounting Firm.
On the recommendation of the Audit Committee, the Board engaged Crowe
Horwath as its independent registered public accounting firm for the fiscal
year ending December 31, 2008. Crowe Horwath will have one or more
representatives at the Annual Meeting who will have an opportunity to make a
statement, if they so desire, and will be available to respond to appropriate
questions.
Fees of Independent Registered Public Accounting Firm.
Preapproval Policies and Procedures. The Audit Committee's policy is
to approve in advance all audit fees and terms and non-audit services
permitted by law to be provided by the external auditors. In accordance with
that policy, the committee annually pre-approves a list of specific services
and categories of services, including audit, audit-related and non-audit
services described below, for the upcoming or current fiscal year, subject to
specified cost levels. Other services include:
Consultation regarding financial accounting and reporting standards;
Discussions related to accounting for proposed acquisitions;
Discussions regarding regulatory requirements;
Consultation concerning tax planning strategies; and
Audits of benefit plans.
Since the May 2003 effective date of the SEC rules stating that an
auditor is not independent of an audit client if the services it provides to
the client are not appropriately approved, each service provided by our
independent registered public accounting firm has been approved in advance by
the Audit Committee. None of those services required use of the de minimis
exception to preapproval contained in the SEC's rules.
Fees and Related Disclosures for Accounting Services. The aggregate
fees we incurred for professional services rendered by Crowe Horwath were as
follows:
Audit fees - Fees for the financial statement audit and the review of
the Company's Form 10-Q's were $117,000 for 2008 and $114,000 for 2007.
Audit related fees - Aggregate fees for all assurance and related
services were $19,500 for 2008 and $16,700 for 2007. These fees were
incurred for audits of benefit plans.
Tax fees - Fees related to tax compliance, advice and planning were
$18,000 for 2008 and $18,000 for 2007.
All other fees - Consulting fees related to acquisitions, profitability
and risk management were $9,700 for 2008 and $3,500 for 2007.
All services provided by Crowe Horwath in 2008 and 2007 were approved
by the Audit Committee. All fees were approved in accordance with the
preapproval policy. The Audit Committee has determined that the provision of
the services described above is compatible with maintaining the independence
of the external auditors.
Proposal to Adopt the 2009 Stock Award Plan
On March 17, 2009, our Board of Directors approved the 2009 Stock Award
Plan, subject to approval by the holders of a majority of the shares of our
common stock present in person or by proxy at our Annual Meeting. The 2009
Stock Award Plan is summarized below and attached as Exhibit A to this proxy
statement. Because this is a summary, it does not contain all of the
information that may be important to you. You are encouraged to read Exhibit
A carefully before you decide how to vote.
Reasons for the Proposal
We believe that our growth depends significantly upon the efforts of
our key employees, directors, consultants and advisers and that these
individuals are best motivated to put forth maximum effort on our behalf if
they own an equity interest in our company. In the past, we have adopted,
and our shareholders have approved, various equity compensation plans. Each
plan was specifically drafted to permit the Company to award only one or two
types of awards to a specific group of participants. For example, we had a
stock option plan specifically for directors, which is now expired.
Additionally, we have a stock option plan for employees, but our ability to
grant incentive stock options under this plan will expire in May of this
year.
At the present time, we do not have the ability to issue any equity
compensation to our directors. In May of this year, we will no longer have
the ability to issue incentive stock options to our employees. In order to
be able to motivate and reward our key personnel and directors with stock-
based awards at an appropriate level, our Board believes that it is important
that we establish a new equity-based plan at this time. Instead of adopting
multiple plans, this single plan will enable us to continue to compensate our
directors and employees in the same manner that we have in the past.
Equity Compensation Plan Information
The following table presents information as of December 31, 2008,
regarding our equity compensation plans under which common stock may be
issued to employees and non-employees as compensation. In addition to the
2009 Stock Award Plan, which is subject to approval of the stockholders at
our Annual Meeting, we currently have five (5) additional equity plans with
currently outstanding awards: 2005 Restricted Stock Grant Plan, the 1999
Employee Stock Option Plan, the 1993 Employee Stock Ownership Incentive Plan,
the 1993 Non-Employee Directors Stock Ownership Incentive Plan and the
Employee Stock Gift Program.
Number of Securities
Remaining Available
for Future Issuance
Number of Securities Under Equity
to be Issued upon Weighted-Average Compensation Plans
Exercise of Exercise Price of (excluding
Outstanding Options, Outstanding Options, securities reflected
Plan Category Warrants and Rights Warrants and Rights in column (a))
Equity Compensation
Plans Approved by
Shareholders 50,169(1) $28.57 93,889(2)
Equity Compensation
Plans not Approved by
Shareholders ___ _- ______- 388(3)
Total 50,169 $28.57 94,277
_________________________
(1) This includes awards granted under our 1993 Employee Stock
Ownership Incentive Plan, 1993 Non-Employee Directors Stock Ownership
Incentive Plan and our 1999 Employee Stock Option Plan.
(2) As of December 31, 2008, there were 37,325 shares remaining
available for future issuance under our 2005 Restricted Stock Grant Plan.
Additionally, there were 56,564 shares remaining available for future
issuance under our 1999 Employee Stock Option Plan upon the exercise of
options. Our ability to issue incentive stock options under our 1999 Employee
Stock Option Plan expires on May 3, 2009. Our ability to issue non-qualified
stock options under this plan does not have an expiration date. We have
historically only issued incentive stock options to our employees because our
employees receive more favorable tax treatment with incentive stock options
than with non-qualified stock options. If our shareholders at our Annual
Meeting approve the attached 2009 Stock Award Plan, our Board will terminate
the 1999 Employee Stock Option Plan; thus removing 56,564 shares available
for future issuance. We do not expect to issue any options between the date
of this proxy statement and May 3, 2009.
(3) As of December 31, 2008, there were 388 shares remaining available
for future issuance under our Employee Stock Gift Program. Please refer to
"Compensation Discussion and Analysis, 2008 Executive Compensation
Components, Long-Term Incentive Compensation: Employee Stock Gift Program"
for more information on our Employee Stock Gift Program.
