<PAGE>
As filed with the Securities and Exchange Commission on May 4, 1998
Registration No. 333-37511
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
---------------------
PSB BANCORP, INC.
(Exact name of registrant in its charter)
Pennsylvania 6035 23-2930740
(State or other jurisdiction of (Primary SIC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
Eleven Penn Center, Suite 2601
1835 Market Street
Philadelphia, PA 19103
(215) 979-7900
(Address and telephone number of principal
executive offices and place of business)
---------------------
Anthony DiSandro
President and Chief Operating Officer
Eleven Penn Center, Suite 2601
1835 Market Street
Philadelphia, PA 19103
(215) 979-7900
(Name, address and telephone number of agent for service)
---------------------
Copies of all communications to:
Jeffrey P. Waldron, Esquire John F. Breyer, Jr., Esquire
Stevens & Lee Aaron M. Kaslow, Esquire
One Glenhardie Corporate Center Breyer & Aguggia
1275 Drummers Lane 1300 I Street, N.W.
P.O. Box 236 Suite 470 East
Wayne, PA 19087 Washington, DC 20005
(610) 964-1480 (202) 737-7900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 426(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
The registrant hereby amends this Registration Statement on such date as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
<TABLE>
<CAPTION>
Calculation of Registration Fee
=====================================================================================================
Title
of Each Proposed Proposed
Class of Maximum Maximum Amount
Securities Amount Proposed Aggregate of
Being Being Offering Offering Registration
Registered Registered Price Price Fee
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Common Stock, no Par
Value ................. 1,851,500(1) $ 10.00(1) $18,515,000(1) $ 5,610.61
- -----------------------------------------------------------------------------------------------------
Common Stock, no Par
Value ................. 1,713,198(2) $ 25.75(2) $14,919,292(2) $ 4,521.00
- -----------------------------------------------------------------------------------------------------
Total .................. 3,564,698 -- 33,434,292 $ 10,131.61
- -----------------------------------------------------------------------------------------------------
Participation interests 143,037 -- -- (3)
=====================================================================================================
</TABLE>
(1) As to the shares of Common Stock to be issued in the Conversion Offerings,
the Purchase Price has been estimated solely for purposes of calculating
the registration fee pursuant to Rule 457(a) of the Securities Act of 1933
(the "1933 Act"). The actual number of shares to be issued and sold is
subject to adjustment based upon the estimated pro forma market value of
the registrant and market and financial conditions.
(2) The offering price of shares of Common Stock issued to security holders in
exchange for shares of Savings Bank Common Stock for purposes of the
filing fee shall be calculated pursuant to Rule 457(f)(1) and Rule 457(c)
of the 1933 Act based on the average of the bid and asked price of Savings
Bank Common Stock on October 6, 1997 multiplied by the number of shares of
Savings Bank Common Stock to be received by the registrant.
(3) The securities of PSB Bancorp, Inc. to be purchased by Pennsylvania Savings
Bank 401(k) Plan are included in the amount shown for Common Stock.
Accordingly, pursuant to Rule 457(h) of the Act, no separate fee is
required for the participation interests. Pursuant to such rule, the
amount being registered has been calculated on the basis of the number of
shares of Common Stock that may be purchased with the current assets of
such Plan.
<PAGE>
PROSPECTUS SUPPLEMENT
PSB BANCORP, INC.
PENNSYLVANIA SAVINGS BANK
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
This Prospectus Supplement relates to the offer and sale to participants
("Participants") in the Pennsylvania Savings Bank Employees' Savings and Profit
Sharing Plan (the "Plan" or the "401(k) Plan") of participation interests and
shares of PSB Bancorp, Inc. common stock, without par value (the "Common
Stock"), as set forth herein.
In connection with the proposed reorganization of Pennsylvania Savings
Bank (the "Savings Bank" or the "Employer") from the mutual holding company
form of organization to a wholly-owned subsidiary of a stock savings and loan
holding company, PSB Bancorp, Inc. (the "Holding Company") has been formed. The
reorganization of the Savings Bank as a wholly-owned subsidiary of the Holding
Company, the exchange of shares of Savings Bank common stock ("Savings Bank
Common Stock") by public stockholders of the Savings Bank (the "Public
Stockholders") for Common Stock and the sale of Common Stock to the public (the
"Conversion Offerings") are herein referred to as the "Conversion and
Reorganization." Applicable provisions of the 401(k) Plan permit the investment
of the Plan assets in Common Stock at the direction of a Plan Participant. This
Prospectus Supplement relates to the election of a Participant to direct the
purchase of Common Stock in connection with the Conversion and Reorganization.
The Prospectus dated April 27, 1998 of the Holding Company ("Prospectus")
which is attached to this Prospectus Supplement includes detailed information
with respect to the Conversion and Reorganization, the Conversion Offerings,
the Common Stock and the financial condition, results of operation and business
of the Savings Bank and the Holding Company. This Prospectus Supplement, which
provides detailed information with respect to the Plan, should be read only in
conjunction with the Prospectus. Terms not otherwise defined in this Prospectus
Supplement are defined in the Plan or the Prospectus.
A Participant's eligibility to purchase Common Stock in the Conversion and
Reorganization through the Plan is subject to the Participant's general
eligibility to purchase shares of Common Stock in the Conversion Offerings and
the maximum and minimum limitations set forth in the Plan of Conversion. See
"THE CONVERSION AND REORGANIZATION" and "-- Limitations on Purchases of Shares"
in the Prospectus.
For a discussion of certain factors that should be considered by each
Participant, see "RISK FACTORS" in the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC")
OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SEC, THE OTS, THE FDIC OR ANY OTHER AGENCY OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is May 4, 1998.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Savings Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of
an offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Savings Bank or the Plan since the date
hereof, or that the information herein contained or incorporated by reference
is correct as of any time subsequent to the date hereof. This Prospectus
Supplement should be read only in conjunction with the Prospectus that is
attached herein and should be retained for future reference.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
The Offering
Securities Offered .................................................... S-1
Election to Purchase Common Stock in the Conversion ................... S-1
Value of Participation Interests ...................................... S-1
Method of Directing Transfer .......................................... S-1
Time for Directing Transfer ........................................... S-1
Irrevocability of Transfer Direction .................................. S-1
Treatment of Savings Bank Common Stock Held in the Plan ............... S-2
Direction to Purchase Common Stock After the Conversion ............... S-2
Purchase Price of Common Stock ........................................ S-2
Nature of a Participant's Interest in the Holding Company Common Stock S-2
Voting and Tender Rights of Common Stock .............................. S-2
Description of the Plan
Introduction .......................................................... S-3
Eligibility and Participation ......................................... S-3
Contributions Under the Plan .......................................... S-3
Limitations on Contributions .......................................... S-4
Investment of Contributions ........................................... S-5
The Employer Stock Fund ............................................... S-5
Benefits Under the Plan ............................................... S-6
Withdrawals and Distributions from the Plan ........................... S-6
Administration of the Plan ............................................ S-7
Reports to Plan Participants .......................................... S-7
Plan Administrator .................................................... S-7
Amendment and Termination ............................................. S-7
Merger, Consolidation or Transfer ..................................... S-8
Federal Income Tax Consequences ....................................... S-8
Restrictions on Resale ................................................ S-10
Legal Opinions ........................................................... S-10
Investment Form .......................................................... S-11
</TABLE>
S-i
<PAGE>
THE OFFERING
Securities Offered
The securities offered hereby are participation interests in the Plan and
up to _______ shares, at the actual purchase price of $10.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees and former employees of the Savings Bank and their
beneficiaries may participate in the Plan. Information with regard to the Plan
is contained in this Prospectus Supplement and information with regard to the
Conversion and Reorganization and the financial condition, results of operation
and business of the Savings Bank and the Holding Company is contained in the
attached Prospectus. The address of the principal executive office of the
Savings Bank is Eleven Penn Center, Suite 2601, 1835 Market Street,
Philadelphia, Pennsylvania 19103. The Savings Bank's telephone number is (215)
979-7900.
Election to Purchase Common Stock in the Conversion and Reorganization
In connection with the Savings Bank's Conversion and Reorganization, each
Participant in the 401(k) Plan may direct the trustees of the Plan
(collectively, the "Trustee") to transfer up to 100% of a Participant's
beneficial interest in the assets of the Plan to the Employer Stock Fund and to
use such funds to purchase Common Stock issued in connection with the
Conversion and Reorganization. Amounts transferred may include salary deferral,
Employer matching and profit sharing contributions. The Employer Stock Fund
consists of investments in the Common Stock. Funds not transferred to the
Employer Stock Fund will be invested at the Participant's discretion in the
other investment options available under the Plan. See "DESCRIPTION OF THE PLAN
- -- Investment of Contributions" below. A Participant's ability to transfer
funds to the Employer Stock Fund in the Conversion Offerings is subject to the
Participant's general eligibility to purchase shares of Common Stock in the
Conversion Offerings. For general information as to the ability of the
Participants to purchase shares in the Conversion Offerings, see "THE
CONVERSION AND REORGANIZATION -- The Subscription, Direct Community and
Syndicated Community Offerings" in the attached Prospectus.
Value of Participation Interests
The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on a
semi-annual basis. This value represents the market value of past contributions
to the Plan by the Savings Bank and by the Participants and earnings thereon,
less previous withdrawals, and transfers from the Savings Fund.
Method of Directing Transfer
The last page of this Prospectus Supplement is an investment form to
direct a transfer to the Employer Stock Fund ("Investment Form"). If a
Participant wishes to transfer funds to the Employer Stock Fund to purchase
Common Stock issued in connection with the Conversion Offerings, the
Participant should indicate that decision in Part 2 of the Investment Form. If
a Participant does not wish to make such an election, he or she does not need
to take any action.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the
Employer Stock Fund in order to purchase Common Stock issued in connection with
the Conversion Offerings is __________, 1998. The Investment Form should be
returned to _______________ at the Savings Bank no later than the close of
business on such date.
Irrevocability of Transfer Direction
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion Offerings
shall be irrevocable. Participants, however, will be able to direct the sale of
Common Stock, as explained below.
S-1
<PAGE>
Treatment of Savings Bank Common Stock Held in the Plan
Shares of Savings Bank Common Stock held in the Employer Stock Fund prior
to the consummation of the Conversion and Reorganization will be treated in the
same manner as shares held by other Public Stockholders. Such shares will be
exchanged for shares of Common Stock pursuant to the Exchange Ratio.
Application of the Exchange Ratio will result in the holders of the outstanding
Savings Bank Common Stock owning, in the aggregate, approximately the same
percentage of the Common Stock to be outstanding upon the completion of the
Conversion and Reorganization as the percentage of Savings Bank Common Stock
owned by them, in the aggregate, immediately prior to the consummation of the
Conversion. For additional information regarding the treatment of Savings Bank
Common Stock, see "THE CONVERSION AND REORGANIZATION" in the Prospectus.
Direction to Purchase Common Stock After the Conversion and Reorganization
After the Conversion and Reorganization, a Participant will be able to
direct that a certain percentage of such Participant's interests in the trust
assets (the "Trust") be transferred to the Employer Stock Fund and invested in
Common Stock or to the other investment funds available under the Plan.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Employer Stock Fund be transferred from the
Employer Stock Fund to other investment funds available under the Plan.
Participants will be permitted to direct that future contributions made to the
Plan by or on their behalf be invested in Common Stock. Following the initial
election, the allocation of a Participant's interest in the Employer Stock Fund
may be changed by the Participant on a quarterly basis. Special restrictions
may apply to transfers directed by those Participants who are executive
officers, directors and principal stockholders of the Holding Company who are
subject to the provisions of Section 16(b) of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act").
Purchase Price of Common Stock
The funds transferred to the Employer Stock Fund for the purchase of
Common Stock in connection with the Conversion will be used by the Trustee to
purchase shares of Common Stock. The price paid for such shares of Common Stock
will be the same price as is paid by all other persons who purchase shares of
Common Stock in the Conversion Offerings.
Nature of a Participant's Interest in the Holding Company Stock
The Holding Company Stock purchased for an account of a Participant will
be held in the Employer Stock Fund. Any earnings, losses or expenses with
respect to the Common Stock, including dividends and appreciation or
depreciation in value, will be credited or debited to the account and will not
be credited to or borne by any other accounts.
Voting and Tender Rights of Common Stock
The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.
S-2
<PAGE>
DESCRIPTION OF THE PLAN
Introduction
The Savings Bank adopted the Plan effective as an amendment and
restatement of the Savings Bank's prior retirement plan. The Plan is a cash or
deferred arrangement established in accordance with the requirement under
Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as
amended ("Code").
The Savings Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Savings
Bank will adopt any amendments to the Plan that may be necessary to ensure the
qualified status of the Plan under the Code and applicable Treasury
Regulations. The Savings Bank has received a determination from the Internal
Revenue Service ("IRS") that the Plan is qualified under Section 401(a) of the
Code and that it satisfies the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code.
Employee Retirement Income Security Act. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title 11 (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA, which by their terms do not apply to
an individual account plan (other than a money purchase pension plan). The Plan
is not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the
funding requirements contained in Title IV of ERISA nor the plan termination
insurance provisions contained in Title IV will be extended to Participants or
beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR
HIS OR HER BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF
EMPLOYMENT WITH THE SAVINGS BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE
IMPOSED ON WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE
59-1/2, UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF
WHETHER SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS
BANK OR AFTER TERMINATION OF EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries of
the material provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan, which is filed as an exhibit to
the registration statement filed with the SEC. Copies of the Plan are available
to all employees by filing a request with the Plan Administrator. Each employee
is urged to read carefully the full text of the Plan.
Eligibility and Participation
Any employee of the Savings Bank is eligible to participate and will
become a Participant in the Plan following completion of two years of service
with the Savings Bank and the attainment of age 21. The Plan fiscal year is the
calendar year ("Plan Year"). Directors who are not employees of the Savings
Bank are not eligible to participate in the Plan.
During 1997, approximately 19 employees participated in the Plan.
Contributions Under the Plan
Participant Contributions. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to
a salary reduction agreement and have that amount (limited to 15 percent of
Compensation) contributed to the Plan on such Participant's behalf. Such
amounts are credited to the Participant's deferral contributions account. For
purposes of the Plan, "Compensation" means a Participant's total amount of
earnings reportable W-2 wages for federal income tax withholding purposes plus
a Participant's elective deferrals pursuant to a salary reduction agreement
under the Plan or any elective deferrals to a Section
S-3
<PAGE>
125 plan. Due to recent statutory changes, the annual Compensation of each
Participant taken into account under the Plan is limited to $160,000 (as
adjusted under applicable Code provisions). A Participant may elect to modify
the amount contributed to the Plan under the participant's salary reduction
agreement during the Plan Year. Deferral contributions are generally
transferred by the Savings Bank to the Trustee of the Plan on a periodic basis.
Employer Contributions. The Savings Bank currently matches [50%] of a
Participant's monthly deferral contributions to a maximum of [3%] of
Compensation. In addition, the Savings Bank may make discretionary
contributions in proportion to each Participant's Compensation.
Limitations on Contributions
Limitations on Annual Additions and Benefits. Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of
25% of the Participant's "Section 415 Compensation" for the Plan Year or
$30,000 (as adjusted periodically under applicable Code provisions). A
Participant's "Section 415 Compensation" is a Participant's Compensation,
excluding any amount contributed to the Plan under a salary reduction agreement
or any employer contribution to the Plan or to any other plan or deferred
compensation or any distributions from a plan of deferred compensation. In
addition, annual additions are limited to the extent necessary to prevent the
limitations for the combined plans of the Savings Bank from being exceeded. To
the extent that these limitations would be exceeded by reason of excess annual
additions to the Plan with respect to a Participant, the excess must be
reallocated to the remaining Participants who are eligible for an allocation of
Employer contributions for the Plan Year.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $10,000 (as adjusted
periodically under applicable Code provisions). Contributions in excess of this
limitation ("excess deferrals") will be included in the Participant's gross
federal income tax purposes in the year they are made. In addition, any such
excess deferral will again be subject to federal income tax when distributed by
the Plan to the Participant, unless the excess deferral (together with any
income allocable thereto) is distributed to the Participant not later than the
first March 15th following the close of the taxable year in which the excess
deferral is made. Any income on the excess deferral that is distributed not
later than such date shall be treated, for federal income tax purposes, as
earned and received by the Participant in the taxable year in which the excess
deferral is made.
Limitation on Plan Contributions for Highly Compensated
Employees. Sections 401(k) and 401(m) of the Code limit the amount of deferred
compensation contributed to the Plan in any Plan Year on behalf of Highly
Compensated Employees (defined below) in relation to the amount of deferred
compensation contributed by or on behalf of all other employees eligible to
participate in the Plan. Specifically, the actual deferral percentage for a
Plan Year (i.e., the average of the ratios, calculated separately for each
eligible employee in each group, by dividing the amount of salary reduction
contributions credited to the salary reduction contribution account of such
eligible employee by such employee's compensation for the Plan Year) of the
Highly Compensated Employees may not exceed the greater of (a) 125% of the
actual deferred percentage of all other eligible employees, or (b) the lesser
of (i) 100% of the actual deferred percentage of all other eligible employees,
or (ii) the actual deferral percentage of all other eligible employees plus two
percentage points. In addition, the actual contribution percentage for a Plan
Year (i.e., the average of the ratios calculated separately for each eligible
employee in each group, by dividing the amount of employer contributions
credited to the Matching contributions account of such eligible employee by
each eligible employee's compensation for the Plan Year) of the Highly
Compensated Employees may not exceed the greater of (a) 125% of the actual
contribution percentage of all other eligible employees, or (b) the lesser of
(i) 200% of the actual contributions percentage of all other eligible
employees, or (ii) the actual contribution percentage of all other eligible
employees plus two percentage points.
In general, a Highly Compensated Employee includes any employee who,
during the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner
(i.e., owns directly or indirectly more than 5% of the stock of the Employer,
or stock possessing more than 5% of the total combines voting power of all
stock of the Employer) or, (2) during the preceding Plan Year, received Section
415 Compensation in excess of $80,000 (as adjusted periodically under
applicable Code provisions) and, if elected by the Savings Bank, was in the top
paid group of employees for such Plan Year.
S-4
<PAGE>
In order to prevent disqualification of the Plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the Savings Bank will be subject to
a 10% excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate. In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year. However, the 10% excise tax will be imposed on the Savings
Bank with respect to any excess aggregate contributions, unless such amounts,
plus any income allocable thereto, are distributed within 2 1/2 months
following the close of the Plan Year in which they arose.
Top-Heavy Plan Requirements. If, for any Plan Year, the Plan is a
Top-Heavy Plan (as defined below), then (i) the Savings Bank may be required to
make certain minimum contributions to the Plan on behalf of non-key employees
(as defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined plan maintained by the Savings Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance
of the accounts of all Participants who are key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants. "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Savings Bank
having annual compensation in excess of $60,000 who is in administrative or
policy-making capacity, (2) one of the ten employees having annual compensation
in excess of $30,000 and owing, directly or indirectly, the largest interest in
the employer, (3) a 5% owner of the employer (i.e., owns directly or indirectly
more than 5% of the stock of the employer, or stock possessing more than 5% of
the total combined voting power of all stock of the employer), or (4) a 1% of
owner of the employer having compensation in excess of $150,000.
Investment of Contributions
All amounts credited to Participant's Accounts under the Plan are held in
the Trust which is administered by the Trustee. The Trustee is appointed by the
Savings Bank's Board of Directors. The Plan provides that a Participant may
direct the Trustee to invest all or a portion of his or her Accounts in various
managed investment portfolios, made available by the Trustee from time to time.
A Participant may periodically elect to change his or her investment directions
with respect to both past contributions and for more additions to the
Participant's accounts invested in these investment alternatives. A Participant
may also invest all or a portion of his or her Accounts in these investment
vehicles and in a fund which invests in common stock of the Holding Company.
A Participant may elect, to have both past and future contributions and
additions to the Participant's Account invested either in the Employer Stock
Fund or in any of the other managed portfolios listed above. Any amounts
credited to a Participant's Accounts for which investment directions are not
given will be invested by the Trustee.
The net gain (or loss) in the Accounts from investments (including
interest payments, dividends, realized and unrealized gains and losses on
securities, and expenses paid from the Trust) are determined on a quarterly
basis. For purposes of such allocation, all assets of the Trust are valued at
their fair market value.
The Employer Stock Fund
The Employer Stock Fund consists of investments in Common Stock. In
connection with the Conversion Offerings, pursuant to the attached Investment
Form, Participants will be able to change their investments at a time other
than the normal election intervals. Any cash dividends paid on Common Stock
held in the Employer Stock Fund will be credited to a cash dividend subaccount
for each Participant investing in the Employer Stock Fund. To the extent
practicable, all amounts held in the Employer Stock Fund (except the amounts
credited to
S-5
<PAGE>
cash dividend subaccounts) will be used to purchase shares of Common Stock. It
is expected that all purchases will be made at prevailing market prices.
Pending investment in Common Stock, assets held in the Employer Stock Fund will
be placed in bank deposits and other short-term investments.
When Common Stock is purchased or sold, the cost or net proceeds are
charged or credited to the Accounts of Participants affected by the purchase or
sale. A Participant's Account will be adjusted to reflect changes in the value
of shares of Common Stock resulting from stock dividends, stock splits and
similar changes.
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will
consist only of the market value appreciation of the Common Stock subsequent to
its purchase.
Investments in the Employer Stock Fund may involve certain risk factors
associated with investments in Common Stock of the Holding Company. For a
discussion of these risk factors, see "RISK FACTORS" on pages ___ through ___
in the Prospectus.
Benefits Under the Plan
Vesting. A Participant, has at all times a fully vested, nonforfeitable
interest in all of his or her deferred contributions and the earnings thereon
under the Plan. A Participant is 100% vested in his or her matching
contributions account and employer discretionary contributions after the
completion of three years of service under the Plan's vesting schedule, or upon
normal retirement (as defined herein), disability or death of a Participant.
Withdrawals and Distributions from the Plan
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR
HIS OR HER BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE
59 1/2 UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF
WHETHER SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS
BANK.
Distribution Upon Retirement, Disability or Termination of
Employment. Payment of benefits to a Participant who retires, incurs a
disability, or otherwise terminates employment generally shall be made in a
lump sum cash payment. At the request of the Participant, the distribution may
include an in-kind distribution of Common Stock credited to the Participant's
Account. A Participant whose total vested account balance equals or exceeds
$3,500 at the time of termination, may elect, in lieu of a lump sum payments,
to be paid in annual installments over a period not exceeding the life
expectancy of the Participant or the joint life expectancies of the Participant
and his or her designated beneficiary. Benefits payments ordinarily shall be
made not later than 60 days following the end of the Plan Year in which occurs
later of the Participant's: (i) termination of employment; (ii) attainment of
age 65; or (iii) tenth anniversary of commencement of participation in the
Plan; but in no event later than April 1 following the calendar year in which
the Participant attains age 70 1/2 (if the Participant is retired). However, if
the vested portion of the Participant's Account balances exceeds $3,500, no
distribution shall be made from the Plan prior to the Participant's attaining
age 65 unless the Participant consents to an earlier distribution. Special
rules may apply to the distribution of Common Stock of the Holding Company to
those Participants who are executive officers, directors and principal
shareholders of the Holding Company who are subject to the provisions of
Section 16(b) of the Exchange Act.
Distribution upon Death. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse, shall have his or her benefits paid to the
surviving spouse in a lump sum, or if the payment of his or her benefits had
commenced before his or her death, in accordance with the distribution method
in effect at his or her death. With respect to an unmarried Participant, and in
the case of a married Participant with spousal consent to the designation of
another beneficiary, payment of benefits to the beneficiary, payments of
benefits to the beneficiary of a deceased Participant shall be made in the form
of a lump sum payment in cash or in Common Stock, or if the payment of his or
her benefit had commenced before his or her death, in accordance with the
distribution method if effect at death.
S-6
<PAGE>
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations
order (as defined in the Code), benefits payable under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any kind,
either voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights
to benefits payable under the Plan shall be void.
Administration of the Plan
Trustee. The Trustees with respect to Plan assets, including the Employer
Stock Fund, are currently Vincent J. Fumo and Anthony DiSandro. The Savings
Bank also serves as custodian of the Plan's assets. Except as otherwise
indicated by the context, references in this Prospectus Supplement to the
Trustee refer to Messrs. Fumo and DiSandro.
Pursuant to the terms of the Plan, the Trustee receives and holds
contributions to the Plan in trust and has exclusive authority and discretion
to manage and control the assets of the Plan pursuant to the terms of the Plan
and to manage, invest and reinvest the Trust and income therefrom. The Trustee
has the authority to invest and reinvest the Trust and may sell or otherwise
dispose of Trust investments at any time and may hold trust funds uninvested.
The Trustee has authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
The Trustee has full power to vote any corporate securities in the Trust
in person or by proxy; provided, however, that the Participants will direct the
Trustee as to voting and tendering of all Common Stock held in the Employer
Stock Fund.
The Trustee is entitled to reasonable compensation for its services and is
also entitled to reimbursement for expenses properly and actually incurred in
the administration of the Trust. The expenses of the Trustee and the
compensation of the persons so employed is paid out of the Trust except to the
extent such expenses and compensation are paid by the Savings Bank.
The Trustee must render at least annual reports to the Savings Bank and to
the Participants in such form and containing information that the Trustee deems
necessary.
Reports to Plan Participants
The administrator will furnish to each Participant a statement at least
semiannually showing (i) the balance in the Participant's Account as of the end
of that period, (ii) the amount of contributions allocated to such
Participant's Account for that period, and (iii) the adjustments to such
Participant's Account to reflect earnings or losses (if any).
Plan Administrator
A committee consisting of the Savings Bank's Chairman and Chief Executive
Officer, President, and Vice-President and Treasurer will administer the Plan
(the "Plan Administrator"). The Plan Administrator is responsible for the
administration of the Plan, interpretation of the provisions of the Plan,
prescribing procedures for filing applications for benefits, preparation and
distribution of information explaining the Plan, maintenance of plan records,
books of account and all other data necessary for the proper administration of
the Plan, and preparation and filing of all returns and reports relating to the
Plan which are required to be filed with the U.S. Department of Labor and the
IRS, and for all disclosures required to be made to Participants, beneficiaries
and others under Sections 104 and 105 of ERISA.
Amendment and Termination
The Savings Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the
Plan, each employee who ceases to be a Participant shall have a fully vested
S-7
<PAGE>
interest in his or her Account. The Savings Bank reserves the right to make,
from time to time, any amendment or amendments to the Plan which do not cause
any part of the Trust to be used for, or diverted to, any purpose other than
the exclusive benefit of the Participants or their beneficiaries.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
Federal Income Tax Consequences
The following is only a brief summary of certain federal income tax
aspects of the Plan which are of general application under the Code and is not
intended to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.
The Plan has received a determination from the IRS that it is qualified
under Section 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code. A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which
include the following: (1) the sponsoring employer is allowed an immediate tax
deduction for the amount contributed to the Plan of each year; (2) Participants
pay no current income tax on amounts contributed by the employer on their
behalf; and (3) earnings of the Plan are tax-exempt thereby permitting the
tax-free accumulation of income and gains on investments. The Plan will be
administered to comply in operation with the requirements of the Code as of the
applicable effective date of any change in the law. The Savings Bank expects to
timely adopt any amendments to the Plan that may be necessary to maintain the
qualified status of the Plan under the Code. Following such an amendment, the
Plan will be submitted to the IRS for a determination that the Plan, as
amended, continues to qualify under Sections 401(a) and 501(a) of the Code and
that it continues to satisfy the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:
(a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any distribution that
includes Common Stock or qualified as a "Lump Sum Distribution" (as described
below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if
it is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credits of the Participant under the Plan and all other profit sharing plans,
if any, maintained by the Savings Bank. The portion of any Lump Sum
Distribution that is required to be included in the Participant's or
beneficiary's taxable income for federal income tax purposes ("total taxable
amount") consists of the entire amount of such Lump Sum Distribution less the
amount of after-tax contributions, if any, made by the Participant to any other
profit sharing plans maintained by the Savings Bank which is included in such
distribution.
S-8
<PAGE>
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution ("ordinary income portion") will be taxable generally as ordinary
income for federal income tax purposes. However, for distributions occurring
prior to January 1, 2000, a Participant who has completed at least five years
of participation in the Plan before the taxable year in which the distribution
is made, or a beneficiary who receives a Lump Sum Distribution on account of
the Participant's death (regardless of the period of the Participant's
participation in the Plan or any other profit sharing plan maintained by the
Employer), may elect to have the ordinary income portion of such Lump Sum
Distribution taxed according to a special averaging rule ("five-year
averaging"). The election of the special averaging rules may apply only to one
Lump Sum Distribution received by the Participant or beneficiary, provided such
amount is received on or after the Participant turns 59 1/2 and the recipient
elects to have any other Lump Sum Distribution from a qualified plan received
in the same taxable year taxed under the special averaging rule. The special
five-year averaging rule has been repealed for distributions occurring after
December 31, 1999. Under a special grandfather rule, individuals who turned 50
by 1986 may elect to have their Lump Sum Distribution taxed under either the
five-year averaging rule (if available) or the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the Participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the
extent of the amount of net unrealized appreciation at the time of
distribution, will be considered long-term capital gain regardless of the
holding period of such Common Stock. Any gain on a subsequent sale or other
taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term capital gain or long-term capital gain depending upon the length of
the holding period of the Common Stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of such distribution to the extent allowed by the regulations by
the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
to an IRA. Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustee transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA. If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan of to an IRA, the
distribution will be subject to a mandatory federal withholding tax equal to
20% of the taxable distribution. An "eligible rollover distribution" means any
amount distributed from the Plan except: (1) a distribution that is (a) one of
a series of substantially equal periodic payments made (not less frequently
than annually) over the Participant's life of the joint life of the Participant
and the Participant's designated beneficiary, or (b) for a specified period of
ten years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
nonrecognition of net unrealized appreciation, discussed earlier.
Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant)
on or after the death of the Participant, (ii) attributable to the
Participant's being disabled within the meaning of Section 72(m)(7) of the
Code, (iii) part of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
Participant or the joint lives (or joint life expectancies) of the Participant
and his or her beneficiary, (iv) made to the Participant after separation from
service on
S-9
<PAGE>
account of early retirement under the Plan after attainment of age 55, (v) made
to pay medical expenses to the extent deductible for federal income tax
purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made
to effect the distribution of excess contributions or excess deferrals.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX
ASPECTS OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT
INTENDED TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
Restrictions on Resale
Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Savings Bank or the Holding Company as the term "affiliate"
is used in Rules 144 and 405 under the Securities Act of 1933, as amended
("Securities Act") (e.g., directors, officers and substantial shareholders of
the Savings Bank) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Savings Bank having no obligation to file such registration statement) or,
assuming the availability thereof, pursuant to Rule 144 or some other exemption
from the registration requirements of the Securities Act. Any person who may be
an "affiliate" of the Savings Bank or the Holding Company may wish to consult
with counsel before transferring any Common Stock owned by him or her. In
addition, Participants are advised to consult with counsel as to the
applicability of the reporting and short-swing profit liability rules of
Section 16 of the Exchange Act which may affect the purchase and sale of the
Common Stock where acquired or sold under the Plan or otherwise.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Stevens & Lee, Wayne, Pennsylvania, which firm is acting as special counsel for
the Holding Company in connection with the Savings Bank's Conversion and
Reorganization from the mutual holding company of organization to a
wholly-owned subsidiary by the Holding Company.
S-10
<PAGE>
Investment Form
(Employer Stock Fund)
PENNSYLVANIA SAVINGS BANK
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
Name of Participant:___________________________________
Social Security Number:________________________________
1. Instructions. In connection with the proposed reorganization of
Pennsylvania Savings Bank (the "Savings Bank") from the mutual holding form of
organization to a wholly-owned subsidiary of a savings and loan holding company
(the "Conversion and Reorganization"), participants in the Pennsylvania Savings
Bank Employees' Savings and Profit Sharing Plan ("Plan") may elect to direct
the investment of up to ___% of their 1997 account balances into the Employer
Stock Fund ("Employer Stock Fund"). Amounts transferred at the direction of
Participants into the Employer Stock Fund will be used to purchase shares of
the common stock of PSB Bancorp, Inc. ("Common Stock"), the proposed holding
company for the Savings Bank. A Participant's eligibility to purchase shares of
Common Stock is subject to the Participant's general eligibility to purchase
shares of Common Stock in the Conversion Offerings and the maximum and minimum
limitations set forth in the Plan of Conversion. See the Prospectus for
additional information.
You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to purchase Common Stock in the Conversion
Offerings. To direct such a transfer to the Employer Stock Fund, you should
complete this form and return it to ___________________ at the Savings Bank, no
later than the close of business on __________, 1998. The Savings Bank will
keep a copy of this form and return a copy to you. (If you need assistance in
completing this form, please contact _____________.
2. Transfer Direction. I hereby direct the Plan Administrator to transfer
$__________ (in increments of $10) from my Plan account to the Employer Stock
Fund to be applied to the purchase of Common Stock in the Conversion Offerings.
Please transfer this amount from the following investments in the amounts
indicated:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
3. Effectiveness of Direction. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion and Reorganization. I acknowledge that I have
received a copy of the Prospectus and the Prospectus Supplement.
_____________________________________ _______________________________________
Signature Date
* * * * *
4. Acknowledgment of Receipt. This Investment Form was received by the
Plan Administrator and will become effective on the date noted below.
_____________________________________ _______________________________________
Plan Administrator Date
S-11
<PAGE>
PROSPECTUS
PSB BANCORP, INC.
(Proposed Holding Company for Pennsylvania Savings Bank)
Up to 3,099,728 Shares of Common Stock
$10.00 Purchase Price Per Share
PSB Bancorp, Inc. (the "Holding Company"), a Pennsylvania corporation, is
offering up to 3,099,728 shares (subject to adjustment to 3,564,698 shares, see
footnote 4 below) of its common stock, no par value per share (the "Common
Stock"), in connection with (i) the Exchange Offering, described below, to
effect the reorganization of Pennsylvania Savings Bank (the "Savings Bank") as
a wholly-owned subsidiary of the Holding Company and (ii) the Conversion
Offerings, described below, to effect the conversion of PSB Mutual Holding
Company (the "MHC") from a mutual holding company to a stock holding company.
The Holding Company, Savings Bank and MHC are collectively referred to herein
as the "Primary Parties." The transactions contemplated by the Exchange
Offering and the Conversion Offerings, which are collectively referred to
herein as the "Conversion and Reorganization," are undertaken pursuant to a
Plan of Conversion from Mutual Holding Company to Stock Holding Company and
Agreement and Plan of Reorganization (the "Plan of Conversion") adopted by the
Boards of Directors or Trustees of the Primary Parties.
The Exchange Offering. Pursuant to the Plan of Conversion, each share of
common stock, par value $1.00 per share, of the Savings Bank (the "Savings Bank
Common Stock") held by the MHC (615,250 shares, or 51.5% of the outstanding
shares, as of the date of this Prospectus) will be canceled and each share of
Savings Bank Common Stock held by the Savings Bank's public shareholders (the
"Public Savings Bank Shares" and "Public Shareholders," respectively) (579,390
shares, or 48.5% of the outstanding shares, as of the date of this Prospectus)
will be exchanged for shares of Common Stock (the "Exchange Shares") pursuant
to a ratio (the "Exchange Ratio") that will result in the Public Shareholders'
aggregate ownership of approximately 48.06% of the outstanding shares of Common
Stock determined without regard to (i) payment of cash in lieu of issuing
fractional Exchange Shares and (ii) Conversion Shares (as defined below) that
may be purchased by the Public Shareholders and by the Savings Bank's employee
stock ownership plan, a tax-qualified employee benefit plan (the "ESOP"), in
the Conversion Offerings or thereafter. The final Exchange Ratio will be based
on the Public Shareholders' ownership interest in the Savings Bank and not on
the market value of the Public Savings Bank Shares. See "THE CONVERSION AND
REORGANIZATION -- Independent Valuation."
(continued on next page)
--------------
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK,
CALL THE STOCK INFORMATION CENTER AT (215) 979-7904.
--------------
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY
EACH PROSPECTIVE INVESTOR, SEE "RISK FACTORS" ON PAGE 17
--------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE BANK
INSURANCE FUND ("BIF"), THE SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") OR ANY
OTHER GOVERNMENT AGENCY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE FDIC OR ANY OTHER FEDERAL AGENCY OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SEC, THE FDIC OR ANY OTHER AGENCY OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Estimated
Underwriting
Commissions
and Other
Fees and Estimated
Purchase Price(1) Expenses(2) Net Proceeds(3)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Minimum Price Per Share ......................... $ 10.00 $ 0.40 $ 9.60
- ------------------------------------------------------------------------------------------------------
Midpoint Price Per Share ........................ 10.00 0.34 9.66
- ------------------------------------------------------------------------------------------------------
Maximum Price Per Share ......................... 10.00 0.30 9.70
- ------------------------------------------------------------------------------------------------------
Maximum Price Per Share, as adjusted(4) ......... 10.00 0.26 9.74
- ------------------------------------------------------------------------------------------------------
Minimum Total(5) ................................ $11,900,000 $475,000 $11,425,000
- ------------------------------------------------------------------------------------------------------
Midpoint Total(6) ............................... 14,000,000 475,000 13,525,000
- ------------------------------------------------------------------------------------------------------
Maximum Total(7) ................................ 16,100,000 475,000 15,625,000
- ------------------------------------------------------------------------------------------------------
Maximum Total, as adjusted(4)(8) ................ 18,515,000 475,000 18,040,000
======================================================================================================
</TABLE>
(1) Determined by the Board of Directors of the Holding Company based upon an
independent appraisal prepared by RP Financial, LC., Arlington, Virginia
("RP Financial"). See "THE CONVERSION AND REORGANIZATION -- Stock Pricing,
Exchange Ratio and Number of Shares to be Issued."
(2) Includes estimated expenses to the Holding Company and the Savings Bank
arising from the Conversion and Reorganization, including fees to be paid
to Charles Webb & Company ("Webb") in connection with the Conversion
Offerings. Webb's fee consists of a $25,000 management fee and a success
fee of 1.5% of the aggregate Purchase Price of Conversion Shares sold in
the Subscription Offering and Community Offering (subject to certain
excluded Common Stock purchases). The success fee is not to exceed
$100,000 and the management fee shall be applied against the success fee,
which may be deemed to be an underwriting fee. Webb may be deemed to be an
underwriter. Expenses, other than fees to be paid to Webb, are estimated
to total approximately $375,000 at each of the minimum, midpoint, maximum
and 15% above the Estimated Valuation Range. Actual expenses may be more
or less than estimated amounts. The Holding Company and the Savings Bank
have agreed to indemnify Webb against certain liabilities, including
liabilities that might arise under the Securities Act of 1933, as amended
("Securities Act"). See "USE OF PROCEEDS" and "THE CONVERSION AND
REORGANIZATION -- Plan of Distribution for the Subscription, Direct
Community and Syndicated Community Offerings."
(3) Actual net proceeds can vary substantially from the estimated amounts
depending upon actual expenses and the number of shares sold in the
Conversion Offerings. See "USE OF PROCEEDS" and "PRO FORMA DATA."
(4) Gives effect to an increase in the number of shares that could be sold in
the Conversion Offerings resulting from an increase in the pro forma
market value of the MHC and the Savings Bank, as converted, up to 15%
above the maximum of the Estimated Valuation Range, without the
resolicitation of subscribers or any right of cancellation. The issuance
of such additional shares will be conditioned on a determination by RP
Financial that such issuance is compatible with its determination of the
estimated pro forma market value of the MHC and the Savings Bank, as
converted. See "THE CONVERSION AND REORGANIZATION -- Stock Pricing,
Exchange Ratio and Number of Shares to be Issued."
(5) Assumes the issuance of 1,190,000 Conversion Shares at $10.00 per share.
(6) Assumes the issuance of 1,400,000 Conversion Shares at $10.00 per share.
(7) Assumes the issuance of 1,610,000 Conversion Shares at $10.00 per share.
(8) Assumes the issuance of 1,851,000 Conversion Shares at $10.00 per share.
--------------
Charles Webb & Company
a Division of Keefe, Bruyette & Woods, Inc.
--------------
The date of this Prospectus is May 4, 1998.
<PAGE>
(continued from prior page)
The Conversion Offerings. Pursuant to the Plan of Conversion,
nontransferable rights to subscribe (the "Subscription Rights") for up to
1,610,000 shares (which may be increased to 1,851,500 shares under
circumstances described in footnote 4 of the table appearing on the cover page
of this Prospectus) of Common Stock (the "Conversion Shares") have been
granted, in order of priority, to (i) depositors with $50.00 or more on deposit
at the Savings Bank as of June 30, 1996 (the "Eligible Account Holders"), (ii)
the ESOP, and (iii) depositors with $50.00 or more on deposit at the Savings
Bank as of December 31, 1997 (the "Supplemental Eligible Account Holders"),
subject to the priorities and purchase limitations set forth in the Plan of
Conversion (the "Subscription Offering"). Subscription Rights are
nontransferable. Persons selling or otherwise transferring their Subscription
Rights or subscribing for Common Stock on behalf of another person will be
subject to forfeiture of such Subscription Rights and possible further
sanctions and penalties imposed by agencies of the U.S. Government and the
Commonwealth of Pennsylvania. Concurrently, but subject to the prior rights of
Subscription Rights holders, the Holding Company is offering the Conversion
Shares for sale to members of the general public through a direct community
offering (the "Direct Community Offering") with preference given first to
Public Shareholders who are not Eligible Account Holders (or Supplemental
Eligible Account Holders) and then to natural persons and trusts of natural
persons who are permanent residents of Philadelphia and Montgomery Counties of
the Commonwealth of Pennsylvania (the "Local Community"). It is anticipated
that any Conversion Shares not subscribed for in the Subscription Offering or
purchased in the Direct Community Offering will be offered to eligible members
of the general public on a best efforts basis by Webb in a syndicated community
offering (the "Syndicated Community Offering"). The Subscription Offering, the
Direct Community Offering and the Syndicated Community Offering are referred to
collectively as the "Conversion Offerings." The Primary Parties reserve the
right, in their absolute discretion, to accept or reject, in whole or in part,
any or all orders in the Direct Community Offering or the Syndicated Community
Offering either at the time of receipt of an order or as soon as practicable
following the termination of the Conversion Offerings. If an order is rejected
in part, the purchaser does not have the right to cancel the remainder of the
order.
The Subscription Offering will expire at _______, Eastern Time, on
____________________, 1998 unless extended by the Primary Parties for up to
_____ days to ______________, 1998 (the "Expiration Date"). Such extension may
be granted without additional notice to subscribers. The Direct Community
Offering is also expected to terminate on the Expiration Date or at a date
thereafter, however, in no event later than _________________, 1998. The
Holding Company must receive at an office of the Savings Bank by the Expiration
Date the accompanying original Stock Order Form and a fully executed
Certification Form (collectively, the "Stock Order Form") (facsimile copies and
photocopies will not be accepted), along with full payment (or appropriate
instructions authorizing a withdrawal from a deposit account at the Savings
Bank) of $10.00 per share (the "Purchase Price") for all Conversion Shares
subscribed for or ordered. Payment by wire transfer will not be accepted. Funds
so received will be placed in segregated accounts created for this purpose at
the Savings Bank, and interest will be paid at the Savings Bank's passbook rate
from the date payment is received until the Conversion and Reorganization is
consummated or terminated. Payments authorized by withdrawals from deposit
accounts will continue to earn interest at their contractual rate until the
Conversion and Reorganization is consummated or terminated although such funds
will be unavailable for withdrawal until the Conversion and Reorganization is
consummated or terminated. Orders submitted are irrevocable until the
consummation or termination of the Conversion and Reorganization. If the
Conversion and Reorganization is not consummated within 45 days after the last
day of the Subscription and the Direct Community Offering (which date will be
no later than _________________, 1998) and the Pennsylvania Department of
Banking (the "PDOB") and FDIC consents to an extension of time to consummate
the Conversion and Reorganization, subscribers will be notified in writing of
the time period within which the subscriber must notify the Primary Parties of
his or her intention to increase, decrease or rescind his or her subscription.
If an affirmative response to any such resolicitation is not received by the
Primary Parties from subscribers, such orders will be rescinded and all funds
will be returned promptly with interest. If such period is not extended or, in
any event, if the Conversion and Reorganization is not consummated by
______________, 1998, all subscription funds will be promptly returned,
together with accrued interest and all withdrawal authorizations terminated.
Such extensions may not go beyond ____________________________, 2000.
The Primary Parties have engaged Webb as their financial advisor and to
assist the Holding Company in the sale of the Conversion Shares in the
Conversion Offerings. Webb is a division of Keefe, Bruyette & Woods, Inc.
("KB&W"), a registered broker-dealer and member of the National Association of
Securities Dealers, Inc. ("NASD"). Neither KB&W nor any other registered
broker-dealer is obligated to take or purchase any Conversion Shares in the
Conversion Offerings. See "THE CONVERSION AND REORGANIZATION -- Plan of
Distribution for the Subscription, Direct Community and Syndicated Community
Offerings."
Independent Valuation. Pennsylvania law and FDIC regulations require that
the offering of Conversion Shares in the Conversion Offerings be based on an
independent valuation of the pro forma market value of the Savings Bank and the
MHC, as converted. RP Financial, LC ("RP Financial") has prepared an
independent appraisal that states that the estimated pro forma market
2
<PAGE>
value of the Conversion Shares and Exchange Shares was $26,954,178 as of
February 13, 1998 (the "Appraisal"). The Appraisal was multiplied by 51.94%,
which represents the MHC's 51.5% interest in the Savings Bank adjusted for
assets held by the MHC, to determine a midpoint of the offering range
($14,000,000), and the minimum and maximum of the range were set at 15% below
and above the midpoint, respectively, resulting in a range of $11,900,000 to
$16,100,000 (the "Estimated Valuation Range").
The Board of Directors of the Holding Company determined that the
Conversion Shares would be sold at $10.00 per share (the "Purchase Price"),
resulting in a range of 1,190,000 to 1,610,000 Conversion Shares being offered.
Upon consummation of the Conversion and Reorganization, the Conversion Shares
and the Exchange Shares will represent approximately 51.94% and 48.06%,
respectively, of the Holding Company's total outstanding shares. Based upon the
Estimated Valuation Range, the Exchange Ratio is expected to range from 1.9005
to 2.5712 resulting in a range of 1,101,131 Exchange Shares to 1,489,728
Exchange Shares to be issued in the Conversion and Reorganization. The
3,099,728 Common Shares offered hereby include up to 1,610,000 Conversion
Shares (subject to adjustment up to 1,851,000 Conversion Shares as described
herein) and up to 1,489,728 Exchange Shares (subject to adjustment up to
1,713,198 shares as described herein). The Estimated Valuation Range may be
increased or decreased to reflect changes in market and economic conditions
prior to completion of the Conversion and Reorganization, and under certain
circumstances specified herein subscribers will be resolicited and given the
right to modify or cancel their orders. See "The CONVERSION AND REORGANIZATION
- -- Stock Pricing, Exchange Ratio and Number of Shares to be Issued."
Purchase Limitations on Conversion Shares. Except for the ESOP, which is
expected to subscribe for 8% of the Conversion Shares issued in the Conversion
Offerings, the Plan of Conversion provides for the following purchase
limitations: (i) the maximum number of Conversion Shares that may be subscribed
for or purchased in all categories in the Conversion Offerings by any person,
when combined with any Exchange Shares received, shall not exceed 1% of the
Conversion Shares issued in the Conversion Offerings, and (ii) the maximum
number of Conversion Shares that may be subscribed for or purchased in all
categories in the Conversion Offerings by any person, together with all
associates or any group of persons acting in concert, when combined with any
Exchange Shares received, shall not exceed 2% of the Conversion Shares issued
in the Conversion Offerings. The minimum order is 25 Conversion Shares. See
"THE CONVERSION AND REORGANIZATION -- The Subscription, Direct Community and
Syndicated Community Offerings," "-- Procedure for Purchasing Conversion Shares
in the Subscription and Direct Community Offerings" and "-- Limitations on
Purchase of Conversion Shares."
Market for the Common Stock. The Holding Company has received [conditional
approval] to list the Common Stock on the Nasdaq National Market under the
symbol "PSBI." Prior to the Conversion and Reorganization, the Public Savings
Bank Shares have been traded on the OTC Bulletin Board under the same trading
symbol. There can be no assurance that an active and liquid trading market for
the Common Stock will develop or, if developed, will be maintained. See "RISK
FACTORS -- Absence of Prior Market for the Common Stock" and "MARKET FOR COMMON
STOCK."
3
<PAGE>
PENNSYLVANIA SAVINGS BANK
PHILADELPHIA, PENNSYLVANIA
[Map to be filed by amendment]
THE CONVERSION AND REORGANIZATION IS CONTINGENT UPON APPROVAL OF THE PLAN OF
CONVERSION BY AT LEAST A MAJORITY OF THE TOTAL NUMBER OF VOTES ELIGIBLE TO BE
CAST BY THE MHC'S MEMBERS (THE "MEMBERS") AS OF ____________, 1998 (THE "VOTING
RECORD DATE"), BY THE HOLDERS OF A MAJORITY OF THE PUBLIC SAVINGS BANK SHARES
AS OF THE VOTING RECORD DATE AND BY HOLDERS OF TWO-THIRDS OF THE SAVINGS BANK
COMMON STOCK (INCLUDING THE MHC) CAST BY HOLDERS OF SAVINGS BANK COMMON STOCK
AT THE MEETING OF SHAREHOLDERS, THE SALE OF AT LEAST 1,190,000 CONVERSION
SHARES PURSUANT TO THE PLAN OF CONVERSION, AND THE RECEIPT OF ALL APPLICABLE
REGULATORY APPROVALS.
4
<PAGE>
CAPSULE SUMMARY
PSB Bancorp, Inc......... The Holding Company was organized on October 3,
1997 under Pennsylvania law at the direction of the
Savings Bank. The Holding Company has been formed to
acquire the Savings Bank as a wholly-owned
subsidiary upon consummation of the Conversion and
Reorganization. The Holding Company has engaged
only in organizational activities to date.
PSB Mutual Holding
Company................. The MHC is the Pennsylvania-chartered mutual
holding company for the Savings Bank formed in
October 1995 to act as the mutual holding company
for the Savings Bank (the "MHC Reorganization"). As
part of the Conversion and Reorganization, the MHC
will convert to a Pennsylvania-chartered interim
stock savings bank and simultaneously merge with and
into the Savings Bank, with the Savings Bank as the
surviving entity.
Pennsylvania Savings
Bank.................... The Savings Bank is a Pennsylvania-chartered savings
bank, headquartered in Philadelphia, Pennsylvania.
The Conversion and
Reorganization.......... Under the Plan of Conversion, (i) the MHC will
convert to an interim state stock savings bank
("Interim A") and simultaneously merge with and into
the Savings Bank, pursuant to which the MHC will
cease to exist and the outstanding shares of Savings
Bank Common Stock held by the MHC will be canceled,
and (ii) an interim state stock savings bank
("Interim B") will be formed as a wholly-owned
subsidiary of the Holding Company and will merge
with and into the Savings Bank, resulting in the
Savings Bank becoming a wholly-owned subsidiary of
the Holding Company, and the outstanding Public
Savings Bank Shares will be converted into the
Exchange Shares at the rate specified by Exchange
Ratio. The Exchange Ratio will result in the holders
of the outstanding Public Savings Bank Shares
owning, in the aggregate, approximately 48.06% of
the Common Stock to be outstanding upon the
completion of the Conversion and Reorganization,
determined without regard to any (i) payment of cash
in lieu of issuing fractional Exchange Shares and
(ii) Conversion Shares that may be purchased by
Public Shareholders (including the ESOP) in the
Conversion Offerings.
The Subscription, Direct
Community and Syndicated
Community Offerings ... The Holding Company is offering up to 1,610,000
Conversion Shares in the Subscription, Direct
Community and Syndicated Community Offerings.
Conversion Shares are first being offered in the
Subscription Offering through the exercise of
Subscription Rights issued, in order of priority, to
(i) Eligible Account Holders; (ii) the ESOP; and
(iii) Supplemental Eligible Account Holders. Subject
to the prior rights of Subscription Rights holders,
Conversion Shares not subscribed for in the
Subscription Offering are being offered in the
Direct Community Offering to members of the general
public with preference given first to Public
Shareholders (who are not Eligible Account Holders
or Supplemental Eligible Account Holders)
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<PAGE>
and then to natural persons and trusts of natural
persons who are permanent residents of the Local
Community. It is anticipated that shares not
subscribed for in the Subscription Offering and
Direct Community Offering may be offered to the
general public in the Syndicated Community
Offering.
Potential Benefits of
Conversion and
Reorganization to
Management.............. The Board of Directors of the Holding Company, the
Board of Trustees of the Savings Bank, and executive
officers and employees of the Holding Company and
the Savings Bank will receive certain additional
benefits as a result of the Conversion and
Reorganization. See "MANAGEMENT -- Compensation of
Officers, Directors and Trustees Through Benefit
Plans."
Purchase Limitations..... Except for the ESOP, (i) the maximum number of
Conversion Shares that may be subscribed for or
purchased in all categories in the Conversion
Offerings by any person, when combined with any
Exchange Shares received, shall not exceed 1% of the
Conversion Shares issued in the Conversion
Offerings, and (ii) the maximum number of Conversion
Shares that may be subscribed for or purchased in
all categories in the Conversion Offerings by any
person, together with all associates or any group of
persons acting in concert, when combined with any
Exchange Shares received, shall not exceed 2% of the
Conversion Shares issued in the Conversion
Offerings. The minimum order is 25 Conversion
Shares.
Stock Pricing and Number Shares to be Issued in the Conversion and
of Reorganization....... Pennsylvania law and FDIC regulations require that
the aggregate purchase price of the Conversion
Shares be based upon an independent valuation of the
pro forma market value of the MHC and the Savings
Bank, which was estimated by RP Financial to be
$26,954,178 as of February 13, 1998 (the
"Appraisal"). The Appraisal was multiplied by 51.94%
which represents the MHC's 51.5% interest in the
Savings Bank adjusted for assets held by the MHC to
determine the midpoint of the valuation range or
$14,000,000. This was multiplied by 15% to determine
the Estimated Valuation Range which ranges from
$11.90 million to $16.10 million, or from 1,190,000
Conversion Shares to 1,610,000 Conversion Shares
based on the Purchase Price as determined by the
Primary Parties. The maximum of the Estimated
Valuation Range may be increased by up to 15% and
the number of Conversion Shares may be increased to
1,851,500 shares.
Based on the 579,390 Public Savings Bank Shares
outstanding at the date of this Prospectus, and
assuming a minimum of 1,190,000 and a maximum of
1,610,000 Conversion Shares are issued in the
Conversion Offerings, the Exchange Ratio is
expected to range from approximately 1.9005
Exchange Shares to 2.5712 Exchange Shares for each
Public Savings Bank Share issued and outstanding
immediately prior to the consummation of the
Conversion and Reorganization.
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<PAGE>
Use of Proceeds.......... The net proceeds from the sale of the Conversion
Shares are estimated to range from $11.42 million to
$15.63 million, or $18.04 million if the Estimated
Valuation Range is increased by 15%. The Holding
Company has received conditional approval from the
FDIC, the PDOB and the Board of Governors of the
Federal Reserve System (the "Federal Reserve") to
purchase all of the capital stock of the Savings
Bank to be issued in the Conversion and
Reorganization in exchange for 50% of the net
proceeds of the Conversion Offerings. This will
result in the Holding Company retaining, for general
corporate purposes, approximately $5.71 million to
$7.82 million of the net proceeds, or up to $9.02
million if the Estimated Valuation Range is
increased by 15%. See "PRO FORMA DATA" and "USE OF
PROCEEDS."
Market for Common Stock... The Holding Company has received conditional
approval to have the Common Stock listed on the
Nasdaq National Market under the symbol "PSBI" (the
current symbol for the Public Savings Bank Shares,
which are traded on the OTC Bulletin Board). See
"RISK FACTORS -- Absence of Prior Market for the
Common Stock" and "MARKET FOR COMMON STOCK."
Dividend Policy.......... Following consummation of the Conversion and
Reorganization, the Holding Company's Board of
Directors will consider adopting a policy of paying
regular cash dividends on the Common Stock. There
can be no assurance that any dividends will be paid
on the Common Stock or that if paid, such dividends
will not be reduced or eliminated in future periods.
See "DIVIDEND POLICY."
Officers', Directors' and
Trustees' Common Stock
Purchases and
Beneficial Ownership ... In addition to an aggregate of 608,545 Exchange
Shares to be received by officers and trustees of
the Savings Bank in the Exchange Offering based on
an Exchange Ratio of 2.2358, officers and trustees
are expected to subscribe for an aggregate of
approximately 43,646 Conversion Shares, or 3.34% of
the Conversion Shares based on the midpoint of the
Estimated Valuation Range, respectively. See "COMMON
STOCK TO BE PURCHASED OR RECEIVED BY MANAGEMENT."
Risk Factors............. See "RISK FACTORS" for a discussion of certain
risks related to the Conversion Offerings that
should be considered by all prospective investors.
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<PAGE>
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED OR GUARANTEED BY THE FDIC, THE BIF, THE SAIF OR ANY OTHER GOVERNMENT
AGENCY.
PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and is
qualified in its entirety by the more detailed information and Consolidated
Financial Statements (including the Notes thereto) presented elsewhere in this
Prospectus. The purchase of Common Stock is subject to certain risks. See "RISK
FACTORS.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "RISK FACTORS" and elsewhere in this
Prospectus.
PSB Bancorp, Inc.
The Holding Company was organized on October 3, 1997 under Pennsylvania
law at the direction of the Savings Bank. The Holding Company has been formed
to acquire the Savings Bank as a wholly-owned subsidiary upon consummation of
the Conversion and Reorganization. The Holding Company has engaged only in
organizational activities to date. The Holding Company has received conditional
approval from the Federal Reserve to become a bank holding company through the
acquisition of 100% of the capital stock of the Savings Bank. Immediately
following the Conversion and Reorganization, the only significant assets of the
Holding Company will be the outstanding capital stock of the Savings Bank, 50%
of the net proceeds of the Conversion Offerings (see "PRO FORMA DATA") and a
note receivable from the ESOP evidencing a loan to enable the ESOP to purchase
8% of the Conversion Shares issued in the Conversion and Reorganization. Funds
retained by the Holding Company will be used for general business activities.
See "USE OF PROCEEDS." Upon consummation of the Conversion and Reorganization,
the Holding Company will be classified as a bank holding company subject to
Federal Reserve regulation. See "REGULATION -- Bank Holding Company
Regulations." The main office of the Holding Company is located at Eleven Penn
Center, Suite 2601, 1835 Market Street, Philadelphia, Pennsylvania 19103 and
its telephone number is (215) 979-7900.
PSB Mutual Holding Company
The MHC is the Pennsylvania-chartered mutual holding company for the
Savings Bank. The MHC was formed in October 1995 to act as the holding company
for the Savings Bank, a Pennsylvania-chartered capital stock savings bank. The
members of the MHC consist of depositors of the Savings Bank. Currently, the
MHC's sole business activity is holding 615,250 shares of Savings Bank Common
Stock, which represents 51.5% of the outstanding shares as of the date of this
Prospectus. As part of the Conversion and Reorganization, the MHC will convert
to a Pennsylvania-chartered interim stock savings bank and simultaneously merge
with and into the Savings Bank, with the Savings Bank as the surviving entity.
The MHC's main office is located at Eleven Penn Center, Suite 2601, 1835 Market
Street, Philadelphia, Pennsylvania 19103 and its telephone number is (215)
979-7900.
Pennsylvania Savings Bank
The Savings Bank is a Pennsylvania-chartered savings bank, headquartered
in Philadelphia, Pennsylvania. The Savings Bank's deposits are insured by the
FDIC up to applicable legal limits under the BIF, however, it also pays SAIF
insurance premiums with respect to the deposits that it assumed in the MHC
Reorganization. The Savings Bank is regulated by the PDOB and the FDIC. At
December 31, 1997, the Savings Bank had total assets of $129.34 million, total
deposits of $108.73 million, and total shareholders' equity of $15.0 million,
on a consolidated basis. The Savings Bank maintains six full-service offices in
Montgomery and Philadelphia Counties, Pennsylvania. Five full-service offices
are located in South Philadelphia and the Savings Bank's main office is located
at Eleven Penn Center, Suite 2601, 1835 Market Street, Philadelphia,
Pennsylvania 19103 and its telephone number is (215) 979-7900. The Savings Bank
also has an office in Glenside, Montgomery County, Pennsylvania.
8
<PAGE>
The Savings Bank's predecessor, Pennsylvania Savings Association,
converted from a state-chartered mutual savings association to a
state-chartered mutual savings bank in 1990. Effective on October 20, 1995,
this state-chartered mutual savings bank reorganized into a mutual savings bank
holding company and transferred substantially all of its assets and liabilities
to the Savings Bank, a newly-formed stock savings bank (referred to herein as
the "MHC Reorganization.") The Savings Bank is now majority-owned by the MHC.
References in this Prospectus to the Savings Bank include the Savings Bank's
predecessors as the context requires.
On October 20, 1995, when the MHC Reorganization was consummated, the
Savings Bank completed its initial stock offering by issuing 1,173,250 shares
of Savings Bank Common Stock, of which 558,000 shares were purchased by the
Public Shareholders and 615,250 shares were issued to the MHC. Awards under the
Savings Bank 1995 Management Recognition Plan subsequent to the initial public
offering have increased the total shares issued and outstanding to 1,194,640 as
of the date of this Prospectus, of which 579,390 shares are held by the Public
Shareholders and 615,250 shares are held by the MHC.
The Savings Bank's strategy is to maximize profitability by providing
quality deposit and loan products in an efficient manner as a well-capitalized
and independent savings bank. Generally, the Savings Bank has sought to
implement this strategy by emphasizing retail deposits as its primary source of
funds and maintaining a substantial part of its assets in locally originated
residential first mortgage loans, commercial real estate loans, commercial
business loans, construction loans and consumer loans, mortgage-backed
securities and other liquid investment securities.
The Savings Bank started an expansion of its branch network by opening a
branch in Center City Philadelphia on June 14, 1996. The Savings Bank plans
further expansion of its branch network in areas contiguous to its current
market and then into the suburbs of Philadelphia by opening branch offices or
acquiring the branches of other institutions.
As part of this strategy, the Savings Bank continues to expand the
operations of TransNational Mortgage Corp. ("TNMC"), its mortgage banking
subsidiary. TNMC currently maintains a staff of six commissioned sales people
to solicit mortgage loans throughout the Philadelphia metropolitan area and
surrounding counties of Pennsylvania, New Jersey and Delaware. In addition,
TNMC is processing and servicing loans for other mortgage companies and
originating mortgages for sale in the secondary market. See "SUBSIDIARIES."
The Savings Bank also plans to increase loan origination through its
existing office network and is expanding other loan products such as commercial
real estate loans, commercial business loans, construction loans and consumer
loans. For the year ended December 31, 1997 loan originations other than
residential first mortgage loans totalled $26.75 million, or 72.42% of
originations during the period.
The Conversion and Reorganization
Purposes of the Conversion and Reorganization. The Boards of Directors of
the Primary Parties believe that the Conversion and Reorganization is in the
best interests of the MHC and its members, the Savings Bank and its
shareholders, and the communities served by the MHC and the Savings Bank. In
their decision to pursue the Conversion and Reorganization, the Boards of
Directors of the Primary Parties' considered the various advantages of the
stock holding company form of organization, including: (i) the Holding
Company's ability to repurchase Common Stock without adverse tax consequences,
unlike the Savings Bank; (ii) the Holding Company's greater flexibility under
current law and regulations relative to the MHC to acquire other financial
institutions and diversify its operations; (iii) the larger capital base of the
Holding Company relative to the Savings Bank that will result from the
Conversion Offerings; and (iv) the potential increased liquidity in the Common
Stock relative to the Public Savings Bank Shares because of the larger number
of shares of Common Stock to be outstanding upon consummation of the Conversion
and Reorganization. Currently, the Boards of Directors of the Primary Parties
have no specific plans, arrangements or understandings, written or oral,
regarding any stock repurchases or acquisitions. See "THE CONVERSION AND
REORGANIZATION -- Purposes of Conversion and Reorganization."
9
<PAGE>
Description of the Conversion and Reorganization. The Boards of Trustees
of the Savings Bank and the MHC adopted, on July 17, 1997 and amended on
September 25, 1997 and the Board of Directors of the Holding Company adopted,
on _______________, 1998 the Plan of Conversion which describes and controls
the Conversion and Reorganization. Under the Plan of Conversion, (i) the MHC
will convert to an interim Pennsylvania stock savings bank ("Interim A") and
simultaneously merge with and into the Savings Bank, pursuant to which the MHC
will cease to exist and the outstanding shares of Savings Bank Common Stock
held by the MHC (615,250 shares, or 51.5% of the outstanding Savings Bank
Common Stock as of the date of this Prospectus) will be canceled, and (ii) an
interim Pennsylvania stock savings bank ("Interim B") will be formed as a
wholly-owned subsidiary of the Holding Company and will merge with and into the
Savings Bank, resulting in the Savings Bank becoming a wholly-owned subsidiary
of the Holding Company and the outstanding Public Savings Bank Shares (579,390
shares or 48.5% of the outstanding Savings Bank Common Stock as of the date of
this Prospectus) will be converted into the Exchange Shares at the rate
specified by the Exchange Ratio. The Exchange Ratio will result in the holders
of the outstanding Public Savings Bank Shares owning, in the aggregate,
approximately 48.06% of the Common Stock, determined without regard to any (i)
payment of cash in lieu of issuing fractional Exchange Shares and (ii)
Conversion Shares that may be purchased by Public Shareholders (including the
ESOP) in the Conversion Offerings. In accordance with FDIC policy, the Public
Shareholders will receive only 48.06% of the Common Stock, which is slightly
less than their 48.5% ownership in the Savings Bank, to reflect the
contribution to the Holding Company on a consolidated basis, of the assets of
the MHC.
The following diagram outlines the current organizational structure of the
Primary Parties and their ownership interests:
Public
MHC Shareholders
51.5% 48.5%
Savings Bank
100%
Holding Company
100%
Interim B
(in formation)
The following diagram reflects the post-Conversion and Reorganization
organizational structure of the Holding Company and the Savings Bank and their
ownership interests. The ownership interests presented assumes no fractional
Exchange Shares are issued, and does not give effect to purchases of any
Conversion Shares by the Public Shareholders (including the ESOP) or the
exercise of outstanding stock options. The Exchange Ratio is subject to
adjustment if the updated Appraisal delivered prior to closing is adjusted.
