EXHIBIT 10.3
COMMUNITY NATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
The Board of Directors of Community National Corporation has adopted this
Deferred Compensation Plan, effective _________, 1997. This Plan has been
adopted in order to attract, retain, and motivate Directors and Employees, and
to encourage the long-term financial success of the Company.
ARTICLE I
Definitions
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The following words and phrases, when used in the Plan with an initial
capital letter, shall have the meanings set forth below unless the context
clearly indicates otherwise.
"Account" shall mean a bookkeeping account maintained by the Company in the
name of the Participant.
"Affiliate" shall mean any "parent corporation" or "subsidiary corporation"
of the Company, as the terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" shall mean Lexington First Federal Savings Bank.
"Beneficiary" shall mean the person or persons whom a Participant may
designate as the beneficiary of the Participant's Benefits. A Participant's
election of a Beneficiary shall be made on the Distribution Election Form, shall
be revocable by the Participant during his or her lifetime, and shall be
effective only upon its delivery to, and acceptance by, an executive officer of
the Company, which acceptance shall be presumed unless, within ten business days
of delivery of the Participant's election, the executive officer provides the
Participant with a written notice detailing the reasons for its rejection. In
the absence of a valid election, a Participant's Beneficiary shall be his or her
estate.
"Benefits" shall mean, collectively, the benefits payable under Articles II
and III of the Plan.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" 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 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 Company representing twenty
percent (20%) or more of the combined voting power of the Bank's or the
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 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
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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 Company's stockholders was 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) the
occurrence of a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Company or similar transaction
in which the Bank or the Company is not the resulting entity.
"Company" shall mean Community National Corporation, and any successor to
its interest.
"Deferral Election Form" shall mean the form attached as Exhibit "A".
"Director" shall mean a member of the Company's Board.
"Distribution Election Form" shall mean the form attached hereto as Exhibit
"B".
"Effective Date" shall mean the date on which the Plan first becomes
effective, as referenced in the opening paragraph of this document.
"Employee" shall mean anyone whom the Company or an Affiliate treats as an
employee for employment tax purposes.
"Investment Election Form" shall mean the form attached as Exhibit "C".
"Participant" shall mean any Director, the Bank's President (Howard
Tignor), and any other eligible Employee whom the Board selects. An Employee
shall be eligible for Plan participation only if the Employee is a member of a
select group of the Company's or the Bank's management or highly compensated
employees for purposes of Title I of the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Plan" shall mean this Community National Corporation Deferred Compensation
Plan.
"Trust Agreement" shall mean that agreement entered into pursuant to the
terms hereof between the Company and the Trustee, and "Trust" means the trust
created thereunder.
"Trustee" shall mean that person(s) or entity appointed by the Board
pursuant to the Trust Agreement to hold legal title to the Plan assets for the
purposes set forth herein.
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"Years of Service" shall mean a calendar year after 1996 at the end of
which a Participant continues to be a Director or Employee.
ARTICLE II
Credits to Accounts
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Deferred Compensation Annual Credits. Through completion of a Deferral
Election Form before each calendar year begins, Directors may elect to defer
receipt of any portion of fees received from the Bank or the Company, and
participating Employees may elect to defer up to 25% of their income that would
otherwise become payable in cash from the Company or the Bank during the
calendar year. At the end of each calendar year, the Company will credit each
Participant's Account with the amounts deferred.
Credits to Mr. Tignor's Account. On the Effective Date, Mr. Tignor's
Account shall be credited in the amount of $207,730. Notwithstanding any
provision of this Plan to the contrary, if following the Effective Date, Mr.
Tignor's employment is terminated without just cause at a time when a validly
executed employment agreement is not in force between Mr. Tignor and the Bank or
the Company, his Account shall be immediately credited with $100,000, which
amount shall be fully vested at such time.
Investment Return. Until distributed in accordance with the terms of the
Plan, each Participant's Account shall be credited at the end of each calendar
year with a rate of return, on any amounts previously credited, equal to the
Participant's choice, on an Investment Election Form, between the dividend-
adjusted rate of return on the Company's common stock and the Bank's highest
annual rate of interest on certificates of deposit having a one-year term.
Notwithstanding the foregoing, beginning with the fiscal year following a
Participant's termination of service, the Participant's Account will receive an
investment return measured by the Participant's choice between up to two
different mutual funds (or other investment choices determined by the Board).
Short-swing Profit Rule. If a Participant elects to have his or her
deferred amounts invested in the Company's common stock fund, the effectiveness
of any investment election that the Participant makes shall be deferred until
the next following date on which said election would not result in an "opposite
way" transaction for purposes of SEC Rule 16b-3. For purposes of this
paragraph, an "opposite way" transaction shall be defined as an election that
affects a "sale" of the Company's common stock by a Participant within six
months of an election that affects a "purchase" (and vice versa), whether under
this Plan or another plan maintained by the Company or the Bank. This six-month
"opposite way" rule will not apply, however, if the Participant elects to
receive a distribution in connection with his or her death or termination of
employment.