Awards Granted under 2009 Stock Award Plan
As of the date of this proxy statement, neither our Board nor our
Compensation Committee has granted any awards under the 2009 Stock Award
Plan.
Summary of the 2009 Stock Award Plan
Administration
Awards under the 2009 Stock Award Plan will be made by our Compensation
Committee, until otherwise determined by the Board. The Compensation
Committee has the full power and authority to designate participants, to set
the terms of awards, to make any determinations necessary or desirable for
the administration of the plan, and to delegate its authority in certain
cases.
Eligible Participants
The following persons are eligible to participate in the 2009 Stock
Award Plan:
any person providing services as an officer and/or director or advisory
director to us or any subsidiary, whether or not employed by such
entity,
officers and employees of existing or future subsidiaries
officers and employees of any entity with which we have contracted to
receive executive, management or legal services and who provide
services to us or a subsidiary under such arrangement
consultants and advisers who provide services to us or a subsidiary;
and
any person who has agreed in writing to become an eligible participant
within 30 days following the date of grant of such person's first
award.
A subsidiary is defined to include an entity in which we have a direct
or indirect economic interest that is designated as a subsidiary by the Board
or the Compensation Committee. The Board and the Compensation Committee may
each delegate to one or more of their members, or to one or more agents, the
power to grant awards and to modify or terminate awards granted to eligible
persons who are not our executive officers or directors, subject to certain
limitations. We anticipate that the Compensation Committee's determinations
as to which eligible individuals will be granted awards and the terms of the
awards will be based on each individual's present and potential contributions
to our success. The number of employees eligible to receive awards under the
2009 Stock Award Plan is approximately 185 persons, consisting of 62 officers
and 123 employees of our Company and our subsidiary, Kentucky Bank. The
number of non-employee directors eligible to receive awards under the 2009
Stock Award Plan is 9.
Number of Shares
The maximum number of shares of our common stock with respect to which
we will be permitted to grant awards under the 2009 Stock Award Plan is
150,000, or 5.5% of our outstanding common stock as of the record date.
Awards that may be paid only in cash will not be counted against this
share limit. Moreover, no individual may receive in any year awards under
this plan, whether payable in cash or shares that relate to more than 5,000
shares of our common stock.
Shares subject to awards that are forfeited or canceled will again be
available for awards, as will shares issued as restricted stock or other
stock-based awards that are forfeited or reacquired by us by their terms. In
addition, to the extent that shares are delivered to pay the exercise price
of options under the 2009 Stock Award Plan, the number of shares delivered
will again be available for grant of awards under this plan, other than the
grant of incentive stock options under Section 422 of the Internal Revenue
Code. Under no circumstances may the number of shares issued pursuant to
incentive stock options exceed 100,000 shares. The shares to be delivered
under this plan will be made available from our authorized but unissued
shares of common stock, shares held by a subsidiary or us or from shares
acquired by the company of a subsidiary on the open market or otherwise.
Subject to the terms of this plan, shares of our common stock issuable under
this plan may also be used as the form of payment of compensation under other
plans or arrangements that we offer or that we assume in a business
combination.
Types of Awards
Stock options, stock appreciation rights, restricted stock and other
stock-based awards may be granted under the 2009 Stock Award Plan in the
discretion of the Board and the Compensation Committee. Options granted
under this plan may be either nonqualified or incentive stock options. Only
our employees or employees of our subsidiaries will be eligible to receive
incentive stock options. Stock appreciation rights may be granted in
conjunction with or unrelated to other awards and, if in conjunction with an
outstanding option or other award, may be granted at the time of the award or
thereafter, at the exercise price of the other award. The Board or the
Compensation Committee has discretion to fix the exercise or grant price of
stock options, however, the exercise price of incentive stock options will
not be less than 110% of the fair market value of the underlying common stock
at the time of grant if, on the date of the grant, the eligible individual to
whom such grant is to be made owns securities possessing more than 10% of the
total combined voting power of all classes of stock of the company or any of
its subsidiaries. The Board and the Compensation Committee have broad
discretion as to the terms and conditions upon which options and stock
appreciation rights are exercisable, but under no circumstances will an
option or a stock appreciation right have a term exceeding 10 years.
The option exercise price may be paid:
in cash or cash equivalent;
in shares of our common stock that, unless otherwise determined by the
Board or the Compensation Committee, have been held by the optionee for
six months; or
in any other manner authorized by the Compensation Committee.
Upon the exercise of a stock appreciation right with respect to our
common stock, a participant will be entitled to receive, for each share
subject to the right, the excess of the fair market value of the share on the
date of exercise over the exercise price. The Board or the Compensation
Committee has the authority to determine whether the value of a stock
appreciation right is paid in cash or our common stock or a combination of
the two.
The Board or the Compensation Committee may grant restricted shares of
our common stock to a participant that are subject to restrictions regarding
the sale, pledge or other transfer by the participant for a specified period.
All shares of restricted stock will be subject to the restrictions that the
Board or the Compensation Committee may designate in an agreement with the
participant, including, among other things, that the shares are required to
be forfeited or resold to us in the event of termination of employment under
certain circumstances or in the event specified performance goals or targets
are not met. A restricted period of at least three years is generally
required, with incremental vesting permitted during the three-year period,
except that if the vesting or grant of shares of restricted stock is subject
to the attainment of performance goals, the restricted period may be one year
or more with incremental vesting permitted. Subject to the restrictions
provided in the participant's agreement, a participant receiving restricted
stock will have all of the rights of a shareholder as to the restricted
stock, including dividend and voting rights.
The Board or the Compensation Committee may also grant participants
awards of our common stock and other awards, including restricted stock units
that are denominated in, payable in valued in whole or in part by reference
to, or are otherwise based on the value of, our common stock ("Other Stock-
Based Awards"). The Board or the Compensation Committee has discretion to
determine the participants to whom Other Stock-Based Awards are to be made,
the times at which such awards are to be made, the size of the awards, the
form of payment, and all other conditions of the awards, including any
restrictions, deferral periods or performance requirements. The terms of the
Other Stock-Based Awards will be subject to the rules and regulations that
the Board or the Compensation Committee determines. Any award under the 2009
Stock Award Plan may provide that the participant has the right to receive
currently or on a deferred basis dividends or dividend equivalents, all as
the Board or the Compensation Committee determines. Other Stock-Based
Awards will comply with the timing and distribution requirements of Section
409A of the Internal Revenue Code.
