<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission File No. 333-14713
TAYLOR CAPITAL GROUP, INC.
Exact Name of Registrant as Specified in Charter
DELAWARE 36-4108550
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification Number
350 EAST DUNDEE ROAD, SUITE 300
WHEELING, ILLINOIS 60090-3199
Address of Principal Executive Offices
(847) 808-6873
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of outstanding shares of each of the Registrant's classes of common
stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding at August 4, 1999
----- -----------------------------
<S> <C>
Common Stock, $.01 Par Value 4,652,549
</TABLE>
<PAGE> 2
TAYLOR CAPITAL GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION.......................................................................... PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) -
June 30, 1999 and December 31, 1998.................................................. 3
Consolidated Statements of Income (Unaudited) -
For the Three and Six Months Ended June 30, 1999
and For the Three and Six Months Ended June 30, 1998................................. 4
Consolidated Statements of Cash Flows (Unaudited) -
For the Six Months Ended June 30, 1999 and For
the Six Months Ended June 30, 1998................................................... 5
Notes to Financial Statements (Unaudited)................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................ 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 35
Item 6. Exhibits and Reports on Form 8-K......................................................... 35
SIGNATURES ......................................................................................... 36
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION - ITEM 1. Financial Statements
TAYLOR CAPITAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Cash and due from banks $ 69,710 $ 66,192
Interest-bearing deposits with banks 55 1,200
Federal funds sold -- 31
Investment securities:
Available-for-sale, at fair value 361,774 351,408
Held-to-maturity, at amortized cost (fair value of $84,657 and $91,620 at
June 30, 1999 and December 31, 1998, respectively) 84,459 89,753
Loans held for sale, net, at lower of cost or market 32,372 42,257
Loans, net of allowance for loan losses of $25,855 and $24,599 at June 30, 1999
and December 31, 1998, respectively 1,359,134 1,269,125
Premises, leasehold improvements and equipment, net 24,418 22,702
Other real estate and repossessed assets, net 2,721 3,267
Goodwill, net of amortization of $5,895 and $4,683
at June 30, 1999 and December 31, 1998, respectively 30,191 32,053
Other assets 32,304 32,342
----------- -----------
Total assets $ 1,997,138 $ 1,910,330
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 316,989 $ 350,711
Interest-bearing 1,184,344 1,089,026
----------- -----------
Total deposits 1,501,333 1,439,737
Short-term borrowings 213,145 171,718
Accrued interest, taxes and other liabilities 22,720 22,242
Notes payable 114,500 131,500
----------- -----------
Total liabilities 1,851,698 1,765,197
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value, 3,000,000 shares authorized, Series A 9%
noncumulative perpetual, 1,530,000 shares issued and
outstanding, $25 stated and redemptive value 38,250 38,250
Common stock, $.01 par value; 7,000,000 shares authorized, 4,652,549
and 4,658,533 shares issued and outstanding at June 30, 1999 and
December 31, 1998, respectively 47 47
Surplus 99,998 99,990
Unearned compensation - stock grants (1,713) (2,083)
Employee stock ownership plan loan (576) (576)
Retained earnings 12,191 9,434
Accumulated other comprehensive income (loss) (2,757) 71
----------- -----------
Total stockholders' equity 145,440 145,133
----------- -----------
Total liabilities and stockholders' equity $ 1,997,138 $ 1,910,330
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
TAYLOR CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 28,994 $ 27,405 $ 56,458 $ 53,860
Interest and dividends on investment
securities:
Taxable 5,030 5,751 9,679 12,229
Tax-exempt 857 822 1,755 1,607
Interest on cash equivalents 193 44 274 134
-------- -------- -------- --------
Total interest income 35,074 34,022 68,166 67,830
-------- -------- -------- --------
Interest expense:
Deposits 11,898 12,052 23,338 23,994
Short-term borrowings 2,121 2,643 4,094 5,140
Notes payable 1,607 1,880 3,356 3,745
-------- -------- -------- --------
Total interest expense 15,626 16,575 30,788 32,879
-------- -------- -------- --------
Net interest income 19,448 17,447 37,378 34,951
Provision for loan losses 1,500 1,500 3,000 2,250
-------- -------- -------- --------
Net interest income after provision
for loan losses 17,948 15,947 34,378 32,701
-------- -------- -------- --------
Noninterest income:
Service charges 2,392 2,267 4,521 4,591
Trust fees 1,051 977 2,131 1,922
Gain on sales of loans, net 684 1,150 1,491 1,951
Gain on sale of mortgage servicing rights 193 15 193 1,462
Investment securities gains, net -- -- 107 --
Other noninterest income 620 431 1,306 841
-------- -------- -------- --------
Total noninterest income 4,940 4,840 9,749 10,767
-------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits 9,261 9,242 18,741 18,367
Occupancy of premises, net 1,563 1,805 3,320 3,519
Furniture and equipment 865 917 1,623 1,726
Computer processing 565 505 1,188 1,066
Advertising and public relations 261 805 413 963
Goodwill and other intangible amortization 600 613 1,212 1,224
Legal fees 1,471 1,688 2,618 2,002
Other noninterest expense 2,940 2,691 5,636 5,687
-------- -------- -------- --------
Total noninterest expense 17,526 18,266 34,751 34,554
-------- -------- -------- --------
Income before income taxes and cumulative
effect of change in accounting principle 5,362 2,521 9,376 8,914
Income taxes 2,137 1,143 3,769 3,655
-------- -------- -------- --------
Income before cumulative effect of change in
accounting principle 3,225 1,378 5,607 5,259
Cumulative effect of change in accounting
principle, net of tax -- -- (214) --
-------- -------- -------- --------
Net income $ 3,225 $ 1,378 $ 5,393 $ 5,259
======== ======== ======== ========
Preferred dividend requirements (860) (860) (1,721) (1,721)
-------- -------- -------- --------
Net income applicable to common stockholders $ 2,365 $ 518 $ 3,672 $ 3,538
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
TAYLOR CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,393 $ 5,259
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Investment securities gains, net (107) --
Amortization of premiums and discounts, net 1,509 1,881
Provision for loan losses 3,000 2,250
Gain on sales of loans originated for sale (1,347) (2,290)
Loans originated and held for sale (100,124) (158,270)
Proceeds from sales of loans originated for sale 111,164 151,077
Depreciation and amortization 3,114 3,093
Other adjustments to net income, net 1,097 211
Net changes in other assets and liabilities 3,258 (3,226)
--------- ---------
Net cash provided by (used in) operating activities 26,957 (15)
--------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities (128,366) (21,516)
Purchases of held-to-maturity securities (274) (10,089)
Proceeds from principal payments and maturities of
available-for-sale securities 62,344 38,532
Proceeds from principal payments and maturities of
held-to-maturity securities 5,369 10,165
Proceeds from sales of available-for-sale securities 50,102 --
Net increase in loans (94,363) (43,133)
Decrease in reverse exchange assets -- 18,757
Other, net (2,891) (1,179)
--------- ---------
Net cash used in investing activities (108,079) (8,463)
--------- ---------
Cash flows from financing activities:
Net increase in deposits 61,596 13,859
Net increase (decrease) in short-term borrowings 41,427 (10,696)
Repayments of notes payable (42,000) (86,400)
Proceeds from notes payable 25,000 106,400
Decrease in nonrecourse borrowings -- (18,757)
Dividends paid (2,559) (2,557)
--------- ---------
Net cash provided by financing activities 83,464 1,849
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,342 (6,629)
Cash and cash equivalents, beginning of period 67,423 84,616
--------- ---------
Cash and cash equivalents, end of period $ 69,765 $ 77,987
========= =========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 30,631 $ 33,284
Income taxes 1,572 6,775
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation:
The Taylor Capital Group, Inc. consolidated financial statements include
the accounts of Taylor Capital Group, Inc. (the "Parent Company") and its
wholly owned subsidiaries (collectively, with the Parent Company, the
"Company"): Cole Taylor Bank and its subsidiaries (the "Bank") and CT
Mortgage Company, Inc. (the "Mortgage Company").
The unaudited interim financial statements have been prepared pursuant to
the rules and regulations for reporting on Form 10-Q. Accordingly, certain
disclosures required by generally accepted accounting principles are not
included herein. These interim statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, as filed
with the Securities and Exchange Commission.
Interim statements are subject to possible adjustment in connection with
the annual audit of the Company for the year ended December 31, 1999. In
the opinion of management of the Company, the accompanying unaudited
interim consolidated financial statements reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial position and consolidated
results of operations as of the dates and for the periods presented.
The results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year.
2. Investment Securities:
The amortized cost and estimated fair values of investment securities at
June 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------------------------------------
Gross Gross
Amortized Cost Unrealized Unrealized Estimated
Gains Losses Fair Value
--------------- -------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $ 65,349 $ 122 $ (175) $ 65,296
U.S. government agency securities 76,558 28 (494) $ 76,092
Collateralized mortgage obligations 115,348 18 (1,935) 113,431
Mortgage-backed securities 108,759 1,009 (2,813) 106,955
-------- -------- -------- --------
Total available-for-sale 366,014 1,177 (5,417) 361,774
-------- -------- -------- --------
Held-to-maturity:
State and municipal obligations 69,552 1,416 (1,230) 69,738
Federal Reserve Bank and Federal Home Loan
Bank equity securities 14,057 -- -- 14,057
Other debt securities 850 17 (5) 862
-------- -------- -------- --------
Total held-to-maturity 84,459 1,433 (1,235) 84,657
-------- -------- -------- --------
Total $450,473 $ 2,610 $ (6,652) $446,431
======== ======== ======== ========
</TABLE>
6
<PAGE> 7
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------
Gross Gross
Amortized Cost Unrealized Unrealized Estimated
Gains Losses Fair Value
--------------- -------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $110,019 $ 859 $ -- $110,878
U.S. government agency securities 51,287 125 (86) 51,326
Collateralized mortgage obligations 91,696 52 (2,054) 89,694
Mortgage-backed securities 98,296 1,466 (252) 99,510
-------- -------- -------- --------
Total available-for-sale 351,298 2,502 (2,392) 351,408
-------- -------- -------- --------
Held-to-maturity:
State and municipal obligations 74,609 2,752 (947) 76,414
Federal Reserve Bank and Federal Home Loan
Bank equity securities 14,319 -- -- 14,319
Other debt securities 825 62 -- 887
-------- -------- -------- --------
Total held-to-maturity 89,753 2,814 (947) 91,620
-------- -------- -------- --------
Total $441,051 $ 5,316 $ (3,339) $443,028
======== ======== ======== ========
</TABLE>
3. Loans:
Loans classified by type at June 30, 1999 and December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(in thousands)
<S> <C> <C>
Commercial and industrial $ 781,627 $ 749,984
Real estate-construction 271,386 232,018
Residential real estate-mortgages 151,161 150,930
Home equity lines of credit 104,699 106,521
Consumer 76,229 53,751
Other loans 662 1,806
----------- -----------
Gross loans 1,385,764 1,295,010
Less: Unearned discount (775) (1,286)
----------- -----------
Total loans 1,384,989 1,293,724
Less: Allowance for loan losses (25,855) (24,599)
----------- -----------
Loans, net $ 1,359,134 $ 1,269,125
=========== ===========
</TABLE>
7
<PAGE> 8
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
4. Interest-Bearing Deposits:
Interest-bearing deposits at June 30, 1999 and December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ --------------
(in thousands)
<S> <C> <C>
NOW accounts $ 125,988 $ 120,900
Savings accounts 107,191 107,274
Money market deposits 225,411 234,197
Certificates of deposit 463,502 448,773
Public time deposits 113,637 121,614
Brokered certificates of deposit 148,615 56,268
---------- ----------
Total $1,184,344 $1,089,026
========== ==========
</TABLE>
5. Notes Payable:
Notes payable at June 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
TAYLOR CAPITAL GROUP, INC.:
$25 million term loan bearing interest at prime rate or LIBOR plus 1.15%,
annual principal reductions of $1 million commencing in February 1999
and a balloon payment of $22 million on February 12, 2002; interest
rates at June 30, 1999 and December 31, 1998 were 6.15% and
6.42% respectively. $24,000 $25,000
$12 million revolving credit facility bearing interest at prime rate or LIBOR
plus 1.15%, maturing September 1, 1999; interest rates at June 30, 1999 and
December 31, 1998 were 6.15% and 6.43% respectively. 500 1,500
COLE TAYLOR BANK:
Federal Home Loan Bank (FHLB) - various advances ranging from $10 million to $30
million due at various dates through October 2000 and $30 million due
February 2008, callable by the FHLB quarterly beginning February 1999;
collateralized by qualified first mortgage residential loans and FHLB
stock; weighted average interest rates at June 30, 1999 and
December 31, 1998 were 4.94% and 5.23% respectively. 90,000 105,000
-------- --------
Total $114,500 $131,500
======== ========
</TABLE>
8
<PAGE> 9
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
The loan agreement requires compliance with certain defined financial
covenants relating to the Bank, including covenants related to regulatory
capital, return on average assets, nonperforming assets and Parent Company
leverage. As of June 30, 1999, the Company was unaware of any instances of
non-compliance.
6. Incentive Compensation Plan:
The Company has an Incentive Compensation Plan (the "Plan") that allows for
the granting of stock options and other stock awards. During the six months
ended June 30, 1999, stock options were granted with respect to 113,370
shares of common stock at an exercise price of $27.00 per share, the fair
market value of the common stock on the grant date, as determined by the
most recent semi-annual independent appraisal. Stock options with respect
to 25,672 shares of common stock were forfeited during the period. Stock
options with respect to 4,113 shares were exercised during the period at an
average exercise price of $24.38. As of June 30, 1999, there were total
stock options outstanding, net of forfeitures, with respect to 314,021
shares of common stock at a weighted average option price of $24.45.
In addition, during the first six months of 1999, 13,925 shares of common
stock were awarded, and 19,909 shares of common stock were forfeited, under
restricted stock agreements.
7. Comprehensive Income:
Comprehensive income has been defined as changes in stockholders' equity
arising from transactions and other economic events from nonstockholder
sources. For the Company, comprehensive income includes net income and
unrealized holding gains or losses on available-for-sale investment
securities. The following table presents comprehensive income for the
periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-----------------------------------------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Net income, as reported $3,225 $1,378 $5,393 $5,259
Other comprehensive income:
Change in unrealized losses on
available-for-sale securities (4,392) (1,042) (4,137) (2,027)
Less: reclassification adjustment for
gains included in net income -- -- (107) --
------ ------ ------ ------
(4,392) (1,042) (4,244) (2,027)
Income tax benefit related
to other comprehensive loss (1,537) (353) (1,416) (688)
------ ------ ------ ------
Other comprehensive loss, net of tax (2,855) (689) (2,828) (1,339)
------ ------ ------ ------
Total comprehensive income $ 370 $ 689 $2,565 $3,920
====== ====== ====== ======
</TABLE>
9
<PAGE> 10
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
8. Litigation:
Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney
J. Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family") have been named as defendants in the
lawsuits described below relating to (1) the Split-Off Transactions and (2)
the financial and public reporting of Reliance Acceptance Group, Inc.
(Reliance). Certain of the lawsuits also named other current or former
officers and directors of the Company and Reliance, other stockholders of
the Company, Reliance's public accountants at the time of the Split-Off
Transactions (who continue to serve as the Company's public accountants),
the investment banks that were involved in the Split-Off Transactions,
Reliance and the Company as additional defendants. The filing dates of
these lawsuits ranged from October 1997 to September 1998.
The Split-Off Transactions were a series of transactions completed on
February 12, 1997 in accordance with the Share Exchange Agreement, dated
June 12, 1996 (the "Share Exchange Agreement") between Reliance and the
Taylor Family, which owned approximately 25% of the outstanding common
stock of Reliance prior to the Split-Off Transactions. Pursuant to the
Split-Off Transactions, the Taylor Family and certain other stockholders of
Reliance exchanged all of their common stock of Reliance for all of the
outstanding common stock of the Company. On February 9, 1998, Reliance
filed a voluntary petition under Chapter 11 of the Bankruptcy Code.
In September 1998, five class actions, brought on behalf of current and
former stockholders of Reliance and pending in Delaware Chancery Court,
were consolidated into one class action. The consolidated class action
alleges that the Taylor Family, certain directors and officers of the
Company, and certain other defendants breached their fiduciary duties in
connection with disclosures made to the stockholders prior to the vote
which approved the Split-Off Transactions. The case seeks relief in the
form of unspecified damages, attorneys' fees and recision of the Split-Off
Transactions. On September 9, 1998 the Delaware Chancery Court stayed this
consolidated class action indefinitely pending resolution of the
consolidated class action in Texas that is described below.
In August 1998, nine class actions, brought on behalf of current and former
stockholders of Reliance and pending in the United States District Court
for the Western District of Texas, were consolidated into one class action.
One class action, brought on behalf of current and former stockholders of
Reliance, is also pending in the Northern District of Illinois. These cases
allege that the Taylor Family, certain directors and officers of the
Company, and certain other defendants violated the federal securities laws
and breached common law fiduciary duties. In addition, the cases allege
that the Company and certain other defendants violated ERISA and breached
certain fiduciary duties, including fiduciary duties owed to a subclass
consisting of participants in Reliance's ESOP and 401(k) Profit Sharing
Plan. The Texas and Illinois cases seek unspecified damages and attorneys'
fees. Cole Taylor Bank is named as an additional defendant in the Illinois
action. A motion is pending to transfer the Texas case to Illinois, and a
motion is pending to transfer the Illinois case to Texas.
10
<PAGE> 11
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
On August 19, 1998, Irwin Cole and other members of his family, who
collectively owned approximately 25% of the outstanding common stock of
Reliance prior to the Split-Off Transactions, brought suit in Delaware
Chancery Court against members of the Taylor Family, the Company, other
current and/or former officers and directors of Reliance and the Company,
and other stockholders of the Company. The suit alleges that the Taylor
Family, certain directors and officers of the Company, and certain other
defendants breached their fiduciary duties, committed fraud and/or engaged
in self-dealing in connection with the operation of Reliance and the
Split-Off Transactions. The lawsuit seeks unspecified damages and
attorneys' fees and requests that the Court place all of the shares of the
Company held by the Taylor Family in a constructive trust.
On October 5, 1998, the United States Bankruptcy Court of the District of
Delaware (the "Bankruptcy Court") entered an order preliminarily enjoining
the plaintiffs in most of the above lawsuits from prosecuting their cases
on account of the pending adversary proceedings by the Reliance Estate
Representative that are described below. On June 2, 1999 the District Court
for the District of Delaware reversed the Bankruptcy Court's order. The
District Court's order has been appealed.
On July 6, 1998, the Bankruptcy Court entered a confirmation order that
discharged the liability of Reliance and its subsidiaries in connection
with all of the lawsuits described above and permanently enjoined the
filing of similar new suits against them. The Bankruptcy Court also
appointed an Estate Representative (the "Estate Representative") for the
Post-Confirmation Chapter 11 Estate of Reliance and its subsidiaries. On
September 4, 1998, the Estate Representative filed two adversary proceeding
complaints, since consolidated, which named as defendants members of the
Taylor Family, certain other directors and officers of the Company, one of
Reliance's former legal counsel and Reliance's former public accountants
(both of whom continue to serve the Company), the Company and Cole Taylor
Bank, as trustee. The complaints allege fraudulent conveyance and breaches
of fiduciary duties and contract with respect to the Taylor Family, the
Company and Cole Taylor Bank, as trustee. The complaints charge certain of
the other defendants with alleged breaches of fiduciary duty, breaches of
contract, malpractice and negligent misrepresentation and aiding and
abetting the Taylor Family's and the Company's alleged breaches. These
complaints seek unspecified damages and attorneys' fees and avoidance of
the Split-Off Transactions by the transfer to the Estate Representative of
either the assets exchanged in the Split-Off Transactions or the value of
such assets. One of the complaints demands monetary damages pursuant to the
Taylor Family's obligation under the Share Exchange Agreement to indemnify
Reliance for certain losses resulting from the Split-Off Transactions, and
asks the court to disallow any claims for indemnification that any of the
defendants have against Reliance or, in the alternative, to equitably
subordinate such claims to all other creditor claims against Reliance. On
July 22, 1999, the District Court for the District of Delaware issued an
order withdrawing the adversary proceedings from the Bankruptcy Court to
the District Court.
On December 7, 1998, the Estate Representative filed a motion for a
preliminary injunction which seeks to enjoin the Company and Cole Taylor
Bank from paying directly or indirectly any dividends to any of their
respective shareholders and from paying any of the litigation defense costs
of the Taylor Family or any other co-defendants with respect to any
litigation arising out of the Split-Off Transactions. This motion for a
preliminary injunction is currently pending.
11
<PAGE> 12
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
On July 21, 1999, the Company and certain other defendants in the nine
Texas cases, the one Illinois case and the adversary proceedings submitted
a request to the Judicial Panel on Multidistrict Litigation seeking to have
all of these cases transferred to the Northern District of Illinois for
coordinated or consolidated pretrial proceedings. This request is currently
pending.
In accordance with the terms and conditions of the Share Exchange Agreement
relating to the Split-Off Transactions, the Taylor Family has agreed to
indemnify Reliance for certain losses incurred by Reliance, including
certain losses relating to the Split-Off Transactions ("Taylor Family
Indemnification Obligations"). In accordance with the terms of an agreement
dated February 6, 1997 between the Taylor Family and the Company, the
Company has agreed to indemnify the Taylor Family for certain losses that
the Taylor Family may incur as a result of the Split-Off Transactions,
including a portion of the Taylor Family Indemnification Obligations under
the Share Exchange Agreement. The Company is unable at this time to predict
the extent to which it will be required to pay any amounts under its
indemnification obligation to the Taylor Family. The Company and its
subsidiaries have paid and may continue to pay defense and other legal
costs of the lawsuits described above that are not otherwise advanced by
insurance carriers on behalf of the Taylor Family and other directors,
officers and stockholders of the Company who are defendants in these
lawsuits.
The Company believes that it has meritorious defenses to all of the actions
against the Company, and the Company intends to defend itself and its
subsidiaries vigorously. However, the Company is unable to predict, at this
time, the potential impact of the litigation, the indemnification
obligations and the payment of legal fees described above on the
management, business, financial condition, liquidity and operating results
of the Company. Even if the Taylor Family, the Company and the other
defendants are successful in defending themselves in the lawsuits, the
Company has incurred and will continue to incur significant costs with
respect to such lawsuits.
The Company is from time to time a party to various other legal actions
arising in the normal course of business. Management knows of no such other
threatened or pending legal actions against the Company that are likely to
have a material adverse impact on the business, financial condition,
liquidity or operating results of the Company.
9. Segment Reporting
The Company's operations include two primary segments: banking and mortgage
banking. Through its 12 banking branches located in the Chicago
metropolitan area, the Company provides a full range of commercial and
consumer banking services to small and mid size businesses. The mortgage
banking segment originates residential mortgage and home equity loans from
approved mortgage brokers and other financial intermediaries, as well as
employee loan originators who are compensated on a full commission basis.
The majority of the first mortgage loans originated are conforming loans
which are generally sold into the secondary market. The home equity loans
are retained by the Bank and included in the Company's mortgage banking
segment.
12
<PAGE> 13
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
The Company's two reportable segments are separately managed, as they offer
different products and services and have different marketing strategies. In
addition, the mortgage banking segment, through its wholesale origination
operation, services a different customer base than the banking segment.
The segment financial information provided below has been derived from the
internal profitability reporting system used by management to monitor and
manage the financial performance of the Bank. The Bank evaluates segment
performance based on profit or loss before income taxes. Certain indirect
expenses have been allocated based on actual volume measurements and other
criteria, as the Bank considers appropriate. The Bank accounts for
intersegment revenue at current market prices.
The following tables present reportable segment information for the periods
indicated:
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------------------------------------------------
June 30, 1999 June 30, 1998
--------------------------------------------------------------------------
Mortgage Mortgage
Banking Banking Total Banking Banking Total
--------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $18,681 $1,144 $19,825 $17,301 $625 $17,926
Noninterest income 4,026 39 4,065 3,699 59 3,758
Depreciation and amortization 1,580 5 1,585 1,483 25 1,508
Other significant noncash items:
Provision for loan losses 1,451 49 1,500 1,499 1 1,500
Gain on sales of loans, net --- 684 684 --- 1,150 1,150
Gain on sale of mortgage
servicing rights --- 193 193 --- 15 15
Impairment of mortgage
servicing rights --- --- --- --- 97 97
Reduction of impairment
reserve on mortgage
servicing rights --- --- --- --- --- ---
Income taxes (benefit) 3,125 (176) 2,949 2,052 3 2,055
Segment net income (loss) $5,084 $(329) $4,755 $3,090 $2 $3,092
=============================================================================
Segment average assets $1,875,930 $88,963 $1,964,893 $1,793,975 $62,597 $1,856,572
=============================================================================
</TABLE>
13
<PAGE> 14
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------------------------------------------------------
June 30, 1999 June 30, 1998
-----------------------------------------------------------------------------
Mortgage Mortgage
Banking Banking Total Banking Banking Total
-----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $36,046 $2,108 $38,154 $34,714 $1,192 $35,906
Noninterest income 7,883 140 8,023 7,406 103 7,509
Depreciation and amortization 3,103 11 3,114 3,041 52 3,093
Other significant noncash items:
Provision for loan losses 2,909 91 3,000 2,249 1 2,250
Gain on sales of loans, net --- 1,491 1,491 --- 1,951 1,951
Gain on sale of mortgage
servicing rights --- 193 193 --- 1,462 1,462
Impairment of mortgage
servicing rights --- --- --- --- 150 150
Reduction of impairment
reserve on mortgage
servicing rights --- 47 47 --- --- ---
Income taxes (benefit) 5,546 (244) 5,302 4,758 488 5,246
Segment net income (loss) $9,043 $(492) $8,551 $7,367 $900 $8,267
=============================================================================
Segment average assets $1,843,381 $90,125 $1,933,506 $1,776,375 $68,552 $1,844,927
=============================================================================
</TABLE>
14
<PAGE> 15
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
The following tables reconcile segment information to the consolidated financial
statements for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------------------------------------------------
June 30, 1999 June 30, 1998
-----------------------------------------------------------------------------
Reportable Consolidated Reportable Consolidated
Segments Other Totals Segments Other Totals
-----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $19,825 $(377) $19,448 $17,926 $(479) $17,447
Noninterest income 4,065 (2) 4,063 3,758 14 3,772
Depreciation and amortization 1,585 --- 1,585 1,508 --- 1,508
Other significant noncash items:
Provision for loan losses 1,500 --- 1,500 1,500 --- 1,500
Gain on sales of loans, net 684 --- 684 1,150 --- 1,150
Gain on sale of mortgage
servicing rights 193 --- 193 15 --- 15
Impairment of mortgage
servicing rights --- --- --- 97 --- 97
Income taxes (benefit) 2,949 (812) 2,137 2,055 (912) 1,143
Net income (loss) $4,755 $(1,530) $3,225 $3,092 $(1,714) $1,378
=============================================================================
Average assets $1,964,893 --- $1,964,893 $1,856,572 --- $1,856,572
=============================================================================
</TABLE>
15
<PAGE> 16
TAYLOR CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------------------------------------------------------
June 30, 1999 June 30, 1998
-----------------------------------------------------------------------------
Reportable Consolidated Reportable Consolidated
Segments Other Totals Segments Other Totals
-----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $38,154 $(776) $37,378 $35,906 $(955) $34,951
Noninterest income 8,023 (5) 8,018 7,509 (5) 7,504
Depreciation and amortization 3,114 --- 3,114 3,093 --- 3,093
Other significant noncash items:
Provision for loan losses 3,000 --- 3,000 2,250 --- 2,250
Gain on sales of loans, net 1,491 --- 1,491 1,951 --- 1,951
Gain on sale of mortgage
servicing rights 193 --- 193 1,462 --- 1,462
Impairment of mortgage
servicing rights --- --- --- 150 --- 150
Reduction of impairment
reserve on mortgage
servicing rights 47 --- 47 --- --- ---
Income taxes (benefit) 5,302 (1,533) 3,769 5,246 (1,591) 3,655
Net income (loss) $8,551 $(3,158) $5,393 $8,267 $(3,008) $5,259
=============================================================================
Average assets $1,933,506 $ 2,986 $1,936,492 $1,844,927 $10,558 $1,855,485
=============================================================================
</TABLE>
For the three and six months ended June 30, 1999 and 1998, respectively, amounts
presented in the other columns represent the operations of the Parent Company
and the Mortgage Company that have not been defined as reportable segments.
10. Cumulative Effect of Change in Accounting Principle
As of January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
98-5), "Reporting on the Costs of Start-Up Activities," which requires that the
cost of start-up activities and organization costs be expensed as incurred. The
initial adoption of SOP 98-5 resulted in a charge of $214,000 (net of a tax
benefit of $146,000) and is reported in the Consolidated Statements of Income as
a cumulative effect of change in accounting principle. The charge represents
remaining organization costs associated with the Split-Off Transactions which
had not yet been fully amortized.
16
<PAGE> 17
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following presents management's discussion and analysis of financial
condition and results of operations of the Company as of the dates and for the
periods indicated. This discussion should be read in conjunction with the
Company's Consolidated Financial Statements, and the Notes thereto, appearing
elsewhere in this Form 10-Q.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Taylor Capital
Group, Inc. (the "Parent Company") and its wholly owned subsidiaries
(collectively, with the Parent Company, the "Company"), Cole Taylor Bank and its
subsidiaries (the "Bank") and CT Mortgage Company, Inc. (the "Mortgage
Company"). This discussion should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS
Overview
The Company's second quarter 1999 financial results reflected an increase in
profitability in comparison to the financial results for the second quarter of
1998. Major factors contributing to this increase included: 1) the increase in
net interest income to $19.4 million from $17.4 million for the same period in
1998, 2) the $193,000 gain on the sale of mortgage servicing rights which
occurred during the second quarter of 1999 and 3) the decrease in noninterest
expenses to $17.5 million in 1999 from $18.3 million in 1998. These factors were
partially offset by a decrease in gain on sales of loans, net, to $684,000 for
the second quarter of 1999 from $1.2 million for the same period in 1998.
For the second quarter of 1999, consolidated net income was $3.2 million.
Annualized return on average assets and return on average equity were 0.66% and
8.81%, respectively. For the second quarter of 1998, consolidated net income was
$1.4 million, and annualized return on average assets and return on average
equity were 0.30% and 3.86%, respectively. Total assets of the Company were
$2.00 billion and $1.91 billion at June 30, 1999 and December 31, 1998,
respectively. Loans and deposits grew to $1.42 billion and $1.50 billion,
respectively, at June 30, 1999 from $1.34 billion and $1.44 billion,
respectively, at December 31, 1998. Stockholders' equity increased to $145.4
million at June 30, 1999 as compared to $145.1 million at December 31, 1998.
For the six months ended June 30, 1999, consolidated net income was $5.4
million. Annualized return on average assets and return on average equity were
0.56% and 7.40%, respectively. For the same period in 1998, consolidated net
income was $5.3 million. Annualized return on average assets and return on
average equity were 0.57% and 7.43%, respectively. Despite an increase in net
interest income to $37.4 million for the six months ended June 30, 1999 from
$35.0 million for the same period in 1998, net income increased only slightly
primarily due to an increase in the loan loss provision to $3.0 million in 1999
from $2.3 million in 1998, a $1.5 million gain on the sale of mortgage servicing
rights in 1998 and an increase in legal fees to $2.6 million in 1999 compared to
$2.0 million in 1998.
17
<PAGE> 18
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Net Interest Income
The following table sets forth certain information relating to the Company's
average consolidated balance sheets and reflects the yield on average earning
assets and cost of average liabilities for the periods indicated. Such yields
and costs are derived by dividing annualized income or expense by the average
balance of assets or liabilities. Interest income is measured on a tax
equivalent basis using a 35% income tax rate for each period presented.
18
<PAGE> 19
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND YIELD/RATES
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30. 1999 JUNE 30. 1998
------------------------------ -----------------------------
YIELD/ YIELD/
AVERAGE RATE AVERAGE RATE
BALANCE INTEREST (%)(4) BALANCE INTEREST (%)(4)
------------ --------- ------ ------------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS: (dollars in thousands)
Investment securities (1):
Taxable $367,759 $5,030 5.48 % $405,558 $5,751 5.72 %
Non-taxable (tax equivalent) 71,323 1,366 7.66 67,145 1,326 7.90
--------- ------ --------- ------
Total investment securities 439,082 6,396 5.83 472,703 7,077 6.00
--------- ------ --------- ------
Cash equivalents 16,306 193 4.68 3,226 44 5.40
--------- ------ --------- ------
Loans (2):
Commercial and industrial 1,026,783 22,134 8.53 882,482 19,811 8.88
Real estate mortgages 177,313 3,189 7.19 210,311 3,782 7.19
Consumer and other 174,612 3,494 8.03 157,253 3,492 8.91
Fees on loans 277 395
--------- ------ --------- ------
Net loans (tax equivalent) 1,378,708 29,094 8.46 1,250,046 27,480 8.81
--------- ------ --------- ------
Total earning assets 1,834,096 35,683 7.80 1,725,975 34,601 8.04
--------- ------ --------- ------
Allowance for loan losses (25,289) (25,340)
NONEARNING ASSETS:
Cash and due from banks 66,746 64,168
Accrued interest and other assets 89,340 91,769
--------- ---------
TOTAL ASSETS $1,964,893 $1,856,572
========== ==========
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand deposits $356,510 2,695 3.03 $338,948 2,996 3.55
Savings deposits 107,960 439 1.63 113,093 666 2.36
Time deposits 702,692 8,764 5.00 602,279 8,390 5.59
--------- ------ --------- ------
Total deposits 1,167,162 11,898 4.09 1,054,320 12,052 4.58
--------- ------ --------- ------
Short-term borrowings 191,598 2,121 4.44 204,258 2,643 5.19
Notes payable 121,192 1,607 5.25 130,657 1,880 5.69
--------- ------ --------- ------
Total interest-bearing liabilities 1,479,952 15,626 4.23 1,389,235 16,575 4.79
--------- ------ --------- ------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 316,802 306,919
Nonrecourse borrowings (3) --- ---
Accrued interest and other liabilities 21,399 17,297
STOCKHOLDERS' EQUITY 146,740 143,121
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,964,893 $1,856,572
========== ==========
Net interest income (tax equivalent) $20,057 $18,026
======= =======
Net interest spread 3.57 % 3.25 %
Net interest margin 4.38 % 4.18 %
==== ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30. 1999 JUNE 30, 1998
------------------------------- -------------------------------
YIELD/ YIELD/
AVERAGE RATE AVERAGE RATE
BALANCE INTEREST (%)(4) BALANCE INTEREST (%)(4)
------------ --------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS: (dollars in thousands)
Investment securities (1):
Taxable $363,492 $9,679 5.34 % $413,645 $12,229 5.94 %
Non-taxable (tax equivalent) 72,663 2,796 7.70 65,474 2,596 7.93
--------- ------ --------- ------
Total investment securities 436,155 12,475 5.73 479,119 14,825 6.21
--------- ------ --------- ------
Cash equivalents 11,537 274 4.72 4,872 134 5.47
--------- ------ --------- ------
Loans (2):
Commercial and industrial 1,007,341 42,894 8.47 871,001 39,035 8.91
Real estate mortgages 181,013 6,463 7.14 201,903 7,390 7.32
Consumer and other 169,457 6,784 8.07 156,223 6,906 8.91
Fees on loans 517 697
--------- ------ --------- ------
Net loans (tax equivalent) 1,357,811 56,658 8.41 1,229,127 54,028 8.85
--------- ------ --------- ------
Total earning assets 1,805,503 69,407 7.74 1,713,118 68,987 8.11
--------- ------ --------- ------
Allowance for loan losses (25,301) (25,559)
NONEARNING ASSETS:
Cash and due from banks 66,707 68,246
Accrued interest and other assets 89,583 99,680
--------- ---------
TOTAL ASSETS $1,936,492 $1,855,485
========== ==========
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand deposits $358,117 5,473 3.08 $341,381 6,035 3.56
Savings deposits 107,442 914 1.72 113,003 1,377 2.46
Time deposits 675,642 16,951 5.06 595,680 16,582 5.61
--------- ------ --------- ------
Total deposits 1,141,201 23,338 4.12 1,050,064 23,994 4.61
--------- ------ --------- ------
Short-term borrowings 184,906 4,094 4.46 200,800 5,140 5.16
Notes payable 126,157 3,356 5.29 127,167 3,745 5.86
--------- ------ --------- ------
Total interest-bearing liabilities 1,452,264 30,788 4.28 1,378,031 32,879 4.81
--------- ------ --------- ------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 315,355 308,071
Nonrecourse borrowings (3) --- 8,083
Accrued interest and other liabilities 22,544 18,624
STOCKHOLDERS' EQUITY 146,329 142,676
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,936,492 $1,855,485
========== ==========
Net interest income (tax equivalent) $38,619 $36,108
======= =======
Net interest spread 3.46 % 3.30 %
Net interest margin 4.30 % 4.24 %
==== ====
</TABLE>
(1) Investment securities average balances are based on amortized cost.
(2) Nonaccrual loans are included in the above stated average balances.
(3) Interest expense on nonrecourse borrowings is netted against trust fees on
the income statement.
(4) Yields/rates are annualized.
19
<PAGE> 20
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Net Interest Income -- continued
Net interest income, the difference between total interest income earned on
earning assets and total interest expense incurred on interest-bearing
liabilities, is the Company's principal source of earnings. The amount of net
interest income is affected by changes in the volume and mix of earning assets
and interest-bearing liabilities, and the level of rates earned or paid on those
assets and liabilities.
Net interest income (with an adjustment for tax-exempt income) for the second
quarter of 1999 was $20.1 million, compared to $18.0 million for the second
quarter of 1998. The increase in net interest income in 1999 was in part a
result of an increase in average earning assets of $108.1 million, or 6.3%, for
the three months ended June 30, 1999 when compared to the 1998 reporting period.
Net interest margin, which is determined by dividing taxable-equivalent net
interest income by average earning assets, increased to 4.38% for the second
quarter of 1999, from 4.18% for the same 1998 quarter. The net interest margin
was positively impacted by a payoff of a loan which was originally purchased at
a discount by the Bank. This payoff resulted in the recognition of the remaining
unamortized discount as interest income in the amount of $535,000. A change in
asset mix also occurred whereby maturing investment securities were utilized to
fund higher yielding commercial loans. These factors increasing the net
margin were partially offset by reduced yields on investment securities and
commercial loans. The yield on earning assets declined to 7.80% from 8.04% for
the three months ended June 30, 1999 and 1998, respectively. The yield on
commercial loans reflected the 75 basis point reduction in the Company's prime
rate during the fourth quarter of 1998 as well as increased competitive pressure
on loan pricing. The cost of interest-bearing liabilities declined to 4.23% from
4.79% for three months ended June 30, 1999 and 1998, respectively, primarily as
a result of lowering the rate paid on interest-bearing deposits and the renewal
of maturing notes payable at lower interest rates due to the lower interest rate
environment during the latter half of 1998.
Net interest income (with an adjustment for tax-exempt income) for the first six
months of 1999 totaled $38.6 million as compared to $36.1 million for the first
six months of 1998. The increase in net interest income was primarily a result
of an increase in average earning assets of $92.4 million, or 5.0%, for the six
months ended June 30, 1999 when compared to the 1998 reporting period. Net
interest margin was 4.30% for the first six months of 1999 as compared to 4.24%
for the 1998 reporting period. The net interest margin was positively impacted
by a payoff of a loan which was originally purchased at a discount, as described
above, and a 53 basis point decline in the cost of interest-bearing liabilities.
This increase was partially offset by declines in the investment security and
commercial loan yields. The yield on earning assets declined to 7.74% from 8.11%
for the first six months of 1999, as compared to the same period in 1998. In
late 1997 and January 1998, the Bank purchased approximately $92 million of
sequential-paying collateralized mortgage obligations at a premium of $7.5
million. The decline in mortgage interest rates and higher refinancing activity
experienced during 1998 required that the Bank amortize the purchase premium at
a rate faster than originally expected. Accordingly, in the third and fourth
quarters of 1998, adjustments were recorded to reduce the yields of the
securities to an expected yield given actual payments received to date and the
future expected prepayment rate for these securities. At June 30, 1999, these
securities totaled $32.7 million, with $1.4 million of premium remaining and an
expected yield of 3.3%. These securities are backed by pools of single-family
mortgage loans and guaranteed, as to principal and interest, by certain
agencies, including the Federal National Mortgage Association (FNMA) and the
Federal Home Loan Mortgage Corporation (FHLMC). The decreased yield on
commercial loans reflected the 75 basis point reduction in the Company's prime
rate
20
<PAGE> 21
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Net Interest Income -- continued
during the fourth quarter of 1998, as well as increased competitive pressure on
loan pricing. The yield on real estate mortgages decreased as mortgage
prepayments increased and new mortgage production rates were lower due to the
lower interest rate environment.
The cost of interest-bearing liabilities declined to 4.28% during the first six
months of 1999 from 4.81% for the six months ended June 30, 1998, primarily
as a result of lowering the rate paid on interest-bearing deposits and the
renewal of maturing notes payable at lower interest rates due to the lower
interest rate environment during the latter half of 1998.
Provision for Loan Losses
Management determines a provision for loan losses which it considers sufficient
to maintain an allowance covering probable losses inherent in the portfolio as
of the balance sheet date. In evaluating the adequacy of the allowance for loan
losses, consideration is given to historical charge-off experience, growth of
the loan portfolio, changes in the composition of the loan portfolio, general
economic conditions, information about specific borrower situations, including
their financial position and collateral values, and other factors and estimates
which are subject to change over time. Estimating the risk of loss and amount of
loss on any loan is subjective. Ultimate losses may vary from current estimates.
These estimates are reviewed quarterly and, as changes in estimates are
identified by management, the amounts are reflected in income through the
provision for loan losses in the appropriate period.
The provision for loan losses in the second quarter of 1999 and the second
quarter of 1998 was $1.5 million. For the first six months of 1999 the provision
for loan losses totaled $3.0 million versus $2.3 million for the same period of
1998. The $750,000 increase in the provision was a result of an increase in loan
volume in 1999. Net charge-offs were $480,000 for the second quarter of 1999 as
compared to $2.6 million for the same 1998 period. For the first six months of
1999 net charge-offs totaled $1.7 million as compared to $3.6 million for the
same 1998 period. The higher net charge-off activity experienced in 1998 was a
result of the resolution of certain older, chronic commercial problem loans. If
the loan portfolio continues to grow and/or future net charge-offs do not
decline, and/or nonperforming loans increase, the Company expects that the
provision for loan losses will continue to exceed 1998 levels. As of June 30,
1999, management believes that the allowance for loan losses is adequate. See
"Financial Condition -- Nonperforming Loans and Assets."
