**Exhibit 10.1**

 

**SOUTHERN HERITAGE BANK**

**2000 NON-EMPLOYEE DIRECTORS**

**STOCK OPTION PLAN**

 

# **SECTION 1.  PURPOSE; DEFINITIONS**

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The purpose ofthe Southern Heritage Bank 2000 Non-Employee Director Stock Option Plan (“Plan”)is to advance the long-term success of Southern Heritage Bank and itsshareholders by attracting and retaining highly qualified non-employeedirectors. The Plan will provide non-employee directors with the ability toincrease their proprietary interest of the Company’s shareholders by the grantto such directors of Non-Qualified Stock Options of the Company.

 

For purposesof the Plan, the following terms shall be defined as set forth below:

 

A.            “Board”means the Board of Directors of the Company.

 

B.            “Code”means the Internal Revenue Code of 1986, as amended from time to time, and anysuccessor thereto.

 

C.            “Committee”means the Stock Option Committee of the Board, as from time to timeconstituted, or any successor committee of the Board with similar functions,which shall consist of three members, each of whom shall be a DisinterestedPerson.

 

D.            “CommonStock” shall mean the common stock of the Company ($1.00 par value), subject toadjustments pursuant to Section 3.2) below.

 

E.             “Company”means Southern Heritage Bank, a corporation organized under the laws of theState of Tennessee, or any successor corporation.

 

F.             “Disability”means permanent and total disability of an Eligible Director within the meaningof Section 22(e)(3) of the Code.

 

G.            “DisinterestedPerson” shall have the meanings set forth in Rule 16b-3(c)(2)(i) as promulgatedby the Securities and Exchange Commission under the Securities Exchange Act of1934, or any successor definition adopted by the Commission.

 

H.            “EligibleDirectors” means duly elected directors of the Company who are not employees ofthe Company or any Subsidiary thereof

 

I.              “ExchangeAct” means the Securities Exchange Act of 1934, as amended.

 

J.             “FairMarket Value” shall mean, as of any date, (i) if the Common Stock is listed oradmitted to unlisted trading privileges on any national securities exchange oris not so listed or admitted but transactions in the Common Stock are reportedby the NASDAQ National Market System, the closing sale price of the CommonStock on such exchange or by the NASDAQ National Market System as of suchdate (or, if no such shares were traded on such date,  as of the nextpreceding day on which there was such a  

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trade); (ii)if the Common Stock is not so listed or admitted to unlisted trading privilegesor reported on the NASDAQ National Market System, and bid and ask pricestherefore in the over-the-counter market are reported by the NASDAQ system orthe National Quotation Bureau, Inc., (or any comparable reporting service), themean of the closing bid and ask prices of the Common Stock as of such date, asso reported: or (iii) if no quotations are available by any reporting services,the fair market value of such Common Stock as determined by the Board, in eachcase, on the business day immediately preceding the date on which the determinationis made,

 

K.            “Non-QualifiedStock Option” means any Stock Option that does not comply with the provisionsof Section 422 of the Code.

 

L.             “Plan”means this Southern Heritage Bank 2000 Non-Employee Director Stock Option Plan,as hereinafter amended from time to time.

 

M.           “Retirement”means the termination of service of an Eligible Director as a director of theCompany pursuant to and in accordance with the Board’s tenure policy orotherwise retirement policy, or if approved by the Board for purposes of thisPlan, early retirement or other practice or policy then covering an EligibleDirector.

 

N.            “Stock”means the Common Stock of the Company.

 

0.             “StockOption” or “Option” means any Non-Qualified Stock Option to purchase shares ofCommon Stock granted pursuant to Section 5 below

 

P.             “Subsidiary”means any corporation (other than the Company) in an unbroken chain ofcorporations beginning with the Company if each of the corporations (other thanthe last corporation in the unbroken chain) owns stock possessing 50% or moreat the total combined voting power of all classes of stock in one of the othercorporations in the chain.

 

In addition,the terms “Change in Control” and “Potential Change in Control” shall havemeanings set forth, respectively, in Sections 6.1, 6.2, and 6.3 below and theterm “Cause” shall have the meaning set forth in Section 5.2.10 below.