Performance-Based Compensation under Section 162(m)
Stock options and stock appreciation rights, if granted in accordance
with the terms of the 2009 Stock Incentive Plan, are intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code. For grants of restricted stock and other stock-based awards that are
intended to qualify as performance-based compensation under Section 162(m),
the Board or the Compensation Committee will establish specific performance
goals within the time parameters of Section 162(m). The Board or the
Compensation Committee will also establish a schedule, setting forth the
portion of the award that will be earned or forfeited based on the degree of
achievement of the performance goals by our company or a subsidiary at the
end of the performance period.
If there is a change of control of our company or if a participant
retires, dies or becomes disabled during the performance period, the Board or
the Compensation Committee may provide that all or a portion of the
restricted stock and Other Stock-Based Awards will automatically vest. If an
award of restricted stock or an Other Stock-Based Award is intended to
qualify as performance-based compensation under Section 162(m), the Board or
the Compensation Committee must certify in writing that the performance goals
and all applicable conditions have been met prior to payment.
Adjustments
If the Board or Compensation Committee determines that any stock
dividend or other distribution (whether in the form of cash, securities or
other property), recapitalization, reorganization, stock split, reverse stock
split, merger, consolidation, split-up, spin-off, combination, repurchase or
exchange of shares, issuance of warrants or other rights to purchase shares
or other securities of our company, or other similar corporate events affects
our common stock in such a way that an adjustment is appropriate to prevent
dilution or enlargement of the benefits intended to be granted and available
for grant under the 2009 Stock Award Plan, then the Board or the Compensation
Committee has discretion to:
make equitable adjustments to
a. the number and kind of shares (or other securities or
property) that may be the subject of future awards under this
plan,
b. the number and kind of shares (or other securities or
property) subject to outstanding awards, and
c. the grant or exercise prices of outstanding awards, and
if appropriate, provide for the payment of cash to a participant.
The Board of the Compensation Committee may also adjust awards to
reflect unusual or nonrecurring events that affect our financial statements
or us or to reflect changes in applicable laws or accounting principles.
Amendment or Termination
The 2009 Stock Award Plan may be amended or terminated at any time by
the Board, except that no amendment may materially impair an award previously
granted without the consent of the recipient and no amendment may be made
without shareholder approval if the amendment would:
materially increase the benefits accruing to participants under this
plan,
increase the number of shares of our common stock that may be issued
under this plan,
materially expand the classes of persons eligible to participate in
this plan, or
permit a reduction in the exercise price of options.
Liability and Indemnification
No member of the Board or the Compensation Committee is personally
liable in connection with the 2009 Stock Award Plan unless the circumstances
involve bad faith, gross negligence or willful misconduct by such person.
The Company will indemnify such persons from any claim, action, suit or
proceeding in connection with the 2009 Stock Award Plan so long as the
Company is given the first opportunity to handle and defend such claim,
action, suit or proceeding. Participants in the 2009 Stock Award Plan will
each agree to hold harmless the Company and its subsidiaries (and their
respective directors, officers and employees) from any liability in
connection with receipt, payment and/or exercise of an award under the 2009
Stock Award Plan.
Vote Required for Approval of the 2009 Stock Award Plan
Approval of the 2009 Stock Award Plan requires the affirmative vote of
the holders of a majority of the shares of our common stock represented in
person or by proxy at the Annual Meeting. For the purposes of approving this
proposal, abstentions and broker non-votes will be excluded from the
tabulation of votes cast, and therefore will not affect the outcome of the
vote (except to the extent such abstentions and broker non-votes result in a
failure to obtain total votes cast on the proposal representing more than 50%
of all shares of our common stock entitled to vote on the proposal).
Exhibit A
Kentucky Bancshares, Inc.
2009 Stock Award Plan
Section 1. Purpose
The purpose of the Kentucky Bancshares, Inc. 2009 Stock Award Plan (the
"Plan") is to motivate and reward key employees, directors, advisory
directors, consultants and advisers by giving them a proprietary interest in
the Company's success.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings set
forth below:
"Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock or Other Stock-Based Award.
"Award Agreement" shall mean any written or electronic notice of grant,
agreement, contract or other instrument or document evidencing any Award,
which may, but need not, be required to be executed, acknowledged or accepted
by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean, until otherwise determined by the Board, the
Compensation Committee of the Board.
"Common Stock" shall mean shares of common stock, no par value per
share, of the Company.
"Company" shall mean Kentucky Bancshares, Inc.
"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Board or Committee, to receive the
benefits due the Participant under the Plan in the event of the Participant's
death. In the absence of an effective designation by the Participant,
Designated Beneficiary shall mean the Participant's estate.
"Eligible Individual" shall mean (i) any person providing services as
an officer and/or director or advisory director of the Company or a
Subsidiary, whether or not employed by such entity, ii) any employee of the
Company or a Subsidiary, including any director who is also an employee of
the Company or a Subsidiary, (iii) any officer or employee of an entity with
which the Company has contracted to receive executive, management or legal
services who provides services to the Company or a Subsidiary through such
arrangement, (iv) any consultant or adviser to the Company, a Subsidiary or
to an entity described in clause (iii) hereof who provides services to the
Company or a Subsidiary through such arrangement and (v) any person who has
agreed in writing to become a person described in clauses (i), (ii), (iii) or
(iv) within not more than 30 days following the date of grant of such
person's first Award under the Plan.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Incentive Stock Option" shall mean an option granted under Section 6
of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision thereto.
"Nonqualified Stock Option" shall mean an option granted under Section
6 of the Plan that is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
"Other Stock-Based Award" shall mean any right or award granted under
Section 9 of the Plan.
"Participant" shall mean any Eligible Individual granted an Award under
the Plan.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
organization, government or political subdivision thereof or other entity.
