EXHIBIT 10.3
MIDDLESBORO FEDERAL BANK, FSB
MANAGEMENT RECOGNITION AND RETENTION PLAN
(As Amended and Restated)
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Middlesboro Federal Bank, Federal Savings Bank ("Bank") hereby
establishes this Management Recognition and Retention Plan ("Plan") upon the
terms and conditions hereinafter stated in this Management Recognition and
Retention Plan.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability by providing such persons with a proprietary interest in
the Bank as compensation for their contributions to the Bank and as an incentive
to make such contributions and to promote the Bank's growth and profitability in
the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Bank" means Middlesboro Federal Bank, FSB.
3.02 "Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
3.03 "Board" means the board of directors of the Bank.
3.04 "Committee" means a Committee of the Board consisting of all Directors
of the Bank.
3.05 "Common Stock" means shares of the common stock of the Bank.
1
3.06 "Company" means Middlesboro Federal Mutual Holding Company, the mutual
holding company of the Bank.
3.07 "Director" means a director of the Bank or the Company who is not an
Officer of the Bank or the Company.
3.08 "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a participant to perform the work
customarily assigned to him. Additionally, a medical doctor selected or
approved by the Board must advise the Committee that it is either not possible
to determine when such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of said
participant's lifetime.
3.09 "Employee" means any person who is currently employed by the Bank or a
subsidiary, including Officers.
3.10 "Minority Stock Offering" means one or more offerings of Common Stock
by the Bank to persons other than the Company.
3.11 "Normal Retirement" means retirement at the normal or early retirement
date as set forth in the Bank's Retirement Plan, or any successor plan.
3.12 "Disinterested Person" means any member of the Board who, at the time
discretion under the Plan is exercised, is a "disinterested person" within the
meaning of Rule 16b-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended.
3.13 "Effective Date" means the date on which the Plan first becomes
effective, as determined under Section 8.07 hereof.
3.14 "Officer" means an executive officer of the Bank, which includes the
Chief Executive Officer, President, Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents in charge of principal business functions, the
Secretary, the Treasurer and any other person performing similar functions.
3.15 "Plan Shares" means shares of Common Stock held in the trust
established under the Plan and issued or issuable to a Recipient pursuant to the
Plan.
3.16 "Plan Share Award" means a right granted under this Plan to earn Plan
Shares.
3.17 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.18 "Recipient" means an Employee or Officer who receives a Plan Share
Award under the Plan.
2
3.19 "Reorganization" means the reorganization of the Bank as a mutual
holding company and the establishment of the Bank as its majority-owned
subsidiary.
3.20 "Trustee" means the person or entity nominated by the Committee and
approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title to
the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
---------------------
by the Committee, which shall consist of not less than three non-employee
members of the Board who are Disinterested Persons. In the absence at any time
of a duly appointed Committee, the Plan shall be administered by those members
of the Board who are Disinterested Persons, and by the Board if there are less
than three Disinterested Persons. The Committee shall have all of the powers
allocated to it in this and other Sections of the Plan. The interpretation and
construction by the Committee of any provisions of the Plan or of any Plan Share
Award granted hereunder shall be final and binding. The Committee shall act by
vote or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. The Committee shall report its actions and decisions with respect to
the Plan to the Board at appropriate times, but in no event less than one time
per calendar year. The Committee shall recommend to the Board one or more
persons or entity to act as Trustee in accordance with the provisions of this
Plan and Trust.
4.02 Role of the Board. The members of the Committee shall be appointed or
-----------------
approved by, and will serve at the pleasure of, the Board. The Board may in its
discretion from time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to it in this and
other Sections of the Plan, may take any action under or with respect to the
Plan which the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, that except as provided in Section 7.01(d), the Board
-------- -------
may not revoke any Plan Share Award except in the event of revocation for Cause,
or with respect to unearned Plan Share Awards in the event a Recipient of a Plan
Share Award voluntarily terminates his employment or his directorship (as the
case may be) with the Bank prior to retirement.
4.03 Limitation on Liability. No member of the Board or the Committee or
-----------------------
the Trustee shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Plan Share Awards granted under it.
If a member of the Board or the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of anything done or not done by him in such capacity under or with
respect to the Plan, the Bank shall indemnify such member against expense
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
3
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in the best interests of the Bank and a
subsidiary and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board shall determine the
----------------------------------
amounts (or the method of computing the amounts) to be contributed by the Bank
to the Trust established under this Plan. Such amounts shall be paid to the
Trustees at the time of contribution. No contributions by Employees shall be
permitted.