 

# **SECTION 2.  ADMINISTRATION**

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## 2.1           The Plan shall be administered by the Committee. Thefunctions of the Committee specified in the Plan may be exercised by theCommittee, and may be exercised by the Board, if and to the extent that noCommittee exists which otherwise has the authority to so administer the Plan.The Committee shall have full authority to grant Stock Options, pursuant to theterms of the Plan, to Eligible Directors under the terms and conditions ofSection 5 of this Plan.

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## 2.2           The Committee shall be appointed by the Directors and shallserve for a term of four (4) years or until their successors are duly electedand qualified.

 

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## 2.3           The Committee shall have the authority to adopt, alter andrepel such rules, guidelines and practices governing the Plan as it shall, fromtime to time, deem advisable; to interpret the terms and provisions of the Planand any Stock Options issued under the Plan (and any agreements relatingthereto); and to otherwise supervise the administration of the Plan.

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## 2.4           All decisions made by the Committee pursuant to theprovisions of the Plan shall be made in the Committee’s sole discretion andshall be final and binding on all persons, including the Company and Planparticipants.

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# **SECTION 3.  STOCK SUBJECT TO PLAN**

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## 3.1           The maximum number of shares of Common Stock reserved andavailable for issuance under the Plan shall be 12,100 shares of the Company’sCommon Stock, subject to adjustment upon changes in capitalization of theCompany as provided in Section 3.3 below. Such shares may consist in whole orin part, of authorized and unissued shares of the Company.

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## 3.2           If any shares of Stock that have been optioned cease to besubject to a Stock Option prior to the payment of any dividend, if applicable,with respect to such Stock, then such shares shall again be available fordistribution in connection with future awards under the Plan.

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## 3.3           In the event of any merger, reorganization, consolidation,recapitalization, stock dividend, stock split, combination of shares, exchangeof shares, split-up, split-off, spin-off, liquidation or other change incorporate structure affecting the Common Stock of the Plan, then appropriatesubstitutions or adjustments shall be made in maximum aggregate number ofshares subject to an amount of shares reserved for issuance under the Plan,provided that the number of shares subject to any award shall always be a wholenumber.

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# **SECTION 4.  STOCK OPTIONS**

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## 4.1           All Eligible Directors shall be eligible to participate inthe Plan and to receive Non-Qualified Stock Options (as described in Section 5)under the Plan.

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# **SECTION 5.  STOCK OPTIONS**

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## 5.1           After the Plan becomes effective, the Committee shall grantto Eligible Directors an option to purchase shares of Common Stock of theCompany as determined by the Committee. The Committee shall provide eachEligible Director with a Stock Option Agreement between the Company and eachEligible Director to carry out the terms of the Stock Options granted to eachEligible Director hereunder.

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## 5.2           Stock Options granted under the Plan shall be subject to thefollowing terms and conditions:

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### 5.2.1        *Option Price*. The option price per share ofCommon Stock purchasable under a Stock Option shall be 100% of the Fair MarketValue of the Common Stock at the time such Option is granted.

 

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### 5.2.2        *Option Term*. No Stock Option shall beexercisable more than ten years after the date the Option is granted.

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### 5.2.3        *Vesting*. Stock Options granted under the Plan shall vest in fullimmediately with the Eligible Director on the date of the grant of the StockOptions provided the Eligible Director has continued to serve on the Boarduntil that date.

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### 5.2.4        *Exercisability*. No Stock Option shall beexercisable prior to six months and one day after the date of the granting ofthe Option, except as provided in Sections 5.2.7, 5.2.8, and 5.2.9 and Section6.

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### 5.2.5        *Method of Exercise*. Stock Options, to the extentthey are vested, may be exercised in whole or in part at any time during theoption period, by giving written notice of exercise to the Company specifyingthe number of shares to be purchased.

