Fill and Sign the Grantor Trust Agreement Form

CUMBERLAND MOUNTAIN BANCSHARES, INC. GRANTOR TRUST AGREEMENT PREAMBLE. This Trust Agreement made this day of ________, 1999, by and between Cumberland Mountain Bancshares, Inc. (the "Company"), and the undersigned individuals (when acting by majority, the "Trustee") who are currently directors of the Company but are acting here in their individual capacity. WHEREAS, the Company maintains the Cumberland Mountain Bancshares, Inc. Management Recognition Plan, the Cumberland Mountain Bancshares, Inc. 1993 Stock Option Plan, and the Cumberland Mountain Bancshares, Inc. 1998 Stock Option and Incentive Plan (collectively, the "Plans"); and WHEREAS, the Company has entered into, and may in the future enter into, employment and severance agreements ("Executive Agreements") with select key employees; and WHEREAS, the Company has incurred or expects to incur liability under the terms of the Plans and Executive Agreements (collectively, the "Arrangements") with respect to the benefits payable thereunder to individuals or their named beneficiaries or their estates (collectively, the "Beneficiaries"); and WHEREAS, the Company wishes to establish this trust (the "Trust") and to contribute assets to the Trust that shall be held therein, subject to the claims of the Company's general creditors in the event of Insolvency, as defined in Section 3(a) hereof, until paid to Beneficiaries in such manner and at such times as specified in the Arrangements; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded Arrangements and shall not affect the status of the Arrangements as unfunded plans maintained for the purpose of providing deferred compensation to a select group of management or other highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Arrangements. WHEREAS, the Company desires to establish a fund, consisting of the cash dividends that have accumulated from the shares held in the Trust, for the payment of discretionary cash bonuses to employees of the Company and its subsidiaries. NOW, THEREFORE, the undersigned parties do hereby establish this Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment of Trust --------------------------------- (a) The Company hereby deposits, or will shortly hereafter deposit with the Trustee an amount expected to be sufficient to permit the Trust to purchase up to 85,556 shares of the Company's common stock ("Common Stock") either directly from the Company or through open market purchases. Said amount shall become the initial principal of the Trust to be held, administered, and dispersed by the Trustee as provided for in this Trust Agreement. (b) The Trust shall be irrevocable. (c) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be construed accordingly. In the event the Trust is determined by the Internal Revenue Service or by counsel to the Company not to be a "grantor trust" within the meaning of the Code, (with the result that the income of the Trust assets is not treated as income of the Company or that the funding of, or realization of income by, the Trust results in income to the Beneficiaries prior to the date that such funds are actually distributed or made available to them hereunder), then the Trustee, upon receipt of written direction from the Company, shall make payments from the Trust assets to such Beneficiaries, in such manner and in such amounts as the Company shall direct, for purposes of (i) paying the amount of Federal, state and local tax and interest and any penalties thereon which such Beneficiaries may incur arising out of any such determination, or (ii) distributing the interests of Beneficiaries in the Trust assets. (d) The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively as herein set forth. Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Arrangements and this Trust Agreement shall be mere unsecured contractual rights of Beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) The Company, in its sole discretion, may at any time, or from time to time, make additional contributions of cash or other assets to the Trustee, to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither the Trustee nor any Beneficiary shall have any right to compel such additional contributions. (f) As soon as possible but in no event longer than ten business days after the Change in Control within the meaning of Section 13(g) hereof, the Company shall make an irrevocable contribution to this Trust in an amount that is projected to be sufficient to pay each Beneficiary the benefits to which he or she is entitled pursuant to the Arrangements as of the date of the Change in Control. Section 2. Payments to Beneficiaries ------------------------------------ (a) The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Beneficiary, that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Agreement), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to Beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any Federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Arrangements and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. (b) The entitlement of a Beneficiary to benefits under the Arrangements or this Trust Agreement shall be determined by the Company or such party as it shall designate under the Arrangements, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Arrangements. (c) The Company may make payment of benefits directly to Beneficiaries as they become due under the terms of the Arrangements. The Company shall notify the Trustee of its decision to make direct payment of benefits prior to the time amounts are payable to Beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Arrangements, the Company shall be jointly and severally liable to make the balance of each such payment as it falls due. The Trustee shall notify the Company when principal and earnings of the Trust are not sufficient to continue payments to the Beneficiaries. 