21
<PAGE> 22
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Noninterest Income
The following table displays noninterest income for the periods indicated:
<TABLE>
<CAPTION>
NONINTEREST INCOME
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ -------------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
Deposit service charges $2,222 $2,097 $4,296 $4,187
Retail credit card service charges 145 137 198 267
Merchant credit card processing fees 25 33 27 137
Trust fees 1,051 977 2,131 1,922
Gain on sale of loans, net 684 1,150 1,491 1,951
Mortgage loan servicing income (loss) 45 (38) 186 (48)
ATM fees 245 213 502 406
Gain on sale of mortgage servicing rights 193 15 193 1,462
Investment securities gains, net --- --- 107 ---
Other noninterest income 330 256 618 483
------ ------ ------ -------
Total noninterest income $4,940 $4,840 $9,749 $10,767
====== ====== ====== =======
</TABLE>
Noninterest income for the second quarter of 1999 totaled $4.9 million, a
$100,000, or 2.1%, increase from the same quarter in 1998. Increases in deposit
service charges, trust fees, ATM fees, and mortgage loan servicing income, which
totaled $314,000, in the aggregate, for the three months ended June 30, 1999, as
compared to the same period in 1998 were primarily offset by a $466,000 decrease
in gain on sale of loans, net. The decrease in the gain on sale of loans, net
was primarily a result of a 26% decrease in the volume of loans sold as compared
to 1998.
Total noninterest income for the first six months of 1999 was $9.7 million as
compared to $10.8 million for the same period in 1998. The decrease in
noninterest income was primarily due to the 1998 reporting period inclusion of a
gain on sale of mortgage servicing rights of $1.5 million versus a gain of only
$193,000 for the 1999 reporting period. In addition, merchant credit card
processing fees decreased during 1999 due to reductions in pricing of credit
card deposit services.
For the first six months of 1999, trust fees increased $209,000, as compared to
the same period in 1998, primarily due to an increase in corporate trust
business. The increase in mortgage loan servicing income was primarily a result
of a $47,000 reduction in the valuation reserve related to capitalized mortgage
servicing rights during the first quarter of 1999, as mortgage prepayment
activity slowed during 1999. An impairment provision of $150,000 had been
recognized during the first six months of 1998. The Company's higher ATM fee
income during the first six months of 1999 was due to an increase in the
surcharge fee implemented in the fourth quarter of 1998.
22
<PAGE> 23
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Noninterest Expense
The following table displays noninterest expense for the periods indicated:
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
For The Three Months Ended For the Six Months
June 30, Ended June 30,
----------------------------- ------------------------------------
1999 1998 1999 1998
------------ ------------ ------------ --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 9,261 $ 9,242 $18,741 $18,367
Occupancy of premises, net 1,563 1,805 3,320 3,519
Furniture and equipment 865 917 1,623 1,726
Computer processing 565 505 1,188 1,066
Legal fees 1,471 1,688 2,618 2,002
Advertising and public relations 261 805 413 963
Goodwill and other intangible amortization 600 613 1,212 1,224
Other real estate and repossessed asset expense 70 111 165 209
Other noninterest expense 2,870 2,580 5,471 5,478
------- ------- ------- -------
Total noninterest expense $17,526 $18,266 $34,751 $34,554
======= ======= ======= =======
Efficiency ratio (1) 71.86 % 81.96 % 73.74 % 75.58 %
======= ======= ======= =======
</TABLE>
- ----------
(1) Noninterest expense divided by an amount equal to net interest income plus
noninterest income.
Total noninterest expense for the second quarter of 1999 was $17.5 million, a
$740,000, or 4.0%, decrease as compared to the prior year's second quarter
noninterest expense of $18.3 million. The primary reason for the lower expense
for the 1999 reporting period was a decrease in advertising and public relations
expense of $544,000. The Company expects this trend to continue as the Company
changed its advertising campaign strategy for 1999. Additionally, occupancy
expense for the second quarter of 1999 decreased $242,000 as compared to the
same 1998 period. A reduction in rent expense related to one of the Bank's
facilities contributed to the decrease.
Noninterest expense for the six months ended June 30, 1999 totaled $34.8
million, as compared to $34.6 million for the 1998 reporting period. The primary
reasons for the higher expense in the 1999 reporting period over that in the
1998 period were increased legal fees and employee benefit costs, partially
offset by a decrease in advertising and public relations expense and occupancy
expenses.
Salaries and benefits expense for the first six months of 1999 increased 2.0%
versus the same period in 1998. The primary reason for the increase was routine
annual salary increases partially offset by a lower number of full-time
equivalents employees in 1999 versus 1998.
23
<PAGE> 24
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Noninterest Expense -- continued
In late 1998 and the first two quarters of 1999, the Bank implemented
significant technology enhancements within the Bank's operations center and
replaced certain hardware and software applications with systems of greater
functionality. Capital expenditures related to the replacement of hardware and
software totaled approximately $2.8 million. The Company anticipates these
enhancements and replacements will increase furniture and equipment expenses in
future periods.
Legal expenses for the first six months of 1999 increased $616,000 from 1998.
Parent Company legal costs increased during 1999, relating to the bankruptcy of
Reliance Acceptance Group, Inc and the defense of the various lawsuits relating
to the Split-Off Transactions. The legal costs relating to the bankruptcy of
Reliance Acceptance Group, Inc. and the defense of the various related lawsuits
relating to the Split-Off Transactions totaled approximately $2.3 million and
$1.8 million during the 1999 and 1998 reporting periods. The Company expects to
continue to incur significant legal expenses in connection with the Split-Off
Transactions litigation, which will continue to adversely affect profitability.
A portion of these defense costs have been, and will be, submitted to insurance
carriers for reimbursement. The Company, however, cannot predict to what extent
such costs will be reimbursed or when such reimbursement could occur. See
"Litigation" below.
Income Taxes
Income tax expense of $2.1 million and $1.1 million was recorded for the second
quarters of 1999 and 1998, respectively, reflecting an effective tax rate of 40%
and 45%, respectively. The income tax expense for the first six months of 1999
and 1998 totaled $3.8 million and $3.7 million, respectively, reflecting an
effective tax rate of 40% and 41%, respectively. The higher effective tax rate
for the 1998 reporting periods was primarily due to certain employee benefit
costs in those periods that were not fully deductible for tax purposes.
Cumulative Effect of Change in Accounting Principle
As of January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
98-5), "Reporting on the Costs of Start-Up Activities," which requires that the
cost of start-up activities and organization costs be expensed as incurred. The
initial adoption of SOP 98-5 resulted in a charge of $214,000 (net of a tax
benefit of $146,000) and is reported in the Consolidated Statements of Income as
a cumulative effect of change in accounting principle. The charge represents
remaining organization costs associated with the Split-Off Transactions which
had not yet been fully amortized.
FINANCIAL CONDITION
Overview
During the first six months of 1999 total assets increased $76.8 million to
$2.00 billion at June 30, 1999 from $1.91 billion at December 31, 1998. The
asset growth in the Company's commercial, real estate construction and home
24
<PAGE> 25
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Financial Condition -- continued
equity loan portfolios was primarily funded with brokered certificates of
deposit. Growth in customer interest-bearing deposits and repurchase agreements
was offset by a seasonal decline in customer non-interest bearing deposits.
Mortgage loans held-for-sale declined due to an increase in the volume of
mortgage loans delivered for sale.
In March 1999, the Company executed a modest restructuring of the
available-for-sale investment portfolio. Approximately $50 million of
short-maturity U.S. Treasury securities were sold, and the proceeds were
reinvested in longer-term Treasury, government agency and mortgage-backed
securities, thereby lengthening the duration of the investment portfolio.
Premises and equipment expenses increased approximately $1.7 million during the
first six months of 1999 primarily as a result of the purchase of operations and
technology hardware and software.
Goodwill may periodically be reduced by the utilization of state net operating
loss carryforwards acquired in connection with the Split-Off Transactions. The
state income tax benefit of these items is applied against goodwill when
recognized, rather than as a reduction of income tax expense.
Nonperforming Loans and Assets
Management reviews the loan portfolio for problem loans through a loan review
function and various credit committees. During the ordinary course of business,
management may become aware of borrowers who may not be able to meet the
contractual requirements of loan agreements. Such loans are placed under close
supervision with consideration given to placing the loan on a nonaccrual status,
the need for an additional allowance for loan loss, and, if appropriate, a
partial or full charge-off.
The following table sets forth the amounts of nonperforming loans and other
assets at the end of the periods indicated:
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(dollars in thousands)
<S> <C> <C>
Loans contractually past due 90 days or more but still accruing $ 2,930 $ 2,618
Nonaccrual loans 8,322 11,365
------- -------
Total nonperforming loans 11,252 13,983
Other real estate 2,721 3,185
Other repossessed assets 43 83
------- -------
Total nonperforming assets $14,016 $17,251
======= =======
Nonperforming loans to total loans 0.79 % 1.05 %
Nonperforming assets to total loans plus repossessed property 0.95 % 1.29 %
Nonperforming assets to total assets 0.70 % 0.90 %
</TABLE>
25
<PAGE> 26
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Allowance for Loan Losses
An allowance for loan losses has been established to provide for those loans
which may not be repaid in their entirety. The allowance for loan losses is
increased by provisions charged to expense and decreased by charge-offs, net of
recoveries. The allowance is maintained by management at a level it considers
adequate to distinguish probable losses inherent in the portfolio as of the
balance sheet date. Factors considered include past loss experience, general
economic conditions, information about specific borrower situations, including
their financial position, collateral values, and other factors and estimates
which are subject to change over time. These estimates are reviewed quarterly
and, as changes in estimates are identified by management, the resulting amounts
are reflected through the provision for loan losses in the appropriate period.
Although management believes that the Company's allowance for loan losses is
adequate to absorb any losses on existing loans that may become uncollectible,
there can be no assurance that the allowance will prove sufficient to cover
actual loan losses in the future. See "Results of Operations --Provision for
Loan Losses".
The following table summarizes, for the periods indicated, activity in the
allowance for loan losses, including amounts charged-off, amounts of recoveries,
additions to the allowance charged to operating expense, the ratio of annualized
net charge-offs to average total loans, the ratio of the allowance to total
loans at end of period, and the ratio of the allowance to nonperforming loans:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
For the Three Months Ended For The Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Average total loans $1,378,592 $1,250,046 $1,357,811 $1,229,127
========== ========== ========== ==========
Total loans at end of period $1,417,361 $1,252,440
========== ==========
ALLOWANCE FOR LOAN LOSSES:
Allowance at beginning of period $ 24,834 $ 25,642 $ 24,599 $ 25,813
Charge-offs (733) (3,276) (2,832) (4,416)
Recoveries 254 637 1,088 856
---------- ---------- ---------- ----------
Net charge-offs (479) (2,639) (1,744) (3,560)
---------- ---------- ---------- ----------
Provision for loan losses 1,500 1,500 3,000 2,250
---------- ---------- ---------- ----------
Allowance at end of period $ 25,855 $ 24,503 $ 25,855 $ 24,503
========== ========== ========== ==========
Net charge-offs to average total loans 0.14 % 0.85 % 0.26 % 0.58 %
(annualized)
Allowance to total loans at end of period 1.82 % 1.96 %
Allowance to nonperforming loans 229.78 % 148.70 %
</TABLE>
Net charge-offs for the quarter and six months ended June 30, 1999 decreased
over the comparable periods for 1998. Net charge-offs were $1.7 million for the
six months ended June 30, 1999, as compared to $3.6 million for
26
<PAGE> 27
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Allowance for Loan Losses -- continued
the 1998 reporting period. The decrease in 1999 was primarily due to the
resolution of certain older, chronic commercial problem loans which were
charged-off during the second quarter of 1998. The amount of nonperforming loans
was $11.3 million at June 30, 1999 as compared to $14.0 million at December 31,
1998. The ratio of allowance to nonperforming loans increased to 229.78% at June
30, 1999 from 175.92% at December 31, 1998.
Capital Resources
The Company actively monitors compliance with bank regulatory capital
requirements, focusing primarily on the risk-based capital guidelines. Under the
risk-based method of capital measurement, computed ratios are dependent on the
amount and composition of assets recorded on the balance sheet, as well as the
amount and composition of off-balance sheet items, in addition to the level of
capital.
The Company's and the Bank's capital ratios were as follows for the dates
indicated:
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
------------------- -------------------
Amount Ratio Amount Ratio
----------- ------- -------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
As of June 30, 1999:
Total Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated $137,539 9.12 % greater than $120,713 greater than 8.00 %
Cole Taylor Bank 160,806 10.67 greater than 120,588 greater than 8.00
Tier I Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated 118,591 7.86 greater than 60,357 greater than 4.00
Cole Taylor Bank 141,879 9.41 greater than 60,294 greater than 4.00
Leverage (1)
Taylor Capital Group, Inc. - Consolidated 118,591 6.12 greater than 77,449 greater than 4.00
Cole Taylor Bank 141,879 7.34 greater than 77,283 greater than 4.00
As of December 31, 1998:
Total Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated $131,218 9.02 % greater than $116,405 greater than 8.00 %
Cole Taylor Bank 154,943 10.67 greater than 116,144 greater than 8.00
Tier I Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated 112,951 7.76 greater than 58,203 greater than 4.00
Cole Taylor Bank 136,717 9.42 greater than 58,072 greater than 4.00
Leverage (1)
Taylor Capital Group, Inc. - Consolidated 112,951 6.17 greater than 73,204 greater than 4.00
Cole Taylor Bank 136,717 7.33 greater than 74,655 greater than 4.00
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provision
-------------------
Amount Ratio
------ -----
<S> <C> <C> <C> <C>
As of June 30, 1999:
Total Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated NA
Cole Taylor Bank greater than $150,735 greater than 10.00 %
Tier I Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated NA
Cole Taylor Bank greater than 90,441 greater than 6.00
Leverage (1)
Taylor Capital Group, Inc. - Consolidated NA
Cole Taylor Bank greater than 96,604 greater than 5.00
As of December 31, 1998:
Total Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated NA
Cole Taylor Bank greater than $145,507 greater than 10.00 %
Tier I Capital (to Risk Weighted Assets)
Taylor Capital Group, Inc. - Consolidated NA
Cole Taylor Bank greater than 87,304 greater than 6.00
Leverage (1)
Taylor Capital Group, Inc. - Consolidated NA
Cole Taylor Bank greater than 91,506 greater than 5.00
</TABLE>
- ----------
(1) The leverage ratio is defined as Tier 1 capital divided by average
quarterly assets.
27
<PAGE> 28
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Capital Resources -- continued
Management of the Company recognizes the need to effectively manage capital
levels to remain above the regulatory "well capitalized" guidelines as it
relates to asset growth. In order to avoid declining capital levels, management
will continue to evaluate options, to fund Parent Company legal costs and other
expenses, including utilizing the Parent Company's revolving credit facility.
For the first six months of 1999, the Parent Company declared $1.7 million and
$838,000 in preferred and common stock dividends, respectively.
Liquidity
The asset growth of loans was funded primarily through the issuance of brokered
certificates of deposits. Brokered certificates of deposits increased to $148.6
million at June 30, 1999 from $56.3 million at December 31, 1998. Adverse
operating results at the Bank or changes in industry conditions could lead to an
inability to replace such brokered deposits at maturity, which could result in
higher costs to or reduced asset levels of the Bank. The Parent Company paid $1
million on its term loan and $1 million on its revolving credit facility during
the first six months of 1999. The Company believes that its current sources of
funds are adequate to meet all of the Company's financial commitments and asset
growth targets for 1999.
On December 7, 1998 a motion was filed for a preliminary injunction which seeks
to prevent the Company and the Bank from paying any dividends to any of their
respective shareholders. See "Litigation."
As described in Footnote 8 to the consolidated financial statements included in
Part I, Item 1, and under the caption "Litigation" in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Company and its subsidiaries continue to pay defense and other legal costs
related to certain significant litigation. As these costs are being paid
primarily by the Parent Company, the Parent Company's cash needs have increased.
The liquidity requirements for the Parent Company on a standalone basis consist
primarily of dividends to shareholders and expenses for general corporate
purposes including legal costs. The primary source of Parent Company cash flow
is dividends received from the Bank. The Company believes that the Bank
currently has adequate capital to allow continued dividends, out of earnings, to
support the Parent Company.
YEAR 2000 COMPLIANCE
The Company continues to be actively addressing its Year 2000 ("Y2K") compliance
issues. A comprehensive Y2K plan (the "Plan") has been prepared which includes
awareness, assessment, renovation, validation/testing, implementation and
contingency planning. The Company has developed an extensive Y2K communication
program. The Company will continue to update customers as to our progress as the
year ensues. A part of this communication program will focus on Y2K-related
fraud prevention. A Y2K oversight committee is responsible for ensuring that the
Plan is executed on a timely basis.
28
<PAGE> 29
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Year 2000 Compliance -- continued
The Company has substantially completed the awareness, assessment, renovation,
and validation phases of the Plan. The Plan called for the replacement or
upgrade of non-compliant systems and validation of those replacements or
upgrades during the fourth quarter of 1998 and early 1999. Non-compliant systems
were upgraded or replaced during the fourth quarter of 1998 and early 1999 in
accordance with the Company's Plan. The Company has completed testing of mission
critical applications and substantially all mission critical
applications/systems have been remediated as of June 30, 1999 in accordance with
milestones set forth by the Federal Financial Institutions Examination Council
(FFIEC).
The majority of the Company's mission critical systems (specifically those that
process loans, deposits, and general ledger transactions) are provided by third
party processors. At this time, the primary data processing provider reports
that it is on target to meet all required dates to provide compliant systems.
All core applications provided by the Company's primary data processing provider
have been tested and implemented for Y2K readiness with the exception of the
commercial loan system. An upgrade to this system is scheduled for
implementation in September, 1999. This application upgrade has successfully
been tested for Year 2000 readiness.
The Company has made significant progress relative to contingency plans for Year
2000. These plans will continue to be refined as 1999 progresses. In conjunction
with contingency planning, the Company has developed a liquidity strategy for
Y2K in order to meet expected currency demands at the Bank's branches and
automated teller machines. This strategy will be implemented during the second
half of 1999.
The Company expensed approximately $181,000 during the first six months of 1999,
and expects to incur additional costs throughout the remainder of 1999, for its
Y2K compliance program. With respect to certain technology applications, the
Company has elected to replace the existing applications with applications
having greater functionality, rather than limit its response only to remediation
of the Y2K issue. For that reason, the Company's technology expenditures have
materially increased from historical levels. The Company expects the additional
costs incurred related to Y2K remediation to represent only a small portion of
its overall technology expenditures.
Regardless of the Y2K compliance of the Company's systems, there can be no
assurance that the Company will not be adversely affected by the failure of
others to become Y2K compliant. Other risks may include potential losses related
to major loan or deposit customers, vendors or other counterparties who have Y2K
compliance problems. The Company has been evaluating, in accordance with the
guidelines outlined by the FFIEC, the potential credit and liquidity risk
associated with Y2K as it relates to the Company's customer base. The Company's
analysis performed to date has not identified major credit exposure within the
high risk category of customers; in-depth analysis will continue to be performed
during 1999.
Based on the Company's progress to date in executing its Plan, the Company
expects no significant disruption of business activities resulting from the
arrival of the Y2K.
29
<PAGE> 30
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Year 2000 Compliance -- continued
As a regulated financial institution, the Company is subject to possible
supervisory or enforcement action if the governing regulatory agency deems the
Company's response and progress with respect to the Y2K issue to be of serious
concern. At this time, management believes its progress with respect to Y2K
compliance to be satisfactory.
LITIGATION
Jeffrey W. Taylor, Chairman of the Board and Chief Executive Officer of the
Company, Bruce W. Taylor, President of the Company, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family") have been named as defendants in the
lawsuits described below relating to (1) the Split-Off Transactions and (2) the
financial and public reporting of Reliance Acceptance Group, Inc. (Reliance).
Certain of the lawsuits also named other current or former officers and
directors of the Company and Reliance, other stockholders of the Company,
Reliance's public accountants at the time of the Split-Off Transactions (who
continue to serve as the Company's public accountants), the investment banks
that were involved in the Split-Off Transactions, Reliance and the Company as
additional defendants. The filing dates of these lawsuits ranged from October
1997 to September 1998.
The Split-Off Transactions were a series of transactions completed on February
12, 1997 in accordance with the Share Exchange Agreement, dated June 12, 1996
(the "Share Exchange Agreement") between Reliance and the Taylor Family, which
owned approximately 25% of the outstanding common stock of Reliance prior to the
Split-Off Transactions. Pursuant to the Split-Off Transactions, the Taylor
Family and certain other stockholders of Reliance exchanged all of their common
stock of Reliance for all of the outstanding common stock of the Company. On
February 9, 1998, Reliance filed a voluntary petition under Chapter 11 of the
Bankruptcy Code.
In September 1998, five class actions, brought on behalf of current and former
stockholders of Reliance and pending in Delaware Chancery Court, were
consolidated into one class action. The consolidated class action alleges that
the Taylor Family, certain directors and officers of the Company, and certain
other defendants breached their fiduciary duties in connection with disclosures
made to the stockholders prior to the vote which approved the Split-Off
Transactions. The case seeks relief in the form of unspecified damages,
attorneys' fees and recision of the Split-Off Transactions. On September 9, 1998
the Delaware Chancery Court stayed this consolidated class action indefinitely
pending resolution of the consolidated class action in Texas that is described
below.
In August 1998, nine class actions, brought on behalf of current and former
stockholders of Reliance and pending in the United States District Court for the
Western District of Texas, were consolidated into one class action. One class
action, brought on behalf of current and former stockholders of Reliance, is
also pending in the Northern District of Illinois. These cases allege that the
Taylor Family, certain directors and officers of the Company, and certain other
defendants violated the federal securities laws and breached common law
fiduciary duties. In addition, the cases allege that the Company and certain
other defendants violated ERISA and breached certain fiduciary duties, including
fiduciary duties owed to a subclass consisting of participants in Reliance's
ESOP and 401(k) Profit Sharing Plan. The Texas and Illinois cases seek
unspecified damages and attorneys' fees. Cole Taylor Bank is
30
<PAGE> 31
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Litigation -- continued
named as an additional defendant in the Illinois action. A motion is pending to
transfer the Texas case to Illinois, and a motion is pending to transfer the
Illinois case to Texas.
On August 19, 1998, Irwin Cole and other members of his family, who collectively
owned approximately 25% of the outstanding common stock of Reliance prior to the
Split-Off Transactions, brought suit in Delaware Chancery Court against members
of the Taylor Family, the Company, other current and/or former officers and
directors of Reliance and the Company, and other stockholders of the Company.
The suit alleges that the Taylor Family, certain directors and officers of the
Company, and certain other defendants breached their fiduciary duties, committed
fraud and/or engaged in self-dealing in connection with the operation of
Reliance and the Split-Off Transactions. The lawsuit seeks unspecified damages
and attorneys' fees and requests that the Court place all of the shares of the
Company held by the Taylor Family in a constructive trust.
On October 5, 1998, the United States Bankruptcy Court of the District of
Delaware (the "Bankruptcy Court") entered an order preliminarily enjoining the
plaintiffs in most of the above lawsuits from prosecuting their cases on account
of the pending adversary proceedings by the Reliance Estate Representative that
are described below. On June 2, 1999 the District Court for the District of
Delaware reversed the Bankruptcy Court's order. The District Court's order has
been appealed.
On July 6, 1998, the Bankruptcy Court entered a confirmation order that
discharged the liability of Reliance and its subsidiaries in connection with all
of the lawsuits described above and permanently enjoined the filing of similar
new suits against them. The Bankruptcy Court also appointed an Estate
Representative (the "Estate Representative") for the Post-Confirmation Chapter
11 Estate of Reliance and its subsidiaries. On September 4, 1998, the Estate
Representative filed two adversary proceeding complaints, since consolidated,
which named as defendants members of the Taylor Family, certain other directors
and officers of the Company, one of Reliance's former legal counsel and
Reliance's former public accountants (both of whom continue to serve the
Company), the Company and Cole Taylor Bank, as trustee. The complaints allege
fraudulent conveyance and breaches of fiduciary duties and contract with respect
to the Taylor Family, the Company and Cole Taylor Bank, as trustee. The
complaints charge certain of the other defendants with alleged breaches of
fiduciary duty, breaches of contract, malpractice and negligent
misrepresentation and aiding and abetting the Taylor Family's and the Company's
alleged breaches. These complaints seek unspecified damages and attorneys' fees
and avoidance of the Split-Off Transactions by the transfer to the Estate
Representative of either the assets exchanged in the Split-Off Transactions or
the value of such assets. One of the complaints demands monetary damages
pursuant to the Taylor Family's obligation under the Share Exchange Agreement to
indemnify Reliance for certain losses resulting from the Split-Off Transactions,
and asks the court to disallow any claims for indemnification that any of the
defendants have against Reliance or, in the alternative, to equitably
subordinate such claims to all other creditor claims against Reliance. On July
22, 1999, the District Court for the District of Delaware issued an order
withdrawing the adversary proceedings from the Bankruptcy Court to the District
Court.
On December 7, 1998, the Estate Representative filed a motion for a preliminary
injunction which seeks to enjoin the Company and Cole Taylor Bank from paying
directly or indirectly any dividends to any of their respective
31
<PAGE> 32
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Litigation -- continued
shareholders and from paying any of the litigation defense costs of the Taylor
Family or any other co-defendants with respect to any litigation arising out of
the Split-Off Transactions. This motion for a preliminary injunction is
currently pending.
On July 21, 1999, the Company and certain other defendants in the nine Texas
cases, the one Illinois case and the adversary proceedings submitted a request
to the Judicial Panel on Multidistrict Litigation seeking to have all of these
cases transferred to the Northern District of Illinois for coordinated or
consolidated pretrial proceedings. This request is currently pending.
In accordance with the terms and conditions of the Share Exchange Agreement
relating to the Split-Off Transactions, the Taylor Family has agreed to
indemnify Reliance for certain losses incurred by Reliance, including certain
losses relating to the Split-Off Transactions ("Taylor Family Indemnification
Obligations"). In accordance with the terms of an agreement dated February 6,
1997 between the Taylor Family and the Company, the Company has agreed to
indemnify the Taylor Family for certain losses that the Taylor Family may incur
as a result of the Split-Off Transactions, including a portion of the Taylor
Family Indemnification Obligations under the Share Exchange Agreement. The
Company is unable at this time to predict the extent to which it will be
required to pay any amounts under its indemnification obligation to the Taylor
Family. The Company and its subsidiaries have paid and may continue to pay
defense and other legal costs of the lawsuits described above that are not
otherwise advanced by insurance carriers on behalf of the Taylor Family and
other directors, officers and stockholders of the Company who are defendants in
these lawsuits.
The Company believes that it has meritorious defenses to all of the actions
against the Company, and the Company intends to defend itself and its
subsidiaries vigorously. However, the Company is unable to predict, at this
time, the potential impact of the litigation, the indemnification obligations
and the payment of legal fees described above on the management, business,
financial condition, liquidity and operating results of the Company. Even if the
Taylor Family, the Company and the other defendants are successful in defending
themselves in the lawsuits, the Company has incurred and will continue to incur
significant costs with respect to such lawsuits.
The Company is from time to time a party to various other legal actions arising
in the normal course of business. Management knows of no such other threatened
or pending legal actions against the Company that are likely to have a material
adverse impact on the business, financial condition, liquidity or operating
results of the Company.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" was issued in June 1998. This Statement
standardizes the accounting for derivative instruments. Under the standard,
entities are required to carry all derivative instruments in the statement of
financial position at fair value. The accounting for changes in fair value (i.e.
gains or losses) of the derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on the
reason for holding it. If certain conditions are met, entities may elect to
designate the derivative instrument as a hedge of exposure to
32
<PAGE> 33
TAYLOR CAPITAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
New Accounting Pronouncements -- continued
changes in fair values, cash flows or foreign currencies. If the hedged exposure
is a fair value exposure, the gain or loss on the derivative instrument is
recognized in earnings in the period of change, together with the offsetting
gain or loss on the hedged item attributable to the risk being hedged. If the
hedged exposure is a cash flow exposure, the effective portion of the gain or
loss on the derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) an subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness, as well as the ineffective portion
of the gain or loss, is reported in earnings immediately. Accounting for foreign
currency hedged is similar to the accounting for fair value and cash flow
hedges. If the derivative instrument is not designated as a hedge, the gain or
loss is recognized in earnings in the period of change. In June 1999 the
Financial Accounting Standards Board (FASB) issued statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 an
amendment of FASB Statement No. 133." This statement delays the effective date
of FASB No. Statement 133 for one year, to fiscal years beginning after June 15,
2000. The Company must adopt the Statement by January 1, 2001, however early
adoption is permitted. Upon adoption, the provisions of the Statement must only
be applied prospectively. The Company has not yet quantified the impact of the
adoption of the Statement.
SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-Q,
including the statements in Part I, Item 3 "Quantitative and Qualitative
Disclosures About Market Risk," are forward-looking statements that are based on
the beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Such
forward-looking statements are subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. When used in this Form 10-Q, the words
"anticipates," "believes," "estimates," "expects" and similar expressions, as
they relate to the Company or its management, are intended to identify such
forward-looking statements but are not the exclusive means of identifying such
statements. The Company cautions readers of this Quarterly Report on Form 10-Q
that a number of risks, uncertainties and other factors could cause the
Company's actual results, performance or achievements in the remainder of 1999
and beyond to differ materially from the results, performance or achievements
expressed in, or implied by, such forward-looking statements. These risks,
uncertainties and other factors include, without limitation, the general
economic and business conditions affecting the Company's customers; the ability
of the Bank to maintain sufficient funds to respond to the needs of depositors
and borrowers; changes in interest rates; changes in customer response to the
Bank's pricing strategies; the effects of the Year 2000 compliance issue on the
computer systems of the Company, its service providers and its loan customers;
competition from the Company's principal competitors; changes in federal and
state legislation or regulatory requirements; the adequacy of the Company's
allowance for loan losses; contractual, statutory or regulatory restrictions on
the Bank's ability to pay dividends to the Company; and continuing obligations
or potential liabilities or restrictions arising from or relating to the
Split-Off Transactions, including pending legal actions. Certain of these risks,
uncertainties and other factors are more fully described elsewhere in this Form
10-Q. Except as specifically required by the federal securities laws the Company
does not undertake any obligation to update or revise any forward looking
statements to reflect new events or circumstances or for any other reason.
33
<PAGE> 34
TAYLOR CAPITAL GROUP, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk is the most significant market risk affecting the Company.
Other types of market risk, such as foreign currency risk and commodity price
risk, do not arise in the normal course of the Company's business activities.
Interest rate risk can be defined as the exposure to a movement in interest
rates that could have an adverse effect on the Company's net interest income or
the market value of its financial instruments. The ongoing monitoring and
management of this risk is an important component of the Company's asset and
liability management process, which is governed by policies established by the
Board of Directors and carried out by the Company's Asset/Liability Management
Committee ("ALCO"). ALCO's objectives are to manage, to the degree prudently
possible, the Company's exposure to interest rate risk over both the one-year
planning cycle and the longer-term strategic horizon and, at the same time, to
provide a stable and steadily increasing flow of net interest income.
The Company uses various interest rate contracts (floors) and forward sale
commitments to manage interest rate and market risk. These contracts are
designated as hedges of specific existing assets and liabilities. The Company's
asset and liability management and investment policies do not allow the use of
derivative financial instruments for trading purposes.
The Company's primary measurement of interest rate risk is earnings at risk,
which is determined through computerized simulation modeling. The simulation
model assumes a static balance sheet, using the balances, rates, maturities and
repricing characteristics of all of the Bank's existing assets and liabilities,
including off-balance sheet financial instruments. Net interest income is
computed by the model assuming market rates remaining unchanged and also
assuming parallel shifts of market interest rates up and down 200 basis points.
The impact of imbedded options in products such as callable securities and
mortgage-backed securities, real estate mortgage loans and callable borrowings
is considered. Changes in net interest income in the rising and declining rate
scenarios are then measured against the modeled net interest income in the rates
unchanged scenario. ALCO utilizes all of the results of the model to quantify
the estimated exposure of net interest income to sustained interest rate
changes.
The second quarter 1999 simulation model indicated that the Bank had limited
exposure to either rising or declining rates in the one-year horizon. At June
30, 1999 the net interest income at risk for year one in the declining rate
scenario was calculated at $8,000, or 0.01% lower than the net interest income
in the rates unchanged scenario. The net interest income for year one in the
rising rate scenario was calculated at $284,000, or 0.35% higher than the net
interest income in the rates unchanged scenario. This exposure was well within
the Bank's policy guidelines of 10%. Computation of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including
relative levels of market interest rates, loan and security prepayments, deposit
decay, and pricing and reinvestment strategies and, therefore, should not be
relied upon as indicative of actual results. Further, the computations do not
contemplate any actions the Company may take in response to changes in interest
rates. No assurance can be given that the actual net interest income would
increase or decrease by the amounts computed in response to a modeled 200 basis
point parallel increase in market rates.
34
<PAGE> 35
TAYLOR CAPITAL GROUP, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Footnote 8 to the Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Litigation"
included in this Form 10-Q discuss certain significant litigation relating to
the Split-Off Transactions. Such discussion is incorporated in this Part II.
Item 1. by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 10.1 - Taylor Capital Group, Inc. Profit
Sharing and Employee Stock
Ownership Plan
- Exhibit 10.2 - Amendment and Restatement of the
Taylor Capital Group, Inc. Profit
Sharing and Employee Stock Ownership
Trust
- Exhibit 10.3 - Taylor Capital Group, Inc. 401 (K)
Plan
- Exhibit 10.4 - Taylor Capital Group, Inc. 401(k)
Trust
- Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the period covered by this report.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Taylor Capital Group, Inc.
-----------------------------------
(Registrant)
Date: August 13, 1999 /s/ Jeffrey W. Taylor
-----------------------------------
Jeffrey W. Taylor *
Chairman and Chief Executive Officer
Date: August 13, 1999 /s/ J. Christopher Alstrin
-----------------------------------
J. Christopher Alstrin *
Chief Financial Officer
* Duly authorized to sign on behalf of the Registrant
36
<PAGE> 1
EXHIBIT 10.1
TAYLOR CAPITAL GROUP, INC.
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of October 1, 1998)
McDermott, Will & Emery
Chicago
<PAGE> 2
CERTIFICATE
I, ________________________, Secretary of TAYLOR CAPITAL GROUP, INC.,
hereby certify that the attached document is a correct copy of the TAYLOR
CAPITAL GROUP, INC. PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN (Effective
as of October 1, 1998).
Dated this ________ day of ____________, 1999.
_________________________________
Secretary of the Corporation
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1....................................................................................................1
Background of Plan..................................................................................1
1.1. Purpose of Plan; Applicable Requirements..........................................1
1.2. History of Plan...................................................................1
1.3. Effective Date; Plan Year.........................................................2
1.4. Trustee; Trust Agreement..........................................................2
1.5. Plan Administration...............................................................2
1.6. Employers.........................................................................3
1.7. Predecessor Plans.................................................................3
1.8. Plan Supplements..................................................................3
SECTION 2....................................................................................................4
Eligibility and Participation.......................................................................4
2.1. Eligibility to Participate........................................................4
2.2 Period of Participation...........................................................5
2.3. Leave of Absence..................................................................5
2.4 Leased Employees..................................................................5
2.5 Military Service..................................................................6
SECTION 3....................................................................................................7
Contributions.......................................................................................7
3.1. Employer Contributions............................................................7
3.2. Payment of Acquisition Loans; Employer Loan Contributions.........................7
3.3. Individual Employer's Share of Employer Contributions; Limitations on
Employers' Contributions..........................................................8
3.4. Form of Payment of Employer Contributions.........................................8
3.5. Earnings..........................................................................9
SECTION 4...................................................................................................10
Company Stock; Acquisition Loans...................................................................10
4.1. Company Stock....................................................................10
4.2. Acquisition Loans................................................................10
SECTION 5...................................................................................................11
Investment of Employer Contributions...............................................................11
5.1. Investment Options...............................................................11
5.2. Investments in Company Stock.....................................................11
5.3. Diversification of Investments in Company Stock..................................12
SECTION 6...................................................................................................14
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Accounting.........................................................................................14
6.1. Participants' Accounts...........................................................14
6.2. Trust Accounts...................................................................15
6.3. Accounting Dates; Accounting Periods; Accounting Period..........................16
6.4. Adjustment of Accounts in Investment Funds.......................................16
6.5. Transfer of Shares From Unreleased Share Account to Participants' ESOP Stock
Accounts.........................................................................17
6.6. Adjustment of ESOP Cash and Stock Accounts.......................................17
6.7. Dividends on Company Stock.......................................................19
6.8. Temporary Investment of Cash in Trust............................................20
6.9. Fair Market Value of Company Stock...............................................20
6.10 Stock Dividends, Stock Splits and Capital Reorganizations Affecting ESOP Shares..21
6.11. ESOP Share Records...............................................................21
6.12. Statement of Accounts............................................................21
6.13. Multiple Acquisition Loans.......................................................21
SECTION 7...................................................................................................22
Contribution and Benefit Limitations...............................................................22
7.1. Contribution Limitations.........................................................22
7.2. Combined Contribution Limitations................................................23
7.3. Combining of Plans...............................................................23
7.4 Highly Compensated Participant...................................................24
SECTION 8...................................................................................................25
Period of Participation............................................................................25
8.1. Settlement Date..................................................................25
8.2. Restricted Participation.........................................................25
SECTION 9...................................................................................................27
In-Service Withdrawals and Participant Loans.......................................................27
SECTION 10..................................................................................................28
Vesting............................................................................................28
10.1. Retirement.......................................................................28
10.2. Resignation or Dismissal.........................................................28
10.3. Death of Participant.............................................................30
10.4. Forfeitures......................................................................30
SECTION 11..................................................................................................31
Distributions Following Settlement Date............................................................31
11.1. Manner of Distribution...........................................................31
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
11.2. Determination of Account Balances................................................32
11.3. Distribution of Company Stock....................................................32
11.4. Timing of Distributions..........................................................32
11.5. Direct Rollovers.................................................................35
11.6. Immediate Distributions to Alternate Payees......................................37
11.7. Designation of Beneficiary.......................................................37
11.8. Missing Participants or Beneficiaries............................................38
11.9. Facility of Payment..............................................................39
SECTION 12..................................................................................................40
Rights, Restrictions, and Options on Company Stock.................................................40
12.1. Right of First Refusal...........................................................40
12.2. Put Option.......................................................................41
12.3. Share Legend.....................................................................42
12.4. Nonterminable Rights.............................................................42
SECTION 13..................................................................................................43
Reemployment.......................................................................................43
13.1. Commencement or Resumption of Participation......................................43
13.2. Credited Service for Vesting.....................................................43
13.3. Reinstatement of Forfeitures.....................................................44
SECTION 14..................................................................................................45
Voting and Tendering of Company Stock..............................................................45
SECTION 15..................................................................................................47
General Provisions.................................................................................47
15.1. Interests Not Transferable.......................................................47
15.2. Absence of Guaranty..............................................................47
15.3. Employment Rights................................................................47
15.4 Litigation by Participants or other Persons......................................47
15.5. Evidence.........................................................................48
15.6. Waiver of Notice.................................................................48
15.7. Controlling Law..................................................................48
15.8. Statutory References.............................................................48
15.9. Severability.....................................................................48
15.10 Additional Employers.............................................................48
15.11 Action By Employers..............................................................49
15.12 Gender and Number................................................................49
15.13 Examination of Documents.........................................................49
15.14 Fiduciary Responsibilities.......................................................49
15.15 Indemnification..................................................................49
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
SECTION 16..................................................................................................51
Restrictions as to Reversion of Trust Assets to the Employers......................................51
SECTION 17..................................................................................................53
Amendment and Termination..........................................................................53
17.1. Amendment........................................................................53
17.2. Termination......................................................................53
17.3. Nonforfeitability and Distribution on Termination................................54
17.4 Notice of Termination............................................................55
17.5. Plan Merger, Consolidation, Etc..................................................55
SECTION 18..................................................................................................56
The Committee......................................................................................56
18.1. The Committee....................................................................56
18.2. The Committee's General Powers, Rights, and Duties...............................56
18.3. Manner of Action of the Committee................................................57
18.4. Interested Committee Member......................................................58
18.5. Resignation or Removal of Committee Members......................................58
18.6. Committee Expenses...............................................................59
18.7. Uniform Rules....................................................................59
18.8. Information Required by the Committee............................................59
18.9. Review of Benefit Determinations.................................................59
18.10 Committee's Decision Final.......................................................59
18.11 Denial Procedure and Appeal Process..............................................59
SECTION 19..................................................................................................61
Special Rules Applicable When Plan is Top-Heavy....................................................61
19.1 Purpose and Effect...............................................................61
19.2 Top-Heavy Plan...................................................................61
19.3 Key Employee.....................................................................62
19.4 Aggregated Plans.................................................................62
19.5 Minimum Employer Contribution....................................................63
19.6 Coordination of Benefits.........................................................63
19.7 Adjustment of Combined Benefit Limitations.......................................63
SUPPLEMENT A..................................................................................................1
</TABLE>
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<PAGE> 7
TAYLOR CAPITAL GROUP, INC.
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of October 1, 1998)
SECTION 1
BACKGROUND OF PLAN
1.1. PURPOSE OF PLAN; APPLICABLE REQUIREMENTS
Effective as of October 1, 1998 (the "Effective Date"), Taylor Capital Group,
Inc. (the "Company") establishes the Taylor Capital Group, Inc. Profit Sharing
and Employee Stock Ownership Plan (the "Plan") for the purpose of enabling
eligible employees of the Company and its affiliates to acquire stock ownership
interests in the Company and permitting eligible employees to accumulate funds
for their future security by sharing in employer contributions to the Plan.
The Plan is a profit sharing plan intended to meet the applicable requirements
of Section 401(a) of the Internal Revenue Code of 1986 (the "Code"). A portion
of the Plan also constitutes an employee stock ownership plan that is designed
to invest primarily in stock of the Company and that is intended to meet the
applicable requirements of Sections 401(a), 409, and 4975(e)(7) of the Code and
Section 407(d)(6) of the Employee Retirement Income Security Act of 1974
("ERISA").
1.2. HISTORY OF PLAN
This Plan is an amendment, restatement and continuation of the Taylor Capital
Group, Inc. 401(k)/Profit Sharing and Employee Stock Ownership Plan (the "Prior
Plan") and continues the employee stock ownership plan and profit sharing
features of the Prior Plan.
The Prior Plan was established effective as of October 1, 1996. Eligible
employees of the Company and its subsidiaries were eligible to participate in
the Cole Taylor Financial Group, Inc. 401(k)/Profit Sharing Plan (As Amended and
Restated Effective as of January 1, 1993) (the "CTFG Profit Sharing Plan") and
the Cole Taylor Financial Group, Inc. Employee Stock Ownership Plan (As Amended
and Restated Effective as of January 1, 1994) (the "CTFG ESOP"). The CTFG Profit
Sharing Plan was originally established by Cole Taylor Financial Group, Inc.
("CTFG") effective January 1, 1984 as a merger of various plans, and was amended
and restated from time-to-time thereafter, most recently effective as of January
1, 1993. The CTFG ESOP was originally established by CTFG effective as of
January 1, 1984 and was amended from
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<PAGE> 8
time to time thereafter, and was amended and restated most recently effective as
of January 1, 1994.
In connection with the spin-off of the Company (and its subsidiaries) from the
controlled group of corporations that includes Reliance Acceptance Group, Inc.
f/k/a CTFG, the account balances of the CTFG Profit Sharing Plan and the CTFG
ESOP attributable to the employees and former employees of the Company and its
subsidiaries were spun-off and then merged to form the Prior Plan. As of the
Effective Date, the Taylor Capital Group, Inc. 401(k) Plan (the "401(k) Plan")
was spun off from the Prior Plan and this Plan is an amendment, restatement and
continuation of the Prior Plan.
1.3. EFFECTIVE DATE; PLAN YEAR
The "effective date" of the Plan as set forth herein is October 1, 1998. The
Plan will be administered on the basis of a "plan year." The "plan year" means
the twelve-month period beginning each January 1 and ending the following
December 31.