Purchasers of Former Public
Conversion Shares Shareholders
51.94% 48.06%
Holding Company
100%
Savings Bank
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<PAGE>
Required Approvals. The PDOB and the Federal Reserve have approved, and
the FDIC has issued its letter of nonobjection with respect to, the Plan of
Conversion subject to (i) the approval of the holders of at least a majority of
the total number of votes eligible to be cast by the members of the MHC as of
the close of business on the Voting Record Date at a special meeting of members
called for the purpose of considering the Plan of Conversion (the "Members'
Meeting"), (ii) the approval of the holders of at least two-thirds of the
shares of Savings Bank Common Stock (including those shares held by the MHC)
voted by holders of Savings Bank Common Stock at a meeting of shareholders
called for the purpose of considering the Plan of Conversion (the
"Shareholders' Meeting"), and (iii) the approval of the holders of at least a
majority of votes cast by the Public Savings Bank Shares as of the close of
business on the Voting Record Date present in person or by proxy at the
Shareholders' Meeting. The MHC intends to vote its shares of Savings Bank
Common Stock, in favor of the Plan of Conversion at the Shareholders' Meeting.
In addition, as of December 31, 1997, directors and executive officers of the
Primary Parties as a group (13 persons) owned of record 236,323, or 19.78%, of
the outstanding shares of Savings Bank Common Stock, which they intend to vote
in favor of the Plan of Conversion at the Shareholders' Meeting. Shareholders
of the Savings Bank are entitled to dissent with respect to the Plan of
Conversion and to obtain payment of the "fair value" of their Savings Bank
Common Stock if the Plan of Conversion is consummated. See the "Dissenters'
Rights" in the Savings Bank's Proxy Statement.
The Conversion Offerings
The Conversion Offerings are being undertaken pursuant to the Plan of
Conversion. The Holding Company is offering up to 1,610,000 Conversion Shares
in the Conversion Offerings. Conversion Shares are first being offered in the
Subscription Offering through the exercise of Subscription Rights issued, in
order of priority, to (i) Eligible Account Holders; (ii) the ESOP; and (iii)
Supplemental Eligible Account Holders. The Subscription Offering will expire on
the Expiration Date, unless extended by the Board of Directors of the Holding
Company.
Subject to the prior rights of Subscription Rights holders, Conversion
Shares not subscribed for in the Subscription Offering are being offered in the
Direct Community Offering to members of the general public with preference
given first to Public Shareholders (who are not Eligible Account Holders or
Supplemental Eligible Account Holders) and then to natural persons and trusts
of natural persons who are permanent residents of the Local Community. It is
anticipated that shares not subscribed for in the Subscription Offering and
Direct Community Offering may be offered to the general public in the
Syndicated Community Offering. The Primary Parties reserve the absolute right
to reject or accept any orders in the Direct Community Offering or the
Syndicated Community Offering (if any), in whole or in part, either at the time
of receipt of an order or as soon as practicable following the Expiration Date.
The closing with respect to all shares sold in the Conversion Offerings will
occur simultaneously, and all Conversion Shares will be sold at the Purchase
Price.
The Primary Parties have retained Webb as their financial advisor in
connection with the Conversion Offerings and to assist in soliciting
subscriptions in the Conversion Offerings on a best efforts basis. See "The
CONVERSION AND REORGANIZATION -- The Subscription, Direct Community and
Syndicated Offerings."
Potential Benefits of Conversion and Reorganization to Management
1998 Stock Option Plan. The Board of Directors of the Holding Company
intends to implement the 1998 PSB Bancorp, Inc. Stock Option Plan (the "1998
Stock Option Plan"), contingent upon receipt of shareholder approval at a
meeting of the Holding Company's shareholders to be held no earlier than six
months following the Conversion and Reorganization. Assuming 1,610,000
Conversion Shares are issued in the Conversion and Reorganization and receipt
of the required approvals, the Holding Company may grant options to purchase
161,000 shares of the Common Stock to executive officers and directors as a
group (13 persons) under the 1998 Option Plan during the life of the 1998 Stock
Option Plan. The exercise price of the options, which would be granted at no
cost to the recipient thereof, would be the fair market value of the Common
Stock subject to the option on the date the option is granted.
1998 PSB Bancorp, Inc. Management Recognition Plan. The Board of Directors
of the Holding Company intends to implement the 1998 PSB Bancorp, Inc.
Management Recognition Plan (the "1998 MRP") contingent upon the receipt of
shareholder approval at a meeting of the Holding Company's shareholders to be
held no earlier than six months following the Conversion and Reorganization.
Subject to such approval, the 1998 MRP will purchase an amount of shares after
the Conversion and Reorganization equal to up to 4% of the shares
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<PAGE>
issued in the Conversion and Reorganization (64,400 shares at the maximum of
the Estimated Valuation Range), which are expected to be issued to executive
officers and directors of the Holding Company and its subsidiaries in the year
following the Conversion and Reorganization. Under the 1998 MRP, the shares
issued to directors and employees could be newly-issued shares or shares
purchased in the open market. No shares will be awarded under the 1998 MRP
prior to receipt of shareholder approval. Awards under the 1998 MRP would be
granted at no cost to the recipient thereof.
Prospectus Delivery and Procedure for Purchasing Conversion Shares
To ensure that each prospective purchaser receives a Prospectus at least
48 hours prior to the Expiration Date as required by Rule 15c2-8 under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), no Prospectus
will be mailed later than five days or hand delivered later than two days prior
to the Expiration Date. Execution of the Stock Order Form will confirm receipt
or delivery of a Prospectus as required by Rule 15c2-8. Stock Order Forms will
be distributed only with a Prospectus.
To ensure that Eligible Account Holders and Supplemental Eligible Account
Holders are properly identified, such parties must list all deposit accounts on
the Stock Order Form giving all names on each deposit account and the account
balance at the applicable eligibility date.
Full payment by check, cash (only if delivered in person at an office of
the Savings Bank), money order, bank draft or withdrawal authorization must
accompany an original Stock Order Form (facsimile copies and photocopies will
not be accepted) and a fully executed separate Certification Form. Payment by
wire transfer will not be accepted. Orders cannot and will not be accepted
without execution of the Certification Form appearing on the reverse side of
the Stock Order Form. See "THE CONVERSION AND REORGANIZATION -- Procedure for
Purchasing Conversion Shares in the Subscription and Direct Community
Offering."
Purchase Limitations
Except for the ESOP, which is expected to subscribe for 8% of the
Conversion Shares issued in the Conversion and Reorganization, the Plan of
Conversion provides for the following purchase limitations: (i) the maximum
number of Conversion Shares that may be subscribed for or purchased in all
categories in the Conversion Offerings by any person, when combined with any
Exchange Shares received, shall not exceed 1% of the Conversion Shares issued
in the Conversion Offerings, and (ii) the maximum number of Conversion Shares
that may be subscribed for or purchased in all categories in the Conversion
Offerings by any person, together with all associates or any group of persons
acting in concert, when combined with any Exchange Shares received, shall not
exceed 2% of the Conversion Shares issued in the Conversion Offerings. The
minimum order is 25 Conversion Shares. At any time during the Conversion
Offerings, and without further approval by the MHC Members or the Public
Shareholders, the Primary Parties, in their sole discretion, may increase any
of the purchase limitations to up to 5% of the Conversion Shares issued in the
Conversion and Reorganization. Under certain circumstances, subscribers may be
resolicited in the event of such an increase and given the opportunity to
increase, decrease or rescind their orders. If there is an oversubscription in
the Conversion Offerings, Conversion Shares will be allocated as set forth in
the Plan of Conversion. See "THE CONVERSION AND REORGANIZATION -- The
Subscription, Direct Community and Syndicated Community Offerings," "--
Procedure for Purchasing Conversion Shares in the Subscription and Direct
Community Offerings" and "-- Limitations on Purchases of Conversion Shares."
Because the purchase limitations set forth in the Plan of Conversion take into
account the Exchange Shares to be issued to the Public Shareholders for their
Public Savings Bank Shares, certain Public Shareholders, including members of
management of the Savings Bank, may be limited or have no ability to purchase
Conversion Shares in the Conversion Offerings. See "COMMON STOCK TO BE
PURCHASED OR RECEIVED BY MANAGEMENT."
Stock Pricing and Number of Shares to be Issued in the Conversion and
Reorganization
Pennsylvania law and FDIC regulations require the aggregate purchase price
of the Conversion Shares be consistent with the appraisal of the estimated pro
forma market value of the MHC and the Savings Bank, which was converted by
multiplying the Appraisal by the MHC's percentage interest in the Savings Bank
(51.5%); this
12
<PAGE>
calculation ensures that the Public Shareholders will continue to hold
approximately the same aggregate percentage ownership interest in the Holding
Company as they held in the Savings Bank before the Conversion and
Reorganization (before giving effect to the payment of cash in lieu of issuing
fractional Exchange Shares and any Conversion Shares purchased by the Public
Shareholders or the ESOP in the Conversion Offerings or thereafter). The
resulting figure represents the midpoint of the Estimated Valuation Range. This
amount is $14.00 million, or 1,400,000 Conversion Shares based on the Purchase
Price. Therefore, RP Financial estimated the pro forma market value range from
$11.9 million to $16.10 million as of December 31, 1997, and upon the Board of
Directors and Boards of Trustees of the Primary Parties choosing a purchase
price of $10.00 the number of Conversion Shares issued shall range from
1,190,000 Conversion Shares to 1,610,000 Conversion Shares based on the
Purchase Price.
The full text of the independent appraisal describes the procedures
followed, the assumptions made, limitations on the review undertaken and
matters considered, which included but did not depend on the trading market for
the Savings Bank Common Stock. See "MARKET FOR COMMON STOCK". The appraisal
will be updated or confirmed at the completion of the Conversion Offerings. The
maximum of the Estimated Valuation Range may be increased by up to 15% and the
number of Conversion Shares may be increased to 1,851,500 shares due to
material changes in the financial condition or results of operations of the
Savings Bank or changes in market conditions or general financial, economic or
regulatory conditions. No resolicitation of subscribers will be made and
subscribers will not be permitted to modify or cancel their subscriptions
unless the gross proceeds from the sale of the Conversion Shares are less than
the minimum or more than 15% above the maximum of the current Estimated
Valuation Range. All Conversion Shares will be sold at the Purchase Price,
which was established by the Board of Directors of the Holding Company. Any
increase or decrease in the number of Conversion Shares will result in a
corresponding change in the number of Exchange Shares, so that upon
consummation of the Conversion and Reorganization, the Conversion Shares and
the Exchange Shares will represent approximately 51.94% and 48.06%,
respectively, of the total outstanding shares of Common Stock. Nevertheless,
Exchange Shares may represent a lesser percentage of the total outstanding
shares of Common Stock if there are insufficient shares for the ESOP to
purchase 8.0% of the Conversion Shares issued in the Conversion and
Reorganization, and the Holding Company issues authorized but unissued shares
to the ESOP to satisfy its order. See "PRO FORMA DATA," "RISK FACTORS --
Possible Dilutive Effect of Benefit Programs" and "THE CONVERSION AND
REORGANIZATION -- Stock Pricing, Exchange Ratio and Number of Shares to be
Issued." The appraisal is not intended to be and should not be construed as a
recommendation of any kind as to the advisability of purchasing Common Stock in
the Conversion Offerings nor can assurance be given that purchasers of the
Common Stock in the Conversion Offerings will be able to sell such shares after
consummation of the Conversion and Reorganization at a price that is equal to
or above the Purchase Price. Furthermore, the pro forma shareholders' equity is
not intended to represent the fair market value of the Common Stock and may be
greater than amounts that would be available for distribution to shareholders
in the event of liquidation. A complete copy of the appraisal is available upon
request. See "ADDITIONAL INFORMATION."
Based on the 579,390 Public Savings Bank Shares outstanding at the date of
this Prospectus, and assuming a minimum of 1,190,000 and a maximum of 1,610,000
Conversion Shares are issued in the Conversion Offerings, the Exchange Ratio is
expected to range from approximately 1.9005 Exchange Shares to 2.5712 Exchange
Shares for each Public Savings Bank Share issued and outstanding immediately
prior to the consummation of the Conversion and Reorganization. The Exchange
Ratio will be affected if any stock options to purchase shares of Savings Bank
Common Stock are exercised after the date of this Prospectus and before the
consummation of the Conversion and Reorganization. If any stock options are
outstanding immediately before the consummation of the Conversion and
Reorganization, they will be converted into options to purchase shares of
Common Stock, with the number of shares subject to the option and the exercise
price per share to be adjusted based upon the Exchange Ratio so that the
aggregate exercise price remains unchanged. The duration of the options also
will be unchanged. As of the date of this Prospectus, there were outstanding
options to purchase 36,859 shares of Savings Bank Common Stock at a
weighted-average exercise price of $12.12 per share. The Savings Bank has no
plans to grant additional stock options before the consummation of the
Conversion and Reorganization.
13
<PAGE>
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Valuation Price Range, the following: (i) the
total number of Conversion Shares and Exchange Shares to be issued in the
Conversion, (ii) the percentage of the total Common Stock represented by the
Conversion Shares and the Exchange Shares, and (iii) the Exchange Ratio. The
table assumes that there is no cash paid in lieu of issuing fractional Exchange
Shares.
<TABLE>
<CAPTION>
Shares
Conversion Shares Exchange Stock to of Common
to Be Issued Be Issued Stock to
------------------------- ------------------------- be Out- Exchange
Amount Percent Amount Percent standing Ratio
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Minimum .......... 1,190,000 51.94% 1,101,131 48.06% 2,291,131 1.9005
Midpoint ......... 1,400,000 51.94% 1,295,417 48.06% 2,695,417 2.2358
Maximum .......... 1,610,000 51.94% 1,489,728 48.06% 3,099,728 2.5712
15% above
Maximum ......... 1,851,500 51.94% 1,713,198 48.06% 3,564,698 2.9569
</TABLE>
Use of Proceeds
The net proceeds from the sale of the Conversion Shares are estimated to
range from $11.43 million to $15.63 million, or $18.04 million if the Estimated
Valuation Range is increased by 15%. The Holding Company has received
conditional FDIC and PDOB approval to purchase all of the capital stock of the
Savings Bank to be issued in the Conversion and Reorganization in exchange for
50% of the net proceeds of the Conversion Offerings. This will result in the
Holding Company retaining approximately $5.72 million to $7.82 million of the
net proceeds, or up to $9.02 million if the Estimated Valuation Range is
increased by 15%. See "PRO FORMA DATA."
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Savings Bank's capital and will support the expansion of the
Savings Bank's existing business activities. The Savings Bank will use the
funds contributed to it for general corporate purposes, including, initially,
lending and investment in short-term U.S. Government and agency obligations.
A portion of the net proceeds retained by the Holding Company will be used
for a loan by the Holding Company to the ESOP to enable it to refinance its
existing third party loan used to purchase shares of Savings Bank Common Stock
in the MHC Reorganization $295,000 (outstanding balance at December 31, 1997)
and to purchase 8% of the shares of Conversion Shares issued in the Conversion
and Reorganization ($1.29 million at the maximum of the Estimated Valuation
Range). Such loan would be repaid principally from the Savings Bank's
contributions to the ESOP and from dividends payable on the Common Stock held
by the ESOP. The remaining proceeds retained by the Holding Company initially
will be invested primarily in short-term U.S. Government and agency obligations
or in a deposit account at the Savings Bank or another financial institution.
Such proceeds will be available for additional contributions to the Savings
Bank in the form of debt or equity, to support future diversification or
acquisition activities, as a source of dividends to the shareholders of the
Holding Company and for future repurchases of Common Stock (including possible
repurchases to fund the 1998 MRP or to provide shares to be issued upon
exercise of stock options) to the extent permitted under Pennsylvania and
federal law. The Holding Company will consider exploring opportunities to use
such funds to expand operations through acquiring or establishing additional
branch offices or acquiring other financial institutions. Currently, there are
no specific plans, arrangements, agreements or understandings, written or oral,
regarding any diversification activities. See "Use of Proceeds."
Market for Common Stock
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. The Holding
Company has received conditional approval to have the Common Stock listed on
the Nasdaq National Market under the symbol "PSBI" (the current symbol for the
Public Savings Bank Shares, which are traded on the OTC Bulletin Board). The
Nasdaq National Market requires the Company to have three market makers for the
Common Stock. The Company expects that KB&W and at least two other
broker-dealers will be market makers for the Common Stock following
consummation of the Conversion and Reorganization. No assurance can be given
that an active and liquid trading market for the Common
14
<PAGE>
Stock will develop or, if developed that it will continue. Further, no
assurance can be given that purchasers will be able to sell their shares at or
above the Purchase Price after the Conversion and Reorganization. See "RISK
FACTORS -- Absence of Prior Market for the Common Stock" and "MARKET FOR COMMON
STOCK."
Dividend Policy
The Savings Bank is not currently paying dividends. Following consummation
of the Conversion and Reorganization, the Holding Company's Board of Directors
will consider adopting a policy of paying regular cash dividends on the Common
Stock. Declarations of dividends (regular and special) by the Holding Company's
Board of Directors will depend upon a number of factors, including the amount
of the net proceeds from the Conversion Offerings retained by the Holding
Company, investment opportunities available to the Holding Company or the
Savings Bank, capital requirements, regulatory limitations, the Holding
Company's and the Savings Bank's financial condition and results of operations,
tax considerations, capital requirements, industry standards, economic
conditions, and other factors, including the regulatory restrictions that
affect the payment of dividends by the Savings Bank to the Holding Company.
Consequently, there can be no assurance that any dividends will be paid on the
Common Stock or that if paid, such dividends will not be reduced or eliminated
in future periods. See "DIVIDEND POLICY."
Officers' and Directors' Common Stock Purchases and Beneficial Ownership
At December 31, 1997, officers and trustees of the Savings Bank (thirteen
persons) beneficially owned 272,182 shares of Savings Bank Common Stock. See
"MANAGEMENT OF THE SAVINGS BANK -- Beneficial Owners of Savings Bank Common
Stock." In addition to an aggregate of 608,545 Exchange Shares to be received
by officers and trustees of the Savings Bank in the Exchange Offering based on
an Exchange Ratio of 2.2358, officers and trustees are expected to subscribe
for an aggregate of approximately 46,827 Conversion Shares, or 3.34% of the
Conversion Shares based on the midpoint of the Estimated Valuation Range. See
"COMMON STOCK TO BE PURCHASED OR RECEIVED BY MANAGEMENT" and "RISK FACTORS --
Antitakeover Considerations -- Voting Control by Insiders."
Risk Factors
See "RISK FACTORS" for a discussion of certain risks related to the
Conversion and Reorganization that should be considered by all prospective
investors.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Savings Bank
and its subsidiaries at the dates and for the periods indicated. This
information is qualified in its entirety by reference to the detailed
information contained in the Consolidated Financial Statements and Notes
thereto presented elsewhere in this Prospectus. After the end of the Savings
Bank's fiscal year ended September 30, 1995, the Savings Bank elected to change
its fiscal year end to December 31.
<TABLE>
<CAPTION>
At or for the
years ended
December 31,
----------------------------
1997 1996
------------- -------------
(Dollars in thousands except
per share data)
<S> <C> <C>
Balance Sheet Data:
Total assets .............................................................. $ 129,338 $ 118,435
Cash and cash equivalents ................................................. 27,888 31,622
Loans receivable, net ..................................................... 61,915 52,586
Loans held for sale ....................................................... 6,575 4,598
Investment securities ..................................................... 22,621 18,973
Mortgage-backed securities ................................................ 5,002 5,942
Deposits .................................................................. 108,734 100,574
Retained earnings and shareholders'
equity (1) ............................................................... 14,998 14,169
Book value per share ...................................................... 12.55 11.94
Summary Statement of Operations:
Interest income ........................................................... 8,740 8,039
Interest expense .......................................................... 4,564 4,118
--------- ---------
Net interest income ...................................................... 4,176 3,921
Provision for loan losses ................................................. 60 133
--------- ---------
Net interest income after provision for loan losses ...................... 4,116 3,788
--------- ---------
Noninterest income ...................................................... 1,071 915
Noninterest expense ..................................................... 4,134 4,363
Income before income taxes ................................................ 1,053 340
Income tax provision ...................................................... 345 201
Cumulative effect of prior years of a change in accounting principle ...... -- --
--------- ---------
Net income (2) ............................................................ $ 708 $ 139
========= =========
Earnings per share -- basic (3) ........................................... $ 0.61 $ 0.12
========= =========
Earnings per share -- diluted ............................................. $ 0.60 $ 0.12
========= =========
Performance Data:
Return on average assets .................................................. 0.57% 0.12%
Return on average equity .................................................. 4.83% 0.98%
Dividend payout ratio ..................................................... -- 31.25%
Equity to assets .......................................................... 11.88% 12.29%
Interest rate spread ...................................................... 2.92% 2.95%
Asset Quality Ratios:
Nonperforming loans to total loans ........................................ 3.34% 5.21%
Nonperforming assets to total assets ...................................... 1.97% 2.74%
Allowance for loan losses to total loans .................................. 0.38% 0.39%
Allowance for loan losses to nonperforming loans .......................... 11.37% 7.45%
Allowance for loan losses to nonperforming assets ......................... 9.33% 6.38%
Net charge-offs as a percentage of total loans ............................ 0.05% 0.25%
Loans past due 90 days or more as to interest or principal and accruing
interest ................................................................. $ 200 $ 2,009
Nonaccrual loans .......................................................... 1,894 770
Total nonperforming loans ................................................. 2,094 2,779
Real estate owned (REO) ................................................... 457 465
Total nonperforming assets ................................................ 2,551 3,244
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At or for the years ended
September 30,
-----------------------------------------
1995 1994 1993
------------- ------------ ------------
(Dollars in thousands except per share
data)
<S> <C> <C> <C>
Balance Sheet Data:
Total assets .............................................................. $ 113,232 $ 99,696 $ 96,261
Cash and cash equivalents ................................................. 29,777 21,371 30,680
Loans receivable, net ..................................................... 51,212 50,285 51,272
Loans held for sale ....................................................... 1,041 185 1,544
Investment securities ..................................................... 22,064 16,362 3,209
Mortgage-backed securities ................................................ 5,578 7,382 6,289
Deposits .................................................................. 94,588 89,429 85,804
Retained earnings and shareholders'
equity (1) ............................................................... 9,491 8,339 8,304
Book value per share ...................................................... -- -- --
Summary Statement of Operations:
Interest income ........................................................... 7,270 6,714 6,543
Interest expense .......................................................... 3,443 3,045 3,160
--------- -------- --------
Net interest income ...................................................... 3,827 3,669 3,383
Provision for loan losses ................................................. 27 21 --
--------- -------- --------
Net interest income after provision for loan losses ...................... 3,800 3,648 3,383
--------- -------- --------
Noninterest income ...................................................... 876 674 1,018
Noninterest expense ..................................................... 3,584 3,211 2,899
Income before income taxes ................................................ 1,092 1,111 1,502
Income tax provision ...................................................... 433 470 610
Cumulative effect of prior years of a change in accounting principle ...... -- -- 36
--------- -------- --------
Net income (2) ............................................................ $ 659 $ 641 $ 928
========= ======== ========
Earnings per share -- basic (3) ........................................... $ -- $ -- $ --
========= ======== ========
Earnings per share -- diluted ............................................. $ -- $ -- $ --
========= ======== ========
Performance Data:
Return on average assets .................................................. 0.60% 0.63% 1.08%
Return on average equity .................................................. 6.94% 7.24% 11.42%
Dividend payout ratio ..................................................... -- -- --
Equity to assets .......................................................... 8.65% 8.74% 8.45%
Interest rate spread ...................................................... 3.32% 3.61% 3.55%
Asset Quality Ratios:
Nonperforming loans to total loans ........................................ 4.50% 4.21% 2.94%
Nonperforming assets to total assets ...................................... 2.49% 2.49% 2.07%
Allowance for loan losses to total loans .................................. 0.40% 0.41% 0.36%
Allowance for loan losses to nonperforming loans .......................... 8.91% 9.65% 12.38%
Allowance for loan losses to nonperforming assets ......................... 7.38% 8.37% 9.36%
Net charge-offs as a percentage of total loans ............................ 0.05% -- --
Loans past due 90 days or more as to interest or principal and accruing
interest ................................................................. $ 1,565 $ 1,417 $ 1,167
Nonaccrual loans .......................................................... 770 738 344
Total nonperforming loans ................................................. 2,335 2,155 1,511
Real estate owned (REO) ................................................... 482 330 486
Total nonperforming assets ................................................ 2,817 2,485 1,997
</TABLE>
- ------------
(1) Includes only retained earnings prior to the MHC Reorganization completed
on October 20, 1995.
(2) The Savings Bank was assessed a one-time fee of $567,000 in 1996 to
recapitalize the SAIF.
(3) Represents earnings per share for the Savings Bank.
(4) Ratios annualized.
16
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby, prospective
investors should carefully consider the Risk Factors presented below, in
addition to matters discussed elsewhere in this Prospectus.
Cost of Expansion
The Savings Bank's business strategy is to maintain its core customer base
in South Philadelphia and to expand its market to include other segments of the
metropolitan Philadelphia market. As a component of the Savings Bank's regional
expansion strategy, the Savings Bank intends to continue its expansion of and
develop nonresidential real estate lending, commercial lending, and mortgage
banking operations throughout the metropolitan Philadelphia area and the
adjacent counties in Pennsylvania, New Jersey and Delaware.
The Savings Bank's expansion strategy, including expansion of its mortgage
banking activities, has materially increased operating expenses associated with
leasing additional office space, related equipment expense and salary and
benefit expenses for additional personnel, and operating expenses are expected
to continue to increase as the Savings Bank continues to expand. Increased
revenues from the expansion of the Savings Bank's territory and services has
and will continue to lag behind the expenses incurred by implementing the
expansion strategy for the foreseeable future. Purchasers should be aware that
this expansion strategy will adversely affect the Savings Bank's earnings and
earnings per share. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Business Strategy."
Risks of Low Return on Equity After Conversion and Reorganization
Return on equity (net income for a given period divided by average equity
during that period) is a ratio used by many investors to compare the
performance of a particular financial institution to its peers. The Savings
Bank's return on equity for the year ended December 31, 1997 was 4.83% and for
year ended December 31, 1996 it was .98% and the Holding Company's
post-Conversion and Reorganization return on equity will be less than the
average return on equity for publicly traded thrift institutions and their
holding companies. In order for the Holding Company to achieve a return on
equity comparable to the return on equity of other publicly traded companies,
the Savings Bank will have to materially increase net income or reduce
shareholders' equity, or both, commensurate with the increase in equity
resulting from the Conversion and Reorganization. Reductions in equity could be
achieved by, among other things, the payment of regular or special cash
dividends (although no assurances can be given as to their payment or, if paid,
their amount and frequency), the repurchase of shares of Common Stock subject
to applicable regulatory restrictions, or the acquisition of branch offices,
other financial institutions or related businesses (neither the Holding Company
nor the Savings Bank has any present plans, arrangements, or understandings,
written or oral, regarding any repurchase or acquisitions). See "DIVIDEND
POLICY" and "USE OF PROCEEDS." Achievement of increased net income levels will
depend on several important factors outside management's control, such as
general economic conditions, including the level of market interest rates,
competition and related factors, among others. In addition, the expenses
associated with the ESOP and the 1998 MRP (see "-- New Expenses Associated with
ESOP and 1998 MRP"), along with other post-Conversion and Reorganization
expenses are expected to contribute initially to reduced earnings levels.
Subject to market conditions, initially the Savings Bank intends to deploy the
net proceeds of the Conversion Offerings to support its lending activities to
increase earnings per share and book value per share, with the goal of
achieving a return on equity comparable to the average for publicly traded
thrift institutions and their holding companies. This goal will likely take a
number of years to achieve and no assurances can be given that this goal can be
attained. Consequently, for the foreseeable future, investors should not expect
a return on equity that will meet or exceed the average return on equity for
publicly traded thrift institutions.
Risks of Commercial and Nonresidential Lending
There are risks attendant to adding nonresidential real estate lending and
commercial lending to the business of the Savings Bank. Commercial loans are
generally more interest rate sensitive and carry higher yields than do
residential loans, and are generally believed to carry a higher level of credit
risk than do residential loans. In addition, nonresidential loans are generally
more expensive to administer than are residential loans. As
17
<PAGE>
of December 31, 1997, commercial and nonresidential loans and residential
one-to-four family loans comprised 21.24% and 71.59% of the Savings Bank's loan
portfolio. In addition, $2.82 million and $28.32 million of commercial and
nonresidential and one-to-four-family loans were originated for the year ended
December 31, 1997.
The nonresidential real estate lending that the Savings Bank engages in
typically involves larger loans to a single obligor and is generally viewed as
exposing the lender to a greater risk of loss than residential one-to-four
family lending. Nonresidential real estate property values are also generally
subject to greater volatility than residential property values. The liquidation
values of commercial properties may be adversely affected by risks generally
incident to interests in real property, including changes or continued weakness
in general or local economic conditions and/or specific industry segments;
declines in real estate values; declines in rental, room or occupancy rates;
increases in interest rates, real estate and personal property tax rates and
other operating expenses (including energy costs); the availability of
refinancing; changes in governmental rules, regulations and fiscal policies,
including rent control ordinances, environmental legislation and taxation; and
other factors beyond the control of the borrower or the lender. It should also
be noted that the resale market for nonresidential real estate loans is less
liquid than the well established secondary market for residential real estate
loans, which could result in the Savings Bank recognizing losses upon any such
sales. For a more detailed discussion of the specific characteristics of the
Savings Bank's real estate loan portfolio, see "BUSINESS -- Business of the
Savings Bank -- Lending Activities."
Anticipated Increase in Provision for Loan Losses
Historically, the Savings Bank's loan portfolio has consisted mainly of
residential real estate loans and the amount of the allowance for loan losses
has been established based upon the Savings Bank's assessment of the risks
inherent in this residential loan portfolio. Because the Savings Bank is
expanding its origination of commercial, commercial real estate and consumer
loans, which entail greater risk than residential lending, the Savings Bank
anticipates that it will increase its provision for loan losses in future
periods. In addition, the provision for loan losses may increase in 1998 and
1999 if management determines that losses inherent in the existing portfolio of
nonaccrual loans exceeds anticipated recoveries.
Risks of Mortgage Banking
Through its subsidiary, TNMC, the Savings Bank has conducted a mortgage
banking operation since 1989. Mortgage banking consists primarily of the
origination, purchase, sale and servicing of first mortgage loans secured by
one- to four-family homes. Such loans are sold either as individual loans, as
mortgage-backed securities, or as participation certificates issued or
guaranteed by FNMA or FHLMC.
Because mortgage originations fluctuate significantly with the level of
interest rates and other economic conditions, mortgage banking revenues are
very cyclical. The profitability of mortgage banking operations depends
primarily on managing the volume of loan originations and sales and the
expenses associated with loan originations so that gains on the sale of loans
together with fee income exceeds the costs of this activity. Changes in the
level of interest rates and the condition of the local and national economies
affect the amount of loans originated by the Savings Bank and demanded by
investors to whom the loans are sold. Generally, the Savings Bank's loan
origination and sale activity and, therefore, its results of operations, may be
adversely affected by an increasing interest rate environment to the extent
such environment results in decreased loan demand by borrowers and/or
investors. Accordingly, the volume of loan originations and the profitability
of this activity can vary significantly from period to period. In addition, the
Savings Bank's results of operations are affected by the amount of non-interest
expenses associated with mortgage-banking activities, such as compensation and
benefits, occupancy and equipment expenses, and other operating costs. During
periods of reduced loan demand, the Savings Bank's results of operations may be
adversely affected to the extent that it is unable to reduce expenses
commensurate with the decline in loan originations. To the extent TNMC revenues
and profits become a significant component of the Savings Bank's consolidated
revenues and net income, which is currently planned, an investor should be
aware that earnings of the Savings Bank could fluctuate materially.
18
<PAGE>
Dependence Upon Key Personnel
The success of the Savings Bank and the Holding Company will depend
heavily on the expertise and guidance of Vincent J. Fumo, Chief Executive
Officer and Chairman of the Board of the Holding Company and the Savings Bank,
and Anthony DiSandro, the President and Chief Operating Officer of the Holding
Company and the Savings Bank, as well as certain other senior executive
officers. The loss of the services of any of these key individuals would have a
material adverse effect on the Savings Bank and the Holding Company. Neither
the Savings Bank nor the Holding Company maintains key-man life insurance with
respect to any of these individuals. See "MANAGEMENT."
Increased Expenses Associated With ESOP and 1998 MRP
The Savings Bank will recognize material employee compensation and benefit
expenses assuming the ESOP and the 1998 MRP are implemented. The amount of
these new expenses cannot be predicted because applicable accounting practices
require that they be based on the fair market value of the shares of Common
Stock when the expenses are recognized. Such expenses are recognized when
shares are committed to be released in the case of the ESOP and over the
vesting period of awards made to recipients in the case of the 1997 MRP. These
expenses have been reflected in the pro forma financial information under "PRO
FORMA DATA" assuming the Purchase Price as fair market value. Actual expenses,
however, will be based on the fair market value of the Common Stock at the time
of recognition, which may be higher or lower than the Purchase Price. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Impact of Accounting Pronouncements and Regulatory Policies --
Accounting for Employee Stock Ownership Plans," "- Accounting for Stock-Based
Compensation," "MANAGEMENT -- Management of the Savings Bank -- Benefits --
Employee Stock Ownership Plan" and "-- Benefits -- Management Recognition
Plan."
Potential Benefits to Management
At a meeting of shareholders to be held no earlier than six months
following the consummation of the Conversion and Reorganization, the Holding
Company expects to seek approval of the 1998 MRP and the 1998 Stock Option
Plan. The Holding Company expects to acquire Common Stock on behalf of the 1998
MRP in an amount equal to 4% of the Common Stock issued in the Conversion and
Reorganization, or 47,600 and 64,400 Conversion Shares at the minimum and the
maximum of the Estimated Valuation Range, respectively. These shares will be
acquired either through open market purchases or from authorized but unissued
shares of Common Stock. In addition, the Holding Company intends to reserve for
future issuance pursuant to the 1998 Stock Option Plan a number of authorized
shares of Common Stock equal to 10% of the Conversion Shares issued in the
Conversion and Reorganization (119,000 and 161,000 Conversion Shares at the
minimum and the maximum of the Estimated Valuation Range, respectively).
Voting Control by Insiders. In addition to an aggregate of 608,545
Exchange Shares to be received by trustees or directors, as the case may be,
and officers of the Savings Bank and the Holding Company in the Exchange
Offering based on an Exchange Ratio of 2.2358, directors and officers expect to
subscribe for 46,827 Conversion Shares. Directors and officers are also
expected to control indirectly the voting of approximately 8% of the shares of
Common Stock issued in the Conversion and Reorganization to the ESOP. Under the
terms of the ESOP, the unallocated shares will be voted by the ESOP trustees in
the same proportion as the votes cast by participants with respect to the
allocated shares. Mr. Fumo and Mr. DiSandro serve as the ESOP trustees.
19
<PAGE>
Assuming (i) the receipt of Exchange Shares and the purchase of Conversion
Shares by the directors and officers described above, (ii) the implementation
of the 1998 MRP and the 1998 Stock Option Plan, (iii) the open market purchase
of shares on behalf of the 1998 MRP, (iv) the purchase by the ESOP of 8% of the
Conversion Shares sold in the Conversion Offerings, and (v) the grant of stock
options equal to 10% of the number of shares of Conversion Shares issued in the
Conversion and Reorganization, directors, officers and employees of the Holding
Company and the Savings Bank would have voting control, on a fully diluted
basis, of 36.05% and 35.51% of the Common Stock, based on the issuance of the
minimum and maximum of the Estimated Valuation Range, respectively.
Management's potential voting control might preclude or make more difficult
takeover attempts that certain shareholders may deem to be in their best
interest and might tend to perpetuate existing management.
As a result of the purchases by management and the number of Exchange
Shares to be received by management, management could acquire a substantial
interest in the Company and, if each member of management were to act
consistently with each other, could have significant influence over the outcome
of the election of directors and any other shareholder vote, especially a vote
on matters requiring the approval of 80% of the outstanding Common Stock, such
as certain business combinations. Management might thus have the power to
authorize actions that may be viewed as contrary to the best interests of
non-affiliated holders of Common Stock and might have substantial power to
block actions that such holders may deem to be in their best interests. See
"Pro Forma Data," "Management -- Certain Benefit Plans and Agreements," "The
Conversion -- Proposed Management Purchases," and "Certain Restrictions on
Acquisition of the Company."
Provisions of Employment and Severance Agreements and Severance Plan. The
employment agreements of Vincent J. Fumo and Anthony DiSandro provide for cash
severance payments and/or the continuation of health, life and disability
benefits in the event of their termination of employment following a change in
control of the Holding Company or the Savings Bank. Assuming a change of
control occurred as of December 31, 1997, the aggregate value of the severance
benefits available to these executive officers under the agreements would have
been approximately $4.6 million excluding the value of health insurance, life
insurance and disability benefits. These agreements and plans may have the
effect of increasing the costs of acquiring the Holding Company, thereby
discouraging future attempts to take over the Holding Company or the Savings
Bank. See "MANAGEMENT -- Management of the Savings Bank -- Benefits,"
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY" and "DESCRIPTION OF
CAPITAL STOCK OF THE HOLDING COMPANY."
Possible Dilutive Effect of Benefit Programs
The 1998 MRP intends to acquire an amount of Common Stock equal to 4% of
the Conversion Shares issued in the Conversion and Reorganization. Such shares
of Common Stock may be acquired by the Holding Company in the open market or
from authorized but unissued shares of Common Stock. If the 1998 MRP acquires
authorized but unissued shares of Common Stock from the Holding Company, the
voting interests of existing shareholders will be diluted and net income per
share and shareholders' equity per share will be decreased. See "PRO FORMA
DATA" and "MANAGEMENT -- Management of the Savings Bank -- Benefits -
Management Recognition Plan." The 1998 MRP is subject to approval by the
Holding Company's shareholders.
The 1998 Stock Option Plan will provide for options to acquire up to a
number of shares of Common Stock of the Holding Company equal to 10% of the
Conversion Shares issued in the Conversion and Reorganization. Upon exercise of
the options, Shares may be issued from authorized but unissued shares which
would result in the dilution of the voting interests of existing shareholders
and may decrease net income per share and shareholders' equity per share. See
"MANAGEMENT -- Management of the Savings Bank -- Benefits -- 1998 Stock Option
Plan." The 1998 Stock Option Plan is subject to approval by the Holding
Company's shareholders.
The Savings Bank maintains a 1995 Stock Option Plan that was implemented
in connection with the MHC Reorganization. As of the date of this Prospectus,
no shares of Savings Bank Common Stock remain reserved for issuance under the
1995 Stock Option Plan and options for 35,859 shares have been granted to
optionees but remain unexercised. Upon consummation of the Conversion and
Reorganization, the 1995 Stock Option Plan will be assumed by the Holding
Company and shares of Common Stock will be issued in lieu of shares of Savings
Bank Common Stock pursuant to the terms of the 1995 Stock Option Plan.
20
<PAGE>
The Board of Directors expects it will award over time MRP shares and
grant options to officers, directors and employees of the Holding Company and
the Savings Bank. At an assumed price of $10.00 the MRP shares have a value of
$442,000 and $598,000 at the minimum and the maximum of the Estimated Valuation
Range, respectively. The Options will have value only if the market price
increases above the exercise price of the option, which will be the market
value of the Common Stock on the date the option is granted.
If the ESOP is not able to purchase 8% of the shares of Conversion Shares
issued in the Conversion Offerings, the ESOP may acquire newly issued shares
from the Holding Company. In such event, the voting interests of existing
shareholders will be diluted and net income per share and shareholders' equity
per share will be decreased. See "MANAGEMENT -- Management of the Savings Bank
- -- Benefits -- Employee Stock Ownership Plan."
Certain Anti-takeover Provisions
The Holding Company's Articles of Incorporation and Bylaws contain certain
provisions that may have the effect of discouraging a non-negotiated tender or
exchange offer for the Common Stock, a proxy contest for control of the Holding
Company, the assumption of control of the Holding Company by a holder of a
large block of Common Stock or the removal of the Holding Company's management,
all of which certain shareholders might deem to be in their best interests.
These provisions include, among other things (i) the classification of the
terms of the members of the Board of Directors, (ii) supermajority provisions
for the approval of certain business combinations and amendments of the
Articles of Incorporation or Bylaws of the Holding Company, and (iii)
elimination of cumulative voting in the election of directors. The provisions
in the Holding Company's Articles of Incorporation requiring a supermajority
vote for the approval of certain business combinations provide that the
supermajority voting requirements and voting restrictions do not apply to
business combinations meeting the Holding Company's Board of Director approval
requirements. The Holding Company's Articles of Incorporation also authorize
the issuance of 5,000,000 shares of preferred stock as well as 15,000,000
shares of Common Stock. These shares could be issued without shareholder
approval on terms or in circumstances that could deter a future takeover
attempt.
Interest Rate Risk
Like all financial institutions, the Savings Bank's financial condition
and results of operations are influenced significantly by general economic
conditions, the related monetary and fiscal policies of the federal government
and government regulations. Deposit flows and the cost of funds are influenced
by interest rates of competing investments and general market interest rates.
Lending activities are affected by the demand for mortgage financing and for
consumer and other types of loans, which in turn is affected by the interest
rates at which such financing may be offered and by other factors affecting the
supply of housing and the availability of funds. The Savings Bank's
profitability, like that of most financial institutions, depends largely on its
net interest income, which is the difference between the interest income
received from its interest-earning assets and the interest expense incurred
from interest-bearing liabilities. The Savings Bank's results of operations
would be adversely affected by a material prolonged increase in market interest
rates. Changes in the level of interest rates also affect the volume of loans
originated or purchased by the Savings Bank and, thus, the amount of loan and
commitment fees, as well as the market value of the Savings Bank's investment
securities and other interest-earning assets. Changes in interest rates also
can affect the average life of loans. Decreases in interest rates may result in
increased prepayments of loans, as borrowers refinance to reduce borrowing
costs. Under these circumstances, the Savings Bank is subject to reinvestment
risk to the extent that it is not able to reinvest such prepayments at rates
that are comparable to the rates on the maturing loans or securities. Moreover,
volatility in interest rates also can result in disintermediation, or the flow
of funds away from savings institutions into direct investments, such as U.S.
Government and corporate securities and other investment vehicles that, because
of the absence of federal insurance premiums and reserve requirements,
generally pay higher rates of return than savings institutions.
Competition
The Savings Bank has faced, and will continue to face, strong competition
both in making loans and attracting deposits. The Savings Bank's primary market
has a high concentration of financial institutions, many
21
<PAGE>
of which are affiliated with large bank holding companies that have greater
financial resources than the Savings Bank and all of which compete with the
Savings Bank in varying degrees. Competition for loans principally comes from
commercial banks, thrift institutions, credit unions and mortgage banking
companies. Historically, commercial banks, thrift institutions and credit
unions have been the Savings Bank's most direct competition for deposits. The
Savings Bank also competes with short-term money market mutual funds and with
other financial institutions, such as brokerage firms and insurance companies,
for deposits. In competing for loans, the Savings Bank may be forced to offer
lower loan interest rates periodically. Conversely, in competing for deposits,
the Savings Bank may be forced to offer higher deposit interest rates
periodically. Either case or both cases could adversely affect net interest
income. See "BUSINESS OF THE SAVINGS BANK -- Competition."
Absence of Prior Market for the Common Stock
The Holding Company has never issued capital stock and, consequently,
there is no existing market for the Common Stock. Prior to the Conversion and
Reorganization, the Public Savings Bank Shares have been traded on the OTC
Bulletin Board under the symbol "PSBI." Although the Holding Company has
received conditional approval to list the Common Stock on the Nasdaq Stock
Market also under the symbol "PSBI," there can be no assurance that an active
and liquid market for the Common Stock will develop or, if developed, will
continue. Furthermore, there can be no assurance that purchasers will be able
to sell their shares at or above the Purchase Price. See "MARKET FOR COMMON
STOCK."
Possible Increase in Estimated Valuation Range and Number of shares Issued
The Estimated Valuation Range may be increased up to 15% to reflect
material changes in the financial condition or results of operations of the
Savings Bank, market conditions or general financial, economic or regulatory
conditions following the commencement of the Conversion Offerings. If the
Estimated Valuation Range is increased, it is expected that the Holding Company
would increase the Estimated Price Range so that up to 1,851,500 Conversion
Shares at the Purchase Price would be issued for an aggregate price of up to
$18,515,000. This increase in the number of shares would decrease a
subscriber's pro forma net income per share and shareholders' equity per share,
increase the Holding Company's pro forma consolidated shareholders' equity and
net earnings, and increase the Purchase Price as a percentage of pro forma
shareholders' equity per share and net income per share. See "PRO FORMA DATA."
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
If the Subscription Rights granted to Eligible Account Holders and
Supplemental Eligible Account Holders of the Savings Bank are deemed to have an
ascertainable value, receipt of such rights may be a taxable event to those
Eligible Account Holders or Supplemental Eligible Account Holders who receive
and/or exercise the Subscription Rights. Additionally, the Savings Bank could
be required to recognize a gain for tax purposes on such distribution. Whether
Subscription Rights are considered to have ascertainable value is an inherently
factual determination. The Savings Bank has been advised by RP Financial that
such rights have no value; however, RP Financial's conclusion is not binding on
the Internal Revenue Service ("IRS"). See "THE CONVERSION AND REORGANIZATION --
Effects of Conversion and Reorganization on Depositors and Borrowers of the
Savings Bank -- Tax Effects."
Risk of Delayed Offering
The Company and the Savings Bank expect to complete the Conversion and
Reorganization within the time periods indicated in this Prospectus.
Specifically, the Subscription Offering will expire no more than thirty-five
days after the date of mailing. Nevertheless, it is possible, although not
anticipated, that adverse market, economic or regulatory conditions, or other
factors would significantly delay the completion of the Conversion and result
in increased costs or in changes in the Appraisal.
22
<PAGE>
PSB BANCORP, INC.
The Holding Company was organized on October 3, 1997 under the PBCL at the
direction of the Savings Bank. The Holding Company has been formed to become
the holding company for the Savings Bank upon consummation of the Conversion
and Reorganization. The Holding Company has received conditional approval from
the Federal Reserve to become a bank holding company and acquire 100% of the
capital stock of the Savings Bank. Prior to the Conversion and Reorganization,
the Holding Company will not engage in any material operations. After the
Conversion and Reorganization, the Holding Company will be subject to
regulation by the Federal Reserve, and its principal business will be the
ownership of the Savings Bank. Immediately following the Conversion and
Reorganization, the only significant assets of the Holding Company will be the
capital stock of the Savings Bank, 50% of the net proceeds of the Conversion
Offerings and a note receivable from the ESOP evidencing a loan to enable the
ESOP to purchase 8% of the Common Stock issued in the Conversion and
Reorganization. See "PRO FORMA DATA" and "BUSINESS -- Business of the Holding
Company."
The holding company structure will permit the Holding Company to expand
the financial services currently offered through the Savings Bank. Management
believes that the holding company structure and retention of a portion of the
proceeds of the Conversion Offerings will facilitate the expansion and
diversification of its operations. The holding company structure will also
enable the Holding Company to repurchase its stock without adverse tax
consequences, subject to applicable regulatory restrictions, including waiting
periods. There are no present plans, arrangements, agreements, or
understandings, written or oral, regarding any such activities or repurchases.
See "REGULATION -- Regulation of the Holding Company."
PENNSYLVANIA SAVINGS BANK
The Savings Bank is a Pennsylvania-chartered savings bank, founded in 1923
and headquartered in Philadelphia, Pennsylvania. The Savings Bank's deposits
are insured by the FDIC up to applicable legal limits under the BIF. The
Savings Bank has been a member of the FHLB system since 1937. The Savings Bank
is regulated by the PDOB and the FDIC. At December 31, 1997, the Savings Bank
had total assets of $129.34 million, total deposit accounts of $108.73 million,
and total shareholders' equity of $15.00 million, on a consolidated basis.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $11.43 million to $15,63 million, or up to $18.04
million if the Estimated Valuation Range is increased by 15%. See "PRO FORMA
DATA" for the assumptions used to arrive at such amounts. The Holding Company
has received conditional Federal Reserve approval to purchase all of the
capital stock of the Savings Bank to be issued in the Conversion and
Reorganization in exchange for 50% of the net proceeds of the Conversion
Offerings. This will result in the Holding Company retaining approximately
$5.72 million to $7.82 million of net proceeds, or up to $9.02 million if the
Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA."
Receipt of 50% of the net proceeds of the sale of the Conversion Shares
will increase the Savings Bank's capital and will support the expansion of the
Savings Bank's existing business activities. The Savings Bank will use the
funds contributed to it for general corporate purposes, including, initially,
lending and investment in short-term U.S. Government and agency obligations.
In connection with the Conversion and Reorganization, the Holding Company
intends to loan the ESOP the amount necessary to refinance the ESOP's existing
third party loan used to purchase shares of Savings Bank Common Stock in the
MHC Reorganization ($295,000 outstanding balance at December 31, 1997) and to
purchase 8% of the shares of Common Stock sold in the Conversion Offerings
($6.05 million at the maximum of the Estimated Valuation Range). The Holding
Company's loan to fund the ESOP's purchase of shares of Common Stock in the
Conversion Offerings may range from $925,000 to $1.28 million based on the sale
of 95,200 Conversion Shares to the ESOP (at the minimum of the Estimated
Valuation Range) and 128,800 Conversion Shares (at the maximum of the Estimated
Valuation Range), respectively, at the Purchase Price. If 15% above the maximum
of the Estimated Valuation Range, or 1,851,500 Conversion Shares, are sold in
the Conversion and Reorganization, the Holding Company's loan to the ESOP would
be approximately $1.48 million (based on the sale of 148,120 Conversion Shares
to the ESOP). The principal amount of the ESOP loan will be larger if
23
<PAGE>
the ESOP is unable to purchase shares in the Conversion and Reorganization and
instead purchases shares in the open market at prices above the Purchase Price.
It is anticipated that the ESOP loan will have a ten-year term with interest
payable at the prime rate as published in The Wall Street Journal on the
closing date of the Conversion and Reorganization. The loan will be repaid
principally from the Savings Bank's contributions to the ESOP and from any
dividends paid on shares of Common Stock held by the ESOP.
The net proceeds retained by the Holding Company initially will be
invested primarily in short-term U.S. Government and agency obligations or in a
deposit account either at the Savings Bank or another financial institution.
Such proceeds will be available for additional contributions to the Savings
Bank in the form of debt or equity, to support future diversification or
acquisition activities, as a source of dividends to the shareholders of the
Holding Company and for future repurchases of Common Stock to the extent
permitted under Pennsylvania law and federal regulations. The Holding Company
will consider exploring opportunities to use such funds to expand operations
through acquiring or establishing additional branch offices or acquiring other
financial institutions. Currently, there are no specific plans, arrangements,
agreements or understandings, written or oral, regarding any diversification
activities.
Following consummation of the Conversion and Reorganization, the Holding
Company's Board of Directors will have the authority to adopt plans for
repurchases of Common Stock, subject to statutory and regulatory requirements.
Facts and circumstances upon which the Holding Company's Board of Directors may
determine to repurchase stock in the future would include but are not limited
to: (i) market and economic factors such as the price at which the Common Stock
is trading in the market, the volume of trading, the attractiveness of other
investment alternatives, the ability to increase the book value and/or earnings
per share of the remaining outstanding shares, and the ability to improve the
Holding Company's return on equity; (ii) the avoidance of dilution to
shareholders by not issuing additional shares to cover the exercise of stock
options or to fund employee stock benefit plans; and (iii) any other
circumstances in which repurchases would be in the best interests of the
Holding Company and its shareholders. Any stock repurchases will be subject to
a determination by the Holding Company's Board of Directors that both the
Holding Company and the Savings Bank will be capitalized in excess of all
applicable regulatory requirements and tax and other regulatory considerations.
For a discussion of the regulatory limitations applicable to stock repurchases
and current Federal Reserve and FDIC policy with respect thereto, see "THE
CONVERSION AND REORGANIZATION -- Restrictions on Repurchase of Stock."
DIVIDEND POLICY
General
The Savings Bank currently does not pay dividends. Upon completion of the
Conversion and Reorganization, the Holding Company's Board of Directors will
have the authority to declare dividends on the Common Stock, subject to
statutory and regulatory requirements. Following consummation of the Conversion
and Reorganization, the Board of Directors of the Holding Company will consider
adopting a policy of paying regular cash dividends on the Common Stock. In
addition, the Board of Directors may determine to pay periodic special cash
dividends in addition to, or in lieu of, regular cash dividends. Declarations
or payments of any dividends (regular and special) will be subject to
determination by the Board of Directors, which will take into account the
amount of the net proceeds retained by the Holding Company, the Holding
Company's and the Savings Bank's financial condition and results of operations,
investment opportunities available to the Holding Company or the Savings Bank,
tax considerations, capital requirements, industry standards, economic
conditions and other factors, including the regulatory restrictions that affect
the payment of dividends by the Savings Bank to the Holding Company. The
primary source of dividends payable to the Holding Company will be dividends
from the Savings Bank. The Savings Bank may pay dividends only out of retained
earnings. As of December 31, 1997, the Savings Bank's retained earnings on a
pro forma basis were $793,000. See "Capitalization." See "REGULATION --
Regulation of the Holding Company -- Restrictions on Dividends." No assurances
can be given that any dividends, either regular or special, will be declared
or, if declared, what the amount of dividends will be or whether such
dividends, if commenced, will continue.
24
<PAGE>
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently,
there is no existing market for the Common Stock. Although the Holding Company
has received conditional approval to list the Common Stock on the Nasdaq
National Market under the symbol "PSBI," there can be no assurance that the
Holding Company will meet Nasdaq National Market listing requirements, which
include a minimum market capitalization, at least three market makers and a
minimum number of record holders. KB&W has agreed to make a market for the
Common Stock following consummation of the Conversion and Reorganization,
although it is under no obligation to do so, and will assist the Holding
Company in seeking to encourage at least two additional market makers to
establish and maintain a market in the Common Stock. Making a market involves
maintaining bid and ask quotations and being able, as principal, to effect
transactions in reasonable quantities at those quoted prices, subject to
various securities laws and other regulatory requirements. The Holding Company
anticipates that prior to the completion of the Conversion and Reorganization
it will be able to obtain the commitment from at least two additional
broker-dealers to act as market makers for the Common Stock. Additionally, the
development of a liquid public market depends on the existence of willing
buyers and sellers, the presence of which is not within the control of the
Holding Company, the Savings Bank or any market maker. There can be no
assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, it will continue. The number of active buyers
and sellers of the Common Stock at any particular time may be limited. Under
such circumstances, investors in the Common Stock could have difficulty
disposing of their shares on short notice and should not view the Common Stock
as a short-term investment. Furthermore, there can be no assurance that
purchasers will be able to sell their shares at or above the Purchase Price.
Since the MHC Reorganization the Public Savings Bank Shares have been
traded on the OTC Bulletin Board under the symbol "PSBI." The following table
sets forth the high and low trading prices, as reported by the OTC Bulletin
Board, and cash dividends paid for each quarter during the 1996 and 1997 fiscal
years. However, there is no relation between the Purchase Price of the Common
Stock and the trading prices of the Savings Bank Shares.
<TABLE>
<CAPTION>
Cash
Dividend
Year Ended December 31, 1996 High Low Declared
- ---------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Quarter ended March 31, 1996 .................................. $12.38 $ 11.50 $ 0
Quarter ended June 30, 1996 ................................... 11.63 11.00 0.0375
Quarter ended September 30, 1996 .............................. 11.75 10.50 0
Quarter ended December 31, 1996 ............................... 13.75 13.00 0
Year Ended December 31, 1997
Quarter ended March 31, 1997 .................................. $15.00 $ 14.00 $ 0
Quarter ended June 30, 1997 ................................... 15.00 13.00 0
Quarter ended September 30, 1997 .............................. 25.00 14.50 0
Quarter ended December 31, 1997 ............................... 29.00 24.00 0
January 1, 1998 to Present
Quarter ended March 31, 1998 (through March 31, 1998) ......... 26.25 26.25 $ 0
</TABLE>
25
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Savings
Bank at December 31, 1997, and the pro forma consolidated capitalization of the
Holding Company after giving effect to the assumptions set forth under "PRO
FORMA DATA," based on the sale of the number of shares of Common Stock at the
minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Valuation
Range. The shares that would be issued at the maximum, as adjusted, of the
Estimated Valuation Range would be subject to receipt of PDOB and FDIC approval
of an updated appraisal confirming such valuation. A change in the number of
shares to be issued in the Conversion and Reorganization would materially
affect pro forma consolidated capitalization.
<TABLE>
<CAPTION>
Capitalization
of Savings Bank
at
December 31, 1997
-------------------
(In thousands)
<S> <C>
Deposits(3) ...................................... $108,734
Borrowings ....................................... 3,136
--------
Total deposits and borrowed funds ................ $111,870
========
Shareholders' equity:
Savings Bank Common Stock:
10,000,000 shares, $1.00 par value per
share authorized; 1,194,640 issued and
outstanding .................................. $ 1,194
Holding Company Common Stock:
15,000,000 shares, no par value per share,
authorized; specified number of shares
assumed to be issued and outstanding ......... 0
Additional paid-in capital ...................... 13,563
Retained earnings(4) ............................ 546
Unrealized loss on securities available- for-
sale, net of tax .............................. (10)
Less:
Holding Company Common Stock
acquired by ESOP(5) .......................... (295)
Holding Company Common Stock to be
acquired by 1998 MRP(6) ...................... 0
--------
Total shareholders' equity ....................... $ 14,998
========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Holding Company Pro Forma Consolidated Capitalization
Based Upon the Sale of
-------------------------------------------------------------
1,190,000 1,400,000 1,610,000 1,851,500
shares at shares at shares at shares at
$10.00 $10.00 $10.00 $10.00
Per Share(1) Per Share(1) Per Share(1) Per Share(2)
-------------- -------------- -------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Deposits(3) ...................................... $108,734 $108,734 $108,734 $108,734
Borrowings ....................................... 3,136 3,136 3,136 3,136
-------- -------- -------- --------
Total deposits and borrowed funds ................ $111,870 $111,870 $111,870 $111,870
======== ======== ======== ========
Shareholders' equity:
Savings Bank Common Stock:
10,000,000 shares, $1.00 par value per
share authorized; 1,194,640 issued and
outstanding .................................. $ 0 $ 0 $ 0 $ 0
Holding Company Common Stock:
15,000,000 shares, no par value per share,
authorized; specified number of shares
assumed to be issued and outstanding ......... 0 0 0 0
Additional paid-in capital ...................... 26,183 28,283 30,383 32,798
Retained earnings(4) ............................ 793 793 793 793
Unrealized loss on securities available- for-
sale, net of tax .............................. (10) (10) (10) (10)
Less:
Holding Company Common Stock
acquired by ESOP(5) .......................... (1,247) (1,415) (1,583) (1,776)
Holding Company Common Stock to be
acquired by 1998 MRP(6) ...................... (476) (560) (644) (741)
-------- -------- -------- --------
Total shareholders' equity ....................... $ 25,243 $ 27,091 $ 28,939 $ 31,064
======== ======== ======== ========
</TABLE>
- ------------
(1) Does not reflect the possible increase in the Estimated Valuation Range or
the issuance of additional shares under the 1998 Stock Option Plan.
(2) Represents the pro forma capitalization of the Holding Company if the
aggregate number of Conversion Shares issued in the Conversion and
Reorganization is 15% above the maximum of the Estimated Valuation Range.
See "PRO FORMA DATA."
(3) Withdrawals from deposit accounts for the purchase of Conversion Shares are
not reflected. Such withdrawals will reduce pro forma deposits.
(4) Pro forma retained earnings include $247,000 of cash or cash equivalent
assets of the MHC. The other asset of the MHC, investment in subsidiary,
is eliminated upon consolidation. The MHC has no material liabilities. No
consideration will be paid by the Holding Company or the Savings Bank in
connection with the merger of the MHC and the Savings Bank. Retained
earnings are substantially restricted by applicable regulatory capital
requirements. Additionally, the Savings Bank will be prohibited from
paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account that will be established for
26
<PAGE>
the benefit of Eligible Account Holders and Supplemental Eligible Account
Holders at the consummation of the Conversion and Reorganization. See "THE
CONVERSION AND REORGANIZATION -- Effects of Conversion and Reorganization on
Depositors and Borrowers of the Savings Bank -- Liquidation Account."
(5) Assumes that 8% of the Conversion Shares sold in the Conversion and
Reorganization will be acquired by the ESOP with funds borrowed from the
Holding Company. Under generally accepted accounting principles ("GAAP"),
the amount of Conversion Shares to be purchased by the ESOP represents
unearned compensation and is, accordingly, reflected as a reduction of
capital. As shares are released to ESOP participant accounts, a
corresponding reduction in the charge against capital will occur. Because
the funds are borrowed from the Holding Company, the borrowing will be
eliminated in consolidation and no liability will be reflected in the
consolidated financial statements of the Holding Company. See "MANAGEMENT
-- Management of the Savings Bank -- Benefits -- Employee Stock Ownership
Plan."
(6) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed 1998 MRP, of a number of shares equal to 4% of the shares of
Conversion Shares issued in the Conversion and Reorganization at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range. The issuance of such additional Conversion Shares to the
1998 MRP from authorized but unissued shares of Common Stock would dilute
the ownership interest of shareholders by 2.04%. The shares are reflected
as a reduction of shareholders' equity. See "RISK FACTORS -- Possible
Dilutive Effect of Benefit Programs," "PRO FORMA DATA" and "MANAGEMENT --
Management of the Savings Bank -- Benefits -- Management Recognition
Plan." The 1998 MRP is subject to shareholder approval, which is expected
to be sought at a meeting to be held no earlier than six months following
consummation of the Conversion and Reorganization.
27
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Savings Bank's historical and pro forma
capital position relative to its capital requirements at December 31, 1997. The
amount of capital infused into the Savings Bank for purposes of the following
table is 50% of the net proceeds of the Conversion Offerings. For purpose of
the table below, the amount expected to be borrowed by the ESOP and the cost of
the shares expected to be acquired by the 1998 MRP are deducted from pro forma
regulatory capital. For a discussion of the assumptions underlying the pro
forma capital calculations presented below, see "USE OF PROCEEDS,"
"CAPITALIZATION" and "PRO FORMA DATA." The definitions of the terms used in the
table are those provided in the FDIC capital regulations as discussed under
"REGULATION -- Regulation of the Savings Bank -- Capital Requirements."
<TABLE>
<CAPTION>
Historical as of
December 31, 1997
-----------------------
Percent
of
Adjusted
Total
Amount Assets(1)
---------- -----------
<S> <C> <C>
GAAP Capital ....................... $14,998 13.35%
Leverage capital(2) ................ $15,001 13.36%
Leverage capital requirement(2)..... 6,739 6.00%
------- -----
Excess ............................. $ 8,262 7.36%
======= =====
Tier 1 risk-based capital(3) ....... $15,001 24.67%
Tier 1 capital requirement ......... 2,432 4.00%
------- -----
Excess ............................. $12,569 20.67%
======= =====
Total risk-based capital(4) ........ $15,239 25.06%
Total risk-based capital
requirement ....................... 4,865 8.00%
------- -----
Excess ............................. $10,374 17.06%
======= =====
<CAPTION>
PRO FORMA AT DECEMBER 31, 1997
-------------------------------------------------------------------------------------------
15% Above
Maximum of
Minimum of Midpoint of Maximum of Estimated
Estimated Estimated Estimated Valuation
Valuation Range Valuation Range Valuation Range Range
----------------------- ----------------------- ----------------------- ----------------
1,851,500
shares
1,900,000 shares 1,400,000 shares 1,610,000 shares at $10.00
at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share Per Share
----------------------- ----------------------- ----------------------- ---------------
(Dollars in thousands)
Percent Percent Percent Percent
of of of of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
---------- ----------- ---------- ----------- ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital ....................... $19,530 16.58% $20,328 17.12% $21,126 17.64% $22,043 18.24%
Leverage capital(2) ................ $19,533 16.58% $20,331 17.12% $21,129 17.65% $22,046 18.24%
Leverage capital requirement(2)..... 7,068 6.00% 7,126 6.00% 7,184 6.00% 7,250 6.00%
------- ----- ------- ----- ------- ----- ------- -----
Excess ............................. $12,465 10.58% $13,205 11.12% $13,945 11.65% $14,796 12.24%
======= ===== ======= ===== ======= ===== ======= =====
Tier 1 risk-based capital(3) ....... $19,533 33.70% $20,331 32.64% $21,129 33.92% $22,046 35.26%
Tier 1 capital requirement ......... 2,476 4.00% 2,484 4.00% 2,492 4.00% 2,501 4.00%
------- ----- ------- ----- ------- ----- ------- -----
Excess ............................. $17,056 27.55% $17,847 28.64% $18,637 29.92% $19,545 31.26%
======= ===== ======= ===== ======= ===== ======= =====
Total risk-based capital(4) ........ $19,770 31.93% $20,568 33.02% $21,366 34.30% $22,283 34.84%
Total risk-based capital
requirement ....................... 4,953 8.00% 4,968 8.00% 4,984 8.00% 5,001 8.00%
------- ----- ------- ----- ------- ----- ------- -----
Excess ............................. $14,817 23.93% $15,600 25.02% $16,382 26.30% $17,282 26.84%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ------------
(1) Based upon historical total adjusted assets of the Savings Bank of $112.31
million at December 31, 1997, and $117.80 million, $118.76 million,
$119.73 million and $120.84 million at the minimum, midpoint, maximum, and
maximum, as adjusted, of the Estimated Valuation Range, respectively, for
purposes of the leverage capital requirement; and, for purposes of the
risk-based capital requirements, based upon historical risk-weighted
assets of $60.81 million at December 31, 1997 and $61.91 million, $62.10
million, $62.30 million and of $62.52 million at the minimum, midpoint,
maximum, and maximum, as adjusted, of the Estimated Valuation Range,
respectively.
(2) Percentage represents leverage capital divided by total adjusted assets.
(3) Percentage represents tier 1 capital divided by total risk-weighted assets.
Assumes net proceeds are invested in assets that carry a 20%
risk-weighting.
(4) Percentage represents total capital divided by total risk-weighted assets.
Assumes net proceeds are invested in assets that carry a 20%
risk-weighting.
28
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the Conversion Shares must be sold at an
aggregate price equal to the estimated pro forma market value of the MHC and
the Savings Bank as converted determined by an independent valuation and
converted by multiplying the Appraisal by the MHC's percentage interest in the
Savings Bank (51.5%). Based upon this calculation, the Estimated Valuation
Range as of December 31, 1997 is from a minimum of $11.90 million to a maximum
of $16.10 million with a midpoint of $14.0 million or, at a price per share of
$10.00, a minimum number of shares of 1,190,000, a maximum number of shares of
1,610,000 and a midpoint number of shares of 1,400,000. The actual net proceeds
from the sale of the Conversion Shares cannot be determined until the
Conversion and Reorganization is completed. However, net proceeds set forth in
the following table are based upon the following assumptions: (i) Webb will
receive a fee not to exceed $100,000 which consists of a $25,000 management fee
and a success fee of 1.5% of the aggregate Purchase Price of the Conversion
Shares sold in the Subscription and Direct Community Offerings (see "THE
CONVERSION AND REORGANIZATION -- Plan of Distribution for the Subscription, the
Direct Community and the Syndicated Community Offerings); (ii) all of the
Conversion Shares will be sold in the Subscription and Direct Community
Offerings; and (iii) Conversion and Reorganization expenses, including the fees
paid to Webb, will total approximately $475,000 at each of the minimum,
midpoint, maximum and 15% above the Estimated Valuation Range. Actual expenses
may vary from this estimate, and the fees paid will depend upon the percentages
and total number of shares sold in the Subscription, Direct Community and
Syndicated Community Offerings and other factors.