2 Section 3. Trustee Responsibility Regarding Payments to ------------------------------------------------------- Trust Beneficiary When Company is Insolvent - ------------------------------------------- (a) The Trustee shall cease payment of benefits to Beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company becomes subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section l(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (c) The Company's Board of Directors and its Chief Executive Officer shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent by informing the Company's Board of Directors and its Chief Executive Officer of such written notice and, pending such determination, the Trustee shall discontinue payment of benefits to Beneficiaries. (1) Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (2) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Beneficiaries, shall liquidate the Trust's investment in common stock ("Common Stock") of the Company (or its holding company if one exists), and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Beneficiaries as general creditors of the Company with respect to benefits due under the Arrangements or otherwise. (3) The Trustee shall resume the payment of benefits to Beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has received a certification in writing from the Company's Board of Directors and its Chief Executive Officer that the Company is not Insolvent (or is no longer Insolvent). (d) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Beneficiaries under the terms of the Arrangements for the period of such discontinuance, less the aggregate amount of any payments made to Beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 4. Payments to the Company ---------------------------------- Except as provided in Section 3 hereof, after the Trust has become irrevocable, the Company shall not have the right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Beneficiaries pursuant to the terms of the Arrangements. Section 5. Investment Authority ------------------------------- (a) The Trustee shall have the sole discretion as to the investment of Trust assets, except that to the extent reasonably practicable, the Trustee shall invest all assets of the Trust in Common Stock; provided that the Trust shall not purchase, in the aggregate, more than 85,556 shares of Common Stock. The Company may direct the Trustee in writing with respect to the investment and management of the Trust assets. 3 (b) All rights associated with assets of the Trust, including voting rights with respect to Common Stock, shall be exercised by the Trustee in the manner directed in writing by the Company, and shall in no event be exercisable by or rest with Beneficiaries. (c) Subject to applicable federal and state securities laws, the Trustee shall offer to sell any shares of Common Stock held by the Trust, on substantially similar terms, to the following purchasers, listed here by order of priority: first, the Company; second, any benefit Arrangements maintained by the Company; third, directors of the Company; fourth, officers of the Company; fifth, members of the general public. Section 6. - Disposition of Income ---------------------------------- During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested in the manner directed by the Company or Investment Manager(s). Section 7. Accounting By Trustee -------------------------------- The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 120 days following the close of each calendar year and within 20 days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 8. Responsibility of Trustee ------------------------------------ (a) The Trustee and each Investment Manager shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Company shall hold the Trustee harmless against any liability to any person for any action taken pursuant to a direction, request or approval given by the Company or Investment Manager(s) which is contemplated by, and in conformity with, the terms of the Arrangements or this Trust Agreement and is given in writing by the Company. In the event of a dispute between the Company or Investment Manager(s) and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments, except inn those cases where the Trustee shall have been found by a court of competent jurisdiction to have acted with gross negligence or willful misconduct. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) The Trustee may consult with legal counsel with respect to any of its duties or obligations hereunder. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is held as an asset of the Trust, the 4 Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor the Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. Section 9. Compensation and Expenses of Trustee ----------------------------------------------- The Company shall pay all administrative expenses and the Trustee's fees and expenses relating to the Arrangements and this Trust. If not so paid, the fees and expenses shall be paid from the Trust. Section 10. Resignation and Removal of Trustee ---------------------------------------------- The Trustee may resign at any time by written notice to the Company, which resignation shall be effective 60 days after the Company receives such notice (unless the Company and the Trustee agree otherwise). The Trustee may be removed by the Company on 60 days notice or upon shorter notice accepted by the Trustee but only if the Beneficiaries of 80% or more of the Trust's assets consent in writing to such removal. If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Upon resignation or removal of the Trustee and appointment of a successor trustee, all assets shall subsequently be transferred to the successor trustee. The transfer shall be completed within 60 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. Section 11. Appointment of Successor ------------------------------------ If the Trustee resigns or is removed in accordance with Section 10 hereof, the Company may appoint any other party