5.02 Initial Investment. Any amounts held by the Trust prior to the
------------------
effective date of the Reorganization and the Minority Stock Offering shall be
invested by the Trustee in such interest-bearing account or accounts at the Bank
as the Trustee shall determine to be appropriate.
5.03 Investment of Trust Assets upon the Reorganization; Creation of Plan
--------------------------------------------------------------------
Share Reserve. Upon the consummation of the Reorganization and the Minority
- -------------
Stock Offering, the Trustee shall invest all of the Trust's assets exclusively
in Common Stock except as otherwise provided below; provided, however, that the
-------- -------
Trust shall not invest in more than three percent (3%) of the shares of Common
Stock issued in connection with the Minority Stock Offering which shall
constitute the Plan Share Reserve. Any earnings received with respect to Common
Stock held in the Plan Share Reserve shall be held in an interest-bearing
account. Any earnings received with respect to Common Stock subject to a Plan
Share Award shall be held in an interest-bearing account on behalf of the
individual Recipient.
5.04 Effect of Allocations, Returns and Forfeitures upon Plan Share
--------------------------------------------------------------
Reserves. Upon the allocation of Plan Share Awards under Section 6.02, or the
- --------
decision of the Committee to return Plan Shares to the Bank, the Plan Share
Reserve shall be reduced by the number of Shares subject to the Awards so
allocated or returned. Any shares subject to an Award that may not be earned
because of a forfeiture by the Recipient pursuant to Section 7.01 shall be
returned to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Only Employees of the Bank or a subsidiary are eligible
-----------
to receive Plan Share Awards.
6.02 Allocations. The Committee may determine which of the Employees
-----------
referenced in Section 6.01 will be granted Plan Share Awards and the number of
shares covered by each Award; provided, however, that the number of shares
-------- -------
covered by such Awards may not exceed the number of shares in the Plan Share
Reserve immediately prior to the grant of such Awards,
4
and provided further, that in no event shall any Awards be made that will
-------- -------
violate the Charter, Bylaws or Plan of Reorganization and Stock Issuance of the
Bank or any applicable federal or state law or regulation. In the event Plan
Shares are forfeited for any reason, the Committee, from time to time, may
determine which of the Recipients referenced in Section 6.01 will be granted
additional Plan Share Awards to be awarded from forfeited Plan Shares. In
selecting those Recipients to whom Plan Share Awards will be granted and the
number of Plan Shares covered by such Awards, the Committee shall consider the
position and responsibilities of the eligible Recipients, the length and value
of their services to the Bank and a subsidiary, the compensation paid to the
Recipients and any other factors the Committee may deem relevant.
6.03 Form of Allocation. As promptly as practicable after a determination
------------------
is made pursuant to Section 6.02 that a Plan Share Award has been granted, the
Committee shall notify the Recipient in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the Award may be earned. The date on which the Committee so
notifies the Recipient shall be considered the date of grant of the Plan Share
Awards. The Committee shall maintain records as to all grants of Plan Share
Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary in
------------------------
Sections 6.01 and 6.02, no Recipient shall have any right or entitlement to
receive a Plan Share Award hereunder, such Awards being at the total discretion
of the Committee and the Board, nor shall the salaried Recipients as a group
have such a right. The Committee, with the approval of the Board (or if so
directed by the Board), may return all Common Stock in the Plan Share Reserve to
the Bank at any time, and cease issuing Plan Share Awards.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earnings Plan Shares; Forfeitures.
---------------------------------
(a) General Rules. Unless the Committee shall specifically state to
-------------
the contrary at the time a Plan Share Award is granted, Plan Shares subject to
an Award shall be earned and non-forfeitable by a Recipient according to the
following schedule:
Years of Service Vested Interest
---------------- ---------------
Less than 2 0%
2 20%
3 20%
4 20%
5 20%
6 20%
5
(b) Exception for Termination Due to Death, Disability and Normal
-------------------------------------------------------------
Retirement. Notwithstanding the general rule contained in Section 7.01(a), Plan
- ----------
Shares subject to a Plan Share Award held by a Recipient whose service as an
Employee, Officer or Director with the Bank or a subsidiary terminates due to
death, Disability or Normal Retirement, or any party thereof that has not
theretofore been earned, shall be deemed earned as of the Recipient's last day
of service as an Employee, Officer or Director with the Bank or a subsidiary.
(c) Exception for Terminations after a Change in Control.