"Restricted Stock" shall mean any restricted stock granted under
Section 8 of the Plan.
"Section 162(m)" shall mean Section 162(m) of the Code and all
regulations promulgated thereunder as in effect from time to time.
"Shares" shall mean the shares of Common Stock and such other
securities of the Company or a Subsidiary as the Board or Committee may from
time to time designate.
"Stock Appreciation Right" shall mean any right granted under Section 7
of the Plan.
"Subsidiary" shall mean (i) any corporation or other entity in which
the Company possesses directly or indirectly equity interests representing at
least 50% of the total ordinary voting power or at least 50% of the total
value of all classes of equity interests of such corporation or other entity
and (ii) any other entity in which the Company has a direct or indirect
economic interest that is designated as a Subsidiary by the Board or the
Committee.
Section 3. Administration and Delegation
(a) Administration. The Board or Committee shall administer the Plan.
Subject to the terms of the Plan and applicable law, and in addition to other
express powers and authorizations conferred on the Board or Committee by the
Plan, the Board and the Committee shall each have full power and authority
to:
1. designate Participants;
2. determine the type or types of Awards to be granted to an Eligible
Individual;
3. determine the number of Shares to be covered by, or with respect to which
payments, rights or other matters are to be calculated in connection with,
Awards;
4. determine the terms and conditions of any Award;
5. determine whether, to what extent, and under what circumstances Awards
may be settled or exercised in cash, whole Shares, other whole securities,
other Awards, other property or other cash amounts payable by the Company
upon the exercise of that or other Awards, or canceled, forfeited or
suspended and the method or methods by which Awards may be settled,
exercised, canceled, forfeited or suspended;
6. determine whether, to what extent, and under what circumstances cash,
Shares, other securities, other Awards, other property, and other amounts
payable by the Company with respect to an Award shall be deferred either
automatically or at the election of the holder thereof, the Board or the
Committee;
7. interpret and administer the Plan and any instrument or agreement
relating to, or Award made under, the Plan;
8. establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and
9. make any other determination and take any other action that the Board or
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee.
Such designations, determinations, interpretations and other decisions may be
made at any time and shall be final, conclusive and binding upon all Persons,
including the Company, any Subsidiary, any Participant, any holder or
beneficiary of any Award, any stockholder of the Company and any Eligible
Individual.
(b) Delegation. Subject to the terms of the Plan and applicable law,
the Board and the Committee may each delegate to one or more or their
members, or to one or more agents, such administrative duties as they may
deem advisable. The Board or the Committee, or any person to whom either has
delegated duties as aforesaid, may employ one or more persons to render
advice with respect to any responsibility of the Board, the Committee, or
such person may have under the Plan. The Board and the Committee may each
employ such legal or other counsel, consultants and agents as they may deem
desirable for the administration of the Plan and may rely upon any opinion or
computation received from any such counsel, consultant or agent. Expenses
incurred by the Board and by the Committee in the engagement of such counsel,
consultant or agent shall be paid by the Company, or the subsidiary or
affiliate whose employees have benefitted from the Plan, as determined by the
Board or the Committee.
(c) Board Action. A majority of the whole Board shall constitute a
quorum, and the acts of a majority of the members of the Board present at a
meeting at which a quorum is present, or acts approved in writing by all of
the members of the Board, shall be the acts of the Board for purposes of any
action the Board takes permitted by this Plan.
Section 4. Eligibility
Any Eligible Individual shall be eligible to be granted an Award.
Section 5. Shares Available; Adjustment
(a) Shares Available for Awards. Subject to adjustment as provided in
Section 5(b):
1. Calculation of Number of Shares Available.
(i) Subject to the other provisions of this Section 5(a),
the number of Shares with respect to which Awards payable in Shares may be
granted under the Plan shall be 150,000 Awards that by their terms may be
settled only in cash shall not be counted against the maximum number of
Shares provided herein.
(ii) The number of Shares that may be issued pursuant to
Incentive Stock Options may not exceed 100,000 Shares.
(iii) To the extent any Shares covered by an Award are not
issued because the Award is forfeited or canceled or the Award is settled in
cash, such Shares shall again be available for grant pursuant to new Awards
under the Plan.
(iv) In the event that Shares are issued as Restricted
Stock or Other Stock-Based Awards under the Plan and thereafter are forfeited
or reacquired by the Company pursuant to rights reserved upon issuance
thereof, such Shares shall again be available for grant pursuant to new
Awards under the Plan.
(v) If the exercise price of any Option is satisfied by
tendering Shares to the Company, only the number of Shares issued net of the
Shares tendered shall be deemed issued for purposes of determining the
maximum number of Shares available for issuance under Section 5(a)(i)(A).
However, all of the Shares issued upon exercise shall be deemed issued for
purposes of determining the maximum number of Shares that may be issued
pursuant to Incentive Stock Options.
2. Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist of authorized and unissued Shares, Shares
held by the Company or a Subsidiary and Shares acquired in the open market or
otherwise obtained by the Company or a Subsidiary. The issuance of Shares may
be effected on a non-certificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
3. Individual Limit. Any provision of the Plan to the
contrary notwithstanding, no individual may receive in any year Awards under
the Plan, whether payable in cash or Shares, that relate to more than 5000
Shares.
4. Use of Shares. Subject to the terms of the Plan and the
overall limitation on the number of Shares that may be delivered under the
Plan, the Board and the Committee may each use available Shares as the form
of payment for compensation, grants or rights earned or due under any other
compensation plans or arrangements of the Company or a Subsidiary and the
plans or arrangements of the Company or a Subsidiary assumed in business
combinations.