1.4. TRUSTEE; TRUST AGREEMENT
Amounts contributed under the Plan are held and invested, until distributed, by
a Trustee appointed by the Company (the "Trustee"). The Trustee acts in
accordance with the terms of a trust agreement between the Company and the
Trustee, which trust agreement is known as the "Taylor Capital Group, Inc.
Profit Sharing and Employee Stock Ownership Trust" (the "Trust"). The Trust
implements and forms a part of the Plan. The provisions of and benefits under
the Plan are subject to the terms and provisions of the Trust.
1.5. PLAN ADMINISTRATION
The Plan is administered by a Committee (the "Committee") as described in
Section 18. Any notice or document required to be given to or filed with the
Committee will be properly given or filed if delivered or mailed, by registered
or certified mail, postage prepaid, to the Committee, in care of the Company at
350 East Dundee Road, Suite 201, Wheeling IL 60090. Each participant in the Plan
shall be a "named fiduciary" within the meaning of Section 402 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") with respect to the
voting direction of the shares of Company stock in their ESOP stock accounts, as
described in Section 14. The Committee and the Company are "named fiduciaries,"
but solely to the extent that they have any fiduciary responsibilities under the
Plan and related Trust.
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1.6. EMPLOYERS
Any Controlled Group Member described in paragraph (a) or (b) of this subsection
with respect to the Company may adopt the Plan with the Company's consent, as
described in subsection 15.10. The Company and any such Controlled Group Members
that adopt the Plan are referred to below collectively as the "Employers" and
sometimes individually as an "Employer." A "Controlled Group Member" means:
(a) any corporation that is a member of a controlled group of
corporations (within the meaning of Section 1563(a) of the
Code, determined without regard to Sections 1563(a)(4) and
1563(e)(3)(C) thereof) that contains the Company;
(b) any trade or business (whether or not incorporated) that is
under common control with the Company (within the meaning of
Section 414(c) of the Code); or
(c) any entity that is affiliated with the Company under Section
414(m) of the Code.
As of the effective date, the following Employers have adopted the Plan: Cole
Taylor Bank and CT Mortgage Company.
1.7. PREDECESSOR PLANS
Any other qualified profit sharing, stock bonus, or money purchase pension plan
qualified under Section 401(a) of the Code and maintained by an Employer may,
with the consent of the Company, be merged into, and continued in the form of,
the Plan. Any such plan merged into, and continued in the form of, this Plan
shall be referred to as a "predecessor plan." Special provisions relating to
participants in the Plan who were participants in a predecessor plan shall be
set forth in one or more supplements to the Plan.
1.8. PLAN SUPPLEMENTS
The provisions of the Plan may be modified by supplements to the Plan. The terms
and provisions of each supplement are a part of the Plan and supersede the
provisions of the Plan to the extent necessary to eliminate inconsistencies
between the Plan and such supplement.
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SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1. ELIGIBILITY TO PARTICIPATE
(a) Subject to the conditions and limitations of the Plan, each
employee who was employed by an Employer and who was a
participant in the Prior Plan immediately prior to the
Effective Date shall automatically be a participant in the
Plan on the Effective Date.
(b) Subject to the conditions and limitations of the Plan, each
other employee of an Employer will become a participant in the
Plan as of the January 1st, April 1st, July 1st, or October
1st coincident with or next following the date he satisfies
the following requirements:
(i) he has attained age 21;
(ii) (A) he has completed six months of
continuous service in which he is credited
with at least 500 hours of service or,
(B) if he fails to satisfy paragraph (A)
above, he has completed 1,000 hours of
service (as defined below) during the
12-month period commencing on his date of
hire, or if he has not completed 1,000 hours
of service during such 12-month period, he
has completed 1,000 hours of service during
a Plan Year ending before such January 1,
April 1, July 1, or October 1; and
(iii) he is employed as a member of a group of
employees to which the Plan has been
extended, either by unilateral action of an
Employer in the case of an employee who is
not represented by a collective bargaining
representative or, if he is a member of a
group of employees represented by a
collective bargaining representative,
through a
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<PAGE> 11
currently effective collective bargaining
agreement between his Employer and the
collective bargaining representative of the
group of employees of which he is a member.
For the purposes of the Plan, an "hour of service" means each hour for which an
employee is directly or indirectly paid or entitled to payment by an Employer or
a Controlled Group Member for the performance of duties and for reasons other
than the performance of duties, including each hour for which back pay,
irrespective of mitigation of damages, has been either awarded or agreed to by
an Employer or a Controlled Group Member, as determined and credited in
accordance with Department of Labor Reg. Sec. 2530.200b-2.
For all purposes of the Plan, an individual shall be an "employee" of or be
"employed" by an Employer for any Plan Year only if such individual is treated
by the Employer for such Plan Year as its employee for purposes of employment
taxes and wage withholding for Federal income tax purposes, regardless of any
subsequent reclassification by an Employer, any government agency or a court.
2.2 PERIOD OF PARTICIPATION
Subject to the provisions of subsections 8.2 and 13.1, relating to restricted
participation and resumption of participation, respectively, an employee who
becomes a participant will continue as a participant until the later to occur of
the date of his termination of employment with the Employers or the date on
which all assets in his accounts under the Plan to which he is entitled
hereunder have been distributed.
2.3. LEAVE OF ABSENCE
A leave of absence will not interrupt continuity of service or participation in
the Plan. A "leave of absence" for purposes of the Plan means an absence from
work that is not treated by an Employer as a termination of employment or that
is required by law to be treated as a leave of absence. Leaves of absence will
be granted under rules established by an Employer and applied uniformly to all
similarly situated employees.
2.4 LEASED EMPLOYEES
Only common-law employees of the Employers are eligible to participate in the
Plan. If a leased employee (as defined below) subsequently becomes a common-law
employee of an Employer, the period during which the leased employee performed
services for the Employer shall be taken into account for purposes of
subsections 2.1 and 10.2 of the Plan; unless (i) such leased employee was a
participant in a money purchase pension
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<PAGE> 12
plan maintained by the leasing organization that provides a non-integrated
employer contribution rate of at least 15 percent of earnings, immediate
participation for all employees and full and immediate vesting, and (ii) leased
employees do not constitute more than twenty percent of the Employer's nonhighly
compensated workforce. A "leased employee" means any person who is not a
common-law employee of an Employer, but who has provided services to an Employer
under the Employer's primary direction and control, on a substantially full-time
basis for a period of at least one year, pursuant to an agreement between an
Employer and a leasing organization. The period during which a leased employee
performs services for the Employer shall be taken into account for purposes of
subsections 2.1 and 10.2 if such leased employee becomes an employee of the
Employer; unless (i) such leased employee is a participant in a money purchase
pension plan maintained by the leasing organization which provides a
non-integrated employer contribution rate of at least 10 percent of
compensation, immediate participation for all employees, and full and immediate
vesting, and (ii) leased employees do not constitute more than 20 percent of the
Employer's nonhighly compensated workforce.
2.5 MILITARY SERVICE
Notwithstanding any provision of this Plan to the contrary, contributions,
benefits, and service credit with respect to qualified military service will be
provided in accordance with Code Section 414(u). A participant returning from
employment after serving in the uniformed services is treated as not having
incurred a break in service during the period of qualified military service, as
defined herein. Each period of qualified military service is considered under
the Plan to be service with the Employer for the purposes of:
(a) determining the nonforfeitability of the participant's account
balances, in accordance with the provisions of Section 10 of
the Plan; and
(b) determining the participant's benefit allocations under
subsection 3.1 of the Plan.
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SECTION 3
CONTRIBUTIONS
3.1. EMPLOYER CONTRIBUTIONS
Subject to the conditions and limitations of the Plan, the Company, in its sole
discretion, may direct the Employers to make a discretionary contribution to the
Plan for any plan year. A discretionary contribution to be made for a plan year
in such amount, if any, as determined by the Company prior to the end of the
plan year or within a reasonable period of time after the end of the plan year.
Any discretionary contribution for a plan year shall be allocated pro rata on
the basis of participants' earnings for such plan year. Any discretionary
contribution for a plan year shall be allocated only to participants who either
(i) completed at least 1,000 hours of service in such plan year and are employed
by the Employers on the last day of such plan year or (ii) terminated employment
with the Employers during such plan year under paragraph 8.1(a), (b), or (c).
For purposes of this subsection, "hours of service" shall mean hours of service
as described in subsection 2.1. Any employer discretionary contributions for a
plan year shall be due on the last day of the plan year and, if not paid by the
end of that plan year, shall be payable to the Trustee as soon as practicable
thereafter, without interest, but not later than the time prescribed by law for
filing the Company's Federal income tax return for such plan year, including
extensions thereof.
3.2. PAYMENT OF ACQUISITION LOANS; EMPLOYER LOAN CONTRIBUTIONS
For each accounting period during which an acquisition loan is outstanding, the
Trustee shall use any contributions made for such accounting period pursuant to
subsection 3.1 to make principal and interest payments then due on the
acquisition loan or loans outstanding at the end of such accounting period. Each
such payment by the Trustee will release shares of Company stock from the
unreleased share account to the released share account of the Trust (such terms
are defined in subsection 6.2). Company stock that is so released will be
allocated to participants' ESOP stock accounts as provided in subsection 3.1.
Subject to the conditions and limitations of the Plan, if, as of any regular
accounting date, (a) an acquisition loan remains outstanding and (b) the
contributions described above that are made for the accounting period, after
taking into account the use of dividends and earnings in accordance with
subsection 6.7, are insufficient to enable the Trustee to pay the principal and
interest due under such acquisition loan for such accounting period, then the
Employers shall make an additional "employer loan
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<PAGE> 14
contribution" to the Trustee for that accounting period, in an aggregate amount
equal to the amount of the insufficiency described herein, to be allocated as
provided in subsection 3.1. Any employer loan contribution under the Plan for
any accounting period shall be paid to the Trustee in cash on the last day of
the applicable accounting period or as soon as practicable after the end of such
accounting period.
If no acquisition loan is outstanding at the end of an accounting period, the
Trustee shall invest the contributions made for such accounting period as
directed by the Committee in accordance with Section 5 and the terms of the
trust.
3.3. INDIVIDUAL EMPLOYER'S SHARE OF EMPLOYER CONTRIBUTIONS; LIMITATIONS ON
EMPLOYERS' CONTRIBUTIONS
The Company shall determine each Employer's share of employer contributions to
be made pursuant to subsection 3.1. The certificate of an independent certified
public accountant selected by the Company as to the correctness of any amounts
or calculations relating to the employers' contributions under the Plan shall be
conclusive on all persons. In no event will an Employer's share of the
employers' contributions described in this Section 3 for any plan year cause the
Employer's share of the employers' contributions for that plan year to exceed an
amount equal to the maximum amount deductible on account thereof by that
Employer for that year for purposes of Federal taxes on income.
3.4. FORM OF PAYMENT OF EMPLOYER CONTRIBUTIONS
Subject to the conditions and limitations of the Plan, any employer
discretionary contribution shall be made in the form of cash or shares of
Company stock (as defined in subsection 4.1), as determined by the board of
directors of the Company in its sole discretion prior to the end of the plan
year or within a reasonable period of time after the end of the plan year. Any
such employer discretionary contribution that is made in the form of cash, and
designated as a cash contribution, shall be allocated to the participants'
employer discretionary contribution account. Any such discretionary contribution
that is made in the form of Company stock, or made in the form of cash and
designated as a cash contribution to be invested in Company stock, shall be
allocated to the participants' ESOP stock accounts or ESOP cash accounts to be
invested in Company stock, as applicable. Any shares of Company stock
contributed to the Plan as an employer discretionary contribution shall be
valued at the fair market value thereof as of the date or dates on which the
contribution is made.
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3.5. EARNINGS
Except as otherwise provided below, a participant's "earnings" for a plan year
means all compensation paid to the participant for services rendered to an
Employer as an employee as reported on the participant's Federal wage and tax
statement (Form W-2), but including for such plan year all of a participant's
income deferral contributions under the Taylor Capital Group, Inc. 401(k) Plan
and all salary reductions made pursuant to an arrangement maintained by an
Employer under Section 125 of the Code during the plan year. A participant's
earnings shall not include any of the following (to the extent applicable):
(a) Income from bonuses paid under stock purchase agreements;
(b) Employer contributions under this or any retirement plan;
(c) Amounts realized from the exercise of non-qualified stock
options; and
(d) Amounts realized from the sale, exchange or disposition of
stock acquired under a qualified stock option.
In no event shall the amount of a participant's earnings taken into account for
purposes of the Plan for any plan year exceed the dollar limitation in effect
under Code Section 401(a)(17) (as that limitation is adjusted from time to time
by the Secretary of the Treasury pursuant to Code Section 401(a)(17) and which
is $160,000 for the 1998 plan year).
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SECTION 4
COMPANY STOCK; ACQUISITION LOANS
4.1. COMPANY STOCK
For purposes of the Plan, the term "Company stock" shall mean common stock
issued by the Company that is readily tradable on an established securities
market; provided, however, if the Company's common stock is not readily tradable
on an established securities market, the term "Company stock" shall mean common
stock issued by the Company having a combination of voting power and dividend
rates equal to or in excess of (a) that class of common stock of the Company
having the greatest voting power and (b) that class of common stock of the
Company having the greatest dividend rights. Non-callable preferred stock shall
be treated as Company stock for purposes of the Plan if such stock is
convertible at any time into stock that is readily tradable on an established
securities market (or, if applicable, that meets the requirements of (a) and (b)
next above) and if such conversion is at a conversion price that, as of the date
of the acquisition by the Plan, is reasonable. For purposes of the immediately
preceding sentence, preferred stock shall be treated as non-callable if, after
the call, there will be a reasonable opportunity for a conversion that meets the
requirements of the immediately preceding sentence. Company stock shall be held
under the Trust only if such stock satisfies the requirements of Section
407(d)(5) of ERISA.
4.2. ACQUISITION LOANS
An "acquisition loan" means the issuance of notes, a series of notes or other
installment obligations incurred by the Trustee, in accordance with the trust,
in connection with the purchase of Company stock. The term "financed shares"
means shares of Company stock acquired by the Trustee with the proceeds of an
acquisition loan. The terms of each acquisition loan shall meet the applicable
requirements of Treasury Regulations Section 54.4975-7(b), including the
requirements (a) that the loan bear a reasonable rate of interest, be for a
definite period (rather than payable on demand), and be without recourse against
the Plan and (b) that the only assets of the Plan that may be given as
collateral are financed shares purchased with the proceeds of that loan or with
the proceeds of a prior acquisition loan. The release of financed shares is
described in subsection 6.6.
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SECTION 5
INVESTMENT OF EMPLOYER CONTRIBUTIONS
5.1. INVESTMENT OPTIONS
(a) The Committee may designate, in its sole discretion, one or
more funds under the Trust for the investment of participants'
account balances not otherwise invested in Company stock. The
Committee, in its discretion, may from time to time designate
or establish new investment funds or eliminate existing
investment funds. THE FUNDS DESIGNATED BY THE COMMITTEE FOR
THIS PURPOSE SHALL BE REFERRED TO HEREIN AS THE "INVESTMENT
FUNDS."
(b) Subject to the provisions of Section 18.2(g), the Committee
shall have the authority to direct the investment of the
assets held in the employer discretionary contribution account
and the ESOP cash account.
(c) The assets held in the Drovers transfer account shall be
invested in a commingled fund of certificates of deposit
issued by one or more of the Employers. Each such certificate
of deposit will provide a rate of return equal to the greater
of (1) nine and one-half percent (9-1/2%) per annum, or (2)
the floating average of 18-month Treasury bill rates. The
certificates of deposit mature on each participant's 65th
birthday, at which time the assets are invested in the
discretion of the Committee.
5.2. INVESTMENTS IN COMPANY STOCK
Employer contributions under subsection 3.1 that are used to repay an
acquisition loan shall be invested in Company stock through the release of
financed shares and the crediting of such shares to participants' accounts (as
described in subsections 6.6 and 6.7). If an acquisition loan is not
outstanding, the Committee may direct the Trustee to invest the contributions in
Company stock, in accordance with the provisions of subsection 3.4.
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5.3. DIVERSIFICATION OF INVESTMENTS IN COMPANY STOCK
Pursuant to rules established by the Committee, participants (including inactive
participants) may elect to diversify portions of their ESOP stock accounts,
subject to the following:
(a) Each participant who has attained age 55 years and has at
least ten years of participation in the Plan, including for
such purposes, his years of participation in the Prior Plan
and the CTFG ESOP, (a "qualified participant") may elect
during each of the participant's qualified election periods
(as defined in paragraph (c) below) to transfer to one or more
of the investment funds maintained under the 401(k) Plan up
to twenty-five percent (fifty percent in the case of the
participant's last qualified election period) of the qualified
participant's ESOP stock account balance eligible for
diversification (as described in paragraph (b) next below).
(b) The portion of a qualified participant's ESOP stock account
balance subject to diversification shall equal twenty-five
percent (fifty percent in the case of the qualified
participant's last qualified election period) of the total
number of shares of Company stock allocated to the
participant's ESOP stock account (including shares that the
participant previously elected to diversify pursuant to this
subsection), less the number of such shares previously
diversified pursuant to the qualified participant's election
under this subsection. In any one election, a qualified
participant may diversify the entire remaining portion of his
ESOP stock account balance eligible for diversification or a
part of such diversifiable portion equal to any whole
percentage of five percent or more of the applicable ESOP
stock account balance.
(c) For purposes of this subsection, a "qualified election period"
means (i) the ninety-day period immediately following the last
day of the first plan year in which the participant becomes a
qualified participant and (ii) the ninety-day period
immediately following the last day of each of the five plan
years immediately following the first plan year in which the
participant becomes a qualified participant. Any election made
in accordance with the provisions of paragraph (a) above with
respect to any qualified election period shall be given effect
as of the regular accounting date occurring ninety days after
the end of that qualified election period.
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(d) The provisions of this subsection shall not apply to any
participant if the value of the participant's ESOP stock
balance (determined as of the regular accounting date
immediately preceding the first day on which the participant
would otherwise be entitled to make an election under this
subsection) is $500 or less.
(e) Any amounts transferred from Company stock to one or more of
the investment funds under the 401(k) Plan shall not be
available for distribution in the form of Company stock (as
otherwise allowed under subsection 11.3).
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SECTION 6
ACCOUNTING
6.1. PARTICIPANTS' ACCOUNTS
The Committee shall maintain or cause to be maintained under the Plan the
following accounts in the name of each participant (to the extent applicable):
(a) Employer discretionary contribution account. An "employer
discretionary contribution account" to reflect employer
discretionary contributions made to the Plan on behalf of the
participant (other than amounts invested in Company stock in
accordance with Section 5) and the income, losses, appreciation and
depreciation attributable thereto. The employer discretionary
contribution account shall be separated into (i) the "vested
employer discretionary contribution subaccount," which shall reflect
the participant's employer base contributions transferred to the
Prior Plan from the CTFG Profit Sharing Plan, if any, and employer
excess contributions transferred to the Prior Plan from the CTFG
Profit Sharing Plan, if any, which shall be fully vested at all
times, and (ii) the "employer discretionary contribution
subaccount," which shall reflect the participant's employer
discretionary contribution, if any, made under this Plan.
(b) Supplemental contribution account. A "supplemental contribution
account" to reflect the participant's supplemental contributions, if
any, made under the CTFG Profit Sharing Plan prior to January 1,
1987. A participant shall be fully vested in his supplemental
contribution account at all times.
(c) Drovers transfer account. A "Drovers transfer account" to reflect
the amount, if any, transferred from the Drovers Plan (as defined in
the CTFG Profit Sharing Plan) on behalf of the electing
participants. A participant shall be fully vested in his Drovers
transfer account at all times.
(d) ESOP stock account. An "ESOP stock account" to reflect shares
of Company stock invested in accordance with Section 5 or
transferred from the unreleased share account and allocated to
the participant as a result of repayment of an acquisition loan
and to reflect any employer contributions under subsection 3.1
made in
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the form of Company stock. The ESOP stock account shall be separated
into: (i) the "vested ESOP stock subaccount," which shall reflect
the participant's account balances transferred to the Prior Plan
from the CTFG ESOP, which shall be fully vested at all times; and
(ii) the "regular ESOP stock subaccount," which shall reflect the
shares of Company stock transferred from the unreleased share
account and any employer contributions under subsection 3.1 made in
the form of Company stock.
(e) ESOP cash account. An "ESOP cash account" to reflect any amounts to
be invested in Company stock pursuant to Section 5, employer cash
contributions under subsection 3.1, any cash dividends on Company
stock allocated and credited to the participant's ESOP stock account
(other than currently distributable dividends), and any income,
losses, appreciation, or depreciation attributable thereto.
Each account described in paragraphs (a) through (e) above shall be divided into
separate subaccounts reflecting the portions of such accounts that are invested
in the investment funds described in subsection 5.1. In addition to the accounts
described above, the Committee may maintain such other accounts and subaccounts
in the names of participants or otherwise as the Committee may consider
necessary or advisable. Except as expressly modified, all accounts and
subaccounts maintained for a participant are referred to collectively as the
participant's "accounts." The Committee may establish such nondiscriminatory
rules and procedures relating to the maintenance, adjustment and liquidation of
participants' accounts as the Committee may consider necessary or advisable.
6.2. TRUST ACCOUNTS
The Committee shall maintain or cause to be maintained in the Trust the
following fund accounts:
(a) Unreleased share account. An "unreleased share account" to reflect
the financed shares acquired by the Trustee with the proceeds of an
acquisition loan prior to the transfer of such financed shares to
the participants' ESOP stock accounts, any cash dividends
attributable to such shares or transferred to the unreleased share
account pursuant to subsection 6.5, and any temporary investment
income attributable to such dividends.
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(b) Investment fund accounts. An "investment fund account" in the name
of each investment fund to reflect the property held in such fund.
(c) ESOP stock account and ESOP cash account. An "ESOP stock account"
and an "ESOP cash account," as provided in subsection 6.1.
In addition to the unreleased share accounts and participants' accounts
described in subsection 6.1, the Committee may maintain or cause to be
maintained such other trust accounts and subaccounts as it considers advisable.
6.3. ACCOUNTING DATES; ACCOUNTING PERIODS; ACCOUNTING PERIOD
Each June 30 and December 31 participants' ESOP stock accounts and ESOP cash
accounts (collectively "ESOP portion") shall be adjusted. A "special accounting
date" is any date designated as such by the Committee, including the effective
date, and a special accounting date occurring under subsection 17.3. The term
"accounting date" includes a semi-annual accounting date and a special
accounting date. Any references to an "accounting period" shall mean the period
since the next preceding semi-annual accounting date.
6.4. ADJUSTMENT OF ACCOUNTS IN INVESTMENT FUNDS
Participants' accounts invested in the various investment funds shall be
maintained on the basis of dollar values or units that may be converted to
dollar values. Pursuant to rules established by the Committee and applied on a
uniform and nondiscriminatory basis, participants' subaccounts in an investment
fund will be adjusted not less frequently than each regular accounting date to
reflect the adjusted net worth (as described below) of that fund as of such
regular accounting date, including adjustments to reflect any distributions,
contributions, income, losses, appreciation, or depreciation with respect to
such subaccounts since the previous accounting date on which such subaccounts
were adjusted, provided any income, losses, appreciation or depreciation shall
be allocated after adjusting for distributions and before adjusting for
contributions since the last accounting date. The "adjusted net worth" of an
investment fund (other than a mutual fund) as at any accounting date means the
then net worth of that fund (that is, the fair market value of the fund, less
its liabilities other than liabilities to persons entitled to benefits under the
Plan) as reported to the Trustee.
Notwithstanding the foregoing, participants' subaccounts in an investment fund
may be adjusted more frequently than each regular accounting date if such
investment fund provides for more frequent adjustment of participants'
subaccounts. In that case, participants' subaccounts in that investment fund
will be adjusted at the times provided
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by the investment fund to reflect any distributions, contributions, income,
losses, appreciation, or depreciation with respect to such subaccounts since the
previous accounting date. It is anticipated the participants' subaccount
balances in an investment fund composed only of a mutual fund will be adjusted
as of each regular accounting date.
As of each accounting date, the amount of a participant's repayment on a
participant loan for that accounting period will be credited to the
participant's loan repayment account. Contributions so credited shall be further
credited to separate subaccounts reflecting the participant's current election
as to investment of his participant contributions in one or more of the
investment funds described in subsection 5.1.
6.5. TRANSFER OF SHARES FROM UNRELEASED SHARE ACCOUNT TO PARTICIPANTS' ESOP
STOCK ACCOUNTS
At the direction of the Committee, the Trustee shall use the following to repay
an acquisition loan:
(a) Employer contributions under subsection 3.1 and any investment
income attributable to such contributions; and
(b) Cash dividends paid on shares of Company stock, as provided in
subsections 6.6 and 6.7, and any investment income attributable to
such dividends.
The repayment of a acquisition loan shall cause a transfer of shares of Company
stock from the unreleased share account to the participants' ESOP stock accounts
in accordance with subsections 6.6 and 6.7 of each applicable accounting date.
The number of shares to be transferred shall be determined by multiplying the
number of shares in the unreleased share account by a fraction, the numerator of
which is the principal and interest payments during the applicable accounting
period and the denominator of which is the sum of the numerator plus the total
projected principal and interest payments during the remainder of the term of
the acquisition loan. If the requirements of Treasury Regulations Section
54.4975-7(b)(8)(ii) are satisfied, the phrase "principal and interest" in the
preceding sentence shall be replaced by the word "principal."
6.6. ADJUSTMENT OF ESOP CASH AND STOCK ACCOUNTS
Participants' ESOP cash accounts and ESOP stock accounts shall be adjusted as
follows:
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(a) Repayments of acquisition loans and purchase of Company stock. (i)
For each accounting period, employer cash contributions under
subsection 3.1 that are used to repay an acquisition loan and
release shares of Company stock from the unreleased share account in
accordance with subsection 6.5 shall be credited as of the
applicable accounting date to the participants' ESOP stock accounts
in accordance with the provisions of subsection 3.1; (ii) For each
accounting period, employer cash contributions under subsection 3.1
that are designated to be invested in shares of Company stock shall
be credited as of the applicable accounting date to the
participants' ESOP cash accounts in accordance with the provisions
of subsection 6.1, as applicable. Upon the purchase of Company stock
with such cash, an appropriate number of shares of Company stock
shall be credited to the participants' ESOP stock accounts, and the
participants' ESOP cash accounts shall be charged by the amount of
the cash used to buy such Company stock.
(b) Dividends. (i) Subject to the provisions of subsection 6.7, cash
dividends on shares of Company stock in the unreleased stock account
shall be used to repay the outstanding acquisition loan and the
released shares shall be credited to the participants' ESOP stock
accounts in accordance with the provisions of subsection 6.1. (ii)
Subject to the provisions of subsection 6.7, the Committee shall
credit to the participants' ESOP cash accounts any cash dividends
paid to the Trustee on shares of Company stock held in the
participants' ESOP stock accounts as of the record date. Such cash
dividends credited to the participants' ESOP cash accounts shall be
applied as soon as practicable first to the repayment of any amount
due during or prior to that accounting period on an acquisition
loan. If no amount is due on an acquisition loan, such cash
dividends may, as determined in the discretion of the Committee, be
used to either prepay any acquisition loan, purchase shares of
Company stock, or be paid to the participants as described in
paragraph 6.7(b). The Committee shall credit an appropriate number
of shares of Company stock to the ESOP stock account of such
participant, and the participant's ESOP cash account shall then be
charged by the amount of cash used to repay an acquisition loan or
used to purchase such Company stock for the participant's ESOP stock
account or as applicable.
(c) Employer contributions in shares of Company stock. For any
accounting period in which the employer contributions under
subsection 3.1 are made in the form of shares of Company stock,
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<PAGE> 25
such stock shall be credited to the participants' ESOP stock
accounts as of the applicable accounting date, in accordance with
the provisions of subsection 3.1.
(d) Appreciation, depreciation, etc. As of each accounting date, before
the allocation of any employer contributions under subsection 3.1
made in cash, any appreciation, depreciation, income, gains or
losses in the fair market value of the participants' ESOP cash
accounts shall be allocated among and credited to the ESOP cash
accounts of participants, pro rata, according to the balance of each
ESOP cash account as of the immediately preceding accounting date,
reduced in each case by the amount of any charge to such ESOP cash
account since the next preceding accounting date. Any gain or loss
realized by the Trustee on the sale of Company stock will be
allocated to the ESOP cash accounts of participants, pro rata,
according to the balance of participants' ESOP stock accounts, as of
the next preceding accounting date.
6.7. DIVIDENDS ON COMPANY STOCK
The following shall apply with respect to dividends on Company stock:
(a) Dividends credited to ESOP cash accounts. Any cash dividends paid
with respect to shares of Company stock allocated to participants'
ESOP stock accounts or held in the unreleased share account may, as
determined by the Committee, be allocated among and credited to
participants' ESOP cash accounts in accordance with paragraph
6.6(b).
(b) Dividends paid to participants. Any cash dividends paid with respect
to shares of Company stock allocated to participants' ESOP stock
accounts may, as determined by the Committee, be either paid by the
Company directly in cash to participants on a non-discriminatory
basis or paid to the Trustee and distributed by the Trustee to the
participants no later than ninety days after the end of the plan
year in which paid to the Trustee.
(c) Dividends used to repay acquisition loan. To the extent permitted by
applicable law, any cash dividends paid with respect to shares of
Company stock allocated to participants' ESOP stock accounts or held
in the unreleased share account may (as required by applicable
acquisition loan documentation or, if not so required, as determined
in the sole discretion of the Committee) be used to repay the
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principal balance of an outstanding acquisition loan or interest
thereon in whole or in part, or to purchase additional shares of
Company stock as provided in paragraph 6.6(b). Financed shares
released from the unreleased stock account by reason of dividends
paid with respect to such Company stock shall be allocated to
participants' ESOP stock accounts as follows:
(i) First, financed shares with a fair market value at least equal
to the dividends paid with respect to the Company stock
allocated to participants' ESOP stock accounts shall be
allocated among and credited to the ESOP stock accounts of
such participants, pro rata, according to the number of shares
of Company stock held in such accounts on the dividend
declaration date; and
(ii) Next, any remaining financed shares released from the
unreleased share account shall be allocated among and credited
to the ESOP stock accounts of all participants, pro rata,
according to each participant's earnings.
6.8. TEMPORARY INVESTMENT OF CASH IN TRUST
At the direction of the Committee, cash held in the unreleased share account or
participants' ESOP cash accounts under the Trust will be invested by the
Trustee, to the extent practicable, in short term securities or cash equivalents
having ready marketability or as otherwise provided in the trust agreement.
Temporary investment income resulting from such investments shall be credited to
the account to which it pertains. The term "temporary investment income" means
income resulting from the temporary investment of employer contributions, cash
dividends and any other amounts.
6.9. FAIR MARKET VALUE OF COMPANY STOCK
For purposes of the Plan and trust, the fair market value of Company stock shall
be determined, at least once each plan year, by an independent appraiser, as
defined in Section 401(a)(28) of the Code, in accordance with the terms of the
Trust and the provisions of Section 3(18) of ERISA.
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6.10 STOCK DIVIDENDS, STOCK SPLITS AND CAPITAL REORGANIZATIONS AFFECTING ESOP
SHARES
Shares of Company stock received by the Trustee that are attributable to stock
dividends, stock splits or to any reorganization or recapitalization of the
Company shall be credited to the unreleased share account, if attributable to
shares held in that account, or shall be credited to the released share account
(including participant's ESOP stock accounts) if attributable to shares held in
the released share account, so that the interests of participants immediately
after any such stock dividend, split, reorganization or recapitalization are the
same as such interests immediately before such event.
6.11. ESOP SHARE RECORDS
The Committee shall maintain or cause to be maintained records as to the number
and cost of shares of Company stock acquired or transferred by or within the
Trust in accordance with the applicable provisions of this Section 6.
6.12. STATEMENT OF ACCOUNTS
The Committee will provide each participant with a statement reflecting the
balances in the participant's accounts under the Plan at such times as are
established by the Committee. No participant, except a person authorized by the
Company or the Committee, shall have the right to inspect the records reflecting
the accounts of any other participant.
6.13. MULTIPLE ACQUISITION LOANS
If more than one acquisition loan to the Trustee becomes outstanding at any
time, the foregoing provisions of this Section 6 and other provisions of the
Plan shall be modified by the Committee to the extent it deems necessary or
appropriate to reflect such additional acquisition loan or loans.
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SECTION 7
CONTRIBUTION AND BENEFIT LIMITATIONS
7.1. CONTRIBUTION LIMITATIONS
For each limitation year, the "annual addition" (as defined below) to a
participant's accounts shall not exceed the lesser of $30,000 or twenty-five
percent of the participant's compensation (as defined in Treasury Regulations
Section 1.415-2(d)) during that limitation year. Effective January 1, 1998, for
purposes of this subsection, the term "compensation" shall include any elective
deferrals (as defined in Code Section 402(g)(3)) made by the participant and any
amount which is contributed or deferred by the Employer at the election of the
participant and which is not includible in the gross income of the participant
by reason of Code Section 125. Reference herein to a "limitation year" means the
plan year. As determined by the Committee on a uniform basis for all
participants for a limitation year, each participant's annual addition for a
limitation year shall be calculated either based upon (i) the amount of
contributions credited to the participant's accounts and not on the basis of the
fair market value of Company stock or other property credited to the
participant's accounts by reason of such contributions or (ii) the amount of
contributions credited to the participants' accounts with respect to amounts
invested in the investment funds and on the basis of the fair market value of
Company stock credited to the participant's accounts with respect to
contributions invested or to be invested in Company stock.
If it is anticipated that a participant's annual addition to this Plan or any
defined contribution plan maintained by an Employer or a Control Group Member,
including the 401(k) Plan may exceed the limitations of this subsection, the
Committee shall reduce a participant's annual addition to the extent necessary
in accordance with the following:
(a) First, reduce the participant's income deferral contributions in
excess of the percentage matched by the Employer pursuant to the
terms of the 401(k) Plan to the extent necessary to meet the above
limitations.
(b) Next, reduce, in proportion, the income deferral contributions made
by the participant that are matched by the Employer to the terms of
the 401(k) Plan and the employer matching contributions attributable
to such income deferral contributions.
(c) Next, in accordance with procedures established by the Committee of
the 401(k) Plan, reduce such participant's share for that limitation
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year of the employer matching contributions, corrective deferral
contributions, or corrective matching contributions to the extent
necessary to meet the above limitations.
(d) Finally, in accordance with procedures established by the Committee,
reduce such Participant's share for that limitation year of the
employer discretionary contributions or employer loan contributions
to the extent necessary to meet the above limitations. The amount of
any employer contributions that cannot be allocated to a
participant's accounts shall be applied to reduce employer
discretionary contributions in succeeding limitation years in order
of time.
7.2. COMBINED CONTRIBUTION LIMITATIONS
If a participant in this Plan also is a participant in a defined benefit plan
maintained by an Employer or a Controlled Group Member, the aggregate benefits
payable to, or on account of, the participant under both plans will be
determined in a manner consistent with Section 415 of the Code and Section 1106
of the Tax Reform Act of 1986. Accordingly, there will be determined with
respect to the participant a defined contribution plan fraction and a defined
benefit plan fraction in accordance with such Sections 415 and 1106. The
benefits provided for the participant under this Plan and the defined benefit
plan will be adjusted to the extent necessary so that the sum of such fractions
determined with respect to the participant does not exceed 1.0. Effective
January 1, 2000, this subsection 7.2 will have no effect.
7.3. COMBINING OF PLANS
In applying the limitations set forth in subsections 7.1 and 7.2, reference to
this Plan shall mean this Plan and all other defined contribution plans (whether
or not terminated) ever maintained by the Employers and the Controlled Group
Members, and reference to a defined benefit plan maintained by an Employer shall
include all defined benefit plans (whether or not terminated) ever maintained by
the Employers and the Controlled Group Members. It is intended that in complying
with the requirements of subsections 7.1 and 7.2, a participant's benefits under
this Plan shall be limited after the participant's benefits under any other
defined contribution plan maintained by the Employers are limited and after the
participant's benefits under any defined benefit plan maintained by the
Employers are limited, unless such other plan provides otherwise.
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7.4 HIGHLY COMPENSATED PARTICIPANT
A "highly compensated participant" means an eligible employee who is a "highly
compensated employee" as defined in Section 414(q) of the Code. The term "highly
compensated employee" means any employee defined in Code Section 414(q), which
includes any employee who:
(a) was at any time a 5% owner (as defined in Section 416(i) of the
Code) of any Employer or any Controlled Group Member during the year
or the preceding year, or;
(b) for the preceding year:
(i) received compensation from an Employer or any
Controlled Group Member in excess of $80,000, and
(ii) if the Company elects, was in the top-paid group of employees
for such preceding year.
For purposes of this subsection, an employee's compensation for a plan year
shall be the employee's compensation for such plan year for services rendered to
the Employers and the Controlled Group Members as reported on the employee's
Federal wage and tax statement (Form W-2), but including the employee's elective
deferral contributions made pursuant to Sections 125 and 401(k) of the Code
(including income deferral contributions made under the 401(k) Plan). A former
employee shall be treated as a highly compensated participant if such employee
was a highly compensated participant when such employee separated from service
or such employee was a highly compensated participant at any time after
attaining age 55 years.
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SECTION 8
PERIOD OF PARTICIPATION
8.1. SETTLEMENT DATE
A participant's "settlement date" will be the date on which his employment with
the Employers and the related companies is terminated because of the first to
occur of the following events:
(a) Normal Retirement. The participant retires or is retired from the
employ of the Employers and the related companies on or after the
date on which he attains age 65 years.
(b) Disability Retirement. The participant is retired on account of
permanent disability when the Company determines, based upon an
independent doctor's examination and certificate, that a participant
is under such physical or mental disability that he is no longer
capable of rendering satisfactory service to the Company. This
determination will be made in a nondiscriminatory manner to all
participants.
(c) Death. The participant's death.
(d) Resignation or Dismissal. The participant resigns or is dismissed
from the employ of the Employers and the related companies before
retirement in accordance with paragraph (a) or (b) next above.
If a participant is transferred from employment with an Employer to employment
with a Controlled Group Member that is not an Employer, then for purposes of
determining when the participant's settlement date occurs under this subsection,
the participant's employment with such Controlled Group Member (or any
Controlled Group Member to which the participant is subsequently transferred)
shall be considered as employment with the Employers.
8.2. RESTRICTED PARTICIPATION
If (i) a participant's settlement date has occurred but full payment of all of
the participant's account balances has not yet been made, or (ii) a participant
transfers to a Controlled Group Member that is not an Employer under the Plan,
the participant or the participant's beneficiary will be treated as a
participant for purposes of the Plan, except as follows:
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(a) The participant (or beneficiary) may not share in any Employer
contributions, except as specifically provided in subsection 3.1.
(b) The participant's beneficiary cannot designate a beneficiary under
subsection 11.7.
If a participant subsequently again satisfies the requirements for participation
in the Plan, the participant will become an active participant in the Plan on
the date the participant satisfies such requirements.
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SECTION 9
IN-SERVICE WITHDRAWALS AND PARTICIPANT LOANS
9.1. In-Service Withdrawals
A participant who has attained age 65 may receive a distribution of all or a
portion (in increments of 10 percent) from vested amounts credited to the
participant's accounts (other than the participant's ESOP stock account and ESOP
cash account) by filing a request in writing with the Committee in accordance
with procedures established by the Committee, in its sole discretion. A request
for withdrawal shall be effective as of the accounting date coincident with or
next following the date the request is delivered to the Committee and the
distribution shall be made as soon as practical thereafter. A participant shall
be limited to two (2) in-service withdrawals in any twelve-month period.
9.2 Participant Loans
As of the Effective Date, loans to participants are no longer permitted. The
Committee will continue to administer any participant loans outstanding as of
the Effective Date.
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SECTION 10
VESTING
10.1. RETIREMENT
A participant shall have a nonforfeitable right to all of the participant's
account balances on and after attaining normal retirement age. A participant's
right to all of the participant's account balances shall be nonforfeitable on
and after the participant becomes eligible for disability retirement. If a
participant's employment with the Employers and the Controlled Group Members is
terminated because of retirement under paragraph 8.1(a), (b), or (c), the
balances in the participant's accounts shall be distributable to the participant
under Section 11.
10.2. RESIGNATION OR DISMISSAL
If a participant resigns or is dismissed from the employ of the Employers and
the Controlled Group Members before retirement under paragraph 8.1(d), the
balances in the participant's accounts shall be treated as follows:
(a) The balances in the participant's vested employer discretionary
contribution subaccount, vested ESOP stock subaccount, supplemental
contribution account and Drovers transfer account, shall be
nonforfeitable and shall be distributable to the participant under
Section 11.
(b) The balances in the participant's employer discretionary
contribution subaccount, regular ESOP stock subaccount and ESOP cash
account (referred to collectively for the purposes of this
subsection 10.2 and subsection 13.2 as the "forfeitable accounts")
shall be subject to the following:
(i) If the participant has completed five or more years of vesting
service (as defined in subparagraph (iii) below) as of his
settlement date, the balances in his forfeitable accounts
shall be nonforfeitable and shall be distributable to the
participant under Section 11.
(ii) If the participant has not completed five years of
vesting service as of the participant's settlement
date, the participant shall receive the vested
portion of the balances in his forfeitable
accounts. The participant
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shall forfeit the nonvested portion of such account balances.
The vested portion of the balances in the participant's
forfeitable accounts shall be distributable to the participant
under Section 11. Except as provided below, the vested portion
of such balances shall be determined under the following
schedule:
<TABLE>
<CAPTION>
Number of Completed Vested
Years of Service Percentage
---------------- ----------
<S> <C>
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
</TABLE>
Notwithstanding any other provision of this subsection 10.2 to
the contrary, a participant who has less than five years of
vesting service and has not yet attained normal retirement age
may be deemed to have no vested interest in his employer
discretionary contribution account and ESOP accounts, and his
entire balance in such accounts may be forfeitable, if he is
discharged by an Employer due to theft, fraud, embezzlement,
other criminal acts or willful misconduct causing either
significant loss or property damage to an Employer or personal
injury to any other employee of an Employer.
(iii) A participant's "vesting service" means any plan year in which
the participant has completed at least 1,000 hours of service
with the Employers and the Controlled Group Members (including
service prior to the Effective Date) measured from the date
the participant first performs an hour of service (as defined
in subsection 2.1) with the Employers or the Controlled Group
Members, or, prior to the Effective Date, CTFG or an affiliate
of CTFG.
(iv) Non-vested amounts shall be forfeited under this subsection on
the earlier of (i) the date the participant's vested benefits
are distributed, or (ii)
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the date that the participant incurs five consecutive one year
breaks in service (as defined in subsection 13.2). Forfeitures
shall be drawn from a participant's accounts in accordance
with Treasury Regulations Section 54.4975-11(d)(4).
10.3. DEATH OF PARTICIPANT
If a participant's settlement date occurs under paragraph 8.1(c), the balances
in the participant's accounts will be nonforfeitable and distributable to the
participant's beneficiary in accordance with Section 11. If a participant dies
after the participant's settlement date but before all of the participant's
account balances have been paid to the participant in full pursuant to the
provisions of Section 11, the vested portion of the participant's account
balances (as determined under subsection 10.1 or 10.2, whichever is applicable)
will be distributable to the participant's beneficiary in accordance with
Section 11.