Vesting. Any amounts credited to Participants' Accounts shall be fully
vested at all times, except the credit of $207,730 to Mr. Tignor's account on
the Effective Date shall vest as follows: (i) $100,000 will vest at the rate of
10% for each Year of Service by Mr. Tignor, and (ii) the
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remaining $107,730 will be 50% vested on the Effective Date and vest at the rate
of 25% per Year of Service by Mr. Tignor, provided that any unvested portion of
such $107,730 will become fully vested if Mr. Tignor is terminated without "just
cause" whether or not in connection with a Change in Control. In no event,
however, will Mr. Tignor's vested interest ever exceed 100%.
ARTICLE III
Distribution from Accounts; Election Forms
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General Rule. Account balances shall be paid, in cash, in five equal
annual installments beginning during the first quarter of the calendar year
which next follows the calendar year in which the Participant ceases to be a
Director for any reason, with subsequent payments being made by the last day of
the first quarter of each subsequent calendar year, until the Participant has
collected the entire value of his Account. Notwithstanding the foregoing: (i)
a Participant may elect on his Distribution Election Form to have his Account
paid in a single lump sum distribution, or in annual payments over a period of
ten years or less, and (ii) to the extent required under federal banking law,
the amounts otherwise payable to a Participant shall be reduced to the extent
that on the date of a Participant's termination of employment, either (A) the
present value of his Benefits exceeds the limitations that are set forth in
Regulatory Bulletin 27a of the Office of Thrift Supervision, as in effect on the
Effective Date, or (B) such reduction is necessary to avoid subjecting the Bank
to liability under Section 280G of the Internal Revenue Code of 1986, as
amended.
Elections. In order to be effective with respect to the timing of Benefit
distributions, the Participant's Distribution Election Form must be submitted
more than one year before the date on which the Participant's service as a
Director or Employee terminates for any reason. Distribution elections made
pursuant to this Article III shall become irrevocable one year before the
Participant first becomes entitled to receive a distribution pursuant to this
Article III. Nevertheless, beneficiary designations made pursuant to the
Participant's executed Distribution Election Form shall be revocable during the
Participant's lifetime and the Participant may, by submitting an effective
superseding Distribution Election Form at any time and from time to time,
prospectively change the designated Beneficiary and the manner of payment to a
Beneficiary.
Death Benefits. If a Participant dies before receiving all Benefits
payable pursuant to the preceding paragraph, then the remaining balance of the
Participant's Account shall be distributed in a lump sum to the Participant's
designated Beneficiary (or estate, in the absence of a validly named or living
Beneficiary) not later than the first day of the second month following the date
of the Participant's death; provided that a Participant may specify on the
Distribution Election Form a distribution period that effectuates the annual
installment payments selected by the Participant (with payments made as though
the Participant survived to collect all benefits, and retired on the date of his
death if payments had not previously begun).
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ARTICLE IV
Source of Benefits
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General Rule. Benefits shall constitute an unfunded, unsecured promise by
the Company to provide such payments in the future, as and to the extent such
Benefits become payable. Benefits shall be paid from the general assets of the
Company, and no person shall, by virtue of this Plan, have any interest in such
assets (other than as an unsecured creditor of the Company). For any fiscal year
during which a Trust is maintained, (i) the Trustee shall inform the Board
annually prior to the commencement of each fiscal year as to the manner in which
such Trust assets shall be invested, and (ii) the Board shall, as soon as
practicable after the end of each fiscal year of the Company, provide the
Trustee with a schedule specifying the amounts payable to each Participant, and
the time for making such payments
Change in Control. In the event of a Change in Control, the Company shall
contribute to the Trust an amount sufficient to provide the Trust with assets
having an overall value equivalent to the value of the aggregate Account
balances under the Plan.
ARTICLE V
Assignment
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Except as otherwise provided by this Plan, it is agreed that neither the
Participant nor his Beneficiary nor any other person or persons shall have any
right to commute, sell, assign, transfer, encumber and pledge or otherwise
convey the right to receive any Benefits hereunder, which Benefits and the
rights thereto are expressly declared to be nontransferable.
ARTICLE VI
No Retention of Services
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The Benefits payable under this Plan shall be independent of, and in
addition to, any other compensation payable by the Company to a Participant,
whether in the form of fees, bonus, retirement income under employee benefit
plans sponsored or maintained by the Company or otherwise. This Plan shall not
be deemed to constitute a contract of employment between the Company and any
Participant.