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Such noticeshall be accompanied by payment in full of the purchase price, either by check,note or such other instrument as the Committee may accept. As determined by theCommittee, in its sole discretion, at or after grant, payment in full or in partmay also be made in the form of Common Stock already owned by the EligibleDirector based on the Fair Market Value of the Common Stock on the date theOption is exercised.

 

No shares ofCommon Stock shall be issued until full payment therefore has been made. AdEligible Director shall have the rights to dividends or other rights of astockholder with respect to shares subject to the Option when the EligibleDirector has given written notice of exercise, has paid in full for suchshares, and, if requested, has given the representation described in Section8.1.

 

### 5.2.6        *Non-Transferability of Options*. No Stock Option shall betransferable by an Eligible Director otherwise than by Will or by the laws ofdescent and distribution, and all Stock Options shall be exercisable, duringthe Eligible Director’s lifetime, only by the Eligible Director.

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### 5.2.7        *Termination by Death*. If an Eligible Director’sservice on the Board terminates by reason of death, any Stock Option held bysuch Eligible Director may thereafter by exercised, to the extent such optionwas vested and exercisable at the time of death or on such accelerated basis asthe Committee may determine at or after grant (or as may be determined inaccordance with procedures established by the Committee), by the legalrepresentative of the estate or by the legatee of the Eligible Director underthe Will of the Eligible Director, for a period of one year from the date ofsuch death or until the expiration of the stated term of such Stock Option,whichever period is shorter.

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### 5.2.8        *Termination by Reason of Disability*. If an Eligible Director’sservice on the Board terminates by reason of Disability, any Stock Option heldby such Eligible Director may thereafter be exercised by the Eligible Director,to the extent it was vested and exercisable at the time of termination or onsuch accelerated basis as the Committee may determine at or after grant (or asmay be determined in accordance with procedures established by the Committee),for a period of one year from the date of such termination of service on theBoard or until the expiration of the stated term of such Stock Option,whichever period is shorter;

 

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### provided, however,that, if the Eligible Director dies within such one year period, anyunexercised Stock Option held by such Eligible Director shall thereafter beexercisable to the extent to which it was exercisable at the time of death fora period of twelve months from the date of such death or until the expirationof the stated term of such Stock Option, whichever period is shorter.

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### 5.2.9        *Termination by Reason of Retirement*. If an Eligible Director’sservice on the Board terminates by reason of retirement, any Stock Option heldby such Eligible Director may thereafter be exercised by the Eligible Director,to the extent it was vested and exercisable at the time of such Retirement oron such accelerated basis as the Committee may determine at or after grant (oras may be determined in accordance with procedures established by theCommittee), for a period of three years from the date of such termination ofservice on the Board or the expiration of the stated term of such Stock Option,whichever period is the shorter; provided, however, that, if the EligibleDirector dies within such three year period, any unexercised Stock Option heldby such Eligible Director shall thereafter be exercisable, to the extent towhich it was vested and exercisable at the time of death, for a period of oneyear from the date of such death or until the expiration of the stated term ofsuch Stock Option, whichever period is the shorter.

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### 5.2.10      *Other Termination*. If an Eligible Director’sservice on the Board terminates for any reason other than death, Disability orRetirement, the Stock Option shall thereupon terminate, except that such StockOption may be exercised, to the extent otherwise then vested in exercisable,for the lesser of three months or the balance of such Stock Option’s term ifthe Eligible Director’s service on the Board is involuntarily terminated by theCompany or the shareholders of the Company without Cause. For purposes of thisPlan, “Cause” means (a) a felony conviction of an Eligible Director or thefailure of an Eligible Director to contest prosecution for a felony, or anEligible Director’s willful misconduct or dishonesty, any of which is directlyor materially harmful to the business or reputation of the Company or anySubsidiary, or (b) the commission of a material violation of any laws and\orregulations applicable to the Company or any Subsidiary.

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# **SECTION 6.  CHANGE IN CONTROL PROVISIONS**

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## 6.1           *Impact of Event*.  In the event of:

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#### (i)                                     a“Change in Control” as defined in Section 6.2 or

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#### (ii)                                  a“Potential Change in Control” as defined in Section 6.3, but only if and to theextent so determined by the Committee or the Board at or after grant (subjectto any right of approval expressly reserved by the Committee or the Board atthe time of such determination), then any Stock Option awarded under the Plannot previously exercisable and vested shall become fully exercisable andvested.