10.4. FORFEITURES
The amount of a participant's accounts forfeited under subsection 10.2 shall be
a "forfeiture." As determined by the Committee, forfeitures shall be (1) applied
to reduce employer loan contributions otherwise required under the Plan, (2)
allocated to participants' accounts in accordance with subsection 3.1, or (3)
used to pay proper expenses of the Plan and trust. If a participant is
reemployed by the Employers before he incurs five consecutive one-year breaks in
service, subsection 13.3 shall apply.
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SECTION 11
DISTRIBUTIONS FOLLOWING SETTLEMENT DATE
11.1. MANNER OF DISTRIBUTION
Subject to the conditions set forth below, distribution of the balances in a
participant's accounts (with the exception of the balance in his Drovers
transfer account, which shall be distributed in accordance with the provisions
of Supplement A) will be made to, or for the benefit of, the participant or, in
the case of the participant's death, to or for the benefit of the participant's
beneficiary, by payment in a lump sum. However, the period over which
distribution of a participant's ESOP stock account and ESOP cash account may be
made shall be increased by one year, up to five additional years, for each
$145,000 (or fraction thereof) by which the total balance of the participant's
ESOP stock account and ESOP cash account exceeds $725,000. The aforementioned
dollar amounts shall be subject to cost-of-living adjustments prescribed by the
Secretary of the Treasury.
In accordance with subsection 11.5, a participant may elect a direct rollover of
any payment that constitutes an eligible rollover distribution. Notwithstanding
any other provision of this Section 11, if a participant's vested account
balances equal $5,000 or less at or after the participant's settlement date, the
participant (or the participant's beneficiary) shall receive a lump sum payment
of such amount in accordance with paragraph 11.4(c). In accordance with such
rules and procedures as the Committee shall establish, the amount to be paid to
a participant who elects to receive a distribution that is less than the total
vested balance in the participant's accounts shall be drawn from the
participant's accounts in the order specified by the Committee for distributions
from participants' accounts. The life expectancy of a participant, the
participant's spouse or the participant's designated beneficiary shall be
determined at the time benefit payments commence by use of the expected return
multiples contained in the regulations under Section 72 of the Code. Life
expectancies determined in accordance with the foregoing shall not be
recalculated. A participant may select, in accordance with such rules as the
Committee may establish, the method of distributing the participant's benefits
to him; a participant, if the participant so desires, may direct how the
participant's benefits are to be paid to the participant's beneficiary; and the
Committee shall select the method of distributing the participant's benefits to
the participant's beneficiary if the participant has not filed a direction with
the Committee.
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11.2. DETERMINATION OF ACCOUNT BALANCES
After a participant's settlement date has occurred and pending complete
distribution of the participant's account balances, the participant's accounts
will be held under the Plan and will be subject to adjustment under Section 6.
For purposes of subsection 11.1, a participant's account balances will be
determined as of the applicable accounting date coincident with or immediately
preceding the date of distribution of the participant's account.
11.3. DISTRIBUTION OF COMPANY STOCK
Subject to rules established by the Committee, with respect to a distribution
under subsection 11.1, subject to subsection 11.4, a participant (or the
participant's beneficiary) will receive an in-kind distribution of the shares of
Company stock allocated to the participant's ESOP stock account, except that any
fractional shares in the participant's ESOP stock account shall be paid in cash.
Notwithstanding a participant's right to demand distribution of his ESOP stock
account in the form of shares of Company stock, if the Company's charter or
bylaws restricts the ownership of the Company Stock to the employees or a trust
described in Section 401(a) of the Code or if the Company elects S-corporation
status, participants will not have the right to demand distribution in the form
of shares of Company stock and distributions may be made in the form of cash.
Any amounts transferred from Company stock to one or more of the investment
funds under subsection 5.3 may not be available for distribution in the form of
Company stock. Company stock distributed pursuant to this subsection shall be
subject to the provisions of Section 12.
11.4. TIMING OF DISTRIBUTIONS
Distribution of the balance of a participant's accounts shall be made or shall
commence as follows:
(a) Interests other than Company stock. Payment of a participant's
account balances (other than the participant's ESOP stock
account) will be made within a reasonable time after the date
on which the participant's account balances have been
determined pursuant to subsection 11.2, but not later than
sixty days after (a) the end of the plan year in which his
settlement date occurs or (b) such later date on which the
amount of payment can be ascertained by the Committee.
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<PAGE> 39
(b) Company stock. The distribution of amounts representing the shares
of Company stock allocated to a participant's ESOP stock account
will be made as follows:
(i) Distribution upon retirement or death. Unless an earlier date
is required by paragraph (c) or (d) below, or the participant
elects a later date if a participant terminates employment
under paragraph 8.1(a) or (b), if a participant retires or
dies while in the employ of an Employer or a Controlled Group
Member, distribution of the participant's ESOP stock account
(including amounts invested in Company stock pursuant to
subsection 5.2) will be made or will commence no later than
one year following the close of the plan year during which the
participant's settlement date occurs.
(ii) Distribution upon resignation or dismissal. Unless an earlier
date is required by paragraph (c) or (d), if a participant's
settlement date occurs under paragraph 8.1(d), distribution of
the participant's ESOP stock account (including amounts
invested in Company stock pursuant to subsection 5.2) will be
made or will commence by the later of (A) or (B):
(A) one year following the close of the plan year which is
the fifth plan year following the plan year in which the
participant's settlement date has occurred, unless the
participant is reemployed by an Employer or a Controlled
Group Member before such year; or
(B) the earlier of:
(1) one year following the close of the plan year in
which an acquisition loan is fully repaid with
respect to the Company Stock acquired with the
proceeds of such acquisition loan; or
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(2) one year following the close of the plan year in
which the participant attains normal retirement
age.
(iii) Distributions to beneficiary upon death. Notwithstanding the
provisions of subparagraphs (i) and (ii) above, distributions
upon the death of a participant shall be made in accordance
with the requirements of paragraph (d) below and shall
otherwise comply with Section 401(a)(9) of the Code and any
regulations issued thereunder.
(c) Mandatory cash-outs; consent. Notwithstanding any other provision of
this Section 11, if a participant's vested account balances equal
$5,000 or less at any time at or after his settlement date, the
participant (or the participant's beneficiary) shall receive an
immediate lump sum payment of such amount. Such distribution shall
be made as soon as practicable after the regular accounting date
next following the participant's settlement date. If the present
value of a participant's entire vested benefit under the Plan is
zero, the participant shall be deemed to have received a
distribution of such vested benefit. Notwithstanding any provision
of the Plan to the contrary, if a participant's vested account
balances exceed or have ever exceeded $5,000 at any time at or after
the participant's settlement date, distributions may not be made to
the participant before age 65 without the participant's consent.
(d) Required commencement date. Irrespective of any contrary provision
of the Plan, distribution of the account balance of a participant
shall be made or shall commence by April 1 of the calendar year next
following the latter of (A) the calendar year on which the
participant attains age 70-1/2 or (B) the calendar year in which the
participant's settlement date occurs ("required commencement date");
provided, however, that the required commencement date of a
participant who is a five-percent owner (as defined in Code Section
416) of an Employer or Controlled Group Member shall be April 1 of
the calendar year next following the calendar year which the
participant attains age 70-1/2. If a participant dies before the
participant's required commencement date, the participant's benefits
must be distributed over a period not exceeding the greater of: (i)
five years from the death of the participant; (ii) in
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the case of payments to a designated beneficiary other than the
participant's spouse, the life expectancy of such beneficiary,
provided payments begin within one year of the participant's death
(or such later date as may be prescribed under Treasury
Regulations); or (iii) in the case of payments to the participant's
spouse, the life expectancy of such spouse, provided payments begin
by the date the participant would have attained age 70-1/2. If a
participant dies after the participant's required commencement date,
the remaining portion of the participant's benefits will be
distributed at least as rapidly as under the method of distribution
in effect at the participant's death. Notwithstanding the foregoing,
the Committee may honor a participant's written designation made
under a predecessor plan prior to January 1, 1984, to have the
participant's benefits commence at any date permitted under the
terms of such predecessor plan as in effect immediately prior to
January 1, 1984.
A participant who is not a 5 percent owner and who attains age
70-1/2 while still employed by an Employer or a Controlled Group
Member before January 1, 1999 may elect to receive a distribution
commencing April 1 of the calendar year next following the calendar
year in which he attains age 70-1/2.
11.5. DIRECT ROLLOVERS
Certain individuals who are to receive distributions under the Plan may elect
that such distributions be paid in the form of a direct rollover (as described
in Section 401(a)(31) of the Code and the regulations thereunder) to the Trustee
or custodian of a plan eligible to accept direct rollovers, subject to the
following:
(a) Eligible rollover distribution. A distribution may be paid in a
direct rollover under this subsection only if the distribution
constitutes an eligible rollover distribution. An "eligible rollover
distribution" means any distribution under the Plan to an eligible
distributee (as defined below) other than (i) a distribution that is
one of a series of substantially equal payments made annually or
more frequently either over the life (or life expectancy) of the
participant or the joint lives (or life expectancies) of the
participant and his designated beneficiary or over a specified
period of ten years or more, (ii) a distribution required to meet
the minimum distribution requirements of Section 401(a)(9) of the
Code, or (iii) a distribution excluded from the definition of an
"eligible rollover distribution" under applicable Treasury
Regulations. Notwith-
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standing the immediately preceding sentence, an eligible rollover
distribution includes only those amounts that would be includable in
the gross income of the eligible distributee if such amounts were
not rolled over to another plan as provided under Section 402(c) of
the Code.
(b) Eligible distributee. An "eligible distributee" is (i) a
participant, (ii) a participant's surviving spouse who is entitled
to receive payment of the participant's account balances after the
participant's death, or (iii) the spouse or former spouse of a
participant who is an alternate payee under a qualified domestic
relations order (as defined in Section 414(p) of the Code).
(c) Eligible retirement plan. A direct rollover of an eligible rollover
distribution may be made to no more than one "eligible retirement
plan." Except as otherwise provided below, an "eligible retirement
plan" is (i) an individual retirement account described in Section
408(a) of the Code, (ii) an individual retirement annuity described
in Section 408(b) of the Code (other than an endowment contract),
(iii) an annuity plan described in Section 403(a) of the Code, or
(iv) a plan qualified under Section 401(a) of the Code that by its
terms permits the acceptance of rollover contributions. With respect
to the surviving spouse of a deceased participant who is entitled to
receive a distribution of the participant's accounts, an "eligible
retirement plan" shall mean only an individual retirement account
described in Section 408(a) of the Code or an individual retirement
annuity described in Section 408(b) of the Code (other than an
endowment contract).
(d) Minimum amounts. An eligible distributee may elect a direct rollover
of all or a portion of an eligible rollover distribution only if the
total amount of the eligible rollover distributions expected to be
received by the eligible distributee during the plan year is $200 or
more (or such lesser amount as the Committee may establish). An
eligible distributee may elect payment of a portion of an eligible
rollover distribution as a direct rollover and may receive directly
the remainder of such distribution, provided that the amount paid by
direct rollover is at least $500 (or such lesser amount as the
Committee may establish).
(e) Elections. An eligible distributee's election of a direct rollover
pursuant to this subsection must be in writing on a form designated
by the Committee and must be filed with the Committee at such time
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and in such manner as the Committee shall determine. The Committee
shall establish such rules and procedures as it deems necessary to
provide for distributions by means of direct rollover.
11.6. IMMEDIATE DISTRIBUTIONS TO ALTERNATE PAYEES
The Committee shall direct distribution of the amount of a participant's account
balances assigned to an alternate payee under a qualified domestic relations
order (as defined in Section 414(p) of the Code) on the earliest date specified
in such qualified domestic relations order, without regard to whether such
payments commence prior to the participant's earliest retirement age (as defined
in Section 414(p)(4)(B) of the Code).
11.7. DESIGNATION OF BENEFICIARY
Each participant may designate any person or persons (who may be designated
concurrently, contingently or successively) to whom the participant's benefits
are to be paid if the participant dies before the participant receives all of
participant's benefits. A beneficiary designation must be made on a form
furnished by the Committee for this purpose, and such form must be signed by the
participant. A beneficiary designation form shall include any beneficiary
designation forms executed in compliance with the CTFG Profit Sharing Plan
and/or CTFG ESOP or the Prior Plan. A beneficiary designation form will be
effective only when the form is filed with the Committee while the participant
is alive and will cancel all the participant's beneficiary designation forms
previously filed with the Committee. Notwithstanding the foregoing provisions of
this subsection and any beneficiary designation filed with the Committee in
accordance with this subsection, if a participant dies and has a surviving
spouse at the participant's date of death, the account balances described in the
preceding sentence shall be payable in full to the participant's surviving
spouse in accordance with this Section 11 (treating such surviving spouse as the
participant's beneficiary), unless prior to the participant's death the
following requirements were met:
(a) The participant elected that the participant's benefits under the
Plan be paid to a person other than the participant's surviving
spouse;
(b) The participant's spouse consented in writing to such election;
(c) The spouse' consent acknowledged the effect of such election and was
witnessed by a notary public; and
(d) Such election designates a beneficiary that may not be changed
without further spousal consent, unless the spouse executed a
general
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written consent expressly permitting changes of the beneficiary
without any requirement of further consent of the spouse.
For purposes of the Plan, and subject to the provisions of any qualified
domestic relations order (as defined in Section 414(p) of the Code), a
participant's "spouse" means the person to whom the participant is legally
married at the earlier of the date of the participant's death or the date
payment of the participant's benefits commenced and who is living at the date of
the participant's death. If a deceased participant failed to designate a
beneficiary as provided above, or if the designated beneficiary dies before the
participant or before complete payment of the participant's benefits, the
participant's benefits shall be distributed to the participant's spouse, or if
there is none, the Committee, in its discretion, may direct the Trustee to pay
the participant's benefits as follows:
(e) To or for the benefit of any one or more of the participant's
relatives by blood, adoption or marriage and in such proportions as
the Committee determines; or
(f) To the legal representative or representatives of the estate of the
last to die of the participant and the participant's designated
beneficiary.
The term "designated beneficiary" or "beneficiary" as used in the Plan means the
natural or legal person or persons designated by a participant as the
participant's beneficiary under the last effective beneficiary designation form
filed with the Committee under this subsection and to whom the participant's
benefits would be payable under this subsection.
11.8. MISSING PARTICIPANTS OR BENEFICIARIES
Each participant and each designated beneficiary must file with the Committee
from time to time in writing his post office address and each change of post
office address. If a participant dies before the participant receives all of the
participant's vested account balances, the participant's beneficiary must file
any change in his post office address with the Committee. Any communication,
statement or notice addressed to a participant or beneficiary at the last post
office address filed with the Committee, or if no address is filed with the
Committee then, in the case of a participant, at the participant's last post
office address as shown on the Employers' records, will be binding on the
participant and the participant's beneficiary for all purposes of the Plan. The
Employers, the Trustee, and the Committee shall not be required to search for or
locate a participant or beneficiary. If the Committee notifies a participant or
beneficiary that the participant or beneficiary is entitled to a payment and
also notifies the participant or beneficiary of the provisions of this
subsection, and the participant or beneficiary fails to claim his benefits or
make his whereabouts known to the Committee within three years after the
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notification, the benefits of the participant or beneficiary may be disposed of,
to the extent permitted by applicable law, as follows:
(a) If the whereabouts of the participant then are unknown to the
Committee but the whereabouts of the participant's spouse then are
known to the Committee, payment may be made to the spouse;
(b) If the whereabouts of the participant and the participant's spouse,
if any, then are unknown to the Committee but the whereabouts of the
participant's designated beneficiary then are known to the
Committee, payment may be made to the designated beneficiary;
(c) If the whereabouts of the participant, the participant's spouse and
the participant's designated beneficiary then are unknown to the
Committee but the whereabouts of one or more relatives by blood,
adoption or marriage of the participant are known to the Committee,
the Committee may direct the Trustee to pay the participant's
benefits to one or more of such relatives and in such proportions as
the Committee decides; or
(d) If the whereabouts of such relatives and the participant's
designated beneficiary then are unknown to the Committee, the
benefits of such participant or beneficiary may be disposed of in an
equitable manner permitted by law under rules adopted by the
Committee.
11.9. FACILITY OF PAYMENT
When a person entitled to benefits under the Plan is under legal disability, or,
in the Committee's opinion, is in any way incapacitated so as to be unable to
manage the person's financial affairs, the Committee may direct the Trustee to
pay the benefits to such person's legal representative, or to a relative or
friend of such person for such person's benefit, or the Committee may direct the
application of such benefits for the benefit of such person. Any payment made in
accordance with the preceding sentence shall be a full and complete discharge of
any liability for such payment under the Plan.
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SECTION 12
RIGHTS, RESTRICTIONS, AND OPTIONS ON COMPANY STOCK
12.1. RIGHT OF FIRST REFUSAL
Subject to the provisions of the last sentence of this subsection, shares of
Company stock distributed to participants pursuant to subsection 11.3 shall be
subject to a "right of first refusal." The right of first refusal shall provide
that, prior to any subsequent transfer, the participant (or the participant's
beneficiary) must first make a written offer of such Company stock to the Trust
and to the Company at the then fair market value of such Company stock, as
determined by an "independent appraiser" (as defined in Section 401(a)(28) of
the Code). The Trust shall have the first priority to exercise the right to
purchase the Company stock, and then the Company shall have second priority to
exercise the right. A bona fide written offer from an independent prospective
buyer shall be deemed to be the fair market value of such Company stock for this
purpose, unless the value per share, as determined by the independent appraiser
as of the December 31 accounting date of the immediately preceding plan year, is
greater. The Company and the Trust shall have a total of 14 days (from the date
the offer is first received by the Company or the trust) to exercise the right
of first refusal on the same terms offered by the prospective buyer. A
participant (or the participant's beneficiary) entitled to a distribution of
Company stock may be required to execute an appropriate stock transfer agreement
(evidencing the right of first refusal) prior to receiving a certificate for
Company stock. No right of first refusal shall be exercisable by reason of any
of the following transfers:
(a) The transfer upon disposition of any such shares by any legal
representative, heir or legatee, but the shares shall remain
subject to the right of first refusal;
(b) The transfer by a participant or a participant's beneficiary
in accordance with the put option pursuant to subsection 12.2;
or
(c) The transfer while Company stock is listed on a national
securities exchange registered under Section 6 of the
Securities Exchange Act of 1934 or quoted on a system
sponsored by a national securities association registered
under Section 15A(b) of the Securities Exchange Act of 1934.
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12.2. PUT OPTION
The Company shall issue a "put option" to each participant (or each
participant's beneficiary) who receives a distribution of Company stock if, at
the time of such distribution, Company stock is not then readily tradable on an
established market, as defined in Section 409(h) of the Code and the regulations
thereunder. The put option shall permit the participant (or the participant's
beneficiary) to sell such Company stock at its then fair market value, as
determined by an independent appraiser in accordance with the provisions of
subsection 6.9, to the Company at any time during the sixty-day period
commencing on the date the Company stock was distributed to the participant (or
the participant's beneficiary), and, if not exercised within that period, the
put option will temporarily lapse. The Company, in its sole discretion, may
extend the sixty-day period referred to in the immediately preceding sentence if
such an extension is necessary in order for the Company stock to be valued by an
independent appraiser as of the applicable accounting date coincident with or
immediately preceding the date the Company stock was distributed to the
recipient. As of the semi-annual valuation date in the plan year following the
plan year in which such temporary lapse of the put option occurs, the
independent appraiser shall determine the value of the Company stock in
accordance with the provisions of subsection 6.9, and the Committee shall notify
each distributee who did not exercise the initial put option prior to its
temporary lapse in the preceding plan year of the revised value of the Company
stock. The time during which the put option may be exercised shall recommence on
the date such notice or revaluation is given and shall permanently terminate
sixty days thereafter. Notwithstanding the previous provisions, if the Company's
charter or bylaws restricts the ownership of the Company Stock to the employees
or a trust described in Section 401(a) of the Code or if the Company has elected
S-corporation status and a participant receives a distribution in the form of
Company stock, the participant will be required to immediately put the shares to
the Company on the date of distribution and shall not have two 60-day periods in
which to put the shares. The Trustee may be permitted by the Company to purchase
Company stock put to the Company under a put option.
At the option of the Company or the Trustee, as the case may be, the payment for
Company stock sold pursuant to a put option shall be made, as determined in the
discretion of the Company or the Trustee, as the case may be, in the following
forms:
(a) If a participant's ESOP stock account is distributed in a
total distribution (that is, a distribution within one taxable
year of the balance to the credit of the participant's ESOP
stock account), then payment for such Company stock may be
made with a promissory note that provides for substantially
equal annual installments commencing within thirty days from
the date of the exercise of the put option and over a period
not exceeding five years, with interest payable at a
reasonable rate (as determined by the Company) on
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any unpaid installment balance, with adequate security
provided, and without penalty for any prepayment of such
installments; or
(b) In a lump sum no later than thirty days after such participant
exercises the put option.
At the direction of the Committee, the Trustee on behalf of the Trust may offer
to purchase any shares of Company stock (which are not sold pursuant to a put
option) from any former participant or beneficiary at any time in the future, at
their then fair market value.
12.3. SHARE LEGEND
Shares of Company stock held or distributed by the Trustee may include such
legend restrictions on transferability as the Company may reasonably require in
order to assure compliance with applicable Federal and state securities laws.
12.4. NONTERMINABLE RIGHTS
The provisions of this Section 12 shall continue to be applicable to shares of
Company stock even if the applicable portion of the Plan ceases to be an
employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Code.
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SECTION 13
REEMPLOYMENT
13.1. COMMENCEMENT OR RESUMPTION OF PARTICIPATION
If a participant should terminate employment with the Employers and subsequently
be reemployed by an Employer, the participant shall again become a participant
as of the day of the participant's reemployment with the Employer. If an
employee who has not become a participant terminates employment with the
Employers and subsequently is reemployed by an Employer, the employee shall
become a participant on the entry date immediately following the employee's date
of hire if the employee then meets the requirements of subsection 2.1.
13.2. CREDITED SERVICE FOR VESTING
The years of vesting service accrued prior to termination of employment by a
non-vested participant or employee shall be disregarded for purposes of
subsection 10.2 only if his number of consecutive one-year breaks in vesting
service occurring after his termination equal or exceed the greater of (i) five
or (ii) his years of vesting service prior to his termination. The years of
vesting service of any vested participant shall be reinstated upon reemployment.
However, in no event shall years of vesting service occurring after a
participant incurs five consecutive one-year breaks in vesting service be used
to determine the nonforfeitable amount of the participant's forfeitable accounts
as of a prior settlement date.
A "one-year break in vesting service" means any plan year during which a
terminated employee or participant does not complete 500 hours of service (as
defined in subsection 2.1). In the case of a maternity or paternity absence (as
defined below), an employee shall be credited, for the first plan year in which
he otherwise would have incurred a one-year break in service (and solely for
purposes of determining whether such a break in service has occurred), with the
hours of service which normally would have been credited to him but for such
absence (or, if the Committee is unable to determine hours which would have been
so credited, 8 hours for each day of such absence), but in no event more than
501 hours for any one absence. A "maternity or paternity absence" means an
employee's absence from work because of the pregnancy of the employee or birth
of a child of the employee, the placement of a child with the employee in
connection with the adoption of such child by the employee, or for purposes of
caring for a child immediately following such birth or placement. The Committee
may require an employee to furnish such information as the Committee considers
necessary to establish that the employee's absence was for one of the reasons
specified above.
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13.3. REINSTATEMENT OF FORFEITURES
If a participant whose employment had terminated with the Employers because of
resignation or dismissal before the participant was entitled to the full balance
in the participant's employer discretionary contribution account, regular ESOP
stock subaccount and ESOP cash account is reemployed by the Employers before
incurring five consecutive one-year breaks in credited service, the following
shall apply:
(a) If the participant did not receive distribution of any part of
the vested portion of the participant's account, the amount of
the participant's account previously forfeited pursuant to
subsection 10.2 will be credited to the participant's account
as of the regular accounting date immediately following the
date the participant is reemployed by the Employers.
(b) If the participant received distribution of any part of the
vested portion of the participant's account, the participant
may repay to the Trustee the total amount distributed to the
participant from the participant's employer discretionary
contribution account, and ESOP employer subaccount as a result
of such earlier termination of employment. However, such
repayment must be made before the earlier of (i) the fifth
anniversary of the participant's date of reemployment by the
Employers or (ii) the date the participant incurs five
consecutive one-year breaks in credited service commencing
after the distribution. If a participant makes such a
repayment to the Trustee, the amount of the repayment shall be
credited to the participant's accounts, and the previously
forfeited amounts that resulted from the participant's earlier
termination of employment (unadjusted for subsequent gains or
losses) shall be credited to the participant's accounts as of
the regular accounting date coincident with or next following
the date of repayment.
Forfeitures that are to be credited to participants' accounts as of an
accounting date under this subsection shall be drawn first from outstanding
forfeitures and then, if necessary, from special employer contributions made for
this purpose.
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SECTION 14
VOTING AND TENDERING OF COMPANY STOCK
The voting of Company stock held in the trust, and if a tender offer is made for
Company stock, the tendering of such shares, shall be subject to the provisions
of ERISA and the following provisions, to the extent such provisions are not
inconsistent with ERISA:
(a) Allocated shares. For purposes of this Section, shares of
Company stock shall be deemed to be allocated and credited to
a participant's ESOP stock account in an amount to be
determined based on the balance in such account on the
accounting date coincident with or next preceding the record
date of any vote or tender offer.
(b) Voting of Company stock. With respect to any corporate matter
which involves the voting of Company stock with respect to the
approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all of the
assets of a trade or business, or such other transactions
which may be prescribed by regulation, each participant may be
entitled to direct the Trustee as to the exercise of any
voting rights attributable to shares of Company stock then
allocated to his ESOP stock account, but only to the extent
required by Sections 401(a)(22) and 409(e)(3) of the Code and
the regulations thereunder. The Committee shall have the sole
responsibility for determining when a corporate matter has
arisen that involves the voting of Company stock under this
provision. If a participant is entitled to so direct the
Trustee, all allocated Company stock as to which such
instructions have been received (which may include an
instruction to abstain) shall be voted by the Trustee in
accordance with such instructions, provided that the Trustee
may vote the shares as it determines is necessary to fulfill
their fiduciary duties under ERISA. The Trustee shall vote any
shares of Company stock held in the unreleased stock account,
or any allocated shares of Company stock as to which no voting
instructions have been received in accordance with the
directions of the Committee, provided, however, that the
Trustee may vote the shares as they determine is necessary to
fulfill their fiduciary duties.
(c) Tendering of Company stock. In the event of a tender offer for
shares of Company stock held by the Trust, the Trustee shall
tender
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the shares in their sole discretion, subject to the fiduciary
duties under ERISA.
In carrying out its responsibilities under this Section, the Trustee may rely on
information furnished to it by the Committee, including the names and current
addresses of participants, the number of shares of Company stock allocated to
their accounts, and the number of shares of Company stock held by the Trustee
that have not yet been allocated.
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SECTION 15
GENERAL PROVISIONS
15.1. INTERESTS NOT TRANSFERABLE
The interests of participants and their beneficiaries under the Plan are not in
any way subject to their debts or other obligations and, except as may be
required by the tax withholding provisions of the Code or any state's income tax
act, may not be voluntarily or involuntarily sold, transferred, alienated or
assigned. Notwithstanding the foregoing, the Plan shall comply with any domestic
relations order that, in accordance with procedures established by the
Committee, is determined to be a qualified domestic relations order (as defined
in Section 414(p)(1)(A) of the Code).
15.2. ABSENCE OF GUARANTY
The Committee, the Employers, and the Trustee do not in any way guarantee the
Trust from loss or depreciation. The liability of the Committee or the Trustee
to make any payment under the Plan will be limited to the assets held by the
Trustee that are available for that purpose.
15.3. EMPLOYMENT RIGHTS
The Plan does not constitute a contract of employment, and participation in the
Plan will not give any employee the right to be retained in the employ of an
Employer, nor any right or claim to any benefit under the Plan, unless such
right or claim has specifically accrued under the terms of the Plan.
15.4 LITIGATION BY PARTICIPANTS OR OTHER PERSONS
To the extent permitted by law, if a legal action against the Trustee, an
Employer, or the Committee by or on behalf of any person results adversely to
that person, or if a legal action arises because of conflicting claims to a
participant's or beneficiary's benefits, the cost to the Trustee, an Employer,
or the Committee of defending the action will be charged to the extent possible
to the sums, if any, that were involved in the action or were payable to the
participant or beneficiary concerned.
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15.5. EVIDENCE
Evidence required of anyone under the Plan may be by certificate, affidavit,
document or other information that the person acting on it considers pertinent
and reliable, and signed, made or presented by the proper party or parties.
15.6. WAIVER OF NOTICE
Any notice required under the Plan may be waived by the person entitled to such
notice.
15.7. CONTROLLING LAW
To the extent not superseded by the laws of the United States, the laws of
Illinois shall be controlling in all matters relating to the Plan.
15.8. STATUTORY REFERENCES
Any reference in the Plan to the Code means the Internal Revenue Code of 1986,
as amended. Any reference in the Plan to ERISA means the Employee Retirement
Income Security Act of 1974, as amended. Any reference in the Plan to a section
of the Code or ERISA, or to a section of any other Federal law, shall include
any comparable section or sections of any future legislation that amends,
supplements or supersedes that section.
15.9. SEVERABILITY
In case any provisions of the Plan shall be held illegal or invalid for any
reason, such illegality or invalidity shall not affect the remaining provisions
of the Plan, and the Plan shall be construed and enforced as if such illegal and
invalid provisions had never been set forth in the Plan.
15.10 ADDITIONAL EMPLOYERS
With the consent of the Company, any Controlled Group Member described in
paragraph 1.6(a) or (b) may, by filing with the Company a written instrument to
that effect, become an Employer hereunder by adopting the Plan and becoming a
party to the trust agreement.
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15.11 ACTION BY EMPLOYERS
Any action authorized or required to be taken by an Employer under the Plan
shall be by resolution of its Board of Directors, by resolution of a duly
authorized committee of its Board of Directors, or by a person or persons
authorized by resolution of its Board of Directors or such committee.
15.12 GENDER AND NUMBER
Where the context admits, words in the masculine gender include the feminine and
neuter genders, the plural includes the singular, and the singular includes the
plural.
15.13 EXAMINATION OF DOCUMENTS
Copies of the Plan and trust agreement, and any amendments thereto, are on file
at the office of the Company where they may be examined by any participant or
other person entitled to benefits under the Plan during normal business hours.
15.14 FIDUCIARY RESPONSIBILITIES
It is specifically intended that all provisions of the Plan shall be applied so
that all fiduciaries with respect to the Plan shall be required to meet the
prudence and other requirements and responsibilities of applicable law to the
extent such requirements or responsibilities apply to them. In general, a
fiduciary shall discharge the fiduciary's duties with respect to the Plan and
the Trust solely in the interests of participants and beneficiaries and with the
care, skill, prudence, and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of like character and with like aims.
15.15 INDEMNIFICATION
To the extent permitted by law, any member or former member of the Committee,
any person who was, is or becomes an officer or director of the Company, an
Employer, or a Controlled Group Member or any employee of an Employer to whom
the Committee or any Employer has delegated any portion of its responsibilities
under the Plan, and each of them, shall be indemnified and saved harmless by the
Employers (to the extent not indemnified or saved harmless under any liability
insurance contract or other indemnification arrangement with respect to the
Plan) from and against any and all liability to which the Committee members and
such other persons may be subject by reason of any act done or omitted to be
done in good faith with respect to the administration of the Plan and the trust,
including all expenses reasonably incurred in
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their defense in the event that the Employers failed to provide such defense
after having been requested in writing to do so.
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SECTION 16
RESTRICTIONS AS TO REVERSION OF TRUST ASSETS TO THE EMPLOYERS
The Employers shall have no right, title or interest in the assets of the trust,
except as may be provided in a pledge agreement entered into between an Employer
and the Trustee in connection with an acquisition loan (a "pledge agreement").
No part of the assets of the Trust at any time will revert or will be repaid to
the Employers, directly or indirectly, except as follows:
(a) If the Internal Revenue Service initially determines that the
Plan, as applied to an Employer, does not meet the
requirements of a "qualified plan" under Section 401(a) of the
Code, the assets of the Trust attributable to contributions
made by the Employer under the Plan shall be returned to the
Employer within one year of the date of denial of
qualification of the Plan as applied to the Employer.
(b) If a contribution or a portion of a contribution is made by an
Employer as a result of a mistake of fact, such contribution
or portion of a contribution shall not be considered to have
been contributed to the Trust by the Employer and, after
having been reduced by any losses of the Trust allocable
thereto, shall be returned to the Employer within one year of
the date the amount is paid to the trust.
(c) If a contribution made by an Employer is conditioned upon the
deductibility of such contribution as an expense for Federal
income tax purposes, to the extent the deduction for the
contribution made by the Employer is disallowed, such
contribution, or portion of such contribution, after having
been reduced by any losses of the Trust allocable thereto,
shall be returned to the Employer within one year of the date
of disallowance of the deduction.
(d) If there is a default on an acquisition loan, an Employer may
exercise its rights under a pledge agreement with respect to
the shares of Company stock subject to the pledge agreement
(including, but not limited to, the sale of pledged shares,
the transfer of pledged shares to the Employer, and the
registration of pledged shares in the Employer's name).
Contributions may be returned to an Employer pursuant to paragraph (a) above
only if they are conditioned upon initial qualification of the Plan as applied
to that Employer and an application for determination was made by the time
prescribed by law for filing
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the Employer's Federal income tax return for the taxable year in which the Plan
was adopted (or such later date as the Secretary of the Treasury may prescribe).
In no event may the return of a contribution pursuant to paragraph (b) or (c)
above cause any participant's account balances to be less than the amount of
such balances had the contribution not been made under the Plan.
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SECTION 17
AMENDMENT AND TERMINATION
17.1. AMENDMENT
While the Company expects and intends to continue the Plan, the Company reserves
the right to amend the Plan from time to time by action of the Company's Board
of Directors or the Executive Committee of the Board of Directors of the
Company. However, the Committee is authorized to cause to be prepared, to
approve, and to execute any amendments of the Plan that the Committee determines
are necessary to comply with applicable law, regulations, and rulings or to
reflect rules and procedures developed by the Committee; provided, however, that
any amendment (other than an amendment needed to comply with applicable law,
regulations, and rulings) that is expected to change the level of participant or
employer contributions made under the Plan or to materially increase the cost of
the Plan to the Employers shall be approved by the Company's Board of Directors
or by the Executive Committee of the Board of Directors of the Company.
Notwithstanding the foregoing:
(a) An amendment may not change the duties and liabilities of the
Committee or the Trustee without the consent of the Committee
or the Trustee, whichever is applicable;
(b) An amendment shall not reduce the value of a participant's
nonforfeitable benefits accrued prior to the later of the
adoption or the effective date of the amendment; and
(c) Except as provided in Section 16, under no condition shall any
amendment result in the return or repayment to the Employers
of any part of the Trust or the income therefrom or result in
the distribution of the Trust for the benefit of anyone other
than employees and former employees of the Employers and any
other persons entitled to benefits under the Plan.
The Committee shall notify the Trustee of any amendment of the Plan within a
reasonable period of time.
17.2. TERMINATION
The Plan will terminate as to all Employers on any date specified by the Company
if thirty days' advance written notice of the termination is given to the
Committee, the
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Trustee and the other Employers. The Plan will terminate as to an individual
Employer on the first to occur of the following:
(a) The date it is terminated by that Employer if thirty days'
advance written notice of the termination is given to the
Committee, the Trustee and the other Employers.
(b) The date that Employer is judicially declared bankrupt or
insolvent.
(c) The date that Employer completely discontinues its
contributions under the Plan.
(d) The dissolution, merger, consolidation or reorganization of
that Employer or the sale by that Employer of all or
substantially all of its assets, except that:
(i) in any such event arrangements may be made with the
consent of the Company whereby the Plan will be
continued by any purchaser of all or substantially
all of its assets, in which case the successor or
purchaser will be substituted for that Employer under
the Plan and the trust agreement; and
(ii) if an Employer is merged, dissolved or in any other
way reorganized into, or consolidated with, any other
Employer, the Plan as applied to the former Employer
will automatically continue in effect without a
termination thereof.
17.3. NONFORFEITABILITY AND DISTRIBUTION ON TERMINATION
On termination or partial termination of the Plan, the rights of all affected
participants to benefits accrued to the date of such termination, after all
adjustments then required have been made, shall be nonforfeitable. The Committee
shall specify the date of such termination or partial termination as a special
accounting date. As soon as practicable after all adjustments required as of
that date have been made to the account balances of participants, the Committee
shall direct the Trustee to distribute to each such affected participant his
benefits under the Plan in one lump sum provided the participant is no longer
employed by an Employer or a Controlled Group Member. All appropriate provisions
of the Plan will continue to apply until the account balances of all such
participants have been distributed under the Plan.
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17.4 NOTICE OF TERMINATION
Participants will be notified of the termination of the Plan within a reasonable
time.
17.5. PLAN MERGER, CONSOLIDATION, ETC.
In the case of any merger or consolidation with, or transfer of assets or
liabilities to, any other plan, each participant's benefits (if the Plan
terminated immediately after such merger, consolidation or transfer) shall be
equal to or greater than the benefits the participant would have been entitled
to receive if the Plan had terminated immediately before the merger,
consolidation or transfer.
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SECTION 18
THE COMMITTEE
18.1. THE COMMITTEE
As provided in subsection 1.5, the Plan is administered by the Committee. The
Committee shall consist of at least three persons (who may but need not be
employees of the Employers) appointed by the Company. The Company will certify
to the Trustee from time to time the names of the members of the Committee.
18.2. THE COMMITTEE'S GENERAL POWERS, RIGHTS, AND DUTIES
The Committee shall have all the powers necessary and appropriate to discharge
its duties under the Plan, which powers shall be exercised in the sole and
absolute discretion of the Committee, including, but not limited to, the
following:
(a) To construe and interpret the provisions of the Plan and to
make factual determinations thereunder, including the power to
determine the rights or eligibility under the Plan of
employees, participants, or any other persons, and the amounts
of their benefits (if any) under the Plan, and to remedy
ambiguities, inconsistencies or omissions, and such
determinations by the Committee shall be binding on all
parties.
(b) To adopt such rules of procedure and regulations as in its
opinion may be necessary for the proper and efficient
administration of the Plan and as are consistent with the Plan
and trust agreement.
(c) To enforce the Plan in accordance with the terms of the Plan
and the Trust and in accordance with the rules and regulations
the Committee has adopted.
(d) To direct the Trustee as respects payments or distributions
from the Trust in accordance with the provisions of the Plan.
(e) To furnish the Employers with such information as may be
required by them for tax or other purposes in connection with
the Plan.
(f) To employ agents, attorneys, accountants, actuaries or other
persons (who also may be employed by the Employers) and to
allocate or delegate to them such powers, rights and duties as
the Committee
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may consider necessary or advisable to properly carry out
administration of the Plan, provided that such allocation or
delegation and the acceptance thereof by such agents,
attorneys, accountants, actuaries or other persons, shall be
in writing.
(g) To appoint an investment manager as defined in Section 3(38)
of ERISA ("investment manager") to manage (with power to
acquire and dispose of) the assets of the Plan, which
investment manager may or may not be a subsidiary of the
Company, and to delegate to any such investment manager all of
the powers, authorities and discretion granted to the
Committee hereunder or under the trust agreement (including
the power to delegate and the power, with prior notice to the
Committee, to appoint an investment manager), in which event
any direction the Trustee from any duly appointed investment
manager with respect to the acquisition, retention or
disposition of Plan assets shall have the same force and
effect as if such direction had been given by the Committee,
and to remove any investment manager; provided, however, that
the power and authority to manage, acquire, or dispose of any
asset of the Plan shall not be delegated except to an
investment manager, and provided further that the acceptance
by any investment manager of such appointment and delegation
shall be in writing, and the Committee shall give notice to
the Trustee, in writing, of any appointment of, delegation to
or removal of an investment manager.
18.3. MANNER OF ACTION OF THE COMMITTEE
During a period in which two or more members of the Committee are acting, the
following provisions apply where the context admits:
(a) The members of the Committee may select a secretary, if they
believe it advisable, who may or may not be a member of the
Committee.
(b) A Committee member by writing may delegate any or all of such
member's rights, powers, duties and discretion to any other
member of the Committee, with the written consent of the
latter.
(c) The members of the Committee may act by meeting or by writing
signed without meeting, and such members may sign any document
by signing one document or concurrent documents.
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(d) An action or a decision of a majority of the members of the
Committee as to a matter shall be as effective as if taken or
made by all members of the Committee.
(e) If, because of the number qualified to act, there is an even
division of opinion among members of the Committee as to a
matter, a disinterested party selected by the Committee shall
decide the matter and such person's decision shall control.
(f) Except as otherwise provided by law, no member of the
Committee shall be liable or responsible for an act or
omission of the other members of the Committee in which the
former has not concurred.
(g) The certificate of the secretary of the Committee or of a
majority of the members of the Committee that the Committee
has taken or authorized any action shall be conclusive in
favor of any person relying on the certificate.
18.4. INTERESTED COMMITTEE MEMBER
If a member of the Committee is also a participant in the Plan, the Committee
member may not decide or determine any matter or question concerning
distributions of any kind to be made to the Committee member or the nature or
mode of settlement of the Committee member's benefits, unless such decision or
determination could be made by the Committee member under the Plan if the
Committee member were not serving on the Committee.
18.5. RESIGNATION OR REMOVAL OF COMMITTEE MEMBERS
A member of the Committee may be removed by the Company at any time by ten days'
prior written notice to that member and the other members of the Committee. A
member of the Committee may resign at any time by giving ten days' prior written
notice to the Company and the other members of the Committee. The Company may
fill any vacancy in the membership of the Committee; provided, however, that if
a vacancy reduces the membership of the Committee to less than three, such
vacancy shall be filled as soon as practicable. The Company shall give prompt
written notice thereof to the other members of the Committee. Until any such
vacancy is filled, the remaining members of the Committee may exercise all of
the powers, rights and duties conferred on the Committee.
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18.6. COMMITTEE EXPENSES
All costs, charges and expenses reasonably incurred by the Committee will be
paid by the Company to the extent not paid from the assets of the trust. No
compensation will be paid to a member of the Committee as such.
18.7. UNIFORM RULES
The Committee shall administer the Plan on a reasonable and nondiscriminatory
basis and shall apply uniform rules to all persons similarly situated.
18.8. INFORMATION REQUIRED BY THE COMMITTEE
Each person entitled to benefits under the Plan shall furnish the Committee with
such documents, evidence, data or information as the Committee considers
necessary or desirable for the purpose of administering the Plan. The Employers
shall furnish the Committee with such data and information as the Committee may
deem necessary or desirable in order to administer the Plan. The records of the
Employers as to an employee's or a participant's period of employment, hours of
service, termination of employment and the reason therefore, leave of absence,
reemployment and earnings will be conclusive on all persons unless determined to
the Committee's satisfaction to be incorrect.
18.9. REVIEW OF BENEFIT DETERMINATIONS
The Committee will provide notice in writing to any participant or beneficiary
whose claim for benefits under the Plan is denied, and the Committee shall
afford such participant or beneficiary a full and fair review of its decision if
so requested.