ARTICLE VII
Rights of Directors;
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Termination or Suspension under Federal Law
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The rights of the Participants under this Plan and of their Beneficiaries
(if any) shall be solely those of unsecured creditors of the Company. If the
Participant is removed and/or permanently prohibited from participating in the
conduct of the Company's affairs by an order issued under Sections 8(e)(4) or
8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) or
(g)(1)), all obligations of the Company under this Plan shall terminate, as of
the effective date of the order, but vested rights of the parties shall not be
affected. If the Company
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is in default (as defined in Section 3(x)(1) of FDIA), all obligations under
this Plan shall terminate as of the date of default; however, this Paragraph
shall not affect the vested rights of the parties.
All obligations under this Plan shall terminate, except to the extent that
continuation of this Plan is necessary for the continued operation of the
Company: (i) by the Director of the Office of Thrift Supervision ("Director of
OTS"), or his designee, at the time that the Federal Deposit Insurance
Corporation ("FDIC") or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Company under the
authority contained in Section 13(c) of FDIA; or (ii) by the Director of the
OTS, or his designee, at the time that the Director of the OTS, or his designee
approves a supervisory merger to resolve problems related to operation of the
Company or when the Company is determined by the Director of the OTS to be in an
unsafe or unsound condition. Such action shall not affect any vested rights of
the parties.
If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the Participant from
participating in the conduct of the Company's affairs, the Company's obligations
under this Plan shall be suspended as of the date of such service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Company may in its discretion (i) pay the Participant all or part of the
compensation withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
ARTICLE VIII
Reorganization
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The Company agrees that it will not merge or consolidate with any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the succeeding or continuing
corporation or other organization shall expressly assume the rights and
obligations of the Company herein set forth. The Company further agrees that it
will not cease its business activities or terminate its existence, other than as
heretofore set forth in this paragraph, without having made adequate provision
for the fulfillment of its obligation hereunder.
ARTICLE IX
Amendment and Termination
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The Board may amend or terminate the Plan at any time, provided that no
such amendment or termination shall, without the written consent of an affected
Participant, alter or impair any vested rights of the Participant under the
Plan.
ARTICLE X
State Law
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This Plan shall be construed and governed in all respects under and by the
laws of the State of Tennessee, except to the extent preempted by federal law.
If any provision of this Plan shall
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be held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
ARTICLE XI
Headings; Gender
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Headings and subheadings in this Plan are inserted for convenience and
reference only and constitute no part of this Plan. This Plan shall be
construed, where required, so that the masculine gender includes the feminine.
ARTICLE XII
Interpretation of the Plan
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The Board shall have sole and absolute discretion to administer, construe,
and interpret the Plan, and the decisions of the Board shall be conclusive and
binding on all affected parties (unless such decisions are arbitrary and
capricious).
ARTICLE XIII
Legal Fees
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In the event any dispute shall arise between a Participant and the Company
as to the terms or interpretation of this Plan, whether instituted by formal
legal proceedings or otherwise, including any action taken by a Participant to
enforce the terms of this Plan or in defending against any action taken by the
Company, the Company shall reimburse the Participant for all costs and expenses,
including reasonable attorneys' fees, arising from such dispute, proceedings or
actions; provided that the Participant shall return such amounts to the Company
if he fails to obtain a final judgment by a court of competent jurisdiction or
obtain a settlement of such dispute, proceedings, or actions substantially in
his favor. Such reimbursements to a Participant shall be paid within 10 days of
the Participant furnishing to the Company written evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by the Participant. Any such request for reimbursement by a
Participant shall be made no more frequently than at 30 day intervals.
ARTICLE XIV
Duration of Plan
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Unless terminated earlier in accordance with Article IX, this Plan shall
remain in effect during the term of service of the Participants and until all
Benefits payable hereunder have been made.
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Exhibit "A"
COMMUNITY NATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
-------------------------------
Deferral Election Form
-------------------------------
AGREEMENT, made this __ day of _______, 199_, by and between _____________
(the "Participant"), and Community National Corporation (the "Company").
WHEREAS, the Company has established the Community National Corporation
Deferred Compensation Plan (the "Plan"), and the Participant is eligible to
participate in said Plan;
NOW THEREFORE, it is mutually agreed as follows:
1. The Participant, by the execution hereof, agrees to participate in the
Plan upon the terms and conditions set forth therein, and, in accordance
therewith, elects to defer the receipt of --
[_] ______% of the Participant's compensation.
[_] _______% of any fees that the Participant receives for services as a
director _______ of the Company, and/or of __________ the Bank.
2. This election will take effect as soon as practicable hereafter, unless
the Participant checks this space _________ thereby designating the next January
1st as this election's effective date.
