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 19, 2010
April 19, 2010
To Our Shareholders:
The annual meeting of the shareholders of Kentucky Bancshares, Inc. will be
held as follows:
Date: Wednesday, May 19, 2010
Time: 11:00 a.m., Eastern Daylight Time
Place: Kentucky Bank
Main Office
339 Main Street
Paris, Kentucky
Purpose: To ratify the appointment of Crowe Horwath LLP as the
Company's registered public accountants for 2010,
To elect four Class II directors, and
To transact such other business as may properly come before
the meeting or any adjournment thereof.
Record Date: Close of business on March 19, 2010.
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
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 2009 Annual Report to Shareholders, including financial statements,
is being mailed to shareholders together with these proxy materials on or
about April 19, 2010.
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Kentucky Bancshares, Inc. (the
"Company," "we," "us," or "our") for use at our Annual Meeting of
Shareholders to be held on May 19, 2010, and at any adjournments (the "Annual
Meeting").
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be Held on May 19, 2010.
This proxy statement, form of proxy and our 2009 Annual Report to
Shareholders, including financial statements, are available at
http://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 2,743,561 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 2013 will be elected directors. All
other matters, including the proposal to ratify the appointment of Crowe
Horwath LLP as the Company's registered public accountants for 2010, 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 ratification of the appointment of Crowe Horwath LLP
as the Company's registered public accountants for 2010;
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); 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 2011 Annual Meeting.
We presently contemplate that the 2011 Annual Meeting of Shareholders
will be held on or about May 18, 2011. 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 20, 2010 (the date 120 days prior to the first
anniversary of the date of the 2010 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 March 4, 2011 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 2011 Annual Meeting of Shareholders will confer on the proxy holders
discretionary authority to vote on the matter that you present at our 2011
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. A copy of
our Code of Ethics is available at our website at www.kentuckybank.com under
"Investor Relations" in the section entitled "About Us."
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 2009, consisting of four regularly
scheduled meetings. All directors, except Mr. Hinkle, 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 2009 annual meeting.
Compensation Meetings
Committee Members Functions of the Committee in 2009
William Arvin Please refer to the sections in the proxy 3
(Chairman) statement entitled "Compensation Discussion
Henry Hinkle and Analysis" and the "Report of the
Ted McClain Compensation Committee"
Edwin S. Saunier
Our Board of Directors has a standing Compensation Committee and Audit
Committee but does not have a standing nominating committee.
Audit Meetings
Committee Members Functions of the Committee in 2009
Robert G. Thompson Monitors the integrity of our financial 14
(Chairman) reporting processing and systems of internal
Theodore Kuster controls regarding finance, accounting, and
Betty J. Long legal compliance
Edwin S. Saunier Selects our independent auditor and determines
Such auditor's compensation
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 intenal
audit department and the Board of Directors
Committee Charters. Only our Audit Committee has a charter, which is
available at www.kentuckybank.com under "Investor Relations" in the section
entitled "About Us." 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
2009, 2008 and 2007 did not exceed $200,000 or 5% of Hopewell Insurance
Company's consolidated gross revenues for the applicable 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 that each of the members of the Audit Committee is independent as
defined by the rules of NASDAQ for audit committee members. Further, 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 Company.
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 2011 Annual Meeting, a
shareholder must notify our secretary no later than December 20, 2010 (the
date 120 days prior to the first anniversary of the date of the 2010 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.
Board Leadership Structure and Role in Risk Oversight. We are a bank
holding company that was formed in 1981 under the Bank Holding Company Act of
1956, as amended. We are the parent company of Kentucky Bank, a separately
chartered commercial state bank.
Our Board is comprised of eight independent, two employee directors and
1 director who was a former employee. We are committed to a strong,
independent Board and believe that objective oversight of the performance of
our management is a critical aspect of effective governance. Accordingly,
the role of Chairman of the Board and Chief Executive Officer are held by
different individuals. Our Chairman is an independent director and has the
following duties:
Chair and preside at Board meetings;
Coordinate with our CEO in establishing the agenda and topic items for
Board meetings;
Advise on the quality, quantity and timeliness of the flow of
information from management to the Board;
Act as principal liaison between management and the Board on sensitive
issues;
Retain independent advisors on behalf of the Board as the Board may
determine is necessary or appropriate;
Assist the Compensation Committee with the annual evaluation of the
performance of the CEO; and
Provide an important communication link between the Board and
shareholders, as appropriate.