(b) Adjustments. In the event that the Board or Committee
determines that any dividend or other distribution (whether in the form of
cash, Shares, Subsidiary securities, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of
Shares or other securities of the Company, issuance of warrants or other
rights to purchase Shares or other securities of the Company, or other
similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Board or Committee to be appropriate to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Board or Committee
shall, in such manner as it may deem equitable, adjust any or all of (i) the
number and type of Shares (or other securities or property) with respect to
which Awards may be granted, (ii) the number and type of Shares (or other
securities or property) subject to outstanding Awards, and (iii) the grant or
exercise price with respect to any Award and, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award and, if
deemed appropriate, adjust outstanding Awards to provide the rights
contemplated by Section 10(b) hereof; provided, in each case, that with
respect to Awards of Incentive Stock Options no such adjustment shall be
authorized to the extent that such authority would cause the Plan to violate
Section 422(b)(1) of the Code or any successor provision thereto and, with
respect to all Awards under the Plan, no such adjustment shall be authorized
to the extent that such authority would be inconsistent with the requirements
for full deductibility under Section 162(m); and provided further that the
number of Shares subject to any Award denominated in Shares shall always be a
whole number.
Section 6. Stock Options
(a) Stock Options. Subject to the provisions of the Plan, the
Board and the Committee shall each have the authority to determine the
Eligible Individuals to whom Options shall be granted, the number of Shares
to be covered by each Option, the option price thereof, the conditions and
limitations applicable to the exercise of the Option and the other terms
thereof. The Board and the Committee shall each have the authority to grant
Incentive Stock Options, Nonqualified Stock Options or both. In the case of
Incentive Stock Options, the terms and conditions of such grants shall be
subject to and comply with such rules as may be required by Section 422 of
the Code, as from time to time amended, and any implementing regulations;
provided, however, that if, on the date of the grant of Incentive Stock
Options, the Eligible Individual to whom such grant is to be made (together
with persons whose stock ownership is attributed to such individual pursuant
to Code Section 424(d)) owns securities possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or any
of its subsidiaries, the exercise price will not be less than 110% of the
fair market value of the Shares to which the Inventive Stock Option relates
determined as of the date of the grant, and such Incentive Stock Options are
not exercisable after the date five years from the date of the grant.
Notwithstanding the foregoing, no Eligible Individual may be granted
Incentive Stock Options which would result in Shares with an aggregate fair
market value (measured on the date of the grant) of more than $100,000 first
becoming exercisable in any one calendar year.
(b) Exercise. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Board or Committee may specify in
the applicable Award Agreement or thereafter, provided, however, that in no
event may any Option granted hereunder be exercisable after the expiration of
10 years after the date of such grant. The Board or the Committee may each
impose such conditions with respect to the exercise of Options, including
without limitation, any condition relating to the application of Federal or
state securities laws, as it may deem necessary or advisable. An Option may
be exercised, in whole or in part, by giving written notice to the Company,
specifying the number of Shares to be purchased. The exercise notice shall be
accompanied by the full purchase price for the Shares.
(c) Payment. The Option price shall be payable in United States
dollars and may be paid by (i) cash or cash equivalent; (ii) delivery of
shares of Common Stock, which shares shall be valued for this purpose at the
fair market value (valued in accordance with procedures established by the
Board or the Committee) as of the effective date of such exercise and, unless
otherwise determined by the Board or the Committee, shall have been held by
the optionee for at least six months; or (iii) in such other manner as may be
authorized from time to time by the Board or the Committee. Prior to the
issuance of Shares upon the exercise of an Option, a Participant shall have
no rights as a shareholder.
Section 7. Stock Appreciation Rights
(a) Stock Appreciation Rights. Subject to the provisions of the
Plan, the Board and the Committee shall each have authority to determine the
Eligible Individuals to whom Stock Appreciation Rights shall be granted, the
number of Shares to be covered by each Award of Stock Appreciation Rights,
the grant price thereof, the conditions and limitations applicable to the
exercise of the Stock Appreciation Right and the other terms thereof. Stock
Appreciation Rights may be granted in tandem with another Award, in addition
to another Award, or freestanding and unrelated to any other Award. Stock
Appreciation Rights granted in tandem with or in addition to an Option or
other Award may be granted either at the same time as the Option or other
Award or at a later time. Stock Appreciation Rights shall not be exercisable
after the expiration of 10 years after the date of grant.
(b) A Stock Appreciation Right shall entitle the holder thereof to
receive upon exercise, for each Share to which the Stock Appreciation Right
relates, an amount equal to the excess, if any, of the fair market value of a
Share on the date of exercise of the Stock Appreciation Right over the grant
price. Any Stock Appreciation Right shall be settled in cash, unless the
Board or the Committee shall determine at the time of grant of a Stock
Appreciation Right that it shall or may be settled in cash, Shares or a
combination of cash and Shares.
Section 8. Restricted Stock
(a) Grant of Restricted Stock. Subject to the provisions of the
Plan, the Board and the Committee shall each have authority to determine the
Eligible Individuals to whom Restricted Stock shall be granted, the number of
Shares to be covered by each Award of Restricted Stock and the terms,
conditions, and limitations applicable thereto. The Board and the Committee
shall also each have authority to grant restricted stock units. Restricted
stock units shall be subject to the requirements applicable to Other Stock-
Based Awards under Section 9. An Award of Restricted Stock may be subject to
the attainment of specified performance goals or targets, restrictions on
transfer, forfeitability provisions and such other terms and conditions as
the Board or Committee may determine, subject to the provisions of the Plan.
An award of Restricted Stock may be made in lieu of the payment of cash
compensation otherwise due to an Eligible Individual. To the extent that
Restricted Stock is intended to qualify as "performance-based compensation"
under Section 162(m), it must meet the additional requirements imposed
thereby.
(b) The Restricted Period. At the time that an Award of Restricted
Stock is made, the Board or Committee shall establish a period of time during
which the transfer of the Shares of Restricted Stock shall be restricted (the
"Restricted Period"). Each Award of Restricted Stock may have a different
Restricted Period. A Restricted Period of at least three years is required
with incremental vesting of the Award over the three-year period permitted.
However, if the grant or vesting of the Shares is subject to the attainment
of specified performance goals, a Restricted Period of at least one year with
incremental vesting is permitted. The expiration of the Restricted Period
shall also occur as provided in the Award Agreement in accordance with
Section 11(a) hereof.