18.10 COMMITTEE'S DECISION FINAL
Subject to applicable law, any interpretation of the provisions of the Plan and
any decisions on any matter within the discretion of the Committee made by the
Committee in good faith shall be binding on all persons. A misstatement or other
mistake of fact shall be corrected when it becomes known, and the Committee
shall make such adjustment on account thereof as it considers equitable and
practicable.
18.11 DENIAL PROCEDURE AND APPEAL PROCESS
If a participant, beneficiary or any other person who believes he may be
entitled to benefits under the Plan (a "claimant") has an unresolved question
about eligibility for
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benefits, the form of benefits, or the amount of benefits to be received or
being received under the Plan after consulting with the Committee or its
representatives, a formal review of the situation may be requested in writing of
the Committee within sixty days after receiving notification of the claimant's
Plan benefits or an estimate of the claimant's Plan benefits. A review decision
will be made within sixty days after receipt of such request (one hundred twenty
days in special circumstances) and the claimant will be informed of the decision
within ninety days after receipt of such request (one hundred eighty days in
special circumstances). However, if the claimant is not informed of the decision
within the period described above, the claimant may request a further review by
the Committee as described below as if the claimant had received notice of an
adverse decision at the end of that period. The decision will be written in a
manner calculated to be understood by the claimant, setting forth the specific
reasons for any denial of a benefit or benefit option, specific reference to
pertinent Plan provisions on which such denial is based, a description of any
additional material or information necessary for the claimant to perfect the
claim and an explanation of why such material or information is necessary, and
an explanation of the Plan's claim review procedure. The claimant also shall be
advised that the claimant or the claimant's duly authorized representative may
request a further review by the Committee of the decision denying the claim by
filing with the Committee within sixty days after such notice has been received
by the claimant a written request for such review and that claimant may review
pertinent documents, and submit issues and comments in writing, within the same
sixty-day period. If such request is so filed, such review shall be made by the
Committee within sixty days after receipt of such request, unless special
circumstances require an extension of time for processing in which case the
review will be completed and decision rendered within one hundred twenty days.
The claimant shall be given written notice of the decision which shall include
specific reasons for the decision, and specific references to the pertinent Plan
provisions on which the decision is based, and such decision by the Committee
shall be final and shall terminate the review process.
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SECTION 19
SPECIAL RULES APPLICABLE WHEN PLAN IS TOP-HEAVY
19.1 PURPOSE AND EFFECT
The purpose of this Section 19 is to comply with the requirements of Section 416
of the Code. The provisions of this Section 19 are effective for each plan year
beginning on or after the effective date in which the Plan is a "top-heavy plan"
within the meaning of Section 416(g) of the Code.
19.2 TOP-HEAVY PLAN
In general, the Plan will be a top-heavy plan for any plan year if, as of the
"determination date" (that is, the last day of the preceding plan year), the sum
of the amounts in paragraphs (a), (b) and (c) below for key employees (as
defined generally below and in Section 416(i)(1) of the Code) exceeds sixty
percent of the sum of such amounts for all employees who are covered by this
Plan or by a defined contribution plan or defined benefit plan that is
aggregated with this Plan in accordance with subsection 19.4:
(a) The aggregate account balances of participants under this
Plan.
(b) The aggregate account balances of participants under any other
defined contribution plan included under subsection 19.4.
(c) The present value of the cumulative accrued benefits of
participants calculated under any defined benefit plan
included in subsection 19.4.
In making the foregoing determination, (i) a participant's account balances or
cumulative accrued benefits shall be increased by the aggregate distributions,
if any, made with respect to the participant during the 5-year period ending on
the determination date, including distributions under a terminated plan that, if
it had not been terminated, would have been required to be included in the
aggregation group, (ii) the account balances or cumulative accrued benefits of a
participant who was previously a key employee, but who is no longer a key
employee, shall be disregarded, (iii) the account balances or cumulative accrued
benefits of a beneficiary of a participant shall be considered accounts or
accrued benefits of the participant, (iv) the account balances or cumulative
accrued benefits of a participant who has not performed services for an Employer
or a Controlled Group Member at any time during the 5-year period ending on the
determination date shall be disregarded and (v) any rollover contribution (or
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<PAGE> 68
similar transfer) from a plan maintained by a corporation other than an Employer
under this Plan initiated by a participant shall not be taken into account as
part of the participant's aggregate account balances under this Plan.
19.3 KEY EMPLOYEE
In general, a "key employee" is an employee (or a former or deceased employee)
who, at any time during the plan year or any of the 4 preceding plan years, is
or was:
(a) an officer of an Employer having annual compensation greater
than fifty percent of the amount in effect under Section
415(b)(1)(A) for any such plan year; provided that, for
purposes of this paragraph, no more than fifty employees of
the Employer (or, if lesser, the greater of three employees or
ten percent of the employees) shall be treated as officers;
(b) one of the ten employees who have annual compensation from an
Employer of more than the limitation in effect under Section
415(c)(1)(A) of the Code for that year and owning or
considered as owning, within the meaning of Section 318 of the
Code, the largest interests in the Employer; provided that if
two employees have the same interest in the Employer, the
employee having greater annual compensation from the Employer
shall be treated as having a larger interest;
(c) a five percent or greater owner of an Employer; or
(d) a one percent or greater owner of an Employer having annual
compensation from the Employer of more than $150,000.
For purposes of this subsection the term "compensation" means compensation as
defined by Code Section 414(q)(7).
19.4 AGGREGATED PLANS
Each other defined contribution plan and defined benefit plan maintained by an
Employer that covers a "key employee" as a participant or that is maintained by
an Employer in order for a plan covering a key employee to satisfy Section
401(a)(4) or 410 of the Code shall be aggregated with this Plan in determining
whether this Plan is top-heavy. In addition, any other defined contribution or
defined benefit plan of an Employer may be included if all such plans that are
included, when aggregated, will not
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<PAGE> 69
discriminate in favor of officers, shareholders or highly compensated
participants and will satisfy all of the applicable requirements of Sections
401(a)(4) and 410 of the Code.
19.5 MINIMUM EMPLOYER CONTRIBUTION
Subject to the following provisions of this subsection and subsection 19.7, for
any plan year in which the Plan is a top-heavy plan, the employer contribution
credited to each participant who is not a key employee shall not be less than 3
percent of such participant's total earnings (as defined in subsection 3.5) from
the Employers for that year. In no event, however, shall the total employer
contribution credited in any year to a participant who is not a key employee
(expressed as a percentage of such participant's total compensation from the
Employer) exceed the maximum total employer contribution credited in that year
to a key employee (expressed as a percentage of such key employee's total
compensation from an Employer). The amount of minimum employer contribution
otherwise required to be allocated to any participant for any plan year under
this subsection shall be reduced by the amount of employer contributions
allocated to him for a plan year ending with or within that plan year under any
other tax-qualified defined contribution plan maintained by an Employer.
19.6 COORDINATION OF BENEFITS
For any plan year in which the Plan is top-heavy, in the case of a participant
who is a non-key employee and who is a participant in a top-heavy tax-qualified
defined benefit plan that is maintained by an Employer and that is subject to
Section 416 of the Code, subsection 19.5 shall not apply, and the minimum
benefit to be provided to each such participant in accordance with this Section
19 and Section 416(c) of the Code shall be the minimum annual retirement benefit
to which he is entitled under such defined benefit plan in accordance with such
Section 416(c), reduced by the amount of annual retirement benefit purchasable
with his Plan accounts (or portions thereof) attributable to employer
contributions (as defined in subsection 19.5) under this Plan and any other
tax-qualified defined contribution plan maintained by an Employer.
19.7 ADJUSTMENT OF COMBINED BENEFIT LIMITATIONS
For any plan year in which the Plan is a top-heavy plan, the determination of
the defined contribution plan fraction and defined benefit plan fraction under
subsection 7.2 shall be adjusted in accordance with the provisions of Section
416(h) of the Code by substituting "1.0" for "1.25" where the latter number
appears in Sections 415(e)(2)(B)(i) and 415(e)(3)(B)(i) of the Code with respect
to the calculation of those fractions; except that with respect to a participant
described in subsection 19.6, such
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<PAGE> 70
adjustment shall not be required under this Plan for any plan year for which
such adjustment is not required under the defined benefit plan referred to in
subsection 19.6.
-64-
<PAGE> 71
SUPPLEMENT A
A-1. Purpose, Application and Definitions. The purpose of this
Supplement A is to modify and supplement the terms and provisions of the Plan
document as applied to Participants for whom the Committee maintains a Drovers
Transfer Account. Unless the context of the Plan document or this Supplement A
clearly implies or indicates to the contrary, a word, term or phrase used or
defined in this Plan document is similarly used or defined in this Supplement A.
A-2. Distribution of Drovers Transfer Accounts. Subject to the
provisions of subsection A-3, the balance of the Participant's Drovers Transfer
Account will be distributed by payment in a lump sum.
A-3. Revocation of Joint and Survivor Annuity Form. If a
Participant is legally married under the laws of any jurisdiction on his
Termination Date, his Account balances shall be paid in the form of a Joint and
Survivor Annuity (as defined below), subject to the following provisions of this
subsection. As soon as practicable after a married Participant's Termination
Date, the Committee will provide him with election information consisting of:
(a) a written description of the Joint and Survivor
Annuity and the relative financial effect of payment
of his Account balances in that form; and
(b) a notification of the right to waive payment in that
form, the rights of his spouse with respect to such
waiver and the right to revoke such waiver.
The Committee may make such election information available to a Participant by:
(i) personal delivery to him;
(ii) first-class mail, postage prepaid,
addressed to the Participant at his last
known address as shown on his Employer's
records; or
(iii) permanent posting on a bulletin board
located at the Participant's work site.
During an election period commencing on the date the Participant
receives such election information and ending on the later of the 90th day
thereafter or the date as of which his benefits are to commence, a Participant
may waive payment in the Joint and Survivor Annuity form and elect payment in
the form described in subsection A-2; provided that, the Participant's surviving
spouse, if any, has consented in writing to such waiver and the spouse's consent
acknowledges the effect of such revocation and is
A-1
<PAGE> 72
witnessed by a notary public. A Participant may, at any time during his election
period revoke any prior waiver of the Joint and Survivor Annuity form. A
Participant may request, by writing filed with the Committee during his election
period, an explanation, written in nontechnical language, of the terms,
conditions and financial effect (in terms of dollars per monthly benefit
payment) of payment in the Joint and Survivor Annuity form. If not previously
provided to the Participant, the Committee shall provide him with such
explanation within 30 days of his request by one of the methods described in
paragraphs (i) or (ii) next above, and the Participant's election period will be
extended, if necessary, to include the 90th day next following the date on which
he receives such explanation. The term "Joint and Survivor Annuity" means an
annuity for the life of the Participant with a survivor annuity for the life of
his surviving spouse which is equal to 50 percent of the amount of the annuity
payable during the joint lives of the Participant and his spouse and which is
the actuarial equivalent of a single life annuity for the life of the
Participant. No distribution shall be made from a Participant's Drover Transfer
Account until his election period has terminated. Notwithstanding the foregoing,
if the Participant's distributable Account balances are less than $5,000, the
Committee may direct the Trustees to immediately distribute such benefits in a
lump sum without such Participant's consent.
A-4. Pre-Retirement Survivor Annuity. The term "Pre-Retirement
Survivor Annuity" means an annuity for the life of the Participant's surviving
spouse, the payments under which must be equal to the amount of benefit which
can be purchased with the balance in the Participant's Drover Transfer Account
as of the date of his death. Payment of such benefits will commence as soon as
practicable after the date of the Participant's death, unless the surviving
spouse elects a later date. Any election to waive the Pre-Retirement Survivor
Annuity must be made by the Participant in writing during the election period
described herein and shall require the spouse's consent in the same manner
provided for in subsection A-3. The election period to waive the Pre-Retirement
Survivor Annuity shall begin on the first day of the plan year in which the
Participant attains age 35 and end on the date of the Participant's death. In
the event a Participant separates from service prior to the beginning of the
election period, the election period shall begin on the date of such separation
from service. In connection with the election, the Committee shall provide each
Participant within the period beginning with the first day of the plan year in
which the Participant attains age 32 and ending with the close of the plan year
preceding the plan year in which the Participant attains age 35, a written
explanation of the Pre-Retirement Survivor Annuity containing comparable
information to that required pursuant to the provisions of paragraphs A-3(a) and
(b). If the Participant enters the Plan after the first day of the plan year in
which the Participant attained age 32, the Committee shall provide notice no
later than the close of the second plan year following the entry of the
Participant into the Plan. If the distributable balance of the Participant's
Accounts is less than $5,000, the Committee may direct the Trustees to
immediately distribute such amount to the Participant's spouse. If the value
exceeds $5,000, an immediate distribution
A-2
<PAGE> 73
of the entire amount may be made to the surviving spouse, provided such
surviving spouse consents in writing to such distribution.
A-3
<PAGE> 1
Exhibit 10.2
AMENDMENT AND RESTATEMENT OF THE
TAYLOR CAPITAL GROUP, INC.
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP TRUST
McDermott, Will & Emery
Chicago
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I 2
ARTICLE II 2
- ----------
II-1. The Trust Fund 2
II-2. Plan Administration 3
II-3. Exercise of Trustee's Duties 3
II-4. General Powers 3
II-5. Investment Managers 7
II-6. Responsibility of Trustee 7
II-7. Compensation and Expenses 8
II-8. Continuation of Powers Upon Trust Termination 8
ARTICLE III 8
- -----------
III-1. Investment of Company Stock 8
III-2. Investment of Cash 8
III-3. Stock Dividends, Splits and Other Capital Reorganizations 9
III-4. Put Option 9
ARTICLE IV 9
- ----------
IV-1. Disagreement as to Acts 9
IV-2. Persons Dealing with Trustee 9
IV-3. Benefits May Not Be Assigned or Alienated 9
IV-4. Evidence 10
IV-5. Waiver of Notice 10
IV-6. Counterparts 10
IV-7. Governing Laws and Severability 10
IV-8. Successors, Etc 10
IV-9. Action 10
IV-10. Conformance with Plan 11
IV-11. Indemnification 11
IV-12. Headings 11
IV-13. Notice. 11
ARTICLE V 12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VI 13
- ----------
VI-1. Resignation 13
VI-2. Removal of the Trustee 13
VI-3. Duties of Resigning or Removed Trustee and of Successor Trustee 13
VI-4. Filling Trustee Vacancy 13
ARTICLE VII 14
ARTICLE VIII 14
- ------------
VIII-1. Amendment 14
VIII-2. Termination 14
</TABLE>
<PAGE> 4
AMENDMENT AND RESTATEMENT OF THE
TAYLOR CAPITAL GROUP, INC.
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP TRUST
THIS AGREEMENT, made effective as of , by and
between Taylor Capital Group, Inc., a Delaware corporation (the "Company"), and
Cole Taylor Bank, an Illinois state chartered bank, as the successor trustee,
and its successor or successors and assigns in the trust hereby evidenced, as
trustee (the "Trustee").
WITNESSETH THAT:
WHEREAS, effective as of October 1, 1996, the Company established
a tax-qualified plan known as the Taylor Capital Group, Inc. 401(k)/Profit
Sharing and Employee Stock Ownership Plan (the "Prior Plan") for the exclusive
benefit of its eligible employees and those of any Related Company (as defined
in Article VII) that adopted the Prior Plan and became a party to the Taylor
Capital Group, Inc. 401(k)/Profit Sharing and Employee Stock Ownership Trust
(the "Prior Trust")(the Company and the Related Companies that are parties
hereto are sometimes referred to below collectively as the "Employers" and
individually as "Employer"); and
WHEREAS, effective as of October 1, 1998, the Company has
amended, restated and continued the Prior Plan in the form of the Taylor Capital
Group, Inc. Profit Sharing and Employee Stock Ownership Plan (the "Plan"); and
WHEREAS, in connection with the amendment, restatement and
continuation of the Prior Plan, the cash or deferred portion of the Prior Plan
has been spun-off from the Prior Plan to the Taylor Capital Group, Inc. 401(k)
Plan (the "401(k) Plan"); and
WHEREAS, the Plan is intended to meet the applicable requirements
of Sections 401(a) and 401(k) and a portion of the Plan is intended to be an
employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Prior Trust has been amended and restated into the
trust established pursuant to this agreement (the "Trust"), which will implement
and form a part of the Plan and is intended to be tax-exempt under Section
501(a) of the Code; and
WHEREAS, the portion of the Prior Trust which was attributable to
the cash or deferred portion of the Prior Plan has been spun off from the Prior
Trust into a trust agreement which forms a part of the 401(k) Plan;
<PAGE> 5
NOW THEREFORE, pursuant to the authority delegated to the
undersigned officers of the Company by resolution of its Board of Directors, IT
IS AGREED, by and between the parties hereto, that the trust provisions
contained herein shall constitute the agreement between the Company and the
Trustee in connection with the Plan; and
IT IS FURTHER AGREED, that the Trustee hereby accepts its
appointment as such under this Trust Agreement.
IT IS FURTHER AGREED, by and between the parties hereto as
follows:
ARTICLE I
Name
This Trust Agreement and Trust hereby evidenced shall
be known as the "TAYLOR CAPITAL GROUP, INC. PROFIT SHARING AND EMPLOYEE STOCK
OWNERSHIP TRUST."
ARTICLE II
Management and Control of Trust Fund Assets
II-1. The Trust Fund. The "Trust Fund" as at any date means all
property of every kind then held by the Trustee pursuant to this Trust
Agreement. The Trustee may manage, administer and invest all contributions made
by the several Employers under the Plan as one Trust Fund, except to the extent
that the authority to manage investments has been allocated to one or more
investment managers pursuant to Article II-5. If, for any reason, it becomes
necessary to determine the portion of the Trust Fund allocable to employees and
former employees of any Employer as of any date, the Committee (as defined in
Article II-2) shall specify such date as an accounting date, and after all
adjustments required under the Plan as of that accounting date have been made,
the portion of the Trust Fund attributable to such employees and former
employees shall be determined and shall consist of an amount equal to the
aggregate of the account balances of employees and former employees of that
Employer plus an amount equal to any allocable contributions made by that
Employer since the close of the immediately preceding plan year. The indicia of
ownership of all assets of the Trust Fund must always reside within the
jurisdiction of the district courts of the United States.
<PAGE> 6
II-2. Plan Administration. The Plan shall be administered by a
committee (the "Committee"), the members of which shall be certified to the
Trustee by the Company. Except as provided in Article II-4, the Trustee shall
have no authority to act unless directed in writing by the Committee. Such
directions shall take effect when received by the Trustee. The Committee may
authorize one or more individuals to sign all communications between the
Committee and Trustee and shall at all times keep the Trustee advised of the
names of the members of the Committee and individuals authorized to sign on
behalf of the Committee, and provide specimen signatures thereof. With the
Trustee's prior written consent, the Committee may authorize the Trustee to act,
without specific directions or other directions or instructions from the
Committee, on any matter or class of matters with respect to which directions or
instructions from the Committee are called for hereunder. A written statement
signed by a majority of the Committee members or by an authorized Committee
member shall be conclusive in favor of the Trustee acting in reliance thereon.
The Trustee shall be fully protected in relying on any communication sent by any
authorized person and shall not be required to verify the accuracy or validity
of any signature unless the Trustee has reasonable grounds to doubt the
authenticity of any signature. If the Trustee requests any directions hereunder
and does not receive them, the Trustee shall act or refrain from acting, as it
may determine, with no liability for such action or inaction.
II-3. Exercise of Trustee's Duties. The Trustee shall discharge
its duties hereunder solely in the interest of the Plan Participants and other
persons entitled to benefits under the Plan, and:
(a) for the exclusive purpose of:
(i) providing benefits to Participants
and other persons entitled to
benefits under the Plan; and
(ii) defraying reasonable expenses of
administering the Plan;
(b) with the care, skill, prudence, and diligence
under the circumstances then prevailing that a
prudent person acting in a like capacity and
familiar with such matters would use in the
conduct of an enterprise of a like character and
with like aims; and
(c) in accordance with the documents and instruments
governing the Plan unless, in the good faith
judgment of the Trustee, the documents and
instruments are not consistent with the provisions
of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
II-4. General Powers. Subject to the provisions of Articles II-2
and II-3, and Article III, with respect to the Trust Fund, the Trustee shall
have the following powers, rights and duties in addition to those provided
elsewhere in this Trust Agreement or by law:
<PAGE> 7
(a) to receive and to hold all contributions paid to
it under the Plan; provided, however, that the
Trustee shall have no duty to require any
contributions to be made to it, or to determine
that the contributions received by it comply with
the provisions of the Plan or with any resolution
of the Board providing therefor;
(b) as directed by the Committee, to retain in cash
(pending investment, reinvestment or the
distribution of dividends) such reasonable amount
as may be required for the proper administration
of the Trust and to invest such cash as provided
in Article III-2; provided, however, that pending
receipt of directions from the Committee, the
Trustee may retain reasonable amounts of cash, in
its discretion, without any liability for
interest;
(c) as directed by the Committee, to make
distributions from the Trust Fund to such persons
or trusts, in such manner, at such times and in
such forms (cash or other property) as directed
without inquiring as to whether a payee is
entitled to the payment, or as to whether a
payment is proper, and without liability for a
payment made in good faith without actual notice
or knowledge of the changed condition or status of
the payee. If any payment of benefits directed to
be made from the Trust Fund by the Trustee is not
claimed, the Trustee shall notify the Committee of
that fact promptly. The Committee shall make a
diligent effort to ascertain the whereabouts of
the payee or distributee of benefits returned
unclaimed. The Trustee shall dispose of such
payments as the Committee shall direct. The
Trustee shall have no obligation to search for or
ascertain the whereabouts of any payee or
distributee of benefits from the Trust Fund;
(d) to vote or tender any company stock as provided in
Section 14 of the Plan, and any other stocks,
bonds or other securities held in the Trust, or
otherwise consent to or request any action on the
part of the issuer in person, by proxy or power of
attorney;
(e) as directed by the Committee or named fiduciaries,
as defined in subsection 1.5 of the Plan, to
contract or otherwise enter into transactions
between itself, as Trustee, and the Company, a
Related Company, or any Company shareholder or
other individual, for the purpose of acquiring or
selling company stock (as defined in subsection
4.1 of the Plan) and, subject to the provisions of
Article II-3, shall retain such company stock;
(f) to compromise, contest, arbitrate, settle or
abandon claims and demands by or against the Trust
Fund;
(g) to begin, maintain or defend any litigation
necessary in connection with the
<PAGE> 8
investment, reinvestment and administration of the
Trust, and, to the extent not paid from the Trust
Fund, the Company shall indemnify the Trustee
against all expenses and liabilities reasonably
sustained or anticipated by it by reason thereof
(including reasonable attorneys' fees);
(h) to retain any funds or property subject to any
dispute without liability for the payment of
interest, or to decline to make payment or
delivery thereof until final adjudication is made
by a court of competent jurisdiction;
(i) to report to the Company as of the last day of
each Plan Year (which shall be the same as the
Trust's fiscal year), as of any accounting date
(or as soon thereafter as practicable), or at such
other times as may be required under the Plan, the
then "Net Worth" of the Trust Fund, that is, the
fair market value of all property held in the
Trust Fund, reduced by any liabilities other than
liabilities to Participants in the Plan and their
Beneficiaries, as determined by the Trustee;
(j) to furnish to the Company an annual written
account and accounts for such other periods as may
be required under the Plan, showing the Net Worth
of the Trust Fund at the end of the period, all
investments, receipts, disbursements and other
transactions made by the Trustee during the
accounting period, and such other information as
the Trustee may possess which the Company requires
in order to comply with Section 103 of ERISA. The
Trustee shall keep accurate accounts of all
investments, earnings thereon, and all accounts,
books and records related to such investments
shall be open to inspection by any person
designated by the Company or the Committee. All
accounts of the Trustee shall be kept on an
accrual basis. If, during the term of this Trust
Agreement, the Department of Labor issues
regulations under ERISA regarding the valuation of
securities or other assets for purposes of the
reports required by ERISA, the Trustee shall use
such valuation methods for purposes of the
accounts described by this subparagraph. All
valuations of shares of company stock shall be
made by an "Independent Appraiser" (as described
in Section 401(a)(28)(C) of the Code) retained by
the Trustee, and reviewed and finalized by the
Trustee, in accordance with Section 3(18)(B) of
ERISA. The Company may approve such accounting by
written notice of approval delivered to the
Trustee or by failure to express objection to such
accounting in writing delivered to the Trustee
within sixty (60) days from the date upon which
the accounting was delivered to the Company. Upon
the receipt of a written approval of the
accounting, or upon the passage of the period of
time within which objection may be filed without
written objections having been delivered to the
Trustee, such accounting shall be deemed to be
approved, and the Trustee shall be released and
discharged as to all items, matters and things set
forth in such account, as fully as if such
<PAGE> 9
accounting had been settled and allowed by decree
of a court of competent jurisdiction in an action
or proceeding in which the Trustee, the Company
and all persons having or claiming to have any
interest in the Trust Fund or under the Plan were
parties.
(k) as directed by the Committee, to pay any estate,
inheritance, income or other tax, charge or
assessment attributable to any benefit which shall
or may be required to pay out of such benefit;
provided that the Trustee in its sole undirected
discretion may require before making any payment
such release or other document from any taxing
authority and such indemnity from the intended
payee as the Trustee shall deem necessary for its
protection;
(l) to employ and to reasonably rely upon information
and advice furnished by agents, attorneys,
Independent Appraisers, accountants or other
persons of its choice for such purposes as the
Trustee considers desirable;
(m) to assume, until advised to the contrary, that the
Trust evidenced by this Agreement is qualified
under Section 401(a) of the Code and is entitled
to tax exemption under Section 501(a) thereof;
(n) to have the authority to invest and reinvest the
assets of the Trust Fund, upon direction from the
Committee, in personal property of any kind,
including, but not limited to bonds, notes,
debentures, mortgages, equipment trust
certificates, investment trust certificates,
guaranteed investment contracts, preferred or
common stock, and registered investment companies;
provided, however, that all investments in company
stock shall be undertaken pursuant to the
provisions of Article III-2. The Trustee shall
follow the directions of the Committee and shall
have no duty or obligation to review the assets
from time to time so acquired, nor to make any
recommendations with respect to the investment,
reinvestment or retention thereof;
(o) as directed by the Committee, to exercise any
options, subscription rights and other privileges
with respect to Trust assets, subject to the
provisions of Article III;
(p) to register ownership of any securities or other
property held by it in its own name or in the name
of a nominee, with or without the addition of
words indicating that such securities are held in
a fiduciary capacity, and may hold any securities
in bearer form, but the books and records of the
Trustee shall at all times reflect that all such
investments are part of the Trust;
(q) with the approval of the Committee, to borrow such
sum or sums from time
<PAGE> 10
to time as the Trustee considers necessary or
desirable and in the best interest of the Trust
Fund, including to purchase Company Stock (as
defined in subsection 4.1 of the Plan), and to
enter into such agreements as the Trustee
determines necessary or appropriate to accomplish
such actions, and for that purpose to mortgage or
pledge any part of the Trust Fund (subject to the
provisions of Code Section 4795(c) and the
regulations issued thereunder);
(r) to participate in and use the Federal Book-Entry
Account System, a service provided by the Federal
Reserve Bank for its member banks for deposit of
Treasury securities; and
(s) as directed by the Committee, to perform any and
all other acts which are necessary or appropriate
for the proper management, investment and
distribution of the Trust Fund.
II-5. Investment Managers. The Committee may appoint one or more
investment managers (as defined in section 3(38) of ERISA) to manage the
investment of any part or all of the assets of the Trust Fund. Except as
otherwise provided by law, the Trustee shall have no obligation for investment
of any assets of the trust fund which are subject to management by an investment
manager. Appointment of an investment manager shall be made by written notice to
the investment manager and the Trustee, which notice shall specify those powers,
rights and duties of the Trustee under this agreement that are allocated to the
investment manager and that portion of the assets of the trust fund subject to
investment management. An investment manager so appointed pursuant to this
paragraph shall be either a registered investment adviser under the Investment
Advisers Act of 1940, a bank, as defined in said Act, or an insurance company
qualified to manage, acquire and dispose of the assets of the plan under the
laws of more than one state of the United States. Any such investment manager
shall acknowledge to the company in writing that it accepts such appointment and
that it is a fiduciary with respect to the plan and trust. An investment manager
may resign at any time upon written notice to the Trustee and the Committee. The
Committee may remove an investment manager at any time by written notice to the
investment manager and the Trustee.
II-6. Responsibility of Trustee. The Trustee shall not be
responsible in any way for the adequacy of the Trust Fund to meet and discharge
any or all liabilities under the Plan or for the proper application of
distributions made or other action taken upon the written direction of the
Committee. The powers, duties and responsibilities of the Trustee shall be
limited to those set forth in this Trust Agreement, and nothing contained in the
Plan, either expressly or by implication, shall be deemed to impose any
additional powers, duties or responsibilities on the Trustee.
<PAGE> 11
II-7. Compensation and Expenses. The Trustee shall be entitled to
reasonable compensation for its services, as agreed to between the Company and
the Trustee from time to time in writing and to reimbursement of all reasonable
expenses incurred by the Trustee in the administration of the Trust. The Trustee
is authorized to pay from the Trust Fund all expenses of administering the Plan
and Trust, including its compensation, compensation to any agents employed by
the Trustee and any accounting and legal expenses, to the extent they are not
paid directly by the Employers. The Trustee shall be fully protected in making
payments of administrative expenses pursuant to the written directions of the
Committee.
II-8. Continuation of Powers Upon Trust Termination.
Notwithstanding anything to the contrary in this Agreement, upon termination of
the Trust, the powers, rights and duties of the Trustee hereunder shall continue
until all Trust Fund assets have been liquidated.
ARTICLE III
Provisions Related to
Investment in Company Stock
III-1. Investment in Company Stock. The primary purpose of the
employee stock ownership portion of the Plan is to acquire an ownership interest
in the Company either from the Company or its shareholders and to provide
deferred compensation benefits to Participants and Beneficiaries in the form of
share of company stock.
Accordingly, that portion of the Plan has been established to provide for
investment primarily in shares of company stock.
III-2. Investment of Cash. If an Employer's contribution made
pursuant to the provisions of Section 3 of the Plan for any plan year is in
cash, such cash shall be used by the Trustee as directed in writing by the
Committee. The Trustee is authorized to purchase company stock (as defined in
subsection 4.1 of the Plan) or to liquidate the company stock held in the ESOP
stock account of a terminated participant with the assets contained in the
active participants' ESOP cash accounts, as directed by the Committee. The
Trustee is further authorized to purchase company stock from the Company, a
Related Company, or from any shareholder, if the Trustee is directed by the
Committee, and such stock may be outstanding, newly issued or treasury stock.
All such purchases must be at a price not in excess of fair market value, as
determined by an Independent Appraiser when the company stock is not publicly
traded. Pending investment of cash in company stock, such cash may be invested
in savings accounts, certificates of deposit, high-grade short-term securities,
common or preferred stocks, bonds, or other investments, or may be held in cash.
Such investments may include any collective investment trust which provides for
the pooling of assets of plans described in section 401(a) of the Code and
exempt from tax under section 501(a) of the Code the terms of which are
<PAGE> 12
incorporated by reference.
III-3. Stock Dividends, Splits and Other Capital Reorganizations.
Any company stock received by the Trustee as a stock split or dividend or as a
result of a reorganization or other recapitalization of the Company shall be
allocated as of each accounting date under the Plan in proportion to the company
stock to which it is attributable.
III-4. Put Option. If the distribution of a Participant's ESOP
stock account is to be made in cash, or a distribution is made pursuant to
subsection 6.4 of the Plan, or the Trustee expects to incur substantial Trust
expenses which will not be paid directly by the Employers, and the Trustee
determines that the Trust Fund has insufficient cash to make anticipated
distributions or pay Trust expenses, the Trust shall have a "put option" on
company stock it holds to the Company to the extent the Trustee receives written
direction from the Committee for the purpose of making such anticipated
distributions and paying such expenses. The purchase price for the company stock
purchased by the Company pursuant to the "put option" will be the fair market
value of the company stock, as of the date of the purchase, as determined by an
Independent Appraiser.
ARTICLE IV
Miscellaneous
IV-1. Disagreement as to Acts. If there is a disagreement between
the Trustee and anyone as to any act or transaction reported in any accounting,
the Trustee shall have the right to have its account settled by a court of
competent jurisdiction.
IV-2. Persons Dealing with Trustee. No person dealing with the
Trustee shall be required to see to the application of any money paid or
property delivered to the Trustee, or to determine whether or not the Trustee is
acting pursuant to any authority granted to it under this Agreement or the Plan.
IV-3. Benefits May Not Be Assigned or Alienated. The interests
under the Plan and this Agreement of Participants and other persons entitled to
benefits under the Plan are not subject to the claims of their creditors and may
not be voluntarily or involuntarily assigned, alienated or encumbered, except to
the extent that the Committee directs the Trustee that any such interests are
subject to a qualified domestic relations order, as defined in Section 414(p) of
the Code.
<PAGE> 13
IV-4. Evidence. Evidence required of anyone under this Agreement
may be by certificate, affidavit, document or other instrument which the person
acting in reliance thereon considers pertinent and reliable, and signed, made or
presented by the proper party.
IV-5. Waiver of Notice. Any notice required under this Agreement
may be waived in writing by the person entitled thereto.
IV-6. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original and no other
counterparts need be produced.
IV-7. Governing Laws and Severability. This Agreement shall be
construed and administered according to the laws of the Commonwealth of
Massachusetts to the extent that such laws are not preempted by the laws of the
United States of America. If any provision of this Agreement is held illegal,
invalid or contrary to ERISA, the illegality or invalidity or contrary provision
shall not affect the remaining provisions of the Agreement, but shall be
severable, and the Agreement shall be construed and enforced as if the illegal
or invalid provision had never been inserted herein.
IV-8. Successors, Etc. This Agreement shall be binding on the
Employers, and any successor thereto by virtue of any merger, sale, dissolution,
consolidation or reorganization, on the Trustee and its successor and on all
persons entitled to benefits under the Plan and their respective heirs and legal
representatives.
IV-9. Action. Any action required or permitted to be taken by the
Company under this Agreement shall be by resolution of its Board of Directors or
by a person or persons authorized by resolution of its Board of Directors. The
Trustee shall not recognize or take notice of any appointment of any
representative of the Company or Committee unless and until the Company or the
Committee shall have notified the Trustee in writing of such appointment and the
extent of such representative's authority. The Trustee may assume that such
appointment and authority continue in effect until it receives written notice to
the contrary from the Company or Committee. Any action taken or omitted to be
taken by the Trustee by authority of any representative of the Company or
Committee within the scope of his authority shall be as effective for all
purposes hereof as if such action or nonaction had been authorized by the
Company or Committee.
<PAGE> 14
IV-10. Conformance with Plan. Unless otherwise indicated in this
Trust Agreement, all capitalized terms shall have the meaning as stated in the
Plan. The Company has provided the Trustee with an executed or certified copy of
the Plan and shall provide the Trustee with a certified copy of each amendment
thereto promptly upon adoption. To the extent the provisions of the Plan and
this Agreement conflict, the provisions of the Plan shall govern; provided
however, that the Trustee's duties and obligations shall be determined solely
under this Trust Agreement.
IV-11. Indemnification. The Company shall indemnify and hold
harmless the Trustee from all loss or liability (including expenses and
reasonable attorneys' fee) to which the Trustee may be subject by reason of the
execution of its duties under this Trust Agreement, or by reason of any acts
taken in good faith in accordance with directions, or acts omitted in good faith
due to absence of directions, from the Committee unless such loss or liability
is due to the Trustee's gross negligence or willful misconduct. The Trustee is
entitled to collect on the indemnity provided by this Article IV-11 only from
the Company, and is not entitled to any direct or indirect indemnity payment
from assets of the Trust Fund.
IV-12. Headings. The headings of Sections of this Agreement are
for convenience of reference only and shall have no substantive effect on the
provisions of this Agreement.
IV-13. Notice. All notices that are required or may be given
pursuant to the terms of this Trust Agreement shall be in writing and shall be
sufficient in all respects if delivered personally or by registered or certified
mail, postage prepaid, as follows:
If to the Company to:
Taylor Capital Group, Inc.
350 East Dundee Road
Wheeling, Illinois, 60090
Attn: Director of Human Resources
If to the Trustee:
Cole Taylor Bank
350 E. Dundee Road
Wheeling, IL 60090
Attn: Scott McCartan
Any notice required under this Trust Agreement may be waived by the person
entitled to notice.
<PAGE> 15
ARTICLE V
No Reversion to Company
No part of the corpus or income of the Trust Fund shall revert to
any Employer or be used for, or diverted to, purposes other than for the
exclusive benefit of Participants and other persons entitled to benefits under
the Plan, provided, however, that:
(a) Each Employer's contribution under the Plan is
conditioned on the initial qualification of the
Plan as applied to that Employer under Section
401(a) of the Code and if that Plan does not so
initially qualify, the Trustee shall, upon written
direction of the Committee, return to that
Employer the amount of such contribution and any
increment thereon within one calendar year after
the date that qualification of the Plan, as
applied to that Employer, is denied, but only if
the application for qualification is submitted
within the time prescribed by law.
(b) If, upon termination of the Plan with respect to
any Employer, any amounts are held in a 415
Suspense Account which are attributable to the
contributions of such Employer and such amounts
may not be credited to the Accounts of
Participants, such amounts, upon the written
direction of the Committee, will be returned to
that Employer as soon as practicable after the
termination of the Plan with respect to that
Employer.
(c) Employer contributions under the Plans are
conditioned upon the deductibility thereof under
Section 404 of the Code, and, to the extent any
such deduction of an Employer is disallowed, the
Trustee shall, upon the written direction of the
Committee, return the amount of the contribution
(to the extent disallowed), reduced by the amount
of any losses thereon, to the Employer within one
year after the date the deduction is disallowed.
(d) If a contribution or any portion thereof is made
by an Employer by a mistake of fact, the Trustee
shall, upon written direction of the Committee,
return the amount of the contribution or such
portion, reduced by the amount of any losses there
on, to the Employer within one year after the date
of payment to the Trustee.
Notwithstanding the foregoing, the Trustee has no responsibility as to the
sufficiency of the Trust Fund to provide any distribution to an Employer under
this Article V.
<PAGE> 16
ARTICLE VI
Change of Trustee
VI-1. Resignation. The Trustee may resign at any time by giving
thirty (30) days' advance written notice to the Company and the Committee.
VI-2. Removal of the Trustee. The Committee may, with the consent
of the Company, which shall not be unreasonably withheld, remove the Trustee by
giving thirty (30) days' advance written notice to the Trustee, subject to
providing the removed Trustee with satisfactory written evidence of the
appointment of a successor Trustee and of the successor Trustee's acceptance of
the trusteeship.
VI-3. Duties of Resigning or Removed Trustee and of Successor
Trustee. If the Trustee resigns or is removed, it shall promptly transfer and
deliver the assets of the Trust Fund to the successor Trustee, and may reserve
such amount to provide for the payment of all fees and expenses, or taxes then
or thereafter chargeable against the Trust Fund, to the extent not previously
paid by the Company. The Company shall be obligated to reimburse the Trust for
any amount reserved by the Trustee. Within 120 days, the resigned or removed
Trustee shall furnish to the Company and the successor Trustee an account of its
administration of the Trust from the date of its last account. Each successor
Trustee shall succeed to the title to the Trust Fund vested in his predecessor
without the signing or filing of any further instrument, but any resigning or
removed Trustee shall execute all documents and do all acts necessary to vest
such title or record in any successor Trustee. Each successor shall have all the
powers, rights and duties conferred by this Trust Agreement as if originally
named Trustee. No successor Trustee shall be personally liable for any act or
failure to act of a predecessor Trustee. With the approval of the Committee, a
successor Trustee may accept the account rendered and the property delivered to
it by its predecessor Trustee as a full and complete discharge to the
predecessor Trustee without incurring any liability or responsibility for so
doing.
VI-4. Filling Trustee Vacancy. The Committee may, with the
consent of the Company, which shall not be unreasonably withheld, fill a vacancy
in the office of Trustee as soon as practicable by a writing filed with the
person or entity appointed to fill the vacancy.
<PAGE> 17
ARTICLE VII
Additional Employers
Any Related Company (as defined below) may become a party to this
Trust Agreement by:
(a) filing with the Company and the Trustee a
certified copy of a resolution of its Board of
Directors to that effect; and
(b) filing with the Trustee a certified copy of a
resolution of the Board of Directors of the
Company consenting to such action.
A "Related Company" is any corporation, trade or business during any period in
which it is, along with the Company, a member of a controlled group of
corporations, a group of trades or businesses under common control or an
affiliated service group, as described in section 414(b), 414(c) and 414(m),
respectively, of the Code or as described in regulations issued by the Secretary
of the Treasury or his delegate pursuant to section 414(o) of the Code. Any
Related Company so becoming a party to this Trust Agreement shall be deemed to
have irrevocably appointed the Company as its agent for all purposes of this
Trust Agreement to the end that the Trustee may deal with the Company as if the
Company were the only Employer party to this Trust Agreement.
ARTICLE VIII
Amendment and Termination
VIII-1. Amendment. While the Employers expect and intend to
continue the Trust, the Company reserves the right to amend the Trust at any
time pursuant to an action of the Company's Board of Directors, except that no
amendment shall change the rights, duties and liabilities of the Trustee under
this Trust Agreement without its prior written agreement, nor reduce a
Participant's benefits to less than the amount such Participant would be
entitled to receive if such Participant had resigned from the employ of the
Employers on the date of the amendment. Amendments to the Trust shall be
effective upon execution of such amendments by both the Company and the Trustee.
VIII-2. Termination. The Trust may be terminated as to all
Employees on any date specified by the Company. The Trust will terminate as to
any Employer on the first to occur of the following:
<PAGE> 18
(a) the date it is terminated by that Employer;
(b) the date such Employer's contributions to the
Trust are completely discontinued;
(c) the date such Employer is judicially declared
bankrupt under Chapter 7 of the U.S. Bankruptcy
Code; or
(d) the dissolution, merger, consolidation, or
reorganization of that Employer, or the sale by
that Employer of all or substantially all of its
assets, except that, with the consent of the
Company, such arrangements may be made whereby the
Trust will be continued by any successor to that
Employer or any purchaser of all or substantially
all of that Employer's assets, in which case the
successor or purchaser will be substituted for
that Employer under the Trust.
The Trustee's powers upon termination as described above will continue until
liquidation of the Trust Fund, or the portion thereof attributable to an
Employer, as the case may be. Upon termination of this Trust the Trustee shall
first reserve such reasonable amounts as it may deem necessary to provide for
the payment of any expenses or fees then or thereafter chargeable to the Trust
Fund. Subject to such reserve, the balance of the Trust Fund shall be liquidated
and distributed by the Trustee to or for the benefit of the Participants or
their beneficiaries, as directed by the Committee after compliance with
applicable requirements of ERISA, as amended from time to time, or other
applicable law, accompanied by a certification that the disposition is in
accordance with the terms of the Plan and the Trustee need not question the
propriety of such certification. The Company shall have full responsibility to
see that such distribution is proper and within the terms of the Plan and this
Trust.
<PAGE> 19
IN WITNESS WHEREOF, the Company and Trustee have caused these
presents to be signed and their seals to be hereunto affixed and attested by
their duly authorized officers all as of the day and year first above written.
TAYLOR CAPITAL GROUP, INC.