The pro forma consolidated net income of the Savings Bank for the year
ended December 31, 1997 has been calculated as if the Conversion and
Reorganization had been consummated at the beginning of the period and the
estimated net proceeds received by the Holding Company and the Savings Bank had
been invested at 6.03%, at the beginning of the period, which represents the
arithmetic average of the Savings Bank's yield on interest-earning assets and
the rate paid on interest-bearing deposits for the year ended December 31,
1997. As discussed under "USE OF PROCEEDS," the Holding Company expects to
retain 50% of the net proceeds of the Conversion Offerings from which it will
fund the ESOP loan. A pro forma after-tax return of 3.98% is used for both the
Holding Company and the Savings Bank for the period, after giving effect to an
incremental combined federal and state income tax rate of 34.0%. Historical and
pro forma per share amounts have been calculated by dividing historical and pro
forma amounts by the number of shares of Common Stock indicated in the
footnotes to the table. Per share amounts have been computed as if the Common
Stock had been outstanding at the beginning of the period or at December 31,
1997, as applicable, but without any adjustment of per share historical or pro
forma shareholders' equity to reflect the earnings on the estimated net
proceeds.
The following tables summarize the historical net income and retained
earnings of the Savings Bank and the pro forma consolidated net income and
shareholders' equity of the Holding Company for the periods and at the date
indicated, based on the minimum, midpoint and maximum of the Estimated
Valuation Range and based on a 15% increase in the maximum of the Estimated
Valuation Range. No effect has been given to: (i) the shares to be reserved for
issuance under the 1998 Stock Option Plan, which is expected to be voted upon
by shareholders at a meeting to be held no earlier than six months following
consummation of the Conversion and Reorganization; (ii) withdrawals from
deposit accounts for the purpose of purchasing Conversion Shares in the
Conversion Offerings; (iii) the issuance of shares from authorized but unissued
shares to the 1998 MRP, which is expected to be voted upon by shareholders at a
meeting to be held no earlier than six months following consummation of the
Conversion and Reorganization; or (iv) the establishment of a liquidation
account for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- 1998 Stock
Option Plan" and "THE CONVERSION AND REORGANIZATION -- Stock Pricing, Exchange
Ratio and Number of Shares Issued." Conversion Shares may be purchased with
funds on deposit at the Savings Bank, which will reduce deposits by the amounts
of such purchases. Accordingly, the net amount of funds available for
investment will be reduced by the amount of deposit withdrawals used to fund
such purchases.
The following pro forma information may not be representative of the
financial effects of the Conversion and Reorganization at the date on which the
Conversion and Reorganization actually occurs and
29
<PAGE>
should not be taken as indicative of future results of operations.
Shareholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company computed according
to GAAP. Shareholders' equity has not been increased or decreased to reflect
the difference between the carrying value of loans and other assets and market
value. Shareholders' equity is not intended to represent fair market value nor
does it represent amounts that would be available for distribution to
shareholders in the event of liquidation.
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
-------------------------------------------------------------
15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range Range Range Range
------------- ------------- ------------- -------------
1,190,000 1,400,000 1,610,000 1,851,500
shares shares shares shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share(1)
------------- ------------- ------------- -------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds ................................ $ 11,900 $ 14,000 $ 16,100 $ 18,515
Less: estimated expenses ...................... 475 475 475 475
---------- ---------- ---------- ----------
Estimated net proceeds ........................ 11,425 13,525 15,625 18,040
Less: Common Stock acquired by ESOP ........... (952) (1,120) (1,288) (1,481)
Less: Common Stock to be acquired by 1998
MRP .......................................... (476) (560) (644) (741)
---------- ---------- ---------- ----------
Net investable proceeds .................... $ 9,997 $ 11,845 $ 13,693 $ 15,818
========== ========== ========== ==========
Consolidated net income:
Historical ................................... $ 708 $ 708 $ 708 $ 708
Pro forma income on net proceeds(2) .......... 398 471 545 630
Pro forma ESOP adjustments(3) ................ (63) (74) (85) (98)
Pro forma 1998 MRP adjustments(4) ............ (63) (74) (85) (98)
---------- ---------- ---------- ----------
Pro forma net income ....................... $ 980 $ 1,031 $ 1,083 $ 1,142
========== ========== ========== ==========
Consolidated net income per share(5)(6):
Historical ................................... $ 0.33 $ 0.28 $ 0.24 $ 0.21
Pro forma income on net proceeds ............. 0.19 0.18 0.19 0.18
Pro forma ESOP adjustments(3) ................ (0.03) (0.03) (0.03) (0.03)
Pro forma 1998 MRP adjustments(4) ............ (0.03) (0.03) (0.03) (0.03)
---------- ---------- ---------- ----------
Pro forma net income per share ............. $ 0.46 $ 0.40 $ 0.37 $ 0.33
========== ========== ========== ==========
Offering price as a multiple of pro forma net
earnings per share ........................... 22.22 25.00 27.03 30.30
Number of shares used in earnings per share
calculations ................................. 2,149,320 2,528,583 2,907,868 3,344,058
Shareholders' equity:
Historical(7) ................................ $ 15,245 $ 15,245 $ 15,245 $ 15,245
Estimated net proceeds ....................... 11,425 13,525 15,625 18,040
Less: Common Stock acquired by ESOP .......... (952) (1,120) (1,288) (1,481)
Less: Common Stock to be acquired by 1998
MRP(4) ..................................... (476) (560) (644) (741)
---------- ---------- ---------- ----------
Pro forma shareholders' equity(8) .......... $ 25,242 $ 27,090 $ 28,938 $ 31,064
========== ========== ========== ==========
Consolidated shareholders' equity per
share(6)(9):
Historical(6) ................................ $ 6.65 $ 5.66 $ 4.92 $ 4.28
Estimated net proceeds ....................... 5.00 5.02 5.04 5.06
Less: Common Stock acquired by ESOP .......... (0.42) (0.42) (0.42) (0.42)
Less: Common Stock to be acquired by 1998
MRP(4) ..................................... (0.21) (0.21) (0.21) (0.21)
---------- ---------- ---------- ----------
Pro forma shareholders' equity(10) ......... $ 11.02 $ 10.05 $ 9.33 $ 8.71
========== ========== ========== ==========
Purchase Price as a percentage of pro forma
shareholders' equity per share ............... 90.74% 99.50% 107.18% 114.81%
</TABLE>
30
<PAGE>
- ------------
(1) Gives effect to the sale of an additional 241,500 Conversion Shares in the
Conversion and Reorganization, which may be issued to cover an increase in
the pro forma market value of the MHC and the Savings Bank, as converted,
without the resolicitation of subscribers or any right of cancellation.
The issuance of such additional shares will be conditioned on a
determination by RP Financial that such issuance is compatible with its
determination of the estimated pro forma market value of the MHC and the
Savings Bank, as converted. See "THE CONVERSION AND REORGANIZATION --
Stock Pricing, Exchange Ratio and Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Conversion Shares. Because funds on deposit at the
Savings Bank may be withdrawn to purchase shares of Common Stock (which
will reduce deposits by the amount of such purchases), the net amount of
funds available to the Savings Bank for investment following receipt of
the net proceeds of the Conversion Offerings will be reduced by the amount
of such withdrawals.
(3) It is assumed that 8% of the Conversion Shares issued in the Conversion and
Reorganization will be purchased by the ESOP. The funds used to acquire
such shares will be borrowed by the ESOP (at an interest rate equal to the
prime rate as published in The Wall Street Journal on the closing date of
the Conversion and Reorganization) from the net proceeds from the
Conversion Offerings retained by the Holding Company. The amount of this
borrowing has been reflected as a reduction from gross proceeds to
determine estimated net investable proceeds. The Savings Bank intends to
make contributions to the ESOP at least equal to the principal and
interest requirement of the debt. As the debt is repaid, shareholders'
equity will be increased. The Savings Bank's payment of the ESOP debt is
based upon equal installments of principal over a 10-year period, assuming
a combined federal and state income tax rate of 34.0%. Interest income
earned by the Holding Company on the ESOP debt offsets the interest paid
by the Savings Bank on the ESOP loan. No reinvestment is assumed on
proceeds contributed to fund the ESOP. The ESOP expense reflects adoption
of Statement of Position ("SOP") 93-6, which requires recognition of
expense based upon shares committed to be released and the exclusion of
unallocated shares from earnings per share computations. The valuation of
shares committed to be released would be based upon the average market
value of the shares during the year, which, for purposes of this
calculation, was assumed to be equal to the Purchase Price. See
"MANAGEMENT -- Management of the Savings Bank -- Benefits -- Employee
Stock Ownership Plan."
(4) In calculating the pro forma effect of the 1998 MRP, it is assumed that the
required shareholder approval has been received, that the shares were
acquired by the 1998 MRP at the beginning of the periods presented in open
market purchases at the Purchase Price, that the amount contributed was
amortized during such periods at the rate of 20% per annum, that for
purposes of this table, compensation expense is recognized on a
straight-line basis over each vesting period, and that the combined
federal and state income tax rate is 34.0%. The issuance of authorized but
unissued shares of Common Stock instead of open market purchases would
dilute the voting interests of existing shareholders by approximately
2.04% and pro forma net income per share would be $.45, $.41, $.37 and
$.34 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range for the year ended December 31, 1997,
respectively. Pro forma shareholders' equity per share would be $11.00,
$10.05, $9.35 and $8.74 at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range at December 31, 1997,
respectively. In the event the fair market value per share is greater than
$10.00 per share on the date shares are awarded under the 1998 MRP, total
1998 MRP expense would increase. SEE "RISK FACTORS -- Expenses Associated
with ESOP and 1998 MRP." No effect has been given to the shares reserved
for issuance under the proposed 1998 Stock Option Plan. If shareholders
approve the 1998 Stock Option Plan following the Conversion and
Reorganization, the Holding Company will have reserved for issuance under
the 1998 Stock Option Plan authorized but unissued shares of Common Stock
representing an amount of shares equal to 10% of the Conversion Shares
sold in the Conversion Offerings. If all of the options were exercised,
and shares were issued from authorized but unissued shares, the voting and
ownership interests of existing shareholders would be diluted by
approximately 4.94%. Assuming shareholder approval of the 1998 Stock
Option Plan and that all options were exercised at the end of the year
ended December 31, 1997 at an exercise price of $10.00 per share, pro
forma net earnings per share would be $.46, $.42, $.38 and $.35,
respectively, for the year ended December 31, 1997, and pro forma
shareholders' equity per share would be $10.97,
31
<PAGE>
$10.05, $9.37 and $8.78, respectively, at December 31, 1997 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range. See "MANAGEMENT -- Management of the Savings Bank -- Benefits -- 1997
Stock Option Plan" and "-- Benefits -- Management Recognition Plan" and
"RISK FACTORS -- Possible Dilutive Effect of Benefit Programs."
(5) Per share amounts are based upon shares outstanding of 2,149,320,
2,528,583, 2,907,868 and 3,344,058 for the year ended December 31, 1997,
at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively. Such amounts include the
Conversion Shares sold in the Conversion and Reorganization, less the
number of shares assumed to be held by the ESOP not committed to be
released within the first year following the Conversion and
Reorganization.
(6) Historical per share amounts have been computed as if the Conversion Shares
expected to be issued in the Conversion and Reorganization had been
outstanding at the beginning of the period or on the dates shown, but
without any adjustment of historical net income or historical retained
earnings to reflect the investment of the estimated net proceeds of the
sale of shares in the Conversion and Reorganization, the additional ESOP
expense or the proposed 1998 MRP expense, as described above.
(7) Historical book value includes $247,000 of assets held by the MHC, that
will be consolidated with the Savings Bank's book value upon consummation
of the Conversion and Reorganization.
(8) "Shareholders equity" represents the difference between the stated amounts
of the Savings Bank's assets and liabilities. The amounts shown do not
reflect the liquidation account that will be established for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders in
the Conversion and Reorganization, or the federal income tax consequences
of the restoration to income of the Savings Bank's special bad debt
reserves for income tax purposes that would be required in the unlikely
event of liquidation. See "THE CONVERSION AND REORGANIZATION -- Effects of
Conversion and Reorganization to Stock Form on Depositors and Borrowers of
the Savings Bank" and "FEDERAL TAXATION." The amounts shown for book value
do not represent fair market values or amounts distributable to
shareholders in the unlikely event of liquidation.
(9) Per share amounts are based upon shares outstanding of 2,291,131,
2,695,400, 3,099,728 and 3,564,698 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
(10) Shareholders equity per share does not give effect to outstanding options
or MRP awards that may be granted in the future. Amounts are not intended
to represent possible future price appreciation or depreciation of the
Common Stock.
32
<PAGE>
COMMON STOCK TO BE PURCHASED
OR RECEIVED BY MANAGEMENT
The following table sets forth, for each director and executive officer
and for all of the directors and executive officers as a group, (i) Exchange
Shares to be held upon consummation of the Conversion and Reorganization, based
upon their beneficial ownership of Savings Bank Common Stock as of December 31,
1997, (ii) proposed purchases of Conversion Shares, assuming shares available
to satisfy their subscriptions, and (iii) total shares of Common Stock to be
held upon consummation of the Conversion and Reorganization, in each case
assuming that 1,400,000 Conversion Shares are sold at the midpoint of the
Estimated Valuation Range. No individual has entered into a binding agreement
with respect to such intended purchases, and, therefore, actual purchases could
be more or less than indicated below. Directors and executive officers and
their associates may not purchase in excess of 33% of the shares sold in the
Conversion and Reorganization. Directors, officers and employees will pay the
Purchase Price for each share for which they subscribe.
<TABLE>
<CAPTION>
Number of Proposed Purchase of Total Common Stock
Exchange Conversion Shares to be Held
Shares to ------------------------ ----------------------------
be Held Number Number Percentage
(1)(2) Amount of shares of shares(2) of Total
----------- ---------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Vincent J. Fumo (3)(4)(5) .......... 227,249 $ 0 0 227,249 8.43%
Chief Executive Officer
and Chairman of the Board
Anthony DiSandro (3)(5) ............ 102,646 0 0 102,646 3.81
President and Director
Sylvia M. DiBona (5) ............... 51,982 0 0 51,982 1.92
Director
P. Charles DeRita .................. 11,179 $ 28,210 2,821 14,000 0.52
Director
James W. Eastwood .................. 13,862 $ 138 138 14,000 0.52
Director
James F. Kenney .................... 224 $ 33,000 3,300 3,524 0.13
Director
Roseanne Pauciello ................. 5,590 $ 38,500 3,850 9,440 0.35
Director and Secretary
Thomas J. Finley ................... 0 $140,000 14,000 14,000 0.52
Director
S. Michael Palermo ................. 0 $140,000 14,000 14,000 0.52
Director
Jane Scaccetti Fumo (4)(5) ......... 227,249 0 0 227,249 8.43
Director
Alfonso Tumini ..................... 0 $ 45,370 4,537 4,537 0.17
Director
Leonard A. Green ................... 224 $ 10,000 1,000 1,224 0.05
Director
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Number of Proposed Purchase of Total Common Stock
Exchange Conversion Shares to be Held
Shares to ------------------------- ----------------------------
be Held Number Number Percentage
(1)(2) Amount of shares of shares(2) of Total
----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Gary Polimeno (5) ................... 19,769 $ 0 0 19,769 0.73%
Vice President
All directors and executive officers. 432,725 $435,480 43,548 471,734 17.5
as a group (13 persons)
</TABLE>
- ------------
(1) Excludes shares that may be received upon the exercise of outstanding stock
options granted under the 1995 Stock Option Plan. Based upon the Exchange
Ratio of 2.2358 Exchange Shares for each Public Savings Bank Share at the
midpoint of the Estimated Valuation Range, the persons named in the table
would have options to purchase Common Stock as follows: Mr. Fumo, 37,099
shares; Mr. DiSandro, 37,099 shares; and Mr. Polimeno, 5,976 shares.
(2) Excludes stock options that may be granted under the 1998 Stock Option Plan
and awards that may be granted under 1998 MRP if such plans are approved
by shareholders at an annual or special meeting held at least six months
following the Conversion and Reorganization. See "MANAGEMENT OF THE
SAVINGS BANK -- Benefits."
(3) Excludes Exchange Shares held by the ESOP as to which Messrs. Fumo and
DiSandro exercise voting control.
(4) Vincent Fumo and Jane Scaccetti Fumo are husband and wife. Amount includes,
based upon an Exchange Ratio of 2.2358 Exchange Shares for each Public
Savings Bank Share at the midpoint of the Estimated Valuation Range,
40,244 shares held through the 401(k) Plan, 16,109 shares held through the
Profit Sharing Plan, 94,004 shares held in IRA accounts, 22,718 shares
held by the 1995 MRP which have been awarded to Mr. Fumo, 447 shares held
by Mrs. Fumo and 671 shares held on behalf of the daughter of Vincent and
Jane Scaccetti Fumo.
(5) These individuals already own the maximum amount of Common Stock that can
be acquired in the Conversion Offerings and therefore they are not
permitted to purchase additional shares in the Conversion and
Reorganization.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Business Strategy of the Savings Bank
The Savings Bank's strategy is to maximize profitability by providing
quality deposit and loan products in an efficient manner as a well-capitalized
and independent savings bank. Generally, the Savings Bank seeks to implement
this strategy by emphasizing retail deposits as its primary source of funds and
by maintaining a substantial part of its assets in locally-originated
residential first mortgage loans, commercial real estate loans, commercial
business loans, construction loans and consumer loans, mortgage-backed
securities and other liquid investment securities. The Savings Bank started an
expansion of its branch network by opening a branch in Center City Philadelphia
on June 14, 1996. The Savings Bank plans further expansion of its branch
network in areas contiguous to its current market and then into the suburbs of
Philadelphia by opening branch offices or acquiring the branches of other
institutions. The Savings Bank is also expanding the operations of TNMC, its
mortgage banking subsidiary, in an effort to increase its fee income. Retail
mortgage origination is being expanded by maintaining a staff of six
commissioned sales people to solicit mortgage loans throughout the Philadelphia
metropolitan area and surrounding counties in Pennsylvania, New Jersey and
Delaware; wholesale mortgage origination is being expanded by originating,
processing and servicing loans for other mortgage companies. See
"SUBSIDIARIES." The Savings Bank is increasing loan originations through its
existing office network and is increasing origination of other loan products
separate from TNMC such as commercial real estate loans, commercial business
loans, construction loans and consumer loans. During the year ended December
31, 1997, loan originations other than residential mortgage loans totalled
$26.75 million or 72.42% of originations during the period. This increased
origination of loans other than residential mortgage loans reflects
management's effort to diversify the Savings Bank's loan portfolio, achieve a
higher net interest margin through the origination of higher yielding assets.
The Savings Bank expects this diversification trend to continue.
The Savings Bank's business strategy incorporates the following elements:
(1) increasing assets by expanding its retail branch network to include other
contiguous segments of the metropolitan Philadelphia market; (2) increasing fee
income by expanding its mortgage banking operations through the metropolitan
Philadelphia area and the adjacent counties of Pennsylvania, New Jersey and
Delaware, and (3) increasing net interest income and reducing interest rate
risk by emphasizing the origination for portfolio of commercial real estate,
construction, commercial business and consumer loans, which generally bear
higher interest rates and have shorter terms than residential mortgage loans.
The Savings Bank's expansion strategy has resulted in materially increased
operating expenses associated with the lease of the Center City Philadelphia
office space, related equipment expense and salary and benefit expenses for
personnel expansion. Also as expected, the generation of increased revenues
from the new branch and the mortgage banking operation has lagged recognition
of these additional expenses.
In February 1996, the Board of Trustees of Pennsylvania Savings Bank
elected to change the Savings Bank's fiscal year end from September 30th to
December 31st. The Savings Bank filed a transition report pursuant to Section
13 of the Securities Exchange Act of 1934 for the transition period from
October 1, 1995 to December 31, 1995. Due to this change, a portion of the
following discussion compares the Savings Bank's results of operations for its
fiscal year ended December 31, 1996 to its fiscal year ended September 30,
1995. Management of the Savings Bank does not believe that this timing
difference is material to an understanding of the Savings Bank's comparative
results of operations.
Financial Condition -- December 31, 1997 Compared to December 31, 1996
The Savings Bank's total assets increased $10.91 million or 9.21% to
$129.34 million at December 31, 1997 from $118.43 million at December 31, 1996.
The increase in assets was primarily the result of higher levels of office
properties and equipment, net loans, loans held for sale and investments which
were partially offset by a decrease in cash and cash equivalents.
Net loans increased by $9.33 million to $61.92 million at December 31,
1997 from $52.59 million at December 31, 1996. The increase of 17.74% was the
result of modest demand for new mortgage loan origination in the Savings Bank's
market area. Net loans also increased due to the Savings Bank increasing loan
origination of other loan products such as commercial real estate, commercial
business loans, construction loans and consumer loans.
35
<PAGE>
Total investment securities (including mortage-backed securities)
increased $2.70 million, or 10.83%, to $27.62 million at December 31, 1997 from
$24.92 million at December 31, 1996. The increase occurred because the Savings
Bank transferred cash and cash equivalents and new deposit funds into higher
yielding, one to five year maturity investment securities during the year ended
December 31, 1997.
Cash and cash equivalents, including interest-bearing deposits with banks,
decreased $3.73 million to $27.89 million at December 31, 1997 from $31.62
million at December 31, 1996. This decrease was the result of cash used for the
purchase of investments, capital expenditures and disbursements of loan
proceeds net of cash provided from new deposits, maturities of investments and
loan payments.
Total liabilities increased to $114.34 million at December 31, 1997 from
$104.27 million at December 31, 1996. This $10.07 million, or 9.66% increase
reflected an increase in the Savings Bank's primary source of funds, saving
deposits, which aggregated $108.73 million at December 31, 1997, an increase of
$8.16 million, or 8.11% from $100.57 million at December 31, 1996.
Shareholder's equity increased by $830,000, or 5.86%, from $14.17 million
at December 31, 1996 to $15.00 million at December 31, 1997. This increase
reflects the Savings Bank's earnings for the year ended December 31, 1997 and a
decrease of $60,000 in unrealized losses (net of taxes) on investment and
mortgage-backed securities held in the Savings Bank's available for sale
portfolio as well as the payment of $60,000 on the Savings Bank's ESOP loan.
36
<PAGE>
Results of Operations for the Years Ended December 31, 1997 and December 31,
1996
General. The Savings Bank's net income is primarily dependent on its net
interest income, which is the difference between interest income earned on its
interest-earning assets (such as investments and mortgage-backed securities,
other investment securities and loans), and its cost of funds (consisting of
interest paid on deposits). The Savings Bank's net income also is affected by
its provision for loan losses, as well as by the amount of noninterest income,
including income from fees and services charges, net gains and losses on sales
of mortgage-backed securities and other investments, and noninterest expense
such as employee compensation and benefits, deposit insurance premiums,
occupancy and equipment costs, and income taxes. Earnings of the Savings Bank
also are affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities, which events are beyond the control of the Savings
Bank. In particular, the general level of market interest rates tends to be
highly cyclical. In periods of high interest rates, earnings of the Savings
Bank are likely to be depressed, which in turn would be likely to have a
detrimental effect on the market value of any investment in the Holding
Company's Common Stock.
Average Balance Sheet. The following table provides an analysis on a
monthly basis of net interest income, setting forth for the periods (i) average
assets, liabilities and shareholders' equity, (ii) interest income earned on
interest-earning assets and interest expense paid on interest-bearing
liabilities, (iii) average yields earned on interest-earning assets and average
rates paid on interest-bearing liabilities, and (iv) the Savings Bank's net
interest margin (net interest income as a percentage of average total
interest-earning assets).
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------- ---------- ---------- ----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning deposits(1) ................... $ 25,648 $1,210 4.72% $ 27,803 $1,207 4.34%
Investment securities .......................... 23,182 1,616 6.97 18,880 1,183 6.27
Mortgage-backed securities ..................... 5,696 374 6.57 6,494 431 6.64
Net loans(2) ................................... 62,213 5,540 8.90 56,048 5,218 9.31
-------- ------ ----- -------- ------ -----
Total interest-earning assets ................. 116,739 8,740 7.49 109,225 8,039 7.36
-------- ------ ----- -------- ------ -----
Noninterest-earning assets ...................... 6,565 6,777
-------- --------
Total assets .................................. $123,304 $116,002
======== ========
LIABILITIES
Interest-bearing liabilities:
Savings deposits ............................... $ 40,061 1,137 2.84% $ 40,677 1,122 2.76%
Certificates ................................... 59,178 3,397 5.74 52,253 2,960 5.66
-------- ------ ----- -------- ------ -----
Total deposits ................................ 99,239 4,534 4.57 92,930 4,082 4.39
Borrowed money ................................ 323 31 9.60 387 36 9.30
-------- ------ ----- -------- ------ -----
Total interest-bearing liabilities ............ 99,562 4,565 4.59% 93,317 4,118 4.41%
-------- ------ ----- -------- ------ -----
Noninterest-bearing liabilities ................. 9,096 8,431
-------- --------
Total liabilities ............................. 108,658 101,748
Retained earnings or shareholders' equity ....... 14,646 14,254
-------- --------
Total liabilities and retained
earnings or shareholders' equity .............. $123,304 $116,002
======== ========
Net interest income ............................. $4,175 $3,921
====== ======
Interest rate spread(3) ......................... 2.90% 2.95%
Net yield on interest-earning assets(4) ......... 3.58% 3.59%
Ratio of interest-earning assets to interest-
bearing liabilities ............................ 1.17x 1.17x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1995
-----------------------------------
Average Yield/
Balance Interest Rate
----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning deposits(1) ................... $ 24,782 $ 817 3.30%
Investment securities .......................... 21,063 1,135 5.39
Mortgage-backed securities ..................... 6,884 493 7.16
Net loans(2) ................................... 51,259 4,825 9.41
-------- ------ -----
Total interest-earning assets ................. 103,988 7,270 6.99%
-------- ------ -----
Noninterest-earning assets ...................... 5,756
--------
Total assets .................................. $109,744
========
LIABILITIES
Interest-bearing liabilities:
Savings deposits ............................... $ 44,277 1,200 2.71%
Certificates ................................... 49,416 2,237 4.53
-------- ------ -----
Total deposits ................................ 93,693 3,437 3.67
Borrowed money ................................ -- 6 --
-------- ------ -----
Total interest-bearing liabilities ............ 93,693 3,443 3.67%
-------- ------ -----
Noninterest-bearing liabilities ................. 6,560
--------
Total liabilities ............................. 100,253
Retained earnings or shareholders' equity ....... 9,491
--------
Total liabilities and retained
earnings or shareholders' equity .............. $109,744
========
Net interest income ............................. $3,827
======
Interest rate spread(3) ......................... 3.32%
Net yield on interest-earning assets(4) ......... 3.68%
Ratio of interest-earning assets to interest-
bearing liabilities ............................ 1.11x
</TABLE>
- ------------
(1) Includes interest-earning deposits with the Federal Home Loan Bank of
Pittsburgh.
(2) Includes nonaccrual loans.
(3) Represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.
(4) Represents net interest earnings divided by average interest-earning
assets.
37
<PAGE>
Rate/Volume Analysis. Net interest income is affected by changes in the
mix of the volume and sales of interest-earning assets and interest-earning
liabilities. The following table represents the extent to which changes in
interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Savings Bank's interest income
and interest expense during the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31, and
Year Ended December 31, September 30,
------------------------------------- ----------------------------------
1997 vs. 1996 1996 vs. 1995
Increase/(Decrease) Increase/(Decrease)
------------------------------------- ----------------------------------
Volume Rate Total Volume Rate Total
---------- ----------- ---------- -------- ------------ --------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investments(1) .......................... $198 $ 238 $436 $ (6) $444 $ 438
Mortgage-backed securities .............. (52) (5) (57) (26) (36) (62)
Loans(2) ................................ 549 (227) 322 446 (53) 393
----- ------- ----- ----- ---- -----
Total interest-earning assets ......... 695 6 701 414 355 769
Interest-bearing liabilities:
Deposits ................................ 380 72 452 61 584 645
Borrowed Money .......................... (6) 1 (5) 36 (6) 30
Total interest-bearing
liabilities. .......................... 374 73 447 97 578 675
------ ------- ------ ----- ------ -----
Net change in net interest income . $321 $ (67) $254 $ 317 ($223) $ 94
====== ======= ====== ===== ====== =====
</TABLE>
- ------------
(1) Includes interest-earning deposits and investment securities.
(2) Includes non-accrual loans and loans held for sale.
Net Income. The Savings Bank's net income totaled $708,000 and $139,000
for the year ended December 31, 1997 and December 31, 1996, respectively. This
increase in net income was the result of an one basis point increase in the
Savings Bank's net yield on interest earning assets principally caused by an
increase of $6.17 million in average loans and a $4.30 million increase in
investment securities and a decrease in noninterest expense associated with the
FDIC's one-time special assessment in the year ended December 31, 1996. Without
the SAIF special assessment, net income for 1996 would have been $513,000.
Earnings per share for 1997 and 1996, were $.61 and $.12, respectively.
Interest Income. Total interest income increased by $700,000, or 8.71%, to
$8.74 million for the year ended December 31, 1997, from $8.04 million for the
year ended December 31, 1996. This reflected a $7.51 million, or 6.88%,
increase in average interest-earning assets, and a 13 basis point increase in
average yield on interest-earning assets. The increase in average
interest-earning assets was comprised of a $3.50 million increase in average
investment and mortgage-backed securities and a $6.17 million increase in
average net loans. The increase in interest-earning assets generally reflected
management's strategy of pursuing moderate growth while maintaining adequate
margins over minimum required capital levels.
Interest Expense. Total interest expense increased to $4.56 million for
the year ended December 31, 1997, from $4.12 million for the year ended
December 31, 1996, representing an increase of $440,000 or 10.68%. Higher
interest expense resulted from a $6.25 million increase in average-interest
bearing liabilities and an 18 basis point incerase in the average yield on
interest-bearing liabilities. This increase in interest-bearing liabilities was
comprised of a $6.93 million increase in higher yielding average certificates
of deposit that was only partially offset by a $616,000 decrease in average
savings deposits. Despite the small decline in savings account deposits, the
Savings Bank attracts a significant portion of its deposits from its passbook
product. Management's experience is that its customer base still finds the
traditional passbook savings account attractive even though higher yields may
be available from alternative deposit products. Accordingly, the Savings Bank
prices its passbook product above its large commercial bank competitors. As a
result, the Savings Bank has been able to fund operations with a significant
percentage of passbook savings accounts and thereby achieve a comparatively low
cost of funds.
38
<PAGE>
Provision for Loan Losses. The Savings Bank makes a provision to its
allowance for loan losses to protect the Savings Bank against possible but not
yet identified losses inherent in the Savings Bank's loan portfolio. This
provision is recognized for financial reporting purposes as a reduction of
income. In making such provision, management of the Savings Bank considers,
among other factors, the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and current economic
conditions that may affect the borrower's ability to pay. Effective January 1,
1997, interest is discontinued on all loans that are contractually past due 3
months. Prior to January 1, 1997, interest was discontinued on residential
loans that were contractually past due 12 months, unless the value of the
mortgaged property well exceeded the loan balance in which case interest
continued to accrue until the loan balance plus accrued interest equalled the
fair market value of the property securing the loan. Interest was discontinued
on commercial, consumer and unsecured loans that were contractually past due 3
months. During the years ended December 31, 1997 and 1996, the Savings Bank had
charge-offs against the allowance for loan losses of $29,000 and $133,000,
respectively, reflecting write-offs on several different loans in both periods.
During such periods, the Savings Bank provided $60,000 and $133,000,
respectively, for loan losses in order to protect against future losses. The
provision for loan losses was higher in both 1997 and 1996 compared to prior
periods. This occurred during these years, in part, because of deterioration in
certain specific credits in 1996 and because of the planning and implementation
of the loan diversification strategy. Management expects the provision for loan
losses to increase in future periods as the Savings Bank achieves its
diversification strategy. In addition, the provision for loan losses may
increase in 1998 and 1999 if management determines that losses inherent in the
existing portfolio of nonaccrual loans exceeds anticipated recoveries.
Net Interest Income After Provision for Loan Losses. Net interest income
after the provision for loan losses for the year ended December 31, 1997,
increased to $4.12 million from $3.79 million for the year ended December 31,
1996, an increase of $330,000, or 8.71%.
Noninterest Income. Noninterest income consists of gain on sale of loans,
loan fees, service charges, rental income, net gains and losses on sales of
investment and mortgage-backed securities and other income. Noninterest income
increased by $60,000, or 5.94%, to $1.07 million for the year ended December
31, 1997 from $1.01 million for the year ended December 31, 1996. The principal
reasons for the increase in noninterest income was a $220,000 increase in gain
on sale of loans to $556,000 in 1997 from $336,000 in 1996 and a $54,000
increase in loan fees to $81,000 in 1997 from $27,000 in 1996 due to higher
loan origination volume which was offset by a $23,000 decrease in service
charges attributable to a major customer of the bank discontinuing services
where its daily excess cash was sent to the Savings Bank and the customer was
charged a fee per $1,000. This service began in the last calendar quarter of
1995 and was discontinued in the third quarter of 1996; therefore there were no
fees charged for the year ended December 31, 1997. Other income decreased
$90,000 from $137,000 for the year ended December 31, 1996 to $47,000 for the
year ended December 31, 1997.
Noninterest Expense. Noninterest expense principally consists of
employees' compensation and benefits, deposit insurance premiums and premises
and occupancy costs. Noninterest expense decreased by $230,000, or 5.28%, to
$4.13 million for the year ended December 31, 1997, from $4.36 million for the
year ended December 31, 1996. The principal reasons for the decrease was a
$671,000 decrease in federal insurance premiums due to the FDIC's one-time
assessment to recapitalize the Savings Association Insurance Fund in the year
ended December 31, 1996 and a $135,000 decrease in expenses of real estate
owned due to a write down of real estate owned for the year ended December 31,
1996. This decrease was offset by an increase of $228,000 in premises and
occupancy costs and a $344,000 increase in compensation and employee benefits
due to the establishment of the new Center City branch, the relocation of the
executive offices to Center City and related increased staffing requirements.
Income Taxes. Income tax provisions for the year ended December 31, 1997
and 1996 of $345,000 and $201,000, respectively, generally reflect the Savings
Bank's pre-tax income at rates then in effect, except that a $37,000 and
$59,000 deferred tax expense as a result of timing differences in the
recognition of revenue and expenses for tax and financial statement purposes
were realized in the December 31, 1997 and 1996 period, respectively.
39
<PAGE>
Results of Operations for the Years Ended December 31, 1996 and September 30,
1995
Net Income
The Savings Bank's net income totalled $139,000 and $659,000 for the years
ended December 31, 1996 and September 30, 1995, respectively. The decrease in
net income was the result of substantially higher non-interest expense
associated with the federal deposit insurance assessment to recapitalize the
SAIF, the Savings Bank's Center City branch expansion, the move of the
executive offices from South Philadelphia to Center City, Philadelphia and the
expansion of the mortgage banking operations and was partially offset by higher
net interest income and noninterest income.
Interest Income. Total interest income increased by $770,000, or 10.59%,
to $8.04 million for the year ended December 31, 1996, from $7.27 million for
the year ended September 30, 1995. This reflected a $5.24 million, or 5.04%,
increase in average interest-earning assets and a 37 basis point increase in
average yield on interest-earning assets. The increase in average
interest-earning assets was comprised of a $3.02 million increase in average
interest-earning deposits and a $4.79 million increase in average net loans.
The increase in net loans resulted from modest loan demand in the Savings
Bank's market area. The increase in interest-earning assets generally reflected
management's strategy of pursuing moderate growth while maintaining adequate
margins over minimum required capital levels.
Interest Expense. Total interest expense increased to $4.12 million for
the year ended December 31, 1996, from $3.44 million for the year ended
September 30, 1995, representing an increase of $680,000, or 19.77%. Higher
interest expense resulted from a $376,000 decrease in average-interest bearing
liabilities but a shift in deposit composition including a $2.84 million
increase in average certificates of deposit and a $3.60 million decrease in
average savings deposits. Customers indicated a preference for certificates of
deposit, which had an average yield increase of 113 basis points, over savings
accounts, which had an average yield increase of only 5 basis points. As a
result, the yield on all interest-bearing liabilities increased 74 basis
points. In 1996 as market interest rates rose and alternative deposit products
began to pay higher yields, the historical relative price inelasticity of the
Savings Bank's passbook accounts diminished. Accordingly, the Savings Bank was
forced to increase rates on passbook accounts which resulted in compression of
its interest rate spread from 3.32% for the year ended September 30, 1995 to
2.95% for the year ended December 31, 1996.
Provision for Loan Losses. For the years ended December 31, 1996 and
September 30, 1995, the Savings Bank had charge-offs against the allowance for
loan losses of $133,000 and $27,000, reflecting write-offs on several different
loans. During such period, the Savings Bank provided $133,000 and $27,000,
respectively, for loan losses in order to protect against future losses. The
significant increase in the provision for loan losses for the year ended
December 31, 1996 from the prior period was caused primarily by a decision on
the part of management to increase the allowance for loan losses in
anticipation of the implementation of the loan diversification strategy of the
Savings Bank.
Net Interest Income After Provision for Loan Losses. Net interest income
after the provision for possible loan losses for the year ended December 31,
1996, decreased to $3.79 million from $3.80 million for the year ended
September 30, 1995, a decrease of $70,000 or 1.88%.
Noninterest Income. Noninterest income increased by $38,000, or 4.33%, to
$915,000 for the year ended December 31, 1996 from $877,000 for the year ended
September 30, 1995. The principal reasons for the increase in noninterest
income were a $16,000 increase in rental income, a $150,000 increase in gain on
sale of loans due to higher volume orgination volume, and a $300,000 increase
in service charges attributable to a major customer of the Savings Bank
requiring additional services where its daily excess cash is sent to the
Savings Bank and the customer is charged a fee per $1,000. This service began
in the last calendar quarter of 1995; therefore there were no fees charged
prior to September 30, 1995. The increase in noninterest income was offset by a
decrease in other income of $245,000 and a decrease of $182,000 in loan fees.
Noninterest Expense. Noninterest expense principally consists of
employees' compensation and benefits, deposit insurance premiums and occupancy
and equipment costs. Noninterest expense increased by $820,000, or 22.90%, to
$4.40 million for the year ended December 31, 1996, from $3.58 million for the
year ended September 30, 1995. The principal reasons for the increase were a
$534,000 increase in federal insurance premiums due
40
<PAGE>
to the FDIC's one-time assessment to recapitalize the SAIF, a $128,000 increase
in premises and occupancy costs due to the opening of the new Center City
Branch and relocation of the executive offices in June 1996 and a $107,000
increase in expenses of real estate owned and a $71,000 increase in noninterest
expense.
Income Taxes. Income tax provisions for the years ended December 31, 1996
and September 30, 1995 of $201,000 and $433,000, respectively, generally
reflect the Savings Bank's pre-tax income at rates then in effect, except that
a $59,000 and $33,000 deferred tax expense as a result of timing differences in
the recognition of revenue and expenses for tax and financial statement
purposes were realized in the December 31, 1996 and September 30, 1995 period,
respectively.
Liquidity and Capital Resources
The Savings Bank is required to maintain a sufficient level of liquid
assets, as determined by management and defined and reviewed for adequacy by
the FDIC during its regular examinations. The FDIC, however, does not prescribe
by regulation a minimum amount or percentage of liquid assets. The FDIC allows
any marketable security, whose sale would not impair the capital adequacy of
the Savings Bank, to be eligible for liquidity. The Savings Bank's liquidity is
quantified through the use of a standard liquidity ratio of liquid assets (cash
and cash equivalents, investment securities available-for-sale, mortgage-backed
securities available-for-sale and Federal Home Loan Bank stock) to short-term
borrowings plus deposits. Using this formula, the Savings Bank's liquidity
ratio was 42.11% as of December 31, 1997. The Savings Bank adjusts its
liquidity levels in order to meet funding needs of deposit outflows and loan
commitments. The Savings Bank also adjusts liquidity as appropriate to meet its
asset/liability management objectives.
The Savings Bank's primary source of funds are deposits, the amortization
and prepayment of loans and mortgage-backed securities, maturities of
investments securities, the sale of mortgage loans as part of TNMC's mortgage
banking business and earnings provided from operations. While scheduled
principal repayments on loans and mortgage-backed securities are a relatively
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rate levels, economic conditions and
competition. The Savings Bank manages the pricing of its deposits to maintain a
desired deposit balance. In addition, the Savings Bank invests excess funds in
short-term, interest-earning assets and other assets that provide liquidity to
meet lending requirements and interest rate risk management objectives.
Short-term, interest-earning deposits with the FHLB of Pittsburgh amounted to
$26.70 million at December 31, 1997. For additional information about cash
flows from the Savings Bank's operating, financing and investment activities,
see "CONSOLIDATED FINANCIAL STATEMENTS."
A major portion of the Savings Bank's liquidity consists of cash and cash
equivalents, which are a product of its operating investment and financing
activities. The primary sources of cash were net income, principal repayments
on loans and mortgage-backed securities and increases in deposit accounts. At
December 31, 1997, the Savings Bank had unfunded loan commitments of $2.99 and
certificates of deposit due to mature within one year of $45.64 million. The
Savings Bank believes its has sufficient liquidity to meet these obligations.
Asset/Liability Management and Interest Rate Sensitivity Analysis
Interest rate risk may be analyzed by examining the extent to which an
institution's assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or re-price within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or re-pricing within a specific time period
and the amount of interest-bearing liabilities maturing or re-pricing within
that time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income while a positive gap would tend to positively affect net
interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to positively affect net interest income while a
positive gap would tend to adversely affect net interest income.
41
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1997, that are
expected to re-price or mature, based upon certain assumptions, in each of the
future time periods shown. Except as stated below, the amounts of assets and
liabilities shown that re-price or mature during a particular period were
determined in accordance with the earlier of the term of re-pricing or the
contractual term of the asset or liability. Management believes that these
assumptions approximate the standards used in the savings industry and
considers them appropriate and reasonable.
<TABLE>
<CAPTION>
More than More Than
One Year Two Years
Within One To Two To Three
Year Years Years
------------ ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans (1)(2) Mortgage loans:
Residential ..................... $ 3,568 $ 125 $ 570
Commercial. ..................... 1,627 566 1,073
Land and construction
loans .......................... 2,597
Consumer loans. ................. 357 117 165
Other loans ..................... 2,157
------- -------- ---------
Total loans .................... 10,306 808 1,808
------- -------- ---------
Mortgage-backed
securities(3) .................. 625 535 461
Mortgage loans held for
sale. .......................... 6,575
Investment securities(4). ....... 18,234 2,020 --
Other interest-earning
assets. ........................ 23,778
------- -------- ---------
Total interest-earning
assets ....................... $ 59,518 $ 3,363 $ 2,269
======== ======== =========
Interest-bearing liabilities:
Transaction accounts. ............. $ 5,374
Money market accounts ............. 7,201
Other savings accounts. ............ 1,188
Passbook accounts(5). ............. 3,922 3,334 2,834
Certificate of deposit over
100,000. ........................ 8,904 1,284 100
Certificate of deposit under
100,000. ........................ 36,738 12,884 1,472
Repurchase agreement. ............. 1,724 945 173
-------- -------- ---------
Total interest-bearing
liabilities .................... $ 65,051 $ 18,447 $ 4,579
======== ======== =========
Interest-bearing assets net of
interest-bearing liabilities. ..... (5,533) (15,084) (2,310)
Cumulative excess (deficiency)
interest-bearing assets over
interest-bearing liabilities. ..... (5,533) (20,617) (22,927)
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing liabili-
ties as a percentage of total
assets ............................ (4.28%) (15.94%) (17.73%)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
More Than More Than
Three Five Years
Years To To Ten More Than
Five Years Years Ten Years Total
------------ ------------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)(2) Mortgage loans:
Residential ..................... $ 2,147 $ 4,059 $ 34,471 $ 44,940
Commercial. ..................... 6,184 1,162 1,510 12,122
Land and construction
loans .......................... 2,597
Consumer loans. ................. 264 49 -- 952
Other loans ..................... 2,157
--------- -------- --------- --------
Total loans .................... 8,595 5,270 35,981 62,768
--------- -------- --------- --------
Mortgage-backed
securities(3) .................. 927 2,453 -- 5,001
Mortgage loans held for
sale. .......................... 6,575
Investment securities(4). ....... -- -- -- 20,254
Other interest-earning
assets. ........................ 23,778
--------- -------- --------- --------
Total interest-earning
assets ....................... $ 9,522 $ 7,723 $ 35,981 $118,376
========= ======== ========= ========
Interest-bearing liabilities:
Transaction accounts. ............. $ 5,374
Money market accounts ............. 7,201
Other savings accounts. ............ 1,188
Passbook accounts(5). ............. 4,817 11,240 -- 26,147
Certificate of deposit over
100,000. ........................ 503 -- -- 10,791
Certificate of deposit under
100,000. ........................ 1,205 405 -- 52,704
Repurchase agreement. ............. -- -- -- 2,842
--------- -------- --------- --------
Total interest-bearing
liabilities .................... $ 6,525 $ 11,645 $ -- $106,247
========= ======== ========= ========
Interest-bearing assets net of
interest-bearing liabilities. ..... 2,997 (3,922) 35,981 12,129
Cumulative excess (deficiency)
interest-bearing assets over
interest-bearing liabilities. ..... (19,930) (23,852) 12,129
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing liabili-
ties as a percentage of total
assets ............................ (15.41%) (18.44%) 9.38%
</TABLE>
- ------------
(1) Net of deferred loan fees and the allowance for loan losses.
(2) Adjustable-rate loans are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
contractually due to mature. Fixed-rate loans are included in the period
in which they are contractually due to mature.
(3) Reflects the repricing of the underlying loans and/or the expected average
life of the mortgage-backed security.
(4) Reflects repricing or contractual maturity.
(5) For passbook accounts, which totalled $26.15 million, or 24.05% of total
deposits at December 31, 1997, assumes an annual decay rate of 15% through
the fifth year, based upon historical trends.
42
<PAGE>
Significant shortcomings are inherent in the analysis presented by the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to re-pricing, they may react in different
degrees to changes in market interest rates. Also, interest rates on certain
types of assets and liabilities may fluctuate in advance of or lag behind
changes in market interest rates. Additionally, certain assets, such as some
adjustable rate loans, have features that restrict changes in interest rates on
a short term basis and over the life of the asset. Moreover, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table.
The Savings Bank's portfolio of adjustable rate loans constituted only
11.92% of the total loan portfolio at December 31, 1997. Accordingly, the
Savings Bank's policy in recent years has been to reduce its exposure to
interest rate risk by maintaining high asset liquidity through the purchase of
short-term or adjustable-rate investment securities and mortgage-backed
securities. See "RISK FACTORS -- Interest Rate Risk." Although this requires
the Savings Bank to accept lower yields on these assets, it permits the Savings
Bank to frequently reinvest proceeds of repayments and maturing securities to
take advantage of changing interest rates. As part of its strategy to expand
commercial, commercial real estate and consumer lending, the Savings Bank has
also experienced growth in short-term loans that re-price more frequently and
therefore more closely match the market interest rates.
Of the Savings Bank's $108.73 million in deposits at December 31, 1997,
$45.43 million consisted of deposit accounts that are immediately withdrawable.
The Savings Bank nevertheless believes that, based upon historical experience,
a substantial portion of these deposits represent inelastic deposits and are
not likely to be withdrawn because of changes in interest rates, nor are they
likely to re-price as rapidly as changes in market interest rates. Therefore,
although the foregoing table indicates that interest-earning liabilities
significantly exceed interest-earning assets for maturity or repricing periods
of two years or less, the Savings Bank believes that because of its stable core
deposit base and its relatively high balance of cash and short term investments
that the Savings Bank is not exposed to material interest rate risk.
Impact of Accounting Pronouncements and Regulatory Policies
Accounting for Employee Stock Ownership Plans. In November 1993 the
American Institute of Certified Public Accountants issued SOP 93-6, which
requires an employer to record compensation expense in an amount equal to the
fair value of shares committed to be released to employees from an employee
stock ownership plan and to exclude unallocated shares from earnings per share
computations. The effect of SOP 93-6 on net income and book value per share in
future periods cannot be predicted due to the uncertainty of the fair value of
the shares at the time they will be committed to be released. See "PRO FORMA
DATA."
Accounting for Stock-Based Compensation. In October 1995, FASB issued SFAS
No. 123. This statement encourages all entities to adopt a fair value-based
method of accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," whereby compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date (or other measurement date)
over the amount an employee must pay to acquire the stock. Entities electing to
remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value-based
method of accounting had been applied.
Generally, stock options issued under the 1995 Stock Option Plan have no
intrinsic value at the grant date, and under APB Opinion No. 25, no
compensation cost is recognized for them. The accounting requirements of this
statement are generally effective for transactions entered into in fiscal years
that begin after December 15, 1995. The disclosure requirements of this
statement are generally effective for financial statements for fiscal years
beginning after December 15, 1995. The Savings Bank has continued accounting
for stock options under APB Opinion No. 25 and has made the pro forma
disclosures prescribed by this Statement. See "PRO FORMA DATA."
43
<PAGE>
Earnings Per Share. SFAS No. 128, "Earnings Per Share," issued in February
1997, establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly-held common stock or potential
common stock. It replaces the presentation of primary EPS with a presentation
of basic EPS and requires the dual presentation of basic and diluted EPS on the
face of the income statement. SFAS No. 128 is effective for the financial
statements for the periods ending after December 15, 1997. SFAS No. 128
requires restatement of all prior period EPS data presented. The impact of its
adoption has not been material to the Savings Bank.
Disclosure of Information About Capital Structure. SFAS No. 129,
"Disclosure of Information About Capital Structure," establishes standards for
disclosing information about an entity's capital structure and applies to all
entities. SFAS No. 129 continues the previous requirements to disclose certain
information about an entity's capital structure found in APB Opinions No. 10,
"Omnibus Opinion - 1966," and No. 15, "Earnings Per Share," and SFAS No. 47,
"Disclosure of Long-Term Obligations," for entities that were subject to those
standards. SFAS No. 129 is effective for financial statements for periods
ending after December 15, 1997. SFAS No. 129 contains no change in disclosure
requirements for entities that were previously subject to the requirements of
APB Opinions Nos. 10 and 15 and SFAS No. 47. The adoption of the provisions of
SFAS No. 129 is not expected to have a material impact on the Savings Bank.
Disclosure About Comprehensive Income. SFAS No. 130, "Reporting
Comprehensive Income," issued in July 1997, establishes standards for reporting
and presentation of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. It requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is presented with the same prominence as other
financial statements. SFAS No. 130 requires that companies (i) classify items
of other comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial condition. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comprehensive purposes is required.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of
money over time due to inflation. The primary impact of inflation is reflected
in the increased cost of the Savings Bank's operations. Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
Disclosure Regarding Year 2000 Compliance
The Holding Company and the Savings Bank are taking measures to address
the impact of the "Year 2000" issue on its information systems. The Year 2000
issue, which is common to most businesses, concerns the inability of certain
information systems, primarily certain computer software programs, to properly
recognize and process date sensitive information beyond the year 1999. The
Holding Company and the Savings Bank outsource all data processing applications
to Intrieve, Incorporated ("Intrieve"). Under the agreement with Intrieve,
Intrieve is obligated to incur all software related costs to make its system
Year 2000 compliant. Intrieve has prepared a detailed schedule of functions to
be performed in its compliance project. The expected completion of the project
is scheduled for December 1998. The Holding Company and the Savings Bank are
obligated to incur only the hardware cost associated with implementing the
changes required by Intrieve, however the hardware costs are not expected to be
material. Other computer programs utilized by the Company and the Savings Bank,
such as accounting packages and investment packages, are either Year 2000
compliant or will be Year 2000 compliant in the near future at no significant
cost to the Holding Company and the Savings Bank.
44
<PAGE>
BUSINESS
Business of the Holding Company
General. The Holding Company was organized as a Pennsylvania business
corporation at the direction of the Savings Bank on October 3, 1997 for the
purpose of becoming a holding company for the Savings Bank upon completion of
the Conversion and Reorganization. As a result of the Conversion and
Reorganization, the Savings Bank will be a wholly-owned subsidiary of the
Holding Company and all of the issued and outstanding capital stock of the
Savings Bank will be owned by the Holding Company.
Business. Prior to the Conversion and Reorganization, the Holding Company
has not and will not engage in any significant activities other than that of an
organizational nature. Upon completion of the Conversion and Reorganization,
the Holding Company's primary business activity will be the ownership of the
outstanding capital stock of the Savings Bank. In the future, the Holding
Company may acquire or organize other operating subsidiaries, although there
are no current plans, arrangements, agreements or understandings, written or
oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Savings Bank.
Because the Holding Company will hold only the outstanding capital stock
of the Savings Bank upon consummation of the Conversion and Reorganization, the
competitive conditions applicable to the Holding Company will be the same as
those confronting the Savings Bank. See "BUSINESS -- Business of the Savings
Bank -- Competition."
Business of the Savings Bank
General. The Savings Bank is a Pennsylvania-chartered stock savings bank
headquartered in Philadelphia, Pennsylvania. The Savings Bank is a
community-oriented institution offering traditional deposit and loan products.
The Savings Bank operates five full-service offices in Philadelphia,
Pennsylvania and one full-service office in Glenside, Montgomery County,
Pennsylvania.
In February 1996, the Board of Trustees of Pennsylvania Savings Bank
elected to change the Savings Bank's fiscal year end from September 30th to
December 31st. The Savings Bank filed a Transition Report pursuant to Section
13 of the Securities Exchange Act of 1934 for the transition period from
October 1, 1995 to December 31, 1995.
At December 31, 1997, the Savings Bank had total assets of $129.34
million, total deposits of $108.73 million and shareholders' equity of $15.00
million.
The Savings Bank is primarily engaged in the business of attracting
deposits from the general public in the Savings Bank's market area and
investing such deposits in loans secured by one- to four-family residential
real estate, commercial real estate loans, commercial business loans,
construction loans and investment and mortgage-backed securities. The Savings
Bank's deposits are insured by the SAIF of the FDIC to the extent that such
deposits were assumed from the mutual savings bank in the MHC Reorganization.
Deposits accepted by the Savings Bank after the MHC Reorganization are insured
by the FDIC's BIF, up to applicable limits.
Lending Activities
General. The Savings Bank historically focused its lending activities
primarily on the origination of loans secured by first mortgages on
owner-occupied, one-to four-family residences for retention in the Savings
Bank's portfolio. The Savings Bank has expanded origination of one-to
four-family residential mortgage loans for resale in the secondary market
through expansion of its mortgage banking operations. As part of a strategy to
diversify its loan portfolio, achieve a higher net interest margin and reduce
interest rate risk, the Savings Bank has increased its origination of
construction loans, commercial real estate loans, commercial business loans,
and
45
<PAGE>
multifamily real estate loans which together totalled 26.50% of the Savings
Bank's total loans at December 31, 1997. To a lesser extent, the Savings Bank
and its subsidiaries also originate consumer loans, including home equity,
second mortgage, and other consumer loans. The Savings Bank expects this
diversification trend to continue.
One- to-four-family residential mortgage loans originated for resale in
the secondary market are underwritten according to standards that conform to
FNMA and/or FHLMC guidelines. One- to-four-family residential mortgage loans
originated and held in portfolio are generally underwritten to conform to
secondary market standards but from time to time the Savings Bank originates
non-conforming loans if, in the Savings Bank's judgment, the borrower does not
present an unreasonable risk of default. The Savings Bank and TNMC, its
mortgage banking subsidiary, have sold residential mortgage loans in the
secondary market. The Savings Bank has begun to expand its mortgage banking
capabilities through TNMC and anticipates that its origination of loans for
sale in the secondary market in Southeastern Pennsylvania, Southern New Jersey
and Northern Delaware will increase significantly.
Analysis of Loan Portfolio. Set forth below is selected data relating to
the composition of the Savings Bank's loan portfolio by type of loan as of the
dates indicated, including data regarding the portion of the Savings Bank's
loans that bear fixed and adjustable interest rates, respectively. TNMC has
originated and sold mortgage loans to third party investors within the Savings
Bank's financial reporting periods. Such mortgage loans are not reflected in
the financial tables and financial statements pertaining to a particular period
to the extent that such loans were sold prior to any period end.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
1997 1996
----------------------- -----------------------
Amount Percent Amount Percent
---------- ----------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
One-to-four-family ................ $44,940 71.59% $45,018 84.47%
Construction loans ................ 2,597 4.14 661 1.24
Five or more family residence ..... 702 1.12 654 1.23
Nonresidential .................... 11,421 18.20 5,575 10.46
Commercial loans ................... 1,908 3.04 369 0.69
Consumer loans(1) .................. 1,201 1.91 1,016 1.91
------- ------ ------- ------
Total loans(2) ................... $62,769 100.00% $53,293 100.00%
======= ====== ======= ======
Less:
Unearned fees and discounts ....... $ 478 $ 495
Undisbursed loan proceeds ......... 138 5
Allowance for loan losses ......... 238 207
------- -------
Net Loans ......................... $61,915 $52,586
======= =======
Total loans with:
Fixed rates ....................... $55,289 88.08% $48,701 91.38%
Adjustable rate ................... 7,480 11.92 4,592 8.62
------- ------ ------- ------
Total loans(2) ................... $62,769 100.00% $53,293 100.00%
======= ====== ======= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
Amount Percent Amount Percent Amount Percent
---------- ----------- ---------- ----------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One-to-four-family ................ $43,033 82.93% $43,105 84.28% $44,258 85.99%
Construction loans ................ 829 1.60 339 0.66 651 1.26
Five or more family residence ..... 508 0.98 405 0.79 412 0.80
Nonresidential .................... 5,940 11.45 5,819 11.38 5,192 10.09
Commercial loans ................... 602 1.16 780 1.53 236 0.46
Consumer loans(1) .................. 977 1.88 696 1.36 720 1.40
------- ------ ------- -------- ------- ------
Total loans(2) ................... $51,889 100.00% $51,144 $ 100.00% $51,469 100.00%
======= ====== ======= ========= ======= ======
Less:
Unearned fees and discounts ....... $ 464 $ -- $ --
Undisbursed loan proceeds ......... 5 24 10
Allowance for loan losses ......... 208 208 187
------- ------- -------
Net Loans ......................... $51,212 $50,912 $51,272
======= ======= =======
Total loans with:
Fixed rates ....................... $47,632 91.80% $46,740 91.39% $47,129 91.57%
Adjustable rate ................... 4,257 8.20 4,404 8.61 4,340 8.43
------- ------ ------- --------- ------- ------
Total loans(2) ................... $51,889 100.00% $51,144 100.00% $51,469 100.00%
======= ====== ======= ========= ======= ======
</TABLE>
- ------------
(1) Consists of both secured and unsecured personal loans.
(2) Does not include loans originated and held for sale by TNMC, the Savings
Bank's subsidiary, which amounted to $6.6 million and $4.6 million, at
December 31, 1997 and 1996, respectively and $1.04 million, $185,000 and
$1.5 million at September 30, 1995, 1994 and 1993, respectively.
One-to Four-Family Residential Real Estate Loans. The primary lending
activity of the Savings Bank historically consisted of the origination for
retention in the Savings Bank's portfolio of owner-occupied one-to four-family
residential mortgage loans secured by properties located in the Savings Bank's
market area. In 1997,
46
<PAGE>
consistent with the Savings Bank's strategy regarding diversification of its
loan portfolio, origination of loans other than residential mortgages loans
totalled $26.75 million, or 72.42%, of originations in 1997. However, at
December 31, 1997, $44.94 million, or 71.59%, of the Savings Bank's total loan
portfolio still consisted of one-to four-family residential mortgage loans.
The Savings Bank currently offers one- to four-family residential mortgage
loans with terms typically ranging from 10 to 30 years, with either adjustable
or fixed interest rates. Originations of fixed-rate mortgage loans versus
adjustable-rate mortgage loans are affected by such things as interest rate
risk policies, customer preferences and competition. In the Savings Bank's
market area borrowers strongly prefer fixed-rate mortgage loans as opposed to
adjustable-rate mortgage loans.
The Savings Bank's fixed-rate loans are generally originated and
underwritten according to standards that permit sale in the secondary mortgage
market. Secondary mortgage market loans typically conform to FNMA and/or FHLMC
guidelines. The Savings Bank has, from time to time, originated loans that do
not conform to such secondary market standards. Such nonconforming loans
include loans exceeding the maximum loan amounts acceptable to FNMA and FHLMC
and loans as to which the Savings Bank's underwriting indicates that the
particular borrower does not present an unreasonable risk of default in view of
underwriting criteria that differ from secondary mortgage market standards.
Whether the Savings Bank can or will sell fixed-rate loans in the secondary
market, however, depends on a number of factors including the yield and the
term of the loan, market conditions, and the Savings Bank's current interest
rate risk position. The Savings Bank has primarily been a portfolio lender, and
at any one time the Savings Bank holds only a nominal amount of loans for
immediate sale.
The Savings Bank's one-to four-family mortgage loans are amortized on a
monthly basis with principal and interest due each month. One- to four-family
residential real estate loans often remain outstanding for significantly
shorter periods than their contractual terms because borrowers may refinance or
prepay loans at their option.
The Savings Bank currently offers adjustable-rate mortgage loans with
initial interest rate adjustment periods of one and three years, based on
changes in a designated market index. After the initial interest rate
adjustment, each adjustable-rate mortgage loan adjusts either annually or every
third year within a periodic interest rate adjustment limit of 200 basis points
and within a maximum interest rate adjustment limit of 600 basis points above
the initial rate. Adjustable-rate mortgage loans are currently priced at a
fixed margin above the weekly average yield on United States Treasury
securities adjusted to a constant term to maturity of one year (or three years
in the case of loans with three year interest rate adjustment periods), as
published by the Federal Reserve. The Savings Bank originates adjustable-rate
mortgage loans with initially discounted rates, which vary depending upon
market conditions and whether the initial rate adjustment period is one or
three years. Adjustable-rate loans represented 11.92% of the Savings Bank's
total loan portfolio at December 31, 1997 due to the difficulty of originating
adjustable-rate mortgage loans in the Savings Bank's primary market.
Traditionally, the Savings Bank's older, low to moderate income residential
customer base has not been receptive to adjustable rate mortgage loans and this
tendency was exacerbated in recent years because of the comparatively low
interest rate environment for fixed rate mortgate loans.
The Savings Bank's one- to four-family residential first mortgage loans
customarily include due-on-sale clauses, which are provisions giving the
Savings Bank the right to declare a loan immediately due and payable in the
event, among other things, that the Borrower sells or otherwise disposes of the
underlying real property serving as security for the loan. Due-on-sale clauses
are an important means of adjusting the rates on the Savings Bank's fixed-rate
mortgage loan portfolio, and the Savings Bank has usually exercised its rights
under these clauses.
Regulations limit the amount that a savings bank may lend relative to the
appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan origination. Appraisals are performed by
appraisers approved by the Savings Bank's Board of Trustees. Such regulations
permit a maximum loan-to-value ratio of 95% for residential property and 80%
for all other real estate loans. The Savings Bank's lending policies limit the
maximum loan-to-value ratio on both fixed-rate and adjustable-rate mortgage
loans without private mortgage insurance to 80% of the lesser of the appraised
value or the purchase price of the real estate that serves
47
<PAGE>
as collateral for the loan. For one- to four-family real estate loans with
loan-to-value ratios in excess of 80%, the Savings Bank requires the borrower
to obtain private mortgage insurance. The Savings Bank requires fire and
casualty insurance, as well as title insurance on all properties securing real
estate loans made by the Savings Bank.
Construction Loans. The Savings Bank's loan portfolio included $2.60
million of construction loans at December 31, 1997, which amounted to 4.14% of
the Savings Bank's total loan portfolio. The Savings Bank offers fixed and
adjustable rate residential construction loans primarily for the construction
of owner-occupied one-to four-family residences in the Savings Bank's market
area to builders or to owners who have a contract for construction. The Savings
Bank generally does not make a construction loan to a builder unless the
housing unit is under an agreement of sale. Construction loans to owners are
generally structured to become permanent loans, and are originated with terms
up to 30 years with an allowance of up to one year for construction. The
Savings Bank's largest construction loan at December 31, 1997 had a principal
balance of approximately $989,000. Construction loans at December 31, 1997 were
located in Philadelphia County, Montgomery County and Bucks County,
Pennsylvania.
Construction lending generally involves a greater degree of credit risk
than other one- to four-family residential mortgage lending. The repayment of
the construction loan is often dependent upon the successful completion of the
construction project. Construction delays or the inability of the borrower to
sell the property once construction is completed may impair the borrower's
ability to repay the loan.
Five or More Family Residential Real Estate Loans. Loans secured by five
or more family residential real estate constituted approximately $702,000, or
1.12%, of the Savings Bank's total loan portfolio at December 31, 1997. The
Savings Bank's five or more family residential real estate loans are secured by
residence buildings with over 4 family units, which are generally rental
properties. At December 31, 1997, all of the
Savings Bank's five or more family residential real estate loans were secured
by properties located within the Savings Bank's market area. The Savings Bank's
largest five or more family residential real estate loan at December 31, 1997,
had a principal balance of approximately $196,000.
Five or more family residential real estate loans are offered with both
adjustable interest rates and fixed interest rates. The terms of each five or
more family residential real estate loan are negotiated on a case-by-case
basis. The Savings Bank generally makes five or more family residential real
estate loans up to 80% of the lesser of property cost or the appraised value of
the mortgaged property. Loans secured by five or more family residential real
estate generally involve a greater degree of credit risk than one-to
four-family residential mortgage loans. This increased credit risk is a result
of several factors, including the concentration of larger balances in a limited
number of loans and borrowers, the effects of general economic conditions on
income producing properties, and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
five or more family residential real estate is typically dependent upon the
successful operation of related real estate property. If the cash flow from the
project is reduced, the borrower's ability to repay the loan may be impaired.
Nonresidential Real Estate Loans. Loans secured by nonresidential real
estate constituted approximately $11.42 million, or 18.20%, of the Savings
Bank's total loan portfolio at December 31, 1997. The Savings Bank's
nonresidential real estate loans are secured by nonresidential properties such
as retail establishments, office buildings, and industrial buildings. The
Savings Bank also originates nonresidential real estate loans through its
subsidiary, PSA Financial Corp. See "SUBSIDIARIES." A significant portion of
the Savings Bank's nonresidential real estate loans are secured by properties
located within the Savings Bank's market area. The Savings Bank's largest
nonresidential real estate loan, which is secured by a business property in the
Savings Bank's market area, had a principal balance of approximately $1.16
million at December 31, 1997, and was performing in accordance with its terms.