----------------------------------------------------
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient whose employment with or
service on the Board of the Bank or a subsidiary terminates following a Change
in Control of the Bank or the Company shall be deemed earned as of the
Recipient's last day of service as an Employee, Officer or Director with the
Bank or a subsidiary. A "Change in Control" of the Bank shall mean (i) a plan
of reorganization, merger, merger conversion, consolidations or sale of all or
substantially all of the assets of the Bank or the Company or a similar
transaction occurs in which the Bank or the Company is not the resulting entity;
(ii) individuals who constitute the Board of the Bank or the board of directors
of the Company cease for any reason to constitute a majority thereof; or (iii) a
Change in Control within the meaning of 12 C.F.R. (S)574.4 occurs, as determined
by the Board of the Bank or the board of directors of the Company; provided,
--------
however, that a Change in Control shall not be deemed to occur either as the
- -------
result of acquisitions of Common Stock by Messrs. J. Roy Shoffner and James J.
Shoffner, or under 7.01(c)(i) or 7.01(c)(iii) of this Section if the transaction
constituting a Change in Control is approved by a majority of the Board of the
Bank or the board of directors of the Company, as the case may be.
In the event that the Company converts from the mutual form of
organization to the stock form of organization on a stand-alone basis at any
time subsequent to the effective date of this Agreement ("Stock Company"), a
Change in Control of the Bank or the Stock Company for purposes of this Plan
shall mean an event of a nature that: (I) would be required to be reported in
response to Item I of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
("Exchange Act"); or (II) results in a Change in Control of the Bank or the
Stock Company within the meaning of the Home Owners' Loan Act of 1933 and the
Rules and Regulations promulgated by the Office of Thrift Supervision (or its
predecessor agency), as in effect on the date hereof; or (III) without
limitation, such a Change in Control shall be deemed to have occurred at such
time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Bank or the Stock Company representing twenty percent (20%) or more of the
combined voting power of the Bank's or the Stock Company's outstanding
securities except for any securities of the Bank purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who constitute the
Board of the Bank or the board of directors of the Stock Company on the date
hereof ("Incumbent Board") cease for any reason to constitute at least a
majority thereof; provided that any person becoming a director subsequent to the
--------
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Stock Company's stockholders was
6
approved by the same nominating committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Stock Company or
similar transaction in which the Bank or the Stock Company is not the resulting
entity; or (d) a proxy statement soliciting proxies from stockholders of the
Stock Company, by someone other than the current management of the Stock
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Stock Company or Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Bank or the Stock Company shall
be distributed; or (e) a tender offer is made for twenty percent (20%) or more
of the voting securities of the Bank or Stock Company.
(d) Revocation for Cause. Notwithstanding anything hereinafter to the
--------------------
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Plan Share Award, or portion thereof, previously awarded under this Plan, to
the extent Plan Shares have not been delivered thereunder to the Recipient,
whether or not yet earned, in the case of an Employee, Officer or Director who
is discharged from the Bank or a subsidiary for Cause (as hereinafter defined),
or who is discovered after termination of employment to have engaged in conduct
that would have justified termination for Cause. "Cause" is defined as personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, or the willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) that results in a material loss to the Bank or a subsidiary, or a
final cease-and-desist order.
7.02 Accrual of Dividends. Whenever Plan Shares are paid to a Recipient or
--------------------
Beneficiary under Section 7.03, such Recipient or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends and a number of shares of Common Stock equal to any stock
dividends, declared and paid with respect to a share of Common Stock between the
date the relevant Plan Share Award is granted and the date the Plan Shares are
being distributed. There shall also be distributed an appropriate amount of net
earnings, if any, of the Trust with respect to any cash dividends so paid out.
7.03 Distribution of Plan Shares.
---------------------------
(a) Timing of Distributions; General Rule. Except as provided in
-------------------------------------
subsection (b) below, Plan Shares shall be distributed to the Recipient or his
Beneficiary, as the case may be, as soon as practicable after they have been
earned. No fractional shares shall be distributed.
(b) Timing; Exception for Ten Percent (10%) Shareholders.
----------------------------------------------------
Notwithstanding subsection (a) above, no Plan Shares may be distributed prior to
the date that is five (5) years from the effective date of the Reorganization to
the extent the Recipient or Beneficiary, as the case may be, would after receipt
of such shares own in excess of then ten percent (10%) of the issued and
outstanding shares of Common Stock. Any Plan Shares remaining unpaid solely by
7
reason of the operation of this subsection (b) shall be paid to the Recipient or
his Beneficiary on the date that is five (5) years from the effective date of
the Reorganization.
(c) Form of Distribution. All Plan Shares, together with any shares
--------------------
representing stock dividends, shall be distributed in the form of Common Stock.
One Share of Common Stock shall be given for each Plan Share earned and payable.