 

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## 6.2           *Definition of “Change in Control*.” For purposes of Section 6.1,a “Change in Control” means the happening of any of the following:

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#### (i)                                     anyperson or entity, including a “group” as defined in Section 13(d)(3) of theSecurities Exchange Act of 1934, other than the Company or a wholly-ownedsubsidiary thereof or any employee benefit plan of the Company or any of itsSubsidiaries, becomes the beneficial owner of the Company’s securities having20% or more of the combined voting power of the then outstanding securities ofthe Company that may be cast for the election of’ directors of the Company(other than as a result of an issuance of securities initiated by the Companyin the ordinary course of business); or

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#### (ii)                                  asa result of, or in connection with, any cash tender or exchange offer, mergeror other business combination, sale of assets or contested election, or anycombination of the foregoing transaction less than a majority of the combinedvoting power of the then outstanding securities of the Company or any successorcorporation or entity entitled to vote generally in the election of thedirectors of the Company or such other corporation or entity after suchtransactions are held in the aggregate by the holders of the Company’ssecurities entitled to vote generally in the election of directors of theCompany immediately prior to such transaction; or

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#### (iii)                               duringany period of two consecutive years, individuals who at the beginning of anysuch period constitute the Board cease for any reason to constitute at least amajority thereof, unless the election, or the nomination for election by theCompany’s stockholders, of each director of the Company first elected duringsuch period was approved by a vote of at least two-third of the directors ofthe Company then still in office who were directors of the Company at thebeginning of such period.

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## 6.3           *Definition of Potential Change in Control*. For purposes of Section 6.1, a“Potential Change in Control” means the happening of any one of the following:

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#### (i)                                     Theapproval by stockholders of an agreement by the Company, the consummation ofwhich would result in a Change in Control of the Company as defined in Section6.2; and

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#### (ii)                                  Theacquisition of beneficial ownership, directly or indirectly, by an entity,person or group [other than the Company or a subsidiary or any Company employeebenefit plan (including any trustee of such plan acting as such trustee)] ofsecurities of the Company representing 5% or more of the combined voting powerof the Company’s outstanding securities and the adoption by the Board of aresolution to the effect that a Potential Change in Control of the Company hasoccurred for purposes of this Plan.

 

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# **SECTION 7.  AMENDMENTS AND TERMINATION**

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## 7.1           The Board may amend, alter, or discontinue the Plan, but noamendment, alteration, or discontinuation shall be made which would impair therights of the Eligible Director under any Stock Option theretofore granted,without the Eligible Director’s consent or which, without approval of theCompany’s stockholders, would:

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### 7.1.1        except as expressly provided in this Plan, increase thetotal number of shares reserved for the purpose of the Plan;

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### 7.1.2        change the method for valuation of the Stock;

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### 7.1.3        change the class of Eligible Directors eligible toparticipate in the Plan; or

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### 7.1.4        extend the maximum option period under Section 5.2.2 of thePlan.

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## 7.2           The Committee may amend the terms of the Stock Optiontheretofore granted, prospectively or retroactively, but, subject to Section 3above, no such amendment shall impair the rights of any holder without theholder’s consent. The Committee may also substitute new Stock Options forpreviously granted Stock Option (on a one for one or other basis), includingpreviously granted Stock Options having higher option exercise prices.

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## 7.3           Subject to the above provisions, the Board shall have broadauthority to amend the Plan to take into account changes in applicablesecurities and tax laws and accounting rules, as well as other developments.Not withstanding the foregoing, no amendment to the Plan may be made more thanonce every six months, other than to comport with changes of the Code, theEmployee Retirement Income Security Act, or the rules or regulationspromulgated thereunder.

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# **SECTION 8.  GENERAL PROVISIONS**

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## 8.1           The Committee may require each Eligible Director purchasingshares pursuant to a Stock Option under the Plan to represent to and agree withthe Company in writing that the Eligible Director is acquiring the shareswithout a view to distribution thereof.