Nonresidential real estate loans are offered with both adjustable interest
rates and fixed interest rates. The terms of each nonresidential real estate
loan are negotiated on a case-by-case basis. The Savings Bank generally makes
nonresidential real estate loans up to 75% of the lesser of property cost or
the appraised value of the mortgaged property. As in the case of five or more
family loans, nonresidential real estate loans generally involve a greater
degree of credit risk than one-to four-family residential mortgage loans and
carry larger loan balances.
48
<PAGE>
This increased credit risk results from the concentration of principal in a
more limited number of loans and borrowers, the effects of general economic
conditions on income producing properties, and the increased difficulty of
evaluating and monitoring nonresidential loans. The repayment of loans secured
by nonresidential real estate is typically dependent upon the success of the
related business operation. If the cash flow from the business is impaired, the
borrower's ability to repay the loan may also be impaired.
Commercial Loans. The Savings Bank currently offers commercial loans to
finance various activities in the Philadelphia metropolitan area, some of which
are secured in part by additional real estate collateral, such as business
property and/or personal residences. The Savings Bank originates commercial
loans through its subsidiary, PSA Financial Corp. See "SUBSIDIARIES." At
December 31, 1997, commercial loans totalled approximately $1.91 million or
3.04% of the total loan portfolio. Commercial loans are offered with either
adjustable or fixed interest rates. Adjustable rates are tied to the Savings
Bank's prime rate plus a margin.
Underwriting standards employed by the Savings Bank for commercial loans
include a determination of the applicant's ability to met existing obligations
and payments on the proposed loan from normal cash flows generated by the
applicant's business. The financial strength of each applicant also is assessed
through a review of financial statements provided by the applicant. Commercial
loans generally bear higher interest rates than residential loans, but they
also may involve a higher risk of default since their repayment is generally
dependent on the successful operation of the borrower's business. The Savings
Bank generally obtains personal guarantees from the borrower or a third party
as a condition to originating its commercial loans.
Consumer Loans. As of December 31, 1997, consumer loans totalled $1.20
million, or 1.91%, of the Savings Bank's total loan portfolio. The principal
types of consumer loans offered by the Savings Bank are home equity loans and
lines of credit, unsecured personal loans, and loans secured by deposit
accounts. The Savings Bank's subsidiary, PSA Consumer Discount Company, offers
secured and unsecured personal loans. See "SUBSIDIARIES." Consumer loans are
offered with maturities generally of less than ten years. The Savings Bank's
home equity loans and lines of credit are secured by the borrower's principal
residence with a maximum loan-to-value ratio, including the principal balances
of both the first and second mortgage loans, of 80% in the case of home equity
loans and 70% in the case of lines of credit. Such loans are offered on both a
fixed-rate and an adjustable-rate basis with terms of up to fifteen years.
The underwriting standards employed by the Savings Bank for consumer loans
include a determination of the applicant's credit history and an assessment of
ability to meet existing obligations and payments on the proposed loan. The
stability of the applicant's monthly income may be determined by verification
of gross monthly income from primary employment, and additionally from any
verifiable secondary income. Creditworthiness of the applicant is of primary
consideration; however, the underwriting process also includes a comparison of
the value of the collateral in relation to the proposed loan amount, and in the
case of home equity loans or lines of credit, the Savings Bank either obtains
title insurance or obtains a title search report, depending on the particular
loan.
Consumer loans entail greater credit risk than do residential first
mortgage loans, particularly in the case of consumer loan that are unsecured or
secured by assets that depreciate rapidly. In such cases, repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment for the outstanding loan and the remaining deficiency often does not
warrant further substantial collection efforts against the borrower. See "--
Delinquencies and Classified Assets -- Nonperforming Assets," "-- Loans Past
Due and Nonperforming Assets," and "-- Classification of Assets" for
information regarding the Savings Bank's loan loss experience and reserve
policy.
Mortgage Banking Operations
Through its subsidiary, TNMC, the Savings Bank has conducted a mortgage
banking operation since 1989. Mortgage banking consists primarily of the
origination, purchase, sale and servicing of first mortgage loans secured by
one-to-four family homes. Such loans are sold either as individual loans, as
mortgage-backed secur-ities, or as participation certificates issued or
guaranteed by FNMA or FHLMC. Loans may be sold either on a servicing retained
or servicing released basis.
49
<PAGE>
As of December 31, 1997, the Savings Bank's equity investment in TNMC
totaled ($60,000). For the year ended December 31, 1997, TNMC's loan
originations totaled $18.13 million and net loss totaled ($37,000). For the
year ended December 31, 1996, TNMC sold 81.79% of the loans originated in that
year and at December 31, 1997 TNMC had sold 89.10% of the loans originated in
that year.
The Savings Bank plans to expand into the Philadelphia metropolitan
market, including counties of New Jersey and Delaware, because management
believes this market is more accustomed to obtaining mortgages from mortgage
brokers as well as directly from banks and thrifts. The Savings Bank has
implemented a strategy in this area to expand TNMC's operations in order to
increase the origination of loans for sale in the secondary market and for its
own portfolio and the expansion of its servicing portfolio.
The Savings Bank expects that it will serve as the principal funding
source for TNMC pursuant to a credit arrangement between the parties. TNMC
originates loans in accordance with FNMA and FHLMC underwriting criteria or the
criteria of private investors.
In the past, TNMC has sold loans on a servicing released basis, but, as
origination volume increases, the Savings Bank is establishing loan servicing
capabilities and TNMC expects to sell servicing to the Savings Bank. Loan
servicing income provides a predictable source of fee income and servicing
values are generally countercyclical to the origination side of the mortgage
banking business. At December 31, 1997, the Savings Bank was not servicing any
loans for others.
Because mortgage originations fluctuate significantly with economic
conditions, mortgage banking revenues are very cyclical. To the extent TNMC
revenues and profits become, as expected, a significant component of the
Savings Bank's consolidated revenues and net income, earnings of the Savings
Bank could fluctuate materially.
Loan Maturity and Re-pricing Schedule. The following table set forth the
maturity or period of re-pricing of the Savings Bank's loan portfolio at
December 31, 1997. Demand loans and loans having no stated schedule of
repayments and no stated maturity are reported as due in one year or less.
Adjustable and floating-rate loans are included in the period in which interest
rates are next scheduled to adjust rather than the period in which they
contractually mature, and fixed-rate loans are included in the period in which
the final contractual repayment is due.
<TABLE>
<CAPTION>
Amounts at December 31, 1997
------------------------------------------------------------------
Multi- Consumer
One to Family and and
Four Nonresidential Construc- Commercial Total
Family Real Estate tion Business Loans
---------- ---------------- ----------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Non-accrual ....................... $ 1,497 $ 397 $ -- $ -- $ 1,894
Within one year ................... 2,071 1,230 2,597 2,514 8,412
------- ------- ------ ------ -------
After one year:
1 to 3 years ...................... 695 1,640 -- 282 2,617
3 to 5 years ...................... 2,147 6,184 -- 264 8,595
5 to 10 years ..................... 4,059 1,162 -- 49 5,270
Over 10 years ..................... 34,471 1,510 -- -- 35,981
------- ------- ------ ------ -------
Total due after one year ......... 41,372 10,496 -- 595 52,463
------- ------- ------ ------ -------
Total amounts due ................ $44,940 $12,123 $2,597 $3,109 $62,769
======= ======= ====== ====== =======
</TABLE>
50
<PAGE>
Loan Origination, Purchase and Sale Schedule. The following table shows
total loans originated, purchased, sold and repaid during the periods indicated
for the Savings Bank and its subsidiaries.
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, September 30,
------------------------- ----------------------------------------
1997 1996 1995 1994 1993
------------ ---------- ---------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable, net and loans held for
sale at beginning of period ................ $ 57,183 $ 54,790 $ 51,097 $ 52,816 $ 48,863
--------- -------- -------- --------- ---------
Originations:
One-to-four family residential real estate. 28,318 20,038 4,447 14,041 24,820
Other real estate ........................... 5,377 24 4,214 0 70
Consumer and commercial
business loans ............................. 3,248 1,033 961 398 292
--------- -------- -------- --------- ---------
Total loan originations ..................... 36,943 21,095 9,622 14,439 25,182
--------- -------- -------- --------- ---------
Loans purchased ............................. 0 0 0 0 0
--------- -------- -------- --------- ---------
Transfer to REO ............................. -- -- -- -- (463)
Principal repayments ........................ (9,648) (9,378) (2,451) (4,595) (16,454)
Sales of loans .............................. (16,152) (9,293) (5,996) (11,598) (4,319)
--------- -------- -------- --------- ---------
Increase (decrease) in loans in process ..... 133 (31) (19) 14 7
--------- -------- -------- --------- ---------
Increase (decrease) in allowance for loan
losses ..................................... 31 0 0 21 0
--------- -------- -------- --------- ---------
Net increase (decrease) in loans ............ 11,307 2,393 1,156 (1,719) 3,953
Loans receivable, net and loans held for
sale at end of period ...................... $ 68,490 $ 57,183 $ 52,253 $ 51,097 $ 52,816
========= ======== ======== ========= =========
</TABLE>
51
<PAGE>
Loans-to-One Borrower. Savings banks are subject to the same loans-to-one
borrower limits as those applicable to national banks, which under current
regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired capital and unimpaired surplus on an unsecured basis, and an
additional amount equal to 10% of unimpaired capital and unimpaired surplus if
the loan is secured by readily marketable collateral (generally, financial
instruments and bullion, but not real estate). As of December 31, 1997, the
Savings Bank's largest loan to one borrower consisted of six loans to one
borrower. Of the six loans, three loans were commercial loans which had an
aggregate outstanding balance of $489,000, one loan was a consumer loan with an
outstanding balance of $26,000 and two loans were construction loans with an
aggregate outstanding balance of $1.56 million at December 31, 1997 and each of
these loans is performing according to its terms.
Delinquencies and Classified Assets
Collection Procedures. The Savings Bank's collection procedures provide
that when a mortgage loan is unpaid within its grace period (either ten or
fifteen days depending on the loan), a late notice will be sent to the borrower
requesting payment. If delinquency continues for approximately fifteen days,
then a second notice may be sent and contact efforts are attempted to
strengthen the collection process and obtain reasons for the delinquency. Plans
to arrange a repayment plan may be made. If a loan becomes two months
delinquent, the property is inspected in anticipation of foreclosure, a
collection letter is sent, personal contact may be attempted,
and the loan becomes subject to possible legal action if suitable arrangements
to repay have not been made. In addition, the borrower is given information
regarding consumer counseling services, to the extent required by regulations
of the PDOB, or the Pennsylvania Department of Housing and Urban Development.
When a loan continues in a delinquent status for 60 to 90 days and a repayment
schedule has not been made or kept by the borrower, generally a notice of
intent to foreclose is sent to the borrower, giving 30 days to cure the
delinquency. If the default is not cured, foreclosure proceedings are
initiated.
Nonperforming Assets. All loans, including residential mortgage loans, are
placed on nonaccrual status when past due 90 days or more unless the loan is in
the process of collection and the value of the collateral well exceeds the loan
balance. Prior to 1997, residential mortgage loans were not placed on
nonaccrual status unless the loan was delinquent for 12 months and the value of
the mortgaged property did not exceed the loan balance. Consumer and unsecured
loans are placed on nonaccrual upon becoming three months delinquent. Although
the Savings Bank viewed its nonaccrual policy as justified based on historical
experience, in 1997 it adopted a more conserative nonaccrual policy that it
believes is more consistent with peer bank practice. No adjustment is made for
interest accrued and unpaid at the time a loan is placed on nonaccrual status.
Interest is discontinued and income is subsequently recognized only to the
extent that cash payments are received, or until in management's judgment, the
borrower's ability to make periodic interest and principal payments is back to
normal, in which case the loan is returned to accrual status.
Real estate acquired by the Savings Bank as a result of foreclosure or by
deed in lieu of foreclosure is classified as REO until such time as it is sold.
When real estate is acquired through foreclosure, by deed in lieu of
foreclosure, it is recorded at its fair value, less estimated costs of
disposal. If the value of the property is less than the loan, less any related
specific loan loss provisions, the difference is charged against the allowance
for loan losses. Any subsequent write-down of REO is charged against earnings.
At December 31, 1997, the Savings Bank had approximately $457,000 of property
acquired as a result of foreclosure.
At December 31, 1997, the Savings Bank had nonperforming loans of $2.09
million, and a ratio of nonperforming loans to total loans of 3.34%. Of the
total nonperforming loans, $1.7 million are single-family residential mortgage
loans. At December 31, 1997, the Savings Bank had nonperforming assets of $2.55
million and a ratio of nonperforming assets to total assets of 1.97%. From 1994
to 1996 the Savings Bank's ratio of nonperforming loans to total loans exceeded
4%. This was due in large part to ineffective implementation of the Savings
Bank's stated collection practices by Savings Bank personnel and outside
counsel. New collection personnel were hired in 1997, resulting in the decline
in the ratios of nonperforming loans to total loans and nonperforming assets to
total assets.
52
<PAGE>
Loans Past Due and Nonperforming Assets. The following table sets forth
information regarding the Savings Bank's loans 90 days or more past due, loans
90 days or more past due and accruing interest, and real estate acquired or
deemed acquired by foreclosure at the dates indicated. For all the dates
indicated, the Savings Bank did not have any material restructured loans within
the meaning of SFAS No. 15.
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------------- ---------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more as to interest or principal
and accruing interest ................................... $ 200 $ 2,009 $ 1,565 $ 1,417 $ 1,167
Nonaccrual loans(1) ...................................... 1,894 770 770 738 344
Total nonperforming loans ................................ 2,094 2,779 2,335 2,155 1,511
Real estate owned (REO) .................................. 457 465 482 330 486
------- ------- ------- ------- -------
Total nonperforming assets ............................... $ 2,551 $ 3,244 $ 2,817 $ 2,486 $ 1,997
======= ======= ======= ======= =======
Nonperforming loans to total loans ....................... 3.34% 5.21% 4.41% 4.20% 2.85%
Nonperforming assets to total assets ..................... 1.97 2.74 2.47 2.49 2.07
Allowance for loan losses to total loans ................. 0.38 0.39 0.39 0.41 0.35
Allowance for loan losses to
nonperforming loans ..................................... 11.37 7.45 8.91 9.65 12.38
Allowance for loan losses to
nonperforming assets .................................... 9.33 6.38 7.38 8.37 9.36
Net charge-offs as a percentage of total loans ........... 0.05 0.25 0.05 -- --
</TABLE>
(1) The Savings Bank classifies as nonaccrual all loans three months or more
delinquent. Prior to 1997, residential mortgage loans were classified as
nonaccrual when the loan was delinquent 12 months and the value of the
mortgaged property did not well exceed the loan balance.
For the years ended December 31, 1997 and 1996 and September 30, 1995,
gross interest income of approximately $353,000, $175,000, and $157,000,
respectively, would have been recorded on loans accounted for on a nonaccrual
basis if the loans had been current throughout the related periods. No interest
income on nonaccrual loans was included in income during such periods.
In May 1993, the FASB issued SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 requires that certain impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. In October 1994, the FASB issued SFAS No. 118 "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosure," that
amends SFAS No. 114 and eliminates its provision regarding how a creditor
should report income on an impaired loan. Originally, SFAS No. 114 would have
required creditors to apply one of two allowable methods. As a result of the
amendment, creditors may now continue to use existing methods for recognizing
income on impaired loans, including methods that are required by certain
industry regulators. SFAS No. 114 and SFAS No. 118 were adopted by Savings Bank
beginning January 1, 1996. At December 31, 1997, the Savings Bank's impaired
loans consisted of two commercial real estate loans with a total balance of
$321,052 for which specific allowances of $16,048 has been established. At
December 31, 1996, the Savings Bank's impaired loans consisted of smaller
balance residential mortgage loans.
Classification of Assets. The Savings Bank's policies, consistent with
regulatory guidelines, provide for the classification of loans and other assets
such as debt and equity securities, considered to be of lesser quality as
"substandard," "doubtful," or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or by the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis
of currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets that do not
53
<PAGE>
expose the savings institution to risk sufficient to warrant classification in
one of the aforementioned categories, but which possess some weaknesses, are
required to be designated "special mention" by management. At December 31,
1997, the Savings Bank had $1.4 million of substandard loans and $989,000 of
"special mention" loans.
When a savings bank classifies problem assets as either substandard or
doubtful, it is required to establish general valuation allowances or "loss
reserves" in an amount deemed prudent by management. General allowances
represent loss allowances that have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When a savings bank
classifies problem assets as "loss," it is required either to establish a
specific allowance for losses equal to 100% of the amount of the assets so
classified, or to charge off such amount. A savings bank's determination as to
the classification of its assets and the amount of its valuation allowance is
subject to review by its regulatory agencies, which can order the establishment
of additional general or specific loss allowances. The Savings Bank regularly
reviews its asset portfolio to determine whether any assets require
classification in accordance with applicable regulations.
At December 31, 1997, the Savings Bank had no foreign loans and no loan
concentrations exceeding 10% of total loans in the table "Analysis of Loan
Portfolio." Loan concentrations are considered to exist when there are amounts
loaned to a multiple number of borrowers engaged in similar activities that
would cause them to be similarly impacted by economic or other conditions.
Potential problem loans consist of loans that are included in performing
loans, but for which potential credit problems of the borrowers have caused
management to have serious doubts as to the ability of such borrowers to
continue to comply with present repayment terms. At December 31, 1997, loans
past due between 30 and 89 days that are not included in the preceding table
totalled $232,000.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
known and inherent risks in its loan portfolio and current economic conditions.
Accordingly, the Savings Bank consistently applies a methodology to determine
both the adequacy of the allowance for loan losses and the necessary provision
for loan losses to be charged against earnings. This methodology includes:
-- a detailed review of all classified assets to determine if any specific
reserve allocations (which includes impaired loans) are required on an
individual loan basis.
-- the application of reserve allocations to all criticized and classified
assets, based upon allocation percentages, with an "olem" (other loans
especially mentioned), substandard or doubtful rating.
-- the application of reserve allocations to installment and mortgage loans
based upon historical charge-off experience for those loan types. the
application of reserve allocations to all performing loans based upon
historical actual losses incurred from all loan review categories.
The Savings Bank provided $60,000, $132,000 and $27,000 to its allowance
for loan losses for the years ended December 31, 1997 and 1996 and September
30, 1995, respectively. At December 31, 1997, the total allowance for loan
losses was $238,000, which amounted to 9.33% of nonperforming assets. The
Savings Bank will continue to monitor and modify the level of its allowance for
loan losses in order to maintain it at a level that management considers
adequate to provide for potential loan losses. As the Savings Bank continues to
diversify its loan portfolio into commercial, commercial real estate and
construction lending, the Savings Bank expects to increase its provisions for
loan losses in future periods in order to increase the allowance for loan
losses. For the years ended December 31, 1997 and 1996 and September 30, 1995,
respectively, the Savings Bank had $29,000, $133,000 and $27,000 in charge-offs
against this allowance.
54
<PAGE>
Analysis of the Allowance For Loan Losses. The following table sets forth
the analysis of the allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Years Ended Years Ended
December 31, September 30,
----------------------- ------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance, beginning of period ................ $ 207 $ 208 $ 208 $ 187 $ 187
Charge-offs:
Real Estate: One-to-four-family .............. 28 125 27 -- --
Consumer ..................................... -- 8 -- -- --
------- ------- ------- ------- -------
Total charge-offs ............................. 28 133 27 -- --
------- ------- ------- ------- -------
Total recoveries .............................. -- -- -- -- --
------- ------- ------- ------- -------
Net charge-offs (recoveries) ................. 29 133 27 -- --
Provision charged to operations ............... 60 132 27 21 --
------- ------- ------- ------- -------
Allowance, end of period ...................... $ 238 $ 207 $ 208 $ 208 $ 187
======= ======= ======= ======= =======
Charge-offs (recoveries) to average loans ..... 0.05% 0.25% 0.05% -- --
Allowance for loan losses as a percentage
of period-end loans .......................... 0.38% 0.38% 0.39% 0.41% 0.35%
</TABLE>
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of allowance for loan losses by loan category for the periods
indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
1997 1996
---------------------- ----------------------
Amount Percent Amount Percent
-------- ----------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Residential including multifamily real
estate .............................. $166 72.71% $150 85.70%
Commercial real estate and
commercial business ................. 67 25.38 44 12.39
Consumer ............................. 5 1.91 13 1.91
Unallocated .......................... -- --
---- ------ ---- ------
Total ............................. $238 100.00% $207 100.00%
==== ====== ==== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
-------- ----------- -------- ----------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential including multifamily real
estate .............................. $150 83.91% $149 85.07% $ 97 86.79%
Commercial real estate and
commercial business ................. 39 14.21 46 13.57 56 11.81
Consumer ............................. 16 1.88 3 1.36 5 1.40
Unallocated .......................... 3 -- 9 -- 29 --
---- ------ ---- ------ ---- ------
Total ............................. $208 100.00% $207 100.00% $187 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
- ------------
(1) Represents percentage in each category to total loans.
Investment Activities
The Savings Bank's investment portfolio is comprised of mortgage-backed
securities, investment securities, and cash and cash equivalents. The carrying
value of the Savings Bank's investment securities and mortgage-backed
securities portfolio totalled $27.62 million at December 31, 1997 compared to
$24.92 million at December 31, 1996. The Savings Bank's cash and cash
equivalents, consisting of cash and due from banks, and interest-earning
deposits with other financial institutions, totalled $27.89 million at December
31, 1997 compared to $31.62 million at December 31, 1996, a decrease of $3.73
million or 11.80%. The majority of the Savings Bank's mortgage-backed
securities are issued or guaranteed by the United States Government or agencies
thereof. At December 31, 1997, mortgage-backed securities totalled $5.00
million. The majority of this amount represents securities that were issued or
guaranteed by either FNMA, FHLMC or the Government National Mortgage
Association ("GNMA"). The Savings Bank historically maintains high levels of
interest-earning deposits as part of its strategy for meeting liquidity
requirements and improving interest sensitivity.
55
<PAGE>
The Savings Bank is required under federal regulations to maintain a
minimum amount of liquid assets that may be invested in specified short term
securities and certain other investments. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources." The Savings Bank generally has maintained a portfolio of
liquid assets that exceeds regulatory requirements. Liquidity levels may be
increased or decreased depending upon the yields on investment alternatives and
upon management's judgment as to the attractiveness of the yields then
available in relation to other opportunities and its expectation of the level
of yield that will be available in the future, as well as management's
projections as to the short-term demand for funds to be used in the Savings
Bank's loan origination and other activities.
Pursuant to SFAS No. 115, which the Savings Bank adopted in 1994, the
Savings Bank classifies its investment securities and mortgage-backed
securities as either held-to-maturity, available for sale or trading. Available
for sale and trading securities are carried at market value, while
held-to-maturity securities are carried at amortized cost. At December 31,
1997, $10.29 million of the Savings Bank's investment securities and mortgaged-
backed securities were classified held-to-maturity and $17.33 million of the
Savings Bank's investment securities and mortgage-backed securities were
classified available for sale. The Savings Bank did not carry any trading
securities at December 31, 1997.
The Savings Bank's Board of Trustees has also adopted an investment policy
which identifies acceptable types of investments for the Savings Bank and
establishes criteria to guide management in classifying investments as
prescribed by SFAS No. 115. The policy also authorizes the Savings Bank's
investment officer to make single investments of up to $1 million. Under the
investment policy the Savings Bank may invest in certain AAA rated derivative
securities. As of December 31, 1997, the Savings Bank had no collateralized
mortgage obligations. The Savings Bank may not invest in high-risk
collateralized mortgage obligations ("CMOs") and the Savings Bank's investment
officer must periodically analyze the risk of any CMO held by the Savings Bank
to determine that such securities are not within the high-risk category.
Carrying and Market Value of Investment and Mortgage-Backed
Securities. The following table sets forth certain information regarding the
carrying and market values of the Savings Bank's investment securities and
mortgage-backed securities in the Savings Bank's held-to-maturity portfolio for
the periods indicated.
<TABLE>
<CAPTION>
Held to Maturity
At December 31,
--------------------------------------------
1997
--------------------------------------------
Gross Gross
Amor- Unreal- Unreal-
tized ized ized Fair
Cost Gains Losses Value
--------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FHLB ............................................. $ 7,219 $ 8 $-- $ 7,227
FNMA ............................................. 1,000 8 -- 1,008
FHLMC ............................................ -- -- -- --
------- ---- --- -------
Total debt securities held to maturity ......... 8,219 16 -- 8,235
Mortgage-backed securities:
GNMA ............................................. 1,980 105 -- 2,085
CMO .............................................. -- -- -- --
FHLMC ............................................ 88 9 97
------- ---- -------
Total mortgage-backed securities held to
maturity .................................... 2,068 114 -- 2,182
------- ---- --- -------
Total securities held to maturity ............. $10,287 $130 $-- $10,417
======= ==== === =======
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Held to Maturity
At December 31,
----------------------------------------------
1996
----------------------------------------------
Gross Gross
Unreal- Unreal-
Amortized ized ized Fair
Cost Gains Losses Value
----------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FHLB Notes ........................................... $ 8,000 $ -- $32 $ 7,968
FNMA ................................................. 3,000 3 -- 3,003
FHLMC ................................................ 1,000 -- -- 1,000
Federal Farm Credit .................................. 657 -- -- 657
------- ---- --- -------
Total debt securities held to maturity ............... 12,657 3 32 12,628
Mortgage-backed securities:
GNMA ................................................. 2,355 90 -- 2,445
CMO .................................................. 227 -- 2 225
FHLMC ................................................ 166 16 -- 182
------- ---- --- -------
Total mortgage-backed securities held to maturity..... 2,748 106 2 2,852
------- ---- --- -------
Total securities held to maturity. ................... $15,405 $109 $34 $15,480
======= ==== === =======
</TABLE>
The following table presents the estimated fair value of investment
securities and mortgage-backed securities available for sale and the net
unrealized gain or loss at the periods indicated:
<TABLE>
<CAPTION>
Available for Sale at
December 31,
-----------------------------------------------------
1997
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ---------
(In thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds ................... .... $ 2,354 $12 $ -- $ 2,366
------- --- ---- -------
Debt:
FHLB Notes ....................................... 7,995 23 -- 8,018
Federal Farm Credit .............................. 2,000 12 2,012
FNMA ............................................. 998 13 1,011
SLMA ............................................. 1,000 -- 6 994
------- --- ---- -------
Total debt securities available for sale ......... 11,993 48 6 12,035
Mortgage-backed Securities
FNMA ............................................. 2,227 -- 65 2,162
FHLMC ............................................ 778 -- 6 772
------- --- ---- -------
Total mortgage-backed securities available for
sale ............................................ 3,005 -- 71 2,934
------- --- ---- -------
Total available-for-sale securities .............. $17,352 $60 $ 77 $17,335
======= === ==== =======
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Available for Sale
December 31, 1996
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ---------
(In thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds ................... ...... $2,305 $ 47 $ -- $2,352
------ ---- ---- ------
Debt:
FNMA Notes ......................................... 3,000 -- 15 2,985
SLMA ............................................... 1,000 -- 21 979
------ ---- ---- ------
Total debt securities available for sale ... ...... 4,000 -- 36 3,964
------ ---- ---- ------
Mortgage-backed Securities:
FNMA ............................................... 2,530 -- 110 2,420
FHLMC .............................................. 792 -- 18 774
------ ---- ---- ------
Total mortgage-backed securities available for
sale .............................................. 3,322 -- 128 3,194
------ ---- ---- ------
Total available-for-sale securities ................ $9,627 $ 47 $164 $9,510
====== ==== ==== ======
</TABLE>
Investment Portfolio Maturities. The following table sets forth the
scheduled maturities, carrying values, and weighted average yields for the
Savings Bank's investment securities and mortgage-backed securities portfolios
classified as being held to maturity and available for sale at December 31,
1997. Adjustable-rate, mortgage-backed securities are included in the period in
which interest rates are next scheduled to adjust.
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------
In one year After one year
or less to five years
--------------------- ---------------------
(Dollars in thousands)
Carrying Average Carrying Average
Value Yield Value Yield
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Held to maturity:
Investment securities ......... $ 8,219 7.13% $ -- --
Mortgage-backed
securities ................... -- -- --
------- ----- ------ --
Total held to maturity ....... $ 8,219 7.13% $ -- --
======= ===== ====== ==
Available for sale:
Investment securities ......... $ 9,995 6.94% $1,998 7.22%
Mortgage-backed
securities ................... 778 5.00% 2,227 5.50%
------- ----- ------ -----
Total available for sale ..... $10,773 11.94% $4,225 12.72%
======= ===== ====== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------------------------------
After five years
to ten years Over ten years
--------------------- ----------------------
(Dollars in thousands)
No stated
Carrying Average Carrying Average Maturity
Value Yield Value Yield or Rate Total
---------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Held to maturity:
Investment securities ......... $ -- -- $ -- -- $ -- $ 8,219
Mortgage-backed
securities ................... -- -- 2,068 8.35% -- 2,068
---- -- ------ ---- ------ -------
Total held to maturity ....... $ -- -- $2,068 8.35% $ -- $10,287
==== == ====== ==== ====== =======
Available for sale:
Investment securities ......... $ -- -- $ -- -- $2,354 $14,347
Mortgage-backed
securities ................... -- -- -- -- -- 3,005
---- -- ------ ---- ------ -------
Total available for sale ..... $ -- -- -- $ -- $2,354 $17,352
==== == ====== ======== ====== =======
</TABLE>
Sources of Funds
General. Deposits are the major source of the Savings Bank's funds for
lending and other investment purposes. In addition to deposits, the Savings
Bank derives funds from the amortization and prepayment of loans and
mortgage-backed securities, the maturity of investment securities, operations
and, if needed, advances from the FHLB. Scheduled loan principal repayments are
a relatively stable source of funds, while deposit inflows and outflows and
loan prepayments are influenced significantly by general interest rates and
market conditions. Borrowings may be used on a short-term basis to compensate
for reductions in the availability of funds from other sources or on a longer
term basis for general business purposes.
Deposits. Consumer and commercial deposits are attracted principally from
within the Savings Bank's market area through the offering of a broad selection
of deposit instruments including checking accounts, passbook savings accounts,
statement savings accounts, money market deposit accounts, term certificate
accounts and
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<PAGE>
individual retirement accounts. Deposit account terms vary according to the
minimum balance required, the period of time during which the funds must remain
on deposit, and the interest rate, among other factors. The Savings Bank
regularly evaluates its internal cost of funds, surveys rates offered by
competing institutions, reviews the Savings Bank's cash flow requirements for
lending and liquidity, and executes rate changes when deemed appropriate. The
Savings Bank does not obtain deposits through brokers, nor does it solicit
funds outside its market area.
The Savings Bank's deposit pricing strategy seeks to retain passbook
savings deposit accounts as an important funding source. Management's
experience is that its customer base finds the traditional passbook savings
account attractive even though higher yields may be available from alternative
deposit products. Accordingly, the Savings Bank typically prices its passbook
product above its large commercial bank competitors whose pricing strategy is
designed for a larger and more diverse market.
The following table sets forth the savings account activities for the
Savings Bank for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended September 30,
---------------------- -------------------------------
1997 1996 1995 1994 1993
--------- -------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Increase before interest
credited .................... $4,249 $ 527 $3,187 $ 587 $ 794
Interest credited ............ 3,911 3,571 3,437 3,038 3,152
------ ------ ------ ------ ------
Net deposit increase ......... $8,160 $4,098 $6,624 $3,625 $3,946
====== ====== ====== ====== ======
</TABLE>
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<PAGE>
The following tables set forth the composition of savings deposits in the
various types of savings accounts offered by the Savings Bank between the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------
1997
------------------------------------
Weighted
Average
% of Nominal
Balance Deposits Rate
----------- ---------- ---------
<S> <C> <C> <C>
Savings deposit accounts ................. $ 29,694 27.31% 2.50%
NOW accounts ............................. 8,535 7.85 0.90
Money market accounts .................... 7,201 6.62 3.57
Retail certificates of deposit ........... 57,536 52.91 5.57
Jumbo certificates of deposit(1) ......... 5,768 5.31 5.81%
-------- ------
Total deposits .......................... $108,734 100.00%
======== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------------------------- ----------------------------------
1996 1995
------------------------------------- ----------------------------------
Weighted Weighted
Average Average
% of Nominal % of Nominal
Balance Deposits Rate Balance Deposits Rate
----------- ---------- ---------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings deposit accounts ................. $ 28,992 28.83% 2.49% $33,263 34.63% 3.00%
NOW accounts ............................. 9,105 9.05 1.09 3,845 4.00 1.04
Money market accounts .................... 6,266 6.23 3.63 4,884 5.08 3.61
Retail certificates of deposit ........... 50,175 49.89 5.41 49,243 51.27 5.55
Jumbo certificates of deposit(1) ......... 6,036 6.00 5.72% 4,818 5.02 5.62%
-------- ------ ------- ------
Total deposits .......................... $100,574 100.00% $96,053 100.00%
======== ====== ======= ======
</TABLE>
- ------------
(1) Includes only certificates of deposit of $100,000 or more bearing
negotiated rates.
Time Deposit Maturities. The following table sets forth the amount and
maturities of time deposits at December 31, 1997.
<TABLE>
<CAPTION>
Period to Maturity from
-------------------------------------------------------
December 31, 1997
-------------------------------------------------------
Within One One to
Year Three Years Thereafter Total
------------ ------------- ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Less than 4.00% .......... $ 327 $ 27 $ 254 $ 608
4.001% - 6.000% .......... 42,248 14,044 1,433 57,725
6.001% - 8.000% .......... 2,569 1,655 681 4,905
8.001% - 10.000% ......... 24 42 -- 66
over 10.000% ............. -- -- -- --
------- ------- ------ -------
Total ................... $45,168 $15,768 $2,368 $63,304
======= ======= ====== =======
</TABLE>
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<PAGE>
Large Certificates of Deposit Maturities. The following table indicates
the amount of the Savings Bank's certificates of deposit of $100,000 or more by
time remaining until maturity at December 31, 1997.
Certificates
Maturity Period of Deposit
--------------- ---------------
(In thousands)
One year or less ............................ $ 8,904
Over one year though two years .............. 1,284
Over two years through three years .......... 100
Over three years through five years ......... 503
Over five years through ten years ........... --
Over ten years .............................. --
-------
$10,791
=======
Borrowings
Savings deposits are the primary source of funds for the Savings Bank's
lending and investment activities and for its general business purposes. If the
need arises, the Savings Bank may rely upon advances from the FHLB to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. At December 31, 1997, the Savings Bank had no FHLB advances
outstanding.
Market Area and Competition
The Savings Bank's market area includes the Philadelphia and metropolitan
area and all counties contiguous thereto as well as counties of New Jersey and
Delaware. This area has a large concentration of financial institutions, many
of which are significantly larger and have greater financial resources than the
Savings Bank, and all of which are competitors of the Savings Bank to varying
degrees. As a result, the Savings Bank encounters strong competition both in
attracting deposits and in originating real estate and other loans. Its most
direct competition for deposits has come historically from commercial banks,
brokerage houses, other savings associations and credit unions in its market
area, and the Savings Bank expects continued strong competition from such
financial institutions in the foreseeable future. The Savings Bank's market
area includes branches of several commercial banks that are substantially
larger than the Savings Bank. The Savings Bank competes for savings deposits by
offering depositors a high level of personal service.
The competition for real estate and other loans comes principally from
commercial banks, mortgage banking companies and other savings institutions.
This competition for loans has increased substantially in recent years as a
result of the large number of institutions competing in the Savings Bank's
market area, as well as the increased efforts by commercial banks to expand
mortgage loan originations.
The Savings Bank competes for loans primarily through the interest rates
and loan fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers and builders. Factors that affect competition
include general and local economic conditions, interest rate levels and
volatility of the mortgage markets.
Subsidiaries
The Savings Bank owns three direct subsidiaries and one indirect
subsidiary. See "Business of the Savings Bank -- Mortgage Banking Activities."
TNMC is engaged in a mortgage banking business. See "Business of the Savings
Bank -- Mortgage Banking Operations" and "RISK FACTORS -- Interest Rate Risk."
PSA Service Corp. conducts real estate appraisals, processes credit
applications and provides other services in connection with the origination of
loans. PSA Financial Corp. primarily originates business loans and commercial
real estate loans. Its subsidiary, PSA Consumer Discount Company, primarily
originates consumer loans.
Personnel
As of December 31, 1997, the Savings Bank had 47 full-time and no
part-time employees. None of the Savings Bank's employees are represented by a
collective bargaining group. The Savings Bank believes its relationship with
its employees to be good.
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<PAGE>
Legal Proceedings
Periodically, there have been various claims and lawsuits involving the
Savings Bank, such as claims to enforce liens, condemnation proceedings on
properties in which the Savings Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to
the Savings Bank's business. The Savings Bank is not a party to any pending
legal proceedings that it believes would have a material adverse effect on the
financial condition or operations of the Savings Bank.
Properties
As of December 31, 1997, the Savings Bank conducted operations through an
executive/administrative office, six full-service offices and a branch
administrative office. The Savings Bank owns five of the six full-service
offices and the branch administrative office. The Savings Bank is leasing its
Center City Philadelphia full-service office and executive office for a term of
eleven years.
Environmental Matters
Environmental hazards have become a source of substantial risk and
potential liability in the loan portfolios of financial institutions. If a
property securing one or more of an institutions loans is environmentally
contaminated, the institution may be adversely affected in several different
ways. The value of the collateral could be impaired, environmental clean-up
costs may impair the borrower's repayment ability, liens held by the
institution against the contaminated property may be subordinated to state
and/or federal liens securing clean-up costs, and the institution against the
contaminated property may be subordinated to state and/or federal liens
securing clean-up costs if it has foreclosed on the property or if it is deemed
to have become involved in management of the borrower. To minimize these risks,
the Savings Bank may require an environmental examination of the property of
any borrower or prospective borrower if consideration of the potential loss to
the Savings Bank in relation to the burdens to the borrower. The costs of such
examinations and reports are generally the responsibility of the borrower.
These costs may be substantial and may deter a prospective borrower from
entering into a loan transaction with the Savings Bank. The Savings Bank is not
aware of any borrower who is currently subject to any environmental
investigation or clean-up proceeding which is likely to have a material adverse
impact on the financial condition or results of operations of the Savings Bank.
REGULATION
General
The Savings Bank is a Pennsylvania-chartered stock savings bank and its
deposit accounts are insured up to applicable limits by the FDIC under the SAIF
(to the extent such deposits were assumed from the Savings Bank's mutual
savings bank predecessor) or the BIF (in the case of other insured deposits).
The Savings Bank is subject to extensive regulation by the PDOB, as its
chartering agency, and by the FDIC, as its primary federal regulator and
deposit insurer. The Savings Bank must file reports with the PDOB and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to engaging in certain activities and transactions
including, but not limited to, mergers and acquisitions. The PDOB and the FDIC
periodically examine the Savings Bank to assess its compliance with various
regulatory requirements. State and federal regulation and supervision create a
framework within which the Savings Bank must operate and are intended primarily
for the protection of the FDIC insurance funds and depositors rather than
shareholders.
The MHC, as a mutual holding company, is also required to file certain
reports with the FRB and to comply with other rules and regulations of the FRB.
Regulatory authorities possess extensive discretion in connection with their
supervisory and enforcement activities and in connection with their examination
policies, including policies regarding the classification of assets and the
adequacy of loan loss reserves. Any change in regulatory policy by the PDOB,
the FRB, or the FDIC could have a material adverse impact on the MHC, the
Savings Bank and their operations. Certain of the regulatory requirements
applicable to the Savings Bank and to the MHC are referred to below or
elsewhere herein.
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<PAGE>
Regulation of the Holding Company
General. The MHC is, and the Holding Company will be, a bank holding
company subject to supervision and regulation by the Federal Reserve under the
Bank Holding Company Act of 1956, as amended. As a bank holding company, the
Holding Company's activities and those of its subsidiary are limited to the
business of banking and activities closely related or incidental to banking,
and the Holding Company may not directly or indirectly acquire the ownership or
control or more than 5% of any class of voting shares or substantially all of
the assets of any company, including a bank, without the prior approval of the
Federal Reserve.
The Savings Bank is subject to supervision and examination by applicable
federal and state banking agencies. The Savings Bank is a member of the Federal
Reserve System, and therefore, subject to the regulations of the Federal
Reserve. The Savings Bank is also a Pennsylvania-chartered bank subject to
supervision and regulation by the PDOB.
In addition, because the deposits of the Savings Bank are insured by the
FDIC, the Savings Bank is subject to regulation by the FDIC. The Savings Bank
is also subject to requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be granted and the interest that may be
charged thereon and imitations on the types of investments that may be made and
the types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Savings Bank. In addition to the
impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve in attempting to control the money supply and
credit availability in order to influence the economy.
Holding Company Structure. The Savings Bank is subject to restrictions
under federal law which limit its ability to transfer funds to the Holding
Company, whether in the form of loans, other extensions of credit, investments
or asset purchases. Such transfers by the Savings Bank to the Holding Company
are generally limited in amount to 10% of the Savings Bank's capital and
surplus. Furthermore, such loans and extensions of credit are required to be
secured in specific amounts, and all transactions are required to be on an
arm's length basis. The Savings Bank has never made any loan or extension of
credit to the Holding Company nor has it purchased any assets from the Holding
Company.
Under Federal Reserve policy, a bank holding company is expected to act as
a source of financial strength to the Savings Bank and to commit resources to
support the Savings Bank, i.e., to downstream funds to the Savings Bank. This
support may be required at times when, absent such policy, the bank holding
company might not otherwise provide such support. Any capital loans by a bank
holding company to the Savings Bank are subordinate in right of payment to
deposits and to certain other indebtedness of the Savings Bank. In the event of
a bank holding company's bankruptcy, any commitment by the bank holding company
to a federal bank regulatory agency to maintain the capital of the Savings Bank
will be assumed by the bankruptcy trustee and entitled to a priority of
payment.
Regulation of the Savings Bank
Pennsylvania Savings Bank Law. The Savings Bank is incorporated under the
Pennsylvania Banking Code of 1965, as amended (the "Banking Code"). The Banking
Code contains detailed provisions governing the Bank's organization, the
location of its offices, the rights and responsibilities of its trustees,
officers, employees, depositors and shareholders, and its savings, investment
and other operations. The Banking Code delegates extensive rulemaking power and
administrative discretion to the PDOB.
The PDOB generally examines each savings bank not less frequently than
once every two years. Although the PDOB may accept the examinations and reports
of the FDIC in lieu of the PDOB's examination, the current practice is for the
PDOB to conduct individual examinations. The PDOB may order any savings bank to
discontinue any violation of law or unsafe or unsound business practice and may
direct any trustee, officer, employee or attorney of a savings bank engaged in
an objectionable activity, after the PDOB has ordered the activity to be
terminated, to show cause at a hearing before the PDOB why such person should
not be removed.
Interstate Acquisitions. The Commonwealth of Pennsylvania has enacted
legislation regarding the acquisition of commercial banks, bank holding
companies, savings banks and savings and loan associations located
63
<PAGE>
in Pennsylvania by institutions located outside of Pennsylvania. The statute
dealing with savings institutions authorizes (i) a savings bank, savings and
loan association or holding company thereof located in another state (a
"foreign institution") to acquire the voting stock of, merge or consolidate
with, or purchase assets and assume liabilities of, a Pennsylvania-chartered
savings bank and (ii) the establishment of branches in Pennsylvania by foreign
institutions, in each case subject to certain conditions including (A)
reciprocal legislation in the state in which the foreign institution seeking
entry into Pennsylvania is located permitting comparable entry by Pennsylvania
savings institutions and (B) approval by the PDOB. Pennsylvania law also
provides for nationwide branching by Pennsylvania-chartered savings banks and
savings and loan associations, subject to the PDOB's approval and certain other
conditions.
On September 29, 1994, the United States Congress enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Banking Law"), which amended various federal banking laws to provide for
nationwide interstate banking, interstate bank mergers and interstate
branching. The Interstate Banking Law currently allows the acquisition by a
bank holding company of a bank located in another state, interstate bank
mergers and branch purchase and assumption transactions. Only a few states have
"opted-out" of the merger and purchase and assumption provisions by enacting
laws that specifically prohibit such interstate transactions.
Pursuant to the Interstate Banking Law, states may also enact legislation
to allow for de novo interstate branching by out of state banks.
Capital Maintenance. FDIC regulations require FDIC-insured state-chartered
savings banks, such as the Savings Bank, to maintain minimum levels of capital.
The regulations establish a minimum leverage capital requirement of not less
than 3% Tier 1 capital to total assets for institutions in the strongest
financial and managerial condition, with a CAMEL rating of "1" (the highest
rating of the FDIC for banks). For all other banks, the minimum leverage ratio
is at least 4% to 5%. Tier I capital consists principally of common
shareholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, and minority interests in consolidated
subsidiaries, minus all intangible assets other than certain supervisory
goodwill, purchased mortgage servicing rights and purchased credit card
relationships.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier 1 capital plus
supplementary (Tier 2) capital) to risk- weighted assets of 8%. In determining
the amount of risk- weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item.
Tier 2 capital includes certain perpetual preferred stock, hybrid capital
instruments, including certain mandatory convertible securities, certain
subordinated debt and intermediate preferred stock and a limited amount of the
general allowance for loan and lease losses. The amount of the allowance for
loan and lease losses includable in Tier 2 capital is limited to a maximum of
1.25% of risk-weighted assets and 100% of Tier 1 capital. Overall, the amount
of capital counted toward Tier 2 capital cannot exceed 100% of Tier 1 capital.
At December 31, 1997, the Savings Bank met its capital requirements.
FDICIA requires the Federal banking agencies to revise their risk-based
capital guidelines to, among other things, take adequate account of interest
rate risk, concentration of credit risk, and risks of nontraditional
activities. The agencies have adopted a specific rule applicable to
institutions whose investment portfolio trading activity exceeds 10% of total
assets or $1 billion. The Savings Bank is not subject to this rule. The
agencies have stated that they will also consider the effects of market and
credit risk and nontraditional activities on a case-by-case basis, and could
impose higher capital requirements on any institution.
Virtually identical capital requirements are imposed on the Holding
Company and enforced by the FRB. The Savings Bank is also subject to PDOB
capital guidelines. Although not adopted in regulation form, the PDOB utilizes
capital standards requiring a minimum of 6% leverage capital and 10% risk-based
capital. The components of leverage and risk-based capital are substantially
the same as those defined by the FDIC.
Insurance of Deposit Accounts. The FDIC has implemented a risk-related
premium schedule for all insured depository institutions that results in the
assessment of premiums based on capital and supervisory measures. Under the
risk-related premium schedule, the FDIC assigns, on a semiannual basis, each
institution to one
64
<PAGE>
of three capital groups (well-capitalized, adequately capitalized or
undercapitalized) and further assigns such institution to one of three
subgroups within a capital group. The institution's subgroup assignment is
based upon the FDIC's judgment of the institution's strength in light of
supervisory evaluations, including examination reports, statistical analyses
and other information relevant to measuring the risk posed by the institution.
Only institutions with a total capital to risk-adjusted assets ratio of 10.00%
or greater, a Tier 1 capital to risk-based assets ratio of 6% or greater, and a
Tier 1 leverage ratio of 5.0% or greater, are assigned to the well-capitalized
group. As of December 31, 1996, the Savings Bank was well capitalized for
purposes of calculating insurance assessments.
On September 30, 1996, the President signed into law the Omnibus
Appropriations' Act that included legislation to capitalize the Savings
Association Insurance Fund with a one-time special assessment. The special
assessment was paid on the amount of SAIF-assessable deposits held by the
institution as of March 31, 1995 and the amount of any SAIF assessable deposits
acquired by the institution after that date. The Savings Bank recognized an
expense of $567,000 in the third quarter of 1996. Since the SAIF was deemed
recapitalized as of October 1, 1996, the FDIC also set a new premium range for
the fourth quarter of 1996. Consequently, the Savings Bank received a refund of
$58,000 for the fourth quarter of 1996. The FDIC approved a final rule
establishing a new range of premiums for SAIF and BIF insured deposits
effective January 1, 1997. The FDIC calculated deposit insurance assessments at
the rate of $0.00 for every $100 of deposits for banks in the lowest risk-based
premium category and $0.27 for every $100 of insured deposits for banks in the
highest risk-based category. The Savings Bank is presently in the lowest
premium category.
While the Savings Bank presently pays no premium for deposit insurance, it
is subject to assessments to pay the interest on Financing Corporation ("FICO")
bonds. FICO was created by Congress in 1989 to issue bonds to finance the
resolution of failed thrift institutions. Prior to 1997, only thrift
institutions were subject to assessments to raise funds to pay the FICO bonds.
The Omnibus Budget Act also provided that the BIF deposits would be subject to
1/5 of the assessment to which SAIF deposits are subject for FICO bond payments
through 1999. Beginning in 2000, BIF and SAIF deposits will be subject to the
same assessment for FICO bonds. The FICO assessment for the Savings Bank for
1997 is $.013 for each $100 of BIF deposits and $.0648 for each $100 of SAIF
deposits.
The Savings Bank was chartered as a BIF-insured institution; however, it
will continue to pay premiums to the SAIF at SAIF rates with respect to the
deposits that it assumed in the MHC Reorganization. Therefore, substantially
all of the Savings Bank's deposits are assessed at SAIF rates.
Restrictions on Dividends. Dividend payments by the Savings Bank are
subject to the Banking Code. Under the Banking Code, no dividends may be paid
except from "accumulated net earnings" (generally, undivided profits). Under
the FDI Act, no dividends may be paid by an insured bank if the bank is in
arrears in the payment of any insurance assessment due to the FDIC.
State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. Adherence to such standards
further limits the ability of the Savings Bank to pay dividends.
Restrictions on Investment Authority of State-Chartered Banks. Section 24
of the FDI Act, and the FDIC regulations promulgated thereunder, generally
limit the activities and equity investments of FDIC insured savings banks and
their subsidiaries to those permissible for national banks and their
subsidiaries, unless such activities and investments are specifically exempted
or consented to by the FDIC. FDIC regulations governing the equity investments
of FDIC insured savings banks generally prohibit equity investments by such
banks and required the divestiture of such investments by December 19, 1996,
unless certain conditions are met. The Savings Bank has no impermissible
investments and does not conduct impermissible activities. Savings banks not
engaging in such activities but that desire to engage in other impermissible
activates may apply for approval from the FDIC to do so.
Transactions with Affiliates. Extensions of credit by the Savings Bank to
executive officers, trustees, and principal shareholders and related interests
of such persons are subject to Sections 22(g) and 22(h) of the FRA and the
Federal Reserve's Regulation O. These rules limit the aggregate amount of loans
to any such individual and their related interests, and require that all such
loans be pre-approved by the full Board of the Holding Company voting without
such person being present. These rules also provide that no institution shall
make any
65
<PAGE>
loan or extension of credit in any manner to any of such persons, unless such
loan or extension of credit is made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, does not involve more than the normal risk of
repayment or present other unfavorable features, and the institution follows
underwriting procedures that are not less stringent than those applicable to
comparable transactions by the institution with persons who are not executive
officers, trustees, principal shareholders, or employees of the institution.
Loans can be made to employees, including executives and trustees, on more
favorable terms than to the general public, if all employees are eligible for
such preferential terms. Regulation O also sets forth additional limitations on
extensions of credit by an institution to its executive officers. Management
believes that the Savings Bank is in compliance with Sections 22(g) and 22(h)
of the FRA and the Federal Reserve's Regulation O.
Federal Reserve System. Under Federal Reserve regulations, the Savings
Bank is required to maintain noninterest-earning reserves against its
transaction accounts (primarily NOW and regular checking accounts). The Federal
Reserve regulations generally require that reserves of 3% must be maintained
against net transaction accounts of $47.8 million or less (subject to
adjustment by the Federal Reserve) and $1.43 million plus 10% of net
transaction accounts in excess of $47.8 million. The Savings Bank is in
compliance with the foregoing requirements. Because required reserves must be
maintained in the form of either vault cash, a noninterest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal
Reserve, the effect of this reserve requirement is to reduce the Savings Bank's
interest-earning assets.
Federal Home Loan Bank System. As a condition of approval to the Savings
Bank's conversion from a state-chartered savings association to a
state-chartered savings bank in 1990, the Savings Bank is required to retain
its membership in the FHLB System, which consists of 12 regional FHLBs. The
FHLB provides a central credit facility primarily for member institutions. The
Savings Bank, as a member of the FHLB of Pittsburgh, is required to acquire and
hold shares of capital stock in that FHLB in an amount at least equal to 1% of
the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB of Pittsburgh, whichever is greater. The Savings
Bank is in compliance with this requirement, with an investment in FHLB of
Pittsburgh stock at December 31, 1997 of $559,900. FHLB advances must be
secured by specified types of collateral and may only be obtained for the
purpose of providing funds for residential housing finance.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest
on advances to their members. If dividends were reduced, or interest on future
FHLB advances increased, the Savings Bank's net interest income would likely
also be reduced.
FEDERAL TAXATION
General. Upon consummation of the Conversion and Reorganization, the
Holding Company and the Savings Bank will report their income on a fiscal year
basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Savings Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary
and does not purport to be a comprehensive description of the tax rules
applicable to the Savings Bank or the Holding Company.
Bad Debt Reserve. Historically, savings institutions such as the Savings
Bank which met certain definitional tests primarily related to their assets and
the nature of their business ("qualifying thrift") were permitted to establish
a reserve for bad debts and to make annual additions thereto, which may have
been deducted in arriving at their taxable income. The Savings Bank's
deductions with respect to "qualifying real property loans," which are
generally loans secured by certain interest in real property, were computed
using an amount based on the Savings Bank's actual loss experience, or a
percentage equal to 8% of the Savings Bank's taxable income, computed with
certain modifications and reduced by the amount of any permitted additions to
the non-qualifying reserve. Due to the Savings Bank's loss experience, the
Savings Bank generally recognized a bad debt deduction equal to 8% of taxable
income.
66
<PAGE>
The provisions repealing the current thrift bad debt rules were passed by
Congress as part of "The Small Business Job Protection Act of 1996, as amended
by the Taxpayer Relief Act of 1997 (for qualifying thrifts which are S
corporations)." The new rules eliminate the 8% of taxable income method for
deducting additions to the tax bad debt reserves for all thrifts for tax years
beginning after December 31, 1995. These rules also require that all
institutions recapture all or a portion of their bad debt reserves added since
the base year (last taxable year beginning before January 1, 1988). The Savings
Bank has previously recorded a deferred tax liability equal to the bad debt
recapture and as such the new rules will have no effect on net income or
federal income tax expense. For taxable years beginning after December 31,
1995, the Savings Bank's bad debt deduction will be determined under the
experience method using a formula based on actual bad debt experience over a
period of years or, if the Savings Bank is a "large" association (assets in
excess of $500 million) on the basis of net charge-offs during the taxable
year. The new rules allow an institution to suspend bad debt reserve recapture
for the 1996 and 1997 tax years if the institution's lending activity for those
years is equal to or greater than the institutions average mortgage lending
activity for the six taxable years preceding 1996 adjusted for inflation. For
this purpose, only home purchase or home improvement loans are included and the
institution can elect to have the tax years with the highest and lowest lending
activity removed from the average calculation. If an institution is permitted
to postpone the reserve recapture, it must begin its six year recapture no
later than the 1998 tax year. The unrecaptured base year reserves will not be
subject to recapture as long as the institution continues to carry on the
business of banking. In addition, the balance of the pre-1988 bad debt reserves
continue to be subject to provisions of present law referred to below that
require recapture in the case of certain excess distributions to shareholders.
Distributions. To the extent that the Savings Bank makes "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of December
31, 1987 (or a lesser amount if the Savings Bank's loan portfolio decreased
since December 31, 1987) and then from the supplemental reserve for losses on
loans ("Excess Distributions"), and an amount based on the Excess Distributions
will be included in the Savings Bank's taxable income. Nondividend
distributions include distributions in excess of the Savings Bank's current and
accumulated earnings and profits, distributions in redemption of stock and
distributions in partial or complete liquidation. However, dividends paid out
of the Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Savings Bank's bad debt reserve. The amount of additional taxable
income created from an Excess Distribution is an amount that, when reduced by
the tax attributable to the income, is equal to the amount of the distribution.
Thus, if, after the Conversion, the Savings Bank makes a "nondividend
distribution," then approximately one and one-half times the Excess
Distribution would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state and
local taxes). See "REGULATION" and "DIVIDEND POLICY" for limits on the payment
of dividends by the Savings Bank. The Savings Bank does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on the
alternative minimum taxable income ("AMTI") of certain corporations at a rate
of 20%. The excess of the tax bad debt reserve deduction using the percentage
of taxable income method over the deduction that would have been allowable
under the experience method is treated as a preference item for purposes of
computing the AMTI. In addition, only 90% of AMTI can be offset by net
operating loss carryovers. AMTI is increased by an amount equal to 75% of the
amount by which the Savings Bank's adjusted current earnings exceeds its OMIT
(determined without regard to this preference and prior to reduction for net
operating losses). For taxable years beginning after December 31, 1986, and
before January 1, 1996, an environment tax of 0.12% of the excess of AMTI (with
certain modification) over $2.0 million is imposed on corporations, including
the Savings Bank, whether or not an Alternative Minimum Tax is paid.
Dividends-Received Deduction. The Holding Company may exclude from its
income 100% of dividends received from the Savings Bank as a member of the same
affiliated group of corporations which elect to file a consolidated return. The
corporate dividends-received deduction is generally 70% in the case of
dividends received from unaffiliated corporations with which the Holding
Company and the Savings Bank will not file a consolidated tax return, except
that if the Holding Company or the Savings Bank owns more than 20% of the stock
of a corporation distributing a dividend, then 80% of any dividends received
may be deducted assuming the applicable holding period has been satisfied.
67
<PAGE>
MANAGEMENT
Management of the Holding Company
Directors will be elected by the shareholders of the Holding Company for
staggered three-year terms, or until their successors are elected and
qualified, at the first annual meeting of shareholders following the
consummation of the Conversion and Reorganization. The Holding Company's Board
of Directors consists of six persons divided into three classes, each of which
contains one third of the Board. One class, consisting of Mr. DiSandro and Ms.
Pauciello has a term of office expiring at the first annual meeting of
shareholders after their election; a second class, consisting of Mrs. Fumo and
Ms. Pauciello, has a term of office expiring at the second annual meeting of
shareholders after her election; and a third class, consisting of Mr. Fumo and
Mr. Finley, has a term of office expiring at the third annual meeting of
shareholders after his election.
The executive officers of the Holding Company will be elected annually by
the Board of Directors and hold office until their respective successors have
been elected and qualified or until death, resignation or removal by the Board
of Directors. The executive officers of the Holding Company are:
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Vincent J. Fumo ............. Chairman of the Board and Chief Executive Officer
Anthony DiSandro ............ President and Director
Gary Polimeno ............... Treasurer and Vice President
Roseanne Pauciello .......... Corporate Secretary and Director
</TABLE>
Since the formation of the Holding Company, none of the executive
officers, directors or other personnel has received remuneration from the
Holding Company. For information concerning the principal occupations,
employment and compensation of the directors and executive officers of the
Holding Company during the past five years, see "MANAGEMENT OF THE SAVINGS BANK
- -- Biographical Information."
Management of the Savings Bank
Directors and Executive Officers. The Savings Bank's Bylaws require that
the Board of Trustees of the Savings Bank consist of between seven and twenty
members, and that the Board of Trustees shall set the exact number from time to
time. The Savings Bank's Board of Trustees has fixed the number of trustees at
twelve members. Such Bylaws establish three classes of Trustees of equal size.
Trustees are elected for three year terms, with one class to be elected each
year.
The following table sets forth information, as of December 31, 1997, with
respect to the trustees and executive officers of the Savings Bank.
Class I Trustee (Term expiring 2000)
<TABLE>
<CAPTION>
Year
First
Elected Principal Occupation
Name/Position Age Trustee(1) During Past Five Years
- ------------- ----- ------------ ----------------------
<S> <C> <C> <C>
Class I Trustees:
Sylvia M. DiBona, Trustee .......... 43 1997 Chairman and Chief Executive Officer of the
William Penn Agency
(insurance agency)
James W. Eastwood, Trustee ......... 52 1995 President of Granary Associates, Inc. (hospital
development and consulting firm)
P. Charles DeRita, Trustee ......... 86 1995 Vice President and Manager of Hallmark
Abstract Co.
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Year
First
Elected Principal Occupation
Name/Position Age Trustee(1) During Past Five Years
- ------------- ----- ---------- ----------------------
<S> <C> <C> <C>
Vincent J. Fumo, Chairman and Chief
Executive Officer(2) ...................... 54 1995 Chairman and Chief Executive Officer of Penn-
sylvania Savings Bank and Pennsylvania State
Senator
Class II Trustees (Term expiring 1998):
James F. Kenney, Trustee ................... 39 1995 City of Philadelphia Councilman since 1992
Roseanne Pauciello, Trustee and
Corporate Secretary ....................... 53 1995 Corporate Secretary of Pennsylvania Savings
Bank; School District of Philadelphia Home
and School Visitor
Thomas J. Finley, Jr., Trustee ............. 76 1995 Retired
S. Michael Palermo, ........................ 56 1995 Assistant Executive Trustee of Pennsylvania
Turnpike Commission
Class III Trustees (Term expiring 1999):
Jane Scaccetti Fumo, Trustee(2)(3) ......... 42 1995 Certified Public Accountant, Drucker &
Scaccetti, P.C.
Alfonso Tumini, Trustee .................... 47 1995 Attorney
Leonard A. Green, Trustee .................. 78 1995 Attorney
Anthony DiSandro, Trustee, President
and Chief Operating Officer ............... 50 1995 President and Chief Operating Officer of
Pennsylvania Savings Bank
</TABLE>
- ------------
(1) Period indicated excludes service as a trustee of the Savings Bank's
predecessors; each Trustee was selected as an initial trustee of the
Savings Bank in connection with its incorporation on October 20, 1995.
(2) Vincent J. Fumo and Jane Scaccetti Fumo are husband and wife.
(3) Jane Scaccetti Fumo also serves as a director of Nutrition Management
Corp., which has a class of securities registered or subject to the
Securities Exchange Act of 1934, as amended ("Exchange Act").
Executive Officers Who Are Not Trustees
<TABLE>
<CAPTION>
Principal Occupation
Name/Position Age During Past Five Years
- ------------- ----- ----------------------
<S> <C> <C>
Gary Polimeno, Vice President and
Treasurer ..................... 45 Vice President of Pennsylvania
Savings Bank. Treasurer of Pennsylvania
Savings Bank since 1994.
</TABLE>
Stock Ownership of Management as of December 31, 1997
Amount and Percent of
Nature of Outstanding
Name of Beneficial Shares of
Beneficial Owner Ownership Common Stock
- ---------------- ---------------- -------------
P. Charles DeRita ............. 5,000 0.42%
Sylvia M. DiBona .............. 23,250 1.95%
Anthony DiSandro .............. 104,783(1) 8.77%
James W. Eastwood ............. 6,200 0.52%
Thomas J. Finley, Jr. ......... 0 0%
69
<PAGE>
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Outstanding
Name of Beneficial Shares of
Beneficial Owner Ownership Common Stock
- ---------------- -------------- -------------
<S> <C> <C>
Jane Scaccetti Fumo .................... 160,514(2) 13.25%
Vincent J. Fumo ........................ 160,514(2) 13.25%
Leonard A. Green ....................... 100 (3)
James F. Kenney ........................ 100 (3)
S. Michael Palermo ..................... 0 0%
Gary Polimeno .......................... 11,515(4) 0.96%
Roseanne Pauciello ..................... 2,500 0.21%
Alfonso Tumini ......................... 0 0%
All executive officers and trustees as a
group (13 persons) ................... 272,182 22.21%
</TABLE>
- ------------
(1) Amount includes 19,636 shares held indirectly through the 401(k) Plan,
10,000 shares held through the Profit Sharing Plan, 10,160 shares held by
the 1995 MRP that have been awarded to Mr. DiSandro, 6,114 shares held by
Mr. DiSandro directly and 16,593 shares subject to immediately exercisable
options. Also includes 42,280 shares held by the ESOP of which Mr.
DiSandro is a trustee.
(2) Vincent Fumo and Jane Scaccetti Fumo are husband and wife. Amount includes
18,000 shares held through the 401(k) Plan, 7,205 shares held through the
Profit Sharing Plan, 42,045 held in IRA accounts, 10,161 shares held by
the 1995 MRP that have been awarded to Mr. Fumo, 200 shares held by Jane
Scaccetti Fumo, 300 shares held on behalf of the daughter of Vincent and
Jane Scaccetti Fumo and 16,593 shares subject to immediately exercisable
options. Also includes 42,280 shares held by the ESOP of which Mr. Fumo is
a trustee.
(3) Represents less than 1/2 of one percent of total shares outstanding.
(4) Includes 7,773 shares held indirectly through the 401(k) Plan, 1,069 shares
by the 1995 MRP, and 2,673 shares subject to immediately exercisable
options.
Meetings and Committees of the Board of Trustees
The business of the Savings Bank is conducted at regular and special
meetings of the full Board of Trustees and its standing committees. The
standing committees consist of the Executive, Asset/Liability Management,
Budget, Compensation, Loan, Investment, Strategic Planning, Audit and
Nominating Committees. During 1997, the Board of Trustees met at twelve regular
meetings. No member of the Board or any committee thereof attended less than
75% of said meetings.
The Executive Committee of the Board of Trustees consists of Trustee
DiSandro, who serves as Chairman, and Trustees Pauciello and Palermo. The
Executive Committee meets immediately prior to meetings of the full Board. All
significant actions of the Executive Committee are reviewed by the entire
Board; however, the Executive Committee has decision-making authority as
assigned by the Board, such as loan approval authority up to $350,000. The
Executive Committee met twelve times during 1997.
The Asset/Liability Committee consists of Vincent J. Fumo, who serves as
Chairman, Trustees DiSandro, Eastwood, Jane Scaccetti Fumo and Gary Polimeno,
the Savings Bank's Treasurer. This committee meets to review the maturity and
repricing of the Savings Bank's assets and liabilities in an effort to manage
the Savings Bank's interest rate risk in accordance with the Savings Bank's
interest rate risk policy and otherwise reviews the Bank's strategies for
interest rate risk management. This committee met four times during 1997.
The Audit Committee of the Savings Bank consists of Trustee James W.
Eastwood, who serves as Chairman, and Trustees Kenney and DiBona. The Audit
Committee reviews the Savings Bank's general financial condition and the
results of the annual audit. The Audit Committee is authorized to retain the
services of outside independent auditors of the Savings Bank. The Audit
Committee met twelve times in 1997.
70
<PAGE>
The Nominating Committee consists of Trustee Vincent J. Fumo, who serves
as Chairman, and Trustees Anthony DiSandro, Roseanne Pauciello and Jane
Scaccetti Fumo. The Nominating Committee, which met once in 1997, is
responsible for selecting and submitting nominees for trustees to the Board at
its meeting for the purpose of appointing trustees. Shareholder nominations for
trustee must be made in accordance with the Savings Bank's Bylaws.