Our Board of Directors, together with the Audit and Compensation
Committees of the Board, coordinate with each other to provide enterprise-
wide oversight of our management and handling of risk. These committees
report regularly to the entire Board of Directors on risk-related matters and
provide our Board of Directors with integrated insight about our management
of strategic, credit, interest rate, financial reporting, technology,
liquidity, compliance, operational and reputational risks.
In addition Kentucky Bank has its own board of directors, audit and
asset liability management committees, which provide risk management. Our
CEO serves on the board of Kentucky Bank. One of the key responsibilities of
the subsidiary board is to manage strategic, credit, interest rate, financial
reporting, technology, liquidity, compliance, operational and reputational
risks. While we have not developed an enterprise-wide risk statement, our
Board of Directors believes that sound credit underwriting to manage credit
risk and a conservative investment portfolio to manage liquidity and interest
rate risk contribute to an effective oversight of the Company's risk and we
require our subsidiaries to follow this philosophy.
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. Our Audit Committee charter can be
located at our website www.kentuckybank.com under "Investor Relations" in the
section entitled "About Us." The Audit Committee reviews and reassesses the
Charter annually and recommends 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 2009, the Audit Committee:
Reviewed and discussed the audited financial statements for the fiscal
year ended December 31, 2009 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, 2009 for filing with the Securities and
Exchange Commission.
AUDIT COMMITTEE
Robert G. Thompson, Chairman
Betty J. Long Theodore Kuster Edwin S. Saunier
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 $125,300 for 2009 and $117,000 for 2008.
Audit related fees - Aggregate fees for all assurance and related
services were $23,000 for 2009 and $19,500 for 2008. These fees were
incurred for audits of benefit plans.
Tax fees - Fees related to tax compliance, advice and planning were
$18,890 for 2009 and $18,000 for 2008.
All other fees - Consulting fees related to acquisitions, profitability
and risk management were $20,100 for 2009 and $9,700 for 2008.
All services provided by Crowe Horwath in 2009 and 2008 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 NO. 1
Ratification 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, 2010. Our Audit Committee and Board seek
shareholder ratification of our Board's appointment of Crowe Horwath to act
as the independent auditors of our and our subsidiary's financial statements
for the fiscal year ending December 31, 2010. If the shareholders do not
ratify the appointment of Crowe Horwath, our Audit Committee and Board will
reconsider this appointment for 2011. 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. Our Board of Directors recommends voting FOR this proposal.
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.
For 2009, each Director received 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).
Starting in 2010, each director will receive $500 for attending each
Company and each Kentucky Bank board meeting, including one paid absence per
year. The Chairman of the Board will receive $1,000 for each meeting,
including one paid absence per year. Each Audit Committee member will
receive $2,000 in addition to the committee meeting fee. The annual fee for
each director and the Audit Committee Chairman, and the fee for each
committee meeting for non-employee Director remains the same.
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.
2009 Director Summary Compensation Table
The table below summarizes the total compensation paid to or earned by
our non-employee Directors during 2009. The compensation of Messrs. Caudill,
Prichard and Woodford is reflected in the Summary Compensation Table under
Executive Compensation.
Fees Earned
Or Paid in Option All Other
Name of Director Cash Awards (1) Compensation (2) Total
William Arvin $ 9,200 - $40,103 $49,303
Henry Hinkle 7,100 - - 7,100
Theodore Kuster 11,500 - - 11,500
Betty J. Long 11,000 - - 11,000
Ted McClain 9,700 - - 9,700
Edward Saunier 10,700 - - 10,700
Robert G. Thompson 13,500 - - 13,500
Woodford Van Meter 10,200 - 6,000 16,200
Buckner Woodford 10,200 - - 10,200
(1) We did not grant any stock options to our non-management directors
in 2009. The aggregate number of stock options held by each our non-
management directors as of December 31, 2009 is as follows: Messrs Arvin,
Hinkle, Kuster and Thompson - 750 each, Mr. McClain - 600, Mr. Van Meter
400, Mr. Saunier and Mrs. Long - 300 each, and Mr. Woodford - 0.