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Allcertificates or shares of Stock delivered under the Plan shall be subject tosuch stock-transfer orders and other restrictions as the Committee may deemadvisable under the rules, regulations, and other requirements of theSecurities and Exchange Commission, any stock exchange upon which the Stock isthen listed, and any applicable Federal or state securities law, and theCommittee may cause a legend or legends to be put on any such certificates tomake appropriate reference to such restrictions.

 

## 8.2           Nothing contained in this Plan shall prevent the Board fromadopting other or additional compensation arrangements, subject to stockholderapproval if such approval is required; and such arrangements may be eithergenerally applicable or applicable only in specific cases.

 

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## 8.3           The adoption of the Plan shall not confer upon any EligibleDirector serving on the Board of the Company any right to continued service asa director with the Company nor shall it interfere in any way with the right ofthe Company or the shareholders of the Company to remove or otherwise terminatehis or her service as a director of the Company.

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## 8.4           No later than the date as of which an amount first becomesincludable in the gross income of an Eligible Director for Federal income taxpurposes with respect to any award under the Plan, an Eligible Director shallpay to the Company, or make arrangement satisfactory to the Committee regardingthe payment of any Federal, state, or local taxes of any kind required by lawto be withheld with respect to such amount. Unless otherwise determined by theCommittee, withholding obligations may be settled with Stock, including Stockthat is part of the award that gives rise to the withholding requirement. Thesatisfaction of withholding obligations with Stock at the election of a granteewho is subject to Section 16 of the Exchange Act shall be made either (i)during the 10 business day window period described in Rule 16b-3(e)(3) (or anysuccessor provision) thereunder, if the exercise is also made during such aperiod, or (ii) at least six months prior to the date as of which the incomeattributable to the exercise of the related award is recognized under the Code,and shall be irrevocable to the extent required under such Rule 16b-3(e)(3) (orany successor provision). The obligations of the Company under the Plan shallbe conditional on such payment or arrangements and the Company shall, to theextent permitted by law, have the right to deduct any such taxes from anypayment of any kind otherwise due to an Eligible Director.

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## 8.5           The Plan and all awards made and actions taken thereundershall be governed by and construed in accordance with the laws of the State ofTennessee.

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## 8.6           It is intended that the Plan shall comply in all respectswith Rule 16b-3 (as amended from time to time and including any successor ruleor regulation) of the Securities and Exchange Commission, and in the event thatany provision of the Plan is determined by the Committee, upon advice ofcounsel, not to comply with Rule 16b-3, the Committee shall be authorized tonullify and void any such provision.

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# **SECTION 9.  EFFECTIVE DATE OF PLAN**

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## 9.1           The Plan shall be effective as of June 1, 2000, upon theapproval of the Share Exchange between the Bank and the Company by the holdersof the Bank’s Common Stock at the 2000 annual meeting of the shareholders.

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# **SECTION 10.  TERM OF PLAN**

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## 10.1         No Stock Option shall be granted pursuant to the Plan on orafter the tenth anniversary of the date of stockholder approval, but awardsgranted prior to such tenth anniversary may extend beyond that date.

 

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# **SECTION 11.  CONTINGENT ACTION BY FEDERAL REGULATOR.**

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## 11.1         In the event the Company’s capital falls below the minimumrequirements as established by the Company’s state or primary federalregulatory agency, the primary federal regulatory agency shall have the rightto:

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### 11.1.1      direct the Company to require plan participants to exercisetheir stock rights granted hereunder, or

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### 11.1.2      direct the Company to require plan participants to forfeittheir stock rights granted hereunder.

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The SouthernHeritage Bank 2000 Non-Employee Directors Stock Option Plan was adopted byaction taken by the Board of Directors of Southern Heritage Bank on March 16,2000.

 
|   | Southern Heritage Bank |
|--------|------------------------|
|   |                   |
|   |                   |
|   | By:                    |   /s/ J. Lee Stewart |   |
|   |                   | President |   |

 

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