The Budget Committee of the Savings Bank consists of Trustee Tumini, who
serves as Chairman, and Trustees Kenney and Jane Scaccetti Fumo. The Budget
Committee participates in the formulation of the Savings Bank's budget and
supervises the Savings Bank's adherence to its budget. The Budget Committee met
twelve times in 1997.
The Savings Bank's Strategic Planning Committee consists of Trustee Jane
Scaccetti Fumo, who serves as Chairperson, and Trustees DiBona, Green and
Pauciello. The Savings Bank's Strategic Planning Committee conducts analyses of
the Savings Bank's status and performance to produce recommendations to the
Board for strategies for growth and profitability. The Strategic Planning
Committee met three times in 1997.
The Savings Bank's Loan Committee consists of Trustee DiSandro, who serves
as Chairman, together with officers Gary Polimeno and Renee D'Orazio. The Loan
Committee approves loans of up to $200,000. It submits larger loans to the
Executive Committee or the Board of Trustees for approval. The Loan Committee
met at least once each month in 1997.
Trustee Eastwood serves as Chairman of the Savings Bank's Compensation
Committee, which is responsible for establishing and monitoring compensation
levels in view of management's performance and coordinating and instituting
special compensation plans. Trustees DeRita and Pauciello also serve on the
Compensation Committee, which met four times in 1997.
The Savings Bank's investment portfolio is managed by the Investment
Committee. The Investment Committee makes and monitors investments in
accordance with the Savings Bank's Investment Policy. Trustee Vincent J. Fumo
serves as Investment Committee Chairman, and Trustee DiSandro and officer Gary
Polimeno are members. The committee met four times in 1997.
Trustee Compensation
For the year ended December 31, 1997, trustees were paid $700 per Board
meeting attended. In addition, trustees were paid $350 per committee meeting
attended. Directors of the Savings Bank's subsidiaries and affiliates, PSA
Financial Corp., PSA Service Corp., PSA Consumer Discount Company,
Transnational Mortgage Corp. and PSB Mutual Holding Company, were paid $250,
$150, $150, $250 and $200, respectively, per board meeting attended.
71
<PAGE>
Executive Compensation
The following table sets forth, for the years ended December 31, 1997,
December 31, 1996 and September 30, 1995 certain information as to the total
remuneration paid by the Savings Bank to executive officers who received salary
and bonuses in excess of $100,000 during such fiscal year.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
----------------------------------- --------------------------------------
Other All
Annual Other
Compen- Restricted Securities Compen-
Fiscal sation Stock Underlying sation
Name and Principal Position Year Salary(1) Bonuses (2) Awards(3) Options (4)(5)
- ------------------------------- -------- ----------- ----------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Vincent J. Fumo 1997 $139,987 $117,500 $60,671 $23,800
Chairman and Chief Executive 1996 $130,478 $117,500 $40,758 10,161 16,593 $19,174
Officer 1995 $142,170 $108,500 $44,171 $25,414
Anthony DiSandro 1997 $147,456 $125,000 $27,650 $56,540
President and Chief Operating 1996 $145,782 $125,000 $47,250 10,160 16,593 $18,263
Officer 1995 $158,935 $113,500 $49,143 $16,788
Gary Polimeno 1997 $ 87,282 $ 35,000 $ 8,400 $ 2,996
Vice President and Treasurer 1996 $ 87,282 $ 45,000 $17,660 1,069 2,673 $ --
1995 $ 95,874 $ 45,000 $27,199 $ --
</TABLE>
- ------------
(1) Includes the portion of salary deferred by the executive pursuant to the
401(k) Plan.
(2) Consists of lease payments paid by the Savings Bank with respect to vehicle
provided by the Savings Bank for the executive's use and compensation
expense related to restricted Stock awards.
(3) Mr. Fumo, Mr. DiSandro and Mr. Polimeno each hold 10,161 shares of
restricted stock, 10,160 shares of restricted stock and 1,069 shares of
restricted stock, respectively, which, as of December 31, 1997, had a fair
market value of $294,669, $294,640 and $31,001, respectively. Of such
shares, 5,347, 5,347 and 1,069 shares of each of Messrs. Fumo, DiSandro
and Polimeno were awarded at April 30, 1996 and vest at a rate of 20% per
year over a five (5) year period and 4,814 and 4,813 shares of each of
Messrs. Fumo and DiSandro were granted on December 31, 1996 and vest at a
rate of 20% per year over a five (5) year period. For the year ended
December 31, 1997, Mr. Fumo, Mr. DiSandro and Mr. Polimeno recognized
compensation expense of $40,004, $40,004 and $2,996 for those shares which
were vested as of December 31, 1997. This compensation expense is included
in the above table under "All Other Compensation".
(4) Includes trustees fees of $15,400 and $19,250 paid to Mr. Fumo and Mr.
DiSandro, respectively, for the year ended December 31, 1997, and
directors fees paid by the Savings Bank's subsidiaries to Mr. Fumo, Mr.
DiSandro and Mr. Polimeno of $8,400, $8,400 and $8,400, respectively, for
the year ended December 31, 1997. Includes trustees fees of $12,200 and
$17,100 paid to Mr. Fumo and Mr. DiSandro, respectively, for the year
ended December 31, 1996, and directors fees paid by the Bank's
subsidiaries to Mr. Fumo, Mr. DiSandro and Mr. Polimeno of $11,200,
$11,200 and $8,400, respectively, for the year ended December 31, 1996.
Includes trustee fees of $7,200 and $11,400 paid to Mr. Fumo and Mr.
DiSandro, respectively, in fiscal year 1995, and trustee fees paid by the
Bank's subsidiaries and affiliates to Mr. Fumo, Mr. DiSandro and Mr.
Polimeno of $8,400 each in fiscal year 1995.
(5) Includes contributions of $17,358, $18,950 and $9,260 made by the Savings
Bank to the accounts of Mr. Fumo, Mr. DiSandro and Mr. Polimeno,
respectively, pursuant to the Profit Sharing Plan for the year ended
December 31, 1996 and contributions of $25,713, $28,028 and $15,131 to the
accounts of Mr. Fumo, Mr. DiSandro and Mr. Polimeno, respectively, for
fiscal year 1995. Also includes $2,858, $1,315 and $3,668 in contributions
to the accounts of Mr. Fumo, Mr. DiSandro and Mr. Polimeno, respectively,
pursuant to the 401(k) Plan for the year ended December 31, 1995. During
the year ended December 31, 1996, the Savings Bank made no profit sharing
or matching contributions to the accounts of Mr. Fumo, Mr. DiSandro, and
Mr. Polimeno, respectively. For the year ended December 31, 1997, no
contributions were made to either the Profit Sharing or the 401K Plan.
Employment Agreements. In connection with the MHC Reorganization, the
Savings Bank entered into employment agreements (the "Employment Agreements")
with Vincent J. Fumo, Chairman and Chief Executive Officer and Anthony
DiSandro, President and Chief Operating Officer. Under the terms of his
Employment
72
<PAGE>
Agreement, Mr. Fumo serves as Chairman and Chief Executive Officer of the MHC
and the Savings Bank at a base salary of $130,500. Under the terms of his
Employment Agreement, Mr. DiSandro serves as President and Chief Operating
Officer of the MHC and the Savings Bank at a base salary of $145,800. Each
Employment Agreement provides for an initial term of three years, which will
thereafter be automatically renewed for an additional three years on each
anniversary date unless terminated pursuant to its terms by the respective
parties.
Each Employment Agreement provides for the payment of certain severance
benefits in the event of the executive's resignation for specified reasons or
as a result of his termination by the MHC or the Savings Bank without "Cause"
(as defined in each Employment Agreement). The executive would be entitled to
severance payments if: (1) he terminates employment during the term of such
agreement following any breach of the Employment Agreement by the Savings Bank
or MHC, loss of title, office or significant authority, reduction in annual
compensation or benefits, or relocation of the executive's principal place of
employment by more than 30 miles, or (2) if the Savings Bank or the MHC
terminates his employment, other than for Cause.
If either executive becomes entitled to receive severance payments under
his Employment Agreement, he would receive, over a period of 36 months, a cash
payment equal to three times his average annual compensation during the
five-year period preceding termination of employment. Payments would be made in
equal monthly installments. In addition to the severance payments, the
executive would be entitled to continue to receive life, medical, dental and
other insurance coverages (or a dollar amount equal to the cost of obtaining
each such coverage) for a period of up to 36 months from the date of
termination. Payments under the Employment Agreements are limited, however, to
the extent (i) that they will constitute excess parachute payments under
Section 280G of the Internal Revenue Code of 1986, as amended ("Code"), or (ii)
not permitted under the Federal Deposit Insurance Act.
Significant Owners of Savings Bank Common Stock
The following table sets forth, as of December 31, 1997, certain
information as to the beneficial ownership of Savings Bank Common Stock by
persons known by the Savings Bank who beneficially own more than 5% of the
outstanding shares of the Savings Bank Common Stock (the "Significant Owners").
For purposes of this table, an individual is considered to beneficially own
shares of Savings Bank Common Stock if he or she has or shares voting power
(which includes the power to vote or direct the voting of the shares) or
investment power (which includes the power to dispose of or direct the
disposition of the shares). Unless otherwise indicated, all shares are owned
directly by the Significant Owners through a trust, corporation or association,
or by the Significant Owners or their spouses as custodians or trustee for the
shares of minor children. The Significant Owners effectively exercise sole
voting and investment power over such shares. Shares that are subject to
options that are exercisable within 60 days of December 31, 1997 are deemed to
be beneficially owned. For information regarding proposed purchases of
Conversion Shares by the Significant Owners and their anticipated ownership of
Common Stock upon consummation of the Conversion and Reorganization, see
"COMMON STOCK TO BE PURCHASED OR RECEIVED BY MANAGEMENT."
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Outstanding
Name and Address of Beneficial Shares of
Title of Class Beneficial Ownership Ownership Common Stock
- ---------------- ------------------------------------ ------------ -------------
<S> <C> <C> <C>
Common Stock PSB Mutual Holding Company 615,250 51.50%
par value Eleven Penn Center, Suite 2601
$1.00 per 1835 Market Street
Philadelphia, Pennsylvania 19103
Vincent J. Fumo and 160,514 13.44%
Jane Scaccetti Fumo
1818 South 13th Street
Philadelphia, Pennsylvania 19148(1)
Anthony DiSandro 104,783 8.77%
1071 Welsh Road
Philadelphia, Pennsylvania 19115(2)
MHC and all officers 880,547 73.71%
and trustees of
the MHC(3)
</TABLE>
73
<PAGE>
- ------------
(1) Vincent Fumo and Jane Scaccetti Fumo are husband and wife. Amount includes
18,000 shares held through the Savings Bank's Cash or Deferred Profit
Sharing Plan (the "401(k) Plan"), 7,205 shares held through the Savings
Bank's Profit Sharing Plan (the "Profit Sharing Plan"), 42,045 held in IRA
accounts, 10,161 shares held by the Pennsylvania Savings Bank Management
Recognition Plan (the "MRP") that 105 have been awarded to Mr. Fumo, 200
shares held by Jane Scaccetti Fumo, 300 shares held on behalf of the
daughter of Vincent and Jane Scaccetti Fumo and 16,593 shares subject to
immediately exercisable options. Also includes 42,280 shares held by the
Pennsylvania Savings Bank Employee Stock Ownership Plan (the "ESOP") of
which Mr. Fumo is a trustee.
(2) Amount includes 19,636 shares held indirectly through the 401(k) Plan,
10,000 shares held through the Profit Sharing Plan, 10,160 shares held by
the MRP that have been awarded to Mr. DiSandro, 6,114 shares held by Mr.
DiSandro directly and 16,593 shares subject to immediately exercisable
options. Also includes 42,280 shares held by the ESOP of which Mr.
DiSandro is a trustee.
(3) The Trustees of the MHC intend to vote their shares, and to cause the MHC
to vote its shares in favor of the Conversion.
Compensation of Officers and Directors Through Benefit Plans
Defined Benefit Retirement Plan. The Savings Bank has maintained a
noncontributory defined benefit retirement plan ("Retirement Plan"). Under the
terms of the Retirement Plan, all employees age 21 or older who have worked at
the Savings Bank for a period of one year and have been credited with 1,000 or
more hours of employment with the Savings Bank during the year are eligible to
accrue benefits under the Retirement Plan. The Savings Bank would annually
contribute an amount to the Retirement Plan necessary to satisfy the
actuarially determined minimum funding requirements in accordance with the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). At
December 31, 1997, the Retirement Plan fully met its funding requirements under
Section 412 of the Code. Employee contributions are not permitted under the
Retirement Plan. The Retirement Plan was "frozen" as of September 30, 1994 and
benefits no longer accrue thereunder. Since the Retirement Plan is fully
funded, the Savings Bank will generally not be required to make any additional
contributions unless asset depreciation from investment occurs. Participants
will continue to vest in accordance with the provisions of the Retirement Plan.
No new employees will be eligible for participation. The Plan, however, remains
subject to all other requirements of the Code.
Benefits under the Retirement Plan begin to vest after three years in
accordance with the following schedule:
Years of Service Percentage Vested
------------------- ------------------
3 years or less 0%
After 3 years 20%
After 4 years 40%
After 5 years 60%
After 6 years 80%
After 7 years 100%
74
<PAGE>
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
1998, expressed in the form of a single life annuity for the final average
salary and benefit service classifications specified below.
<TABLE>
<CAPTION>
Years of Service and Benefits Payable at Retirement
Final Average ---------------------------------------------------------------------------
Compensation 15 20 25 30 35 40
- --------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $13,804 $18,405 $23,006 $27,608 $27,608 $27,608
$ 75,000 $21,950 $29,267 $36,583 $43,900 $43,900 $43,900
$100,000 $30,096 $40,128 $50,160 $60,192 $60,192 $60,192
$125,000 $38,242 $50,990 $63,827 $65,827 $65,827 $65,827
$150,000* $46,388 $61,851 $65,827 $65,827 $65,827 $65,827
</TABLE>
- ------------
* Represents the limit on plan compensation imposed by the Code effective
January 1, 1994.
As of December 31, 1997, Mr. Fumo, Mr. DiSandro, and Mr. Polimeno had 18,
17 and 19 years of credited service (i.e. benefit service), respectively.
Pennsylvania Savings Bank Cash or Deferred Profit Sharing Plan
(401(k)). The Savings Bank also maintains the Pennsylvania Savings Cash or
Deferred Profit Sharing Plan, which is a qualified, tax-exempt profit sharing
plan with a cash-or-deferred feature under Section 401(k) of the Code (the
"401(k) Plan"). All employees who have attained age 21 and have completed two
years of employment during which they worked at least 1,000 hours are eligible
to participate. Assets of the 401(k) Plan are managed by the 401(k) Plan's
trustees. Mr. Fumo and Mr. DiSandro presently serve as trustees to the 401(k)
Plan.
Under the 401(k) Plan, participants are permitted to make pre-tax salary
reduction contributions to the plan equal to a percentage of up to 15% of
compensation. Additional after-tax contributions of up to 10% of compensation
may be made to the Plan. For these purposes, "compensation" includes total
compensation (including salary reduction contributions made under the 401(k)
Plan sponsored by the Savings Bank), but does not include compensation in
excess of the Code Section 401(a)(17) limits (presently $160,000). The Savings
Bank may also annually make a discretionary profit sharing contribution to the
401(k) Plan. A participant must complete 1,000 hours of service during the plan
year and be employed on the last day of the plan year to receive an allocation
of the profit sharing contribution. For the 1997 and 1996 plan years, the
Savings Bank made profit sharing contributions of $0 and $40,568.
All employee contributions and profit sharing contributions to the 401(k)
plan and earnings thereon are fully and immediately vested.
Plan benefits will be paid to each participant as a joint and survivor or
single life annuity. In addition, a participant may, under certain
circumstances, elect a lump sum or period certain payment upon normal
retirement, death or disability, or after termination of employment.
Pennsylvania Savings Bank Profit Sharing Plan. The Savings Bank also
maintains the Pennsylvania Savings Bank Profit Sharing Plan, which is a
qualified plan pursuant to Section 401(a) of the Code. Employees who have
completed at least two years of service during which they have worked 1,000
hours or more and who have attained age 21 are eligible to participate in the
Profit Sharing Plan. Pursuant to the Profit Sharing Plan the Savings Bank, in
its discretion, makes contributions to the accounts of eligible employees.
Employee contributions are neither permitted nor required. Benefits under the
Profit Sharing Plan become 100% vested upon entry to the Plan.
Employee Stock Ownership Plan. The Savings Bank ESOP acquired 42,780
shares of the Savings Bank Common Stock with the proceeds of a $427,800 loan
from an unaffiliated financial institution ("1995 Loan"). Upon consummation of
the Conversion and Reorganization, the Savings Bank Common Stock held by the
ESOP will be converted into Exchange Shares based upon the Exchange Ratio.
In order to fund the purchase of up to 8% of the Conversion Shares to be
issued in the Conversion and Reorganization, it is anticipated that the ESOP
will borrow funds from the Holding Company equal to 100% of the
aggregate-purchase price of the Conversion Shares. In addition, the Holding
Company will lend sufficient funds to the ESOP to enable the ESOP to repay the
1995 Loan which had an outstanding principal balance of
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$295,000 at December 31, 1997. The loan to the ESOP will be repaid principally
from the Savings Bank's contributions to the ESOP and dividends payable on
Common Stock held by the ESOP over the anticipated 10- year term of the loan.
The interest rate for the ESOP loan is expected to be the prime rate as
published in The Wall Street Journal on the closing date of the Conversion and
Reorganization. See "PRO FORMA DATA." To the extent that the ESOP is unable to
acquire 8% of the Common Stock issued in the Conversion and Reorganization, it
is anticipated that the additional shares will be acquired following the
Conversion and Reorganization through open market purchases.
Shares purchased by the ESOP with the proceeds of the loan (including
shares originally acquired by the ESOP with the proceeds of the 1995 Loan) will
be held in a suspense account and released on a pro rata basis as the loan is
repaid. Discretionary contributions to the ESOP and shares released from the
suspense account will be allocated among participants on the basis of each
participant's proportional share of total compensation. Forfeitures will be
reallocated among the remaining plan participants.
In any plan year, the Savings Bank may make additional discretionary
contributions to the ESOP for the benefit of plan participants in either cash
or shares of Common Stock, which may be acquired through the purchase of
outstanding shares in the market or from individual shareholders or which
constitute authorized but unissued shares or shares held in treasury by Holding
Company. The timing, amount, and manner of such discretionary contributions
will be affected by several factors, including applicable regulatory policies,
the requirements of applicable laws and regulations, and market conditions.
Employees of the Savings Bank who have completed 1,000 hours of service
during 12 consecutive months and who have attained age 21 are eligible to
participate in the ESOP.
Benefits under the ESOP generally become 100% vested after the third year
of service or upon normal retirement (as defined in the ESOP), disability or
death of the participant. If a participant terminates employment for any other
reason prior to fully vesting, his nonvested account balance will be forfeited.
Forfeitures will be reallocated among remaining participating employees in the
same proportion as contribution. Benefits may be payable upon death,
retirement, early retirement, disability or separation from service. The
Savings Bank's contribution to the ESOP will not be fixed, so benefits payable
under the ESOP cannot be estimated. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Impact of New Accounting
Standards."
A committee consisting of the Savings Bank's Chairman and Chief Executive
Officer, President and Vice President and Treasurer, will administer the ESOP
(the "ESOP Committee"). An unrelated corporate trustee for the ESOP will be
appointed prior to the completion of the Offering. The ESOP Committee may
instruct the trustee regarding investment of funds contributed to the ESOP. The
ESOP trustee must vote all allocated shares held in the suspense account in a
manner calculated to most accurately reflect the instructions the ESOP trustee
has received from participants regarding the allocated stock, subject to and in
accordance with the fiduciary duties under ERISA owed by the ESOP trustee to
the ESOP participants.
Pursuant to SOP 93-6, compensation expense for a leveraged ESOP is
recorded at the fair market value of the ESOP shares when committed to be
released to participants' accounts. See "PRO FORMA DATA" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Comparison of Operating Results for the Years Ended December 31, 1996 and
1995."
If the ESOP purchases newly issued shares from the Holding Company, total
shareholders' equity would neither increase nor decrease. However, on a per
share basis, shareholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.
The ESOP is subject to the requirements of ERISA and the regulations of
the IRS and the Department of Labor issued thereunder. The Savings Bank has
received a favorable determination letter from the IRS regarding the
tax-qualified status of the ESOP.
1995 Stock Option and Incentive Plan. In connection with the MHC
Reorganization, the Savings Bank adopted the 1995 Stock Option Plan. The plan
was approved by the Public Shareholders at the Savings Bank's 1996 annual
meeting of shareholders. Options for all shares reserved for issuance under the
1995 Stock Option
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Plan have been granted to officers and employees of the Savings Bank. In
connection with the Conversion and Reorganization, the 1995 Stock Option Plan
will be assumed by the Holding Company and appropriate adjustments will be made
to the exercise price and the number of shares underlying each option to
reflect the applicable Exchange Ratio.
The following options were granted to Messrs. Fumo, DiSandro and Polimeno
under the 1995 Stock Option Plan during the fiscal year ended December 31,
1997.
<TABLE>
<CAPTION>
Number % of
of Shares Total Options
Underlying Granted Exercise Expiration
Name Options to Employees Price Date
- -------------------------- ------------ ---------------- ---------- ------------------
<S> <C> <C> <C> <C>
Vincent J. Fumo .......... 13,368 46.27%(1) $ 11.88 May 29, 2006
3,225 13.25 December 18, 2006
Anthony DiSandro ......... 13,368 46.27%(1) $ 11.88 May 29, 2006
3,225 13.25 December 18, 2006
Gary Polimeno ............ 2,673 7.46% $ 11.88 April 30, 2006
</TABLE>
- ------------
(1) Percentage based on aggregate number of options held by each holder of
options.
There was no exercise of options by any of Messrs. Fumo, DiSandro and
Polimeno under the 1995 Stock Option Plan at and for the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
Value of
Unexercised
In-the Money
Number of Options
Securities at Fiscal Year-
Shares Underlying End ($)(2)
Acquired Value Unexercised Exercisable/
Name on Exercise Realized Options Unexercisable
- -------------------------- ------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C>
Vincent J. Fumo .......... 0 0 16,593 $238,171/$0
Anthony DiSandro ......... 0 0 16,593 238,171/ 0
Gary Polimeno ............ 0 0 16,593 39,079/ 0
</TABLE>
1995 Management Development and Recognition Plans. In connection with the
MHC Reorganization, the Savings Bank adopted Management Development and
Recognition Plans (collectively, the "1995 MRPs") for officers, employees and
nonemployee directors of the Savings Bank. The 1995 MRPs were approved by the
Public Shareholders at the Savings Bank's 1996 annual meeting of shareholders.
All shares under the 1995 MRP have been awarded. For purposes of the Conversion
and Reorganization, the shares awarded under the 1995 MRP participants will be
treated in the same manner as shares held by other minority shareholders.
1998 Stock Option Plan. The Board of Directors of the Holding Company
intends to adopt the 1998 Stock Option Plan and to submit it to the
shareholders for approval at a meeting held no earlier than six months
following consummation of the Conversion and Reorganization. Under current FDIC
regulations, the approval of a majority vote of the Holding Company's
outstanding shares is required prior to the implementation of the 1998 Stock
Option Plan within one year of the consummation of the Conversion and
Reorganization. The Stock Option Plan will comply with all applicable
regulatory requirements. However, the 1998 Stock Option Plan will not be
approved or endorsed by the FDIC.
The 1998 Stock Option Plan will be designed to attract and retain
qualified management personnel, to provide such officers, and key employees
with a proprietary interest in the Holding Company as an incentive to
contribute to the success of the Holding Company and the Savings Bank, and to
reward officers and key employees for outstanding performance. The 1998 Stock
Option Plan will provide for the grant of incentive stock options ("ISOs")
intended to comply with the requirements of Section 422 of the Code and for
nonqualified stock options ("NQOs"). Upon receipt of shareholder approval of
the 1998 Stock Option Plan, stock options may be granted to key employees of
the Holding Company and its subsidiaries, including the Savings Bank. Unless
sooner terminated, the 1997 Stock Option Plan will continue in effect for a
period of ten years from the date the 1998 Stock Option Plan is approved by
shareholders.
A number of authorized shares of Common Stock equal to 10% of the number
of Conversion Shares of issued in connection with the Conversion and
Reorganization will be reserved for future issuance under the 1998
77
<PAGE>
Stock Option Plan (161,100 shares based on the issuance of 1,610,000 Conversion
Shares at the maximum of the Estimated Valuation Range). Shares acquired upon
exercise of options will be authorized but unissued shares or treasury shares.
In the event of a stock split, reverse stock split, stock dividend, or similar
event, the number of shares of Common Stock under the 1998 Stock Option Plan,
the number of shares to which any award relates and the exercise price per
share under any option may be adjusted by the Committee (as defined below) to
reflect the increase or decrease in the total number of shares of Common Stock
outstanding.
The 1998 Stock Option Plan will be administered and interpreted by a
committee of the Board of Directors ("Committee"). Subject to applicable FDIC
regulations, the Committee will determine which officers and key employees will
be granted options, whether, in the case of officers and employees, such
options will be ISOs or NQOS, the number of shares subject to each option, and
the exercisability of such options. All options granted to nonemployee
directors will be NQOs. The per share exercise price of all options will equal
at least 100% of the fair market value of a share of Common Stock on the date
the option is granted.
Under current FDIC regulations, if the 1998 Stock Option Plan is
implemented within one year of the consummation of the Conversion and
Reorganization, (i) no officer or employees could receive an award of options
covering in excess of 25%, (ii) no nonemployee director could receive in excess
of 5% and (iii) nonemployee directors, as a group, could not receive in excess
of 30% of the number of shares reserved for issuance under the 1998 Stock
Option Plan.
Under current provisions of the Code, the federal tax treatment of ISOs
and NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of Common Stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the Common Stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal income tax deduction generally
will not be available to the Holding Company as a result of the grant or
exercise of an ISO, unless the optionee fails to satisfy the holding period
requirements. With respect to NQOs, the grant of an NQO generally is not a
taxable event for the optionee and no tax deduction will be available to the
Holding Company. However, upon the exercise of an NQO, the difference between
the fair market value of the Common Stock on the date of exercise and the
option exercise price generally will be treated as compensation to the optionee
upon exercise, and the Holding Company will be entitled to a compensation
expense deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time, the
Holding Company and the Savings Bank anticipate that if shareholder approval is
obtained it would provide awards to its officers and employees to the extent
and under terms and conditions permitted by applicable regulations. The size of
individual awards will be determined prior to submitting the 1998 Stock Option
Plan for shareholder approval and disclosure of anticipated awards will be
included in the proxy materials for such meeting.
1998 Management Recognition Plan. Following the Conversion and
Reorganization, the Board of Directors of the Holding Company intends to adopt
the 1998 MRP for officers and employees of the Holding Company and the Savings
Bank, subject to shareholder approval. The 1998 MRP will enable the Holding
Company and the Savings Bank to provide participants with a proprietary
interest in the Holding Company as an incentive to contribute to the success of
the Holding Company and the Savings Bank. The 1998 MRP will comply with all
applicable regulatory requirements. However, the 1998 MRP will not be approved
or endorsed by the FDIC. Under current FDIC regulations, the approval of a
majority vote of the Holding Company's outstanding shares is required prior to
the implementation of the 1998 MRP within one year of the consummation of the
Conversion and Reorganization.
The 1998 MRP expects to acquire a number of shares of Common Stock equal
to 4% of the Conversion Shares issued in connection with the Conversion and
Reorganization (64,440 shares based on the issuance of 1,610,000 Conversion
Shares at the maximum of the Estimated Valuation Range). Such shares will be
acquired on the open market, if available, with funds contributed by the
Holding Company or the Savings Bank to a trust which the Holding Company may
establish in conjunction with the 1998 MRP ("1998 MRP Trust") or from
authorized but unissued shares or treasury shares of the Holding Company.
78
<PAGE>
A committee of the Board of Directors of the Holding Company will
administer the 1998 MRP, the members of which will also serve as trustees of
the 1998 MRP Trust, if formed. The trustees will be responsible for the
investment of all funds contributed by the Holding Company or the Savings Bank
to the 1998 MRP Trust. The Board of Directors of the Holding Company may
terminate the 1998 MRP at any time and, upon termination, all unallocated
shares of Common Stock will revert to the Holding Company.
Shares of Common Stock granted pursuant to the 1998 MRP will be in the
form of restricted stock payable ratably over a specified vesting period
following the date of grant. During the period of restriction, all shares will
be held in escrow by the Holding Company or by the 1998 MRP Trust. All unvested
1998 MRP awards will vest in the event of the recipient's death or disability.
Unvested 1997 MRP awards will also vest following a change in control (as
defined in the 1998 MRP) of the Holding Company or the Savings Bank to the
extent authorized or not prohibited by applicable law or regulations.
A recipient of a 1998 MRP award in the form of restricted stock generally
will not recognize income upon an award of shares of Common Stock, and the
Holding Company will not be entitled to a federal income tax deduction, until
the termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
Common Stock at the time and the Holding Company will be entitled to a
deduction in the same amount after satisfying federal income tax withholding
requirements. However, the recipient may elect to recognize ordinary income in
the year the restricted stock is granted in an amount equal to the fair market
value of the shares at that time, determined without regard to the
restrictions. In that event, the Holding Company will be entitled to a
deduction in such year and in the same amount. Any gain or loss recognized by
the recipient upon subsequent disposition of the stock will be either a capital
gain or capital loss.
Although no specific award determinations have been made at this time, the
Holding Company and the Savings Bank anticipate that if shareholder approval is
obtained it would provide awards to its directors, officers and employees to
the extent and under terms and conditions permitted by applicable regulations.
Under current FDIC regulations, if the 1998 MRP is implemented within one year
of the consummation of the Conversion and Reorganization, (i) no officer or
employees could receive an award covering in excess of 25%, (ii) no nonemployee
director could receive in excess of 5% and (iii) nonemployee directors, as a
group, could not receive in excess of 30% of the number of shares reserved for
issuance under the 1998 MRP. The size of individual awards will be determined
prior to submitting the 1998 MRP for shareholder approval, and disclosure of
anticipated awards will be included in the proxy materials for such meeting.
Transactions with the Savings Bank
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or
present other unfavorable features. Pursuant to the above regulations, the
Savings Bank adopted an Insiders' Loan Policy in December 1996 pursuant to
which trustees/directors, officers and employees of the Savings Bank or any of
its subsidiaries are eligible to receive a 1% reduction of the interest rate of
mortgage loans. Federal regulations also require that loans made to a director
or executive officer in an amount that, when aggregated with the amount of all
other loans to such person and his related interests, are in excess of the
greater of $25,000 or 5% of the Savings Bank's capital and surplus (up to a
maximum of $500,000) must be approved in advance by a majority of the
disinterested members of the Board of Directors. See "REGULATION -- Federal
Regulation of Savings Banks -- Transactions with Affiliates." The aggregate
amount of loans by the Savings Bank to its executive officers and directors was
$1.18 million at December 31, 1997, which is less than .01% of pro forma
shareholders' equity (based on the issuance of the maximum of the Estimated
Valuation Range).
Certain Relationships and Related Transactions
The Savings Bank's Insiders' Loan Policy applies to the following loans:
(1) a first mortgage on an employee's residence, (2) a first mortgage on the
employee's secondary home when it is used by the employee
79
<PAGE>
as a vacation home and not as an investment property, and (3) a second mortgage
home equity loan on the employee's personal residence. The interest rate
discount is subject to increase by 1% if the employee does not complete five
years of continuous service with the Savings Bank or its subsidiaries. In
December 1996, mortgage loans were extended to Mr. Fumo and Mr. DiSandro on the
following terms: (1) principal amount of $750,000 at an interest rate of 6.5%
for a term of 360 months to Mr. Fumo; and (2) principal amount of $250,000 at
an interest rate of 6.5% for a term of 360 months to Mr. DiSandro. As of
December 31, 1997, Mr. Fumo's mortgage loan balance was $744,472 and Mr.
DiSandro's mortgage loan balance was $247,921. No additional similar loans were
extended through the year ended December 31, 1997.
80
<PAGE>
THE CONVERSION AND REORGANIZATION
The PDOB has approved and the FDIC has issued its letter of nonobjection
with respect to, the Plan of Conversion subject to its approval by the members
of the Savings Bank and the shareholders of the Savings Bank entitled to vote
thereon and to the satisfaction of certain other conditions imposed by the PDOB
and the FDIC. Regulatory approval does not constitute a recommendation or
endorsement of the Plan of Conversion.
General
The Boards of Trustees of the Savings Bank and the MHC adopted, on July
17, 1997 and amended on September 25, 1997 and the Board of Directors of the
Holding Company adopted, on _______________, 1998 the Plan of Conversion which
describes and controls the Conversion and Reorganization. pursuant to which the
MHC will convert from a mutual holding company to a stock holding company and
the Savings Bank simultaneously will reorganize as a wholly-owned subsidiary of
the Holding Company, a newly-formed Pennsylvania corporation. The following
discussion of the Plan of Conversion is qualified in its entirety by reference
to the Plan of Conversion, which is attached as Exhibit A to both the MHC's
Proxy Statement and the Savings Bank's Proxy Statement, and is available to
both members of the MHC and shareholders of the Savings Bank upon request. The
Plan of Conversion is also filed as an exhibit to the Registration Statement.
See "ADDITIONAL INFORMATION." The FDIC has approved the Plan of Conversion
subject to (i) its approval by the members of the MHC entitled to vote on the
matter at the Special Meeting of Members called for that purpose to be held on
__________, 1998, (ii) its approval by the shareholders of the Savings Bank
entitled to vote on the matter at a special meeting of shareholders (including
the MHC) called for that purpose to be held on ____________, 1998, (iii)
approval by two-thirds of the votes of holders of Public Savings Bank Shares
voting at the Special Meeting of Shareholders, and (iv) subject to the
satisfaction of certain other conditions imposed by the PDOB and the FDIC.
Shareholders of the Savings Bank are entitled to dissent with respect to the
Plan of Conversion and to obtain "fair value" of their Savings Bank Common
Stock if the Plan of Conversion is consummated. See "Dissenders' Rights" in the
Savings Bank's Proxy Statement.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
state-chartered mutual holding company to a state-chartered interim stock
savings bank ("Interim A") and simultaneously merge with and into the Savings
Bank, pursuant to which the MHC will cease to exist and the shares of Savings
Bank Common Stock held by the MHC will be canceled, and (ii) an interim state
stock savings bank ("Interim B") will be formed as a wholly-owned subsidiary of
the Holding Company and will then merge with and into the Savings Bank. As a
result of the merger of Interim B with and into the Savings Bank, the Savings
Bank will become a wholly-owned subsidiary of the Holding Company and the
Public Savings Bank shares will be converted into the Exchange Shares pursuant
to the Exchange Ratio, which will result in the holders of such shares owning
in the aggregate approximately the same percentage of the Common Stock to be
outstanding upon the completion of the Conversion and Reorganization (i.e. the
Conversion Shares and the Exchange shares) as the percentage of Savings Bank
Common Stock owned by them in the aggregate immediately prior to consummation
of the Conversion and Reorganization without regard to (a) the payment of cash
in lieu of issuing fractional Exchange Shares and (b) any shares of Conversion
Stock purchased by the Savings Bank's shareholders in the Conversion Offerings
or the ESOP thereafter.
As part of the Conversion and Reorganization, the Holding Company is
offering Conversion Shares in the Subscription Offering to holders of
Subscription Rights in the following order of priority: (i) Eligible Account
Holders (depositors of the Savings Bank with $50.00 or more on deposit as of
June 30, 1996); (ii) the ESOP; and (iii) Supplemental Eligible Account Holders
(depositors of the Savings Bank with $50.00 or more on deposit as of
__________, 1997).
Concurrently with the Subscription Offering, any Conversion Shares not
subscribed for in the Subscription Offering may be offered for sale in the
Direct Community Offering to members of the general public, with priority being
given first to Public Shareholders (who are not Eligible Account Holders or
Supplemental Eligible Account Holders) and then to natural persons and trusts
of natural persons residing in the Local Community.
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<PAGE>
Conversion Shares not sold in the Subscription and Direct Community Offerings
may be offered in the Syndicated Community Offering. Regulations require that
the Direct Community and Syndicated Community Offerings be completed within 45
days after completion of the fully extended Subscription Offering unless
extended by the Savings Bank or the Holding Company with the approval of the
regulatory authorities. If the Syndicated Community Offering is determined not
to be feasible, the Board of Directors of the Savings Bank will consult with
the regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed Conversion Shares. The Plan of Conversion provides
that the Conversion and Reorganization must be completed within 24 months after
the date of the approval of the Plan of Conversion by the members of the MHC.
No sales of Common Stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offerings unless
the Plan of Conversion is approved by the members of the MHC and the
shareholders of the Savings Bank.
The completion of the Conversion Offerings, however, is subject to market
conditions and other factors beyond the Savings Bank's control. No assurance
can be given as to the length of time after approval of the Plan of Conversion
at the Special Members Meeting and the Shareholders Meeting that will be
required to complete the Direct Community or Syndicated Community Offerings or
other sale of the Conversion Shares. If delays are experienced, significant
changes may occur in the estimated pro forma market value of the MHC and the
Savings Bank, as converted, together with corresponding changes in the net
proceeds realized by the Holding Company from the sale of the Conversion
Shares. If the Conversion and Reorganization is terminated, the Savings Bank
would be required to charge all Conversion and Reorganization expenses against
current income.
Orders for Conversion Shares will not be filled until at least 1,190,000
Conversion Shares have been subscribed for or sold and the PDOB and the FDIC
approve the final valuation and the Conversion and Reorganization closes. If
the Conversion and Reorganization is not completed within 45 days after the
last day of the fully extended Subscription Offering and the PDOB and the FDIC
consents to an extension of time to complete the Conversion and Reorganization,
subscribers will be given the right to increase, decrease or rescind their
subscriptions. Unless an affirmative indication is received from subscribers
that they wish to continue to subscribe for shares, the funds will be returned
promptly, together with accrued interest at the Savings Bank's passbook rate
from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the Conversion
and Reorganization is not completed, all withdrawal authorizations will be
terminated and all funds held will be promptly returned together with accrued
interest at the Savings Bank's passbook rate from the date payment is received
until the Conversion and Reorganization is terminated.
Purposes of Conversion and Reorganization
The MHC, as a state-chartered mutual holding company, does not have
shareholders and has no authority to issue capital stock. As a result of the
Conversion and Reorganization, the Holding Company will be structured in the
form used by holding companies of commercial banks, most business entities and
a growing number of savings institutions. The holding company form of
organization will provide the Holding Company with the ability to diversify the
Holding Company's and the Savings Bank's business activities through
acquisition of, or mergers with, both stock savings institutions and commercial
banks, as well as other companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities, the Holding
Company will be in a position after the Conversion and Reorganization, subject
to regulatory limitations and the Holding Company's financial position, to take
advantage of any such opportunities that may arise.
The Conversion and Reorganization will be important to the future growth
and performance of the holding company organization by providing a larger
capital base to support the operations of the Savings Bank and Holding Company
and by enhancing their future access to capital markets, their ability to
diversify into other financial services related activities, and their ability
to provide services to the public. Although the Savings Bank currently has the
ability to raise additional capital through the sale of additional shares of
Savings Bank Common Stock, that ability is limited by the mutual holding
company structure which, among other things, requires that the MHC hold a
majority of the outstanding shares of Savings Bank Common Stock.
The Conversion and Reorganization also will result in an increase in the
number of shares of Common Stock to be outstanding as compared to the number of
outstanding shares of Public Savings Bank Shares, which
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<PAGE>
will increase the likelihood of the development of an active and liquid trading
market for the Common Stock. See "MARKET FOR COMMON STOCK." In addition, the
Conversion and Reorganization permit the Holding Company to engage in stock
repurchases without adverse federal income tax consequences, unlike the Savings
Bank. Currently, the Holding Company has no plans or intentions to engage in
any stock repurchases, other than repurchases to acquire shares for the ESOP
(to the extent the ESOP is unable to purchase shares in the Conversion and
Reorganization) and repurchases to fund the 1998 MRP (assuming it is adopted by
shareholders of the Holding Company).
An additional benefit of the Conversion and Reorganization will be an
increase in the accumulated earnings and profits of the Savings Bank for
federal income tax purposes. When the Savings Bank (as a mutual institution)
transferred substantially all of its assets and liabilities to its stock
savings bank successor in the MHC Reorganization, its accumulated earnings and
profits tax attribute was not able to be transferred to the Savings Bank
because no tax-free reorganization was involved. Accordingly, this tax
attribute was retained by the Savings Bank when it converted its charter to
that of the MHC, even though the underlying retained earnings were transferred
to the Savings Bank. The Conversion and Reorganization has been structured to
re-unite the accumulated earnings and profits tax attribute retained by the MHC
in the MHC Reorganization with the retained earnings of the Savings Bank by
merging the MHC with and into the Savings Bank in a tax-free reorganization.
This transaction will increase the Savings Bank's ability to pay dividends to
the Holding Company in the future. See "DIVIDEND POLICY."
If the Savings Bank had undertaken a standard conversion involving the
formation of a stock holding company in 1995, applicable Pennsylvania law and
FDIC regulations would have required a greater amount of common stock to be
sold than the amount of net proceeds raised in the MHC Reorganization.
Management believed that it was advisable to profitably invest only the $5.58
million of net proceeds raised in the MHC Reorganization rather than the larger
amount of capital that would have been raised in a standard conversion. A
standard conversion in 1995 also would have immediately eliminated all aspects
of the mutual form of organization.
In light of the foregoing, the Boards of Directors of the Primary Parties
believe that the Conversion and Reorganization is in the best interests of the
MHC and the Savings Bank, their respective members and shareholders, and the
communities served by the Savings Bank.
Effects of Conversion and Reorganization on Depositors and Borrowers of the
Savings Bank
General. Prior to the Conversion and Reorganization, each depositor in the
Savings Bank has both a deposit account in the institution and a pro rata
interest in the net worth of the MHC based upon the balance in his or her
account. This interest may only be realized in the event of a liquidation of
the MHC. Furthermore, this interest is dependent upon the existence of the
depositor's account and has no tangible market value separate from such deposit
account. A depositor who reduces or closes his account receives a portion or
all of the balance in the account but nothing for his interest in the net worth
of the MHC, which is lost to the extent that the balance in the account is
reduced.
Consequently, the depositors of the Savings Bank have only an inchoate
ownership interest in the MHC, which has realizable value only in the unlikely
event that the MHC is liquidated. In such event, the depositors of record at
that time would share pro rata in any residual surplus and reserves of the MHC
after other claims are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Holding Company. The Common Stock is separate and apart from
deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The share certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
deposit and/or loan account(s) the seller may hold in the Savings Bank.
Continuity. The Conversion and Reorganization will not interrupt the
Savings Bank's normal business of accepting deposits and making loans. The
Savings Bank will continue to be subject to regulation by the FDIC and the
PDOB. After the Conversion and Reorganization, the Savings Bank will continue
to provide services for depositors and borrowers under current policies by its
present management and staff.
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The directors and officers of the Savings Bank at the time of the
Conversion and Reorganization will continue to serve as directors and officers
of the Savings Bank after the Conversion and Reorganization. The directors and
officers of the Holding Company consist of individuals currently serving as
directors and officers of the MHC and the Savings Bank, and they generally will
retain their positions in the Holding Company after the Conversion and
Reorganization.
Effect on Public Savings Bank shares. Under the Plan of Conversion, upon
consummation of the Conversion and Reorganization, the Public Savings Bank
Shares shall be converted into Exchange Shares based upon the Exchange Ratio
without any further action on the part of the holder thereof. Upon surrender of
the Public Savings Bank Shares, Common Stock will be issued in exchange for
such shares and the Public Shareholders will become shareholders of the Holding
Company. See "-- Delivery and Exchange of Stock Certificates."
Voting Rights. Presently, depositors of the Savings Bank are members of,
and have very limited voting rights in, the MHC. Upon completion of the
Conversion and Reorganization, the MHC will cease to exist and all voting
rights in the Savings Bank will be vested in the Holding Company as the sole
shareholder of the Savings Bank. Exclusive voting rights with respect to the
Holding Company will be vested in the holders of Common Stock. Depositors of
the Savings Bank will not have voting rights in the Holding Company after the
Conversion and Reorganization, except to the extent that they become
shareholders of the Holding Company.
Savings Accounts and Loans. The Savings Bank's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion and Reorganization. Furthermore, the Conversion and
Reorganization will not affect the loan accounts, loan balances or obligations
of borrowers under their individual contractual arrangements with the Savings
Bank.
Tax Effects. The Savings Bank has received an opinion from Stevens & Lee
that the Conversion and Reorganization will constitute one or more
reorganizations under Section 368(a) of the Code. Based on certain facts and
assumptions contained in such opinion, such opinion provides, among other
things, that: (i) the conversion of the MHC from a mutual holding company to a
state-chartered interim stock savings bank (i.e., Interim A) and its
simultaneous merger with and into the Savings Bank, with the Savings Bank as
the surviving entity, will qualify as one or more reorganizations within the
meaning of Section 368(a) of the Code, (ii) no gain or loss will be recognized
by the Savings Bank upon the receipt of the assets of the MHC in such merger,
(iii) the merger of Interim B with and into the Savings Bank, with the Savings
Bank as the surviving entity, will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) and (a)(2)(E) of the Code, (iv) no gain or loss
will be recognized by Interim B upon the transfer of its assets to the Savings
Bank, (v) no gain or loss will be recognized by the Savings Bank upon the
receipt of the assets of Interim B, (vi) no gain or loss will be recognized by
the Holding Company upon the receipt of Savings Bank Common Stock from the
Public Shareholders solely in exchange for Common Stock, (vii) no gain or loss
will be recognized by the Public Shareholders upon the receipt of Exchange
Shares in exchange for their Public Savings Bank Shares, (viii) the basis of
the Exchange Shares to be received by the Public Shareholders will be the same
as the basis of the Public Savings Bank Shares surrendered in exchange
therefor, before giving effect to any payment of cash in lieu of fractional
Exchange Shares, (ix) the holding period of the Exchange Shares to be received
by the Public Shareholders will include the holding period of the Public
Savings Bank Shares, provided that the Public Savings Bank Shares were held as
a capital asset on the date of the exchange, (x) no gain or loss will be
recognized by the Holding Company upon the sale of shares of Conversion Shares
in the Conversion Offerings, (xi) the Eligible Account Holders and Supplemental
Eligible Account Holders will recognize gain, if any, upon the issuance to them
of withdrawable savings accounts in the Savings Bank following the Conversion
and Reorganization, interests in the liquidation account and nontransferable
Subscription Rights to purchase Conversion Stock, but only to the extent of the
value, if any, of the subscription rights, and (xii) the tax basis to the
holders of Conversion Shares purchased in the Conversion Offerings will be the
amount paid therefor, plus, in the case of shares purchased in the Subscription
Offering, the basis, if any, of the Subscription Rights exercised by the holder
to acquire such shares and the holding period for the Conversion Shares will
begin on the date of consummation of the Conversion Offerings, if purchased
through the exercise of Subscription Rights, and on the day after the date of
purchase, if purchased in the Community Offering or the Syndicated Community
Offering. Unlike a private letter ruling issued by the IRS, an opinion of
counsel is not binding on the IRS and the IRS could disagree with the
conclusions reached therein. In the event of such disagreement, no assurance
can be given that the conclusions reached in an opinion of counsel would be
sustained by a court if contested by the IRS.
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Based upon past rulings issued by the IRS, the opinion provides that the
receipt of Subscription Rights by Eligible Account Holders and Supplemental
Eligible Account Holders under the Plan of Conversion will be taxable to the
extent, if any, that the Subscription Rights are deemed to have ascertainable
value. RP Financial, a financial consulting firm retained by the Savings Bank,
whose findings are not binding on the IRS, has issued a letter indicating that
the Subscription Rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares of
the Common Stock at a price equal to its estimated fair market value, which
will be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. The Savings Bank could also recognize a
gain on the distribution of such Subscription Rights. Eligible Account Holders
and Supplemental Eligible Account Holders are encouraged to consult with their
own tax advisors as to the tax consequences in the event the Subscription
Rights are deemed to have ascertainable value.
The Savings Bank has also received an opinion from Stevens & Lee,
concerning certain Pennsylvania tax matters. Based on certain facts and
assumptions contained in such opinion, such opinion provides, among other
things that: (a) the Savings Bank will not recognize any net income or net loss
for purposes of the Mutual Thrift Institutions Tax solely as a result of the
Conversion and the Reorganization, provided the Savings Bank does not recognize
any net income or net loss under generally accepted accounting principles,
applied as required by the law imposing such tax; and (b) the account holders
of the Savings Bank and the Holding Company will not recognize any gain or loss
for Pennsylvania income tax purposes solely as a result of the Conversion and
the Reorganization, provided they do not recognize any gain or loss for federal
income tax purposes solely as a result of such transactions.
The opinion of Stevens & Lee and the letter from RP Financial are filed as
exhibits to the Registration Statement. See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION AND REORGANIZATION PARTICULAR
TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
the MHC, each depositor of the Savings Bank would receive his or her pro rata
share of any assets of the MHC remaining after payment of claims of all
creditors. Each depositor's pro rata share of such remaining assets would be in
the same proportion as the value of his or her deposit account was to the total
value of all deposit accounts in the Savings Bank at the time of liquidation.
After the Conversion and Reorganization, each depositor, in the event of a
complete liquidation of the Savings Bank, would have a claim as a creditor of
the same general priority as the claim of all other general creditors of the
Savings Bank. However, except as described below, his or her claim would be
solely in the amount of the balance in his or her deposit account plus accrued
interest. Each shareholder would not have an interest in the value or assets of
the Savings Bank or the Holding Company above that amount.
The Plan of Conversion provides for the establishment upon the completion
of the Conversion and Reorganization, of a special "liquidation account" for
the benefit of Eligible Account Holders and Supplemental Eligible Account
Holders in an amount equal to the amount of the greater of (1) the Savings
Bank's retained earnings of $8.74 million at March 31, 1995, the date of the
latest statement of financial condition contained in the final offering
circular utilized in the MHC Reorganization, or (2) 51.5% of the Savings Bank's
total shareholders' equity as reflected in its latest statement of financial
condition contained in the final Prospectus utilized in the Conversion
Offerings. As of the date of this Prospectus, the initial balance of the
liquidation account would be $8.74 million. Each Eligible Account Holder and
Supplemental Eligible Account Holder, if he or she were to continue to maintain
his deposit account at the Savings Bank, would be entitled, upon a complete
liquidation of the Savings Bank after the Conversion and Reorganization to an
interest in the liquidation account prior to any payment to the Holding Company
as the sole shareholder of the Savings Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook accounts,
transaction accounts such as checking accounts, money market deposit accounts
and certificates of deposit, held in the Savings Bank at the close of business
on _____________________ or March 31, 1998, as the case may be. Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account for each of his or her deposit
accounts based on the proportion that the balance of each such deposit account
on the Eligibility Record Date or the Supplemental Eligibility Record Date, as
the case may be, bore to the balance of all deposit accounts in the Savings
Bank on such date.
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If, however, on any December 31 annual closing date of the Savings Bank,
commencing December 31, 1997, the amount in any deposit account is less than
the amount in such deposit account on ____________________ or _____________, as
the case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would
be distributed to the Holding Company as the sole shareholder of the Savings
Bank.
The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. In accordance with the Plan of Conversion,
nontransferable Subscription Rights to purchase the Conversion Shares have been
issued to persons and entities entitled to purchase the Conversion Shares in
the Subscription Offering. The amount of Conversion Shares that these parties
may purchase will be subject to the availability of the Conversion Shares for
purchase under the categories set forth in the Plan of Conversion. Subscription
priorities have been established for the allocation of stock to the extent that
the Conversion Shares are available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at the Savings Bank as of June 30, 1996 will receive nontransferable
Subscription Rights to subscribe for up to the greater of 1% of the shares of
Conversion Stock issued in the Conversion and Reorganization, one-tenth of one
percent of the total offering of Common Stock or 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of qualifying deposits of the Eligible Account Holder and the
denominator is the total amount of qualifying deposits of all Eligible Account
Holders. If the exercise of Subscription Rights in this category results in an
oversubscription, shares of Common Stock will be allocated among subscribing
Eligible Account Holders so as to permit each Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make such
person's total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Eligible Account Holders proportionately, based on
the amount of their respective qualifying deposits as compared to total
qualifying deposits of all Eligible Account Holders. Subscription Rights
received by officers and directors in this category based on their increased
deposits in the Savings Bank in the one year period preceding June 30, 1996 are
subordinated to the Subscription Rights of other Eligible Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable Subscription Rights to purchase up to 8% of the shares
of Common Stock issued in the Conversion and Reorganization. The ESOP intends
to purchase 8% of the shares of Common Stock issued in the Conversion and
Reorganization.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of December 31, 1997 will receive nontransferable
Subscription Rights to subscribe for up to the greater of 1% of the shares of
Conversion Stock issued in the Conversion and Reorganization, one-tenth of one
percent of the total offering of Common Stock or 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of qualifying deposits of the Supplemental Eligible Account Holder and
the denominator is the total amount of qualifying deposits of all Supplemental
Eligible Account Holders. If the exercise of Subscription Rights in this
category results in an oversubscription, shares of Common Stock will be
allocated among subscribing Supplemental Eligible Account Holders so as to
permit each Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his total allocation equal 100
shares or the number of shares actually subscribed for, whichever is less.
Thereafter, unallocated shares will be allocated among subscribing Supplemental
Eligible Account Holders proportionately, based on the amount of their
respective qualifying deposits as compared to total qualifying deposits of all
Supplemental Eligible Account Holders.
Subscription Rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for Common Stock in the Subscription
Offering or subscribing for Common Stock on behalf of
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another person will be subject to forfeiture of such rights and possible
further sanctions and penalties imposed by the FDIC or another agency of the
U.S. Government. Each person exercising Subscription Rights will be required to
certify that he or she is purchasing such shares solely for his or her own
account and that he or she has no agreement or understanding with any other
person for the sale or transfer of such shares. ONCE TENDERED, SUBSCRIPTION
ORDERS CANNOT BE REVOKED WITHOUT THE CONSENT OF THE SAVINGS BANK AND THE
HOLDING COMPANY.
The Holding Company and the Savings Bank will make reasonable attempts to
provide a Prospectus and related offering materials to holders of Subscription
Rights. However, the Subscription Offering and all Subscription Rights under
the Plan of Conversion will expire at __________, Eastern Time, on the
Expiration Date, whether or not the Savings Bank has been able to locate each
person entitled to such Subscription Rights. Orders for Common Stock in the
Subscription Offering physically received by the Savings Bank after the
Expiration Date will not be accepted. The Subscription Offering may be extended
by the Holding Company and the Savings Bank up to __________, 1998 without
regulatory approval. FDIC regulations require that the Holding Company complete
the sale of Conversion Shares within 45 days after the close of the
Subscription Offering. If the Direct Community Offering and the Syndicated
Community Offerings are not completed by __________, 1998 (or __________, 1998,
if the Subscription Offering is fully extended), all funds received will be
promptly returned with interest at the Savings Bank's passbook rate and all
withdrawal authorizations will be canceled or, if regulatory approval of an
extension of the time period has been granted, all subscribers and purchasers
will be notified of such extension and its duration and will be given the right
to increase, decrease or rescind their orders. If an affirmative response to
any resolicitation is not received by the Holding Company from a subscriber,
the subscriber's order will be rescinded and all funds received will be
promptly returned with interest (or withdrawal authorizations will be
canceled). No single extension can exceed 90 days.
Direct Community Offering. Any shares of Common Stock that remain
unsubscribed for in the Subscription Offering will be offered by the Holding
Company to certain members of the general public in a Direct Community
Offering, with preference given first to Public Shareholders (who are not
eligible to subscribe for Conversion Shares in the Subscription Offering) and
then to natural persons and trusts of natural persons residing in the Local
Community. Purchasers in the Direct Community Offering are eligible to purchase
up to 1% of the shares of Conversion Stock issued in the Conversion and
Reorganization. In the event an insufficient number of shares are available to
fill orders in the Direct Community Offering, the available shares will be
allocated on a pro rata basis determined by the amount of the respective
orders. The Direct Community Offering is expected to commence concurrently with
the commencement of the Subscription Offering. The Direct Community Offering
may terminate on or at any time subsequent to the Expiration Date, but no later
than 45 days after the close of the Subscription Offering, unless extended by
the Holding Company and the Savings Bank, with approval of the PDOB and the
FDIC. The right of any person to purchase shares in the Direct Community
Offering is subject to the absolute right of the Holding Company and the
Savings Bank to accept or reject such purchases in whole or in part. If an
order is rejected in part, the purchaser does not have the right to cancel the
remainder of the order. The Holding Company presently intends to terminate the
Direct Community Offering as soon as it has received orders for all shares
available for purchase in the Conversion and Reorganization.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Direct
Community Offering.
Syndicated Community Offering. The Plan of Conversion provides that, if
necessary, all shares of Common Stock not purchased in the Subscription
Offering and Direct Community Offering, if any, may be offered for sale to
certain members of the general public in a Syndicated Community Offering
through a syndicate of registered broker-dealers to be managed by Webb acting
as agent of the Holding Company. The Holding Company and the Savings Bank have
the right to reject orders, in whole or part, in their sole discretion in the
Syndicated Community Offering. Neither Webb nor any registered broker-dealer
shall have any obligation to take or purchase any shares of the Common Stock in
the Syndicated Community Offering; however, Webb has agreed to use its best
efforts in the sale of shares in the Syndicated Community Offering.
Conversion Shares sold in the Syndicated Community Offering also will be
sold at the Purchase Price. See "-- Stock Pricing, Exchange Ratio and Number of
Shares to be Issued." No person will be permitted to
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subscribe in the Syndicated Offering for Conversion Shares that exceeds 1% of
the Conversion Shares issued in the Conversion and Reorganization. See "-- Plan
of Distribution for the Subscription, Direct Community and Syndicated Community
Offerings" for a description of the commission to be paid to the selected
dealers and to Webb.
Webb may enter into agreements with selected dealers to assist in the sale
of shares in the Syndicated Community Offering. During the Syndicated Community
Offering, selected dealers may only solicit indications of interest from their
customers to place orders with the Holding Company as of a certain date ("Order
Date") for the purchase of shares of Conversion Stock. When and if Webb and the
Holding Company believe that enough indications of interest and orders have
been received in the Subscription Offering, the Direct Community Offering and
the Syndicated Community Offering to consummate the Conversion and
Reorganization, Webb will request, as of the Order Date, selected dealers to
submit orders to purchase shares for which they have received indications of
interest from their customers. Selected dealers will send confirmations to such
customers on the next business day after the Order Date. Selected dealers may
debit the accounts of their customers on a date which will be three business
days from the Order Date ("Settlement Date"). Customers who authorize selected
dealers to debit their brokerage accounts are required to have the funds for
payment in their account on but not before the Settlement Date. On the
Settlement Date, selected dealers will remit funds to the account that the
Holding Company established for each selected dealer. Each customer's funds so
forwarded to the Holding Company, along with all other accounts held in the
same title, will be insured by the FDIC up to the applicable $100,000 legal
limit. After payment has been received by the Holding Company from selected
dealers, funds will earn interest at the Savings Bank's passbook rate until the
completion of the Conversion Offerings. At the completion of the Conversion and
Reorganization, the funds received in the Conversion Offerings will be used to
purchase the shares of Common Stock ordered. The shares issued in the
Conversion and Reorganization cannot and will not be insured by the FDIC or any
other government agency. In the event the Conversion and Reorganization is not
consummated as described above, funds with interest will be returned promptly
to the selected dealers, who, in turn will promptly credit their customers'
brokerage accounts.
The Syndicated Community Offering may terminate on or at any time
subsequent to the Expiration Date, but no later than 45 days after the close of
the Subscription Offering, unless extended by the Holding Company and the
Savings Bank, with approval of the PDOB and the FDIC.
In the event the Savings Bank is unable to find purchasers from the
general public for all unsubscribed shares, other purchase arrangements will be
made by the Board of Directors of the Savings Bank, if feasible. Such other
arrangements will be subject to the approval of the PDOB and the FDIC. The PDOB
and the FDIC may grant one or more extensions of the offering period, provided
that (i) no single extension exceeds 90 days, (ii) subscribers are given the
right to increase, decrease or rescind their subscriptions during the extension
period, and (iii) the extensions do not go more than two years beyond the date
on which the members approved the Plan of Conversion. If the Conversion and
Reorganization is not completed within 45 days after the close of the
Subscription Offering, either all funds received will be returned with interest
(and withdrawal authorizations canceled) or, if the PDOB and the FDIC has
granted an extension of time, all subscribers will be given the right to
increase, decrease or rescind their subscriptions at any time prior to 20 days
before the end of the extension period. If an extension of time is obtained,
all subscribers will be notified of such extension and of their rights to
modify their orders. If an affirmative response to any resolicitation is not
received by the Holding Company from a subscriber, the subscriber's order will
be rescinded and all funds received will be promptly returned with interest (or
withdrawal authorizations will be canceled).
Persons in Non-Qualified States. The Holding Company and the Savings Bank
will make reasonable efforts to comply with the securities laws of all states
in the United States in which persons entitled to subscribe for stock pursuant
to the Plan of Conversion reside. However, the Holding Company and the Savings
Bank are not required to offer stock in the Subscription Offering to any person
who resides in a foreign country or resides in a state of the United States
with respect to which (i) a small number of persons otherwise eligible to
subscribe for shares of Common Stock reside in such state or (ii) the Holding
Company or the Savings Bank determines that compliance with the securities laws
of such state would be impracticable for reasons of cost or otherwise,
including but not limited to a request or requirement that the Holding Company
and the Savings Bank or their officers, directors or trustees register as a
broker, dealer, salesman or selling agent, under the securities laws of such
state, or a request or requirement to register or otherwise qualify the
Subscription Rights or Common Stock
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for sale or submit any filing with respect thereto in such state. Where the
number of persons eligible to subscribe for shares in one state is small, the
Holding Company and the Savings Bank will base their decision as to whether or
not to offer the Common Stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of
reviewing the registration and qualification requirements of the state (and of
actually registering or qualifying the shares) or the need to register the
Holding Company, its officers, directors or employees as brokers, dealers or
salesmen.
The Exchange
General. The regulations and policies governing mutual holding companies
provide that in a conversion of a mutual holding company to the stock holding
company form of organization, the Public Shareholders will be entitled to
exchange their Public Savings Bank Shares for Exchange Shares, provided the
Savings Bank and the MHC demonstrate to the satisfaction of the Department and
the FDIC that the basis for the exchange is fair and reasonable. The Boards of
Directors of the Savings Bank and the Holding Company have determined that each
Public Savings Bank Share will, at the Effective Time of the Conversion and
Reorganization, be converted into and become the right to receive a number of
Exchange Shares determined pursuant to the Exchange Ratio that ensures that
after the Conversion and Reorganization and before giving effect to purchases
of Conversion Shares by Public Shareholders in the Conversion Offerings, and
receipt by Public Shareholders of cash in lieu of fractional shares, Public
Shareholders will own approximately the same aggregate percentage of the
Holding Company Common Stock as they own of the Savings Bank Common Stock
immediately prior to the Effective Time adjusted downward to reflect the
aggregate amount of Savings Bank Common Stock dividends waived by the MHC and
the amount of assets, other than Savings Bank Common Stock, held by the MHC.
The MHC had assets of $247,000. No Savings Bank Common Stock dividends were
waived.
The adjustments described above decrease the Public Shareholders'
ownership interest to 48.06% from 48.5% based on the following calculation:
Savings Bank Shareholders' Equity at 12/31/97 X Public Shareholders' 48.5%
Ownership = 48.5%
Savings Bank Shareholders' Equity at 12/31/97
The adjustments described above would further adjust the Public
Shareholders' ownership interest as follows:
48.5% x Pro Forma Market Value of the Holding Company-Market Value of Assets of
MHC Other than Savings Bank Common Stock = 48.06%
Pro Forma Market Value of the Holding Company
To determine the Exchange Ratio, the adjusted Public Shareholders'
ownership interest was multiplied by the number of shares to be issued in the
Conversion and Reorganization, and the result was divided by the number of
Savings Bank Public Shares outstanding (579,390) shares as of December 31,
1997. Immediately prior to consummation of the Conversion and Reorganization,
the Savings Bank will recalculate the Public Shareholders' ownership interest
pursuant to the above formula, which will take into account changes in
shareholders' equity and percentage ownership at such date.
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The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, the following: (i)
the total number of Conversion Shares and Exchange Shares to be issued in the
Conversion and Reorganization, (ii) the percentage of the total Common Stock
represented by the Conversion Shares and the Exchange Shares, and (iii) the
Exchange Ratio. The table assumes that there is no cash paid in lieu of issuing
fractional Exchange Shares.
<TABLE>
<CAPTION>
Conversion Shares to be Exchange Shares to be Total Shares of
Issued (1) Issued (1) Common Stock to Exchange
Amount Percent Amount Percent be Outstanding Ratio
----------- ----------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Minimum ................... 1,190,000 51.94% 1,101,131 48.06% 2,291,131 1.9005
Midpoint .................. 1,400,000 51.94 1,295,417 48.06 2,695,417 2.2358
Maximum ................... 1,610,000 51.94 1,489,728 48.06 3,099,728 2.5712
15% above maximum ......... 1,851,500 51.94 1,713,198 48.06 3,564,698 2.9569
</TABLE>
(1) Assumes that outstanding options to purchase 35,859 shares of Savings Bank
Common Stock at December 31, 1997 are not exercised prior to consummation
of the Conversion and Reorganization.
The actual Exchange Ratio is not dependent on the market value of the
Public Savings Bank Shares. It will be determined based upon the number of
Conversion Shares issued in the Conversion Offerings and the Public
Shareholders' percentage ownership in the Savings Bank prior to consummation of
the Conversion and Reorganization adjusted downward to take into account the
effect of the aggregate amount of assets of the MHC other than Savings Bank
Common Stock. At the minimum, midpoint and maximum of the Valuation Price
Range, one Public Savings Bank Share will be exchanged for 1.9005, 2.2358 and
2.5712 shares of Holding Company Common Stock, respectively (which have
calculated equivalent estimated value of $19.05, $22.36 and $25.71 based on the
Purchase Price of Conversion Shares in the Conversion Offerings and the
aforementioned Exchange Ratios). However, there can be no assurance as to the
actual market value of a share of Holding Company Common Stock after the
Conversion and Reorganization or that such shares can be sold at or above the
$10.00 per share Purchase Price. Any increase or decrease in the number of
Conversion Shares will result in a corresponding change in the number of
Exchange Shares, so that upon consummation of the Conversion and
Reorganization, the Conversion Shares and the Exchange Shares will represent
approximately 51.94% and 48.06%, respectively, of the Holding Company's total
outstanding shares of Common Stock. Each holder of a certificate or
certificates evidencing issued and outstanding Public Savings Bank Shares will
be entitled to receive in exchange therefor a certificate or certificates
representing the number of full shares of Common Stock for which the Public
Savings Bank Shares will have been converted based on the Exchange Ratio. To
effect the Exchange, a duly appointed agent of the Savings Bank will promptly
mail to each such holder of record of an outstanding certificate which
immediately prior to the consummation of the Conversion and Reorganization
evidenced Public Savings Bank Shares, a letter of transmittal (which will
specify that delivery shall be effected, and risk of loss and title to such
certificate shall pass, only upon delivery of such certificate to the Exchange
Agent) advising such holder of the terms of the Exchange effected by the
Conversion and Reorganization and of the procedure for surrendering to the
Exchange Agent such certificate in exchange for a certificate or certificates
evidencing Common Stock. Public Shareholders should not forward to the Savings
Bank or the Exchange Agent certificates until they have received the
transmittal letter.