3. This election will continue in force until December 31st of the
calendar year in which it becomes effective, and thereafter until either revoked
------
by the Participant in a writing sent to the Company or until the Participant
--
ceases service with the Bank or Company, or until the Plan is terminated by
--
appropriate corporate action, whichever shall first occur.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
Witnessed by: PARTICIPANT
- ------------------------------- ----------------------------------------
Witnessed by: COMMUNITY NATIONAL CORPORATION
By
- ------------------------------- --------------------------------------
Its
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Exhibit "B"
COMMUNITY NATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
-------------------------------
Distribution Election Form
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between the
undersigned participant (the "Participant") in the Community National
Corporation Deferred Compensation Plan (the "Plan"), and Community National
Corporation (the "Company") with respect to distribution of the Participant's
benefits under the Plan.
NOW THEREFORE, it is mutually agreed as follows:
1. Form of Payment. The Participant, by the execution hereof, agrees to
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participate in the Plan upon the terms and conditions set forth therein, and, in
accordance therewith, elects to have his or her Account distributed as follows:
[_] one lump sum payment.
[_] substantially equal annual payments over a period of _____ years
(no more than 10).
The Participant must make this election at least one year before terminating
his or her service in order for it to be valid and supersede a prior election.
In the absence of a valid election, the payout will be made in five annual
installments.
2. In the event of the Participant's death, his or her Account shall be
distributed --
[_] in one lump sum payment.
[_] in accordance with the payment schedule selected in paragraph 1
hereof (with payments made as though the Participant survived to
collect all benefits, and as though the Participant terminated
service on the date of his or her death, if payments had not
already begun).
3. Designation of Beneficiary. In the event of the Participant's death
--------------------------
before he or she has collected all of the benefits payable under the Plan, the
Participant hereby directs that any survivorship benefits payable under Article
III of the Plan be distributed to the beneficiary or beneficiaries designated
under subparagraphs a and b of this paragraph 3 in the manner elected pursuant
to paragraph 2 above:
Deferred Compensation Plan
Distribution Election Form
Page 2
a. Primary Beneficiary. The Participant hereby designates the person(s)
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named below to be his or her primary beneficiary and to receive the balance of
any unpaid benefits under the Plan.
=======================================================================
Name of Mailing Address Percentage of
Primary Beneficiary Death Benefit
-----------------------------------------------------------------------
%
-----------------------------------------------------------------------
%
=======================================================================
b. Contingent Beneficiary. In the event that the primary beneficiary or
----------------------
beneficiaries named above are not living at the time of the Participant's death,
the Participant hereby designates the following person(s) to be his or her
contingent beneficiary for purposes of the Plan:
=======================================================================
Name of Mailing Address Percentage of
Contingent Beneficiary Death Benefit
-----------------------------------------------------------------------
%
-----------------------------------------------------------------------
%
=======================================================================
4. Effect of Election. The elections made in section 1 hereof shall
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become irrevocable one year prior to the Participant's termination of service as
a Director or Employee. The Participant may, by submitting an effective
superseding Distribution Election Form at any time and from time to time,
prospectively change the Beneficiary designation and the manner of payment to a
Beneficiary. Such elections shall, however, become irrevocable upon the
Participant's death.
5. Mutual Commitments. The Company agrees to make payment of all amounts
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due the Participant in accordance with the terms of the Plan and the elections
made by the Participant herein. The Participant agrees to be bound by the terms
of the Plan, as in effect on the date hereof or properly amended hereafter.
Deferred Compensation Plan
Distribution Election Form
Page 3
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
Witnessed by: PARTICIPANT
- -------------------------- -------------------------------------
Participant
Witnessed by: COMPANY
COMMUNITY NATIONAL CORPORATION
- --------------------------
By
-----------------------------------
Its
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Exhibit "C"
COMMUNITY NATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
-------------------------------
Investment Election Form
-------------------------------
WHEREAS, Community National Corporation (the "Company") has established the
Community National Corporation Deferred Compensation Plan (the "Plan"), and the
undersigned participant therein is eligible to make an investment election
pursuant to Article II of said Plan;
NOW THEREFORE, the Participant hereby elects as follows:
1. The Participant, by the execution hereof, agrees to participate in the
Plan upon the terms and conditions set forth therein, and in accordance
therewith, directs that any amounts credited to the Participant's account under
the Plan will appreciate or depreciate from the effective date hereof, until the
Participant terminates service as an Employee or Director, as though they were
invested as follows:
___% in a fund having the highest interest rate which Lexington First
Federal Savings Bank pays on certificates of deposit having a term
of one year.
___% in a fund having an investment return equal to the dividend-
adjusted rate of return on the Company's common stock.
2. The investment election made in the prior paragraph shall be effective
on the first day of the next following calendar year, and shall remain in effect
until the December 31st that immediately follows the Company's receipt of a
properly executed superseding investment election by the Participant.
IN WITNESS WHEREOF, the Participant has executed this form on the ___ day of
_________ 19___.
Witnessed by: PARTICIPANT
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