(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 2009. As described in "Transactions with Related Persons,"
Mr. McClain is a partial owner of The Hopewell Company, Inc., which received
$158,865 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.
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.
Term; Vacancies. 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 2013. 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.
Independence of Directors. 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.
Director Qualifications. Our Board of Directors consists of eleven
members who are well-qualified to serve on our board and represent our
shareholders' best interests. Our nominees are selected with a view of
establishing a board of directors that meet the criteria for qualified
candidates that is set forth above under the caption "Corporate Governance-
Consideration of Director Nominees." We believe that each of the director
nominees and other directors bring these qualifications to our Board of
Directors. Together, our director nominees and continuing directors provide
our Board with a diverse complement of specific business skills, experience
and perspectives, including: extensive financial and accounting expertise,
knowledge of the commercial banking industry, experience with companies that
serve the same communities that our various bank subsidiaries serve, and
extensive operational and strategic planning experience. The following
describes the key qualifications, business skills, experience and
perspectives that each of our directors brings to the Board of Directors, in
addition to the general qualifications under "Corporate Governance-
Consideration of Director Nominees" and information included in the
biographical summaries provided below for each director. We believe that
each individual's skills and perspectives strengthen our Board's collective
qualifications, skills and experience.
Name Qualifications
William Arvin Attorney in private practice since 1964 with
comprehensive experience in a broad range of legal
and business issues; formerly served as President of
a Savings and Loan institution for 15 years;
knowledge of local communities including service on
numerous local boards of various civic and
professional organizations.
B. Proctor Caudill, Jr. Extensive banking career beginning in 1973;
significant executive management experience in
banking industry; knowledge of local communities
including service on numerous local boards of
various civic and professional organizations; in-
depth knowledge of the Company's business, strategy
and management team.
Louis Prichard Extensive banking career beginning in 1977;
significant executive management experience in
banking industry; knowledge of local communities
including service on numerous local boards of
various civic and professional organizations; in-
depth knowledge of the Company's business, strategy
and management team.
Woodford Van Meter Comprehensive business management experience as a
managing physician of an ophthalmology practice;
extensive analytical and planning skills as a
Professor of Ophthalmology for a medical school; in-
depth knowledge of the Company's business, strategy
and management team.
Betty J. Long Extensive banking career beginning in 1965;
significant executive management and financial
experience in banking industry; knowledge of local
communities including service on numerous local
boards of various civic and professional
organizations; in-depth knowledge of the Company's
business, strategy and management team; brings
gender diversity to our Board.
Ted McClain Extensive risk management, financial and operations
skills and general business experience through
ownership of an insurance company.
Edwin S. Saunier Extensive executive management and financial
experience as owner and president of a moving and
storage business; degree in accounting; extensive
knowledge of local communities including service on
numerous local boards of various civic and
professional organizations
Buckner Woodford Extensive banking career beginning in 1971;
significant executive management and financial
experience in banking industry; knowledge of local
communities including service on numerous local
boards of various civic and professional
organizations; in-depth knowledge of the Company's
business, strategy and management team from
previously serving as president of the Company as
from serving as a director of Kentucky Bank since
1971.
Henry Hinkle Extensive executive management and financial
experience as owner and president of a paving and
construction company; extensive knowledge of local
communities including service on numerous local
boards of various civic and professional
organizations; in-depth knowledge of the Company's
business, strategy and management team from serving
as a director of Kentucky Bank since 1989.
Theodore Kuster Extensive management, financial, operational and
general business skills as a business entrepreneur
in the farming and thoroughbred industry; extensive
knowledge of local communities including service on
numerous local boards of various civic and
professional organizations; in-depth knowledge of
the Company's business, strategy and management team
from serving as a director of Kentucky Bank since
1979.