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
The Primary Parties have retained Webb to consult with and to advise the
Savings Bank and the Holding Company, and to assist the Holding Company on a
best efforts basis, in the distribution of the Conversion Shares in the
Subscription Offering and Direct Community Offering. The services that Webb
will provide include, but are not limited to (i) training the employees of the
Savings Bank who will perform certain ministerial functions in the Subscription
Offering and the Direct Community Offering regarding the mechanics and
regulatory requirements of the stock offering process, (ii) managing the Stock
Information Center by assisting interested stock subscribers and by keeping
records of all stock orders, (iii) preparing marketing materials, and (iv)
assisting in the solicitation of proxies from the MHC's members and the
shareholders of the Savings Bank for use at the Special Members' Meeting and
the Shareholders' Meeting, respectively. For its services, Webb will receive a
management fee of $25,000 and a success fee of 1.5% of the aggregate Purchase
Price of the Conversion Shares sold in the Subscription Offering and the Direct
Community Offering, excluding shares purchased by the ESOP
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and officers, directors and employees of the Savings Bank, or members of their
immediate families. The management fee shall be applied to the success fee and
the success fee shall not exceed $100,000. The Primary Parties have agreed to
reimburse Webb for its out-of-pocket expenses up to $7,500 and its legal fees
up to $30,000. The Primary Parties have also agreed to indemnify Webb against
certain claims or liabilities, including certain liabilities under the
Securities Act, and will contribute to payments Webb may be required to make in
connection with any such claims or liabilities.
Description of Sales Activities
The Common Stock will be offered in the Subscription Offering and Direct
Community Offering principally by the distribution of this Prospectus and
through activities conducted at the Savings Bank's Stock Information Center at
its main office facility. The Stock Information Center is expected to operate
during normal business hours throughout the Subscription Offering and Direct
Community Offering. It is expected that at any particular time one or more Webb
employees will be working at the Stock Information Center. Stock Information
Center personnel will be responsible for mailing materials relating to the
Conversion Offerings, responding to questions regarding the Conversion and
Reorganization and the Conversion Offerings and processing stock orders.
Sales of Common Stock will be made by registered representatives
affiliated with Webb. The management and employees of the Savings Bank may
participate in the Conversion Offerings in clerical capacities, providing
administrative support in effecting sales transactions or, when permitted by
state securities laws, answering questions of a mechanical nature relating to
the proper execution of the Order Form. Management of the Savings Bank may
answer questions regarding the business of the Savings Bank when permitted by
state securities laws. Other questions of prospective purchasers, including
questions as to the advisability or nature of the investment, will be directed
to registered representatives. The management and employees of the Holding
Company and the Savings Bank have been instructed not to solicit offers to
purchase Common Stock or provide advice regarding the purchase of Common Stock.
No officer, director or employee of the Savings Bank or the Holding
Company will be compensated, directly or indirectly, for any activities in
connection with the offer or sale of securities issued in the Conversion and
Reorganization.
None of the Savings Bank's personnel participating in the Conversion
Offerings is registered or licensed as a broker or dealer or an agent of a
broker or dealer. The Savings Bank's personnel will assist in the
above-described sales activities pursuant to an exemption from registration as a
broker or dealer provided by Rule 3a4-1 promulgated under the Exchange Act. Rule
3a4-1 generally provides that an "associated person of an issuer" of securities
shall not be deemed a broker solely by reason of participation in the sale of
securities of such issuer if the associated person meets certain conditions.
Such conditions include, but are not limited to, that the associated person
participating in the sale of an issuer's securities not be compensated in
connection therewith at the time of participation, that such person not be
associated with a broker or dealer and that such person observe certain
limitations on his participation in the sale of securities. For purposes of this
exemption, "associated person of an issuer" is defined to include any person who
is a director, officer or employee of the issuer or a company that controls, is
controlled by or is under common control with the issuer.
Procedure for Purchasing shares in the Subscription and Direct Community
Offerings
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange
Act, no Prospectus will be mailed any later than five days prior to such date
or hand delivered any later than two days prior to such date. Execution of the
Order Form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order Forms will only be distributed with a Prospectus. The Savings Bank will
accept for processing only orders submitted on original Order Forms. The
Savings Bank is not obligated to accept orders submitted on photocopied or
telecopied Order Forms. Orders cannot and will not be accepted without the
execution of the Certification appearing on the reverse side of the Order Form.
To purchase shares in the Subscription Offering, an executed Order Form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Savings Bank (which may be given by completing the
appropriate blanks in
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the Order Form), must be received by the Savings Bank by __________, Eastern
Time, on the Expiration Date. Order Forms that are not received by such time or
are executed defectively or are received without full payment (or without
appropriate withdrawal instructions) are not required to be accepted. The
Holding Company and the Savings Bank have the right to waive or permit the
correction of incomplete or improperly executed Order Forms, but do not
represent that they will do so. Pursuant to the Plan of Conversion, the
interpretation by the Holding Company and the Savings Bank of the terms and
conditions of the Plan of Conversion and of the Order Form will be final. In
order to purchase shares in the Direct Community Offering, the Order Form,
accompanied by the required payment for each share subscribed for, must be
received by the Savings Bank prior to the time the Direct Community Offering
terminates, which may be on or at any time subsequent to the Expiration Date.
Once received, an executed Order Form may not be modified, amended or rescinded
without the consent of the Savings Bank unless the Conversion and
Reorganization has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
In order to ensure that Eligible Account Holders, and Supplemental
Eligible Account Holders are properly identified as to their stock purchase
priorities, depositors as of the Eligibility Record Date (June 30, 1996) and/or
the Supplemental Eligibility Record Date (_____________________, 1997) must
list all accounts on the Order Form giving all names in each account, the
account number and the approximate account balance as of such date.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Stock Information Center, (ii) by check, bank draft, or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Savings Bank. Appropriate means by which such withdrawals may be
authorized are provided on the Order Form. No wire transfers will be accepted.
Interest will be paid on payments made by cash, check, bank draft or money
order at the Savings Bank's passbook rate from the date payment is received
until the completion or termination of the Conversion and Reorganization. If
payment is made by authorization of withdrawal from deposit accounts, the funds
authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the
Conversion and Reorganization (unless the certificate matures after the date of
receipt of the Order Form but prior to closing, in which case funds will earn
interest at the passbook rate from the date of maturity until consummation of
the Conversion and Reorganization), but a hold will be placed on such funds,
thereby making them unavailable to the depositor until completion or
termination of the Conversion and Reorganization. At the completion of the
Conversion and Reorganization, the funds received in the Conversion Offerings
will be used to purchase the shares of Common Stock ordered. The shares of
Common Stock issued in the Conversion and Reorganization cannot and will not be
insured by the FDIC or any other government agency. If the Conversion and
Reorganization is not consummated for any reason, all funds submitted will be
promptly refunded with interest as described above.
If a subscriber authorizes the Savings Bank to withdraw the amount of the
aggregate Purchase Price from his or her deposit account, the Savings Bank will
do so as of the effective date of Conversion and Reorganization, though the
account must contain the full amount necessary for payment at the time the
subscription order is received. The Savings Bank will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum
balance requirement at the time that the funds actually are transferred under
the authorization the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at
the Savings Bank's passbook rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of Common Stock
subscribed for at the Purchase Price upon consummation of the Conversion and
Reorganization, provided that there is in force from the time of its
subscription until such time, a loan commitment from an unrelated financial
institution or the Holding Company to lend to the ESOP, at such time, the
aggregate Purchase Price of the shares for which it subscribed.
IRAs maintained in the Savings Bank do not permit investment in the Common
Stock. A depositor interested in using his or her IRA funds to purchase Common
Stock must do so through a self-directed IRA. Since the Savings Bank does not
offer such accounts, it will allow such a depositor to make a trustee-to-
trustee transfer of the IRA funds to a trustee offering a self- directed IRA
program with the agreement that such funds will be used to purchase the Common
Stock in the Conversion Offerings. There will be no early withdrawal or IRS
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interest penalties for such transfers. The new trustee would hold the Common
Stock in a self-directed account in the same manner as the Savings Bank now
holds the depositor's IRA funds. An annual administrative fee may be payable to
the new trustee. Depositors interested in using funds in a Savings Bank IRA to
purchase Common Stock should contact the Stock Information Center so that the
necessary forms may be forwarded for execution and returned prior to the
Expiration Date. In addition, the provisions of ERISA and IRS regulations
require that officers, directors and 10% shareholders who use self-directed IRA
funds to purchase shares of Common Stock in the Subscription Offering, make
such purchases for the exclusive benefit of IRAs.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued
The Plan of Conversion requires that the purchase price of the Conversion
Shares must be based on the appraised pro forma market value of the Conversion
Shares, as determined on the basis of an independent valuation. The Primary
Parties have retained RP Financial to make such valuation. For its services in
making the Appraisal and any expenses incurred in connection therewith, RP
Financial will receive a maximum fee of $20,000 plus out of pocket expenses,
together with a fee of no greater that $7,500 plus out of pocket expenses for
the preparation of a business plan and other services performed in connection
with the Holding Company's application to the FDIC. The Primary Parties have
agreed to indemnify RP Financial and its employees and affiliates against
certain losses (including any losses in connection with claims under the
federal securities laws) arising out of its services as appraiser, except where
RP Financial's liability results from its negligence or bad faith.
The Appraisal has been prepared by RP Financial in reliance upon the
information contained in this Prospectus, including the Consolidated Financial
Statements. RP Financial also considered the following factors, among others:
the present and projected operating results and financial condition of the
Primary Parties and the economic and demographic conditions in the Savings
Bank's existing market area; certain historical, financial and other
information relating to the Savings Bank; a comparative evaluation of the
operating and financial statistics of the Savings Bank with those of other
similarly situated publicly-traded companies located in Pennsylvania and other
regions of the United States; the aggregate size of the offering of the
Conversion Shares; the impact of the Conversion and Reorganization on the
Savings Bank's capital and earnings potential; the proposed dividend policy of
the Holding Company and the Savings Bank; and the trading market for the
Savings Bank Common Stock and securities of comparable companies and general
conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised the Primary
Parties in its opinion that the estimated pro forma market value of the MHC and
the Savings Bank, as converted, was $26,954,178 as of February 13, 1998.
Because the holders of the Public Savings Bank Shares will continue to hold the
same aggregate percentage ownership interest in the Holding Company as they
currently hold in the Savings Bank (before giving effect to the payment of cash
in lieu of issuing fractional Exchange Shares and any Conversion Shares
purchased by the Public Shareholders in the Conversion Offerings), the
Appraisal was multiplied by 51.94% which represents, the MHC's 51.5% interest
in the Savings Bank, adjusted for assets held by the MHC. The resulting amount
represents the midpoint of the valuation ($14.00 million), and the minimum and
maximum of the valuation were set at 15% below and above the midpoint,
respectively, resulting in a range of $11.9 million to $16.10 million. The
Boards of Directors of the Primary Parties determined that the Conversion
Shares would be sold at $10.00 per share, resulting in a range of 1,190,000 to
1,610,000 Conversion Shares being offered. Upon consummation of the Conversion
and Reorganization, the Conversion Shares and the Exchange Shares will
represent approximately 51.94% and 48.06%, respectively, of the Holding
Company's total outstanding shares. The Boards of Directors of the Primary
Parties reviewed RP Financial's appraisal report, including the methodology and
the assumptions used by RP Financial, and determined that the Estimated
Valuation Range was reasonable and adequate. The Boards of Directors of the
Primary Parties also established the formula for determining the Exchange
Ratio. Based upon such formula and the Estimated Valuation Range, the Exchange
Ratio ranged from a minimum of 1.9005 to a maximum of 2.5712 Exchange Shares
for each Public Savings Bank Share, with a midpoint of 2.2358. Based upon these
Exchange Ratios, the Holding Company expects to issue between 1,101,131 and
1,489,728 shares of Exchange Shares to the holders of Public Savings Bank
Shares outstanding immediately prior to the consummation of the Conversion and
Reorganization. The Estimated Valuation Range
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and the Exchange Ratio may be amended with the approval of the PDOB and the
FDIC, if required, or if necessitated by subsequent developments in the
financial condition of any of the Primary Parties or market conditions
generally. If the Appraisal is updated to below $11.90 million or above $18.51
million (the maximum of the Estimated Valuation Range, as adjusted by 15%),
such Appraisal will be filed with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent practices
and policies of the PDOB and the FDIC, in the event the Holding Company
receives orders for Conversion Shares in excess of $16.10 million (the maximum
of the Estimated Valuation Range) and up to $18.51 million (the maximum of the
Estimated Valuation Range, as adjusted by 15%), the Holding Company may be
required by the PDOB and the FDIC to accept all such orders. No assurances,
however, can be made that the Holding Company will receive orders for
Conversion Shares in excess of the maximum of the Estimated Valuation Range or
that, if such orders are received, that all such orders will be accepted
because the Holding Company's first valuation and number of shares to be issued
are subject to the receipt of an updated appraisal from RP Financial that
reflects such an increase in the valuation and the approval of such increase by
the PDOB and the FDIC. There is no obligation or understanding on the part of
management to take and/or pay for any shares of Conversion Shares to complete
the Conversion Offerings.
RP Financial's valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing Conversion
Shares. RP Financial did not independently verify the Savings Bank's
Consolidated Financial Statements and other information provided by the Savings
Bank and the MHC, nor did RP Financial value independently the assets or
liabilities of the Savings Bank. The valuation considers the Savings Bank and
the MHC as going concerns and should not be considered as an indication of the
liquidation value of the Savings Bank and the MHC. Moreover, because such
valuation is necessarily based upon estimates and projections of a number of
matters, all of which are subject to change from time to time, no assurance can
be given that persons purchasing Conversion Shares or receiving Exchange Shares
in the Conversion and Reorganization will thereafter be able to sell such
shares at prices at or above the Purchase Price or in the range of the
foregoing valuation of the pro forma market value thereof.
No sale of Conversion Shares or issuance of Exchange Shares may be
consummated unless prior to such consummation RP Financial confirms that
nothing of a material nature has occurred that, taking into account all
relevant factors, would cause it to conclude that the Purchase Price is
materially incompatible with the estimate of the pro forma market value of a
share of Common Stock upon consummation of the Conversion and Reorganization.
If such is not the case, a new Estimated Valuation Range may be set, a new
Exchange Ratio may be determined based upon the new Estimated Valuation Range,
a new Subscription, Direct Community Offering and/or Syndicated Community
Offering may be held or such other action may be taken as the Primary Parties
shall determine and the PDOB and the FDIC may permit or require.
Depending upon market or financial conditions following the commencement
of the Subscription Offering, the total number of Conversion Shares to be
issued in the Conversion Offerings may be increased or decreased without a
resolicitation of subscribers, provided that the product of the total number of
shares times the Purchase Price is not below the minimum or more than 15% above
the maximum of the Estimated Valuation Range. In the event market or financial
conditions change so as to cause the aggregate Purchase Price of the shares to
be below the minimum of the Estimated Valuation Range or more than 15% above
the maximum of the Estimated Valuation Range, purchasers will be resolicited
(i.e. permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
with interest at the Savings Bank's passbook rate of interest, or be permitted
to modify or rescind their subscriptions). Any increase or decrease in the
number of Conversion Shares will result in a corresponding change in the number
of Exchange Shares, so that upon consummation of the Conversion and
Reorganization, the Conversion Shares and the Exchange Shares will represent
approximately 51.94% and 48.06%, respectively, of the Holding Company's total
outstanding shares of Common Stock (exclusive of the effects of the exercise of
outstanding stock options).
An increase in the number of Conversion Shares as a result of an increase
in the appraisal of the estimated pro forma market value would decrease both a
subscriber's ownership interest and the Holding Company's pro forma net
earnings and shareholders' equity on a per share basis while increasing pro
forma net earnings and shareholders' equity on an aggregate basis. A decrease
in the number of Conversion Shares would increase both
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a subscriber's ownership interest and the Holding Company's pro forma net
earnings and shareholders' equity on a per share basis while decreasing pro
forma net earnings and shareholders' equity on an aggregate basis. See "RISK
FACTORS -- Possible Dilutive Effect of Benefit Plans" and "PRO FORMA DATA."
The Appraisal of RP Financial has been filed as an exhibit to this
Registration Statement and Application for Conversion of which this Prospectus
is a part and is available for inspection in the manner set forth under
"ADDITIONAL INFORMATION."
Limitations on Purchases of Conversion Shares
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of Conversion Shares by eligible subscribers and others in the
Conversion and Reorganization. Each subscriber must subscribe for a minimum of
25 Conversion Shares. Except for the ESOP, which is expected to subscribe for
8% of the Conversion Shares issued in the Conversion and Reorganization, the
Plan of Conversion provides for the following purchase limitations: (i) the
maximum number of shares of Conversion Shares that may be subscribed for or
purchased in all categories in the Conversion and Reorganization by any person,
when combined with any Exchange Shares received, shall not exceed 1% of the
Conversion Shares issued in the Conversion and Reorganization, and (ii) the
maximum number of shares of Conversion Shares that may be subscribed for or
purchased in all categories in the Conversion and Reorganization by any person,
together with all associates or any group of persons acting in concert when
combined with any Exchange Shares received, shall not exceed 2% of the
Conversion Shares issued in the Conversion and Reorganization. For purposes of
the Plan of Conversion, the directors are not deemed to be acting in concert
solely by reason of their Board membership. Pro rata reductions within each
Subscription Rights category will be made in allocating shares to the extent
that the maximum purchase limitations are exceeded.
The Boards of Directors of the Primary Parties may, in their sole
discretion, increase the maximum purchase limitation set forth above up to 5%
of the Conversion Shares sold in the Conversion and Reorganization, provided
that orders for shares exceed 5% of the Conversion Shares sold in the
Conversion and Reorganization may not exceed, in the aggregate, 10% of the
shares sold in the Conversion and Reorganization. If the minimum or maximum
purchase limitations are changed, subscribers will be provided with notice in
writing. Factors considered in determining whether to change such limitations
will be: (1) whether there is significant demand in which case the limitations
could be increased and thereby provide broader distribution, and (2) whether
there is not a significant demand, in which case the limitations could thereby
be increased to encourage large purchases to ensure the purchase of the number
of shares necessary to consummate the transaction. The Savings Bank and the
Holding Company do not intend to increase the maximum purchase limitation
unless market conditions are such that an increase in the maximum purchase
limitation is necessary to sell a number of shares in excess of the minimum of
the Estimated Valuation Range. If the Boards of Directors of the Primary
Parties decide to increase the purchase limitation, persons who subscribed for
the maximum number of Conversion Shares will be, and other large subscribers in
the discretion of the Holding Company and the Savings Bank may be, given the
opportunity to increase their subscriptions accordingly, subject to the rights
and preferences of any person who has priority Subscription Rights.
The term "acting in concert" is defined in the Plan of Conversion to mean
(i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract
understanding, relationship, agreement or other arrangement, whether written or
otherwise. In general, a person who acts in concert with another party also
shall be deemed to be acting in concert with any person who also is acting in
concert with that other party.
The term "associate" of a person is defined in the Plan of Conversion to
mean (i) any corporation or organization (other than the Savings Bank or a
majority-owned subsidiary of the Savings Bank) of which such person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10%
or more of any class of equity securities; (ii) any trust or other estate in
which such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity (excluding
tax-qualified employee plans); and (iii) any relative or spouse of such person,
or any relative of such spouse, who either has the same home as such
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person or who is a director or officer of the Savings Bank or any of its
parents or subsidiaries. For example, a corporation of which a person serves as
an officer would be an associate of such person and, therefore, all shares
purchased by such corporation would be included with the number of shares that
such person could purchase individually under the above limitations.
The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Savings Bank, including its Chairman of the Board,
President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents
in charge of principal business functions, Secretary and Treasurer.
Common stock purchased or exchanged pursuant to the Conversion and
Reorganization will be freely transferable, except for shares purchased by
directors and officers of the Savings Bank and the Holding Company and by NASD
members. See "-- Restrictions on Transferability by Directors and Officers and
NASD Members."
Delivery and Exchange of Stock Certificates
Conversion Shares. Certificates representing Conversion Shares will be
mailed by the Holding Company's transfer agent to the persons entitled thereto
at the addresses of such persons appearing on the Stock Order Form as soon as
practicable following the consummation of the Conversion and Reorganization.
Any undeliverable certificates will be held by the Holding Company until
claimed by persons legally entitled thereto or otherwise disposed according to
applicable law. Purchasers of Conversion Shares may be unable to sell such
shares until certificates are available and delivered to them.
Exchange Shares. After the consummation of the Conversion and
Reorganization, each holder of a certificate(s) theretofore evidencing issued
and outstanding shares of Savings Bank Common Stock (other than the MHC), upon
surrender of the same to an agent, duly appointed by the Holding Company, which
is anticipated to be the transfer agent for the Common Stock ("Exchange
Agent"), shall be entitled to receive in exchange therefor certificates
representing the number of full Exchange Shares based on the Exchange Ratio.
The Exchange Agent shall mail a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to such
certificate shall pass, only upon delivery of such certificate to the Exchange
Agent) advising such holder of the terms of the Exchange Offering and the
procedure for surrendering to the Exchange Agent such certificates in exchange
for a certificate(s) evidencing Common Stock. The Public Shareholders should
not forward Savings Bank Common Stock certificates to the Savings Bank or the
Exchange Agent until they have received the letter of transmittal.
No holder of a certificate theretofore representing shares of Savings Bank
Common Stock shall be entitled to receive any dividends on the Common Stock
until the certificate representing such shares is surrendered in exchange for
certificates representing shares of Common Stock. In the event that dividends
are declared and paid by the Holding Company in respect of Common Stock after
the consummation of the Conversion and Reorganization, but before surrender of
certificates representing shares of Savings Bank Common Stock, dividends
payable in respect of shares of Common Stock not then issued shall accrue
(without interest). Any such dividends shall be paid (without interest) upon
surrender of the certificates representing such shares of Savings Bank Common
Stock. After the consummation of the Conversion and Reorganization, the Holding
Company shall be entitled to treat certificates representing shares of Savings
Bank Common Stock as evidencing ownership of the number of full shares of
Common Stock into which the shares of Savings Bank Common Stock represented by
such certificates shall have been converted, notwithstanding the failure on the
part of the holder thereof to surrender such certificates.
The Holding Company shall not be obligated to deliver a certificate(s)
representing shares of Common Stock to which a holder of Savings Bank Common
Stock would otherwise be entitled as a result of the Conversion and
Reorganization until such holder surrenders the certificate(s) representing the
shares of Savings Bank Common Stock for exchange as provided above, or, in
default thereof, an appropriate affidavit of loss and indemnity agreement
and/or a bond as may be required in each case by the Holding Company. If any
certificate evidencing shares of Common Stock is to be issued in a name other
than that in which the certificate evidencing Savings Bank Common Stock
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for
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transfer and that the person requesting such exchange pay to the Exchange Agent
any transfer or other tax required by reason of the issuance of a certificate
for shares of Common Stock in any name other than that of the registered holder
of the certificate surrendered or otherwise establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not payable.
Restrictions on Repurchase of Stock
Pursuant to FDIC regulations, FDIC-regulated savings banks (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock
from any person, except in the event of (i) an offer made to all of its
shareholders to repurchase the common stock on a pro rata basis, approved by
the FDIC; or (ii) the repurchase of qualifying shares of a director, or (iii) a
purchase in the open market by a tax-qualified or non-tax-qualified employee
stock benefit plan in an amount reasonable and appropriate to fund the plan.
Furthermore, repurchases of any common stock are prohibited if the effect
thereof would cause the savings bank's regulatory capital to be reduced below
(a) the amount required for the liquidation account or (b) the regulatory
capital requirements imposed by the FDIC. Repurchases are generally prohibited
during the first year following conversion. Upon ten days' written notice to
the FDIC, and if the FDIC does not object, an institution may make open market
repurchases of its outstanding common stock during years two and the following
the conversion, provided that certain regulatory conditions are met and that
the repurchase would not adversely affect the financial condition of the
savings bank. Any repurchases of common stock by the Holding Company would be
subject to these regulatory restrictions unless the FDIC would provide
otherwise.
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of Common Stock purchased in the Conversion Offerings by directors
and officers of the Holding Company may not be sold for a period of one year
following consummation of the Conversion and Reorganization, except in the
event of the death of the shareholder or in any exchange of the Common Stock in
connection with a merger or acquisition of the Holding Company. Shares of
Common Stock received by directors or officers through the ESOP or the 1998 MRP
or upon exercise of options issued pursuant to the 1998 Stock Option Plan or
purchased subsequent to the Conversion and Reorganization are not subject to
this restriction. Accordingly, shares of Common Stock issued by the Holding
Company to directors and officers shall bear a legend giving appropriate notice
of the restriction and, in addition, the Holding Company will give appropriate
instructions to the transfer agent for the Holding Company's Common Stock with
respect to the restriction on transfers. Any shares issued to directors and
officers as a stock dividend, stock split or otherwise with respect to
restricted Common Stock shall be subject to the same restrictions.
Purchases of outstanding shares of Common Stock by directors, executive
officers (or any person who was an executive officer or trustee of the Savings
Bank after adoption of the Plan of Conversion and Reorganization) and their
associates during the three-year period following Conversion and Reorganization
may be made only through a broker or dealer registered with the SEC, except
with the prior written approval of the FDIC. This restriction does not apply,
however, to negotiated transactions involving more than 1% of the outstanding
Common Stock or to the purchase of Common Stock pursuant to either the 1995 or
1998 Stock Option Plan.
The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the Common Stock to be issued
pursuant to the Conversion and Reorganization. The registration under the
Securities Act of shares of the Common Stock to be issued in the Conversion and
Reorganization does not cover the resale of such shares. Shares of Common Stock
purchased by persons who are not affiliates of the Holding Company may be
resold without registration. Shares purchased by an affiliate of the Holding
Company will be subject to the resale restrictions of Rule 144 under the
Securities Act. If the Holding Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the
Holding Company who complies with the other conditions of Rule 144 (including
those that require the affiliate's sale to be aggregated with those of certain
other persons) would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of (i) 1% of the outstanding shares of Common Stock or (ii) the average
weekly volume of trading in such shares during the preceding four calendar
weeks. Provision may be made in the future by the Holding Company to permit
affiliates to have their shares registered for sale under the Securities Act
under certain circumstances.
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Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with Subscription Rights and to certain reporting requirements upon
purchase of such securities.
CERTAIN RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY
Pennsylvania Law
The Pennsylvania BCL contains certain provisions applicable to the Company
that may have the effect of impeding a change in control of the Company. These
provisions, among other things, (a) require that, following any acquisition by
any person or group of 20% of a public corporation's voting power, the
remaining shareholders have the right to receive payment for their shares, in
cash, from such person or group in an amount equal to the "fair value" of their
shares, including an increment representing a proportion of any value payable
for acquisition of control of the corporation; and (b) prohibit, for five years
after an interested shareholder's acquisition date, a "business combination"
(which includes a merger or consolidation of the corporation or a sale, lease
or exchange of assets having a minimum specified aggregate value or
representing a minimum specified percentage earning power or net income of the
corporation) with a shareholder or group of shareholders beneficially owning
20% or more of a public corporation's voting power.
In 1990, the Pennsylvania legislature further amended the Pennsylvania BCL
to expand the antitakeover protections afforded by Pennsylvania law by
redefining the fiduciary duty of directors and adopting disgorgement and
control-share acquisition statutes. To the extent applicable to the Holding
Company at the present time, this legislation generally (a) expands the factors
and groups (including shareholders) that the Board of Directors can consider in
determining whether a certain action is in the best interests of the
corporation; (b) provides that the Board of Directors need not consider the
interests of any particular group as dominant or controlling; (c) provides that
directors, in order to satisfy the presumption that they have acted in the best
interests of the corporation, need not satisfy any greater obligation or higher
burden of proof with respect to actions relating to an acquisition or potential
acquisition of control; (d) provides that actions relating to acquisitions of
control that are approved by a majority of "disinterested directors" are
presumed to satisfy the directors' standard unless it is proven by clear and
convincing evidence that the directors did not assent to such action in good
faith after reasonable investigation; and (e) provides that the fiduciary duty
of directors is solely to the corporation and may be enforced by the
corporation or by a shareholder in a derivative action, but not by a
shareholder directly. The 1990 amendments to the BCL explicitly provide that
the fiduciary duty of directors shall not be deemed to require directors (a) to
redeem any rights under, or to modify or render inapplicable, any shareholder
rights plan; (b) to render inapplicable, or make determinations under,
provisions of the BCL relating to control transactions, business combinations,
control-share acquisitions or disgorgement by certain controlling shareholders
following attempts to acquire control; or (c) to act as the board of directors,
a committee of the board or an individual director solely because of the effect
such action might have on an acquisition or potential or proposed acquisition
of control of the corporation or the consideration that might be offered or
paid to shareholders in such an acquisition. One of the effects of these
fiduciary duty provisions may be to make it more difficult for a shareholder to
successfully challenge the actions of the Holding Company's Board of Directors
in a potential change in control context. Pennsylvania case law appears to
provide that the fiduciary duty standard under the 1990 amendment to the BCL
grants directors the statutory authority to reject or refuse to consider any
potential or proposed acquisition of the corporation.
Under the Pennsylvania control-share acquisition statute, a person or
group is entitled to voting rights with respect to "control shares" only after
shareholders (both disinterested shareholders and all shareholders) have
approved the granting of such voting rights at a meeting of shareholders.
"Control shares" are shares acquired since January 1, 1988, that upon
acquisition of voting power by an "acquiring person," would result in a
"control-share acquisition." ("Control shares" also include voting shares where
beneficial ownership was acquired by the "acquiring person" within 180 days of
the control-share acquisition or with the intention of making a control-share
acquisition.) An "acquiring person" is a person or group who makes or proposes
to make a "control-share acquisition." A "control-share acquisition" is an
acquisition, directly or indirectly, of voting power over voting shares that
would, when added to all voting power of the person over other voting shares,
98
<PAGE>
entitle the person to cast or direct the casting of such percentage of votes
for the first time with respect to any of the following ranges that all
shareholders would be entitled to cast in an election of directors: (a) at
least 20% but less than 33 1/3%; (b) at least 33 1/3 but less than 50%; or (c)
50% or more. The effect of these provisions is to require a new shareholder
vote when each threshold is exceeded. In the event shareholders do not approve
the granting of voting rights, voting rights are lost only with respect to
"control shares."
A special meeting of shareholders is required to be called to establish
voting rights of control shares if an acquiring person (a) files with the
corporation an information statement containing specified information, (b)
makes a written request for a special meeting at the time of delivery of the
information statement, (c) makes a control-share acquisition or a bona fide
written offer to make a control-share acquisition, and (d) provides a written
undertaking at the time of delivery of the information statement to pay or
reimburse the corporation for meeting expenses. If the information statement is
filed and a control-share acquisition is made or proposed to be made, but no
request for a special meeting is made or no written undertaking to pay expenses
is provided, the issue of voting rights will be submitted to shareholders at
the next annual or special meeting of shareholders of the corporation.
A corporation may redeem all "control shares" at the average of the high
and low sales price, as reported on a national securities exchange or national
quotation system or similar quotation system, on the date the corporation
provides notice of redemption (a) at any time within 24 months after the date
on which the control-share acquisition occurs if the acquiring person does not,
within 30 days after the completion of the control-share acquisition, properly
request that shareholders consider the issue of voting rights to be accorded to
control shares and (b) at any time within 24 months after the issue of voting
rights is submitted to shareholders and such voting rights either are not
accorded or are accorded and subsequently lapse. Voting rights accorded to
control shares by a vote of shareholders lapse and are lost if any proposed
control-share acquisition is not consummated within 90 days after shareholder
approval is obtained.
A person will not be considered an "acquiring person" if the person holds
voting power within any of the ranges specified in the definition of
"control-share acquisition" as a result of a solicitation of revocable proxies
if such proxies (a) are given without consideration in response to a proxy or
consent solicitation made in accordance with the Exchange Act and (b) do not
empower the holder to vote the shares except on the specific matters described
in the proxy and in accordance with the instructions of the giver of the proxy.
The statute does not apply to certain control-share acquisitions effected
pursuant to a gift or laws of inheritance, in connection with certain family
trusts or pursuant to a merger, consolidation or plan of share exchange if the
corporation is a party to the agreement.
The effect of this statutory provision is to deter the accumulation of a
substantial block of Common Stock, including accumulation with a view to
effecting a non-negotiated tender or exchange offer for Common Stock.
Under the disgorgement provisions of the Pennsylvania BCL, any profit
realized by any person or group who is or was a "controlling person or group"
from the disposition of any equity security of a corporation shall belong to
and be recoverable by the corporation where the profit is realized (i) within
18 months after the person becomes a "controlling person or group" and (ii) the
equity security had been acquired by the "controlling person or group" within
24 months prior to or 18 months after obtaining the status of a "controlling
person or group."
A "controlling person or group" is a person or group who (a) has acquired,
offered to acquire or, directly or indirectly, publicly disclosed the intention
of acquiring 20% voting power of the corporation or (b) publicly disclosed that
it may seek to acquire control of the corporation.
A person will not be deemed a "controlling person or group" if the person
holds voting power as a result of a solicitation of revocable proxies if, among
other things, such proxies (a) are given without consideration in response to a
proxy or consent solicitation made in accordance with the Exchange Act and (b)
do not empower the holder to vote the shares except on the specific matters
described in the proxy and in accordance with the instructions of the giver of
the proxy. This exception does not apply to proxy contests in connection with
or as a means toward acquiring control of the Holding Company.
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The effect of this statutory provision is to deter the accumulation of a
substantial block of Common Stock with a view to putting the Holding Company
"in play" and then selling shares at a profit (whether to the Holding Company,
in the market or in connection with an acquisition of the Holding Company).
Certain Anti-Takeover Provisions in the Articles of Incorporation and Bylaws of
the Holding Company
While the Board of Directors of the Holding Company is not aware of any
effort that might be made to obtain control of the Holding Company after
Conversion, the Board believes that it is appropriate to include certain
provisions as part of the Holding Company's Articles of Incorporation to
protect the interests of the Holding Company and its shareholders from hostile
takeovers that the Board might conclude are not in the best interests of the
Holding Company or the Holding Company's shareholders. These provisions may
have the effect of discouraging a future takeover attempt that is not approved
by the Holding Company's Board of Directors but which individual shareholders
may deem to be in their best interests or in which shareholders may receive a
substantial premium for their shares over the then current market price. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of the Holding Company's current Board of Directors or management more
difficult.
The following discussion is a general summary of certain provisions of the
Articles of Incorporation and Bylaws of the Holding Company that may be deemed
to have such an "anti-takeover" effect. The description of these provisions is
necessarily general and reference should be made in each case to the Articles
of Incorporation and Bylaws of the Holding Company. For information regarding
how to obtain a copy of these documents without charge, see "Additional
Information."
Classified Board of Directors and Related Provisions
The Holding Company's Articles of Incorporation provide that the Holding
Company's Board of Directors is to be divided into three classes that shall be
as nearly equal in number as possible. The directors in each class will hold
office following their initial appointment to office for terms of one year, two
years and three years, respectively, and, upon reelection, will serve for terms
of three years thereafter. Each director will serve until his or her successor
is elected and qualified. The Holding Company's Articles of Incorporation
provide that a director may be removed by shareholders only upon the
affirmative vote of at least a majority of the votes that all shareholders
would be entitled to cast. The Holding Company's Articles of Incorporation
further provide that any vacancy occurring in the Holding Company's Board of
Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term by a
majority vote of the directors then in office.
The classified board of directors of the Holding Company could make it
more difficult for shareholders, including those holding a majority of the
outstanding, shares, to force an immediate change in the composition of a
majority of the Holding Company's Board of Directors. Because the terms of only
one-third of the incumbent directors expire each year, it requires at least two
annual elections for the shareholders to chance a majority, whereas a majority
of a non-classified board may be changed in one year. In the absence of the
provisions of the Holding Company's Articles of Incorporation classifying the
Holding Company's Board, all of the Holding Company's directors would be
elected each year.
Management of the Holding Company believes that the staggered election of
directors tends to promote continuity of management because only one-third of
the Holding Company's Board of Directors is subject to election each year.
Staggered terms guarantee that in the ordinary course approximately two-thirds
of the directors, or more, at any one time have had at least one year's
experience as directors of the Holding Company, and moderate the pace of change
in the composition of the Holding Company's Board of Directors by extending the
minimum time required to elect a majority of directors from one to two years.
Other Antitakeover Provisions
The Holding Company's Articles of Incorporation and Bylaws contain certain
other provisions that may also have the effect of deterring or discouraging,
among other things, a non-negotiated tender or exchange offer for the Common
Stock, a proxy contest for control of the Holding Company, the assumption of
control of the
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Holding Company by a holder of a large block of the Common Stock and the
removal of the Holding Company's management. These provisions: (1) empower the
Holding Company's Board of Directors, without shareholder approval, to issue
preferred stock, the terms of which, including voting power, are set by the
Holding Company's Board; (2) restrict the ability of shareholders to remove
directors; (3) require that shares with at least 80% of total voting power
approve mergers and other similar transactions with a person or entity holding
Common Stock with more than 5% of the Holding Company's voting power, if the
transaction is not approved, in advance, by the Holding Company's Board of
Directors; (4) prohibit shareholders' actions without a meeting; (5) require
that shares with at least 80%, or in certain instances a majority, of total
voting power approve the repeal or amendment of the Holding Company's Articles
of Incorporation; (6) require any person who acquires stock of the Holding
Company with voting power of 25% or more to offer to purchase for cash all
remaining shares of the Holding Company's voting stock at the highest price
paid by such person for shares of the Holding Company's voting stock during the
preceding year; (7) eliminate cumulative voting in elections of directors; and
(8) require that shares with at least 66 2/3% of total voting power approve,
repeal or amend the Bylaws of the Holding Company.
DESCRIPTION OF CAPITAL STOCK
General
The Holding Company is authorized to issue 15,000,000 shares of Common
Stock, no par value, and 5,000,000 shares of preferred stock, having such par
value as the Board of Directors of the Holding Company shall fix and determine.
The Holding Company currently expects to issue between 1,190,000 and 1,610,000
shares (or, as permitted by the Plan, up to 1,851,500 shares), subject to
adjustment, of the Common Stock and no shares of preferred stock in the
Conversion and Reorganization. The Holding Company has reserved for future
issuance under the 1997 Stock Option Plan and the 1998 MRP an amount of
authorized but unissued shares of Common Stock equal to 10% and 4%,
respectively, of the shares to be issued in the Conversion Offerings.
Common Stock
Voting Rights
Each share of Common Stock will have the same relative rights and will be
identical in all respects with every other share of the Common Stock. The
holders of Common Stock will possess exclusive voting rights in the Holding
Company, except to the extent that shares of preferred stock issued in the
future may have voting rights, if any. Each holder of shares of the Common
Stock will be entitled to one vote for each share held of record on all matters
submitted to a vote of holders of shares of the Common Stock. Holders of Common
Stock will not be entitled to cumulate their votes for election of directors.
Dividends
The Holding Company may, from time to time, declare dividends to the
holders of Common Stock, who will be entitled to share equally in any such
dividends. For additional information as to cash dividends, see "DIVIDEND
POLICY."
Liquidation
In the event of any liquidation, dissolution or winding up of the Savings
Bank, the Holding Company, as holder of all of the capital stock of the Savings
Bank, would be entitled to receive all assets of the Savings Bank after payment
of all debts and liabilities of the Savings Bank. In the event of a
liquidation, dissolution or winding up of the Holding Company, each holder of
shares of Common Stock would be entitled to receive, after payment of all debts
and liabilities of the Holding Company, a pro rata portion of all assets of the
Holding Company available for distribution to holders of Common Stock. If any
preferred stock is issued, the holders thereof may have a priority in
liquidation or dissolution over the holders of Common Stock.
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Other Characteristics
Holders of Common Stock will not have preemptive rights with respect to
any additional shares of Common Stock that may be issued. The Common Stock is
not subject to call for redemption, and the outstanding shares of Common Stock,
when issued and upon receipt by the Holding Company of the full purchase price
therefor, will be fully paid and nonassessable.
Preferred Stock
None of the 5,000,000 authorized shares of preferred stock of the Holding
Company will be issued in the Conversion and Reorganization. After the
Conversion and Reorganization is completed, the Board of Directors of the
Holding Company will be authorized, without shareholder approval, to issue
preferred stock and to fix and state voting powers, designations, preferences
or other special rights of such shares and the qualifications, limitations and
restrictions thereof. The preferred stock may rank prior to the Common Stock as
to dividend rights or liquidation preferences, or both, and may have full or
limited voting rights. The Holding Company's Board of Directors has no present
intention to issue any preferred stock. Should the Board of Directors of the
Holding Company subsequently issue preferred stock, no holder of any such stock
shall have any preemptive right to subscribe for or purchase any stock or any
other securities of the Holding Company other than such, if any, as the Holding
Company's Board of Directors, in its sole discretion, may determine and at such
price or prices and upon such other terms as the Holding Company's Board of
Directors, in its sole discretion, may fix.
Restrictions on Acquisition
Acquisitions of the Holding Company are restricted by provisions in its
Articles of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the SEC pursuant
to Section 12(g) of the Exchange Act upon the completion of the Conversion and
Reorganization and will not deregister its Common Stock for a period of at
least three years following the completion of the Conversion and
Reorganization. Upon such registration, the proxy and tender offer rules,
insider trading reporting and restrictions, annual and periodic reporting and
other requirements of the Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for the Holding
Company by Stevens & Lee, Wayne, Pennsylvania. The federal and Pennsylvania tax
consequences of the Conversion and Reorganization have been opined upon by
Stevens & Lee. Stevens & Lee has consented to the references herein to their
opinions. Certain legal matters will be passed upon for Webb by Breyer &
Aguggia, Washington, D.C.
EXPERTS
The consolidated financial statements of the Savings Bank for the years
ended December 31, 1997 and 1996 and September 30, 1995 included in this
Prospectus have been audited by Stockton Bates & Co., P.C., Philadelphia,
Pennsylvania, independent auditors, as stated in their report appearing herein,
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of its
report to the Savings Bank setting forth its opinion as to the estimated pro
forma market value of the MHC and the Savings Bank, as converted, and its
letter with respect to subscription rights and to the use of its name and
statements with respect to it appearing herein.
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ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on
Form S-1 (File No. 333-37511) under the Securities Act with respect to the
Common Stock offered in the Conversion and Reorganization. This Prospectus does
not contain all the information set forth in the Registration Statement certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. Such information may be inspected at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549 and at its regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies may be obtained at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company's Common Stock has received conditional approval to be listed on
the Nasdaq National Market, and such material is also available for inspection
and copying at the Nasdaq National Market's Listings Department, 1735 K Street,
N.W., Washington, D.C. 20006. The Registration Statement also is available
through the SEC's World Wide Web site on the Internet (http://www.sec.gov).
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report ............................................................. F-2
Financial Statements:
Consolidated Statement of Financial Condition, Years Ended December 31, 1997 and 1996 . F-3
Consolidated Statement of Income for the Years Ended December 31, 1997 and 1996, and
September 30, 1995 ................................................................... F-4 - 5
Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 1997
and 1996, and September 30, 1995 ..................................................... F-6
Consolidated Statement of Cash Flows for the Years Ended December 31, 1997 and 1996,
and September 30, 1995 ............................................................... F-7 - 9
Notes to Consolidated Financial Statements ............................................... F-10 - 33
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for the MHC have not been included herein
because the MHC has no material assets other than its shares of Savings Bank
Common Stock (which will be canceled as part of the Conversion and
Reorganization) and no significant liabilities (contingent or otherwise),
revenues or expenses, and has not engaged in any significant activities to
date.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
F-1
<PAGE>
Stockton Bates
&
Company, P.C.
Certified Public Accountants
Independent Auditors' Report
To the Board of Trustees
Pennsylvania Savings Bank
Eleven Penn Center
1835 Market Street
Philadelphia, Pennsylvania 19103-2986
We have audited the accompanying consolidated statement of financial
condition of Pennsylvania Savings Bank and Subsidiaries as of December 31, 1997
and 1996 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years ended December 31, 1997 and
1996, and September 30, 1995. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial condition of
Pennsylvania Savings Bank and Subsidiaries at December 31, 1997 and 1996, the
results of their operations and their cash flows for each of the three years
ended December 31, 1997 and 1996, and September 30, 1995 in conformity with
generally accepted accounting principles.
/s/ Stockton Bates & Company, P.C.
Certified Public Accountants
Philadelphia, Pennsylvania
February 6, 1998
F-2
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and due from banks .................................................... $ 1,193,195 $ 1,390,220
Interest bearing deposits in other financial institutions .................. 26,695,455 30,232,245
INVESTMENTS:
Investment securities available-for-sale, at fair value .................... 14,401,388 6,316,282
Mortgage-backed securities available-for-sale at fair value ................ 2,933,804 3,193,840
Investment securities held-to-maturity (fair value of $8,234,639 and
$12,628,003) ............................................................. 8,219,223 12,656,815
Mortgage-backed securities held-to-maturity (fair value of $2,182,322 and
$2,851,532) .............................................................. 2,068,059 2,748,444
LOANS RECEIVABLE, net ....................................................... 61,915,068 52,585,549
LOANS HELD FOR SALE ......................................................... 6,574,585 4,597,700
REAL ESTATE:
Acquired in settlement of loans ............................................ 456,528 464,651
OFFICE PROPERTIES AND EQUIPMENT, net of accumulated depreciation ............ 1,329,145 1,273,448
FEDERAL HOME LOAN BANK STOCK, at cost (Restricted investment
required by law) ........................................................... 559,900 533,600
ACCRUED INTEREST RECEIVABLE ................................................. 1,285,102 1,216,957
INVESTMENT IN DATA CENTER, common stock, at cost ............................ 15,000 15,000
PREPAID CORPORATE TAXES ..................................................... 445,092 390,971
EXCESS OF ACQUISITION COST OVER FAIR VALUE OF ASSETS
ACQUIRED, net of accumulated amortization .................................. 7,250 8,250
NET DEFERRED TAXES .......................................................... 25,296
CAPITALIZED CONVERSION COSTS ................................................ 155,292
PREPAID EXPENSES AND OTHER ASSETS ........................................... 1,083,865 785,244
------------ ------------
TOTAL ASSETS ............................................................. $129,337,951 $118,434,512
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits ................................................................... $108,734,107 $100,574,376
Securities purchased under agreements to resell ............................ 2,841,733 1,536,188
Advances from borrowers for taxes .......................................... 999,611 930,670
Income taxes payable ....................................................... 308,000 142,000
Net Deferred Taxes ......................................................... 51,158
Accrued pension cost ....................................................... 145,843 149,144
Accrued interest payable on savings accounts ............................... 260,363 183,801
Employee Stock Ownership Plan debt ......................................... 295,355 356,483
Accrued expenses and other liabilities ..................................... 703,957 393,308
------------ ------------
Total liabilities ........................................................ 114,340,127 104,265,970
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, $1 par value, 10,000,000 shares authorized; 1,194,640
shares issued and outstanding for December 31, 1997 and 1996 ............. 1,194,640 1,194,640
Additional paid-in capital ................................................. 13,563,087 13,563,087
Employee Stock Ownership Plan .............................................. (295,355) (356,483)
Retained earnings (accumulated deficit) .................................... 545,743 (162,734)
Unrealized loss, investments available-for-sale ............................ (10,291) (69,968)
------------ ------------
Total stockholders' equity ............................................... 14,997,824 14,168,542
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $129,337,951 $118,434,512
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, September 30,
----------------------------- --------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans ......................................... $5,539,747 $5,217,737 $4,824,892
Mortgage-backed securities ................................ 373,900 430,798 493,305
Investment securities:
Taxable interest ........................................ 1,424,915 1,063,520 1,042,105
Taxable dividends ....................................... 191,364 119,290 92,408
Interest-earning deposits ................................. 1,210,030 1,207,302 817,234
---------- ---------- ----------
Total interest income ................................ 8,739,956 8,038,647 7,269,944
INTEREST EXPENSE:
Interest on deposits .................................... 4,533,646 4,082,377 3,437,143
Interest -- other ....................................... 30,607 36,099 6,146
---------- ---------- ----------
Total interest expense ............................... 4,564,253 4,118,476 3,443,289
---------- ---------- ----------
Net interest income .................................. 4,175,703 3,920,171 3,826,655
Provision for loan losses ............................... 60,000 132,633 26,937
---------- ---------- ----------
Net interest income after provision for loan
losses .............................................. 4,115,703 3,787,538 3,799,718
NONINTEREST INCOME:
Gain on sale of loans ................................... 555,987 335,736 185,425
Loan fees ............................................... 81,180 27,485 209,769
Service charges ......................................... 347,792 371,210 71,679
Rental income ........................................... 38,767 44,286 28,248
Other income ............................................ 47,368 136,712 381,688
---------- ---------- ----------
Total noninterest income ............................. 1,071,094 915,429 876,809
---------- ---------- ----------
NONINTEREST EXPENSES:
Compensation and employee benefits ...................... 2,283,110 1,938,979 2,244,878
Premises and occupancy costs ............................ 684,098 455,652 327,683
Federal insurance premiums .............................. 64,167 735,530 201,366
Data Processing ......................................... 126,700 120,782 102,914
Advertising ............................................. 81,400 62,121 75,970
Directors Fees .......................................... 232,300 237,200 92,700
Stationary, printing and postage ........................ 103,040 113,460 48,944
Expenses of real estate owned ........................... 8,244 143,177 35,739
Loss on sale of real estate held for investment ......... 2,465
Other ................................................... 550,592 553,379 454,015
---------- ---------- ----------
Total noninterest expenses ........................... 4,133,651 4,362,745 3,584,209
---------- ---------- ----------
</TABLE>
F-4
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, September 30,
------------------------------- --------------
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
INCOME BEFORE PROVISION FOR INCOME TAXES ......... $ 1,053,146 $ 340,222 $1,092,318
Provision for federal and state income taxes:
Current ....................................... 308,000 142,000 399,528
Deferred ...................................... 36,669 59,465 33,131
----------- ---------- ----------
Total income tax provision ................. 344,669 201,465 432,659
----------- ---------- ----------
NET INCOME ....................................... $ 708,477 $ 138,757 $ 659,659
=========== ========== ==========
BASIC EARNINGS PER SHARE ......................... $ .61 $ .12 $ N/A
=========== ========== ==========
DILUTED EARNINGS PER SHARE ....................... $ .60 $ .12 $ N/A
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Employee
Additional Stock
Common Paid-in Ownership
Stock Capital Plan
------------- -------------- --------------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994 $ -0- $ -0- $ -0-
Net income for the year ended
September 30, 1995 ..............
Change in unrealized loss on
investment and mortgage-
backed securities available-for-
sale, net of taxes ..............
---------- ----------- ---------
BALANCE, SEPTEMBER 30, 1995 $ -0- $ -0- $ -0-
========== =========== =========
BALANCE, DECEMBER 31, 1995 $1,173,250 $13,330,472 ($ 417,612)
Net income for the year ended
December 31, 1996 ...............
Issuance of common stock to
Management Recognition Plan 21,390 232,615
Dividends paid ...................
Principal payments made by
Employee Stock Ownership
Plan ............................ 61,129
Change in unrealized loss on
investment and mortgage-
backed securities available-for-
sale, net of taxes ..............
---------- ----------- ---------
BALANCE, DECEMBER 31, 1996 $1,194,640 $13,563,087 ($ 356,483)
Net income for the year ended
December 31, 1997 ...............
Principal payments made by
Employee Ownership Plan ......... 61,128
Change in unrealized loss on
investment and mortgage-
backed securities available-for-
sale, net of taxes ..............
---------- ----------- ---------
BALANCE, DECEMBER 31, 1997 $1,194,640 $13,563,087 ($ 295,355)
========== =========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Unrealized gain (loss)
on Investment and
Mortgage-backed
Retained Securities
Earnings Available-for-sale
(Deficit) Net of Taxes Total
-------------- ----------------------- ---------------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994 $8,945,553 ($ 606,513) $ 8,339,040
Net income for the year ended
September 30, 1995 .............. 659,659 659,659
Change in unrealized loss on
investment and mortgage-
backed securities available-for-
sale, net of taxes .............. 492,070 492,070
---------- --------- -----------
BALANCE, SEPTEMBER 30, 1995 $9,605,212 ($ 114,443) $ 9,490,769
========== ========= ===========
BALANCE, DECEMBER 31, 1995 ($ 257,494) ($ 13,715) $13,814,901
Net income for the year ended
December 31, 1996 ............... 138,757 138,757
Issuance of common stock to
Management Recognition Plan 254,005
Dividends paid ................... (43,997) (43,997)
Principal payments made by
Employee Stock Ownership
Plan ............................ 61,129
Change in unrealized loss on
investment and mortgage-
backed securities available-for-
sale, net of taxes .............. (56,253) (56,253)
---------- --------- -----------
BALANCE, DECEMBER 31, 1996 ($ 162,734) ($ 69,968) $14,168,542
Net income for the year ended
December 31, 1997 ............... 708,477 708,477
Principal payments made by
Employee Ownership Plan ......... 61,128
Change in unrealized loss on
investment and mortgage-
backed securities available-for-
sale, net of taxes .............. 59,677 59,677
---------- --------- -----------
BALANCE, DECEMBER 31, 1997 $ 545,743 ($ 10,291) $14,997,824
========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, September 30
--------------------------------- ---------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 708,477 $ 138,757 $ 659,659
------------- ------------- ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of premium/discount on mortgage-
backed securities ............................................ 1,784 (4,824) (5,747)
Depreciation and amortization ................................. 122,037 90,943 88,475
Write-down and expenses of real estate owned .................. 8,123 14,000
Loss on sale of real estate ................................... 2,465
Gain on sale of equipment ..................................... (977)
Gain on sale of loans ......................................... (555,987) (335,736) (185,425)
Provision for losses on loans ................................. 60,000 132,633 26,937
Deferred taxes ................................................ 36,669 59,467 33,131
Change in assets and liabilities:
Increase in loans held for sale .............................. (1,420,898) (1,752,764) (670,675)
Increase in accrued interest receivable ...................... (68,145) (137,214) (90,236)
Increase in prepaid expenses ................................. (298,621) (491,183) (331,460)
(Increase) decrease in prepaid corporate taxes ............... (54,121) 65,494 (26,884)
Increase (decrease) in corporate taxes payable ............... 166,000 (236,000) (20,897)
Increase (decrease) in accrued pension cost .................. (3,301) 5,768 143,376
Increase in accrued interest payable ......................... 76,562 25,468 85,839
Increase in accrued expenses ................................. 310,649 210,608 30,259
------------- ------------- ------------
Total adjustments ............................................. (1,619,249) (2,365,852) (909,307)
------------- ------------- ------------
Net cash provided by (used in) operating activities ........... (910,772) (2,227,095) (249,648)
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale ........... (9,042,458) (5,000,000) (2,500,000)
Purchase of investment securities, held-to-maturity ............. (11,714,219) (10,999,687) (2,000,000)
Mortgage-backed security maturities and principal
repayments .................................................... 991,525 864,783 639,539
Maturities of investment securities, available-for-sale ......... 1,000,000 3,000,000 700,000
Maturities of investment securities, held-to-maturity ........... 16,155,737 8,842,857
Acquisition costs of, and proceeds from the sale of,
Federal Home Loan Bank stock .................................. (26,300) (32,600) 34,400
</TABLE>
F-7
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, September 30,
---------------------------------- ----------------
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES: (Continued)
Increase in total loans receivable, net .................... ($ 9,389,519) ($ 988,164) ($ 1,057,133)
Purchase and improvement of real estate for investment ..... (500) (63,190)
Proceeds from sale of real estate owned net of improvements 140,921
Increase in capitalized conversion costs ................... (155,292)
Increase in advances for stock offering .................... 6,261,000
Proceeds from sale of equipment ............................ 5,300
Capital expenditures ....................................... (176,734) (613,361) (13,314)
------------ ------------ ------------
Net cash used in investing activities .................... (12,357,260) (4,780,451) 2,001,302
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net .................................. $ 8,159,731 $ 4,097,882 $ 6,623,403
Change in securities purchased under agreements to resell .. 1,305,545 69,451
Proceeds from issuance of stock to Management Recognition
Plan ..................................................... 254,005
Dividends Paid ............................................. (43,997)
Change in advances for borrowers' taxes and insurance ...... 68,941 (215,594) 30,944
------------ ------------ ------------
Net cash provided by financing activities ................ 9,534,217 4,161,747 6,654,347
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................ (3,733,815) (2,845,799) 8,406,001
Cash and cash equivalents, beginning of period ............. 31,622,465 34,468,264 21,371,339
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................... $ 27,888,650 $ 31,622,465 $ 29,777,340
============ ============ ============
</TABLE>
F-8
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, September 30,
-------------------------------- --------------
1997 1996 1995
-------------- --------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings ................ $ 4,457,084 $ 4,056,909 $3,357,447
=========== =========== ==========
Income taxes ....................................... $ 280,000 $ 267,788 $ 238,015
=========== =========== ==========
Noncash activities:
Loans transferred to real estate owned ............... $ -0- $ 79,156 $ 103,120
=========== =========== ==========
(Increase) decrease in unrealized loss on investment
mortgage-backed securities available-for-sale, net
of taxes .......................................... $ 59,677 ($ 56,253) $ 492,070
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-9
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995
1. DESCRIPTION OF ORGANIZATION:
Pennsylvania Savings Bank, through its six branch offices, makes
residential and consumer loans to customers and provides community banking
services principally within Southeastern Pennsylvania and Southern New Jersey.
Transnational Mortgage Corporation, a wholly owned subsidiary, originates
residential loans. PSA Financial Corporation, a wholly owned subsidiary,
originates residential and consumer loans. PSA Consumer Discount, a wholly
owned subsidiary of PSA Financial, originates consumer loans. All loan
originations are to customers principally within, but not limited to, the
County of Philadelphia, Pennsylvania. PSA Service Corporation, a wholly owned
subsidiary, processes all loans for Pennsylvania Savings Bank and the other
subsidiaries.
The Bank competes with other banking and financial institutions in its
primary markets. Commercial banks, savings banks, savings and loan
associations, mortgage bankers and brokers, credit unions and money market
funds actively compete for deposits and loans. Such institutions, as well as
consumer finance, mutual funds, insurance companies, and brokerage and
investment banking firms, may be considered competitors of the Bank with
respect to one or more of the services it renders.
The Bank is subject to regulations of certain state and federal agencies
and, accordingly, it is periodically examined by those regulatory authorities.
As a consequence of the extensive regulation of commercial banking activities,
the Bank's business is particularly susceptible to being affected by state and
federal legislation and regulations.
Effective October 20, 1995, Pennsylvania Savings Bank, a mutual savings
bank (the "Mutual Bank"), effected a mutual savings bank holding company
reorganization. This reorganization entailed the following: (1) the Mutual Bank
reorganized into a Pennsylvania chartered mutual savings bank holding company
named PSB Mutual Holding Company, (2) a new Pennsylvania chartered stock
savings bank (the "Stock Bank") was formed, (3) substantially all of the Mutual
Bank's assets (except $250,000 in cash retained by PSB Mutual Holding Company)
and liabilities were transferred to the Stock Bank, (4) 615,250 shares of
common stock, par value $1.00 per share of the Stock Bank, were issued to PSB
Mutual Holding Company and 558,000 shares of such common stock at a price of
$10.00 per share were sold to minority stockholders in a subscription offering,
(5) the Stock Bank received proceeds from the minority stock offering of
$5,580,000 net of commissions and other related expenses totaling $576,880, and
(6) the Stock Bank (named Pennsylvania Savings Bank) registered its common
stock pursuant to the Securities Exchange Act of 1934 ("Exchange Act").
As an Exchange Act registrant, the Bank became subject to the Exchange Act
proxy rules and the periodic reporting and other requirements of the Exchange
Act.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the Bank and
its wholly-owned subsidiaries, PSA Service Corporation, Transnational Mortgage
Corporation and PSA Financial Corporation. Significant intercompany balances
and transactions have been eliminated.
Cash and Cash Equivalents:
Cash and cash equivalents include unrestricted cash on hand, demand
deposits maintained in depository institutions and other readily convertible
investments with original contractual terms to maturity of three months or
less.
Investment in Debt and Marketable Equity Securities and Accounting Change:
SFAS No. 115 requires the Bank to classify its investments, including
marketable securities and mortgage-backed securities in one of three
categories: held-to-maturity, trading or available-for-sale. Debt securities
that
F-10
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
the Bank has the positive intent and ability to hold to maturity will be
classified as held-to-maturity and are reported at amortized cost. The Bank
does not engage in security trading and, therefore, the balance of its debt
securities and any equity securities will be classified as available-for-sale.
Net unrealized gains and losses for such securities will be required to be
recognized as a separate component of retained earnings net of taxes and
excluded from the determination of net income.
Investment and Mortgage-Backed Securities Available-for-Sale:
Securities classified as available-for-sale are carried at fair value. Net
unrealized gains and losses are reflected as a separate component of
stockholders' equity, net of tax effects. Securities classified as
available-for-sale are those that management intends to sell or that would be
sold for liquidity, investment management or similar reasons, even if there is
not a present intention of such a sale. Equity securities that have a readily
determinable fair value are also classified as available-for-sale.
Investment and Mortgage-Backed Securities Held-to-Maturity:
Securities are classified as held-to-maturity securities when purchased,
because the Bank has the ability and the intent to hold the securities to
maturity. Decisions to acquire investments of a particular type are based upon
interest rate risk, liquidity and capital adequacy considerations. Investment
securities are stated at cost, adjusted for premium amortization and accretion
of discounts. Premiums paid and discounts received at the time of purchase are
deferred and amortized over the remaining life of the securities using a method
which approximates a level yield. Mortgage-backed security amortization rates
are periodically adjusted to reflect changes in the prepayment speeds of the
underlying mortgages.
Gains and losses realized on sales of investment securities represent
differences between net proceeds and carrying values determined by the specific
identification method.
Loans and Allowance for Loan Losses:
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at the amount of
unpaid principal and reduced by an allowance for loan losses. Interest on loans
is accrued and credited to operations based upon the principal amounts
outstanding. Loan origination fees and discounts on mortgage loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for actual prepayments. The allowance for loan
losses is established through a provision for possible loan losses charged to
expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
possible loan losses on existing loans that may become uncollectible based on
evaluations of the collectibility of loans and prior loan loss experience. Th
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrower's
ability to pay.
Effective January 1, 1997, interest is discontinued on all loans that are
contractually past due 3 months. Prior to January 1, 1997, interest was
discontinued on residential loans that were contractually past due 12 months.
unless the value of the mortgaged property well exceeded the loan balance in
which case interest continued to accrue until the loan balance plus accrued
interest equalled the fair market value of the property securing the loan. The
bank has recorded interest income, net of taxes, of $80,341 and $45,646 for the
years ended December 31, 1996 and September 30, 1995, respectively on loans
that were contractually past due for more than three months. The effect on net
income per share would have been a reduction of $.06 for the year ended
December 31, 1996 if this interest had not been accrued. Interest was
discontinued on commercial, consumer and unsecured loans that were
contractually past due 3 months. No adjustment is made for interest previously
accrued. Income is subsequently recognized only to the extent that cash
payments are received, or until in management's judgment, the borrower's
ability to make periodic interest and principal payments is back to normal, in
which case the loan is returned to accrual status.
F-11
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
In May 1994, the Financial Accounting Standards Board (FASB) issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114
requires an adjustment to the carrying value of a loan through the provision
for loan losses when it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan. SFAS No. 114
was subsequently amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosure" to allow a creditor to
use existing methods for recognizing interest income on an impaired loan. SFAS
Nos. 114 and 118 are effective for financial statements issued for years
beginning after December 31, 1995. The adoption of SFAS Nos. 114 and 118 did
not have a material impact on the Bank's financial condition or results of
operations.
Loan Origination and Commitment Fees:
Loan fees and certain direct loan origination costs are deferred and the
net fee or cost is recognized as an adjustment of the loan yield over the
contractual life of the loan using the interest method. When a loan is sold,
unamortized fees are recognized as income. Other loan fees and charges
representing service costs for the prepayment of loans, for delinquent payments
or for miscellaneous loan services are recognized when collected. Commitment
fees and costs relating to commitments whose likelihood of exercise is remote
are recognized over the commitment period on a straight-line basis. If the
commitment is subsequently exercised during the commitment period, the
remaining unamortized commitment fee at the time of exercise is recognized over
the life of the loan as an adjustment of yield.
Loans Held for Sale:
Included in loans held for sale are any loans which the Bank believes may
be involved in interest rate risk management or other decisions which might
reasonably result in such loans not being held until maturity. Any such
conforming loans are transferred to loans held for sale and valued at the lower
of aggregrate cost or market, including considering of forward commitments to
sell, until ultimate disposition.
The FSAB issued SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by SFAS No.
127, which provides accounting guidance on transfers of financial assets,
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. The adoption of SFAS No. 125 did not have a material
impact on the Bank's consolidated financial position or results of operations.
Real Estate Owned:
Real estate owned consists of properties acquired through foreclosure.
Real estate owned is stated at the lower of cost or estimated fair value minus
estimated costs to sell. Write-downs of real estate owned which occur after the
initial transfer from the loan portfolio are recorded as expenses of real
estate owned. Costs of holding foreclosed property are charged to expense in
the current period, except for significant property improvements which are
capitalized to the extent that carrying value does not exceed estimated fair
value. Real estate held for investment is carried at the lower of cost,
including cost of improvements and amenities incurred subsequent to
acquisition, or net realizable value
Income Taxes:
The Bank records deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-12
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
Office Properties and Equipment:
Land is carried at cost. Office properties and equipment are recorded at
cost less accumulated depreciation. Depreciation is computed based on cost
using the straight-line method over estimated useful lives of 25-50 years for
buildings, 10-25 years for land improvements and 3-10 years for office
equipment. Maintenance and repair of property and equipment are charged to
operations. Major improvements are capitalized.
Excess of Acquisition Cost Over Fair Value of Assets Acquired:
Excess of acquisition cost over fair value of assets acquired is
recognized at cost, net of amortization. The asset is being amortized over 19
years using the straight-line method.
Financial Statement Presentation:
Certain items in prior year financial statements have been reclassified to
conform to the 1997 presentation.