as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new trustee, who shall have all of the rights and powers of the former trustee. The former trustee shall execute any instrument necessary or reasonably requested by the Company or the successor trustee to evidence the transfer. Notwithstanding the foregoing, if the Trustee resigns or is removed following a Change in Control, (i) the Trustee that has resigned or is being removed shall nominate as its successor a third party financial institution that has trust powers and is independent of and unrelated to the entity that has acquired or otherwise obtained control of the Bank or the Company, and (ii) the appointment of any particular successor trustee is approved in writing by the Beneficiaries of 80% or more of the Trust's assets. A successor trustee need not examine the records and acts of any prior trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor trustee shall not be responsible for, and the Company shall indemnify and defend the successor trustee from, any claim or liability resulting from any action or inaction of any prior trustee or from any other past event, or any condition existing at the time it becomes successor trustee. Section 12. Amendment or Termination ------------------------------------ (a) This Trust Agreement may be amended by a written instrument executed by the Company and the Trustee, provided that no such amendment shall make the Trust revocable. In addition, no such amendment shall be made that affects the duties or responsibilities of the Trustee without its written consent, or that adversely, affects the Company without its consent. Amendments shall become effective upon delivery to the Trustee of a written instrument of amendment, duly executed and acknowledged by the Company and accompanied by a certified copy of a resolution 5 of the Board of Directors of the Company authorizing such amendment. The Company also shall deliver to the Trustee a copy of any modification or amendment to the Arrangements. (b) Notwithstanding subsection (a) hereof, the provisions of this Trust Agreement and the trust created thereby may not be amended without the written consent of the Beneficiaries of 80% or more of the Trust's assets. (c) The Trust shall not terminate until the date on which no Beneficiary is entitled to benefits pursuant to the terms hereof or of the Arrangements. Upon termination of the Trust, the Trustee shall return any assets remaining in the Trust to the Company. (d) Upon written approval of the Beneficiaries if they are then entitled to payment of benefits, the Company may terminate this Trust prior to the time all benefit payments under the Arrangements have been made. All assets in the Trust at termination shall be returned to the Company. Section 13. Miscellaneous ------------------------- (a) Any action required by any provision of this Trust Agreement to be taken by the Board of Directors of the Company shall be evidenced by a resolution of its Board of Directors, certified to the Trustee by the Secretary or an Assistant Secretary of the Company under its corporate seal, and the Trustee shall be fully protected in relying upon any resolution so certified to it. Unless other evidence with respect thereto has been specifically prescribed in this Trust Agreement, any other action of the Company under any provision of this Trust Agreement shall be evidenced by a certificate signed by an officer of the Company, and the Trustee shall be fully protected in relying upon such certificate. The Trustee may accept a certificate signed by an officer of the Company as proof of any fact or matter than it deems necessary or desirable to have established in the administration of the Trust (unless other evidence of such fact or matter is expressly prescribed herein), and the Trustee shall be fully protected in relying upon the statements in the certificate. (b) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (c) Benefits payable to Beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process, except pursuant to the terms of the Arrangements and this Trust Agreement. (d) This Trust Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the Trustee, respectively. (e) This Trust Agreement shall be governed by and construed in accordance with the laws of Kentucky. (f) The Trustee agrees to be bound by the terms of the Arrangements, as in effect from time to time. (g) "Change in Control" as defined in the Company's Management Recognition Plan (the "MRP") is defined in the same manner for purposes of this Trust. Any amendment to the MRP that modifies said definition shall be deemed to apply with equal force, effect, and timing to the definition of Change in Control for purposes of this Trust, except that a modification that may adversely affect a Beneficiary shall be ineffectual as to the Beneficiary unless he or she consents in writing to be bound by the modification. (i) Until notice is given to the contrary, communications to the Trustee shall be sent to each trustee at his home address; communications to the Company shall be sent to it at its office at 1431 Cumberland Avenue, Middlesboro, Kentucky 40965. 6 Section 14. Effective Date. --------------------------- The effective date of this Trust Agreement shall be the date referenced in its Preamble. IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused this Trust Agreement to be executed, and its corporate seal affixed, and the Trustees have executed this Trust Agreement, this on the date referenced in the Preamble hereof. "COMPANY" CUMBERLAND MOUNTAIN BANCSHARES, INC. Attest: /s/ J.D. Howard By: /s/ James J. Shoffner - ------------------------- --------------------------- Its President "TRUSTEE" Attest: /s/ James J. Shoffner /s/ Barry Litton - ------------------------- --------------------------- Barry Litton Attest: - ------------------------- --------------------------- Robert R. Long Attest: /s/ J.D. Howard /s/ Raymond C. Walker - ------------------------- --------------------------- Raymond C. Walker