-----------------------------------
President
Cole Taylor Bank, not in its
individual or corporate capacity,
but solely as Trustee of the Taylor
Capital Group, Inc. Profit Sharing
and Employee Stock Ownership Trust
-----------------------------------
Senior Vice President
<PAGE> 1
EXHIBIT 10.3
TAYLOR CAPITAL GROUP, INC.
401(K) PLAN
(Effective as of October 1, 1998)
McDermott, Will & Emery
Chicago
<PAGE> 2
CERTIFICATE
I, ________________________, Secretary of TAYLOR CAPITAL GROUP,
INC., hereby certify that the attached document is a correct copy of the TAYLOR
CAPITAL GROUP, INC. 401(k) PLAN (Effective as of October 1, 1998).
Dated this ________ day of ____________, 1999.
____________________________
Secretary of the Corporation
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1............................................................... 1
Background of Plan................................................ 1
1.1. Purpose of Plan; Applicable Requirements.............. 1
1.2. History of Plan....................................... 1
1.3. Effective Date; Plan Year............................. 2
1.4. Trustee; Trust Agreement.............................. 2
1.5. Plan Administration................................... 2
1.6. Employers............................................. 3
1.7. Predecessor Plans..................................... 3
1.8. Plan Supplements...................................... 3
SECTION 2............................................................... 5
Eligibility and Participation..................................... 5
2.1. Eligibility to Participate............................ 5
2.2. Notice of Participation and Election to Contribute.... 6
2.3. Period of Participation............................... 7
2.4. Leave of Absence...................................... 7
2.5. Leased Employees...................................... 7
2.6 Military Service...................................... 8
SECTION 3............................................................... 9
Participant Contributions......................................... 9
3.1. Income Deferral Contributions......................... 9
3.2. Change, Discontinuance, or Resumption of Income
Deferral Contributions................................ 9
3.3. Rollover Contributions................................ 10
3.4. Earnings.............................................. 10
SECTION 4............................................................... 12
Employer Contributions............................................ 12
4.1. Employer Contributions of Income Deferral
Contributions......................................... 12
4.2. Employer Matching Contributions....................... 12
4.3. Individual Employer's Share of Employer
Contributions; Limitations on Employers'
Contributions......................................... 12
4.4. Form of Payment of Employer Contributions............. 13
SECTION 5............................................................... 14
Investment of Participant and Employer Contributions.............. 14
5.1. Investment Options.................................... 14
5.2. Participants' Investment Elections.................... 14
</TABLE>
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<TABLE>
<S> <C>
SECTION 6............................................................... 16
Accounting........................................................ 16
6.1. Participants' Accounts................................ 16
6.2. Trust Accounts........................................ 17
6.3. General Accounting Rules.............................. 17
6.4. Adjustment of Accounts in Investment Funds............ 17
6.5. Temporary Investment of Cash in Trust................. 18
6.6. Statement of Accounts................................. 18
SECTION 7............................................................... 19
Contribution and Benefit Limitations.............................. 19
7.1. Contribution Limitations.............................. 19
7.2. Combined Contribution Limitations..................... 20
7.3. Combining of Plans.................................... 21
7.4. Dollar Limitation on Income Deferral Contributions.... 21
7.5. Percentage Limitation on Income Deferral
Contributions......................................... 21
7.6. Percentage Limitation on Employer Matching
Contributions......................................... 23
7.7. Highly Compensated Participant........................ 24
7.8. Multiple Use of Alternative Limitations............... 25
7.9. Calculating Income Allocable to Excess Deferrals,
Excess Aggregate Contributions, and Excess Income
Deferral Contributions................................ 25
7.10. Disaggregation of Plan................................ 26
SECTION 8............................................................... 27
Period of Participation........................................... 27
8.1. Settlement Date....................................... 27
8.2. Restricted Participation.............................. 27
SECTION 9............................................................... 29
In-Service Withdrawals and Participant Loans...................... 29
9.1. Hardship Withdrawals.................................. 29
9.2. In-Service Withdrawal................................. 30
9.3. Loans to Participants................................. 30
SECTION 10.............................................................. 35
Vesting........................................................... 35
10.1. Retirement............................................ 35
10.2. Resignation or Dismissal.............................. 35
10.3. Death of Participant.................................. 37
10.4. Forfeitures........................................... 37
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
SECTION 11.............................................................. 38
Distributions Following Settlement Date........................... 38
11.1. Manner of Distribution................................ 38
11.2. Determination of Account Balances..................... 38
11.3. Timing of Distributions............................... 39
11.4. Direct Rollovers...................................... 40
11.5. Immediate Distributions to Alternate Payees........... 41
11.6. Designation of Beneficiary............................ 42
11.7. Missing Participants or Beneficiaries................. 43
11.8. Facility of Payment................................... 44
SECTION 12.............................................................. 45
Reemployment...................................................... 45
12.1. Commencement or Resumption of Participation........... 45
12.2. Credited Service for Vesting.......................... 45
12.3. Reinstatement of Forfeitures.......................... 46
SECTION 13.............................................................. 47
General Provisions................................................ 47
13.1. Interests Not Transferable............................ 47
13.2. Absence of Guaranty................................... 47
13.3. Employment Rights..................................... 47
13.4 Litigation by Participants or other Persons........... 47
13.5. Evidence.............................................. 48
13.6. Waiver of Notice...................................... 48
13.7. Controlling Law....................................... 48
13.8. Statutory References.................................. 48
13.9. Severability.......................................... 48
13.10 Additional Employers.................................. 48
13.11 Action By Employers................................... 49
13.12 Gender and Number..................................... 49
13.13 Examination of Documents.............................. 49
13.14 Fiduciary Responsibilities............................ 49
13.15 Indemnification....................................... 49
SECTION 14.............................................................. 51
Restrictions as to Reversion of Trust Assets to the Employers..... 51
SECTION 15.............................................................. 53
Amendment and Termination......................................... 53
15.1. Amendment............................................. 53
15.2. Termination........................................... 53
15.3. Nonforfeitability and Distribution on Termination..... 54
</TABLE>
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<TABLE>
<S> <C>
15.4 Notice of Termination................................. 55
15.5. Plan Merger, Consolidation, Etc....................... 55
SECTION 16.............................................................. 56
The Committee..................................................... 56
16.1. The Committee......................................... 56
16.2. The Committee's General Powers, Rights, and Duties.... 56
16.3. Manner of Action of the Committee..................... 57
16.4. Interested Committee Member........................... 58
16.5. Resignation or Removal of Committee Members........... 58
16.6. Committee Expenses.................................... 59
16.7. Uniform Rules......................................... 59
16.8. Information Required by the Committee................. 59
16.9. Review of Benefit Determinations...................... 59
16.10 Committee's Decision Final............................ 59
16.11 Denial Procedure and Appeal Process................... 59
SECTION 17.............................................................. 61
Special Rules Applicable When Plan is Top-Heavy................... 61
17.1 Purpose and Effect.................................... 61
17.2 Top-Heavy Plan........................................ 61
17.3 Key Employee.......................................... 62
17.4 Aggregated Plans...................................... 62
17.5 Minimum Employer Contribution......................... 63
17.6 Coordination of Benefits.............................. 63
17.7 Adjustment of Combined Benefit Limitations............ 63
</TABLE>
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<PAGE> 7
TAYLOR CAPITAL GROUP, INC.
401(K) PLAN
(EFFECTIVE AS OF OCTOBER 1, 1998)
SECTION 1
BACKGROUND OF PLAN
1.1. PURPOSE OF PLAN; APPLICABLE REQUIREMENTS
Effective as of October 1, 1998 (the "effective date"), Taylor Capital
Group, Inc. (the "Company") establishes the Taylor Capital Group, Inc.
401(k) Plan (the "Plan") for the following purposes:
(i) to receive a transfer of certain accounts under the Taylor Capital
Group, Inc. 401(k)/Profit Sharing Plan Employee Stock Ownership Plan
(the "Prior Plan") of those employees and former employees of
employers who become participants in the Plan; and
(ii) to permit eligible employees to accumulate funds for their future
security by electing to make income deferral contributions and
sharing in employer contributions to the Plan.
The Plan is a profit sharing plan intended to meet the applicable requirements
of Section 401(a) of the Internal Revenue Code of 1986 (the "Code") and contains
a cash or deferred arrangement intended to qualify under Section 401(k) of the
Code.
1.2. HISTORY OF PLAN
The Prior Plan was designed to meet the applicable requirements of Section
401(a) of the Code and maintained the following components: (i) a cash or
deferred arrangement intended to qualify under Section 401(k) of the Code (the
"401(k) component"), (ii) an employee stock ownership plan that is designed to
invest primarily in stock of the Company (the "ESOP component") and to meet the
applicable requirements of Sections 401(a), 409 and 4975(e)(7) of the Code, and
(iii) a profit sharing plan intended to meet the applicable requirements of
Section 401(a) of the Code (the "profit sharing component"). This Plan is a
spinoff from the Prior Plan, and is intended as an amendment, restatement and
continuation of the 401(k) component of the Prior Plan. As of the effective
date, the Prior Plan was amended and restated to continue the ESOP component and
the profit sharing component of the Prior Plan.
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<PAGE> 8
Prior to October 1, 1996, eligible Employees of the Company and its subsidiaries
were eligible to participate in the Cole Taylor Financial Group, Inc.
401(k)/Profit Sharing Plan (As Amended and Restated effective as of January 1,
1993) (the "CTFG Profit Sharing Plan") and the Cole Taylor Financial Group, Inc.
Employee Stock Ownership Plan (As Amended and Restated effective as of January
1, 1994) (the "CTFG ESOP"). The CTFG Profit Sharing Plan was originally
established by CTFG effective January 1, 1984 as a merger of various plans, and
was amended and restated from time-to-time thereafter, most recently effective
as of January 1, 1993. The CTFG ESOP was originally established by CTFG
effective as of January 1, 1984 and was amended from time to time thereafter,
and was amended and restated most recently effective as of January 1, 1994.
In connection with the spin-off of the Company (and its subsidiaries) from the
controlled group of corporations that includes Reliance Acceptance Group, Inc.
f/k/a Cole Taylor Financial Group, Inc. ("CTFG"), the account balances of the
CTFG Profit Sharing Plan and the CTFG ESOP attributable to the employees and
former employees of the Company and its subsidiaries were spun-off and then
merged to form the Prior Plan.
1.3. EFFECTIVE DATE; PLAN YEAR
The "effective date" of the Plan as set forth herein is October 1, 1998. The
Plan will be administered on the basis of a "plan year." The "plan year" means
the three month period from October 1, 1998 through December 31, 1998, and
thereafter the twelve-month period beginning each January 1 and ending the
following December 31.
1.4. TRUSTEE; TRUST AGREEMENT
Amounts contributed under the Plan are held and invested, until distributed, by
a Trustee appointed by the Company (the "Trustee"). The Trustee acts in
accordance with the terms of a trust agreement between the Company and the
Trustee, which trust agreement is known as the "Taylor Capital Group, Inc.
401(k) Trust" (the "Trust"). The Trust implements and forms a part of the Plan.
The provisions of and benefits under the Plan are subject to the terms and
provisions of the Trust.
1.5. PLAN ADMINISTRATION
The Plan is administered by a Committee (the "Committee") as described in
Section 16. Any notice or document required to be given to or filed with the
Committee will be properly given or filed if delivered or mailed, by registered
or certified mail, postage prepaid, to the Committee, in care of the Company at
350 East Dundee Road, Suite 201, Wheeling IL 60090. Each participant in the Plan
shall be a "named fiduciary"
-2-
<PAGE> 9
within the meaning of Section 402 of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") with respect to the investment direction of their
account balances. The Committee and the Company are "named fiduciaries," but
solely to the extent that they have any fiduciary responsibilities under the
Plan and related Trust.
1.6. EMPLOYERS
Any Controlled Group Member described in paragraph (a) or (b) of this subsection
with respect to the Company may adopt the Plan with the Company's consent, as
described in subsection 13.10. The Company and any such Controlled Group Members
that adopt the Plan are referred to below collectively as the "Employers" and
sometimes individually as an "Employer." A "Controlled Group Member" means:
(a) any corporation that is a member of a controlled group of
corporations (within the meaning of Section 1563(a) of the Code,
determined without regard to Sections 1563(a)(4) and 1563(e)(3)(C)
thereof) that contains the Company;
(b) any trade or business (whether or not incorporated) that is under
common control with the Company (within the meaning of Section
414(c) of the Code); or
(c) any entity that is affiliated with the Company under Section 414(m)
of the Code.
As of the effective date, the following Employers have adopted the Plan: Cole
Taylor Bank and CT Mortgage Company .
1.7. PREDECESSOR PLANS
Any other qualified profit sharing, stock bonus, or money purchase pension plan
qualified under Section 401(a) of the Code and maintained by an Employer may,
with the consent of the Company, be merged into, and continued in the form of,
the Plan. Any such plan merged into, and continued in the form of, this Plan
shall be referred to as a "predecessor plan." Special provisions relating to
participants in the Plan who were participants in a predecessor plan shall be
set forth in one or more supplements to the Plan.
1.8. PLAN SUPPLEMENTS
The provisions of the Plan may be modified by supplements to the Plan. The terms
and provisions of each supplement are a part of the Plan and supersede the
provisions of the
-3-
<PAGE> 10
Plan to the extent necessary to eliminate inconsistencies between the Plan and
such supplement.
-4-
<PAGE> 11
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1. ELIGIBILITY TO PARTICIPATE
(a) Subject to the conditions and limitations of the Plan, each employee
who was employed by an Employer and who was a participant in the
Prior Plan immediately before the effective date shall automatically
be a participant in the Plan on the effective date.
(b) Subject to the conditions and limitations of the Plan, each other
employee of an Employer will become a participant in the Plan as of
the January 1st, April 1st, July 1st, or October 1st coincident with
or next following the date he satisfies the following requirements:
(i) he has attained age 21;
(ii) (A) he has completed six months of continuous service in which
he is credited with at least 500 hours of service or,
(B) if he fails to satisfy paragraph (A) above, he has
completed 1,000 hours of service (as defined below) during the
12-month period commencing on his date of hire, or if he has
not completed 1,000 hours of service during such 12-month
period, he has completed 1,000 hours of service during a Plan
Year ending before such January 1, April 1, July 1, or October
1; and
(iii) he is employed as a member of a group of employees to which
the Plan has been extended, either by unilateral action of an
Employer in the case of an employee who is not represented by
a collective bargaining representative or, if he is a member
of a group of employees represented by a collective bargaining
representative, through a currently effective collective
bargaining agreement between his Employer and the collective
bargaining
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<PAGE> 12
representative of the group of employees of which he is a
member.
(iv) Notwithstanding any other provision of the
Plan to the contrary, an employee who is not
yet a participant but who is eligible to
become a participant may make a rollover
contribution to the Plan (in accordance with
subsection 3.3) prior to the employee's
entry date, at the discretion of the
Committee. Any eligible employee who makes
a rollover contribution to the Plan will be
treated as a participant, except that such
employee shall not be eligible, until he
becomes a participant, to make income
deferral contributions pursuant to
subsection 3.1 or to share in any employer
contributions made pursuant to subsections
4.2, 4.3, and 4.4.
For the purposes of the Plan, an "hour of service" means each hour for which an
employee is directly or indirectly paid or entitled to payment by an Employer or
a Controlled Group Member for the performance of duties and for reasons other
than the performance of duties, including each hour for which back pay,
irrespective of mitigation of damages, has been either awarded or agreed to by
an Employer or a Controlled Group Member, as determined and credited in
accordance with Department of Labor Reg. Sec. 2530.200b-2. Notwithstanding any
other provision of the Plan to the contrary, an hour of service includes service
prior to the effective date with CTFG or an affiliate of CTFG.
For all purposes of the Plan, an individual shall be an "employee" of or be
"employed" by an Employer for any Plan Year only if such individual is treated
by the Employer for such Plan Year as its employee for purposes of employment
taxes and wage withholding for Federal income tax purposes, regardless of any
subsequent reclassification by an Employer, any government agency or a court.
2.2. NOTICE OF PARTICIPATION AND ELECTION TO CONTRIBUTE
The Committee will notify each employee of the date the employee becomes a
participant. Such notification will be in writing and will include a form or
forms on which the participant may elect to make participant contributions in
accordance with Section 3.
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2.3. PERIOD OF PARTICIPATION
Subject to the provisions of subsections 8.2 and 12.1, relating to restricted
participation and resumption of participation, respectively, an employee who
becomes a participant will continue as a participant until the later to occur of
the date of his termination of employment with the Employers or the date on
which all assets in his accounts under the Plan to which he is entitled
hereunder have been distributed.
2.4. LEAVE OF ABSENCE
A leave of absence will not interrupt continuity of service or participation in
the Plan. A "leave of absence" for purposes of the Plan means an absence from
work that is not treated by an Employer as a termination of employment or that
is required by law to be treated as a leave of absence. Leaves of absence will
be granted under rules established by an Employer and applied uniformly to all
similarly situated employees.
2.5. LEASED EMPLOYEES
Only common-law employees of the Employers are eligible to participate in the
Plan. If a leased employee (as defined below) subsequently becomes a common-law
employee of an Employer, the period during which the leased employee performed
services for the Employer shall be taken into account for purposes of
subsections 2.1 and 10.2 of the Plan; unless (i) such leased employee was a
participant in a money purchase pension plan maintained by the leasing
organization that provides a non-integrated employer contribution rate of at
least 15 percent of earnings, immediate participation for all employees and full
and immediate vesting, and (ii) leased employees do not constitute more than
twenty percent of the Employer's nonhighly compensated workforce. A "leased
employee" means any person who is not a common-law employee of an Employer, but
who has provided services to an Employer under the Employer's primary direction
and control, on a substantially full-time basis for a period of at least one
year, pursuant to an agreement between an Employer and a leasing organization.
The period during which a leased employee performs services for the Employer
shall be taken into account for purposes of subsections 2.1 and 10.2 if such
leased employee becomes an employee of the Employer; unless (i) such leased
employee is a participant in a money purchase pension plan maintained by the
leasing organization which provides a non-integrated employer contribution rate
of at least 10 percent of compensation, immediate participation for all
employees, and full and immediate vesting, and (ii) leased employees do not
constitute more than 20 percent of the Employer's nonhighly compensated
workforce.
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2.6 MILITARY SERVICE
Notwithstanding any provision of this Plan to the contrary, contributions,
benefits, and service credit with respect to qualified military service will be
provided in accordance with Code Section 414(u). A participant returning from
employment after serving in the uniformed services is treated as not having
incurred a break in service during the period of qualified military service, as
defined herein. Each period of qualified military service is considered under
the plan to be service with the Employer for the purposes of:
(a) determining the nonforfeitability of the participant's account
balances, in accordance with the provisions of subsection 10.2 of
the plan; and
(b) determining the participant's benefit allocations under subsection
4.2 of the plan.
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SECTION 3
PARTICIPANT CONTRIBUTIONS
3.1. INCOME DEFERRAL CONTRIBUTIONS
References in the Plan to participants' "income deferral contributions" mean
deferrals made by participants' from their earnings (as defined in subsection
3.4) before the imposition of Federal income taxes, irrespective of whether the
income deferral contributions made from such earnings are either before or after
the imposition of state, local or other taxes. An employee is not required to
make income deferral contributions in order to participate in the Plan. Subject
to the conditions and limitations of the Plan, a participant may elect to make
income deferral contributions for any plan year of a percentage (in increments
of one percent) of the participant's earnings for such plan year at a rate of
not less than one percent and not greater than fifteen percent of such earnings.
The amount to be deferred will be withheld from the participant's earnings and
contributed to the Plan on the participant's behalf by the participant's
Employer. A participant's election under this subsection may be made effective
as of the participant's entry date or as of any January 1, April 1, July 1, or
October 1 following the participant's entry date. A participant's election to
make income deferral contributions must be made in writing on a form furnished
by the Committee and filed with the Committee at such time and in such manner as
the Committee shall determine. Subject to the limitations of Section 7, a
participant's deferral authorization made pursuant to this subsection shall
remain in effect until any change or suspension properly elected by the
participant under subsection 3.2 becomes effective.
3.2. CHANGE, DISCONTINUANCE, OR RESUMPTION OF INCOME DEFERRAL
CONTRIBUTIONS
A participant may elect, within the limits described in subsection 3.1, to
change the rate of the participant's income deferral contributions as of any
January 1, April 1, July 1, or October 1. A participant may elect to discontinue
making income deferral contributions as of the first day of any month. If a
participant elects to discontinue making income deferral contributions, the
participant may elect to make or to resume making income deferral contributions
as of any following January 1, April 1, July 1, or October 1. Each election
under this subsection shall be made by completing the form designated by the
Committee and filing such form with the Committee at such time and in such
manner as the Committee shall determine.
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3.3. ROLLOVER CONTRIBUTIONS
On behalf of a participant, the Committee may direct the Trustee to receive a
"rollover contribution" of all or any portion of an eligible rollover
distribution (as described in paragraph 11.4(a)) or a rollover amount described
in Section 408(d)(3) of the Code (an "IRA rollover"), subject to the following:
(a) The Trustee may accept an eligible rollover distribution in the form
of a direct rollover (as described in Section 401(a)(31) of the
Code) or an indirect rollover (as described in Section 402(c) of the
Code). The Committee shall establish such rules and procedures as it
deems necessary regarding the acceptance of rollover contributions,
including the methods by which direct rollovers, indirect rollovers,
and IRA rollovers may be made to the Plan.
(b) Any rollover contributions received by the Trustee on behalf of a
participant (or an eligible employee) shall be credited to the
rollover account of the participant (or the eligible employee) in
accordance with subsection 6.1. A participant (or an eligible
employee) shall at all times have a nonforfeitable right to the net
credit balance in the participant's rollover account.
(c) If after a rollover contribution has been received by the Trustee on
behalf of a participant (or an eligible employee) the Committee
learns that all or part of such rollover contribution did not meet
the requirements of the Code and the regulations and rulings
thereunder, the Committee may direct the Trustee to make a
distribution to the participant (or eligible employee) of the
non-qualified portion of such rollover contribution (and earnings
thereon) that were credited to the rollover account of the
participant (or eligible employee).
3.4. EARNINGS
Except as otherwise provided below, a participant's "earnings" for a plan year
means all compensation paid to the participant for services rendered to an
Employer as an employee as reported on the participant's Federal wage and tax
statement (Form W-2), but including for such plan year all of a participant's
income deferral contributions under this Plan and all salary reductions made
pursuant to an arrangement maintained by an Employer under Section 125 of the
Code during the plan year. A participant's earnings shall not include any of the
following (to the extent applicable):
(a) Income from bonuses paid under stock purchase agreements;
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<PAGE> 17
(b) Employer contributions under this or any retirement plan;
(c) Amounts realized from the exercise of non-qualified stock options;
and
(d) Amounts realized from the sale, exchange or disposition of stock
acquired under a qualified stock option.
For purposes of subsection 6.3, a participant's earnings for the 1998 plan year
shall include earnings for the entire 1998 calendar year. In no event shall the
amount of a participant's earnings taken into account for purposes of the Plan
for any plan year exceed the dollar limitation in effect under Code Section
401(a)(17) (as that limitation is adjusted from time to time by the Secretary of
the Treasury pursuant to Code Section 401(a)(17)).
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SECTION 4
EMPLOYER CONTRIBUTIONS
4.1. EMPLOYER CONTRIBUTIONS OF INCOME DEFERRAL CONTRIBUTIONS
Subject to the conditions and limitations of the Plan, each Employer will make a
contribution under the Plan on behalf of each participant employed by the
Employer of the amount of the participant's income deferral contributions.
Income deferral contributions shall be paid to the Trustee in cash as soon as
practicable (but not later than the 15th business day of the month following the
month in which such contribution are withheld) after the end of the payroll
period for which the reduction in earnings is made.
4.2. EMPLOYER MATCHING CONTRIBUTIONS
Subject to the conditions and limitations of the Plan, each Employer will make a
contribution to the Plan ("employer matching contributions") as of the last day
of each plan year quarter on behalf of each participant who makes income
deferral contributions during such plan year quarter and who is employed on the
last day of such plan year quarter or terminated employment during such plan
year quarter under subsections 8.1(a),(b), or (c). The "base matching
contribution" shall be 100 percent (100%) of the participant's income deferral
contribution, not to exceed one percent (1%) of his compensation; and the
"excess matching contribution" shall be fifty percent (50%) of the participant's
income deferral contribution in excess of one percent (1%) of his compensation,
not to exceed six percent (6%) of his compensation. The Board of Directors of
the Company may, in its discretion, prospectively increase, decrease or
discontinue the employer matching contribution. Employer matching contributions
for a plan year shall be paid to the Trustee as soon as practicable after the
end of the period to which they relate.
4.3. INDIVIDUAL EMPLOYER'S SHARE OF EMPLOYER CONTRIBUTIONS; LIMITATIONS
ON EMPLOYERS' CONTRIBUTIONS
The Company shall determine each Employer's share of employer contributions to
be made pursuant to subsection 4.2. The certificate of an independent certified
public accountant selected by the Company as to the correctness of any amounts
or calculations relating to the employers' contributions under the Plan shall be
conclusive on all persons. In no event will an Employer's share of the
employers' contributions described in this Section 4 for any plan year cause the
Employer's share of the employers' contributions for that plan year to exceed an
amount equal to the maximum amount deductible
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<PAGE> 19
on account thereof by that Employer for that year for purposes of Federal taxes
on income.
4.4. FORM OF PAYMENT OF EMPLOYER CONTRIBUTIONS
Subject to the conditions and limitations of the Plan, any employer matching
contribution or employer discretionary contribution shall be made in the form of
cash prior to the end of the plan year or within a reasonable period of time
after the end of the plan year. Any such matching contribution that is made in
the form of cash, and designated as a cash contribution, shall be allocated to
the participants' employer matching contribution account.
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SECTION 5
INVESTMENT OF PARTICIPANT AND EMPLOYER CONTRIBUTIONS
5.1. INVESTMENT OPTIONS
The Committee may designate, in its sole discretion, one or more funds under the
Trust for the investment of participants' account balances. The Committee, in
its discretion, may from time to time designate or establish new investment
funds or eliminate existing investment funds. The funds designated by the
Committee for this purpose shall be referred to herein as the "investment
funds."
5.2. PARTICIPANTS' INVESTMENT ELECTIONS
Participants' investment elections with respect to the investment funds shall be
made as follows:
(a) Participant contributions. Participants may elect to invest their
existing account balances and future income deferral contributions,
rollover contributions, and loan repayments in one or more of the
investment funds. Subject to the provisions of this subparagraph
(a), the participant's investment elections in effect under the
Prior Plan will remain in effect under the Plan on and after the
effective date until changed by the participant in accordance with
the provisions of the Plan. If no investment election is in effect
with respect to a participant, the participant's contributions made
pursuant to Section 3 and loan repayments will be invested in the
investment fund that is designated by the Committee for that
purpose.
(b) Committee procedures; election method. Each investment election made
by a participant pursuant to this subsection shall be made in
accordance with rules established by the Committee and shall be
effective as determined by the Committee. Each election made
pursuant to this subsection shall be in such percentage increments
as shall be determined by the Committee. As determined by the
Committee, participants may make investment or transfer elections
under this subsection by the following methods: (i) by filing
written elections on forms furnished by the Committee, (ii) by
telephone through the telephone system established for such purpose,
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or (iii) by such other method as may be designated by the Committee.
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<PAGE> 22
SECTION 6
ACCOUNTING
6.1. PARTICIPANTS' ACCOUNTS
The Committee shall maintain or cause to be maintained under the Plan the
following accounts in the name of each participant (to the extent applicable):
(a) Income deferral contribution account. An "income deferral
contribution account" to reflect the participant's income deferral
contributions made under the Plan, the participant's pre-tax
contributions (if any) made under the Prior Plan, the CTFG Profit
Sharing Plan or a predecessor plan (and earnings thereon) that have
been transferred to this Plan, Benefit Credit Contributions made
under the CTFG Profit Sharing Plan were transferred to the Prior
Plan, and the income, losses, appreciation, and depreciation
attributable thereto. A participant shall be fully vested in his
income deferral contribution account at all times.
(b) Employer matching contribution account. An "employer matching
contribution account" to reflect employer matching contributions
made to the Plan on behalf of the participant and the income,
losses, appreciation, and depreciation attributable thereto. The
employer matching contribution account shall be separated into: (i)
the "vested employer matching contribution subaccount," which shall
reflect the participant's base matching contributions, if any, and
the base matching contributions and the excess matching
contributions transferred from the CTFG Profit Sharing Plan to the
Prior Plan, which became fully vested, and (ii) the "excess matching
contribution subaccount," which shall reflect the participant's
excess matching contributions, if any, made under this Plan.
(c) Loan repayment account. A "loan repayment account" to reflect the
amounts repaid by the participant under a loan to the participant
from this Plan or a predecessor plan and the income, losses,
appreciation, and depreciation attributable thereto.
(d) Rollover account. A "rollover account" to reflect any rollover
contributions credited to the participant's account and the income,
losses, appreciation, and depreciation attributable thereto (other
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than amounts invested in Company stock in accordance with Section
6).
(e) Vested transfer account. A "vested transfer account" to reflect the
participant's vested transfer contributions, if any, and any income,
losses, appreciation and depreciation attributable thereto. The term
"vested transfer" means an amount directly transferred from the
Trustee of another tax-qualified retirement plan to this Plan to be
held for the benefit of a participant, except that the Committee
will in no event accept such a transfer from a tax-qualified
retirement plan to which Section 401(a)(11)(B) of the Code is
applicable.
Each account described in paragraphs (a) through (e) above shall be divided into
separate subaccounts reflecting the portions of such accounts that are invested
in the investment funds described in subsection 5.1. In addition to the accounts
described above, the Committee may maintain such other accounts and subaccounts
in the names of participants or otherwise as the Committee may consider
necessary or advisable. Except as expressly modified, all accounts and
subaccounts maintained for a participant are referred to collectively as the
participant's "accounts." The Committee may establish such nondiscriminatory
rules and procedures relating to the maintenance, adjustment and liquidation of
participants' accounts as the Committee may consider necessary or advisable.
6.2. TRUST ACCOUNTS
The Committee shall maintain or cause to be maintained in the Trust an
"investment fund account" in the name of each investment fund to reflect the
property held in such fund. The Committee may maintain or cause to be maintained
such other trust accounts and subaccounts as it considers advisable.
6.3. GENERAL ACCOUNTING RULES
Contributions shall be credited to accounts, distributions and other payments
shall be charged to accounts, and accounts shall be adjusted to reflect
investment experience as provided in subsection 6.4.
6.4. ADJUSTMENT OF ACCOUNTS IN INVESTMENT FUNDS
Participants' accounts invested in the various investment funds shall be
maintained on the basis of dollar values or units that may be converted to
dollar values. Pursuant to rules established by the Committee and applied on a
uniform and nondiscriminatory basis, participants' subaccounts in an investment
fund will be adjusted on each business
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<PAGE> 24
day to reflect the adjusted net worth (as described below) of that fund as of
such business day, including adjustments to reflect any distributions,
contributions, income, losses, appreciation, or depreciation with respect to
such subaccounts since the previous business day on which such subaccounts were
adjusted, provided any income, losses, appreciation or depreciation shall be
allocated after adjusting for distributions and before adjusting for
contributions since the last business day. The "adjusted net worth" of an
investment fund (other than a mutual fund) as at any business day means the then
net worth of that fund (that is, the fair market value of the fund, less its
liabilities other than liabilities to persons entitled to benefits under the
Plan) as reported to the Trustee.
Each participant's income deferral contributions (if any) shall be credited to
the participant's income deferral contribution account as soon as practicable
after the contributions are received by the Trustee, in accordance with rules
established by the Committee. A participant's rollover contribution (if any)
shall be credited to the participant's rollover account as soon as practicable
following the date such rollover contribution is accepted by the Trustee, in
accordance with rules established by the Committee. The amount of a
participant's repayment on a participant loan will be credited to the
participant's loan repayment account as soon as practicable after the date of
the repayment, in accordance with rules established by the Committee.
Contributions so credited shall be further credited to separate subaccounts
reflecting the participant's current election as to investment of his
participant contributions in one or more of the investment funds described in
subsection 5.1.
6.5. TEMPORARY INVESTMENT OF CASH IN TRUST
At the direction of the Committee, cash awaiting investment pursuant to
participants' instruction will be invested by the Trustee, to the extent
practicable, in short term securities or cash equivalents having ready
marketability or as otherwise provided in the trust agreement. Temporary
investment income resulting from such investments shall be credited to the
account to which it pertains. The term "temporary investment income" means
income resulting from the temporary investment of, income deferral
contributions, employer contributions and any other amounts.
6.6. STATEMENT OF ACCOUNTS
The Committee will provide each participant with a statement reflecting the
balances in the participant's accounts under the Plan at such times as are
established by the Committee. No participant, except a person authorized by the
Company or the Committee, shall have the right to inspect the records reflecting
the accounts of any other participant.
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SECTION 7
CONTRIBUTION AND BENEFIT LIMITATIONS
7.1. CONTRIBUTION LIMITATIONS
For each limitation year, the "annual addition" (as defined below) to a
participant's accounts shall not exceed the lesser of $30,000 or twenty-five
percent of the participant's compensation (as defined in Treasury Regulations
Section 1.415-2(d)) during that limitation year. For purposes of this
subsection, the term "compensation" shall include any elective deferrals (as
defined in Code Section 402(g)(3)) made by the participant and any amount which
is contributed or deferred by the Employer at the election of the participant
and which is not includible in the gross income of the participant by reason of
Code Section 125. Reference herein to a "limitation year" means the plan year
(or, with respect to the 1998 plan year, the period commencing on January 1,
1998 and ending on December 31, 1998). The term "annual addition" for any
limitation year means the sum of the participant contributions (other than
rollover contributions) under Section 3, employer contributions under subsection
4.2, corrective deferral contributions described in subsection 7.5, and
corrective matching contributions described in subsection 7.6 that are credited
to a participant's accounts for that limitation year. If it is anticipated that
a participant's annual additions to this Plan and any other defined contribution
plan maintained by the Employers may exceed the limitations of this subsection,
the Committee shall reduce a participant's annual addition to the extent
necessary in accordance with the following:
(a) First, reduce the participant's income deferral contributions in
excess of the percentage matched by the Employer pursuant to
subsection 4.2 to the extent necessary to meet the above
limitations. The Committee may suspend a participant's income
deferral contributions for the limitation year or direct the Trustee
to distribute to the participant the amount of income deferral
contributions that cannot be allocated to the participant's income
deferral contribution account for the limitation year. If any income
deferral contributions are distributed to the participant, such
distribution shall include any earnings attributable to such income
deferral contributions.
(b) Next, reduce, in proportion, the income deferral contributions made
by the participant that are matched by the Employer pursuant to
subsection 4.2 and the employer matching contributions attributable
to such income deferral contributions. The Committee may suspend a
participant's income deferral contributions for the
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limitation year or direct the Trustee to distribute to the
participant the amount of income deferral contributions that cannot
be allocated to the participant's income deferral contribution
account for the limitation year. If any income deferral
contributions are distributed to the participant, such distribution
shall include any earnings attributable to such income deferral
contributions. The amount of employer matching contributions that
cannot be allocated to the participant's accounts shall be applied
to reduce employer matching or discretionary contributions in
succeeding limitation years in order of time.
(c) Next, in accordance with procedures established by the Committee,
reduce such participant's share for that limitation year of the
employer matching contributions, corrective deferral contributions,
or corrective matching contributions to the extent necessary to meet
the above limitations. The amount of any employer contributions that
cannot be allocated to a participant's accounts shall be applied to
reduce employer matching or discretionary contributions in
succeeding limitation years in order of time.
(d) Finally, in accordance with procedures established by the Committee
of the ESOP, reduce such participant's share for that limitation
year of the employer discretionary contributions and employer loan
contributions to the extent necessary to meet the above limitations.
7.2. COMBINED CONTRIBUTION LIMITATIONS
If a participant in this Plan also is a participant in a defined benefit plan
maintained by an Employer or a Controlled Group Member, the aggregate benefits
payable to, or on account of, the participant under both plans will be
determined in a manner consistent with Section 415 of the Code and Section 1106
of the Tax Reform Act of 1986. Accordingly, there will be determined with
respect to the participant a defined contribution plan fraction and a defined
benefit plan fraction in accordance with such Sections 415 and 1106. The
benefits provided for the participant under this Plan and the defined benefit
plan will be adjusted to the extent necessary so that the sum of such fractions
determined with respect to the participant does not exceed 1.0. Effective
January 1, 2000, this subsection 7.2 will have no effect.
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7.3. COMBINING OF PLANS
In applying the limitations set forth in subsections 7.1 and 7.2, reference to
this Plan shall mean this Plan and all other defined contribution plans (whether
or not terminated) ever maintained by the Employers and the Controlled Group
Members, and reference to a defined benefit plan maintained by an Employer shall
include all defined benefit plans (whether or not terminated) ever maintained by
the Employers and the Controlled Group Members. It is intended that in complying
with the requirements of subsections 7.1 and 7.2, a participant's benefits under
this Plan shall be limited after the participant's benefits under any other
defined contribution plan maintained by the Employers are limited and after the
participant's benefits under any defined benefit plan maintained by the
Employers are limited, unless such other plan provides otherwise.
7.4. DOLLAR LIMITATION ON INCOME DEFERRAL CONTRIBUTIONS
In no event shall the participant's income deferral contributions for any
calendar year exceed $10,000 (or such greater amount as the Secretary of the
Treasury shall specify from time to time pursuant to Code Section 402(g)(5)). As
of each December 31, the Committee shall determine the total income deferral
contributions made by each participant during the calendar year ending on that
December 31. In the event that such total for a participant exceeds the amount
specified pursuant to Code Section 402(g)(5), such excess income deferral
contributions ("excess deferrals") (and any income thereon determined in
accordance with subsection 7.9) shall be paid to the participant by the
following April 15.
7.5. PERCENTAGE LIMITATION ON INCOME DEFERRAL CONTRIBUTIONS
In no event shall the average deferral percentage (as defined below) of the
highly compensated participants (as defined in subsection 7.7) for any plan year
exceed the greater of:
a) the average deferral percentage of all other eligible employees for
the preceding plan year multiplied by 1.25; or
(b) the average deferral percentage of all other eligible employees for
the preceding plan year multiplied by 2.0; provided that the average
deferral percentage of the highly compensated participants does not
exceed that of all other eligible employees by more than two
percentage points.
The "average deferral percentage" of a group of eligible employees for a plan
year means the average of the ratios (determined separately for each eligible
employee in
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such group) of A to B where A equals the sum of the income deferral
contributions actually paid to the Trust on behalf of such eligible employee for
such plan year, and B equals the eligible employee's testing compensation (as
described below) received by the employee for the portion of such plan year
during which the employee participated in the Plan or was eligible to
participate in the Plan. For purposes of this subsection, the Committee shall
determine the testing compensation of each and every eligible employee for a
plan year under any definition of compensation that satisfies the requirements
of Section 414(s) of the Code and the regulations thereunder. The Committee
shall determine whether the foregoing limitation will be satisfied and, to the
extent necessary to ensure compliance with such limitation, shall reduce the
income deferral contributions of highly compensated participants. If for a plan
year the income deferral contributions made on behalf of highly compensated
participants exceed the foregoing limitation ("excess income deferral
contributions"), such excess income deferral contributions shall be corrected by
using one or both of the following measures:
(c) The Company may, in its sole discretion, direct the Employers to
make contributions on behalf of participants who are not highly
compensated participants in such an amount as will satisfy the
foregoing limitation ("corrective deferral contributions"). The
corrective deferral contributions, if any, made by the Employers
pursuant to this paragraph shall be allocated to all participants
(i) who are not highly compensated participants for such plan year,
(ii) made income deferral contributions during such plan year, and
(iii) either completed at least 1,000 hours of service in such plan
year and are employed by the Employers on the last day of such plan
year or terminated employment with the -- Employers during such plan
year under paragraph 8.1(a), (b), or (c). The Employers' corrective
deferral contributions for a plan year shall be allocated to
eligible participants in proportion to such participants' income
deferral contributions for the plan year. Any corrective deferral
contributions shall be credited to eligible participants' income
deferral contribution accounts and invested in accordance with each
such participant's election in effect for the participant's income
deferral contributions.
(d) Excess income deferral contributions (and any income thereon
determined in accordance with subsection 7.9) will be refunded to
the highly compensated participants (in the order of their average
deferral amount, beginning with the highest amount) to the extent
necessary to meet such limitation, generally within two and one-half
months after the end of that plan year but in no event later than
the last day of the first plan year beginning after that plan year.
Employer matching contributions attributable to excess
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income deferral contributions distributed to a highly compensated
participant will be forfeited. Employer matching contributions
forfeited under this subparagraph will be reallocated to eligible
participants described in subparagraphs (c)(i), (ii) and (iii)
above, in proportion to their income deferral contributions for the
plan year.
7.6. PERCENTAGE LIMITATION ON EMPLOYER MATCHING CONTRIBUTIONS
In no event shall the contribution percentage (as defined below) of the highly
compensated participants (as defined in subsection 7.7) for any plan year exceed
the greater of:
(a) the contribution percentage of all other eligible employees for the
preceding plan year multiplied by 1.25; or
(b) the contribution percentage of all other eligible employees for the
preceding plan year multiplied by 2.0; provided that the
contribution percentage of the highly compensated participants does
not exceed that of all other eligible employees by more than 2
percentage points.
The "contribution percentage" of a group of eligible employees for a plan year
means the average of the ratios (determined separately for each eligible
employee in such group) of A to B where A equals the employer matching
contributions made on behalf of such eligible employee for such plan year, and B
equals the eligible employee's testing compensation (as described below)
received by the employee for the portion of such plan year during which the
employee participated in the Plan or was eligible to participate in the Plan.
For purposes of this subsection, the Committee shall determine the testing
compensation of each and every eligible employee for a plan year under any
definition of compensation that satisfies the requirements of Section 414(s) of
the Code and the regulations thereunder. If for a plan year the employer
matching contributions made by or on behalf of highly compensated participants
exceed the foregoing limitation ("excess aggregate contributions"), such excess
aggregate contributions shall be corrected by using one or both of the following
measures:
(c) The Company may, in its sole discretion, direct the Employers to
make contributions on behalf of participants who are not highly
compensated participants in such an amount as will satisfy the
foregoing limitation ("corrective matching contributions"). The
corrective matching contributions, if any, made by the Employers
pursuant to this paragraph shall be allocated to all participants
who meet the requirements described in subparagraphs 7.5(c)(i),
(ii),
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and (iii) for the plan year, in proportion to such participants'
income deferral contributions for the plan year. Any corrective
matching contributions shall be credited to participants' accounts
and invested in accordance with the provisions of Section 5.
Notwithstanding subsection 10.2 to the contrary, any corrective
matching contributions allocated to a participant's accounts will be
fully vested and nonforfeitable at all times.
(d) The Committee may direct that such excess aggregate contributions,
and any income thereon determined in accordance with subsection 7.9,
be distributed to the highly compensated participants to the extent
vested (in the order of their contribution amounts beginning with
the highest amounts), or if not vested shall be forfeited, to the
extent necessary to meet the limitation of this subsection.
(Forfeitures under this subparagraph will be reallocated to eligible
participants described in subparagraphs 7.5(c)(i), (ii) and (iii),
in proportion to their income deferral contributions for the plan
year.) If excess aggregate contributions made by or on behalf of a
highly compensated participant (and any income thereon determined in
accordance with subsection 7.9) are to be distributed to the
participant, such distribution generally will be made within two and
one-half months after the end of that plan year but in no event
later than the last day of the first plan year beginning after that
plan year.