Robert G. Thompson Extensive management, financial, operational and
general business skills as a business entrepreneur
in the farming and thoroughbred industry; extensive
knowledge of local communities including service on
numerous local boards of various civic and
professional organizations; in-depth knowledge of
the Company's business, strategy and management team
from serving as a director of Kentucky Bank since
1979.
PROPOSAL NO. 2
Election of Directors
Mr. William Arvin, Mr. B. Proctor Caudill, Mr. Louis Prichard and Mr.
Woodford Van Meter are currently serving as directors in the class of
directors whose terms expire at the Annual Meeting. Our Board has nominated
each of Messrs. Arvin, Caudill, Prichard and Van Meter to serve a 3-year
term, until our 2013 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.
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.
Principal Occupations, Year First
Name of Other Public Directorships Elected
Director Age and Positions with the Company (1) a Director
Class II
Directors Nominated for a 3-Year Term
To Expire in 2013
Willaim Arvin 70 Attorney, Law Office of William Arvin. 1995
Director of Kentucky Bank since 1995.
B Proctor 60 Special Projects Manager of the Company 2006
Caudill since 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 56 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 56 Ophthalmologist. Director of Kentucky Bank 2004
Meter since 2004.
Class III
Continuing Directors Whose Terms
Expire in 2011
Henry Hinkle 58 President of Hinkle Contracting Company. 1989
Director of Kentucky Bank since 1989.
Theodore 66 Farmer and thoroughbred horse breeder. 1985
Kuster Director of Kentucky Bank since 1979.
Robert G. 60 Farmer and thoroughbred horse breeder. 1991
Thompson Director of Kentucky Bank since 1991.
Class I
Continuing Directors Whose Terms
Expire in 2011
Betty J. Long 62 Retired President and CEO of First Federal 2003
Cynthiana. Director of Kentucky Bank
since 2006.
Ted McClain 58 Insurance agent and partial owner of The 2003
Hopewell Company, Inc. Director of Kentucky
Bank since 2002.
Edwin S. 52 President of Saunier North American, Inc., 2007
Saunier a moving and storage company. Director of
Kentucky Bank since 2007.
Buckner 65 Chairman of the Board of the Company and 1981
Woodford Kentucky Bank. President and CEO of the
Company from 1991-2004. Director of Kentucky
Bank since 1971.
(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 Company's 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, 2010.
Unless otherwise indicated, all shares shown are held with sole voting and
investment power.
Number of
Number of Shares Total Number Percent
Shares Not Subject to of Shares of
Name of Beneficial Subject to Exercisable Beneficially Class
Owner Options Options (1) Owned (2) (3)
William Arvin(4) 20,064 700 20,764 *
B. Proctor Caudill, Jr.(5) 129,544 - 129,544 4.7%
Gregory J. Dawson 6,270 1,600 7,870 *
Norman J. Fryman 302 2,100 2,402 *
Darren Henry 206 1,600 1,806 *
Henry Hinkle(6) 39,915 700 40,615 1.5%
Theodore Kuster(7) 13,150 700 13,850 *
Betty J. Long(8) 1,943 300 2,243 *
Ted McClain(9) 2,494 600 3,094 *
Clark Nyberg 260 400 660 *
Louis Prichard(10) 4,684 8,000 12,684 *
Edward S. Saunier 500 300 800 *
Robert G. Thompson(11) 5,700 700 6,400 *
Woodford Van Meter(12) 32,679 400 33,079 1.2%
Buckner Woodford IV(13) 207,773 - 207,773 7.6%
Directors and Executive
Officer 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, 2010.
(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. 66
Gregory J. Dawson 495
Norman J. Fryman 495
Louis Prichard 1,050
Executive Officers as a group 2,106
(3) Based on 2,743,561 shares of our common stock outstanding as of
March 5, 2010.