(c) Escrow. The Participant receiving Restricted Stock shall enter
into an Award Agreement with the Company setting forth the conditions of the
grant. Certificates representing Shares of Restricted Stock shall be
registered in the name of the Participant and deposited with the Company,
together with a stock power endorsed in blank by the Participant. Each such
certificate shall bear a legend in substantially the following form:
The transferability of this certificate and the shares of
Common Stock represented by it are subject to the terms and
conditions (including conditions of forfeiture) contained in the
Kentucky Bancshares, Inc. Stock Award Plan (the "Plan") and a
notice of grant issued thereunder to the registered owner by
Kentucky Bancshares, Inc. Copies of the Plan and the notice of
grant are on file at the principal office of Kentucky Bancshares,
Inc.
(d) Dividends on Restricted Stock. Any and all cash and stock
dividends paid with respect to the Shares of Restricted Stock shall be
subject to any restrictions on transfer, forfeitability provisions or
reinvestment requirements as the Board or the Committee may, in its
discretion, prescribe in the Award Agreement.
(e) Forfeiture. In the event of the forfeiture of any Shares of
Restricted Stock under the terms provided in the Award Agreement (including
any additional Shares of Restricted Stock that may result from the
reinvestment of cash and stock dividends, if so provided in the Award
Agreement), such forfeited shares shall be surrendered and the certificates
canceled. The Participants shall have the same rights and privileges, and be
subject to the same forfeiture provisions, with respect to any additional
Shares received pursuant to Section 5(b) or Section 10(b) due to a
recapitalization, merger or other change in capitalization.
(f) Expiration of Restricted Period. Upon the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Board or the Committee or at such earlier time
as provided in the Award Agreement or an amendment thereto, the restrictions
applicable to the Restricted Stock shall lapse and a stock certificate for
the number of Shares of Restricted Stock with respect to which the
restrictions have lapsed shall be delivered, free of all such restrictions
and legends, except any that may be imposed by law, to the Participant or the
Participant's estate, as the case may be.
(g) Rights as a Shareholder. Subject to the terms and conditions of
the Plan and subject to any restrictions on the receipt of dividends that may
be imposed in the Award Agreement, each Participant receiving Restricted
Stock shall have all the rights of a shareholder with respect to Shares of
stock during any period in which such Shares are subject to forfeiture and
restrictions on transfer, including without limitation, the right to vote
such Shares.
(h) Performance-Based Restricted Stock under Section 162(m). The
Board or the Committee shall determine at the time of grant if a grant of
Restricted Stock is intended to qualify as "performance-based compensation"
as that term is used in Section 162(m). Any such grant shall be conditioned
on the achievement of one or more performance measures. The performance
measures pursuant to which the Other Stock-Based Award shall vest shall be
any or a combination of the following: return on equity, earnings per share,
total earnings, earnings growth, return on capital, return on assets, an
economic value added measure, earnings before interest and taxes, sales
growth, gross margin return on investment, share price (including, but not
limited to, growth measures and total shareholder return), net operating
profit, cash flow (including, but not limited to, operating cash flow and
free cash flow), cash flow return on investments (which equals net cash flow
divided by total capital), internal rate of return, increase in net present
value or expense targets, reduction of expenses, containment of expenses
within budget, reserve recognition, addition to reserves, of the Company or a
Subsidiary. For any performance period, such performance objectives may be
measured on an absolute basis or relative to a group of peer companies
selected by the Board or the Committee, relative to internal goals or
relative to levels attained in prior years. For grants of Restricted Stock
intended to qualify as "performance-based compensation," the grants of
Restricted Stock and the establishment of performance measures shall be made
during the period required under Section 162(m).
Section 9. Other Awards
(a) Other Stock-Based Awards. The Board and the Committee each is
hereby authorized to grant to Eligible Individuals an "Other Stock-Based
Award", which shall consist of an Award that is not an instrument or Award
specified in Sections 6 through 8 of this Plan, the value of which is based
in whole or in part on the value of Shares, including a restricted stock
unit. Other Stock-Based Awards may be awards of Shares or may be denominated
or payable in, valued in whole or in part by reference to, or otherwise based
on or related to, Shares (including, without limitation, securities
convertible or exchangeable into or exercisable for Shares), as deemed by the
Board or the Committee consistent with the purposes of the Plan. The Board or
the Committee shall determine the terms and conditions of any such Other
Stock-Based Award and may provide that such awards would be payable in whole
or in part in cash. To the extent that an Other Stock-Based Award is intended
to qualify as "performance-based compensation" under Section 162(m), it must
be made subject to the attainment of one or more of the performance goals
specified in Section 9(b) hereof and meet the additional requirements imposed
by Section 162(m). Other Stock-Based Awards will comply with the timing and
distribution requirements of Section 409A of the Code.
(b) Performance-Based Other Stock-Based Awards under Section
162(m). The Board or the Committee shall determine at the time of grant if
the grant of an Other Stock-Based Award is intended to qualify as
"performance-based compensation" as that term is used in Section 162(m). Any
such grant shall be conditioned on the achievement of one or more performance
measures. The performance measures pursuant to which the Other Stock-Based
Award shall vest shall be any or a combination of the following: return on
equity, earnings per share, total earnings, earnings growth, return on
capital, return on assets, an economic value added measure, earnings before
interest and taxes, sales growth, gross margin return on investment, share
price (including, but not limited to, growth measures and total shareholder
return), net operating profit, cash flow (including, but not limited to,
operating cash flow and free cash flow), cash flow return on investments
(which equals net cash flow divided by total capital), internal rate of
return, increase in net present value or expense targets, reduction of
expenses, containment of expenses within budget, reserve recognition,
addition to reserves, of the Company or a Subsidiary. For any performance
period, such performance objectives may be measured on an absolute basis or
relative to a group of peer companies selected by the Board or the Committee,
relative to internal goals or relative to levels attained in prior years. For
grants of Other Stock-Based Awards intended to qualify as "performance-based
compensation," the grants of Other Stock-Based Awards and the establishment
of performance measures shall be made during the period required under
Section 162(m).
(c) Equivalents. In the discretion of the Board or the Committee,
an Award, whether made as an Other Stock-Based Award under this Section 9 or
as an Award granted pursuant to Sections 6 through 8 hereof, may provide the
holder thereof with dividends or dividend equivalents, payable in cash,
Shares, Subsidiary securities, other securities or other property on a
current or deferred basis. If paid on a deferred basis, then the timing and
distribution requirements of an Award or Other Stock-Based Award will apply
with Section 409A of the Code.