7.7. HIGHLY COMPENSATED PARTICIPANT
A "highly compensated participant" means an eligible employee who is a "highly
compensated employee" as defined in Section 414(q) of the Code. The term "highly
compensated employee" means any employee defined in Code Section 414(q), which
includes any employee who:
(a) was at any time a 5% owner (as defined in Section 416(i) of the
Code) of any Employer or any Controlled Group Member during the year
or the preceding year, or;
(b) for the preceding year:
(i) received compensation from an Employer or any Controlled Group
Member in excess of $80,000, and
(ii) if the Company elects, was in the top-paid group of employees
for such preceding year.
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For purposes of this subsection, an employee's compensation for a plan year
shall be the employee's compensation for such plan year for services rendered to
the Employers and the Controlled Group Members as reported on the employee's
Federal wage and tax statement (Form W-2), but including the employee's elective
deferral contributions made pursuant to Sections 125 and 401(k) of the Code
(including income deferral contributions made under this Plan). For purposes of
paragraph (b)(2) above, the term "top-paid group of employees" means the
top-paid twenty percent of the employees of the Employers and the Controlled
Group Members, exclusive of (i) employees who have not completed six months of
service with the Employers or the Controlled Group Members, (ii) employees who
normally work less than seventeen and one-half hours per week, (iii) employees
who normally work not more than six months during any plan year, (iv) employees
who have not attained age twenty-one years, (v) except to the extent provided in
applicable Treasury Regulations, employees who are included in a unit of
employees covered by an agreement that the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and an
Employer, and (vi) employees who are nonresident aliens and who receive no
earned income (within the meaning of Section 911(d)(2) of the Code) from the
Employers that constitutes income from sources within the United States (within
the meaning of Section 861(a)(3) of the Code). A former employee shall be
treated as a highly compensated participant if such employee was a highly
compensated participant when such employee separated from service or such
employee was a highly compensated participant at any time after attaining age 55
years.
7.8. MULTIPLE USE OF ALTERNATIVE LIMITATIONS
Multiple use of the alternative limitations described in paragraph 7.5(b) and
paragraph 7.6(b) shall be tested in accordance with Treasury Regulations Section
1.401(m)-2. If multiple use occurs for any plan year, such multiple use will be
corrected in the manner described in Treasury Regulations Section 1.401(m)-1(e).
7.9. CALCULATING INCOME ALLOCABLE TO EXCESS DEFERRALS, EXCESS AGGREGATE
CONTRIBUTIONS, AND EXCESS INCOME DEFERRAL CONTRIBUTIONS
The income allocable to a distribution to a participant of excess deferrals,
excess income deferral contributions, or excess aggregate contributions (as
required under subsection 7.4, 7.5, or 7.6, respectively) shall be determined as
follows:
(a) Income for the plan year. The income allocable to a participant's
excess deferrals, excess income deferral contributions, or excess
aggregate contributions, as the case may be, for the plan year in
which such excess amount arose shall be determined by multiplying
the income allocable for that plan year to the participant's
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income deferral contribution account or employer matching
contribution account, as applicable, by a fraction. The numerator of
the fraction is the excess amount to be distributed. The denominator
of the fraction is the total balance in the applicable account of
the participant, as determined as of the end of that plan year, to
which such excess amount was credited. Such account balance shall be
reduced by the gain and increased by the loss allocable to such
account balance for that plan year.
(b) Income for the gap period. No income will be allocated to any excess
deferrals, excess income deferral contributions, or excess aggregate
contributions to be distributed to a participant for the period
between the end of the plan year in which such excess amount arose
and the date of distribution of such excess amount.
7.10. DISAGGREGATION OF PLAN
For purposes of subsections 7.5, 7.6, and 7.8, the Plan may be disaggregated in
accordance with Treasury Regulations Section 1.410(b)-7(c)(2).
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SECTION 8
PERIOD OF PARTICIPATION
8.1. SETTLEMENT DATE
A participant's "settlement date" will be the date on which his employment with
the Employers and the related companies is terminated because of the first to
occur of the following events:
(a) Normal Retirement. The participant retires or is retired from the
employ of the Employers and the related companies on or after the
date on which he attains age 65 years.
(b) Disability Retirement. The participant is retired on account of
permanent disability when the Company determines, based upon an
independent doctor's examination and certificate, that a participant
is under such physical or mental disability that he is no longer
capable of rendering satisfactory service to the Company. This
determination will be made in a nondiscriminatory manner to all
participants.
(c) Death. The participant's death.
(d) Resignation or Dismissal. The participant resigns or is dismissed
from the employ of the Employers and the related companies before
retirement in accordance with paragraph (a) or (b) next above.
If a participant is transferred from employment with an Employer to employment
with a Controlled Group Member that is not an Employer, then for purposes of
determining when the participant's settlement date occurs under this subsection,
the participant's employment with such Controlled Group Member (or any
Controlled Group Member to which the participant is subsequently transferred)
shall be considered as employment with the Employers.
8.2. RESTRICTED PARTICIPATION
If (i) a participant's settlement date has occurred but full payment of all of
the participant's account balances has not yet been made, or (ii) a participant
transfers to a Controlled Group Member that is not an Employer under the Plan,
the participant or the
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participant's beneficiary will be treated as a participant for purposes of the
Plan, except as follows:
(a) The participant (or beneficiary) may not make any income deferral
contributions or rollover contributions and may not share in any
Employer contributions, except as specifically provided in
subsections 4.2, 7.5, and 7.6.
(b) The participant's beneficiary cannot designate a beneficiary under
subsection 11.6 and may not obtain a loan under subsection 9.3.
If a participant subsequently again satisfies the requirements for participation
in the Plan, the participant will become an active participant in the Plan on
the date the participant satisfies such requirements.
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SECTION 9
IN-SERVICE WITHDRAWALS AND PARTICIPANT LOANS
9.1. IN-SERVICE WITHDRAWALS
Subject to the limitations set forth below, a participant whose settlement date
has not occurred may request a hardship withdrawal from the participant's income
deferral contribution account by filing a written request with the Committee to
make such a withdrawal. A participant's request for a hardship withdrawal must
include such evidence as may be deemed necessary by the Committee. Such request
shall be filed with the Committee at such time and in such manner as the
Committee may determine. A hardship withdrawal made under this subsection shall
be subject to the following terms and conditions:
(a) A participant may withdraw all or any portion of the income
deferral contributions (including any pre-tax contributions
under a predecessor plan) credited to the participant's income
deferral contribution account (but not any earnings thereon
that were credited after December 31, 1988, to the
participant's account under the Plan or under a predecessor
plan).
(b) A hardship withdrawal may be made only on account of one of
the following immediate and heavy financial needs of a
participant:
(i) Payment of unreimbursed medical expenses described in
Section 213(d) of the Code previously incurred by the
participant, the participant's spouse, or any
dependents of the participant (as defined in Section
152 of the Code) or payment of unreimbursed expenses
necessary for these persons to obtain medical care
described in Section 213(d);
(ii) Purchase (excluding mortgage payments) of the
principal residence of the participant;
(iii) Payment of post-secondary tuition expenses and room
and board expenses for the participant, the
participant's spouse, or the participant's
dependents;
(iv) Prevention of the eviction of the participant from
the participant's principal residence or prevention
of the
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foreclosure on the mortgage on the participant's
principal residence;
(c) A hardship withdrawal shall not be in excess of the amount
necessary to satisfy the immediate and heavy financial need of
the participant. In accordance with such rules and procedures
as the Committee may establish, the amount of a hardship
withdrawal may include the amount necessary to pay any
Federal, state, or local income taxes or penalties reasonably
anticipated to result from the withdrawal. A hardship
withdrawal will not be permitted if the participant's
immediate and heavy financial need could be satisfied from
other sources reasonably available to the participant.
(d) If (i) a participant elects to withdraw an amount pursuant to
this subsection and (ii) the participant's income deferral
contribution account is invested in more than one investment
fund, the amount to be withdrawn shall be withdrawn from the
investment funds in the order determined by the Committee for
withdrawals from the Plan.
(e) If a participant elects to withdraw an amount pursuant to this
subsection, his ability to make income deferral contributions
will be suspended for a period of 12 months following the date
of the withdrawal.
The Committee may rely on a participant's written representation as to the
satisfaction of the requirements of paragraphs (b) and (c).
9.2. IN-SERVICE WITHDRAWAL
A participant who has attained age 65 may receive a distribution of all or a
portion (in increments of 10 percent) from vested amounts credited to the
participant's accounts by filing a request in writing with the Committee in
accordance with procedures established by the Committee, in its sole discretion.
A request for withdrawal shall be effective as soon as practicable after the
date the request is delivered to the Committee and the distribution shall be
made as soon as practical thereafter. A participant shall be limited to two (2)
in-service withdrawals in any twelve-month period.
9.3. LOANS TO PARTICIPANTS
Although the primary purpose of the Plan is to allow participants to accumulate
funds for retirement, it is recognized that under some circumstances it would be
in the best
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<PAGE> 37
interest of participants to permit loans to be made to them from certain of
their accounts under the Plan. Accordingly, the Committee may (pursuant to such
nondiscriminatory rules as the Committee may from time to time establish and
uniformly apply, which rules are hereby incorporated into and made a part of the
Plan), approve a loan to a participant, subject to the following:
(a) Terms and conditions of loans. All loans shall be subject to
the following terms and conditions:
(i) A loan will be made to a participant only for the
purposes described in paragraph 9.1(b). A participant
shall provide the Committee with such evidence as the
Committee may require to determine the loan is for
such purpose. Each request for a loan must be made on
a form furnished by the Committee and filed with the
Committee at such time and in such manner as the
Committee may determine. The spouse of a participant
must consent to a loan if required under Treasury
Regulations 1.401(a)-20 with respect to amounts
transferred to this Plan from a predecessor plan.
(ii) A loan may not be made to a participant after the
participant's settlement date or after the
participant transfers employment to a Controlled
Group Member. If a participant's settlement date or
transfer to a Controlled Group Member should occur
after the participant has requested a loan but before
the loan is actually made to the participant, the
participant's request for a loan automatically will
be cancelled.
(iii) Each loan shall be evidenced by a note in a form
furnished by the Committee and shall bear interest at
the rate that is in effect on the date of the loan.
The interest rate for loans shall be determined by
the Committee no less frequently than quarterly based
on appropriate factors in accordance with Department
of Labor regulations.
(iv) Each participant may have no more than one loan
outstanding at any time.
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<PAGE> 38
(v) Each loan to a participant shall be secured by a
pledge of a portion of the participant's vested
account balances under the Plan. However, in the case
of a loan that will be used to acquire any dwelling
unit which, within a reasonable time, is to be used
(determined at the time the loan is made) as the
principal residence of the participant, the loan may
be secured by the dwelling unit itself. As of the
effective date of a loan, no more than fifty percent
of the participant's vested account balances may be
pledged as security for that loan.
(vi) The making of a loan shall be deemed to be consent by
the participant to charging the participant's
accounts if any portion of the loan (and any accrued
interest thereon) has not been paid as of the
participant's settlement date or such earlier date
after the participant's loan is suspended under
paragraph (e) next below as provided under rules
established by the Committee pursuant to that
paragraph.
(vii) Loan repayments will be suspended under the Plan as
permitted under Code Section 414(u)(4).
(b) Amount of loans. The principal amount of any loan (when added
to the outstanding balance of any prior loans) made to a
participant shall not exceed the lesser of (i) or (ii) below:
(i) $50,000, reduced by the excess (if any) of:
(A) the highest outstanding balance of
all loans under the Plan during the
one-year period ending immediately
preceding the date of the loan, over
(B) the outstanding balance on the date
of the loan of all loans under the
Plan.
(ii) Fifty percent of the amount of the participant's
vested account balances under the Plan as of the date
of the loan.
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<PAGE> 39
The principal amount of any loan made to a participant shall not be
less than $1,000.
(c) Sources for loans. A loan to a participant shall be made
solely from vested amounts credited to the participant's
accounts. A loan granted under this subsection to a
participant shall be made by liquidating and converting to
cash the participant's accounts (and the participant's
interest in the investment funds) in the order specified by
the Committee for loans to participants.
(d) Repayment of loans. Each loan shall specify a payment period
of from one to five years. However, in the case of a loan that
will be used to acquire any dwelling unit which, within a
reasonable time, is to be used (determined at the time the
loan is made) as the principal residence of the participant,
the payment period may be up to fifteen years. Payments must
be made by payroll deduction, except that a participant on an
authorized paid leave of absence may make loan payments by
check. Loan payments made by a participant who is not actively
at work due to a leave of absence or a disability may be
suspended during the period the participant is not actively at
work but for a period not to exceed one year. Suspension of
payments will not be permitted if the participant is
collecting disability payments or other payments from an
Employer and these payments exceed the amount of the loan
payments scheduled during the participant's leave of absence
or disability. As repayments are made with respect to a loan,
the unpaid balance of such loan shall be reduced. Payments of
principal and interest shall be credited to the participant's
loan repayment account. Pursuant to subsection 5.2, a
participant must elect how loan repayments will be invested.
Participants may pay the entire outstanding balance of a loan
and accrued interest thereon after the first month of a loan
period; partial prepayments may not be made.
(e) Unpaid loans. If a participant fails to make scheduled loan
payments or reaches his settlement date with an outstanding
loan balance, the following shall apply:
(i) If a participant whose settlement date has not
occurred (and who is not on an authorized unpaid
leave of absence) fails for three consecutive months
to pay any portion of a loan made to the participant
under the Plan and accrued interest thereon in
accordance with the terms of the loan, the
participant will
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have thirty days to pay the amount then owing. If
such payment is not made, the loan will be considered
in default. A participant who has a loan in default
shall not be eligible to obtain further loans. Loans
in default shall be further handled under uniform
rules established by the Committee in accordance with
Internal Revenue Service and Department of Labor
rules and regulations.
(ii) If immediately prior to a participant's settlement
date any loan or portion of a loan made to the
participant under the Plan remains outstanding, the
participant may repay an amount equal to the unpaid
balance of such loan, provided such repayment is made
(A) within thirty days following the participant's
termination date if the participant will not be
receiving an immediate distribution of the
participant's benefits under the Plan or (B) prior to
the time distribution of the participant's Plan
benefits will be made if the participant will receive
an immediate distribution of the participant's Plan
benefits. If a participant does not repay the entire
balance of the loan within the time period specified
above, the balance of the loan shall be considered in
default as of the participant's settlement date. On
the date that a loan is considered in default, the
promissory note shall immediately become due and
payable and an amount equal to such loan or any part
thereof, together with the accrued interest thereon,
shall be deemed distributed to the participant and
shall be charged to the participant's accounts after
all other adjustments required under the Plan have
been made, but before any other distribution.
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SECTION 10
VESTING
10.1. RETIREMENT
A participant shall have a nonforfeitable right to all of the participant's
account balances on and after attaining normal retirement age. A participant's
right to all of the participant's account balances shall be nonforfeitable on
and after the participant becomes eligible for disability retirement. If a
participant's employment with the Employers and the Controlled Group Members is
terminated because of retirement under paragraph 8.1(a) or (b), the balances in
the participant's accounts shall be distributable to the participant under
Section 11.
10.2. RESIGNATION OR DISMISSAL
If a participant resigns or is dismissed from the employ of the Employers and
the Controlled Group Members before retirement under paragraph 8.1(d), the
balances in the participant's accounts shall be treated as follows:
(a) The balances in the participant's income deferral contribution
account, vested employer matching contribution subaccount,
vested employer discretionary contribution subaccount,
rollover, vested transfer, and loan repayment accounts shall
be nonforfeitable and shall be distributable to the
participant under Section 11.
(b) The balances in the participant's employer discretionary
contribution subaccount, excess employer matching contribution
subaccount, (referred to collectively for the purposes of this
subsection 10.2 and subsection 12.2 as the "forfeitable
accounts") shall be subject to the following:
(i) If the participant has completed five or more years
of vesting service (as defined in subparagraph (iii)
below) as of his settlement date, the balances in his
forfeitable accounts shall be nonforfeitable and
shall be distributable to the participant under
Section 11.
(ii) If the participant has not completed five years of
vesting service as of the participant's settlement
date, the participant shall receive the vested
portion of the balances in his forfeitable accounts.
The participant
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shall forfeit the nonvested portion of such account
balances. The vested portion of the balances in the
participant's forfeitable accounts shall be
distributable to the participant under Section 11.
Except as provided below, the vested portion of such
balances shall be determined under the following
schedule:
<TABLE>
<CAPTION>
Number of Completed Vested
Years of Service Percentage
------------------- ----------
<S> <C>
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
</TABLE>
Notwithstanding any other provision of this
subsection 10.2 to the contrary, a participant who
has less than five years of vesting service and has
not yet attained normal retirement age may be deemed
to have no vested interest in his employer
discretionary contribution account, employer matching
contribution account, and his entire balance in such
accounts may be forfeitable, if he is discharged by
an Employer due to theft, fraud, embezzlement, other
criminal acts or willful misconduct causing either
significant loss or property damage to an Employer or
personal injury to any other employee of an Employer.
(iii) A participant's "vesting service" means any plan year
in which the participant has completed at least 1,000
hours of service with the Employers and the
Controlled Group Members (including service prior to
the effective date) measured from the date the
participant first performs an hour of service (as
defined in subsection 2.1) with the Employers or the
Controlled Group Members, or, prior to the effective
date, CTFG or an affiliate of CTFG.
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<PAGE> 43
(iv) Non-vested amounts shall be forfeited under this
subsection on the earlier of (i) the date the
participant's vested benefits are distributed, or
(ii) the date that the participant incurs five
consecutive one year breaks in service (as defined in
subsection 12.2). Forfeitures shall be drawn from a
participant's accounts in accordance with Treasury
Regulations Section 54.4975-11(d)(4).
10.3. DEATH OF PARTICIPANT
If a participant's settlement date occurs under paragraph 8.1(c), the balances
in the participant's accounts will be nonforfeitable and distributable to the
participant's beneficiary in accordance with Section 11. If a participant dies
after the participant's settlement date but before all of the participant's
account balances have been paid to the participant in full pursuant to the
provisions of Section 11, the vested portion of the participant's account
balances (as determined under subsection 10.1 or 10.2, whichever is applicable)
will be distributable to the participant's beneficiary in accordance with
Section 11.
10.4. FORFEITURES
The amount of a participant's accounts forfeited under subsection 10.2 shall be
a "forfeiture." As determined by the Committee, forfeitures shall be (1) applied
to reduce employer matching contributions otherwise required under the Plan or
(2) used to pay proper expenses of the Plan and trust. If a participant is
reemployed by the Employers before he incurs five consecutive one-year breaks in
service, subsection 12.2 shall apply.
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SECTION 11
DISTRIBUTIONS FOLLOWING SETTLEMENT DATE
11.1. MANNER OF DISTRIBUTION
Subject to the conditions set forth below, distribution of the balances in a
participant's accounts will be made to, or for the benefit of, the participant
or, in the case of the participant's death, to or for the benefit of the
participant's beneficiary, by payment in a lump sum.
In accordance with subsection 11.4, a participant may elect a direct rollover of
any payment that constitutes an eligible rollover distribution. Notwithstanding
any other provision of this Section 11, if a participant's vested account
balances equal $5,000 or less at or after the participant's settlement date, the
participant (or the participant's beneficiary) shall receive a lump sum payment
of such amount in accordance with subsection 11.3. The aforementioned dollar
amount shall be subject to cost-of-living adjustments prescribed by the
Secretary of the Treasury. In accordance with such rules and procedures as the
Committee shall establish, the amount to be paid to a participant who elects to
receive a distribution that is less than the total vested balance in the
participant's accounts shall be drawn from the participant's accounts in the
order specified by the Committee for distributions from participants' accounts.
The life expectancy of a participant, the participant's spouse or the
participant's designated beneficiary shall be determined at the time benefit
payments commence by use of the expected return multiples contained in the
regulations under Section 72 of the Code. Life expectancies determined in
accordance with the foregoing shall not be recalculated. A participant may
select, in accordance with such rules as the Committee may establish, the method
of distributing the participant's benefits to him; a participant, if the
participant so desires, may direct how the participant's benefits are to be paid
to the participant's beneficiary; and the Committee shall select the method of
distributing the participant's benefits to the participant's beneficiary if the
participant has not filed a direction with the Committee.
11.2. DETERMINATION OF ACCOUNT BALANCES
After a participant's settlement date has occurred and pending complete
distribution of the participant's account balances, the participant's accounts
will be held under the Plan and will be subject to adjustment under Section 6.
For purposes of subsection 11.1, a participant's account balances will be
determined as of the applicable accounting date coincident with or immediately
preceding the date of distribution of the participant's account.
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11.3. TIMING OF DISTRIBUTIONS
Distribution of the balance of a participant's accounts shall be made or shall
commence within a reasonable time after the date on which the participant's
account balances have been determined pursuant to subsection 11.2, but not later
than sixty days after (a) the end of the plan year in which his settlement date
occurs or (b) such later date on which the amount of payment can be ascertained
by the Committee.
Notwithstanding any other provision of this Section 11, if a participant's
vested account balances equal $5,000 or less at any time at or after his
settlement date, the participant (or the participant's beneficiary) shall
receive an immediate lump sum payment of such amount. Such distribution shall be
made as soon as practicable after the participant's settlement date. If the
present value of a participant's entire vested benefit under the Plan is zero,
the participant shall be deemed to have received a distribution of such vested
benefit. Notwithstanding any provision of the Plan to the contrary, if a
participant's vested account balances exceed or have ever exceeded $5,000 at any
time at or after the participant's settlement date, distributions may not be
made to the participant before age 65 without the participant's consent. The
aforementioned dollar amount shall be subject to cost-of-living adjustments
prescribed by the Secretary of the Treasury.
Irrespective of any contrary provision of the Plan, distribution of the account
balance of a participant shall be made or shall commence by April 1 of the
calendar year next following the latter of (A) the calendar year on which the
participant attains age 70 1/2 or (B) the calendar year in which the
participant's settlement date occurs ("required commencement date"); provided,
however, that the required commencement date of a participant who is a
five-percent owner (as defined in Code Section 416) of an Employer or Controlled
Group Member in the calendar year in which the participant attains age 70 1/2
shall be April 1 of the calendar year next following the calendar year which the
participant attains age 70 1/2. If a participant dies before the participant's
required commencement date, the participant's benefits must be distributed over
a period not exceeding the greater of: (i) five years from the death of the
participant; (ii) in the case of payments to a designated beneficiary other than
the participant's spouse, the life expectancy of such beneficiary, provided
payments begin within one year of the participant's death (or such later date as
may be prescribed under Treasury Regulations); or (iii) in the case of payments
to the participant's spouse, the life expectancy of such spouse, provided
payments begin by the date the participant would have attained age 70-1/2. If a
participant dies after the participant's required commencement date, the
remaining portion of the participant's benefits will be distributed at least as
rapidly as under the method of distribution in effect at the participant's
death. Notwithstanding the foregoing, the Committee may honor a participant's
written designation made under a predecessor plan prior to January 1, 1984, to
have the
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participant's benefits commence at any date permitted under the terms
of such predecessor plan as in effect immediately prior to January 1, 1984.
A participant who is not a 5 percent owner and who attains age 70-1/2 on or
before January 1, 1999 while still employed by an Employer or a Controlled Group
Member may elect to receive a distribution commencing April 1 of the calendar
year next following the calendar year in which he attains age 70-1/2.
11.4. DIRECT ROLLOVERS
Individuals who are to receive distributions under the Plan may elect that such
distributions be paid in the form of a direct rollover (as described in Section
401(a)(31) of the Code and the regulations thereunder) to the Trustee or
custodian of a plan eligible to accept direct rollovers, subject to the
following:
(a) Eligible rollover distribution. A distribution may be paid in
a direct rollover under this subsection only if the
distribution constitutes an eligible rollover distribution. An
"eligible rollover distribution" means any distribution under
the Plan to an eligible distributee (as defined below) other
than (i) a distribution that is one of a series of
substantially equal payments made annually or more frequently
either over the life (or life expectancy) of the participant
or the joint lives (or life expectancies) of the participant
and his designated beneficiary or over a specified period of
ten years or more, (ii) a distribution required to meet the
minimum distribution requirements of Section 401(a)(9) of the
Code, or (iii) a distribution excluded from the definition of
an "eligible rollover distribution" under applicable Treasury
Regulations. Notwithstanding the immediately preceding
sentence, an eligible rollover distribution includes only
those amounts that would be includible in the gross income of
the eligible distributee if such amounts were not rolled over
to another plan as provided under Section 402(c) of the Code.
(b) Eligible distributee. An "eligible distributee" is (i) a
participant, (ii) a participant's surviving spouse who is
entitled to receive payment of the participant's account
balances after the participant's death, or (iii) the spouse or
former spouse of a participant who is an alternate payee under
a qualified domestic relations order (as defined in Section
414(p) of the Code).
(c) Eligible retirement plan. A direct rollover of an eligible
rollover distribution may be made to no more than one
"eligible retirement
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plan." Except as otherwise provided below, an "eligible
retirement plan" is (i) an individual retirement account
described in Section 408(a) of the Code, (ii) an individual
retirement annuity described in Section 408(b) of the Code
(other than an endowment contract), (iii) an annuity plan
described in Section 403(a) of the Code, or (iv) a plan
qualified under Section 401(a) of the Code that by its terms
permits the acceptance of rollover contributions. With respect
to the surviving spouse of a deceased participant who is
entitled to receive a distribution of the participant's
accounts, an "eligible retirement plan" shall mean only an
individual retirement account described in Section 408(a) of
the Code or an individual retirement annuity described in
Section 408(b) of the Code (other than an endowment contract).
(d) Minimum amounts. An eligible distributee may elect a direct
rollover of all or a portion of an eligible rollover
distribution only if the total amount of the eligible rollover
distributions expected to be received by the eligible
distributee during the plan year is $200 or more (or such
lesser amount as the Committee may establish). An eligible
distributee may elect payment of a portion of an eligible
rollover distribution as a direct rollover and may receive
directly the remainder of such distribution, provided that the
amount paid by direct rollover is at least $500 (or such
lesser amount as the Committee may establish).
(e) Elections. An eligible distributee's election of a direct
rollover pursuant to this subsection must be in writing on a
form designated by the Committee and must be filed with the
Committee at such time and in such manner as the Committee
shall determine. The Committee shall establish such rules and
procedures as it deems necessary to provide for distributions
by means of direct rollover.
11.5. IMMEDIATE DISTRIBUTIONS TO ALTERNATE PAYEES
The Committee shall direct distribution of the amount of a participant's account
balances assigned to an alternate payee under a qualified domestic relations
order (as defined in Section 414(p) of the Code) on the earliest date specified
in such qualified domestic relations order, without regard to whether such
payments commence prior to the participant's earliest retirement age (as defined
in Section 414(p)(4)(B) of the Code).
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11.6. DESIGNATION OF BENEFICIARY
Each participant may designate any person or persons (who may be designated
concurrently, contingently or successively) to whom the participant's benefits
are to be paid if the participant dies before the participant receives all of
participant's benefits. A beneficiary designation must be made on a form
furnished by the Committee for this purpose, and such form must be signed by the
participant. A beneficiary designation form shall include any beneficiary
designation forms executed in compliance with the Prior Plan. A beneficiary
designation form will be effective only when the form is filed with the
Committee while the participant is alive and will cancel all the participant's
beneficiary designation forms previously filed with the Committee.
Notwithstanding the foregoing provisions of this subsection and any beneficiary
designation filed with the Committee in accordance with this subsection, if a
participant dies and has a surviving spouse at the participant's date of death,
the account balances described in the preceding sentence shall be payable in
full to the participant's surviving spouse in accordance with this Section 11
(treating such surviving spouse as the participant's beneficiary), unless prior
to the participant's death the following requirements were met:
(a) The participant elected that the participant's benefits under
the Plan be paid to a person other than the participant's
surviving spouse;
(b) The participant's spouse consented in writing to such
election;
(c) The spouse's consent acknowledged the effect of such election
and was witnessed by a notary public; and
(d) Such election designates a beneficiary that may not be changed
without further spousal consent, unless the spouse executed a
general written consent expressly permitting changes of the
beneficiary without any requirement of further consent of the
spouse.
For purposes of the Plan, and subject to the provisions of any qualified
domestic relations order (as defined in Section 414(p) of the Code), a
participant's "spouse" means the person to whom the participant is legally
married at the earlier of the date of the participant's death or the date
payment of the participant's benefits commenced and who is living at the date of
the participant's death. If a deceased participant failed to designate a
beneficiary as provided above, or if the designated beneficiary dies before the
participant or before complete payment of the participant's benefits, the
participant's benefits shall be distributed to the participant's spouse, or if
there is none, the Committee, in its discretion, may direct the Trustee to pay
the participant's benefits as follows:
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(e) To or for the benefit of any one or more of the participant's
relatives by blood, adoption or marriage and in such
proportions as the Committee determines; or
(f) To the legal representative or representatives of the estate
of the last to die of the participant and the participant's
designated beneficiary.
The term "designated beneficiary" or "beneficiary" as used in the Plan means the
natural or legal person or persons designated by a participant as the
participant's beneficiary under the last effective beneficiary designation form
filed with the Committee under this subsection and to whom the participant's
benefits would be payable under this subsection.
11.7. MISSING PARTICIPANTS OR BENEFICIARIES
Each participant and each designated beneficiary must file with the Committee
from time to time in writing his post office address and each change of post
office address. If a participant dies before the participant receives all of the
participant's vested account balances, the participant's beneficiary must file
any change in his post office address with the Committee. Any communication,
statement or notice addressed to a participant or beneficiary at the last post
office address filed with the Committee, or if no address is filed with the
Committee then, in the case of a participant, at the participant's last post
office address as shown on the Employers' records, will be binding on the
participant and the participant's beneficiary for all purposes of the Plan. The
Employers, the Trustee, and the Committee shall not be required to search for or
locate a participant or beneficiary. If the Committee notifies a participant or
beneficiary that the participant or beneficiary is entitled to a payment and
also notifies the participant or beneficiary of the provisions of this
subsection, and the participant or beneficiary fails to claim his benefits or
make his whereabouts known to the Committee within three years after the
notification, the benefits of the participant or beneficiary may be disposed of,
to the extent permitted by applicable law, as follows:
(a) If the whereabouts of the participant then are unknown to the
Committee but the whereabouts of the participant's spouse then
are known to the Committee, payment may be made to the spouse;
(b) If the whereabouts of the participant and the participant's
spouse, if any, then are unknown to the Committee but the
whereabouts of the participant's designated beneficiary then
are known to the Committee, payment may be made to the
designated beneficiary;
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(c) If the whereabouts of the participant, the participant's
spouse and the participant's designated beneficiary then are
unknown to the Committee but the whereabouts of one or more
relatives by blood, adoption or marriage of the participant
are known to the Committee, the Committee may direct the
Trustee to pay the participant's benefits to one or more of
such relatives and in such proportions as the Committee
decides; or
(d) If the whereabouts of such relatives and the participant's
designated beneficiary then are unknown to the Committee, the
benefits of such participant or beneficiary may be disposed of
in an equitable manner permitted by law under rules adopted by
the Committee.
11.8. FACILITY OF PAYMENT
When a person entitled to benefits under the Plan is under legal disability, or,
in the Committee's opinion, is in any way incapacitated so as to be unable to
manage the person's financial affairs, the Committee may direct the Trustee to
pay the benefits to such person's legal representative, or to a relative or
friend of such person for such person's benefit, or the Committee may direct the
application of such benefits for the benefit of such person. Any payment made in
accordance with the preceding sentence shall be a full and complete discharge of
any liability for such payment under the Plan.
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SECTION 12
REEMPLOYMENT
12.1. COMMENCEMENT OR RESUMPTION OF PARTICIPATION
If a participant should terminate employment with the Employers and subsequently
be reemployed by an Employer, the participant shall again become a participant
as of the day of the participant's reemployment with the Employer. If an
employee who has not become a participant terminates employment with the
Employers and subsequently is reemployed by an Employer, the employee shall
become a participant on the entry date immediately following the employee's date
of hire if the employee then meets the requirements of subsection 2.1.
12.2. CREDITED SERVICE FOR VESTING
The years of vesting service accrued prior to termination of employment by a
non-vested participant or employee shall be disregarded for purposes of
subsection 10.2 only if his number of consecutive one-year breaks in vesting
service occurring after his termination equal or exceed the greater of (i) five
or (ii) his years of vesting service prior to his termination. The years of
vesting service of any vested participant shall be reinstated upon reemployment.
However, in no event shall years of vesting service occurring after a
participant incurs five consecutive one-year breaks in vesting service be used
to determine the nonforfeitable amount of the participant's forfeitable accounts
as of a prior settlement date.
A "one-year break in vesting service" means any plan year during which a
terminated employee or participant does not complete 500 hours of service (as
defined in subsection 2.1). In the case of a maternity or paternity absence (as
defined below), an employee shall be credited, for the first plan year in which
he otherwise would have incurred a one-year break in service (and solely for
purposes of determining whether such a break in service has occurred), with the
hours of service which normally would have been credited to him but for such
absence (or, if the Committee is unable to determine hours which would have been
so credited, 8 hours for each day of such absence), but in no event more than
501 hours for any one absence. A "maternity or paternity absence" means an
employee's absence from work because of the pregnancy of the employee or birth
of a child of the employee, the placement of a child with the employee in
connection with the adoption of such child by the employee, or for purposes of
caring for a child immediately following such birth or placement. The Committee
may require an employee to furnish such information as the Committee considers
necessary to establish that the employee's absence was for one of the reasons
specified above.
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12.3. REINSTATEMENT OF FORFEITURES
If a participant whose employment had terminated with the Employers because of
resignation or dismissal before the participant was entitled to the full balance
in the participant's employer matching contribution account is reemployed by the
Employers before incurring five consecutive one-year breaks in credited service,
the following shall apply:
(a) If the participant did not receive distribution of any part of
the vested portion of the participant's account, the amount of
the participant's account previously forfeited pursuant to
subsection 10.2 will be credited to the participant's account
as soon as practicable following the date the participant is
reemployed by the Employers.
(b) If the participant received distribution of any part of the
vested portion of the participant's account, the participant
may repay to the Trustee the total amount distributed to the
participant from the participant's employer matching
contribution account as a result of such earlier termination
of employment. However, such repayment must be made before the
earlier of (i) the fifth anniversary of the participant's date
of reemployment by the Employers or (ii) the date the
participant incurs five consecutive one-year breaks in
credited service commencing after the distribution. If a
participant makes such a repayment to the Trustee, the amount
of the repayment shall be credited to the participant's
accounts, and the previously forfeited amounts that resulted
from the participant's earlier termination of employment
(unadjusted for subsequent gains or losses) shall be credited
to the participant's accounts as soon as practicable following
the date of repayment.
Forfeitures that are to be credited to participants' accounts under this
subsection shall be drawn first from outstanding forfeitures and then, if
necessary, from special employer contributions made for this purpose.
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SECTION 13
GENERAL PROVISIONS
13.1. INTERESTS NOT TRANSFERABLE
The interests of participants and their beneficiaries under the Plan are not in
any way subject to their debts or other obligations and, except as may be
required by the tax withholding provisions of the Code or any state's income tax
act, may not be voluntarily or involuntarily sold, transferred, alienated or
assigned. Notwithstanding the foregoing, the Plan shall comply with any domestic
relations order that, in accordance with procedures established by the
Committee, is determined to be a qualified domestic relations order (as defined
in Section 414(p)(1)(A) of the Code).
13.2. ABSENCE OF GUARANTY
The Committee, the Employers, and the Trustee do not in any way guarantee the
Trust from loss or depreciation. The liability of the Committee or the Trustee
to make any payment under the Plan will be limited to the assets held by the
Trustee that are available for that purpose.
13.3. EMPLOYMENT RIGHTS
The Plan does not constitute a contract of employment, and participation in the
Plan will not give any employee the right to be retained in the employ of an
Employer, nor any right or claim to any benefit under the Plan, unless such
right or claim has specifically accrued under the terms of the Plan.
13.4 LITIGATION BY PARTICIPANTS OR OTHER PERSONS
To the extent permitted by law, if a legal action against the Trustee, an
Employer, or the Committee by or on behalf of any person results adversely to
that person, or if a legal action arises because of conflicting claims to a
participant's or beneficiary's benefits, the cost to the Trustee, an Employer,
or the Committee of defending the action will be charged to the extent possible
to the sums, if any, that were involved in the action or were payable to the
participant or beneficiary concerned.
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13.5. EVIDENCE
Evidence required of anyone under the Plan may be by certificate, affidavit,
document or other information that the person acting on it considers pertinent
and reliable, and signed, made or presented by the proper party or parties.
13.6. WAIVER OF NOTICE
Any notice required under the Plan may be waived by the person entitled to such
notice.
13.7. CONTROLLING LAW
To the extent not superseded by the laws of the United States, the laws of
Illinois shall be controlling in all matters relating to the Plan.
13.8. STATUTORY REFERENCES
Any reference in the Plan to the Code means the Internal Revenue Code of 1986,
as amended. Any reference in the Plan to ERISA means the Employee Retirement
Income Security Act of 1974, as amended. Any reference in the Plan to a section
of the Code or ERISA, or to a section of any other Federal law, shall include
any comparable section or sections of any future legislation that amends,
supplements or supersedes that section.
13.9. SEVERABILITY
In case any provisions of the Plan shall be held illegal or invalid for any
reason, such illegality or invalidity shall not affect the remaining provisions
of the Plan, and the Plan shall be construed and enforced as if such illegal and
invalid provisions had never been set forth in the Plan.
13.10 ADDITIONAL EMPLOYERS
With the consent of the Company, any Controlled Group Member described in
paragraph 1.6(a) or (b) may, by filing with the Company a written instrument to
that effect, become an Employer hereunder by adopting the Plan and becoming a
party to the trust agreement.
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13.11 ACTION BY EMPLOYERS
Any action authorized or required to be taken by an Employer under the Plan
shall be by resolution of its Board of Directors, by resolution of a duly
authorized committee of its Board of Directors, or by a person or persons
authorized by resolution of its Board of Directors or such committee.
13.12 GENDER AND NUMBER
Where the context admits, words in the masculine gender include the feminine and
neuter genders, the plural includes the singular, and the singular includes the
plural.
13.13 EXAMINATION OF DOCUMENTS
Copies of the plan and trust agreement, and any amendments thereto, are on file
at the office of the Company where they may be examined by any participant or
other person entitled to benefits under the Plan during normal business hours.
13.14 FIDUCIARY RESPONSIBILITIES
It is specifically intended that all provisions of the Plan shall be applied so
that all fiduciaries with respect to the Plan shall be required to meet the
prudence and other requirements and responsibilities of applicable law to the
extent such requirements or responsibilities apply to them. In general, a
fiduciary shall discharge the fiduciary's duties with respect to the Plan and
the Trust solely in the interests of participants and beneficiaries and with the
care, skill, prudence, and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of like character and with like aims.
13.15 INDEMNIFICATION
To the extent permitted by law, any member or former member of the Committee,
any person who was, is or becomes an officer or director of the Company, an
Employer, or a Controlled Group Member or any employee of an Employer to whom
the Committee or any Employer has delegated any portion of its responsibilities
under the Plan, and each of them, shall be indemnified and saved harmless by the
Employers (to the extent not indemnified or saved harmless under any liability
insurance contract or other indemnification arrangement with respect to the
Plan) from and against any and all liability to which the Committee members and
such other persons may be subject by reason of any act done or omitted to be
done in good faith with respect to the administration of the Plan and the trust,
including all expenses reasonably incurred in their
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defense in the event that the Employers failed to provide such defense after
having been requested in writing to do so.
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SECTION 14
RESTRICTIONS AS TO REVERSION OF TRUST ASSETS TO THE EMPLOYERS
The Employers shall have no right, title or interest in the assets of the trust,
except as may be provided in a pledge agreement entered into between an Employer
and the Trustee in connection with an acquisition loan (a "pledge agreement").
No part of the assets of the Trust at any time will revert or will be repaid to
the Employers, directly or indirectly, except as follows:
(a) If the Internal Revenue Service initially determines that the
Plan, as applied to an Employer, does not meet the
requirements of a "qualified plan" under Section 401(a) of the
Code, the assets of the Trust attributable to contributions
made by the Employer under the Plan shall be returned to the
Employer within one year of the date of denial of
qualification of the Plan as applied to the Employer.
(b) If a contribution or a portion of a contribution is made by an
Employer as a result of a mistake of fact, such contribution
or portion of a contribution shall not be considered to have
been contributed to the Trust by the Employer and, after
having been reduced by any losses of the Trust allocable
thereto, shall be returned to the Employer within one year of
the date the amount is paid to the trust.
(c) If a contribution made by an Employer is conditioned upon the
deductibility of such contribution as an expense for Federal
income tax purposes, to the extent the deduction for the
contribution made by the Employer is disallowed, such
contribution, or portion of such contribution, after having
been reduced by any losses of the Trust allocable thereto,
shall be returned to the Employer within one year of the date
of disallowance of the deduction.
(d) If there is a default on an acquisition loan, an Employer may
exercise its rights under a pledge agreement with respect to
the shares of Company stock subject to the pledge agreement
(including, but not limited to, the sale of pledged shares,
the transfer of pledged shares to the Employer, and the
registration of pledged shares in the Employer's name).
Contributions may be returned to an Employer pursuant to paragraph (a) above
only if they are conditioned upon initial qualification of the Plan as applied
to that Employer and an application for determination was made by the time
prescribed by law for filing
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the Employer's Federal income tax return for the taxable year in which the Plan
was adopted (or such later date as the Secretary of the Treasury may prescribe).
In no event may the return of a contribution pursuant to paragraph (b) or (c)
above cause any participant's account balances to be less than the amount of
such balances had the contribution not been made under the Plan.
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SECTION 15
AMENDMENT AND TERMINATION
15.1. AMENDMENT
While the Company expects and intends to continue the Plan, the Company reserves
the right to amend the Plan from time to time by action of the Company's Board
of Directors or the Executive Committee of the Board of Directors of the
Company. However, the Committee is authorized to cause to be prepared, to
approve, and to execute any amendments of the Plan that the Committee determines
are necessary to comply with applicable law, regulations, and rulings or to
reflect rules and procedures developed by the Committee; provided, however, that
any amendment (other than an amendment needed to comply with applicable law,
regulations, and rulings) that is expected to change the level of participant or
employer contributions made under the Plan or to materially increase the cost of
the Plan to the Employers shall be approved by the Company's Board of Directors
or by the Executive Committee of the Board of Directors of the Company.
Notwithstanding the foregoing:
(a) An amendment may not change the duties and liabilities of the
Committee or the Trustee without the consent of the Committee
or the Trustee, whichever is applicable;
(b) An amendment shall not reduce the value of a participant's
nonforfeitable benefits accrued prior to the later of the
adoption or the effective date of the amendment; and
(c) Except as provided in Section 14, under no condition shall any
amendment result in the return or repayment to the Employers
of any part of the Trust or the income therefrom or result in
the distribution of the Trust for the benefit of anyone other
than employees and former employees of the Employers and any
other persons entitled to benefits under the Plan.
The Committee shall notify the Trustee of any amendment of the Plan within a
reasonable period of time.