(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 2,225 shares held by
relatives, as to which Mr. Hinkle disclaims beneficial ownership. Includes
35,375 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 1,943 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 and 2,700 shares held by a trust, 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 2009, 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 2010, 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:
The Bank of Kentucky, Inc. Citizens National Bank of Paintsville
Community Trust Bank, Inc. First Federal Savings Bank of Elizabethtown
Independence Bank of Kentucky 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 52.5% of base compensation may be
earned in performance-based incentive compensation as a result of the
performance of the Company, compared to established goals.
2009 Executive Compensation Components. For the fiscal year ended
December 31, 2009, 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 continual high performance by officers of
the Company through achievement of corporate goals and encouragement of
growth of shareholder value. We currently have approximately 49 officers
(including the Named Executive Officers) who are eligible to receive cash
awards under MIP. The MIP provides guidelines for the calculation of annual
or semi-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 52.5% of base salary for the Named Executive Officers.
MIP for Fiscal Years 2008 and 2007. For fiscal years 2008 and
2007, 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 were based upon the
achievement of such objectives for such fiscal year. Named Executive
Officers participating in the MIP received: 50% of the maximum award
if threshold levels were met, 75% of the maximum award if target levels
were met and 100% of the maximum award if maximum levels were met.
Generally for a particular fiscal year, the Committee sets the
target level for earnings at the Company's earnings objective for the
same fiscal 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. 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 threshold
level. 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.
MIP for Fiscal Year 2009. Because of the difficulties facing the
financial industry in 2008 and 2009, the Committee chose to change the
goals so that they were no longer tied solely to Company earnings. The
goals for each participant varied and related to the individuals
potential to affect our operations. For fiscal year 2009, the
Committee established specific monthly department and/or individual and
bank goals with a threshold, target and maximum achievement level for
each goal that remained constant throughout the year. Threshold and
outstanding levels are set below and above the target level (generally
ten to twenty percentage points, as applicable). The monthly
department and/or individual goals included loan deposit increases, new
customer accounts, job related training, network integrity, increasing
the number of residential mortgages that close within 20 days after
interest rate has been chosen by the customer and specific customer
service improvements. The Company goals related to monthly increases
in return on earnings and net interest margins, monthly growth in
deposit accounts, loan growth, increase in mortgage market share,
customer service improvements and reductions in late loans and loan
charge-offs.
We made semi-annual MIP Payments. To help our employees
individually monitor his or her achievement results, each month we
evaluated whether the applicable department, individual or Company
achieved the threshold level or achieved or exceeded the target or
maximum level for each of its, his or her goals. On a semi-annual
basis, we calculated the average of each of the prior 6-month results
for each goal and then evaluated whether the department, individual or
company achieved or exceeded the threshold, target or maximum levels
for the 6-month period for each of its, his or her goals. Each goal
had an award value based upon a percentage of an individual's salary
and each individual received 50% of the maximum goal award if the
threshold level was met, 75% of the maximum goal award if target level
was met and 100% of the maximum goal award if maximum level was met.
The payout percentages (as a percent of salary) for the Named Executive
Officers ranged from 1.3% to 22.4% for 2009. Awards made to Named
Executive Officers under the MIP for performance in 2009 are reflected
in column (g) of the Summary Compensation Table.
Long-Term Incentive Compensation:
2009 Stock Award Plan. The 2009 Stock Award Plan is intended to help
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. Under this plan, our Board and the Committee have the
ability to issue stock options, stock appreciation rights, restricted stock
and other stock-based awards. No awards have been issued under this plan.
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. Some of our employees hold vested,
unexercised options under this plan. We can no longer issue any options
under this plan because it expired in May of 2009. 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 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. Final distributions were at the discretion
of the employee. Transition credits are earned by employees who had 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.
Compensation Policies and Practices as They Relate to the Company's
Risk Management. We do not believe that there is anything inherent in the
various compensation plans described above that encourages the manipulation
of reported earnings to enhance the compensation of any employee or
encourages behavior focused on short-term results rather than long-term value
creation. Our compensation plans use multiple performance goals and risk-
based criteria and, in a number of cases (a) provide for delayed payment of
awards in order to ensure that risk-based performance measurements continue
to be met over an extended period of time; and (b) provide for payment in the
common stock of the Company, which effectively aligns the interests of
employees with those of shareholders in enhancing the long-term value of the
Company's stock.