Payments representing accumulated cash dividends (and earnings thereon) shall be
made in cash.
(d) Withholding. The Trustee may withhold from any payment or
-----------
distribution made under this Plan sufficient amounts of cash or shares of Common
Stock to cover any applicable withholding and employment taxes, and if the
amount of such payment is insufficient, the Trustee may require the Recipient or
Beneficiary to pay to the Trustee the amount required to be withheld as a
condition of delivering the Plan Shares. The Trustee shall pay over to the Bank
or a subsidiary that employs or employed such Recipient any such amount withheld
from or paid by the Recipient or Beneficiary.
7.04 Voting of Plan Shares. After a Plan Share Award has been granted, the
---------------------
Recipient shall be entitled to direct the Trustee as to the voting of the Plan
Shares that are covered by the Plan Share Award and that have not yet been
earned and distributed to him pursuant to Section 7.03, subject to rules and
procedures adopted by the Committee for this purpose. All shares of Common
Stock held by the Trust as to which Recipients are not entitled to direct, or
have not directed, the voting, shall be voted by the Trustee in the same
proportion as Plan Shares that have been awarded and voted.
ARTICLE VIII
MISCELLANEOUS
8.01 Adjustments for Capital Changes. In the event of any change in the
-------------------------------
outstanding shares of Common Stock of the Bank by reason of any stock dividend
or split, recapitalization, merger, consolidation, spin-off, reorganization,
combination or exchange of shares, or other similar corporate change, or other
increase or decrease in such shares effected without receipt or payment of
consideration by the Bank, the Committee shall adjust the aggregate number of
Plan Shares available for issuance pursuant to the Plan and shall adjust the
number of shares to which any Plan Share Award relates to prevent dilution or
enlargement of the rights granted to the Recipient under the Plan.
8.02 Amendment and Termination of Plan. The Board may, by resolution, at
---------------------------------
any time amend or terminate the Plan. The power to amend or terminate shall
include the power to direct the Trustee to return to the Bank all or any part of
the assets of the Trust, including shares of Common Stock held in the Plan Share
Reserve, as well as shares of Common Stock and other assets subject to Plan
Share Awards but not yet earned by the Employees to whom they are allocated.
However, the termination of the Trust shall not affect a Recipient's right to
earn Plan
8
Share Awards and to the distribution of Common Stock relating thereto, including
earnings thereon, in accordance with the terms of this Plan and the grant by the
Committee or Board.
8.03 Nontransferability. Plan Share Awards and rights to Plan Shares shall
------------------
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to the Recipient who was notified in
writing of the Award by the Committee pursuant to Section 6.03.
8.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
-----------------
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right on the
part of any Employee to continue in the employ of the Bank or a subsidiary
thereof, or the Company.
8.05 Voting and Dividend Rights. No Recipient shall have any voting or
--------------------------
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04, prior to the time said Plan Shares are actually distributed to such
Recipient.
8.06 Governing Law. The Plan and Trust and this Agreement shall be
-------------
governed by the laws of the Commonwealth of Kentucky.
8.07 Effective Date. This Plan is effective as of the effective date of
--------------
the Reorganization and Minority Stock Offering ("Effective Date").
8.08 Term of Plan. This Plan shall remain in effect until the earlier of
------------
(1) termination by the Board, or (2) the distribution of all assets of the
Trust. Termination of the Plan shall not affect any Plan Share Awards
previously granted, and such Awards shall remain valid and in effect until they
have been earned and paid, or by their terms expire or are forfeited.
8.09 Tax Status of Trust. It is intended that (i) the Trust associated
-------------------
with the Plan be treated as a grantor trust of the Bank under the provisions of
Section 671 et seq. of the Code, as the same may be amended from time to time,
-- ---
and (ii) that in accordance with Revenue Procedure 92-65 (as the same may be
amended from time to time), Participants have the status of general unsecured
creditors of the Bank, the Plan constitutes a mere unfunded promise to make
benefit payments in the future, the Plan is unfunded for tax purposes and for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended, and the Trust has been and will continue to be maintained in conformity
with Revenue Procedure 92-64 (as the same may be amended from time to time).
9
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its
duly authorized Officers and the corporate seal to be affixed and duly attested,
as of the _____ day of _______________, 199__.
By:
-----------------------------
Attest:
- --------------------------
IN WITNESS WHEREOF, I, _________________________ execute this Agreement, as
Trustee accepting and binding myself to undertake and perform the obligations
and duties of the Trustee hereunder and consenting to the foregoing Plan and
Trust.
By:
-----------------------------
Attest:
- --------------------------
10