15.2. TERMINATION
The Plan will terminate as to all Employers on any date specified by the Company
if thirty days' advance written notice of the termination is given to the
Committee, the
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Trustee and the other Employers. The Plan will terminate as to an individual
Employer on the first to occur of the following:
(a) The date it is terminated by that Employer if thirty days'
advance written notice of the termination is given to the
Committee, the Trustee and the other Employers.
(b) The date that Employer is judicially declared bankrupt or
insolvent.
(c) The date that Employer completely discontinues its
contributions under the Plan.
(d) The dissolution, merger, consolidation or reorganization of
that Employer or the sale by that Employer of all or
substantially all of its assets, except that:
(i) in any such event arrangements may be made with the
consent of the Company whereby the Plan will be
continued by any purchaser of all or substantially
all of its assets, in which case the successor or
purchaser will be substituted for that Employer under
the Plan and the trust agreement; and
(ii) if an Employer is merged, dissolved or in any other
way reorganized into, or consolidated with, any other
Employer, the Plan as applied to the former Employer
will automatically continue in effect without a
termination thereof.
15.3. NONFORFEITABILITY AND DISTRIBUTION ON TERMINATION
On termination or partial termination of the Plan, the rights of all affected
participants to benefits accrued to the date of such termination, after all
adjustments then required have been made, shall be nonforfeitable. As soon as
practicable after all adjustments required as of that date have been made to the
account balances of participants, the Committee shall direct the Trustee to
distribute to each such affected participant his benefits under the Plan in one
lump sum provided the participant is no longer employed by an Employer or a
Controlled Group Member. All appropriate provisions of the Plan will continue to
apply until the account balances of all such participants have been distributed
under the Plan.
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15.4 NOTICE OF TERMINATION
Participants will be notified of the termination of the Plan within a reasonable
time.
15.5. PLAN MERGER, CONSOLIDATION, ETC.
In the case of any merger or consolidation with, or transfer of assets or
liabilities to, any other plan, each participant's benefits (if the Plan
terminated immediately after such merger, consolidation or transfer) shall be
equal to or greater than the benefits the participant would have been entitled
to receive if the Plan had terminated immediately before the merger,
consolidation or transfer.
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SECTION 16
THE COMMITTEE
16.1. THE COMMITTEE
As provided in subsection 1.5, the Plan is administered by the Committee. The
Committee shall consist of at least three persons (who may but need not be
employees of the Employers) appointed by the Company. The Company will certify
to the Trustee from time to time the names of the members of the Committee.
16.2. THE COMMITTEE'S GENERAL POWERS, RIGHTS, AND DUTIES
The Committee shall have all the powers necessary and appropriate to discharge
its duties under the Plan, which powers shall be exercised in the sole and
absolute discretion of the Committee, including, but not limited to, the
following:
(a) To construe and interpret the provisions of the Plan and to
make factual determinations thereunder, including the power to
determine the rights or eligibility under the Plan of
employees, participants, or any other persons, and the amounts
of their benefits (if any) under the Plan, and to remedy
ambiguities, inconsistencies or omissions, and such
determinations by the Committee shall be binding on all
parties.
(b) To adopt such rules of procedure and regulations as in its
opinion may be necessary for the proper and efficient
administration of the Plan and as are consistent with the Plan
and trust agreement.
(c) To enforce the Plan in accordance with the terms of the Plan
and the Trust and in accordance with the rules and regulations
the Committee has adopted.
(d) To direct the Trustee as respects payments or distributions
from the Trust in accordance with the provisions of the Plan.
(e) To furnish the Employers with such information as may be
required by them for tax or other purposes in connection with
the Plan.
(f) To employ agents, attorneys, accountants, actuaries or other
persons (who also may be employed by the Employers) and to
allocate or delegate to them such powers, rights and duties as
the
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Committee may consider necessary or advisable to properly
carry out administration of the Plan, provided that such
allocation or delegation and the acceptance thereof by such
agents, attorneys, accountants, actuaries or other persons,
shall be in writing.
(g) To appoint an investment manager as defined in Section 3(38)
of ERISA ("investment manager") to manage (with power to
acquire and dispose of) the assets of the Plan, which
investment manager may or may not be a subsidiary of the
Company, and to delegate to any such investment manager all of
the powers, authorities and discretion granted to the
Committee hereunder or under the trust agreement (including
the power to delegate and the power, with prior notice to the
Committee, to appoint an investment manager), in which event
any direction the Trustee from any duly appointed investment
manager with respect to the acquisition, retention or
disposition of Plan assets shall have the same force and
effect as if such direction had been given by the Committee,
and to remove any investment manager; provided, however, that
the power and authority to manage, acquire, or dispose of any
asset of the Plan shall not be delegated except to an
investment manager, and provided further that the acceptance
by any investment manager of such appointment and delegation
shall be in writing, and the Committee shall give notice to
the Trustee, in writing, of any appointment of, delegation to
or removal of an investment manager.
16.3. MANNER OF ACTION OF THE COMMITTEE
During a period in which two or more members of the Committee are acting, the
following provisions apply where the context admits:
(a) The members of the Committee may select a secretary, if they
believe it advisable, who may or may not be a member of the
Committee.
(b) A Committee member by writing may delegate any or all of such
member's rights, powers, duties and discretion to any other
member of the Committee, with the written consent of the
latter.
(c) The members of the Committee may act by meeting or by writing
signed without meeting, and such members may sign any document
by signing one document or concurrent documents.
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(d) An action or a decision of a majority of the members of the
Committee as to a matter shall be as effective as if taken or
made by all members of the Committee.
(e) If, because of the number qualified to act, there is an even
division of opinion among members of the Committee as to a
matter, a disinterested party selected by the Committee shall
decide the matter and such person's decision shall control.
(f) Except as otherwise provided by law, no member of the
Committee shall be liable or responsible for an act or
omission of the other members of the Committee in which the
former has not concurred.
(g) The certificate of the secretary of the Committee or of a
majority of the members of the Committee that the Committee
has taken or authorized any action shall be conclusive in
favor of any person relying on the certificate.
16.4. INTERESTED COMMITTEE MEMBER
If a member of the Committee is also a participant in the Plan, the Committee
member may not decide or determine any matter or question concerning
distributions of any kind to be made to the Committee member or the nature or
mode of settlement of the Committee member's benefits, unless such decision or
determination could be made by the Committee member under the Plan if the
Committee member were not serving on the Committee.
16.5. RESIGNATION OR REMOVAL OF COMMITTEE MEMBERS
A member of the Committee may be removed by the Company at any time by ten days'
prior written notice to that member and the other members of the Committee. A
member of the Committee may resign at any time by giving ten days' prior written
notice to the Company and the other members of the Committee. The Company may
fill any vacancy in the membership of the Committee; provided, however, that if
a vacancy reduces the membership of the Committee to less than three, such
vacancy shall be filled as soon as practicable. The Company shall give prompt
written notice thereof to the other members of the Committee. Until any such
vacancy is filled, the remaining members of the Committee may exercise all of
the powers, rights and duties conferred on the Committee.
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16.6. COMMITTEE EXPENSES
All costs, charges and expenses reasonably incurred by the Committee will be
paid by the Company to the extent not paid from the assets of the trust. No
compensation will be paid to a member of the Committee as such.
16.7. UNIFORM RULES
The Committee shall administer the Plan on a reasonable and nondiscriminatory
basis and shall apply uniform rules to all persons similarly situated.
16.8. INFORMATION REQUIRED BY THE COMMITTEE
Each person entitled to benefits under the Plan shall furnish the Committee with
such documents, evidence, data or information as the Committee considers
necessary or desirable for the purpose of administering the Plan. The Employers
shall furnish the Committee with such data and information as the Committee may
deem necessary or desirable in order to administer the Plan. The records of the
Employers as to an employee's or a participant's period of employment, hours of
service, termination of employment and the reason therefore, leave of absence,
reemployment and earnings will be conclusive on all persons unless determined to
the Committee's satisfaction to be incorrect.
16.9. REVIEW OF BENEFIT DETERMINATIONS
The Committee will provide notice in writing to any participant or beneficiary
whose claim for benefits under the Plan is denied, and the Committee shall
afford such participant or beneficiary a full and fair review of its decision if
so requested.
16.10 COMMITTEE'S DECISION FINAL
Subject to applicable law, any interpretation of the provisions of the Plan and
any decisions on any matter within the discretion of the Committee made by the
Committee in good faith shall be binding on all persons. A misstatement or other
mistake of fact shall be corrected when it becomes known, and the Committee
shall make such adjustment on account thereof as it considers equitable and
practicable.
16.11 DENIAL PROCEDURE AND APPEAL PROCESS
If a participant, beneficiary or any other person who believes he may be
entitled to benefits under the Plan (a "claimant") has an unresolved question
about eligibility for
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<PAGE> 66
benefits, the form of benefits, or the amount of benefits to be received or
being received under the Plan after consulting with the Committee or its
representatives, a formal review of the situation may be requested in writing of
the Committee within sixty days after receiving notification of the claimant's
Plan benefits or an estimate of the claimant's Plan benefits. A review decision
will be made within sixty days after receipt of such request (one hundred twenty
days in special circumstances) and the claimant will be informed of the decision
within ninety days after receipt of such request (one hundred eighty days in
special circumstances). However, if the claimant is not informed of the decision
within the period described above, the claimant may request a further review by
the Committee as described below as if the claimant had received notice of an
adverse decision at the end of that period. The decision will be written in a
manner calculated to be understood by the claimant, setting forth the specific
reasons for any denial of a benefit or benefit option, specific reference to
pertinent Plan provisions on which such denial is based, a description of any
additional material or information necessary for the claimant to perfect the
claim and an explanation of why such material or information is necessary, and
an explanation of the Plan's claim review procedure. The claimant also shall be
advised that the claimant or the claimant's duly authorized representative may
request a further review by the Committee of the decision denying the claim by
filing with the Committee within sixty days after such notice has been received
by the claimant a written request for such review and that claimant may review
pertinent documents, and submit issues and comments in writing, within the same
sixty-day period. If such request is so filed, such review shall be made by the
Committee within sixty days after receipt of such request, unless special
circumstances require an extension of time for processing in which case the
review will be completed and decision rendered within one hundred twenty days.
The claimant shall be given written notice of the decision which shall include
specific reasons for the decision, and specific references to the pertinent Plan
provisions on which the decision is based, and such decision by the Committee
shall be final and shall terminate the review process.
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<PAGE> 67
SECTION 17
SPECIAL RULES APPLICABLE WHEN PLAN IS TOP-HEAVY
17.1 PURPOSE AND EFFECT
The purpose of this Section 17 is to comply with the requirements of Section 416
of the Code. The provisions of this Section 17 are effective for each plan year
beginning on or after the effective date in which the Plan is a "top-heavy plan"
within the meaning of Section 416(g) of the Code.
17.2 TOP-HEAVY PLAN
In general, the Plan will be a top-heavy plan for any plan year if, as of the
"determination date" (that is, the last day of the preceding plan year), the sum
of the amounts in paragraphs (a), (b) and (c) below for key employees (as
defined generally below and in Section 416(i)(1) of the Code) exceeds sixty
percent of the sum of such amounts for all employees who are covered by this
Plan or by a defined contribution plan or defined benefit plan that is
aggregated with this Plan in accordance with subsection 17.4:
(a) The aggregate account balances of participants under this
Plan.
(b) The aggregate account balances of participants under any other
defined contribution plan included under subsection 17.4.
(c) The present value of the cumulative accrued benefits of
participants calculated under any defined benefit plan
included in subsection 17.4.
In making the foregoing determination, (i) a participant's account balances or
cumulative accrued benefits shall be increased by the aggregate distributions,
if any, made with respect to the participant during the 5-year period ending on
the determination date, including distributions under a terminated plan that, if
it had not been terminated, would have been required to be included in the
aggregation group, (ii) the account balances or cumulative accrued benefits of a
participant who was previously a key employee, but who is no longer a key
employee, shall be disregarded, (iii) the account balances or cumulative accrued
benefits of a beneficiary of a participant shall be considered accounts or
accrued benefits of the participant, (iv) the account balances or cumulative
accrued benefits of a participant who has not performed services for an Employer
or a Controlled Group Member at any time during the 5-year period ending on the
determination date shall be disregarded and (v) any rollover contribution (or
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<PAGE> 68
similar transfer) from a plan maintained by a corporation other than an Employer
under this Plan initiated by a participant shall not be taken into account as
part of the participant's aggregate account balances under this Plan.
17.3 KEY EMPLOYEE
In general, a "key employee" is an employee (or a former or deceased employee)
who, at any time during the plan year or any of the 4 preceding plan years, is
or was:
(a) an officer of an Employer having annual compensation greater
than fifty percent of the amount in effect under Section
415(b)(1)(A) for any such plan year; provided that, for
purposes of this paragraph, no more than fifty employees of
the Employer (or, if lesser, the greater of three employees or
ten percent of the employees) shall be treated as officers;
(b) one of the ten employees who have annual compensation from an
Employer of more than the limitation in effect under Section
415(c)(1)(A) of the Code for that year and owning or
considered as owning, within the meaning of Section 318 of the
Code, the largest interests in the Employer; provided that if
two employees have the same interest in the Employer, the
employee having greater annual compensation from the Employer
shall be treated as having a larger interest;
(c) a five percent or greater owner of an Employer; or
(d) a one percent or greater owner of an Employer having annual
compensation from the Employer of more than $150,000.
For purposes of this subsection the term "compensation" means compensation as
defined by Code Section 414(q)(7).
17.4 AGGREGATED PLANS
Each other defined contribution plan and defined benefit plan maintained by an
Employer that covers a "key employee" as a participant or that is maintained by
an Employer in order for a plan covering a key employee to satisfy Section
401(a)(4) or 410 of the Code shall be aggregated with this Plan in determining
whether this Plan is top-heavy. In addition, any other defined contribution or
defined benefit plan of an Employer may be included if all such plans that are
included, when aggregated, will not discriminate in favor of officers,
shareholders or highly compensated participants and will satisfy all of the
applicable requirements of Sections 401(a)(4) and 410 of the Code.
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<PAGE> 69
17.5 MINIMUM EMPLOYER CONTRIBUTION
Subject to the following provisions of this subsection and subsection 17.7, for
any plan year in which the Plan is a top-heavy plan, the employer contribution
credited to each participant who is not a key employee shall not be less than 3
percent of such participant's total compensation (as defined in subsection 7.1)
from the Employers for that year. In no event, however, shall the total employer
contribution credited in any year to a participant who is not a key employee
(expressed as a percentage of such participant's total compensation from the
Employer) exceed the maximum total employer contribution credited in that year
to a key employee (expressed as a percentage of such key employee's total
compensation from an Employer). Contributions made by an Employer under the Plan
pursuant to participants' income deferral authorizations shall not be deemed
employer contributions for purposes of this subsection. The amount of minimum
employer contribution otherwise required to be allocated to any participant for
any plan year under this subsection shall be reduced by the amount of employer
contributions allocated to him for a plan year ending with or within that plan
year under any other tax-qualified defined contribution plan maintained by an
Employer.
17.6 COORDINATION OF BENEFITS
For any plan year in which the Plan is top-heavy, in the case of a participant
who is a non-key employee and who is a participant in a top-heavy tax-qualified
defined benefit plan that is maintained by an Employer and that is subject to
Section 416 of the Code, subsection 17.5 shall not apply, and the minimum
benefit to be provided to each such participant in accordance with this Section
17 and Section 416(c) of the Code shall be the minimum annual retirement benefit
to which he is entitled under such defined benefit plan in accordance with such
Section 416(c), reduced by the amount of annual retirement benefit purchasable
with his Plan accounts (or portions thereof) attributable to employer
contributions (as defined in subsection 17.5) under this Plan and any other
tax-qualified defined contribution plan maintained by an Employer.
17.7 ADJUSTMENT OF COMBINED BENEFIT LIMITATIONS
For any plan year in which the Plan is a top-heavy plan, the determination of
the defined contribution plan fraction and defined benefit plan fraction under
subsection 7.2 shall be adjusted in accordance with the provisions of Section
416(h) of the Code by substituting "1.0" for "1.25" where the latter number
appears in Sections 415(e)(2)(B)(i) and 415(e)(3)(B)(i) of the Code with respect
to the calculation of those fractions; except that with respect to a participant
described in subsection 17.6, such adjustment shall not be required under this
Plan for any plan year for which such adjustment is not required under the
defined benefit plan referred to in subsection 17.6.
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<PAGE> 1
EXHIBIT 10.4
TAYLOR CAPITAL GROUP, INC.
401(K) TRUST
McDermott, Will & Emery
Chicago
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I
Name 2
ARTICLE II
Management and Control of Trust Fund Assets 2
II-1. The Trust Fund 2
II-2. Plan Administration 2
II-3. Exercise of Trustee's Duties 3
II-4. General Powers 3
II-5. Investment Managers 6
II-6. Responsibility of Trustee 7
II-7. Compensation and Expenses 7
II-8. Continuation of Powers Upon Trust Termination 7
ARTICLE III
Miscellaneous 8
III-1. Disagreement as to Acts 8
III-2. Persons Dealing with Trustee 8
III-3. Benefits May Not Be Assigned or Alienated 8
III-4. Evidence 8
III-5. Waiver of Notice 8
III-6. Counterparts 8
III-7. Governing Laws and Severability 8
III-8. Successors, Etc 9
III-9. Action 9
III-10. Conformance with Plan 9
III-11. Indemnification 9
III-12. Headings 9
III-13. Notice 10
ARTICLE IV
No Reversion to Company 10
ARTICLE V
Change of Trustee 11
V-1. Resignation 11
V-2. Removal of the Trustee 11
V-3. Duties of Resigning or Removed Trustee and of
Successor Trustee 11
<PAGE> 3
PAGE
V-4. Filling Trustee Vacancy 12
ARTICLE VI
Additional Employers 12
ARTICLE VII
Amendment and Termination 13
VII-1. Amendment 13
VII-2. Termination 13
<PAGE> 4
TAYLOR CAPITAL GROUP, INC.
401(K) TRUST
THIS AGREEMENT, made effective as of , by and
between Taylor Capital Group, Inc., a Delaware corporation (the "Company"), and
Cole Taylor Bank, an Illinois state chartered bank organized under the laws of
the State of Illinois, and its successor or successors and assigns in the trust
hereby evidenced, as trustee (the "Trustee").
WITNESSETH THAT:
WHEREAS, effective as of October 1, 1996, the Company established a
tax-qualified plan known as the Taylor Capital Group, Inc. 401(k)/Profit Sharing
and Employee Stock Ownership Plan (the "Prior Plan") for the exclusive benefit
of its eligible employees and those of any Related Company (as defined in
Article VII) that adopted the Prior Plan and became a party to the Taylor
Capital Group, Inc. 401(k)/Profit Sharing and Employee Stock Ownership Trust
(the "Prior Trust")(the Company and the Related Companies that are parties
hereto are sometimes referred to below collectively as the "Employers" and
individually as "Employer"); and
WHEREAS, effective as of October 1, 1998, the Company has amended,
restated and continued the Prior Plan as the Taylor Capital Group, Inc. Profit
Sharing and Employee Stock Ownership Plan (the "ESOP"); and
WHEREAS, effective October 1, 1998, the cash or deferred portion of the
Prior Plan (the "cash or deferred portion") has been spun-off from the Prior
Plan to the Taylor Capital Group, Inc. 401(k) Plan (the "Plan"), which is an
amendment, restatement and continuation of the cash or deferred portion of the
Prior Plan; and
WHEREAS, the Plan is intended to meet the applicable requirements of
Sections 401(a) and 401(k) of the Code; and
WHEREAS, the portion of the Prior Trust which was attributable to the
cash or deferred portion of the Prior Plan has been spun off from the Prior
Trust into the trust established pursuant to this agreement (the "Trust"), which
will implement and form a part of the Plan and is intended to be tax-exempt
under Section 501(a) of the Code; and
WHEREAS, the Prior Trust was amended, restated and continued into a
trust agreement which forms a part of the ESOP;
NOW THEREFORE, pursuant to the authority delegated to the undersigned
officers of the Company by resolution of its Board of Directors, IT IS AGREED,
by and between the parties
<PAGE> 5
hereto, that the trust provisions contained herein shall constitute the
agreement between the Company and the Trustee in connection with the Plan; and
IT IS FURTHER AGREED, that the Trustee hereby accepts its appointment
as such under this Trust Agreement.
IT IS FURTHER AGREED, by and between the parties hereto as follows:
ARTICLE I
Name
This Trust Agreement and Trust hereby evidenced shall be known as the
"TAYLOR CAPITAL GROUP, INC. 401(K) TRUST."
ARTICLE II
Management and Control of Trust Fund Assets
II-1. The Trust Fund. The "Trust Fund" as at any date means all
property of every kind then held by the Trustee pursuant to this Trust
Agreement. The Trustee may manage, administer and invest all contributions made
by the several Employers under the Plan as one Trust Fund, except to the extent
that the authority to manage investments has been allocated to one or more
investment managers pursuant to Article II-5. If, for any reason, it becomes
necessary to determine the portion of the Trust Fund allocable to employees and
former employees of any Employer as of any date, the Committee (as defined in
Article II-2) shall specify such date as an accounting date, and after all
adjustments required under the Plan as of that accounting date have been made,
the portion of the Trust Fund attributable to such employees and former
employees shall be determined and shall consist of an amount equal to the
aggregate of the account balances of employees and former employees of that
Employer plus an amount equal to any allocable contributions made by that
Employer since the close of the immediately preceding plan year. The indicia of
ownership of all assets of the Trust Fund must always reside within the
jurisdiction of the district courts of the United States.
II-2. Plan Administration. The Plan shall be administered by a
committee (the "Committee"), the members of which shall be certified to the
Trustee by the Company. Except as provided in Article II-4, the Trustee shall
have no authority to act unless directed in writing by
<PAGE> 6
the Committee. Such directions shall take effect when received by the Trustee.
The Committee may authorize one or more individuals to sign all communications
between the Committee and Trustee and shall at all times keep the Trustee
advised of the names of the members of the Committee and individuals authorized
to sign on behalf of the Committee, and provide specimen signatures thereof.
With the Trustee's prior written consent, the Committee may authorize the
Trustee to act, without specific directions or other directions or instructions
from the Committee, on any matter or class of matters with respect to which
directions or instructions from the Committee are called for hereunder. A
written statement signed by a majority of the Committee members or by an
authorized Committee member shall be conclusive in favor of the Trustee acting
in reliance thereon. The Trustee shall be fully protected in relying on any
communication sent by any authorized person and shall not be required to verify
the accuracy or validity of any signature unless the Trustee has reasonable
grounds to doubt the authenticity of any signature. If the Trustee requests any
directions hereunder and does not receive them, the Trustee shall act or refrain
from acting, as it may determine, with no liability for such action or inaction.
II-3. Exercise of Trustee's Duties. The Trustee shall discharge its
duties hereunder solely in the interest of the Plan Participants and other
persons entitled to benefits under the Plan, and:
(a) for the exclusive purpose of:
(i) providing benefits to Participants and other persons
entitled to benefits under the Plan; and
(ii) defraying reasonable expenses of administering the
Plan;
(b) with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent person acting in
a like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character and with like
aims; and
(c) in accordance with the documents and instruments governing the
Plan unless, in the good faith judgment of the Trustee, the
documents and instruments are not consistent with the
provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
II-4. General Powers. Subject to the provisions of Articles II-2 and
II-3, with respect to the Trust Fund, the Trustee shall have the following
powers, rights and duties in addition to those provided elsewhere in this Trust
Agreement or by law:
(a) to receive and to hold all contributions paid to it under the
Plan; provided, however, that the Trustee shall have no duty
to require any contributions to
<PAGE> 7
be made to it, or to determine that the contributions received
by it comply with the provisions of the Plan or with any
resolution of the Board providing therefor;
(b) as directed by the Committee, to retain in cash (pending
investment, reinvestment or the distribution of dividends)
such reasonable amount as may be required for the proper
administration of the Trust and to invest such cash as
determined by the Trustee; provided, however, that pending
receipt of directions from the Committee, the Trustee may
retain reasonable amounts of cash, in its discretion, without
any liability for interest;
(c) as directed by the Committee, to make distributions from the
Trust Fund to such persons or trusts, in such manner, at such
times and in such forms (cash or other property) as directed
without inquiring as to whether a payee is entitled to the
payment, or as to whether a payment is proper, and without
liability for a payment made in good faith without actual
notice or knowledge of the changed condition or status of the
payee. If any payment of benefits directed to be made from the
Trust Fund by the Trustee is not claimed, the Trustee shall
notify the Committee of that fact promptly. The Committee
shall make a diligent effort to ascertain the whereabouts of
the payee or distributee of benefits returned unclaimed. The
Trustee shall dispose of such payments as the Committee shall
direct. The Trustee shall have no obligation to search for or
ascertain the whereabouts of any payee or distributee of
benefits from the Trust Fund;
(d) to vote stocks, bonds or other securities held in the Trust,
or otherwise consent to or request any action on the part of
the issuer in person, by proxy or power of attorney;
(e) to compromise, contest, arbitrate, settle or abandon claims
and demands by or against the Trust Fund;
(f) to begin, maintain or defend any litigation necessary in
connection with the investment, reinvestment and
administration of the Trust, and, to the extent not paid from
the Trust Fund, the Company shall indemnify the Trustee
against all expenses and liabilities reasonably sustained or
anticipated by it by reason thereof (including reasonable
attorneys' fees);
(g) to retain any funds or property subject to any dispute without
liability for the payment of interest, or to decline to make
payment or delivery thereof until final adjudication is made
by a court of competent jurisdiction;
(h) to report to the Company as of the last day of each Plan Year
(which shall be the same as the Trust's fiscal year), as of
any accounting date (or as soon
<PAGE> 8
thereafter as practicable), or at such other times as may be
required under the Plan, the then "Net Worth" of the Trust
Fund, that is, the fair market value of all property held in
the Trust Fund, reduced by any liabilities other than
liabilities to Participants in the Plan and their
Beneficiaries, as determined by the Trustee;
(i) to furnish to the Company an annual written account and
accounts for such other periods as may be required under the
Plan, showing the Net Worth of the Trust Fund at the end of
the period, all investments, receipts, disbursements and other
transactions made by the Trustee during the accounting period,
and such other information as the Trustee may possess which
the Company requires in order to comply with Section 103 of
ERISA. The Trustee shall keep accurate accounts of all
investments, earnings thereon, and all accounts, books and
records related to such investments shall be open to
inspection by any person designated by the Company or the
Committee. All accounts of the Trustee shall be kept on an
accrual basis. If, during the term of this Trust Agreement,
the Department of Labor issues regulations under ERISA
regarding the valuation of securities or other assets for
purposes of the reports required by ERISA, the Trustee shall
use such valuation methods for purposes of the accounts
described by this subparagraph. The Company may approve such
accounting by written notice of approval delivered to the
Trustee or by failure to express objection to such accounting
in writing delivered to the Trustee within sixty (60) days
from the date upon which the accounting was delivered to the
Company. Upon the receipt of a written approval of the
accounting, or upon the passage of the period of time within
which objection may be filed without written objections having
been delivered to the Trustee, such accounting shall be deemed
to be approved, and the Trustee shall be released and
discharged as to all items, matters and things set forth in
such account, as fully as if such accounting had been settled
and allowed by decree of a court of competent jurisdiction in
an action or proceeding in which the Trustee, the Company and
all persons having or claiming to have any interest in the
Trust Fund or under the Plan were parties.
(j) as directed by the Committee, to pay any estate, inheritance,
income or other tax, charge or assessment attributable to any
benefit which shall or may be required to pay out of such
benefit; provided that the Trustee in its sole undirected
discretion may require before making any payment such release
or other document from any taxing authority and such indemnity
from the intended payee as the Trustee shall deem necessary
for its protection;
(k) to employ and to reasonably rely upon information and advice
furnished by
<PAGE> 9
agents, attorneys, accountants or other persons of its choice
for such purposes as the Trustee considers desirable;
(m) to assume, until advised to the contrary, that the Trust
evidenced by this Agreement is qualified under Section 401(a)
of the Code and is entitled to tax exemption under Section
501(a) thereof;
(n) to have the authority to invest and reinvest the assets of the
Trust Fund, upon direction from the Committee, in personal
property of any kind, including, but not limited to bonds,
notes, debentures, mortgages, equipment trust certificates,
investment trust certificates, guaranteed investment
contracts, preferred or common stock, and registered
investment companies. The Trustee shall follow the directions
of the Committee and shall have no duty or obligation to
review the assets from time to time so acquired, nor to make
any recommendations with respect to the investment,
reinvestment or retention thereof;
(o) as directed by the Committee, to exercise any options,
subscription rights and other privileges with respect to Trust
assets;
(p) to register ownership of any securities or other property held
by it in its own name or in the name of a nominee, with or
without the addition of words indicating that such securities
are held in a fiduciary capacity, and may hold any securities
in bearer form, but the books and records of the Trustee shall
at all times reflect that all such investments are part of the
Trust;
(q) with the approval of the Committee, to borrow such sum or sums
from time to time as the Trustee considers necessary or
desirable and in the best interest of the Trust Fund, and for
that purpose to mortgage or pledge any part of the Trust Fund
(subject to the provisions of Code Section 4795(c) and the
regulations issued thereunder);
(r) to participate in and use the Federal Book-Entry Account
System, a service provided by the Federal Reserve Bank for its
member banks for deposit of Treasury securities; and
(s) as directed by the Committee, to perform any and all other
acts which are necessary or appropriate for the proper
management, investment and distribution of the Trust Fund.
II-5. Investment Managers. The Committee may appoint one or more
investment managers (as defined in section 3(38) of ERISA) to manage the
investment of any part or all of the assets of the Trust Fund. Except as
otherwise provided by law, the Trustee shall have no
<PAGE> 10
obligation for investment of any assets of the trust fund which are subject to
management by an investment manager. Appointment of an investment manager shall
be made by written notice to the investment manager and the Trustee, which
notice shall specify those powers, rights and duties of the Trustee under this
agreement that are allocated to the investment manager and that portion of the
assets of the trust fund subject to investment management. An investment manager
so appointed pursuant to this paragraph shall be either a registered investment
adviser under the Investment Advisers Act of 1940, a bank, as defined in said
Act, or an insurance company qualified to manage, acquire and dispose of the
assets of the plan under the laws of more than one state of the United States.
Any such investment manager shall acknowledge to the company in writing that it
accepts such appointment and that it is a fiduciary with respect to the plan and
trust. An investment manager may resign at any time upon written notice to the
Trustee and the Committee. The Committee may remove an investment manager at any
time by written notice to the investment manager and the Trustee.
II-6. Responsibility of Trustee. The Trustee shall not be responsible
in any way for the adequacy of the Trust Fund to meet and discharge any or all
liabilities under the Plan or for the proper application of distributions made
or other action taken upon the written direction of the Committee. The powers,
duties and responsibilities of the Trustee shall be limited to those set forth
in this Trust Agreement, and nothing contained in the Plan, either expressly or
by implication, shall be deemed to impose any additional powers, duties or
responsibilities on the Trustee.
II-7. Compensation and Expenses. The Trustee shall be entitled to
reasonable compensation for its services, as agreed to between the Company and
the Trustee from time to time in writing and to reimbursement of all reasonable
expenses incurred by the Trustee in the administration of the Trust. The Trustee
is authorized to pay from the Trust Fund all expenses of administering the Plan
and Trust, including its compensation, compensation to any agents employed by
the Trustee and any accounting and legal expenses, to the extent they are not
paid directly by the Employers. The Trustee shall be fully protected in making
payments of administrative expenses pursuant to the written directions of the
Committee.
II-8. Continuation of Powers Upon Trust Termination. Notwithstanding
anything to the contrary in this Agreement, upon termination of the Trust, the
powers, rights and duties of the Trustee hereunder shall continue until all
Trust Fund assets have been liquidated.
<PAGE> 11
ARTICLE III
Miscellaneous
III-1. Disagreement as to Acts. If there is a disagreement between the
Trustee and anyone as to any act or transaction reported in any accounting, the
Trustee shall have the right to have its account settled by a court of competent
jurisdiction.
III-2. Persons Dealing with Trustee. No person dealing with the Trustee
shall be required to see to the application of any money paid or property
delivered to the Trustee, or to determine whether or not the Trustee is acting
pursuant to any authority granted to it under this Agreement or the Plan.
III-3. Benefits May Not Be Assigned or Alienated. The interests under
the Plan and this Agreement of Participants and other persons entitled to
benefits under the Plan are not subject to the claims of their creditors and may
not be voluntarily or involuntarily assigned, alienated or encumbered, except to
the extent that the Committee directs the Trustee that any such interests are
subject to a qualified domestic relations order, as defined in Section 414(p) of
the Code.
III-4. Evidence. Evidence required of anyone under this Agreement may
be by certificate, affidavit, document or other instrument which the person
acting in reliance thereon considers pertinent and reliable, and signed, made or
presented by the proper party.
III-5. Waiver of Notice. Any notice required under this Agreement may
be waived in writing by the person entitled thereto.
III-6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and no other
counterparts need be produced.
III-7. Governing Laws and Severability. This Agreement shall be
construed and administered according to the laws of the Commonwealth of
Massachusetts to the extent that such laws are not preempted by the laws of the
United States of America. If any provision of this Agreement is held illegal,
invalid or contrary to ERISA, the illegality or invalidity or contrary
provisions shall not affect the remaining provisions of the Agreement, but shall
be severable, and the Agreement shall be construed and enforced as if the
illegal or invalid provision had never
<PAGE> 12
been inserted herein.
III-8. Successors, Etc. This Agreement shall be binding on the
Employers, and any successor thereto by virtue of any merger, sale, dissolution,
consolidation or reorganization, on the Trustee and its successor and on all
persons entitled to benefits under the Plan and their respective heirs and legal
representatives.
III-9. Action. Any action required or permitted to be taken by the
Company under this Agreement shall be by resolution of its Board of Directors or
by a person or persons authorized by resolution of its Board of Directors. The
Trustee shall not recognize or take notice of any appointment of any
representative of the Company or Committee unless and until the Company or the
Committee shall have notified the Trustee in writing of such appointment and the
extent of such representative's authority. The Trustee may assume that such
appointment and authority continue in effect until it receives written notice to
the contrary from the Company or Committee. Any action taken or omitted to be
taken by the Trustee by authority of any representative of the Company or
Committee within the scope of his authority shall be as effective for all
purposes hereof as if such action or nonaction had been authorized by the
Company or Committee.
III-10. Conformance with Plan. Unless otherwise indicated in this Trust
Agreement, all capitalized terms shall have the meaning as stated in the Plan.
The Company has provided the Trustee with an executed or certified copy of the
Plan and shall provide the Trustee with a certified copy of each amendment
thereto promptly upon adoption. To the extent the provisions of the Plan and
this Agreement conflict, the provisions of the Plan shall govern; provided
however, that the Trustee's duties and obligations shall be determined solely
under this Trust Agreement.
III-11. Indemnification. The Company shall indemnify and hold harmless
the Trustee from all loss or liability (including expenses and reasonable
attorneys' fee) to which the Trustee may be subject by reason of the execution
of its duties under this Trust Agreement, or by reason of any acts taken in good
faith in accordance with directions, or acts omitted in good faith due to
absence of directions, from the Committee unless such loss or liability is due
to the Trustee's gross negligence or willful misconduct. The Trustee is entitled
to collect on the indemnity provided by this Article IV-11 only from the
Company, and is not entitled to any direct or indirect indemnity payment from
assets of the Trust Fund.
III-12. Headings. The headings of Sections of this Agreement are for
convenience of reference only and shall have no substantive effect on the
provisions of this Agreement.
<PAGE> 13
III-13. Notice. All notices that are required or may be given pursuant
to the terms of this Trust Agreement shall be in writing and shall be sufficient
in all respects if delivered personally or by registered or certified mail,
postage prepaid, as follows:
If to the Company to:
Taylor Capital Group, Inc.
350 East Dundee Road
Wheeling, Illinois, 60090
Attn: Director of Human Resources
If to the Trustee:
Cole Taylor Bank
350 East Dundee Road
Wheeling, Illinois, 60090
Attn: Scott McCartan
Any notice required under this Trust Agreement may be waived by the person
entitled to notice.
ARTICLE IV
No Reversion to Company
No part of the corpus or income of the Trust Fund shall revert to any
Employer or be used for, or diverted to, purposes other than for the exclusive
benefit of Participants and other persons entitled to benefits under the Plan,
provided, however, that:
(a) Each Employer's contribution under the Plan is conditioned on
the initial qualification of the Plan as applied to that
Employer under Section 401(a) of the Code and if that Plan
does not so initially qualify, the Trustee shall, upon written
direction of the Committee, return to that Employer the amount
of such contribution and any increment thereon within one
calendar year after the date that qualification of the Plan,
as applied to that Employer, is denied, but only if the
application for qualification is submitted within the time
prescribed by law.
(b) If, upon termination of the Plan with respect to any Employer,
any amounts are held in a 415 Suspense Account which are
attributable to the contributions of such Employer and such
amounts may not be credited to
<PAGE> 14
the Accounts of Participants, such amounts, upon the written
direction of the Committee, will be returned to that Employer
as soon as practicable after the termination of the Plan with
respect to that Employer.
(c) Employer contributions under the Plans are conditioned upon
the deductibility thereof under Section 404 of the Code, and,
to the extent any such deduction of an Employer is disallowed,
the Trustee shall, upon the written direction of the
Committee, return the amount of the contribution (to the
extent disallowed), reduced by the amount of any losses
thereon, to the Employer within one year after the date the
deduction is disallowed.
(d) If a contribution or any portion thereof is made by an
Employer by a mistake of fact, the Trustee shall, upon written
direction of the Committee, return the amount of the
contribution or such portion, reduced by the amount of any
losses there on, to the Employer within one year after the
date of payment to the Trustee.
Notwithstanding the foregoing, the Trustee has no responsibility as to the
sufficiency of the Trust Fund to provide any distribution to an Employer under
this Article IV.
ARTICLE V
Change of Trustee
V-1. Resignation. The Trustee may resign at any time by giving thirty
(30) days' advance written notice to the Company and the Committee.
V-2. Removal of the Trustee. The Committee may, with the consent of the
Company, which shall not be unreasonably withheld, remove the Trustee by giving
thirty (30) days' advance written notice to the Trustee, subject to providing
the removed Trustee with satisfactory written evidence of the appointment of a
successor Trustee and of the successor Trustee's acceptance of the trusteeship.
V-3. Duties of Resigning or Removed Trustee and of Successor Trustee.
If the Trustee resigns or is removed, it shall promptly transfer and deliver the
assets of the Trust Fund to the successor Trustee, and may reserve such amount
to provide for the payment of all fees and expenses, or taxes then or thereafter
chargeable against the Trust Fund, to the extent not previously paid by the
Company. The Company shall be obligated to reimburse the Trust for any amount
reserved by the Trustee. Within 120 days, the resigned or removed Trustee shall
furnish
<PAGE> 15
to the Company and the successor Trustee an account of its administration of the
Trust from the date of its last account. Each successor Trustee shall succeed to
the title to the Trust Fund vested in his predecessor without the signing or
filing of any further instrument, but any resigning or removed Trustee shall
execute all documents and do all acts necessary to vest such title or record in
any successor Trustee. Each successor shall have all the powers, rights and
duties conferred by this Trust Agreement as if originally named Trustee. No
successor Trustee shall be personally liable for any act or failure to act of a
predecessor Trustee. With the approval of the Committee, a successor Trustee may
accept the account rendered and the property delivered to it by its predecessor
Trustee as a full and complete discharge to the predecessor Trustee without
incurring any liability or responsibility for so doing.
V-4. Filling Trustee Vacancy. The Committee may, with the consent of
the Company, which shall not be unreasonably withheld, fill a vacancy in the
office of Trustee as soon as practicable by a writing filed with the person or
entity appointed to fill the vacancy.
ARTICLE VI
Additional Employers
Any Related Company (as defined below) may become a party to this Trust
Agreement by:
(a) filing with the Company and the Trustee a certified copy of a
resolution of its Board of Directors to that effect; and
(b) filing with the Trustee a certified copy of a resolution of
the Board of Directors of the Company consenting to such
action.
A "Related Company" is any corporation, trade or business during any period in
which it is, along with the Company, a member of a controlled group of
corporations, a group of trades or businesses under common control or an
affiliated service group, as described in section 414(b), 414(c) and 414(m),
respectively, of the Code or as described in regulations issued by the Secretary
of the Treasury or his delegate pursuant to section 414(o) of the Code. Any
Related Company so becoming a party to this Trust Agreement shall be deemed to
have irrevocably appointed the Company as its agent for all purposes of this
Trust Agreement to the end that the Trustee may deal with the Company as if the
Company were the only Employer party to this Trust Agreement.
<PAGE> 16
ARTICLE VII
Amendment and Termination
VII-1. Amendment. While the Employers expect and intend to continue the
Trust, the Company reserves the right to amend the Trust at any time pursuant to
an action of the Company's Board of Directors, except that no amendment shall
change the rights, duties and liabilities of the Trustee under this Trust
Agreement without its prior written agreement, nor reduce a Participant's
benefits to less than the amount such Participant would be entitled to receive
if such Participant had resigned from the employ of the Employers on the date of
the amendment. Amendments to the Trust shall be effective upon execution of such
amendments by both the Company and the Trustee.
VII-2. Termination. The Trust may be terminated as to all Employees on
any date specified by the Company. The Trust will terminate as to any Employer
on the first to occur of the following:
(a) the date it is terminated by that Employer;
(b) the date such Employer's contributions to the Trust are
completely discontinued;
(c) the date such Employer is judicially declared bankrupt under
Chapter 7 of the U.S. Bankruptcy Code; or
(d) the dissolution, merger, consolidation, or reorganization of
that Employer, or the sale by that Employer of all or
substantially all of its assets, except that, with the consent
of the Company, such arrangements may be made whereby the
Trust will be continued by any successor to that Employer or
any purchaser of all or substantially all of that Employer's
assets, in which case the successor or purchaser will be
substituted for that Employer under the Trust.
The Trustee's powers upon termination as described above will continue until
liquidation of the Trust Fund, or the portion thereof attributable to an
Employer, as the case may be. Upon termination of this Trust the Trustee shall
first reserve such reasonable amounts as it may deem necessary to provide for
the payment of any expenses or fees then or thereafter chargeable to the Trust
Fund. Subject to such reserve, the balance of the Trust Fund shall be liquidated
and distributed by the Trustee to or for the benefit of the Participants or
their beneficiaries, as directed by the Committee after compliance with
applicable requirements of ERISA, as amended from time to time, or other
applicable law, accompanied by a certification that the disposition is in
accordance with the terms of the Plan and the Trustee need not question the
propriety of such
<PAGE> 17
certification. The Company shall have full responsibility to see that such
distribution is proper and within the terms of the Plan and this Trust.
IN WITNESS WHEREOF, the Company and Trustee have caused these presents
to be signed and their seals to be hereunto affixed and attested by their duly
authorized officers all as of the day and year first above written.
TAYLOR CAPITAL GROUP, INC.
-----------------------------------
President
Cole Taylor Bank
-----------------------------------
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TAYLOR
CAPITAL GROUP, INC. FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 69,710
<INT-BEARING-DEPOSITS> 55
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 361,774
<INVESTMENTS-CARRYING> 84,459
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<LOANS> 1,417,361
<ALLOWANCE> 25,855
<TOTAL-ASSETS> 1,997,138
<DEPOSITS> 1,501,333
<SHORT-TERM> 213,145
<LIABILITIES-OTHER> 22,720
<LONG-TERM> 114,500
0
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