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 2010 Annual Meeting of Shareholders.
Dated: March 26, 2010
Henry Hinkle, Chairman
William Arvin
Ted McClain
Edwin S. Saunier
Compensation of Named Executive Officers.
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 Plan Compensation All Other
Name & Position Year Salary Bonus Awards Compensation Earnings Compensation Total
(1) (2) (3) (4) (5)
Louis Prichard 2009 $207,000 $ - $6,003 $16,401 $ - $23,265 $252,669
President, CEO 2008 207,000 - 11,113 - 26,188 22,848 267,149
2007 200,000 - 10,850 40,000 12,189 24,958 287,997
Gregory J. Dawson 2009 96,343 - 2,830 22,418 - 7,199 128,790
Sr VP, CFO 2008 96,343 - 5,239 - 21,803 7,571 130,956
2007 93,085 - 5,115 16,755 10,077 7,715 132,747
Norman J. Fryman 2009 126,460 - 2,830 9,703 - 9,048 148,041
Sr VP, Director of 2008 126,460 - 5,239 - 54,659 9,668 196,026
Sales & Service 2007 122,183 - 5,115 18,327 28,776 9,632 184,033
Darren Henry 2009 105,000 24,199 2,230 1,405 - 11,268 144,102
VP, Director of 2008 102,982 6,134 3,175 - 7,670 7,902 127,863
Commercial Lending 2007 91,715 1,976 3,100 9,172 3,289 7,332 116,584
Clark Nyberg 2009 97,022 - 2,230 13,516 - 6,745 119,513
Sr VP, Director of 2008 97,022 - 4,128 - 9,149 7,205 117,504
Wealth Management 2007 93,741 - 4,030 9,374 5,650 6,902 119,697
(1) Represents compensation for individual goals achieved in the
commercial lending department.
(2) The amounts under this column represent the aggregate grant date
fair value of the restricted stock that we granted each of our Named
Executive Officers computed in accordance with FASB ASC Topic 718. The
restricted stock will vest ratably over a five-year period. The grant date
fair value of each restricted stock awarded in 2007 was $31.00, in 2008 was
$31.75 and in 2009 was $17.15.
(3) Represents cash payments from satisfaction of the performance goals
under the MIP plan. See discussion above under "Currently Paid Compensation
Components: Performance-Based Incentive Compensation"
(4) Represents change in value of pension benefits.
(5) The amounts reflected in this column for the Named Executive
Officers include premiums paid for life insurance, a car allowance for Mr.
Prichard, club dues of $2,384 for Mr. Henry, 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
$14,069 for Mr. Prichard) and director fees of $8,300 for Mr. Prichard.
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, 2009.