Section 10. Amendment or Discontinuance of Plan; Adjustment of Awards;
Cancellation of Awards
(a) Amendment or Discontinuance of the Plan. The Board may amend or
discontinue the Plan at any time; provided, however, that no such amendment
may
(1) without the approval of the stockholders, (i) increase,
subject to adjustments permitted herein, the maximum number of shares of
Common Stock that may be issued through the Plan, (ii) materially increase
the benefits accruing to Participants under the Plan, (iii) materially expand
the classes of persons eligible to participate in the Plan, or (iv) amend
Section 10(c) to permit a reduction in the exercise price of Options; or
(2) materially impair, without the consent of the recipient,
an Award previously granted.
(b) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Board and the Committee is each hereby authorized
to make adjustments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 5(b) hereof) affecting
the Company, or the financial statements of the Company or any Subsidiary, or
of changes in applicable laws, regulations, or accounting principles,
whenever the Board or the Committee determines that such adjustments are
appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan.
(c) Cancellation. Any provision of this Plan or any Award Agreement
to the contrary notwithstanding, the Board or the Committee may cause any
Award granted hereunder to be canceled in consideration of a cash payment or
alternative Award made to the holder of such canceled Award equal in value to
such canceled Award. Notwithstanding the foregoing, except for adjustments
permitted under Sections 5(b) and 10(b) no action by the Board or the
Committee shall cause a reduction in the exercise price of Options granted
under the Plan without the approval of the stockholders of the Company. The
determinations of value under this subparagraph shall be made by the Board or
the Committee.
Section 11. Provisions Applicable to All Awards
(a) Award Agreements. Each Award hereunder shall be evidenced by an
agreement or notice delivered to the Participant (by paper copy or
electronically) that shall specify the terms and conditions thereof and any
rules applicable thereto, including but not limited to the effect on such
Award of the death, retirement or other termination of employment or
cessation of consulting or advisory services of the Participant and the
effect thereon, if any, of a change in control of the Company.
(b) Withholding.
(1) A Participant shall be required to pay to the Company,
and the Company shall have the right to deduct from all amounts paid to a
Participant (whether under the Plan or otherwise), any taxes required by law
to be paid or withheld in respect of Awards hereunder to such Participant.
The Board or the Committee may provide for additional cash payments to
holders of Awards to defray or offset any tax arising from the grant,
vesting, exercise or payment of any Award.
(2) At any time that a Participant is required to pay to the
Company an amount required to be withheld under the applicable tax laws in
connection with the issuance of Shares under the Plan, the Participant may,
if permitted by the Board or the Committee, satisfy this obligation in whole
or in part by delivering currently owned Shares or by electing (the
"Election") to have the Company withhold from the issuance Shares, which
Shares shall have a value equal to the minimum amount required to be
withheld. The value of the Shares delivered or withheld shall be based on the
fair market value of the Shares on the date as of which the amount of tax to
be withheld shall be determined in accordance with applicable tax laws (the
"Tax Date").
(3) Each Election to have Shares withheld must be made prior
to the Tax Date. If a Participant wishes to deliver Shares in payment of
taxes, the Participant must so notify the Company prior to the Tax Date.
Transferability. No Awards granted hereunder may be transferred, pledged,
assigned or otherwise encumbered by a Participant except: (i) by will; (ii)
by the laws of descent and distribution; (iii) pursuant to a domestic
relations order, as defined in the Code, if permitted by the Board or the
Committee and so provided in the Award Agreement or an amendment thereto; or
(iv) if permitted by the Board or Committee and so provided in the Award
Agreement or an amendment thereto. Options granted in tandem therewith may
be transferred or assigned (w) to Immediate Family Members, (x) to a
partnership in which Immediate Family Members, or entities in which Immediate
Family Members are the owners, members or beneficiaries, as appropriate, are
the partners, (y) to a limited liability company in which Immediate Family
Members, or entities in which Immediate Family Members are the owners,
members or beneficiaries, as appropriate, are the members, or (z) to a trust
for the benefit of Immediate Family Members; provided, however, that no more
than a de minimus beneficial interest in a partnership, limited liability
company or trust described in (x), (y) or (z) above may be owned by a person
who is not an Immediate Family Member or by an entity that is not
beneficially owned solely by Immediate Family Members. "Immediate Family
Members" shall be defined as the spouse and natural or adopted children or
grandchildren of the Participant and their spouses. To the extent that an
Incentive Stock Option is permitted to be transferred during the lifetime of
the Participant, it shall be treated thereafter as a Nonqualified Stock
Option. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of Awards, or levy of attachment or similar process upon Awards
not specifically permitted herein, shall be null and void and without effect.
The designation of a Designated Beneficiary shall not be a violation of this
Section 11(c).
(c) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other restrictions
as the Board or Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable federal or state laws, and the Board or
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(d) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Board or Committee shall
determine whether cash, other securities or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
(e) Deferral Permitted. Payment of cash or distribution of any
Shares to which a Participant is entitled under any Award shall be made as
provided in the Award Agreement. Payment may be deferred at the option of the
Participant if provided in the Award Agreement and such deferral complies
with the timing and distribution requirements of Section 409A of the Code.
Section 12. Miscellaneous
(a) No Limit on Other Compensation Arrangements. Nothing contained
in the Plan shall prevent the Company from adopting or continuing in effect
other compensation arrangements, which may, but need not, provide for the
grant of options, stock appreciation rights and other types of Awards
provided for hereunder (subject to stockholder approval of any such
arrangement if approval is required), and such arrangements may be either
generally applicable or applicable only in specific cases.
(b) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of
or as a consultant or adviser to the Company or any Subsidiary or in the
employ of or as a consultant or adviser to any other entity providing
services to the Company. The Company or any Subsidiary or any such entity may
at any time dismiss a Participant from employment, or terminate any
arrangement pursuant to which the Participant provides services to the
Company or a Subsidiary, free from any liability or any claim under the Plan,
unless otherwise expressly provided in the Plan or in any Award Agreement. No
Eligible Individual or other person shall have any claim to be granted any
Award, and there is no obligation for uniformity of treatment of Eligible
Individuals, Participants or holders or beneficiaries of Awards.