Advertising:
Advertising costs are charged to operations when incurred and amounted to
$81,400, $62,121 and $75,970 for the years ended December 31, 1997 and 1996 and
September 30, 1995, respectively.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The principal estimate that is susceptible to significant change in the
near term relates to the allowance for loan losses. The evaluation of the
adequacy of the allowance for loan losses includes an analysis of the
individual loans and overall risk characteristics and size of the different
loan portfolios, and takes into consideration current economic and market
condition, the capability of specific borrowers to pay specific loan
obligations as well as current loan collateral values. However, actual losses
on specific loans, which also are encompassed in the analysis, may vary from
estimated losses.
Per Share Information:
Earnings per share have been calculated based on the weighted average
common shares outstanding for the respective periods less the uncommitted ESOP
shares. The number of shares used in the computation of earnings per share for
the years ended December 31, 1997 and 1996 was 1,165,105 and 1,152,328 for
basic earnings per share, respectively and 1,179,678 and 1,152,328 for diluted
earnings per share, respectively.
In February 1997, the FSAB issued SFAS No. 128, "Earnings per Share." SFAS
No. 128 establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicy held common stock or potential
common stock. This statement simplifies the standards for computing EPS
previously found in Accounting Principles Board (APB) Opinion No. 15, "Earnings
per share," and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic EPS and
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. This
statement requires restatement of all prior period EPS and diluted EPS and did
not have a material impact on the Bank.
F-13
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
Long-Lived Assets:
In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected be disposed of. Pennsylvania Savings Bank adopted SFAS
No. 121 in the first quarter of 1996. The adoption of SFAS No. 121 did not have
a material effect on Pennsylvania Saving Bank's operations.
Stock-Based Compensation:
SFAS No. 123 "Accounting for Stock-Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Bank has elected to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Bank's stock at the date of the grant over the amount an employee must pay
to acquire the stock.
Cash deposited in Financial Institutions:
The Bank maintains cash balances at other financial institutions in the
Philadelphia regional area. Accounts at these financial institutions are
insured by the Federal Deposit Insurance Corporation up to $100,000. In the
normal course of business, the Bank may have deposits that exceed the insured
balance.
3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES:
The following is a summary of the Bank's investment in available-for-sale
and held-to-maturity securities;
<TABLE>
<CAPTION>
Available-for-Sale
December 31, 1997
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds ...................... $ 2,354,210 $ 11,884 $ -- $ 2,366,094
Debt:
FNMA .......................................... 998,186 12,876 1,011,062
Federal Farm Credit ........................... 2,000,000 11,642 2,011,642
SLMA .......................................... 1,000,000 (5,843) 994,157
FHLB Notes .................................... 7,995,161 23,272 8,018,433
----------- -------- --------- -----------
11,993,347 47,790 (5,843) 12,035,294
----------- -------- --------- -----------
14,347,557 59,674 (5,843) 14,401,388
----------- -------- --------- -----------
Mortgage-backed Securities:
FNMA .......................................... 2,227,373 (64,963) 2,162,410
FHLMC ......................................... 777,413 (6,019) 771,394
----------- -------- --------- -----------
3,004,786 (70,982) 2,933,804
----------- -------- --------- -----------
Total Available-for- Sale Securities ......... 17,352,343 59,674 (76,825) 17,335,192
----------- -------- --------- -----------
</TABLE>
F-14
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES: -- (Continued)
<TABLE>
<CAPTION>
Held-to-Maturity
December 31, 1997
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA ....................................... $ 1,000,000 $ 7,306 $ -- $ 1,007,306
FHLB Notes ................................. 7,219,223 8,110 -- 7,227,333
----------- -------- --------- -----------
8,219,223 15,416 -- 8,234,639
----------- -------- --------- -----------
Mortgage-backed Securities:
GNMA ....................................... 1,979,474 105,576 2,085,050
FHLMC ...................................... 88,585 8,687 -- 97,272
2,068,059 114,263 -- 2,182,322
----------- -------- --------- -----------
Total Held-to-Maturity Securities ......... 10,287,282 129,679 -- 10,416,961
----------- -------- --------- -----------
TOTAL INVESTMENTS AND
MORTGAGE-BACKED
SECURITIES ............................. $27,639,625 $189,353 ($ 76,825) $27,752,153
=========== ======== ========= ===========
</TABLE>
The following is a summary of the Bank's investment in available-for-sale
and held-to-maturity securities;
<TABLE>
<CAPTION>
Available-for-Sale
December 31, 1996
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds ..................... $ 2,304,878 $ 47,318 $ -- $ 2,352,196
Debt:
SLMA ......................................... 1,000,000 (20,466) 979,534
FNMA Notes ................................... 3,000,000 (15,448) 2,984,552
----------- -------- ---------- -----------
4,000,000 (35,914) 3,964,086
----------- -------- ---------- -----------
6,304,878 47,318 (35,914) 6,316,282
----------- -------- ---------- -----------
Mortgage-backed Securities:
FNMA ......................................... 2,529,793 (110,404) 2,419,389
FHLMC ........................................ 792,065 (17,614) 774,451
3,321,858 (128,018) 3,193,840
----------- -------- ---------- -----------
Total Available-for-Sale Securities ......... 9,626,736 47,318 (163,932) 9,510,122
----------- -------- ---------- -----------
</TABLE>
F-15
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES: -- (Continued)
<TABLE>
<CAPTION>
Held-to-Maturity
December 31, 1996
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
Federal Farm Credit ......................... $ 657,046 $ -- ($ 6) $ 657,040
FNMA ........................................ 2,999,456 3,510 3,002,966
FHLMC ....................................... 1,000,000 155 1,000,155
FHLB Notes .................................. 8,000,313 (32,471) 7,967,842
----------- -------- --------- -----------
12,656,815 3,665 (32,477) 12,628,003
----------- -------- --------- -----------
Mortgage-backed Securities:
Collateralized mortgage obligations ......... 227,494 (2,849) 224,645
GNMA ........................................ 2,355,143 89,774 2,444,917
FHLMC ....................................... 165,807 16,163 181,970
----------- -------- --------- -----------
2,748,444 105,937 (2,849) 2,851,532
----------- -------- --------- -----------
Total Held-to-Maturity Securities .......... 15,405,259 109,602 (35,326) 15,479,535
----------- -------- --------- -----------
TOTAL INVESTMENTS AND
MORTGAGE-BACKED
SECURITIES .............................. $25,031,995 $156,920 ($ 199,258) $24,989,657
=========== ======== ========= ===========
</TABLE>
Assets, principally securities, carried at approximately $2,841,107 and
$1,536,188 at December 31, 1997 and 1996, respectively were pledged to secure
deposits as required or permitted by law.
F-16
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES: -- (Continued)
The amortized cost and estimated market values of securities at December
31, 1997 and 1996 by contractual maturities, are as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
-------------- --------------
<S> <C> <C>
December 31, 1997:
Due less than one year ........................ $18,214,445 $18,249,608
Due after one year through five years ......... 1,998,125 2,020,325
----------- -----------
20,212,570 20,269,933
Mutual Funds .................................. 2,354,210 2,366,094
Mortgage-backed securities .................... 5,072,845 5,116,126
----------- -----------
$27,639,625 $27,752,153
=========== ===========
December 31, 1996:
Due less than one year ........................ $14,156,815 $14,077,913
Due after one year through five years ......... 2,500,000 2,514,176
----------- -----------
16,656,815 16,592,089
Mutual Funds .................................. 2,304,878 2,352,196
Mortgage-backed securities .................... 6,070,302 6,045,372
----------- -----------
$25,031,995 $24,989,657
=========== ===========
</TABLE>
Proceeds from maturities of investment securities available-for-sale
during the years ended December 31, 1997 and 1996 and September 30, 1995
totaled $1,000,000 and $3,000,000 and $700,000, respectively. The proceeds for
all periods were the result of security call options which were exercised and
no gains or losses were realized on those sales.
4. LOANS RECEIVABLE:
Loans receivable consist of the following:
December 31,
-------------------------------
1997 1996
-------------- --------------
Real Estate Loans:
One-to-four family .................... $44,940,010 $45,017,742
Five or more family residence ......... 702,055 654,292
Construction loans .................... 2,597,061 660,898
Nonresidential ........................ 11,420,738 5,575,209
----------- -----------
59,659,864 51,908,141
Consumer loans ......................... 1,201,351 1,016,277
Commercial loans ....................... 1,907,393 368,413
----------- -----------
62,768,608 53,292,831
Less:
Unearned fees and discounts ........... (477,979) (495,686)
Undisbursed loan proceeds ............. (137,677) (4,712)
Allowance for loan losses ............. (237,884) (206,884)
----------- -----------
$61,915,068 $52,585,549
=========== ===========
F-17
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
4. LOANS RECEIVABLE: -- (Continued)
Loans receivable at December 31, 1997 and 1996 includes $55,289,037 and
$48,700,787 of fixed rate loans and $7,479,571 and $4,592,044 of adjustable
rate loans, respectively.
A summary of loan maturities at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Multi-Family
and Consumer
Commercial and
One to Four Real Commercial Total
Family Estate Construction Business Loans
------------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Amounts due:
Non-accrual ...................... $ 1,497,050 $ 396,662 $ -- $ -- $ 1,893,712
----------- ----------- ---------- ---------- -----------
Within one year .................. 2,070,509 1,230,528 2,597,061 2,513,640 8,411,738
----------- ----------- ---------- ---------- -----------
After one year:
1 to 3 years .................... 694,583 1,639,735 281,848 2,616,166
3 to 5 years .................... 2,147,317 6,183,775 263,842 8,594,934
5 to 10 years ................... 4,059,398 1,162,408 49,414 5,271,220
Over 10 years ................... 34,471,153 1,509,685 35,980,838
----------- ----------- ---------- ---------- -----------
Total due after one year ......... 41,372,451 10,495,603 595,104 52,463,158
----------- ----------- ---------- ---------- -----------
TOTAL AMOUNTS DUE ................ $44,940,010 $12,122,793 $2,597,061 $3,108,744 $62,768,608
=========== =========== ========== ========== ===========
</TABLE>
A summary of changes in the allowance for possible loan losses is as
follows:
<TABLE>
<CAPTION>
December 31, September 30,
--------------------------- --------------
1997 1996 1995
----------- ------------- --------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD ............ $ 206,884 $ 207,589 $ 207,589
Provision charged to operation ......... 60,000 132,633 26,937
Charged off ............................ (29,000) (133,338) (26,937)
--------- ---------- ---------
BALANCE, END OF PERIOD ................. $ 237,884 $ 206,884 $ 207,589
========= ========== =========
</TABLE>
The provision for loan losses charged to expense is based upon past loan
and loss experience and an evaluation of potential losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon current information
and events, it is probable that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan. As of December 31, 1997 and
1996, 100% of the impaired loan balance was measured for impairment based on
the fair value of the loans' collateral. Impairment losses are included in the
provision for loan losses. SFAS Nos. 114 and 118 do not apply to large groups
of smaller balance homogeneous loans that are collectively evaluated for
impairment, except for those loans restructured under a trouble debt
restructuring. Loans collectively evaluated for impairment include consumer
loans and residential real estate loans. At December 31, 1997, the Bank's
impaired loans consisted of two commercial real estate loans with a total
recorded balance of $321,052 for which specific allowances of $16,053 has been
established. The average investment in impaired loans for the year ended
December 31, 1997 was $332,507. At December 31, 1996, and for the year then
ended the Bank's impaired loans consisted of smaller balance residential
mortgage loans.
Loans on which the accrual of interest has been discontinued amounted to
$1,893,711 and $769,995 at December 31, 1997 and 1996, respectively. If
interest on those loans had been accrued, accrued interest would have increased
by $352,516 and $175,423 at December 31, 1997 and 1996, respectively and income
would have increased by $116,138 and $60,724 for the years ended December 31,
1997 and 1996, respectively.
Certain directors and officers of the Bank have loans with the Bank. Such
loans were made in the ordinary course of business and do not represent more
than a normal risk of collection. Loans to officers and directors
F-18
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
4. LOANS RECEIVABLE: -- (Continued)
amounted to $1,177,541 and $324,178 at December 31, 1997 and 1996,
respectively. During the years ended December 31, 1997 and 1996 loans of
$1,045,000 and $-0-, respectively, were disbursed to executive officers and
trustees, while principal repayments of $191,637 and $8,391 were received in
those years, respectively.
5. LOANS HELD FOR SALE:
Loans held for sale are as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------
Gross Gross Fair
unrealized unrealized Market
Cost Gains Losses Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Residential mortgage loans ......... $6,574,585 $ -0- $ -0- $6,574,585
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Gross Gross Fair
unrealized unrealized Market
Cost Gains Losses Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Residential mortgage loans ......... $4,597,700 $ -0- $ -0- $4,597,700
</TABLE>
6. ACCRUED INTEREST RECEIVABLE:
A summary of accrued interest receivable is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Loans .............................. $ 687,128 $ 754,462
FHLB Overnight ..................... 105,533 118,804
Mortgage-backed securities ......... 28,571 35,049
Investment securities .............. 463,870 308,642
---------- ----------
$1,285,102 $1,216,957
========== ==========
</TABLE>
7. OFFICE PROPERTIES AND EQUIPMENT:
Office properties and equipment are summarized by major classification as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Land, buildings and improvements .......... $ 1,856,499 $ 1,793,292
Furniture, fixtures and equipment ......... 1,329,386 1,215,859
------------ ------------
3,185,885 3,009,151
Less accumulated depreciation ............. (1,856,740) (1,735,703)
------------ ------------
$ 1,329,145 $ 1,273,448
============ ============
</TABLE>
Depreciation expense was $121,037, $89,943 and $87,475 for the years ended
December 31, 1997 and 1996 and September 30, 1995, respectively.
8. REAL ESTATE OWNED -- ACQUIRED THROUGH SETTLEMENT OF LOANS:
Real estate owned consists of the following:
December 31,
-------------------------
1997 1996
----------- -----------
Real estate acquired through
settlement of loans ................. $456,528 $464,651
======== ========
F-19
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
9. FEDERAL HOME LOAN BANK STOCK:
The Bank is a member of the Federal Home Loan Bank System. As a member,
the Bank maintains an investment in the capital stock of the Federal Home Loan
Bank of Pittsburgh in an amount not less than 1% of its outstanding home loans
or 1/20 of its outstanding notes payable, if any, to the Federal Home Loan Bank
of Pittsburgh, whichever is greater, as calculated December 31 of each year.
10. DEPOSITS:
Deposits at December 31, 1997 and 1996 are summarized as follows:
NOTES (Continued)
<TABLE>
<CAPTION>
1997 1996
Weighted Average ---------------------------- ----------------------------
Interest Rate Amount % Amount %
------------------ --------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Types of Deposits:
Noninterest bearing accounts:
1997 ........................ $ 6,454,066 5.93%
1996 ........................ $ 1,958,303 1.95%
Passbook accounts:
1997 ........................ 3.00% 26,146,377 24.05
1996 ........................ 3.00 26,803,311 26.65
Statement savings accounts:
1997 ........................ 2.49 63,088 .06
1996 ........................ 2.49 28,198 .03
Club accounts:
1997 ........................ 2.00 191,810 .18
1996 ........................ 2.00 202,855 .20
Now accounts:
1997 ........................ .90 5,373,905 4.94
1996 ........................ 1.09 9,104,871 9.05
Money Market: ..................
1997 ........................ 3.57 7,201,284 6.62
1996 ........................ 3.63 6,265,482 6.23
------------ ------ ------------ ------
45,430,530 41.78 44,363,020 44.11
------------ ------ ------------ ------
Certificate of deposit:
Less than 4.00%
1997 ........................ 3.00 293,168 .27
1996 ........................ 3.00 319,688 .32
4.00 - 5.00%
1997 ........................ 4.40 1,188,515 1.09
1996 ........................ 4.68 8,154,337 8.11
5.01 - 6.00%
1997 ........................ 5.53 60,737,995 55.86
1996 ........................ 5.46 46,025,469 45.76
6.01 - 7.00%
1997 ........................ 6.77 1,050,766 .97
1996 ........................ 6.64 624,417 .62
7.01 - 8.00%
1997 ........................ 7.85 33,133 .03
1996 ........................ 7.60 1,087,445 1.08
------------ ------ ------------ ------
Total of certificates of deposit 63,303,577 58.22 56,211,356 55.89
------------ ------ ------------ ------
TOTAL DEPOSITS .............. $108,734,107 100.00% $100,574,376 100.00%
============ ====== ============ ======
</TABLE>
F-20
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
10. DEPOSITS: -- (Continued)
Certificates of deposit have scheduled maturities as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Within one year ........................ $45,450,499 $40,728,765
One year through two years ............. 14,167,969 10,838,411
Two years through three years .......... 1,571,762 1,947,108
Three years through five years ......... 1,707,871 1,593,958
Five years through ten years ........... 405,476 1,094,302
Over ten years ......................... -- 8,812
----------- -----------
$63,303,577 $56,211,356
=========== ===========
</TABLE>
Interest expense on deposits is comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------- --------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
NOW Accounts ....................... $ 90,827 $ 93,641 $ 87,158
Savings Accounts ................... 786,897 829,578 973,300
Money Market Accounts .............. 258,951 199,467 144,885
Certificates of Deposit ............ 3,424,647 2,977,210 2,260,582
---------- ---------- ----------
4,561,322 4,099,896 3,465,925
Early Withdrawal Penalties ......... (27,676) (17,519) (28,782)
---------- ---------- ----------
$4,533,646 $4,082,377 $3,437,143
========== ========== ==========
</TABLE>
The aggregate amount of certificates of deposit accounts with a minimum
denomination of $100,000 was approximately $10,791,394 and $6,240,394 at
December 31, 1997 and 1996, respectively.
The aggregate amount of demand deposits that have been re-classified as
loan balances at December 31, 1997 and 1996 was $88,129 and $104,164,
respectively.
11. INCOME TAX MATTERS:
The Bank and its wholly owned subsidiary file a consolidated federal
income tax return and separate state and local income tax returns on a calendar
year end basis.
F-21
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
11. INCOME TAX MATTERS: -- (Continued)
The provision for income taxes consists of the following:
Year Ended Year Ended
December 31, September 30,
------------------------- --------------
1997 1996 1995
----------- ----------- --------------
Currently payable:
Federal ................ $292,000 $122,000 $324,551
State .................. 16,000 20,000 74,977
-------- -------- --------
308,000 142,000 399,528
Deferred ............... 36,669 59,465 33,131
-------- -------- --------
TOTAL .................. $344,669 $201,465 $432,659
======== ======== ========
The reconciliation between the actual provision for federal and state
income taxes and the amount of income taxes which would have been provided at
statutory rates is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, September 30,
------------------------- --------------
1997 1996 1995
----------- ----------- --------------
<S> <C> <C> <C>
Expected Income Tax Expense at Federal
tax rate ............................... $ 358,070 $115,675 $371,388
Travel and Entertainment ................. 15,937 25,162 13,987
State Tax net of Federal benefit ......... 10,560 13,200 49,485
Other differences, net ................... (39,898) 47,428 (2,201)
--------- -------- --------
$ 344,669 $201,465 $432,659
========= ======== ========
</TABLE>
Deferred taxes are included in the accompanying statements of financial
condition as of December 31, 1997 and 1996 for the estimated future tax effects
of differences between the financial statement and federal income tax basis of
assets and liabilities given the provisions of currently enacted tax laws.
The net deferred tax assets (liability) consist of the following
components:
December 31,
-----------------------------
1997 1996
------------- -------------
Deferred Tax Assets:
Unrealized loss on available-for-sale
securities .............................. $ 6,860 $ 46,646
Allowance for loan losses ............... 94,754 82,754
Property and equipment .................. -- 11,557
Deferred income ......................... 99,873 119,847
--------- ----------
201,487 260,804
Deferred Tax Liability:
Bad debt expense ........................ (235,508) (235,508)
Property and equipment .................... (17,137
--------- ----------
NET DEFERRED TAX ........................ ($ 51,158) $ 25,296
Prior to January 1, 1996, the Bank was allowed a special bad debt
deduction for tax purposes based on a percentage of taxable income (8%) or on
specified experience formulas, subject to certain limitations based upon
F-22
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
11. INCOME TAX MATTERS: -- (Continued)
aggregate loan balances at the end of the year. If the above amounts deducted
were used for purposes other than for loan losses, such as in a distribution in
liquidation, or if the Bank would cease to be a qualified thrift lender under
the tax law, or otherwise, the amounts deducted would be subject to federal
income tax at the then current corporate tax rate.
The special bad debt method of accounting for bad debts for tax purposes
utilized by qualified thrift institutions was repealed effective for tax years
beginning January 1, 1996. Thrift institutions must now use either the direct
write-off or experience method of accounting for bad debts and must treat this
change as a change in accounting method. Any adjustment that is required to be
taken into account because of the change will be determined solely with respect
to the applicable excess reserves of the thrift which will be taken into income
over a six-year period for tax purposes. Pennsylvania Savings Bank qualifies as
a small bank. The Banks applicable excess reserves will be the excess of the
balance of its reserves as of the close of its last tax year beginning before
January 1, 1996 over the greater of (a) its pre-1988 reserves, or (b) what the
thrift's reserves would have been at the close of its last tax year beginning
before January 1, 1996, had the thrift used the experience method. If a Bank
meets the residential loan requirement, the income to be recognized may be
deferred. A Bank meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the Bank during the year is
not less than its base amount. The "base amount" generally is the average of
the principal amounts of the residential loans made by the Bank during the six
most recent tax years beginning before January 1, 1996. For the year ended
December 31, 1996, the Bank meets the residential loan requirement and has
elected to deferred recognition of the income.
Prior to January 1, 1988, the Bank was not required and did not record
deferred income taxes on the difference between the allowance for loan losses
reported for financial reporting purposes and the special bad debt deduction
for income tax purposes.
Retained earnings at December 31, 1997 and 1996 includes $2,450,099 for
which no deferred federal income tax liability has been recognized.
Subsequent to December 31, 1987, the base year, and prior to January 1,
1996, the Bank was required to record a deferred tax asset related to the
allowance for loan losses reported for financial reporting purposes and a
deferred tax liability for special bad debt deduction. However, if it is more
likely than not that some portion or all of the deferred tax asset will not be
realized, the deferred tax asset should be reduced by a valuation allowance.
The valuation allowance should be sufficient to reduce the deferred tax asset
to the amount that is more likely than not to be realized.
As required by SFAS No. 109 "Accounting for Income Taxes," the Bank
determined that no valuation reserve was necessary for the net deferred tax
asset since it is more likely than not that the deferred tax asset will be
realized through carryforwards to taxable income in future years and future
reversals of existing temporary differences. The Bank will continue to review
the criteria related to the recognition of deferred tax assets on a quarterly
basis.
The Bank has made additions to the special bad debt deduction allowance
since December 31, 1987 and, therefore, deferred tax liability for the special
bad debt deduction has been recorded in the amount of $235,508 at December 31,
1997 and 1996, respectively.
F-23
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
11. INCOME TAX MATTERS: -- (Continued)
Deferred tax expense results from timing differences in the recognition of
revenue and expense for tax and financial statement purposes. The sources of
these differences are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, September 30,
-------------------------- --------------
1997 1996 1995
------------- ---------- --------------
<S> <C> <C> <C>
Bad debts ....................... ($ 12,000) $31,035 $ 51,574
Depreciation .................... 28,694 8,455 (11,452)
Deferred loan fees .............. 19,975 19,975 (6,991)
-------- ------- ---------
DEFERRED TAX EXPENSE ......... $ 36,669 $59,465 $ 33,131
======== ======= =========
</TABLE>
12. DIVIDENDS PAID:
On June 30, 1996, the Bank paid a cash dividend of $.0375 per share to
stockholders of record as of June 15, 1996. This dividend was paid from
accumulated net earnings as of June 30, 1996. Subsequently, in September 1996,
the Savings Association Insurance Fund (SAIF) assessed and collected from the
Bank a one time special assessment of $567,000. This assessment eliminated the
Bank's prior earnings and resulted in the bank reporting both significantly
lower net income for the year ended December 31, 1996 and an accumulated
deficit as of December 31, 1996.
13. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA):
FDICIA was signed into law on December 19, 1991 and includes significant
changes to the legal and regulatory environment for insured depository
institutions, including reductions in insurance coverage for certain kinds of
deposits, increased supervision by the federal regulatory agencies, increased
reporting requirements for insured institutions, and new regulations concerning
internal controls, accounting and operations.
The regulations require institutions to have a minimum 4% leverage capital
ratio, a minimum 4% tier 1 risk-based capital ratio and a minimum 8% total
risk-based capital ratio to be considered "adequately capitalized". An
institution is deemed to be "critically undercapitalized" if it has a tangible
equity ratio of 2% or less.
The following table sets out the Bank's various regulatory capital
categories:
<TABLE>
<CAPTION>
December 31,
1997
-------------------------------------------------------------
Required Actual
--------------------- ------------------------
(Dollars in thousands) % Amount % Amount Excess
- ----------------------------------------- ---------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Tangible equity ratio ................... >2.0% $2,246 13.36% $15,001 $12,755
Leverage capital ratio .................. 6.0 6,739 13.36 15,001 8,262
Total risk-based capital ratio .......... 8.0 4,865 25.06 15,239 10,374
Tier 1 risk-based capital ratio ......... 4.0 2,432 24.67 15,001 12,569
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996
-------------------------------------------------------------
Required Actual
--------------------- ------------------------
% Amount % Amount Excess
---------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Tangible equity ratio ................... >2.0% $2,324 12.24% $14,230 $11,906
Leverage capital ratio .................. 4.0 4,648 12.24 14,230 9,582
Total risk-based capital ratio .......... 8.0 4,003 28.85 14,437 10,434
Tier 1 risk-based capital ratio ......... 4.0 2,002 28.44 14,230 12,228
</TABLE>
F-24
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
14. DIFFERENCES BETWEEN FEDERAL DEPOSITORY INSURANCE CORPORATION CALL REPORT
AND CONSOLIDATED FINANCIAL STATEMENTS:
An adjustment has been made to the accounts which is reflected in the
consolidated financial statements but is not reflected in the Bank's December
Federal Depository Insurance Corporation Call Reports. The adjustment and its
effect on retained earnings are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Retained earnings per the Bank's December Federal
Depository Insurance Corporation Call Report ............... $ 682,271 ($ 19,574)
Increase in federal and state income tax provision ......... (117,601) (96,803)
Adjustments made to financial statement, subsequently
recorded by Bank ........................................... (18,927) (46,357)
---------- ---------
RETAINED EARNINGS PER ACCOMPANYING
FINANCIAL STATEMENTS ....................................... $ 545,743 ($ 162,734)
========== =========
</TABLE>
15. LEASE COMMITMENTS:
On October 12, 1995, the Bank signed a lease agreement for office and
branch space in center city Philadelphia. The lease commenced on July 1, 1996
and extends for 11 years. Lease expense for this lease for the year ended
December 31, 1997 and 1996 was $265,118 and $79,908.
The Bank was obligated under various other leases. Lease expense for these
leases for the year ended December 31, 1997 and 1996 and September 30, 1995 and
was $37,203, $37,437, and $42,202, respectively.
Minimum annual rentals are as follows:
1998 $ 380,465
1999 352,157
2000 348,651
2001 363,907
2002 374,686
Thereafter 1,761,410
16. RETIREMENT PLANS:
The Bank sponsors the following retirement plans:
A. Defined Benefit Pension Plan:
Covers employees who were at least 21 years of age, with 12 months of
service with the Bank and have accumulated 1,000 hours of service during the
Plan year. The Plan calls for benefits to be paid to eligible employees at
retirement based upon years of service with the Bank and compensation rates
near retirement. Contributions to the Plan reflect benefits attributed to
employees' service. Plan assets consist of common stock, investment grade
corporate bonds and U.S. Government obligations. The Retirement Plan was
"frozen" as of September 30, 1994 and benefits no longer accrue thereunder. No
new employees will be eligible for participation.
F-25
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
16. RETIREMENT PLANS: -- (Continued)
The following table sets forth the Pension Plan's funded status in the
Bank's balance sheet as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31, December 31,
-------------- -------------
1997 1996
-------------- -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested obligation ................................................... ($ 642,384) ($ 720,684)
Nonvested ........................................................... (1,390) (3,252)
--------- ---------
Accumulated benefit obligation ...................................... (643,774) (723,936)
--------- ---------
Projected benefit obligation for service rendered to date ........... (643,774) (723,936)
Plan assets at fair value ............................................ 739,135 703,874
--------- ---------
Excess of projected benefit obligation over plan assets .............. 95,361 (20,062)
Unrecognized net gain from past experience different from that assumed
and effects of changes in assumptions ............................... (299,351) (191,732)
Unrecognized prior service cost ...................................... (46,800) (48,471)
Unrecognized obligation at December 31, being recognized over 24 years 104,947 111,121
--------- ---------
ACCRUED PENSION COST ................................................. ($ 145,843) ($ 149,144)
========= =========
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
December 31, September 30,
---------------------------- --------------
1997 1996 1995
------------- ------------ --------------
<S> <C> <C> <C>
Interest cost on projected benefit obligation ......... $ 47,172 $ 53,315 $ 56,072
Actuarial return on plan assets ....................... (133,177) (94,606) (117,334)
Net amortization and deferral ......................... 82,703 47,059 76,627
--------- --------- ----------
NET PERIODIC PENSION COST FOR THE YEARS
ENDED DECEMBER 31, 1997 AND 1996 AND SEP-
TEMBER 30, 1995 ...................................... ($ 3,302) $ 5,768 $ 15,365
========= ========= ==========
</TABLE>
The significant actuarial assumptions used in calculating the above
information is as follows:
<TABLE>
<CAPTION>
December 31, September 30,
--------------- --------------
1997 1996 1995
------ ------ --------------
<S> <C> <C> <C>
Weighted average discount rate ...................... 8% 8% 8%
Weighted average rate of compensation ............... N/A N/A 4%
Weighted average expected long-term rate of return on
Plan Assets ........................................ 8% 8% 8%
</TABLE>
Pension contributions were $-0- and $-0- and $51,102 for the years ended
December 31, 1997 and 1996 and September 30, 1995.
The following three employee benefit plans cover all eligible employees,
those with two years of service, (a year of service defined as having at least
1,000 hours of service) and being at least 21 years of age on the first day of
the plan year.
F-26
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
16. RETIREMENT PLANS: -- (Continued)
B. Cash or Deferred Profit-Sharing Plan:
Contributions to this Plan are determined by the participant's written
election to reduce their compensation by no more than 15% of eligible
compensation and also not to exceed code section 401(k) and other limitations
as set by the plan documents.
The Bank may also make discretionary contributions made out of net income.
Bank contributions to the Plan for the year ended December 31, 1997 and
1996 and September 30, 1995 , $-0-, $-0-, $18,190, respectively.
C. Profit-sharing Plan:
Contributions to the Plan are determined annually by the Board of Trustees
based upon net income. Allocation of the contributions to participants is based
upon annual compensation.
Contributions to the Plan for the year ended December 31, 1997 and 1996
and September 30, 1995 were $-0- and $74,894, $111,567, respectively.
D. Employee Stock Ownership Plan ("ESOP"):
Effective October 23, 1995, the Bank has established an ESOP for eligible
employees. The ESOP is a tax-qualified plan subject to the requirements of
ERISA and the Code. Employees with a 12-month period of employment with the
Bank during which they worked at least 1,000 hours and who have attained age 21
are eligible to participate. The ESOP borrowed funds from an unrelated third
party lender and used the funds to purchase 42,780 shares of Common Stock.
The Common Stock purchased by the ESOP serves as collateral for the ESOP
loan. The loan will be repaid principally from the Bank's contributions to the
ESOP over a period of up to seven years. Shares purchased by the ESOP will be
held in a suspense account for allocation among participants as the loan is
repaid. Shares released from the suspense account in an amount proportional to
the repayment of the ESOP loan will be allocated among participants on the
basis of compensation in the year of allocation, up to an annual adjusted
maximum level of compensation (currently $150,000).
Benefits under the ESOP generally become 100% vested after the third year
of service or upon normal retirement (as defined in the ESOP), disability or
death of the participant. If a participant terminates employment for any other
reason prior to fully vesting, his nonvested account balance will be forfeited.
Forfeitures will be reallocated among remaining participating employees in the
same proportion as contributions. Benefits may be payable upon death,
retirement, early retirement disability or separation from service. The Bank's
contributions to the ESOP will not be fixed, so benefits payable under the ESOP
cannot be estimated. The Bank's contributions to the ESOP were recorded as
compensation expense for the year ended December 31, 1997 and 1996 were $91,736
and $97,228, respectively.
Information with respect to the ESOP is as follows:
<TABLE>
<CAPTION>
December 31, September 30,
------------------- --------------
1997 1996 1995
-------- -------- --------------
<S> <C> <C> <C>
Allocated shares ........................... 42,780 42,780 N/A
Committed shares ........................... 13,245 7,132 N/A
Uncommitted shares ......................... 29,535 35,648 N/A
Fair value of unearned ESOP shares ......... 84,561 75,662 N/A
Interest expense incurred .................. 30,607 36,099 N/A
Dividends received ......................... N/A 1,604 N/A
</TABLE>
F-27
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
16. RETIREMENT PLANS: -- (Continued)
E. Management Recognition Plan:
The Bank's Board of Trustees has also adopted a Management Recognition
Plan (the "MRP") effective October 20, 1995, as a method of providing certain
senior executive officers of the Bank with a propriety interest in the Bank, to
such officers for their service and to encourage such persons to remain in the
service of the Bank. Benefits may be granted at the sole discretion of the
Compensation Committee of the Bank's Board of Trustees. The MRP is managed by
trustees who are directors of the Bank and who have responsibility to invest
all funds contributed by the Bank to the trust created for the MRP. The Bank
contributed $254,005 to the MRP trust which enabled the MRP to purchase 21,390
shares of Common Stock. Unless the Compensation Committee of the Board
specifies otherwise, shares granted to MRP participants will be in the form of
restricted stock payable over a five-year period at the rate of 20% of such
shares per year. Compensation expense in the amount of the fair market value of
the common stock at the date of the grant to the employee will be recognized
pro rata over the five years during which the shares are payable. As of
December 31, 1997 and 1996, 21,390 shares have been allocated to individual
employees. For the year ended December 31, 1997 and 1996, the Bank recorded
compensation expense of $50,801 and $18,624, respectively for the Management
Recognition Plan.
F. Stock Option Plan:
The Bank's Board of Trustees adopted the Pennsylvania Savings Bank Stock
Option Plan (the "Option Plan") and was approved by a majority of stockholders
on April 30, 1996. The Option Plan provides for the grant of (I) options to
purchase Common Stock intended to qualify as incentive stock options
("Incentive Stock Option") under Section 422 of the Code, and (ii) options that
do not so qualify ("Nonqualified Stock Options"). Pursuant to the Option Plan,
up to 53,475 shares of Common Stock (subject to adjustment) will be reserved
for issuance by the Bank upon exercise of stock options to be granted to
certain officers and employees of the Bank from time to time under the Option
Plan. The purpose of the Option Plan is to give certain officers and employees
an opportunity to acquire Common Stock and thereby help the Bank attract,
retain and motivate key employees and officers.
At April 30, 1996, 29,409 shares of Common Stock were granted at the
market price of $11.87 and on December 31, 1996, 6,450 were granted at the
market price of $13.25. No option was granted in 1997.
If the bank had elected to adopt the accounting provision of SFAS 123 then
compensation cost would have reduced net income and earnings per share by
$241,232 and $.21 in 1996.
The weighted average fair value at date of grant for options granted in
1996 were $6.59 for options granted at April 30th and $7.35 for options granted
at December 31st. The fair value of options at date of grant was estimated
using the Black-Scholes Option Pricing Model with the following assumptions:
expected life 10 years, interest rate 8.00%, volatility 17.00% and dividend
yield of 0.00%. All options expire in 2006. All of the options remained
outstanding at December 31, 1997.
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit generally
consisting of residential purchase money mortgage commitments, or the unfunded
portion of construction loans in process and standby letter of credit.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the loan agreement.
These commitments are comprised of the undisbursed portion of construction
loans and residential loan originations. The Bank's exposure to credit loss
from nonperformance by the other party to the financial instruments for
commitments to extend credit is represented by the contractual
F-28
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK: -- (Continued)
amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. Generally, collateral, usually in the form of real estate, is
required to support financial instruments with credit risk.
18. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:
The Bank grants mortgage, consumer and construction loans primarily to
customers in Southeastern Pennsylvania and Southern New Jersey. Although the
Bank has a diversified loan portfolio, a substantial portion of its customers'
ability to honor their contracts is dependent upon the local economy. The
Bank's net investment in loans is subject to a significant concentration of
credit risk given that the investment is primarily within a specific geographic
area.
As of December 31, 1997 and 1996, the Bank had a net investment of
$61,915,068 and $52,585,549, respectively, in loans receivable. These loans
possess an inherent credit risk given the uncertainty regarding the borrower's
compliance with the terms of the loan agreement. To reduce credit risk, the
loans are secured by varying forms of collateral, including first mortgages on
real estate, liens on personal property, savings accounts, etc. It is generally
Bank policy to file liens on titled property taken as collateral on loans. In
the event of default, the Bank's policy is to foreclose or repossess collateral
on which it has filed liens.
In the event that any borrower completely failed to comply with the terms
of the loan agreement and the related collateral proved worthless, the Bank
would incur a loss equal to the loan balance.
19. COMMITMENTS:
In the normal course of business the Bank makes various commitments and
incurs certain contingent liabilities which are not reflected in the
accompanying financial statements. These commitments and contingent liabilities
include open-end credit available. At December 31, 1997 and 1996, the Bank's
customers had unused lines of credit available of $1,134,820 and $830,247,
respectively.
Outstanding commitments to originate loans are as follows:
December 31,
---------------------------
1997 1996
------------ ------------
First mortgage loans:
Fixed rates ............ $ 521,095 $ 121,590
Variable rates ......... 2,468,000 -0-
---------- ---------
$2,989,095 $ 121,590
========== =========
Commitments under standby letters of credit totaled approximately $387,694
and $565,948 at December 31, 1997 and 1996, respectively.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires the disclosure of the fair value
of financial instruments, both assets and liabilities recognized and not
recognized in the statement of financial position.
A financial instrument is defined as cash, evidence of an ownership
interest in equity, or a contract that both imposed on one entity a contractual
obligation to deliver cash or another financial instrument to a second entity
or to exchange other financial instruments on potentially unfavorable terms
with the second entity, conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity or the
exchange of other financial instruments on potentially favorable terms with the
first entity.
F-29
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS: -- (Continued)
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Quoted market prices should be used
when available, if not available management's best estimate of fair value may
be based on quoted market price of financial instruments with similar
characteristics or on valuation techniques, such as using the present value of
estimated future cash flows using a discount rate commensurate with the
corresponding risk associated with those cash flows. These techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows and future economic conditions. In that regard,
the fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. In addition, these estimates are only indicative of individual
financial instruments' values and should not be considered an indication of the
fair value of the Bank taken as a whole. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements.
The following tables represents the carrying value and fair market value
of financial instruments as of December 31, 1997:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------------- --------------
<S> <C> <C>
Assets:
Cash and cash equivalents ............................. $27,888,650 $27,888,650
Investments securities available-for-sale ............. 14,401,388 14,401,388
Mortgage-backed securities available-for-sale ......... 2,933,804 2,933,804
Investment securities held-to-maturity ................ 8,219,223 8,234,639
Mortgage-backed securities held-to-maturity ........... 2,068,059 2,182,322
Loans receivable - net ................................ 61,915,068 61,915,068
Loans Held for Sale ................................... 6,574,585 6,574,585
Federal Home Loan Bank stock .......................... 559,900 559,900
Liabilities:
NOW, MMDA and Passbook accounts ....................... 45,430,530 45,430,530
Certificate of Deposits ............................... 63,303,577 63,303,577
</TABLE>
The following tables represents the carrying value and fair market value
of financial instruments as of December 31, 1996:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------------- --------------
<S> <C> <C>
Assets:
Cash and cash equivalents ............................. $31,622,465 $31,622,465
Investments securities available-for-sale ............. 6,316,282 6,316,282
Mortgage-backed securities available-for-sale ......... 3,193,840 3,193,840
Investment securities held-to-maturity ................ 12,656,815 12,628,003
Mortgage-backed securities held-to-maturity ........... 2,748,444 2,851,532
Loans receivable - net ................................ 52,585,549 52,585,549
Loans Held for Sale ................................... 4,597,700 4,597,700
Federal Home Loan Bank stock .......................... 533,600 533,600
Liabilities:
NOW, MMDA and Passbook accounts ....................... 44,363,020 44,363,020
Certificate of Deposits ............................... 56,211,356 56,211,356
</TABLE>
The following methods and assumptions, where practical to implement as
noted, were used by the Bank in estimating its fair value for those assets.
Cash and Cash Equivalents:
The carrying amounts reported in the statement of financial condition for
cash and cash equivalents approximate the fair value for those assets.
F-30
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS: -- (Continued)
Investments Securities:
The fair value for investments are based on quoted market prices.
Mortgage-backed Securities:
The fair value of mortgage-backed securities issued by quasi-governmental
agencies is based on quoted market prices.
Loans Receivable:
The Bank estimates that the fair value of its real estate, consumer and
commercial loans approximates the carrying amount. The carrying amount is
adjusted for the estimated future possible loan losses through a valuation
allowance. The Bank's real estate loan portfolio was $59,659,864 and
$51,908,141 at December 31, 1997 and 1996, respectively with rates ranging from
6.00% to 18.00% and maturities through 30 years. The Bank's consumer loan
portfolio was $1,201,351 and $1,016,277 at December 31, 1997 and 1996,
respectively with rates ranging from 5.00% to 22.53% with maturities through 18
years. The Bank's commercial loan portfolio was $1,907,393 and $368,413 at
December 31, 1997 and 1996, respectively with rates ranging from 8.25% to
10.25% with maturities through one year and monthly repayment terms.
Deposits:
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, NOW accounts, savings accounts and money market
accounts, is equal to the amount payable on demand as of December 31, 1997 and
1996. The Bank has not determined the fair values of its time deposits (e.g.
certificates of deposit) due to it not being practical to make such estimates
based on varying interest rates and maturities involved and the excessive cost
that would be incurred. Time deposits were $63,303,577 and $56,211,356 at
December 31, 1997 and 1996, respectively with rates ranging from 3.00% to
8.00%.
Commitments to Extend Credit and Letters to Credit:
The majority of the Bank's commitments to extend credit and letters of
credit carry current market interest rates if converted to loans. Because
commitments to extend credit and letters of credit are generally unassignable
by either the Bank or the borrower, they only have value to the Bank and the
borrower. The Bank is unable to estimate the fair value of the recorded
deferred fee amounts.
21. EARNINGS PER SHARE:
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------
Per
Income Shares Share
Numerator Denominator Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Income available to Common Stockholders . $708,477 1,165,105 $ .61
Effect of Dilute Securities:
Stock options ........................... -0- 14,573
-------- ---------
Diluted EPS
Income available to common stockholders
and assumed conversions ............... $708,477 1,179,678 $ .60
======== =========
</TABLE>
F-31
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
21. EARNINGS PER SHARE: -- (Continued)
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------
Per
Income Shares Share
Numerator Denominator Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Income available to Common Stockholders . $138,757 1,152,328 $ .12
Effect of Dilute Securities:
Stock options ........................... -0- -0-
-------- ---------
Diluted EPS
Income available to common stockholders
and assumed conversions ............... $138,757 1,152,328 $ .12
======== =========
</TABLE>
22. NEW PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting of
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of financial statements. This statement also requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This
statement is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Bank does
not anticipate that adoption of SFAS No. 130 will have a material impact on the
Bank's financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information"
(SFAS No. 131), which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that such enterprises report selected information about
operating segments in interim financial reports issued to shareholders. This
statement also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This statement requires the
reporting of financial and descriptive information about the enterprise's
reportable operating segments. This statement is effective for financial
statements for periods beginning after December 15, 1997. In the initial year
of application, comparative information for earlier years is to be restated.
The Bank does not anticipate that the adoption of SFAS No. 131 will have a
material impact on the Bank's financial statements.
23. FINAL SAVINGS ASSOCIATION INSURANCE FUND LEGISLATION:
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the Funds
Act) was signed into law which, among other things, imposed a special one-time
assessment to recapitalize the Savings Association Insurance Fund (SAIF). As
required by the Funds Act, the Federal Deposit Insurance Corporation (FDIC)
imposed a special assessment on SAIF-assessable deposits held on March 31,
1995, payable November 27, 1996. The special assessment was recognized as a
tax-deductible expense in 1996. The Bank recorded a special after-tax charge of
$374,397 ($567,269 before tax) as a result of the FDIC special assessment.
24. SUBSEQUENT EVENT:
On July 17, 1997, the Board of Trustees of the Bank adopted a Plan of
Conversion. The Board amended the Plan of Conversion on September 25, 1997 (as
amended, the "Plan"). Under the Plan (i) PSB Mutual Holding Company will
convert to an interim Pennsylvania stock savings bank ("Interim A") and
simultaneously merge with and into the Bank, pursuant to which PSB Mutual
Holding Company will cease to exist and the outstanding shares of the Bank's
Common Stock held by PSB Mutual Holding Company (615,250 shares or 51.5%
F-32
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SEPTEMBER 30, 1995 -- (Continued)
24. SUBSEQUENT EVENT: -- (Continued)
of the outstanding Bank Common Stock) will be cancelled, and (ii) an interim
Pennsylvania stock savings bank ("Interim B") will be formed as a wholly-owned
subsidiary of PSB Bancorp, Inc., a newly formed a holding company, and will
merge with and into the Bank resulting in the Bank becoming a wholly-owned
subsidiary of PSB Bancorp, Inc. Any outstanding shares of Bank Common Stock not
owned by PSB Mutual Holding Company (579,390 shares or 48.5% of the outstanding
Bank Common Stock) will be converted into shares of PSB Bancorp, Inc. at an
exchange ratio determined in accordance with the Plan. In conjunction with the
conversion being undertaken pursuant to the Plan, PSB Bancorp, Inc. will offer
up to 1,610,000 shares of its common stock (subject to adjustment up to
1,851,500 shares under certain circumstances) in a subscription and community
offering.
F-33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of
1988 provide that the Holding Company may indemnify any officer or director
acting in his capacity as a representative of the Holding Company who was, is,
or is threatened to be made a party to any action or proceeding against
expenses, judgments, penalties, fines and amounts paid in settlement in
connection with such action or proceeding whether the action was instituted by
a third party or arose by or in the right of the Holding Company (a derivative
action). Generally, the only limitation on the ability of the Holding Company
to indemnify its officers and directors is if the act violates a criminal
statute (unless the person had no reasonable cause to believe his conduct was
unlawful) or if the officer or director did not act in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the corporation. Indemnification is not permitted in a derivative action if
the officer or director in question has been adjudged liable to the
Corporation, unless such indemnification is approved by the court.
The Holding Company's Bylaws provide a right to indemnification to the
full extent permitted by law, for expenses (including attorney's fees),
damages, punitive damages, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by any director or officer whether
or not the indemnified liability arises or arose from any threatened, pending
or completed proceeding by or in the right of the Holding Company (a derivative
action) by reason of the fact that such director or officer is or was serving
as a director, officer, employee or agent of the Holding Company or, at the
request of the Holding Company, as a director, officer, partner, fiduciary or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The Holding Company's Bylaws provide for the
advancement of expenses to an indemnified party upon receipt of an undertaking
by the party to repay those amounts if it is finally determined that the
indemnified party is not entitled to indemnification.
The Holding Company's Bylaws authorize the Holding Company to take steps
to ensure that all persons entitled to the indemnification are properly
indemnified, including, if the Board of Directors so determines, purchasing and
maintaining insurance. As of the date of this Prospectus, no such insurance has
been purchased.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses payable by the Holding Company in connection with
the issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's non-accountable
expense allowance) are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ......... $ 10,131.61
Edgar, printing, copying, postage, mailing .................. 60,000.00
Appraisal/business plan fees and expenses ................... 30,000.00
Securities marketing fees ................................... 100,000.00
Securities marketing firm legal fees ........................ 30,000.00
Data processing fees and expenses ........................... 7,000.00
Legal fees and expenses ..................................... 150,000.00
Accounting fees and expenses ................................ 75,000.00
Blue Sky fees and expenses (including legal fees) ........... 7,000.00
Total ..................................................... $475,000.00
</TABLE>
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
Within the past three years no securities of the Holding Company have been
sold without registration under the Securities and Exchange Act of 1933 (the
"Act"), as amended.
Item 27. Exhibits
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------ ----------- ------
<S> <C> <C>
1.1** Form of Agency Agreement.
2* PSB Mutual Holding Company and Pennsylvania Savings Bank Plan of Conversion
From Mutual Holding Company to Stock Holding Company and Agreement and Plan of
Reorganization.
3.1* Articles of Incorporation of PSB Bancorp, Inc.
3.2* Bylaws of PSB Bancorp, Inc.
4.1** Specimen Stock Certificate representing the Common Stock of PSB Bancorp, Inc.
5.1 Form of Opinion of Stevens & Lee regarding legality of securities being registered.
5.2* Subscription Rights Letter of RP Financial, L.C.
8.1 Form of Opinion of Stevens & Lee regarding certain tax matters.
10.1 Pennsylvania Savings Bank Retirement Plan.
10.2 Pennsylvania Savings Cash or Deferred Profit Sharing Plan.
10.3 Pennsylvania Savings Bank Profit Sharing Plan.
10.4 Employment Agreement with Vincent J. Fumo.
10.5 Employment Agreement with Anthony DiSandro.
10.6 Pennsylvania Savings Bank Employee Stock Ownership Plan.
10.7 Lease Agreement between Eleven Colonial Penn Plaza Associates and Pennsylvania
Savings Bank, dated as of October 10, 1995.
10.8 Lease Agreement between Eleven Colonial Penn Plaza Associates and Pennsylvania
Savings Bank, dated as of October 12, 1995.
21.1* Schedule of Subsidiaries.
23.1 Form of Consent of Stevens & Lee (included in its opinion filed as Exhibit 5.1).
23.2 Consent of Stockton Bates & Co., P.C.
23.3 Consent of RP Financial, LC.
24.1* Power of Attorney (included on signature page).
27.1* Financial Data Schedule.
99.1** Appraisal Agreement with RP Financial, LC.
99.2* Appraisal Report of RP Financial, LC.
99.3* Updated Appraisal Report of RP Financial, L.C.
99.4 Order and Acknowledgment Form (contained in the marketing materials included herein
as Exhibit 99.5).
99.5 Solicitation and Marketing Materials.
99.6 Proxy Statement for Special Meeting of Members of PSB Mutual Holding Company.
99.7 Proxy Statement for Special Meeting of Pennsylvania Savings Bank.
</TABLE>
- ------------
*Previously filed.
**To be filed by amendment.
II-2
<PAGE>
Item 28. Undertakings.
The Undersigned registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act.
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement, and
(iii) include any additional or changed material information on the
plan of distribution;
(2) for determining liability under the Act, treat each such
post-effective amendment as a new registration of the securities offered
and the offering of such securities at that time to be the initial bona
fide offering; and
(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of this offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes: (12) to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for the
purpose of determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A, and contained in a prospectus filed by
the Registrant pursuant to Rule 424(b)(1) or (4) or 497(b) under the Act as a
part of this Registration Statement as of the time the Securities and Exchange
Commission declares it effective and (3) that for the purpose of determining
any liability under the Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement for the
securities offered in the Registration Statement therein and that the offering
of the securities at that time is the initial bona fide offering of those
securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Amendment No. 2 to Form S-1 and has
authorized this Registration Statement to be signed on its behalf by the
undersigned, in the City of Philadelphia, Commonwealth of Pennsylvania on May
4, 1998.
PSB BANCORP, INC.
By /s/ Anthony DiSandro
----------------------------------------
Anthony DiSandro
Chairman and Chief Operating Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- ---------------------------- ----------------------------------- ------------
/s/ Vincent J. Fumo Chairman, Chief Executive Officer May 4, 1998
- -------------------------- and Director
Vincent J. Fumo
/s/ Anthony DiSandro* President and Chief Operating May 4, 1998
- -------------------------- Officer
Anthony DiSandro
/s/ Gary Polimeno Vice President and Treasurer May 4, 1998
- -------------------------- (Principal Accounting and
Gary Polimeno Financial Officer)
/s/ Jane Scaccetti Fumo Director May 4, 1998
- --------------------------
Jane Scaccetti Fumo
/s/ Roseanne Pauciello Director May 4, 1998
- --------------------------
Roseanne Pauciello
*Attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------ ----------- ------
<S> <C> <C>
1.1** Form of Agency Agreement.
2* PSB Mutual Holding Company and Pennsylvania Savings Bank Plan of
Conversion From Mutual Holding Company to Stock Holding Company
and Agreement and Plan of Reorganization.
3.1* Articles of Incorporation of PSB Bancorp, Inc.
3.2* Bylaws of PSB Bancorp, Inc.
4.1** Specimen Stock Certificate representing the Common Stock of PSB
Bancorp, Inc.
5.1 Form of Opinion of Stevens & Lee regarding legality of securities being
registered.
5.2* Subscription Rights Letter of RP Financial, L.C.
8.1 Form of Opinion of Stevens & Lee regarding certain tax matters.
10.1 Pennsylvania Savings Bank Retirement Plan.
10.2 Pennsylvania Savings Cash or Deferred Profit Sharing Plan.
10.3 Pennsylvania Savings Bank Profit Sharing Plan.
10.4 Employment Agreement with Vincent J. Fumo.
10.5 Employment Agreement with Anthony DiSandro.
10.6 Pennsylvania Savings Bank Employee Stock Ownership Plan.
10.7 Lease Agreement between Eleven Colonial Penn Plaza Associates and
Pennsylvania Savings Bank, dated as of October 10, 1995.
10.8 Lease Agreement between Eleven Colonial Penn Plaza Associates and
Pennsylvania Savings Bank, dated as of October 12, 1995.
21.1* Schedule of Subsidiaries.
23.1 Form of Consent of Stevens & Lee (included in its opinion filed as Exhibit
5.1).
23.2 Consent of Stockton Bates & Co., P.C.
23.3 Consent of RP Financial, LC.
24.1* Power of Attorney (included on signature page).
27.1* Financial Data Schedule.
99.1** Appraisal Agreement with RP Financial, LC.
99.2* Appraisal Report of RP Financial, LC.
99.3* Updated Appraisal Report of RP Financial, L.C.
99.4 Order and Acknowledgment Form (contained in the marketing materials
included herein as Exhibit 99.5).
99.5 Solicitation and Marketing Materials.
99.6 Proxy Statement for Special Meeting of Members of PSB Mutual Holding
Company.
99.7 Proxy Statement for Special Meeting of Pennsylvania Savings Bank.
</TABLE>
- ------------
*Previously filed.
**To be filed by amendment.
<PAGE>
Direct Dial
(717) 399-6629
_______________, 1998
Board of Directors
Pennsylvania Savings Bank
Eleven Penn Center, Suite 2601
1835 Market Street
Philadelphia, PA 19103
Re: Acquisition of Pennsylvania Savings Bank
By PSB Bancorp, Inc.
Ladies and Gentlemen:
You have requested our opinion as to certain federal and Pennsylvania
income tax consequences of the transactions contemplated by the Plan of
Conversion From Mutual Holding Company to Stock Holding Company and Agreement
and Plan of Reorganization, as originally adopted by the Boards of Directors of
PSB Mutual Holding Company, Philadelphia, Pennsylvania ("MHC"), a
Pennsylvania-chartered mutual holding company, and Pennsylvania Savings Bank,
Philadelphia, Pennsylvania (the "Savings Bank"), a Pennsylvania-chartered
savings bank, on __________________________, as thereafter amended according to
its terms (the"Plan"), pursuant to which the Savings Bank will become a
wholly-owned subsidiary of a stock holding company, PSB Bancorp, Inc. (the
"Holding Company"), which was organized on October 3, 1997, at the direction and
as a subsidiary of the Savings Bank to become the holding company for the
Savings Bank.
On the effective date, as provided in Section X of the Plan, the
Savings Bank will become a wholly-owned subsidiary of the Holding Company upon
consummation of the transactions described below (collectively, the "Conversion
and Reorganization"),which shall occur consecutively and essentially
simultaneously:
<PAGE>
Board of Directors
Pennsylvania Savings Bank
__________, 1998
Page 2
(1) The MHC Merger. The MHC will convert into an interim state stock
savings bank ("Interim A") and merge with and into the Savings Bank, with the
Savings Bank as the surviving entity (the "MHC Merger"). As a result of the MHC
Merger, (a) the Savings Bank Common Stock held by the MHC will be cancelled, (b)
certain "Eligible Account Holders" (as defined in the Plan) and "Supplemental
Eligible Account Holders" (as defined in the Plan) of the Savings Bank will be
granted ratable interests in the liquidation account to be established by the
Savings Bank, as described in Section XIV of the Plan, (c) the separate
existence of the MHC will cease, and (d) holders of Savings Accounts in the
Savings Bank will cease to have any voting rights in or with respect to the MHC
or the Savings Bank.
(2) The Savings Bank Merger. PSB Interim B Savings Bank, a transitory
state stock savings bank formed as a wholly-owned subsidiary of the Holding
Company ("Interim B"), will merge with and into the Savings Bank, with the
Savings Bank as the surviving entity (the "Savings Bank Merger"). As a result of
the Savings Bank Merger, (a) the shares of Holding Company Common Stock held by
the Savings Bank will be cancelled, (b) the shares of common stock of Interim B
held by the Holding Company will be converted on a one-to-one basis into shares
of Savings Bank Common Stock, which will result in the Savings Bank becoming a
wholly-owned subsidiary of the Holding Company, (c) the separate existence of
Interim B will cease, and (d) the "Public Shareholders" (as defined in the Plan)
who own Savings Bank Common Stock will exchange their shares of Savings Bank
Common Stock for shares of Holding Company Common Stock based upon the "Exchange
Ratio," as defined and provided in the Plan. In addition, all options to
purchase shares of Savings Bank Common Stock that are outstanding immediately
prior to consummation of the Conversion and Reorganization will be converted
into options to purchase shares of Holding Company Common Stock.
<PAGE>
Board of Directors
Pennsylvania Savings Bank
__________, 1998
Page 3
Upon consummation of the Conversion and the Reorganization, all of the
Savings Bank Common Stock will be owned by the Holding Company, and the Public
Shareholders who exchanged Savings Bank Common Stock for Holding Company Common
Stock will own the same percentage of the Holding Company Common Stock as the
percentage of the Savings Bank Common Stock owned by them immediately prior to
the exchange, except for (a) any cash paid in lieu of any fractional interests
of Holding Company Common Stock, (b) any shares of "Conversion Stock" (as
defined in the Plan) purchased by the Public Shareholders and other subscribers
in the Offerings described in the Plan, and (c) any shares of Savings Bank
Common Stock with respect to which the holder exercises statutory appraisal
rights.
Upon consummation of the Conversion and the Reorganization, (a) all
Savings Accounts in the Savings Bank shall have the same status as existed prior
to the Conversion and the Reorganization, (b) all loans granted by the Savings
Bank shall have the same status as existed prior to the Conversion and the
Reorganization, and (c) the Savings Bank will establish the liquidation account
described in Section XIV of the Plan for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders who retain their Savings Accounts in
the Savings Bank. In addition, the Holding Company will issue rights (the
"Subscription Rights"), without charge, to purchase at the uniform price of
$__________ per share (the "Purchase Price"), shares of Holding Company Common
Stock (the "Conversion Stock") in a subscription offering (the "Subscription
Offering"). The Subscription Rights will be nontransferable, non-negotiable,
personal rights to purchase at the Purchase Price shares of Conversion Stock
offered for sale in the Subscription Offering, and will be issued to Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans of the Savings Bank
or the Holding Company and Supplemental Eligible Account Holders in the
priorities established for the purchase of Conversion Stock in the Plan.
<PAGE>
Board of Directors
Pennsylvania Savings Bank
__________, 1998
Page 4
This opinion is being furnished pursuant to Section IV.G. of the Plan.
All capitalized terms herein have the meanings assigned to them in the Plan,
except as otherwise specified herein.
In connection with our opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Plan, the exhibits thereto, including the Articles and Plan of Merger for
the MHC Merger and the Articles and Plan of Reorganization for the Savings Bank
Merger, and such other documents as we have deemed necessary or appropriate for
the opinions set forth below. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies, and the authenticity of such latter
documents. As to any facts material to this opinion which we did not
independently establish or verify, we have relied upon the foregoing documents
and upon statements and representations of officers and other representatives of
the MHC and the Savings Bank annexed hereto. The opinions expressed herein are
conditioned on the initial and continuing accuracy of the facts, information,
and representations contained in the aforesaid documents or otherwise referred
to above.
<PAGE>
Board of Directors
Pennsylvania Savings Bank
__________, 1998
Page 5
In preparing our opinion, we have considered applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service, private letter rulings issued by the Internal Revenue
Service to other taxpayers in comparable transactions (which may not be used or
cited as precedent), the Pennsylvania Tax Reform Code of 1971, as amended, and
such other authorities as we have deemed relevant.
Based solely upon the foregoing and upon the assumptions set forth
herein, and subject to the qualifications and caveats set forth herein, we are
of the opinion that, under present law, for federal income tax purposes:
(1) The conversion of the MHC from a mutual holding company to a
state-chartered interim stock savings bank (Interim A) and its simultaneous
merger with and into the Savings Bank, with the Savings Bank as the surviving
entity, will qualify as one or more reorganizations within the meaning of
Section 368(a) of the Code;
<PAGE>
Board of Directors
Pennsylvania Savings Bank
__________, 1998
Page 6
(2) No gain or loss will be recognized by the Savings Bank upon the
receipt of the assets of the MHC in the MHC Merger;
(3) The merger of Interim B with and into the Savings Bank, with the
Savings Bank as the surviving entity, will qualify as a reorganization within
the meaning of Section 368(a)(1)(A) and (a)(2)(E) of the Code;
(4) No gain or loss will be recognized by Interim B upon the transfer
of its assets to the Savings Bank in the Savings Bank Merger;
(5) No gain or loss will be recognized by the Savings Bank upon the
receipt of the assets of Interim B in the Savings Bank Merger;
(6) No gain or loss will be recognized by the Holding Company upon the
receipt of Savings Bank Common Stock from the Public Shareholders solely in
exchange for Holding Company Common Stock in the Savings Bank Merger;
(7) No gain or loss will be recognized by the Public Shareholders upon
the receipt of Holding Company Common Stock (including any fractional share
interests) from the Holding Company solely in exchange for Savings Bank Common
Stock in the Savings Bank Merger;
<PAGE>
Board of Directors
Pennsylvania Savings Bank
__________, 1998
Page 7
(8) The basis of the Holding Company Common Stock (including any
fractional share interests) to be received by the Public Shareholders in the
Savings Bank Merger (the "Exchange Shares") will be the same as the basis of the
Savings Bank Common Stock surrendered in exchange therefor (the "Public Savings
Bank Shares"), before giving effect to any payment of cash in lieu of fractional
Exchange Shares;
(9) The holding period of the Exchange Shares to be received by the
Public Shareholders will include the holding period of the Public Savings Bank
Shares surrendered in exchange therefor, provided the Public Savings Bank Shares
were held as a capital asset on the date of the exchange;
(10) No gain or loss will be recognized by the Holding Company upon the
sale of shares of Conversion Stock in the Offerings;
(11) The Eligible Account Holders and Supplemental Eligible Account
Holders will recognize gain, if any, upon the issuance to them on consummation
of the Conversion and Reorganization of withdrawable savings accounts in the
Savings Bank, ratable interests in the liquidation account to be established by
the Savings Bank and Subscription Rights to purchase Conversion Stock, but only
to the extent of the value, if any, of the Subscription Rights; and
<PAGE>
Board of Directors
Pennsylvania Savings Bank
__________, 1998
Page 8
(12) The basis to the holders of Conversion Stock purchased in the
Offerings will be the amount paid therefor, plus, in the case of shares
purchased in the Subscription Offering, the basis, if any, of the Subscription
Rights exercised by the holder to acquire such shares, and the holding period
for the Conversion Stock will begin on the date of purchase for shares acquired
pursuant to the exercise of Subscription Rights in the Subscription Offering, or
on the day following the date of purchase for shares acquired in the Direct
Community Offering or the Syndicated Community Offering.
We are also of the opinion that, for Pennsylvania tax purposes: (a) the
Savings Bank will not recognize any net income or net loss for purposes of the
Mutual Thrift Institutions Tax solely as a result of the Conversion and the
Reorganization, provided the Savings Bank does not recognize any net income or
net loss under generally accepted accounting principles, applied as required by
the law imposing such tax; and (b) the Eligible Account Holders, Supplemental
Eligible Account Holders, and the Holding Company will not recognize any gain or
loss for Pennsylvania income tax purposes, solely as a result of consummation of
the transactions constituting the Conversion and the Reorganization, provided
that the Eligible Account Holders, Supplemental Eligible Account Holders and the
Holding Company do not recognize any gain or loss for federal income tax
purposes solely as a result of such transactions. Nevertheless, it is likely
that the Eligible Account Holders and Supplemental Eligible Account Holders will
recognize gain for Pennsylvania income tax purposes upon the receipt of
Subscription Rights to the same extent, if any, that such account holders are
required to recognize gain upon the receipt of Subscription Rights for federal
income tax purposes.
<PAGE>
Board of Directors
Pennsylvania Savings Bank
__________, 1998
Page 9
We call to your attention that, notwithstanding our opinions concerning
the tax effects of the Conversion and the Reorganization: (a) the Savings Bank
could be required to recognize gain in connection with the distribution of
Subscription Rights if and to the extent, if any, that the Subscription Rights
are determined to have any ascertainable value; and (b) any payments of cash in
lieu of fractional share interests of Holding Company Common Stock in the
Savings Bank Merger will be treated as if the fractional share interests were
distributed as part of such merger and then redeemed by the Holding Company.
Such cash payments will be treated as having been received as distributions in
full payment in exchange for the fractional share interests redeemed, as
provided in Section 302(a) of the Code.
We also call to your attention the fact that certain portions of this
opinion relating to the treatment of Savings Bank shareholders may not be
applicable to persons who received their Savings Bank stock pursuant to the
exercise of employee stock options or otherwise as compensation, or to foreign
persons or persons who, because of their circumstances or status, are subject to
special federal or Pennsylvania income tax treatment.
<PAGE>
Board of Directors
Pennsylvania Savings Bank
__________, 1998
Page 10
Except as set forth above, we express no other opinion as to the tax
consequences of the transactions constituting the Conversion, the Reorganization
or the Offerings to any party under federal, state, local or foreign laws.