Grants of Plan Based Awards
Estimated Future Payments Under All Other
Non-Equity Incentive Plan Stock Awards: Grant
Awards Number of Date Fair
(1) Shares of Value
Grant Restricted of Stock
Name Date Threshold Target Maximum Stock Awards
Louis Prichard
Restricted Stock 1/2/2009 350 $ 6,003
MIP 1/1/2009 $36,225 $72,450 $108,675
Gregory J. Dawson
Restricted Stock 1/2/2009 165 2,830
MIP 1/1/2009 14,451 28,903 43,354
Norman J. Fryman
Restricted Stock 1/2/2009 165 2,830
MIP 1/1/2009 18,969 37,938 56,907
Darren Henry
Restricted Stock 1/2/2009 130 2,230
MIP 1/1/2009 13,125 26,250 39,375
Clark Nyberg
Restricted Stock 1/2/2009 130 2,230
MIP 1/1/2009 14,553 29,107 43,660
_____________
(1) Represents three potential management incentive plan compensation
amounts that could be paid to the individual Named Executive Office depending
upon the Company's meeting these various targets in 2009. See the "Non-
Equity Incentive Plan Compensation" column in the "Summary Compensation
Table" above for amounts earned by the respective individuals. For a
discussion of the goals and requirements of the incentive compensation, see
"Currently Paid Compensation Components: Performance-Based Incentive
Compensation - MIP for Fiscal Year 2009"
(2) Awards of restricted shares of our common stock in 2009 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, 2009
___________________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 1/1/09 - - - - 350 5,740
1/2/08 - - - - 280 4,592
1/2/07 - - - - 210 3,444
1/3/06 - - - - 140 2,296
1/3/05 3,200 800 30.50 1/3/15
1/2/04 1,000 - 33.90 1/2/14
1/2/03 3,000 - 25.50 1/2/13
Gregory J. Dawson 1/1/09 - - - - 165 2,706
1/2/08 - - - - 132 2,165
1/2/07 - - - - 99 1,624
1/3/06 - - - - 66 1,082
1/3/05 400 100 30.50 1/3/15
1/2/04 400 - 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
Norman J. Fryman 1/1/09 - - - - 165 2,706
1/2/08 - - - - 132 2,165
1/2/07 - - - - 99 1,624
1/3/06 - - - - 66 1,082
1/3/05 400 100 30.50 1/3/15
1/2/04 500 - 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
Darren Henry 1/1/09 - - - - 130 2,132
1/2/08 - - - - 80 1,312
1/2/07 - - - - 60 984
1/3/06 - - - - 40 656
1/3/05 640 160 30.50 1/3/15
1/2/04 300 - 33.90 1/2/14
1/2/03 500 - 25.50 1/2/13
Clark Nyberg 1/1/09 - - - - 130 2,132
1/2/08 - - - - 104 1,706
1/2/07 - - - - 78 1,279
1/3/06 - - - - 52 853
1/3/05 320 80 30.50 1/3/15
__________
(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 2009.
_________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 - - 210 $3,602
Gregory J. Dawson - - 99 1,698
Norman J. Fryman - - 99 1,698
Darren Henry - - 60 1,029
Clark Nyberg - - 78 1,338
___________
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 substantially 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, 2009 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,
$158,865 in 2009 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. The aggregate amount we paid to The Hopewell
Company, Inc. for property or services during each of 2009, 2008 and 2007 did
not exceed $200,000 or 5% of The Hopewell Insurance Company's consolidated
gross revenues for the applicable year.
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 2009, 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: two Form 4's for Mr. Hinkle
and one Form 4 for Mr. Kuster. Each Form 4 was filed after the prescribed
due date.
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 19, 2010, at the 2010 Annual Meeting of Shareholders to be
held on May 19, 2010 and at any adjournments thereof, with all powers the
undersigned would possess if personally present, as follows:
1. RATIFICATION OF APPOINTMENT OF CROWE HORWATH, LLP AS THE COMPANY'S
REGISTERED PUBLIC ACCOUNTANTS FOR 2010.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. ELECTION OF DIRECTORS: To elect four Class II directors.
[ ] FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY FOR ALL NOMINEES
[ ] FOR ALL EXCEPT (See instructions below)
Nominees: William Arvin [ ] _____
Louis Prichard [ ] _____
B. Proctor Caudill, Jr. [ ] _____
Woodford Van Meter [ ] _____
INSTRUCTION: To withhold authority to vote for any individual nominee(s) for
Class II director, mark "FOR ALL EXCEPT" and fill in the circle next to each
nominee you wish to withhold. If you desire to cumulate your votes for any
individual nominee(s), please do so in the blanks following each name.
Cumulative voting is described in the section of the Proxy Statement entitled
"Who Can Vote; Voting Rights."
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 the ratification of the registered public accountants,
- FOR all the Nominees referred to in Item 2. 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, 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 19, 2010. The proxy statement, this
form of proxy and our 2009 Annual Report to Shareholders, including financial
statements, are available at http://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 19, 2010, the
accompanying proxy statement, and our 2009 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 ____________ ______, 2010 _______________________________
Signature
_______________________________
Signature, if held jointly
19