(c) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan and any Award Agreement
shall be determined in accordance with the laws of the Commonwealth of
Kentucky.
(d) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Board or the Committee, such
provision shall be construed or deemed amended to conform to applicable laws,
or if it cannot be construed or deemed amended without, in the determination
of the Board or the Committee, materially altering the intent of the Plan or
the Award, such provision shall be stricken as to such jurisdiction, Person
or Award and the remainder of the Plan and any such Award shall remain in
full force and effect.
(e) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments
from the Company pursuant to an Award, such right shall be no greater than
the right of any unsecured general creditor of the Company.
(f) Compliance with Law. The Company intends that Awards granted
under the Plan, or any deferrals thereof, will comply with the requirements
of Section 409A of the Code and all regulations and guidance promulgated
thereunder, to the extent applicable.
(g) Headings. Headings are given to the subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
Section 13. Term of the Plan
Subject to Section 10(a), no Awards may be granted under the Plan later
than ten years after the date the Plan was adopted by the Board; provided,
however, that Awards granted prior to such date shall remain in effect until
such Awards have either been satisfied, expired or canceled under the terms
of the Plan or the individual Award Agreement, and any restrictions imposed
on Shares in connection with their issuance under the Plan have lapsed.
Section 14. Liability and Indemnification
(a) No Liability. No member of the Board or the Committee or any
officer or employee of the Company or its subsidiaries shall be personally
liable for any act or failure to act, decision or determination made in good
faith in connection with the Plan hereunder, except in circumstances
involving his or her bad faith, gross negligence or willful misconduct. By
participating in the Plan, each Participant agrees to release and hold
harmless the Company and its subsidiaries (and their respective directors,
officers and employees), the Board and the Committee from and against any tax
liability, including, but not limited to, interest and penalties, incurred by
the Participant in connection with his or her receipt of an Award and the
payment and exercise thereof.
(b) Indemnification. Each person who is or has been a member of
the Board or Committee will be indemnified and held harmless by the Company
against and from: (a) any loss, cost, liability or expense (including, but
not limited to, attorneys' fees) that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim,
action, suit or proceeding to which he or she may be a party or in which he
or she may be involved by reason of any action taken or failure to act under
the Plan or any Award Agreement; and (b) any and all amounts paid by him or
her in settlement thereof, with the Company's prior written approval, or paid
by him or her in satisfaction of any judgment in any such claim, action, suit
or proceeding against him or her; provided, however, that he or she must give
the Company an opportunity, at the Company's expense, to handle and defend
such claim, action, suit or proceeding before he or she undertakes to handle
and defend the same on his or her own behalf. The foregoing right of
indemnification is not exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Articles of
Incorporation or Bylaws, by contract, as a matter of law or otherwise, or
under any power that the Company may have to indemnify them or hold them
harmless.
Section 15. Effective Date of the Plan
The Plan shall become effective on May 13, 2009, the date of its
adoption by the Company's shareholders.
THIS PROXY FORM IS SOLICITED BY THE BOARD OF DIRECTORS
Kentucky Bancshares, Inc.
Paris, Kentucky
Appointment of Proxies; Items to be Voted Upon. The undersigned hereby
appoints Buckner Woodford IV and Gregory J. Dawson, or either one of them
(with full power to act alone), my proxy, each with the power to appoint his
substitute, to represent me to vote all of the Corporation's Common Shares
which I held of record or am otherwise entitled to vote at the close of
business on March 20, 2009, at the 2009 Annual Meeting of Shareholders to be
held on May 13, 2009 and at any adjournments thereof, with all powers the
undersigned would possess if personally present, as follows:
1. ELECTION OF DIRECTORS
Nominees for director of Kentucky Bancshares, Inc.
Betty J. Long Edwin S. Saunier FOR WITHHOLD
Ted McClain Buckner Woodford IV [ ] [ ]
FOR, except withhold vote from the following nominee(s) _______________
_______________________________________________________________________
2. STOCK AWARD PLAN
Approval of the proposed Stock Award Plan
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. OTHER BUSINESS. In their discretion, the Proxies are authorized to act
upon such other matters as may properly be brought before the Annual
Meeting or any adjournment thereof.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2 ABOVE.
How Your Proxy Will Be Voted. If this proxy is properly executed, then the
Proxies will vote: (1) as you specify above or (2) if you do not specify
your vote above, then
- FOR all the Nominees referred to in Item 1. Additionally, the
Proxies will have discretionary authority to cumulate votes selectively among
the nominees as to whom authority to vote has not been withheld and to vote
for a substitute nominee if any nominee becomes unavailable for election for
any reason.
- FOR the approval of the Stock Award Plan, and
- As the Proxies decide on any other matter that comes before the
meeting.
Directions to Shareholder Meeting. Our shareholder meeting will be held at
Kentucky Bank's main office located at 339 Main Street, Paris, Kentucky. If
you need directions, please contact our Secretary at Kentucky Bancshares,
Inc., 339 Main Street, Paris, Kentucky 40361, Attention: Gregory J. Dawson
or call our office at (859) 988-1303.
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be Held on May 13, 2009. The proxy statement, this
form of proxy and our 2008 Annual Report to Shareholders, including financial
statements, are available at www.cfpproxy.com/5407.
Acknowledgement. By signing this card the undersigned acknowledges receipt
of the Notice of Annual Meeting of Shareholders to be held May 13, 2009, the
accompanying proxy statement, and our 2008 Annual Report to Shareholders,
including financial statements.
PLEASE DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
This proxy is solicited by the Board of Directors and will be voted as stated
herein.
Kentucky Bancshares, Inc.
Proxy
I hereby vote my shares as indicated on the reverse side.
Please sign your name exactly as it appears on your stock certificate(s).
Joint owners must each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title.
Date ____________ ______, 2009 _______________________________
Signature
_______________________________
Signature, if held jointly
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