Sincerely,
STEVENS & LEE
JP/jbh
<PAGE>
AMENDED AND RESTATED
DEFINED BENEFIT PENSION PLAN AND TRUST BY AND BETWEEN:
PENNSYLVANIA SAVINGS BANK
AND
VINCENT J. FUMO, TRUSTEE
AND
ANTHONY DI SANDRO, TRUSTEE
<PAGE>
INDEX
ARTICLE ONE
Purpose, Creation and Name ................................. I-1
ARTICLE TWO
Definitions of Terms ....................................... II-1
ARTICLE THREE
Eligibility ................................................ III-1
ARTICLE FOUR
Retirement Benefits ........................................ IV-1
ARTICLE FIVE
Contributions .............................................. V-1
ARTICLE SIX
Insurance Benefits and Charge of Benefits .................. VI-1
ARTICLE SEVEN
Commencement of Retirement Benefits ........................ VII-1
ARTICLE EIGHT
Disability Benefits ........................................ VIII-1
ARTICLE NINE
Death Benefits ............................................. IX-1
ARTICLE TEN
Nonforfeitable Benefits .................................... X-1
ARTICLE ELEVEN
Payment of Benefits ........................................ XI-1
ARTICLE TWELVE
Right to Alter, Amend or Terminate Trust ................... XII-1
ARTICLE THIRTEEN
Loans ...................................................... XIII-1
ARTICLE FOURTEEN
Trustee .................................................... XIV-1
<PAGE>
ARTICLE FIFTEEN
Insurer .................................................. XV-1
ARTICLE SIXTEEN
Spendthrift Clause ....................................... XVI-1
ARTICLE SEVENTEEN
No Reversion to Company .................................. XVII-1
ARTICLE EIGHTEEN
Direct Transfer and Rollovers ............................ XVIII-1
ARTICLE NINETEEN
Determination of Top-Heavy Status ........................ XIX-1
ARTICLE TWENTY
Miscellaneous Provisions .................................. XX-1
<PAGE>
ARTICLE ONE
PURPOSE, CREATION AND NAME
1.1 WHEREAS, the Employer heretofore established a Defined Benefit Pension
Plan and Trust effective May 7, 1963, (hereinafter called the "Original
Effective Date") known as the Pennsylvania Savings Association Pension Plan and
Trust and which plan shall hereinafter be known as Pennsylvania Savings Bank
Pension Plan and Trust (herein referred to as the "Plan") in recognition of the
contribution made to its successful operation by its employees and for the
exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Plan and Trust, the Employer has the
ability to amend the Plan and Trust;
NOW, THEREFORE, effective January 1, 1990 except as otherwise provided, the
Employer and the Trustee in accordance with the provisions of the Plan
pertaining to amendments thereof, hereby amend the Plan and Trust in its
entirety and restate the Plan and Trust;
The provisions of this Plan shall apply only to an Employee who terminates
employment on or after the effective date of this amendment and restatement. The
rights and benefits, if any, of a former employee shall be determined in
accordance with the prior provisions of the Plan in effect on the date his
employment terminated;
1.2 THIS AGREEMENT, hereby made and entered into this 15th day of November,
1990, by and between PENNSYLVANIA SAVINGS BANK (herein referred to as the
"Employer") and VINCENT J. FUMO and ANTHONY DI SANDRO (herein referred to as the
"Trustees").
I-1
<PAGE>
ARTICLE TWO
DEFINITION OF TERMS
2.1 The following words and terms as used in this Plan and Trust shall have
the meaning set forth below, unless a different meaning is clearly required by
the context.
Accrued Benefit: An amount, determined as of any specified date on or
before a Participant's Normal Retirement Age (the "calculation date"),
which is equal to the greater of the following amounts (converted to an
Actuarially Equivalent basis):
(1) His annual normal retirement benefit as computed in Paragraph 4.1,
calculated on the assumption that he continued to earn annually, until
Normal Retirement Age, Compensation at the rate of his Average Annual
Compensation on the calculation date, multiplied by a fraction, the
numerator of which is the number of Years of Participation
accumulated to such date, and the denominator of which is the total
number of Years of Participation, commencing with initial employment
and terminating with the Normal Retirement Age, but not including in
the numerator any Break in Service years, or any Participation Years
in which the Participants has less than 1,000 hours of service, except
that the denominator shall also contain years from any point of
reference to the Normal Retirement Age as if 1,000 hours had been
credited in any accrual computation period following or including such
point of reference; or
(2) The sum of (i) and (ii) below:
(i) The Cash Value of any Contract held by the Trustee on the life of
the Participant in accordance with Article Six herein.
(ii) An amount from the Fund Account equal to that which would have
been in the Fund Account for such Participant (the accrued
liability for such Participant) based on the following
assumptions:
(A) Level annual deposits (determined on the basis of the
actuarial assumption
II-1
<PAGE>
used in the definition of Actuarial Equivalence, and taking
into account the Cash Value at Normal Retirement Age of each
Contract described in (i) above, if any) made to the Fund
Account on the last day of each Plan Year from the date of
commencement of Participation to date, also including
changes in such deposits because of changes in compensation
as consistently used for valuation purposes, and because of
changes in maximum projected accrued benefits under
Paragraph 2.1(a)(1) resulting from a failure to attain 1,000
hours of service in any Participation Year.
(B) The continuation and accumulation of such level deposits to
Normal Retirement Age which (together with the Cash Value
described in (i) above, if any) would be sufficient to
provide the Participant's Normal Retirement Benefit.
(3) For any Top-Heavy Plan Year in which an eligible Participant in this
Plan, who is a Non-Key Employee, does not receive a minimum allocation
of Company contributions and forfeitures at least equal to five (5)
percent of compensation in a defined contribution plan of the Company
in which he is a Participant, his minimum accrued benefit at any point
in time shall be equal to two (2) percent of the average of his 5
highest consecutive years of compensation (excluding compensation
after the last Top-Heavy Plan Year) times his Years of Service for
benefit accrual beginning on or after January 1, 1984, and during
which the Plan was Top-Heavy, and during which he did not receive the
minimum allocation to a defined contribution plan described above, up
to a maximum of twenty (20) percent (less two (2) percent for each
Top-Heavy Plan Year during the first 10 such years during which he
received the minimum allocation to a defined contribution plan
described above). Compensation for purposes of these minimum
allocations or benefits shall be compensation as defined in Article
Four with respect to computing limits on maximum contributions or
benefits.
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<PAGE>
Actuarial Equivalence: Equality in value as determined by the
Plan Administrator on the basis of the following actuarial
assumptions:
(1) Pre-Retirement:
(a) Interest: 6.0 percent per annum
(b) Mortality: None
(c) Turnover: None
(d) Salary Increase: None
(e) Expense Loading: None
(2) Post-Retirement: Determined in accordance with 1971 Group Annuity
Mortality Tables at 6.0 percent (3 year marital setback)
The Actuarial Equivalent of the Accrued Benefit of any Participant on
or after the later of the effective or adoption date of any change in
these assumptions shall be the greater of:
(1) the Actuarial Equivalent of the Accrued Benefit as of the date of
change, computed on the basis of the assumptions in effect prior
to the date of change; or
(2) the Actuarial Equivalent of the total Accrued Benefit, computed
on the basis of the change in effect after the assumptions.
Such assumptions shall serve to determine annuity benefits under
the Plan, except that the Trustee is authorized to purchase
annuity contracts from Insurer to pay benefits, if payments have
not commenced to Plan Participants, provided such Contracts
provide benefits no less than what would be provided on an
actuarially equivalent basis, and that the purchase price for
such Contracts is equal to the amount payable as a lump sum
distribution on an actuarially equivalent basis.
(c) Affiliated Employer: the Employer and any corporation which is a
member of a controlled group of corporations (as defined in Section
414(b) of the Code) which includes the Employer; any trade or business
(whether or not incorporated) which is under common control (ad
defined in Section 414(c) of the Code) with the Employer; any
organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Section 414(m) of the
II-3
<PAGE>
Code) which includes the Employer; and any other entity required to be
aggregated with the Employer pursuant to regulations under Section
414(o) of the Code.
(d) Age: A person's age at his last birthday.
(e) Agreement: This instrument with all amendments and supplements
thereto.
(f) Annual Addition: Means the amount allocated to a Participant's account
during the Limitation year that constitutes:
(i) Employer contributions,
(ii) Employee contributions,
(iii) Forfeitures, and
(iv) Amounts described in Sections 415(1) (1) and 419(A) (d) (2) of
the Code.
(g) Average Annual Compensation: The total Compensation received by the
Employee from the Company during the period he was in active
Participation in the Plan and during his most highly paid five (5)
consecutive Years of Participation divided by five (5).
For purposes of benefit accrual, all compensation credited to an
Employee during a Participation Year in which he was an active
Participant shall be counted, even if his actual commencement of
Participation is later than the first day of the Participation Year.
Average Annual Compensation shall not include any compensation
credited to an Employee following his Normal Retirement Date or during
the Plan Year in which he terminates service.
(h) Beneficiary: The person or persons to whom the share of a deceased
Participant's benefit is payable, as provided in the Plan. For
purposes of determining whether the Plan is a Top-Heavy Plan, a
Beneficiary of a deceased Participant shall be considered a Key
Employee or a Non-Key Employee, as the case may be.
(i) Benefit Formula: 1.7 Percent of Average Annual Compensation times
Years of Service not to exceed 30 years, plus .75 Percent of monthly
compensation in excess of the 1989 Covered Compensation Table I, times
Years of Service not to exceed 30.
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<PAGE>
(j) Break in Service: For the purposes of eligibility, any Eligibility
Computation Period in which an Employee has no more than 500 hours of
service. For purposes of vesting, any Vesting Computation Period in
which an Employee has no more than 500 hours of service. For purposes
of benefit accrual, any Year of Participation in which an Employee has
no more than 500 hours of service.
(k) Cash Value: A Cash Value of a Contract.
(1) Code: the Internal Revenue Code of 1986 and amendments thereto.
(m) Company: Pennsylvania Savings Bank
(n) Compensation: Compensation actually paid to or for the benefit of an
Employee during the Plan Year, inclusive of overtime pay, commissions,
but excluding bonuses, except that in the event Company is an accrual
basis taxpayer, Company may by written resolution elect to use accrued
compensation in lieu of paid compensation. Compensation shall be such
remuneration that is subject to tax under Section 3101(a) of the
Internal Revenue Code, without the dollar limitation of Section
3121(a). However, Compensation for any Self-Employed Individual shall
be equal to his earned income; that is, the net earnings from
self-employment as defined in Code Section 401(c)(2), (reduced by
Company's deductible contribution made on behalf of such individual
for such year). Effective for Plan Years beginning after 12/31/88 this
Plan shall not take into consideration a participant's Compensation to
the extent it exceeds $200,000, as indexed under Code Section 415(d).
In applying this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of
Code Section 414(q) (6) because such Participant is either a "five
percent owner" of the Employer or one of the ten (10) Highly
Compensated Employees paid the greatest "415 Compensation" during the
year, shall be treated as a single Participant, except that for this
purpose Family Members shall include only the affected participant's
spouse and any lineal descendants who have not attained age nineteen
(19) before the close of the year.
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<PAGE>
Notwithstanding the above, for any Top-Heavy Plan Year, Compensation
in excess of $200,000 (or such other amount as the Secretary of the
Treasury may designate) shall be disregarded, except for purposes of
determining maximum permissible voluntary contributions and the Annual
Additions resulting therefrom, and for purposes of satisfying the
minimum contribution or benefit provisions regarding Top-Heavy
Plans, compensation is determined in accordance with the definition of
Compensation contained in Article IV with respect to limits on maximum
contributions or benefits.
(o) Contract: Any individual or group annuity policy or life insurance
policy for and/or on any Plan Participant, or any unallocated
investment contract issued by an insurer.
(p) Current Accrued Benefit: a Participant's accrued benefit under the
plan, determined as if the Participant had separated from service as
of the close of the last Limitation Year beginning before August 28,
1987, when expressed as an annual benefit within the meaning of
Section 415(b) (2) of the Code. In determining the amount of a
Participant's Current Accrued Benefit, the following shall be
disregarded:
(q) Defined Benefit Dollar Limitation: the limitation set forth in Section
415(b) (1) of the Code.
(r) Defined Contribution Dollar Limitation: $30,000 or, if greater,
one-fourth of the Defined Benefit Dollar Limitation in effect for the
Limitation Year.
(s) Defined Benefit Plan Fraction: A fraction the numerator of which is
the projected annual benefit of the Participant under all qualified
defined benefit plans of Company (determined as of the close of the
Limitation Year), and the denominator of which is the greater of the
product of 1.25 multiplied by the protected current accrued benefit or
the lesser of:
(1) the product of 1.25 multiplied by the dollar limitation in effect
for defined benefit plans under Internal Revenue Code Section
415(b) (1) (A) for such limitation year, or
(2) the product of 1.4 multiplied by the amount which may be taken
into account under Internal Revenue Code Section 415(b) (1) (B)
with respect
II-6
<PAGE>
to such Participant under the Plan for such limitation year.
For purposes of applying the limitations of Codes Section 415, the
"projected annual benefit" for any participant is the benefit, payable
annually, under the terms of the Plan determined pursuant to
Regulations 1.415-7(b) (3).
For purposes of applying the limitations of Code Section 415,
"protected current accrued benefit" for any Participant in a defined
benefit plan in existence on July 1, 1982, shall be the accrued
benefit, payable annually, provided for under question T-3 of the
Internal Revenue Service Notice 83-10.
Notwithstanding the foregoing, for any Top-Heavy Plan Year, 1.0 shall
be substituted for 1.25 above, if any Non-Key Employee Participant
eligible for an accrual of benefits does not have either an allocation
of Company contributions or forfeitures to a defined contribution plan
of at least 7.5 percent of Compensation for such year, or an accrued
benefit in a defined benefit plan in which he participates of not less
than the 3% minimum benefit as provided in Internal Revenue Code
Section 416(h) (2) (A) (ii) (I) (but not both). However, for any Plan
Year in which this Plan is a Super Top-Heavy Plan, 1.0 shall be
substituted for 1.25 in any event.
(q) Defined Contribution Plan Fraction: A fraction the numerator of which
is the sum of the Annual Additions to the Participant's account(s)
under all qualified defined contribution plans of Company, including
voluntary contribution accounts, as of the close of the Limitation
Year, and the denominator of which is the sum of the lesser of the
following amounts determined for such year and for each prior Year of
Service with the Company:
(1) Such amount as is determined by multiplying 1.25 by the dollar
limitation in effect for the defined contribution plans under
Internal Revenue Code Subsection 415(c) (1) (A) for such year
(determined without regard to Section 415(c) (6) of the Code), or
(2) The product of 1.4 multiplied by the amount which may be taken
into account under Code Section 415(c) (1) (B) for such
Limitation Year.
II-7
<PAGE>
Notwithstanding the foregoing, the numerator of the defined
contribution plan fraction shall be adjusted pursuant to Regulation
1.415-7(d) (1) and question T-6 and T-7 of Internal Revenue Service
Notice 83-10.
Notwithstanding the foregoing, for any Top-Heavy Plan Year, 1.0 shall
be substituted for 1.25 above, if any Non-Key Employee Participant
eligible for any accrual of benefits does not have either an
allocation of Company contributions and forfeitures of at least 7.5
percent of Compensation for such year, or an accrued benefit in a
defined benefit plan in which he participates of not less than the 3%
minimum benefit as provided in Code Section 416(h)(2)(A)(ii)(I) (but
not both). However, for any Plan Year in which this Plan is a Super
Top-Heavy Plan, 1.0 shall be substituted for 1.25 in any event.
(u) Determination Date: For purposes of determining if the Plan is
Top-Heavy, the last day of the preceding Plan Year, or in the case of
the first Plan Year, the last day of such Plan Year.
(v) Early Retirement Date: Attainment of age 55 with five Years of
Service.
(w) Effective Date of this Plan: First day of the Plan Year beginning
January 1, 1990.
(x) Eligibility Computation Period: The consecutive 12 month period
beginning on the date on which the Employee commenced employment, and
successive consecutive 12 month periods thereafter. If an Employee
incurs a Break in Service, and subsequently is credited with
additional hours of service, his Eligibility Computation Period shall
be the consecutive 12 month period beginning with the date on which he
is first credited with an hour of service after the Break in Service,
and successive consecutive 12 month periods thereafter.
(y) Employee: employees of the Employer and shall include leased employees
within the meaning of Section 414 (n) (2) of the Code. Notwithstanding
the foregoing, if such leased employees constitute less than twenty
percent of the Employer's nonhighly compensated work force within the
meaning of Section 414(n) (1) (C) (ii) of the Code, the term
"Employee" shall not include those leased employees covered by a plan
described in Section 414(n)(5) of the Code
II-8
<PAGE>
unless otherwise provided by the terms of the plan other than this
amendment.
(z) Employer: The Company and any corporation which is a member of a
controlled group of corporations (as defined in Section 414(b) of the
Code) which includes the Company; any trade or business (whether or
not incorporated) which is under common control (as defined in Section
414(c) of the Code) with the Company; any organization (whether or not
incorporated) which is a member of an affiliated service group (as
defined in Section 414(m) of the Code) which includes the Company; and
any other entity required to be aggregated with the Company pursuant
to regulations under Section 414(o) of the Code.
(aa) Family Member: With respect to an affected Participant, such
Participant's spouse, such participant's lineal descendants and
ascendants and their spouses, all as described in Code Section 414(q)
(6) (B).
(bb) Section 414(q) (6) (B) of the Code(u) Fund Account: The amount of
assets which, together with any Cash Values of any Contracts on the
Participant's life, shall be sufficient to provide a fully funded
Accrued Benefit, as defined in 2.1(a) (i) above, at the Normal
Retirement Date.
(cc) Highly Compensated Employee: An Employee who performed services for
the Employer during the "determination year" and is one or more of the
following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" of the Employer.
"Five percent owner" means any person who owns (or is considered
as owning within the meaning of Code Section 318) more than five
percent of the outstanding stock of the Employer or stock
possessing more than five percent of the total combined voting
power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than five
percent of the capital or profits interest in the Employer. In
determining percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections
II-9
<PAGE>
414(b), (c), (m) and (o) shall be treated as separate employers.
The "look-back year" shall be the calendar year ending with or within
the Plan Year for which testing is being performed, and the
"determination year" (if applicable) shall be the period of time, if
any, which extends beyond the "look-back year" and ends on the last
day of the Plan Year for which testing is being performed (the "lag
period"). If the "lag period" is less than twelve months long, the
dollar threshold amounts specified in (b), (c) and (d) above shall be
prorated based upon the number of months in the "lag period".
For purposes of this Section, the determination of "415 Compensation"
shall be made without regard to Code Sections 125, 402(a) (8), 402(h)
(1) (B) and, in the case of Employer contributions made pursuant to a
salary reduction agreement, without regard to Code Section 403(b).
Additionally, the dollar threshold amounts specified in (b) and (c)
above shall be adjusted at such time and in such manner as is provided
in Regulations. In the case of such an adjustment, the dollar limits
which shall be applied are those for the calendar year in which the
"determination year" or "look-back year" begins.
(dd) Highly Compensated Former Employee: A former Employee who had a
separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the
foregoing, any Employee who separated from service prior to 1987 will
be treated as a Highly Compensated Former Employee only if during the
separation year (or year preceding the separation year) or any year
after the Employee attains 55 (or the last year ending before the
Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner". For
purposes of this Section, "determination year", "415 Compensation" and
"five percent owner" shall be determined in accordance with Section
2.1 (hh). Highly Compensated Former Employees shall be treated as
Highly Compensated Employees.
(ee) Highly Compensated Participant: Any Highly Compensated Employee who is
eligible to participate in the Plan.
II-10
<PAGE>
(ff) Insurance Purchase Direction: The Company hereby directs Trustee to
purchase insurance as follows, pursuant to Paragraph 6.4: No insurance
shall be purchased.
(gg) Insurer: Any legal reserve life insurance company.
(hh) Key-Employee: Any Employee or former Employee (and his Beneficiary)
who, at any time during the Plan Year or any of the preceding four
Plan Years, is:
(a) An Officer. An Officer is an officer in fact and who earns for the
Compensation period in excess of one and one-half (1-1/2) times or
150% of the Code Section 415 dollar limit for defined contribution
plans. The number of Officers is limited to a maximum of the lesser
of:
(i) 50 Employees or,
(ii) the greater of 3 Employees or 10% of all Employees
If no one in the Company has Compensation in excess of 1-1/2 times or
150% of the defined contribution dollar limit, then the one officer
with the highest Compensation is considered a Key Employee.
(b) A Shareholder. A Shareholder is any Employee who:
(i) owns more than 5% interest in any entity comprising the
Employer or,
(ii) is one of 10 Employees who own more than 1/2% interest in
any entity comprising the Employer and who also own the largest
interests in these entities and who have Compensation for the
Compensation period in excess of the Code Section 415 dollar
limit for defined contribution plans. This category shall include
no more than ten (10) Employees. If two Employees own equal
interests in the Employer, then the Employee who earns more
Compensation than the other will be considered as owning the
greater interest. This determination is made based on ownership
during the Plan Year including the Determination Date and the
preceding 4 Plan years, in accordance with Regulations
promulgated under Code Section 416.
II-11
<PAGE>
(iii) owns 1% or more interest in the Employer and earns
Compensation from the Employer in excess of $150,000 during the
Compensation period.
(c) A Beneficiary of a Key Employee is a Key Employee.
The determination of who is a Key Employee will be made in accordance
with Code Section 416(i) (1) and the Regulations thereunder. Ownership
shall be determined under the attribution rules prescribed in Code
Section 318. Non-Key Employees are Employees who are not Key
Employees. Compensation means compensation as defined in Code Section
415(c) (3), but including amounts contributed by the Company pursuant
to a salary reduction agreement which are excludable from the
Employee's gross income under Code Section 125, 402(a) (8), 402(h) or
403(b).
(ii) Leased Employee: Any person who is not an employee of the Company and
who has, for a period of 1 or more years, and on a substantially
full-time basis, provided services to the Company of a type
historically performed by Employees of the Company, which services are
or have been provided pursuant to an agreement between the Company and
a leasing organization. For any Plan Year, any Leased Employee shall
be treated as an Employee of the Company for purposes of the
participation standards of Article 3, the benefit standards of Article
4, the contribution standards of Article 5 and the vesting standards
of Article 10 unless such Leased Employee is, for such Plan Year or
any portion thereof during which such Leased Employee provides
services for the Company, a participant in a Safe Harbor Plan provided
for such Leased Employee by the leasing organization leasing the
services of such Leased Employee to the Company. For purposes of the
foregoing sentence, a Leased Employee shall not be treated as an
Employee of the Company until after the close of the aforementioned
1-year period during which such individual has provided substantially
full-time services to the Company, except that Years of Service for
the Company shall be determined by taking into account the entire
period for which the individual performed services for the Company.
II-12
<PAGE>
(jj) Length of Service Required:
(1) On the Effective Date of this Plan: 1 Year
(2) After the Effective Date of this Plan: 1 Year
(kk) Limitation Year: Any period of one year ending on the last day of the
Plan Year. If the Plan Year is changed, the limitation year shall
correspond to the new Plan Year, beginning with the first full twelve
month Plan Year subsequent to the commencement of change in Plan Year.
In the event the Limitation Year is or has been changed, by reason of
change in the Plan Year or otherwise, the limitations of Paragraph 4.3
shall be applicable in the normal manner, as if no change had occurred
with respect to the new Limitation Year, but with respect to the
Limitation Year within which the change is made (the former Limitation
Year), the following rule shall apply: the dollar limit for Annual
Additions shall be prorated for allocations made from the first day of
the former Limitation Year through the day before the first day of the
new Limitation Year (the limitation period), by multiplying (1) the
applicable dollar limitation for the calendar year in which the
limitation period ends by (2) a fraction, the numerator of which is
the number of months (including any fractional parts of a month) in
the limitation period, and the denominator of which is 12.
(11) Maternity or Paternity Leave of Absence: For Plan Years beginning
after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement
of a child with the Employee in connection with the adoption of such
child, or any absence for the purpose of caring for such child for a
period immediately following such birth or placement.
(mm) Maximum Participation Age Required: None
(nn) Minimum Participation Age Required:
(1) On the Effective Date of the Plan: 21
(2) After the Effective Date of the Plan: 21
(oo) Named Fiduciary: President of the Company, except that if the Company
is an unincorporated business, the proprietor of the Company, if a
sole-
II-13
<PAGE>
proprietorship, or the partner designated in the summary plan
description for the Plan for purposes of service of legal process.
(pp) Non-Highly Compensated Employee: shall mean an Employee of the
Employer who is neither a Highly Compensated Employee nor a Family
Member.
(qq) Non-Key Employee: Any Employee who is not a Key-Employee.
(rr) Normal Form of Retirement Benefit: Qualified Joint and Survivor
Annuity
(ss) Normal Retirement Age: The earlier of
(1) the Participant's 65th birthday or the date 5 years following a
Participant's commencement of participation in the Plan,
whichever is later; or
(2) the Normal Retirement Date.
(tt) Normal Retirement Date: The first day of the month coincident with or
following the Participant's 65th birthday.
(uu) Participant: shall mean any Employee of the Employer who has met the
eligibility and participation requirements of the plan.
(vv) Participation Date: The first day of the first Plan Year after an
Employee completes his applicable Minimum Participation Age and Length
of Service Requirements.
(ww) Plan Administrator: Company
(xx) Plan Year: Any period of one year ending December 31st. There will be
a short plan year October 1, 1989 through December 31, 1989.
Thereafter, the Plan Year shall be the one year period commencing
January 1st. and ending December 31st.
(yy) Safe Harbor Plan: A money purchase pension plan with a nonintegrated
employer contribution rate of at least 7 1/2 percent of Compensation
and providing for immediate participation and full and immediate
vesting.
II-14
<PAGE>
(zz) Service for Predecessor Employer: In any case in which the Company
maintains a plan of a predecessor employer, service for such
predecessor shall be treated as service for the Company, and in any
case in which the Company maintains a plan which is not the plan
maintained by a predecessor employer, service for such predecessor
shall (as provided in Internal Revenue Code Section 414(a) (2)), to
the extent required in regulations prescribed by the Secretary of the
treasury or his delegate, be treated as service for the Company.
(A) Shareholder-Employee: If the Company is an S Corporation, an Employee
of the Company who either individually or together with his spouse,
children, grandchildren and parents, owns more than 5% of the
Company's outstanding stock on any day during the Plan Year.
(B) Social Security Retirement Age: the age used as the retirement age for
the participant under Section 216(1) of the Social Security Act,
except that such section shall be applied without regard to the age
increase factor, and as if the early retirement age under Section
216(1) (2) of such Act were 62.
(C) S Corporation: An electing small business corporation, within the
meaning of Internal Revenue Code Section 1362(a).
(D) Super Top-Heavy Plan: A Top-Heavy Plan under which the present value
of accrued benefits or the sum of account balances (including accounts
for Employee contributions) of Key-Employees, under this Plan and any
plan of an Aggregation Group, exceeds 90 percent of the present value
of accrued benefits or the sum of the account balances (including
accounts for Employee contributions) of all Participants, under this
Plan and any plan of an Aggregation Group, measured as of the
Determination Date.
Maximum Taxable Wage Earnings which may be considered wages for such year under
Code Section 3121(a)(1).
(F) Top-Heavy Plan: For Plan Years commencing after December 31, 1983, a
Plan under which the present value of accrued benefits of
Key-Employees, or the sum of the account balances (including accounts
for Employee contributions) of Key-Employees under this Plan and any
plan of an Aggregation Group, exceeds 60
II-15
<PAGE>
percent of the present value of accrued benefits or the sum of the
account balances (including accounts for Employee contributions) of
all Participants, under this Plan and any plan of an Aggregate Group,
measured as of the Determination Date.
If any Participant is a Non-Key Employee for any Plan Year, but such
Participant was a Key Employee for any prior Plan Year, such
Participant's present value of accrued benefit and/or account balances
shall not be taken into account for purposes of determining whether
this Plan is a Top Heavy Plan (or whether any Aggregation Group which
includes this Plan is a Top-Heavy Group).
(G) Top-Heavy Plan Year: A particular Plan Year commencing after December
31, 1983, in which the Plan is a Top-Heavy Plan.
(H) Top Paid Group: "Top Paid Group" means the top 20 percent of Employees
who performed services for the Employer during the applicable year,
ranked according to the amount of "415 Compensation" received from the
Employer during such year. All Affiliated Employers shall be taken
into account as a single employer, and leased employees within the
meaning of Code Sections 414(n) (2) and 414(o) (2) shall be considered
Employees unless such leased employees are covered by a plan described
in Code Section 414(n) (5) and are not covered in any qualified plan
maintained by the Employer. For the purpose of determining the number
of active Employees in any year, the following Employees shall be
excluded. However, such Employees shall still be considered for the
purpose of identifying the particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during
a year;
(d) Employees who have not yet attained age 21; and
II-16
<PAGE>
(e) Employees who are non-resident aliens and who received no
earned income (within the meaning of Code Section 911(d)
(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a) (3).
In addition, if 90 percent or more of the Employees of the Employer
are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and
the Employer, and the Plan covers only Employees who are not covered
under such agreements, then Employees covered by such agreements shall
be excluded from both the total number of active Employees as well as
from the identification of particular Employees in the Top Paid Group.
(I) Trust Situs: State of Pennsylvania
(J) Trustee: The Trustee or Trustees named above and any successor Trustee
or Trustees.
(K) Vesting Computation Period: The consecutive 12 month period beginning
on the first day of the Plan Year.
If the Vesting Computation Period is or has been changed, by reason of
a change in the Plan Year or otherwise, the first Vesting Computation
Period after such change shall begin before the last day of the
preceding Vesting Computation Period, and an Employee who is credited
with a Year of Service in both the last Vesting Computation Period
before the change and the first Vesting Computation Period after the
change shall be credited with 2 Years of Service for purposes of
vesting.
(L) Year of Participation: The consecutive 12 month period beginning on
the first day of the Plan Year, but including only those Plan Years
beginning with the Plan Year within which the Employee commenced
Participation. A Year of Participation shall be the accrual
computation period. If the accrual computation period is or has been
changed, by reason of a change in the Plan Year or otherwise, an
Employee will be credited with 1,000 hours of service for purposes of
benefit accrual in the Year of Participation after the last day of the
last consecutive 12 month accrual computation period before the
change, if any, and before the first day of the first accrual
computation period after the
II-17
<PAGE>
change, if the actual number of hours of service credited to the
Employee in that Year of Participation is equal to or greater than the
product of 1,000 multiplied by a fraction, the numerator of which is
the number of months in that Year of Participation, and the
denominator of which is 12.
(H) Year of Service: For purposes of vesting, any Vesting Computation
Period in which an Employee has not less than 1,000 hours of service.
If the Length of Service required under the Plan is or includes a
fractional year, an Employee shall not be required to have any minimum
number of hours to receive credit for such fractional year for
purposes of eligibility. For purposes of benefit accrual, any accrual
computation period in which an Employee has not less than 1,000 hours
of service.
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ARTICLE THREE
ELIGIBILITY
3.1 All Employees in the employ of the Company on the Effective Date of
this Plan shall participate as of the Effective Date of this Plan, provided that
on such date they have met the Minimum Participation Age and Length of Service
requirements applicable to such Employees, and provided further, that on the
date on which they commenced employment with the Company, they had not attained
the Maximum Participation Age.
In the event that any Employee in the employ of the Company on the Effective
Date of this Plan does not meet the applicable minimum Age and Service
requirements on the Effective Date of this Plan, and is not excluded by any
Maximum Participation Age requirement, such Employee shall commence
participation on his applicable Participation Date.
For purposes of Maximum Participation Age requirements, in the determination of
the date an employee begins employment, any such time which is included in a
period of service which may be disregarded under the Break in Service rules
contained in Paragraph 3.7 shall not be taken into account.
3.2 All Employees whose employment commences after the Effective Date of
this Plan shall commence Participation on their applicable Participation Date,
provided, that on the date on which they commenced employment with the Company,
they had not attained the Maximum Participation Age.
For purposes of the Maximum Participation Age requirements, in the determination
of the date an Employee begins employment, any such time which is included in a
period of service which may be disregarded under the Break in Service rules
contained in Paragraph 3.7 shall not be taken into account.
3.3 Notwithstanding any service requirement of less than one year which may
be contained herein, no Employee who is credited with 1,000 or more hours of
service in an Eligibility Computation Period shall not be considered to have
met, at the expiration of said Eligibility Computation Period, such required
Length of Service requirement.
3.4 An Employee shall be credited with an hour of service, for purposes of
eligibility, vesting and eligibility for Benefit accrual, according to the
following:
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(a) An hour of service is each hour for which an Employee is paid, or
entitled to payment, for the performance of duties for the Company
during the applicable computation period.
(b) An hour of service is each hour for which an Employee is paid, or
entitled to payment, by the Company on account of a period of time
during which no duties are performed (irrespective of whether the
employment relationship has terminated), because of vacation, holiday,
illness, incapacity (including disability), layoff, jury duty,
military duty or leave of absence. Notwithstanding the preceding
sentence:
(1) No more than 501 hours of service are required to be credited
under this subparagraph (b) to an Employee on account of any
single continuous period during which the Employee performs no
duties (whether or not such period occurs in a single computation
period);
(2) An hour for which an Employee is directly or indirectly paid or
entitled to payment, on account of a period during which no
duties are performed, is not required to be credited to the
Employee if such payment is made or due under a plan maintained
solely for the purpose of complying with applicable workmen's
compensation, unemployment compensation or disability insurance
laws; and
(3) Hours of service are not required to be credited for a payment
which solely reimburses an Employee for medical or medically
related expenses incurred by the Employee.
For purposes of this subparagraph (b), a payment shall be deemed to be
made by or due from the Company regardless of whether such payment is
made by or due from the Company directly, or indirectly through, among
others, a trust fund, or insurer, to which the Company contributes or
pays premiums, and regardless of whether contributions made or due to
the trust fund, insurer, or other entity are for the benefit of
particular Employees or are on behalf of a group of Employees in the
aggregate.
(c) An hour of service is each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by the Company.
The same hours of service shall not be credited both under
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subparagraph (a) or subparagraph (b), as the case may be, and under
this subparagraph. Crediting of hours of service shall be subject to
the requirements set forth in that subparagraph.
Also included is the special rule for determining hours of service for
reasons other than the performance of duties, as well as the rule for
crediting of hours of service to computation periods, as set forth in
Labor Department Regulations, Sections 2530.200b-2(b) and (c),
respectively.
(d) Additional hours of service in the minimum amount necessary to prevent
a break in service shall be credited to employees for the following
absences:
(1) Authorized leave of absence, provided the Employee returns to
active employment on or before the end of such leave of absence.
Authorized leave of absence shall include illness and reserve
duty in the Armed Forces of the United States.
(2) Absence of an Employee, subsequent to the effective date, who
enters the Armed Forces of the United States, and has
reemployment rights under law, provided he complies with the
requirements of the law as to employment and reemployment.
(e) Additional Hours of Service, but not in excess of 501, based on the
number of Hours of Service which otherwise would normally have been
credited to individuals but for such absence as is described below,
(or if such number cannot be determined, 8 Hours of Service per day of
such absence), shall be credited to individuals for purposes of
eligibility and vesting, but not for purposes of benefit accrual,
(notwithstanding 3.4 above), in the Eligibility and Vesting
Computation Periods in which such absence begins, if necessary to
prevent a 1 year Break in Service in such Computation Period, but if
not so necessary, in the immediately following Eligibility and Vesting
Computation Periods, provided that the absence is on account of one or
more of the following:
(i) The pregnancy of the individual;
(ii) The birth of a child of the individual;
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(iii) The placement of a child with the individual in connection with
the adoption of such child by such individual;
(iv) Care of such child for a period beginning immediately after his
birth or placement.
However, no Hours of Service will be credited under this subparagraph
unless the individual furnishes to the Plan Administrator such timely
information as the Plan Administrator may reasonably require to
establish the number of days of absence and the reason or reasons
therefore.
3.5 Hours of service shall be counted for purposes of eligibility, vesting
and benefit accrual on the basis of actual hours for which an Employee is paid
or entitled to payment, as determined in accordance with Paragraph 3.4.
3.6 Within 90 days of the Participation Date on which an Employee shall
become eligible to participate, the Plan Administrator shall notify each such
Employee of his eligibility to participate, by providing such Employee with a
summary plan description.
3.7 In the case of an Employee who is vested in benefits deriving from
Company Contributions, and who sustains a Break in Service, such Employee shall
recommence active participation on the first day of his first Eligibility
Computation Period after the break, during which he has completed 1,000 hours of
service or more. In the case of an Employee with no such vested benefit who
sustains a Break in Service, where the number of consecutive years in which he
incurred a Break in Service is less than the greater of 5 or the aggregate
number of Years of Service, whether or not consecutive, that he completed before
such break, such Employee shall recommence active participation on the first day
of his first Eligibility Computation Period after the break, during which he has
completed 1,000 hours of service or more. In the case of an Employee with no
such vested benefit who sustains a Break in Service, where the number of
consecutive years in which he incurred a Break in Service is equal to or exceeds
the greater of 5 or the aggregate number of his Years of Service, whether or not
consecutive, that he completed before such break, such Employee shall be treated
as if he were a new Employee for purposes of eligibility to participate.
The aggregate number of Years of Service before a period of Breaks in Service
shall not include any Years of Service not required to be taken into account
under this Paragraph by
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reason of any prior Break in Service. For purposes of vesting for an Employee
who has sustained a Break in Service, the provisions of Article 10 shall apply.
For purposes of benefit accrual, the provisions of Article 11 shall apply.
Notwithstanding any provision of the Plan to the contrary, in the case of an
Employee who sustains a Break in Service under a Plan that includes a Length of
Service requirement in excess of one year, provided such Employee has not
satisfied such Length of Service requirement prior to incurring a Break in
Service, service before such Break in Service shall not be taken into account
for purposes of eligibility.
3.8 Notwithstanding any provision of this Plan to the contrary, this Plan
shall not provide contributions or benefits for an Owner-Employee who controls,
or a group of Owner-Employees who together control an unincorporated trade or
business with respect to which the Plan is established, and such
Owner-Employee, or group of Owner-Employees also control one or more
unincorporated trades or businesses, unless this Plan and the plans established
with respect to such other trades or businesses, when coalesced, constitute a
single plan which satisfies the requirements of Section 401(a) and (d) of the
Internal Revenue Code with respect to the employees of all such unincorporated
trades or businesses. Furthermore, the Plan shall not provide contributions or
benefits for one or more Owner-Employees who control one or more unincorporated
trades or businesses, unless the employees of each such unincorporated trade or
business which such Owner-Employees control are included under a plan which
satisfies the requirements of Section 401(a) and (d) of the Internal Revenue
Code, and which provides contributions or benefits for employees not less
favorable than those provided for such Owner-Employees under this Plan. For
purposes of this Paragraph 3.8, an Owner-Employee, or a group of Owner-
Employees, shall be considered to control a trade or business if such
Owner-Employee, or such group of Owner-Employees together own the entire
interest in an unincorporated trade or business, or in the case of a
partnership, own more than 50% of either the capital interest or the profits
interest in such partnerships. An Owner-Employee shall mean a sole proprietor,
or, in the case of a partnership, any person who owns more than 10% of the
capital or profits interest.
3.9 Notwithstanding any other provisions of the Plan, for purposes of
determining the number or identity of Highly Compensated Employees or for
purposes of the pension requirements of Section 414(n) (3) of the Code, the
employees of the Employer shall include individuals defined as Employees in
Section 2.1(y) of the plan.
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3.10 Participation and Accrual. A leased employee within the meaning of
Section 414(n) (2) of the Code shall become a Participant in, and accrue
benefits under, the plan based on service as a leased employee only as provided
in provisions of the plan other than this Section 3.
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ARTICLE FOUR
RETIREMENT BENEFITS
4.1 The Normal Retirement Benefit contemplated for every participant,
commencing on his Normal Retirement Date, shall be a pension for life, payable
monthly, in the Normal From of Retirement Benefit, and in an amount determined
by the Benefit Formula specified in Article 2.
4.2 The following limitations on retirement benefits shall apply:
(a) Basic Limitation: Regardless of any other provision of this Plan, no
annual benefit payable to a Participant hereunder, and under any other
qualified defined benefit plan of the Company (or of any other entity
which is a member of a controlled group of entities as defined in
Internal Revenue Code Sections 414(b), (c) or (m) or which the Company
is also a member), shall exceed the Maximum Permissible Amount, namely
the lesser of:
(i) $90,000; or
(ii) 100 percent of the Participant's annual compensation for the most
highly paid 5 consecutive Limitation Years during which he was an
Employee, divided by 5.
For purposes of applying these limitations, "Compensation" shall mean
the Participant's "wages, salaries, fees for professional services and
other amounts received for personal service actually rendered in the
course of employment with the Company, and such other amounts as are
specified by Treasury Department Regulation Section 1.415-2(d)(1).
Compensation shall exclude all items specified in Treasury Department
Regulation Section 1.415-2(d) (2), including contributions to a plan
of deferred compensation, amounts realized from qualified or
nonqualified stock options, and other amounts which receive special
Federal Income Tax benefit (such as contributions to 403(b) annuity
contracts or premiums qualifying for exclusion from income under
Section 79 of the Code)." In the case of a Self-Employed individual,
"Compensation" shall mean the Participant's "Earned Income (within the
meaning of Internal Revenue Code Section 401(c) (2), but
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determined without regard to any exclusion under Internal Revenue Code
Section 911) from the Company."
If the retirement income benefit under the Plan begins before age 62,
the determination as to whether the dollar limitation has been
satisfied shall be made by adjusting such dollar limitation to the
actuarial equivalent of a $90,000 annual benefit beginning at age 62,
but not below $75,000, if the benefit begins at or after age 55; or if
the benefit begins before age 55, the amount which is the actuarial
equivalent of the $75,000 limitation for age 55. If the retirement
income benefit under the Plan begins after age 65, the determination
as to whether the dollar limitation has been satisfied shall be made
by adjusting such dollar limitation to the actuarial equivalent of a
$90,000 annual benefit beginning at age 65.
For purposes of making any adjustments in Maximum Permissible Benefit
required by this paragraph 4.2, the interest rate to be used shall be
as specified in the definition of Actuarial Equivalence contained
herein, but no less than 5 percent when the Plan benefit is paid in a
form other than a single life annuity, or if the benefit commences
prior to age 62; but no more than 5 percent if the benefit commences
after age 65.
The dollar limitation mentioned in this Subparagraph shall be adjusted
so as to be equal to the maximum dollar limitation for defined benefit
plans prescribed by the Secretary of the Treasury or his delegate. No
such adjustment shall be taken into account before the year for which
such adjustment first takes effect. However, no such adjustment shall
affect the benefit payable to any terminated or retired vested
Participant, except to the extent required to permit payment of an
actuarially equivalent benefit, for a retirement benefit commencing
after Normal Retirement Date. The computation of such adjustment shall
be as follows in the case of a separated Participant:
The accrued benefit payable in the Normal Form of Retirement
Benefit shall be multiplied by a fraction, the numerator of which
is the dollar limitation in the Limitation Year of computation,
and the denominator of which is the dollar limitation in effect
in the Limitation Year in which the Participant
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separated from service. The result of this multiplication is the
applicable limitation, notwithstanding the 100% of computation
limit referred to above.
(b) Exemption to Basic Limitation: Notwithstanding the limitation se forth
in Subparagraph (a) above, the benefits payable with respect to a
Participant under any defined benefit plan shall be deemed not to
exceed the limitation of Subparagraph (a) if:
(1) the annual benefit payable with respect to such Participant under
such Plan and under all other defined benefit plans subject to
Subparagraph (a) above does not exceed $10,000 for the Limitation
Year, or any prior Limitation Year, and
(2) the Company has not at any time maintained a defined contribution
plan in which the Participant participated.
(c) Secondary Limitation: The limitations in both Subparagraph (a) and (b)
shall be reduced, in the case of any Employee who has less than 10
years of Service with the Company for purposes of eligibility at the
time of commencement of receipt of benefits, by multiplying the
limitations by a fraction, the numerator of which is the number of
Years (or completed months thereof) of Service with the Company, and
the denominator of which is 10. A month of service is any month in
which the Employee is credited with 83 or more hours of service.
(d) "Annual Benefit" Defined: For purposes of Subparagraph (a) above,
"annual benefit" means the benefit payable tin the form of a straight
life annuity with no ancillary benefits, or a qualified joint and
survivor annuity, if specified as the Normal Form of Retirement
Benefit. Benefits not directly related to retirement, as well as
benefits attributable to employee contributions or rollover
contributions, shall not be taken into account. If a qualified joint
and survivor annuity is the Normal Form of Retirement Benefit,
optional modes of settlement under the Plan cannot result in payments
exceeding the basic limitation of Subparagraph 4.2 computed on the
basis of a straight life annuity.
(e) Actuarial Adjustment for Alternative Forms of Benefits:
Notwithstanding any other provision of
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this Plan, if the Annual Benefit is payable under the plan to a
participant in the form other than a straight life annuity, or a
qualified joint and survivor annuity, the Maximum Permissible Amount
shall be adjusted to the equivalent of a straight life annuity
beginning at the same age. The interest rate assumption used for
determining the actuarial equivalence of such other forms of benefits
will be the greater of the rate specified in the definition of
Actuarial Equivalence contained herein, or 5 percent.
(f) In any case in which an individual is or has been a Participant in
both a defined benefit plan and a defined contribution plan maintained
by the Company (or by any other entity which is a member of a
controlled group of entities, as defined in Internal Revenue Code
Section 414(b), (c) and (in), of which the Company is a member), the
sum of the Defined Benefit Fraction and the Defined Contribution
Fraction for any Limitation Year may not exceed 1.0.
If any reductions are required in order not to exceed this fraction,
they shall be made to any defined contribution plan of the Company,
first to any profit sharing plan of the Company, and next to any money
purchase pension plan of the Company.
Such reduction shall be effected by reducing the sum of the current
Limitation Year Annual Additions to the Participant's account, so that
the defined contribution fraction does not exceed 1.0 minus the
defined benefit fraction at the end of the Limitation Year.
Provided further, that if this reduction is insufficient to reduce the
overall limit to 1.0, then the defined benefit fraction shall be
reduced to the extent necessary to bring about compliance.
(g) Restrictions on benefits for highly-paid Employees within 10 years of
Plan commencement: The following limitation shall apply to those
Employees who are among the 25 Employees most highly paid at the time
of the Plan's adoption (including Employees not participating on such
date), and whose accrued Normal Retirement Benefit exceeds $1,500
(herein referred to as the "top 25"):
(1) If, within 10 years after the date of the Plan's adoption, the
Plan is terminated, no
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benefit shall be paid to such Employee out of Company
contributions (or funds attributable thereto) in excess of such
benefits which can be provided by the greater of (A) or (B)
below:
(A) $20,000, or if greater, an amount computed as follows: 20
percent of the average of the annual compensation of the
Employee during the 5 Limitation Years preceding the date
this restriction is applied (excluding annual compensation
in excess of $50,000), multiplied by the number of years
between the date of adoption of the Plan; and the earliest
to occur of:
(i) the date of termination of the Plan;
(ii) the date the benefit of the Employee described in (g)
above becomes payable.
For purposes of determining the contributions which may be used
for the benefit of an Employee when (ii) of this Subparagraph
applies, the number of years taken into account shall be
recomputed for each year from the date of application to the date
payment is actually made.
(B) If this Plan is covered by the Pension Benefit Guaranty
Corporation ("PBGC") with respect to a substantial owner, as
defined in Section 4022(b) (5) of ERISA, a dollar amount
which equals the present value of the benefit guaranteed for
such Participant under Section 4022 of ERISA, or if the Plan
is not terminated, the present value of the benefit that
would be guaranteed if the Plan terminated on the date the
benefit commences, determined in accordance with PBGC
regulations; and with respect to all other Participants, a
dollar amount which equals the present value of the maximum
dollar benefit described in Section 4022(b) (3) (B) of ERISA
(determined on the date the Plan terminates or on the date
benefits commence, whichever is earlier, and determined in
accordance with PBGC regulations) without regard to any
other limitation in Section 4022 of ERISA.
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(2) The above limitation shall also apply, during the first 10 years
after the adoption of the Plan, to any former Employee who has
retired or otherwise terminated his service with the Company, as
well as to any Employee still employed by the Company, even if no
longer an active Participant in the Plan, as long as such
Employee was a member of the top 25.
However, notwithstanding anything to the contrary contained
herein, the restrictions on benefits for the top 25 shall not
apply to limit the amount of current retirement or disability
income benefit payments made pursuant to Paragraphs 7.1 and 8.1;
provided that at the time of each payment the Plan is in full
effect.
(3) If the Plan is amended to increase benefits substantially, these
limitations will apply in the case of an increase, as follows: in
lieu of the dollar limitation provided above, the limit shall be
the greatest of the following 4 amounts:
(i) Company contributions (for funds attributable thereto) which
would have been applied to provide the benefit for the
Employee if the previous plan had been continued without
change;
(ii) $20,000;
(iii) The sum of: (1) Company contributions (or funds
attributable thereto) which would have been applied to
provide benefits for the Employee under the previous plan if
it had been terminated the day before the effective date of
the change; and (2) an amount computed by multiplying the
number of years after that date by 20 percent of the average
of the annual compensation of the Employee during the 5
Limitation Years preceding the date this restriction is
applied (excluding compensation in excess of $50,000);
(iv) If this Plan is covered by the Pension Benefit Guaranty
Corporation ("PBGC") with respect to a substantial owner, as
defined
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in Section 4022(b) (5) of ERISA, a dollar amount which
equals the present value of the benefit guaranteed for such
Participant under Section 4022 of ERISA, or if the Plan is
not terminated, the present value of the benefit that would
be guaranteed if the Plan terminated on the date the benefit
commences, determined in accordance with PBGC regulations;
and with respect to all other Participants, a dollar amount
which equals the present value of the maximum dollar benefit
described in Section 4022(b) (3) (B) of ERISA (determined on
the date the Plan terminates or on the date benefits
commence, whichever is earlier, and determined in accordance
with PBGC regulations), without regard to any other
limitation in Section 4022 of ERISA.
(4) The term "benefit" includes: any amounts payable to a Participant
because of termination of employment, any periodic retirement or
disability payments, and any separately determined and allocable
cost of a death benefit payable after retirement. The term
"benefit" does not include the cost of any death benefit with
respect to an Employee before retirement, nor the amount of any
death benefit actually payable after the death of the Employee,
whether such death occurs before or after retirement.
(5) If the periods measured to apply these limitations include
partial years as well as full years, any partial year shall be
dropped from the computation.
(6) Any Company contributions that, in the event of early
termination, cannot be used for the benefit of the top 25 under
the above limitation, shall be equitably apportioned among the
remaining Participants; provided, that if all liabilities to
other Employees arising out of termination of the Plan have first
been satisfied, excess reserves arising from the above
limitations on benefits for the top 25 may be used in a
nondiscriminatory manner to benefit the restricted Employees.
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This Subparagraph (g) and the following Subparagraph (h) are included
in this Plan under the requirements of Treasury Regulation Section
1.401-4(c), and this limitation shall become ineffective at such time
that a Regulation Section, or any substitute thereof, is no longer
effective or applicable.
(h) Special Arrangement for Payments to Highly-Paid Employees in Certain
Cases: In the event that the benefits of any of the top 25 become
payable within the first 10 years of the Plan's starting date, the
payment in one lump sum of the entire amount to which the retired,
terminated, or disabled Participant is entitled, while the Plan is in
full effect, shall not be restricted, provided the following
conditions are met.
The Participant must enter into a written agreement with the Trustee,
binding on the Participant's estate, in which the Participant agrees
to repay to the Trust a sum equal to the Actuarial Equivalent of the
amounts by which the Participant's monthly retirement benefits herein
would have been decreased during the Participant's then remaining
lifetime pursuant to the provisions of this immediately preceding
Subparagraph, in the event the Plan is terminated within the first 10
years after establishment. The Participant must also guarantee payment
of any amount required to be repaid by the agreement, by depositing
with a depositary acceptable to the Trustee, simultaneously with the
aforementioned lump sum payment, property having a fair market value
equal to 125 percent of the amount repayable if the Plan had been
terminated on the date of payment of said entire amount in one lump
sum. Said property is to be held by the depositary until receipt of a
certification by the Trustee that the Participant (or his estate) is
no longer obligated to repay any amount under the agreement. The
Participant must further agree that if the market value of the
property held by the depositary falls below 110 percent of the amount
which would then be repayable if the Plan were then to be terminated,
he will deposit additional property necessary to bring the value of
the property held by the depositary up to the 125 percent of such
amount.
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ARTICLE FIVE
CONTRIBUTIONS
5.1 The Company shall pay over to the Trustee, no later than such time as
may be prescribed by Federal Law, the funds required to pay the initial and
renewal premiums on the Contracts issued under this Plan, and to provide the
amounts required under Paragraph 4.1, based on the actuarial method used by the
enrolled actuary of the Plan, and subject to the minimum funding requirements
prescribed by law. These payments shall be irrevocable contributions to the
Trust, except as provided under Article 17.
5.2 The Company shall pay all the costs of this Plan.
5.3 Any amounts released by the forfeiture by any Participant of all or
part of his Accrued Benefit may not be used to increase the benefits which other
Participants would otherwise receive under the Plan. They shall be used only to
reduce the Company's contributions in the current or succeeding years.
5.4 The Fund Account shall be valued at least annually.
5.5 Participants are not permitted to make any voluntary contributions
under this Plan.
5.6 The fact that a benefit shall accrue to the Participant shall not vest
in the Participant title or interest in and to any assets, except at the time or
times and upon the terms and conditions expressly set forth in the Plan.
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ARTICLE SIX
INSURANCE BENEFITS AND CHANGE OF BENEFITS
6.1 The Trustee, if directed by the Company to purchase insurance pursuant
to this Paragraph 6.1, shall within 60 days apply to the Insurer for, and
purchase on the life of each participant:
(a) If insurable at standard rates or substandard rates, an ordinary life
or term insurance contract in an amount specified by the Company, not
to exceed 100 times the projected monthly normal retirement benefit.
(b) If not insurable at standard or substandard rates, an annual premium
deferred annuity contract, in an amount that the Company shall in its
sole discretion decide, and so direct the Trustee to purchase, but in
no case less than the amount which can be purchased by the minimum
premium required by the Insurer selected by the Company.
Each Contract purchased under Paragraph 6.1 or 6.2 shall provide that the
dividend plan shall be premium reduction. Any dividend payable upon maturity of
the policy or annuity shall be payable in cash to the Trustee.
6.2 As of the first day of the current Plan Year, the Company shall
determine whether the Contract on the life of each Participant provides the
amount of insurance or annuity indicated pursuant to Subparagraph 6.1(a) or (b),
in an evaluation to determine whether the insurance can be incrementally
increased or decreased as follows. If the Contract on the life of each
Participant does not provide the amount of insurance or annuity indicated
pursuant to Subparagraph 6.1(a) or (b), the Trustee, when so directed by the
Company, shall take such action as set forth below.
(a) The Trustee, when so directed by the Company, pursuant to Subparagraph
2.1(v) above shall apply for an additional Contract on the life of
such Participant, in an amount indicated in Subparagraph 6.1(a) or
(b), in accordance with his current Compensation, but subject to any
minimum face amount requirements of the Insurer selected by the
Company.
(b) If the normal retirement benefit projected for a Participant is less
by $20.00 or more per month than
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that which was computed for the previous Plan Year on the basis of the
then existing Compensation, the Trustee, when so directed by the
Company, shall have the then existing Contracts reduced to an amount
equal to the requirements of Subparagraph 6.1(a) or (b), but no
annuity contract shall be reduced unless necessary to prevent
over-funding the Plan.
(c) If it becomes necessary to reduce or surrender an existing Contract,
the Trustee may either surrender the excess insurance coverage or
retain it as a general investment of the Fund Account. If any portion
of the value of the policies or annuities issued on the life of the
Participant shall be released, such portion shall be deposited into
the Fund Account. In addition, no Contracts shall be purchased within
five years of Normal Retirement Date, unless otherwise directed by the
Company. Provided, however, that the Participant may continue (limited
to the extent of voluntary contributions) the entire premium costs of
continuing the amount of the Contract to be reduced or surrendered, in
which case the Contract or Contracts will not be reduced or
surrendered.
(d) Participants who commence or recommence participation in the Plan on
any day other than the first day of the Plan Year will not have
insurance purchased on their behalf until after the first day of the
first Plan Year subsequent to such date of entry.
6.3 In lieu of the purchase of insurance provided for in Paragraph 6.1,
Trustee shall purchase, if directed by the Company to purchase insurance
pursuant to this Paragraph 6.3, by uniform procedure applicable to all
Participants, within 60 days of being so directed, paid-up or annual premium
life insurance, endowment, retirement income or annuity contracts for the
benefit of each Participant. The aggregate amount of the premiums paid on all
ordinary life insurance contracts purchased for the benefit of any particular
Participant shall, at all times, be less than 50 percent of the total Company
contributions for the benefit of said Participant. The aggregate amount of the
premiums paid on all term life insurance contracts purchased for the benefit of
any particular Participant shall, at all times, be less than 25 percent of the
total Company contributions for the benefit of said Participant.
If any Company contributions for the benefit of the Participant are applied to
pay premiums on both ordinary life insurance and term life insurance policies,
the total of the term life
VI-2
<PAGE>
insurance premiums and one-half of the ordinary life insurance premiums shall
be less than 25 percent of aggregate contributions. The percentage of such
Company contributions to be used to purchase insurance shall be specified by the
Company to the Trustee, and shall be non-discriminatory with regard to each
Participant, measured for all Participants either as a percentage of
contributions or as a ratio of life insurance benefits to the projected monthly
retirement benefits, subject to the limitations listed in this Paragraph.
6.4 The Company reserves the right to change its directions to Trustee
pursuant to the provisions of this Article, provided that such changes do not
result in discrimination in favor of officers, shareholders, or highly-
compensated Employees.
6.5 Each application shall designate, and each policy shall provide, that
the Trustee remain the owner of the Contract during the lifetime of the
Participant. All rights, benefits, and privileges under such Contract shall be
vested in the Trustee.
To the extent practical, and in the best interests of the Plan and its
Participants, the Trustee shall arrange that all Contracts purchased under this
Plan shall bear the same premium due date.
6.6 The Trustee shall be designated to receive the proceeds of any Contract
which becomes payable upon the death of the Participant. The Trustee may,
however, request Insurer to make any beneficiary designation as may be made by
the Participant under Paragraph 9.6 below. In such event, the Beneficiary so
designated may be revoked only upon the completion of the requirements
established by the Insurer, and under the terms of any Contracts and rules of
the Insurer.
6.7 Each Contract may be subject to the terms of an Annuity Purchase Rider,
applied for by the Trustee and issued as part of the Contract, which provides
for the purchase of additional monthly retirement benefit at the participant's
retirement.
6.8 Trustee shall convert the entire value of the life insurance Contract
at or before retirement into cash or an annuity to provide periodic income, so
that no portion of such value may be used to continue lifetime insurance
protection beyond retirement, or Trustee may distribute the contract to the
Participant.
If a Participant terminates employment prior to retirement, such conversion
shall take place no later than one year after
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<PAGE>
the date any benefits would, if forfeitable, be forfeited pursuant to Paragraph
10.1, but if a distribution is so made to such participant prior to that time,
the Trustee shall, if directed by the Plan Administrator, distribute the
contract to the participant.
in the event that the Participant is less than 100% vested in his Accrued
Benefit at the time of distribution, the Trustee may allocate the Participant's
vested interest first to the Cash Value of the Contract after determining the
total dollar value of his vested interest, with any values of his vested
interest in excess of the Cash Value of the Contract to be allocated to the
remaining portion of his Accrued Benefit.
6.9 Upon the death of a Participant, the Trustee shall take all necessary
steps and shall execute all required documents to permit the beneficiary to
collect the death benefits provided pursuant to the specified method of payment.
6.10 If an eligible Employee or Participant dies after a contribution has
been made in his behalf for a life insurance or annuity Contract, but before the
Contract is in effect, the death benefit from such Contract in such a case shall
be limited to the premiums so contributed. Neither the Plan, the Trustee, nor
any other party shall be liable to pay any additional death benefit resulting
from the failure to apply for Contracts as directed by the Company.
611 Trustee's Payments: From the funds available to them, the Trustee shall
pay to the Insurer the initial premiums in advance and renewal premiums as they
fall due. If such funds are insufficient to pay the premiums as they fall due,
the Trustee shall notify the Company of this fact within 15 days prior to the
expiration of the grace period allowed in the Contracts.
In such eventuality, the Company shall either provide the necessary funds, or
shall instruct the Trustee to:
(a) Pay an installment of the premium due, if permitted by the Insurer; or
(b) Borrow proportionately against the loan value of the Contracts to
provide the deficient funds (repayment to be made in a like
proportionate manner); or
(c) Permit the Contracts to lapse for non-payment, in which case, unless
instructed to the contrary by the Company, the Trustee shall elect the
reduced paid-up insurance nonforfeiture option in the Contracts.
VI-4
<PAGE>
ARTICLE SEVEN
COMMENCEMENT OF RETIREMENT BENEFITS
7.1 A Participant may elect to retire on his Normal Retirement Date,
whereupon his eligibility for additional benefit accruals shall cease. If a
Participant remains in the employ of the Company subsequent to his Normal
Retirement Date, he shall receive a retirement benefit commencing at his actual
retirement, in an amount that is no less than the amount he would have received
if he had retired at his Normal Retirement Date, but which shall be, if greater,
the actuarial equivalent of the Participant's share of Plan assets, determined
by segregating on the books and records of the Trust the amount required, on an
actuarially equivalent basis, to purchase his Normal Retirement Benefit, and by
investing said amount and adjusting said segregated amount for investment gains
and losses, no less frequently than on each Plan Anniversary. If the Company
consents, a participant may retire on his Early Retirement Date, whereupon his
eligibility for additional benefit accruals shall cease.
If a Participant has separated from service with a vested benefit before the
Early Retirement Date, he is entitled at that date to receive a benefit equal to
the benefit to which he would be entitled at the Early Retirement Date.
7.2 In the case of Early Retirement, the vesting schedule shall apply. In
the case of Normal Retirement, the total amount credited to an employed
Participant's account shall become 100 percent vested at the Participant's
Normal Retirement Age. If the Company makes a contribution for a Participant
subsequent to such date, such Participant shall be 100 percent vested in that
contribution and any earnings thereon. The Trustee shall distribute to a retired
Participant the value of his vested amount in accordance with the provisions of
Article 11.
7.3 In the case of Early Retirement, the benefit shall commence on the
Early Retirement Date or Normal Retirement Date, or on any intervening date, and
the amount of such Early Retirement Benefit shall be determined as follows:
(a) If the payment of benefits commences at Normal Retirement Date, the
amount of the benefit shall be the Participant's vested Accrued
Benefit, as accrued at his Early Retirement Date.
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<PAGE>
(b) If the payment of benefits commences prior to Normal Retirement Date,
the amount of the benefit shall be the actuarial equivalent of the
Participant's vested Accrued Benefit payable at Normal Retirement
Date, as accrued at his Early Retirement Date. The actuarial
equivalent shall be determined as the benefit which can be provided,
at the Participant's attained age on the date benefits commence, by
the present value at such date of the amount necessary to provide the
Participant his Vested Accrued Benefit at Normal Retirement Date.
7.4 Payments by Trustee to any Participant of such Participant's interest
hereunder shall begin on the first day of the month following the latest to
occur of
(a) Normal Retirement Age;
(b) The Plan Anniversary Date coinciding with or following termination of
service with the Company. However, in no event shall such payments
commence after April 1st of the calendar year following the calendar
year in which he attains age 70 1/2 or, in the case of a Participant
who is not a 5% owner (as defined in Subparagraph 2.1(x)), in which he
retires, whichever is the later. Distributions to 5% owners of Company
must begin no later than the April 1st of the calendar year following
the calendar year in which they attain age 70 1/2.
Trustee may make payments at an earlier date than herein above set forth, as
directed by the Plan Administrator, for reasons of death, disability, early
retirement or termination of service; provided, however, that all Participants
shall be treated alike under like circumstances.
A Participant may make an election to defer commencement of payment of benefits
beyond the latest of the dates given above; provided, that the election is made
in writing, signed by the Participant, and submitted to the Plan Administrator
prior to the close of the Plan Year following which payment of benefits would
otherwise commence. If payment is to be other than in the form of a qualified
joint and survivor annuity, the decision of the Plan Administrator as to the
form in which the benefit shall be payable shall be required as provided in
Subparagraph 11.2(d). In no event may an election be made which would violate
the restrictions contained in Subparagraph 11.2(d), or which would defer
commencement of benefits beyond the calendar year following the calendar year in
which he attains age 70 1/2.
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<PAGE>
ARTICLE EIGHT
DISABILITY BENEFITS
8.1 Any Participant who has become totally and permanently disabled shall
be entitled to retire, effective the first day of the next Plan Year subsequent
to the date disability commenced, but payment shall be made only after the Plan
Administrator receives written notice of a determination of such disability by a
medical certificate issued by a doctor selected or approved by the Plan
Administrator. Total disability shall mean disability of either a physical or
mental nature, so as to prevent the Participant from performing the duties of
his employment with the Company. Permanent Disability shall mean disability of
either a physical or mental nature, which is expected to last for a period of 6
months or longer, and which results in a termination of the Participant's
employment with the Company. All Participants shall be treated alike under
similar circumstances.
8.2 A Participant retiring because of such disability shall be entitle to
commence receiving benefits on the Disability Retirement Date or Normal
Retirement Date, or on any intervening date, and the amount of such disability
retirement benefit shall be determined as follows:
(a) If the payment of benefits commences at Normal Retirement Date, the
amount of the benefit shall be the Participant's Accrued Benefit, as
accrued at his Disability Retirement Date.
(b) If the payment of benefits commences prior to Normal Retirement Date,
the amount of the benefit shall be the actuarial equivalent of the
Participant's Accrued Benefit payable at Normal Retirement Date, as
accrued at his Disability Retirement Date.
8.3 In lieu of a determination of disability pursuant to Paragraph 8.1
above, a determination of entitlement for disability benefits under Social
Security shall be conclusive evidence of total and permanent disability, but a
failure to attain such determination shall not be determinative of any rights to
receive disability benefits under this Plan. Recovery from total and/or
permanent disability subsequent to entitlement for receipt of benefits under
this Article shall not prejudice any right to receive or to continue to receive
such benefits.
VIII-1
<PAGE>
I
ARTICLE NINE
DEATH BENEFITS
9.1 If insurance is purchased in accordance with paragraph 6.1, the death
benefit, if the Participant dies prior to commencement of payment of his
retirement benefits, shall be the greater of:
(a) the sum of:
(1) the proceeds of the Contracts, and
(2) the Participant's actuarially determined share of the Fund
Account as of the next valuation date; or
(b) the sum of:
(1) the Cash Value of the Contracts, and
(2) the Participant's actuarially determined share of the Fund
Account as of the next valuation date.
Notwithstanding the above, in no event may the death benefit under Subparagraph
(a) above exceed 100 times the Participant's projected monthly Normal Retirement
Benefit.
9.2 If insurance is purchased in accordance with Paragraph 6.3, or if
purchased in accordance with Paragraph 6.1 nonetheless the conditions contained
in Paragraph 6.3 with respect to limitations on the purchase of insurance are
met with respect to a Participant, in the event of the death of such
Participant, prior to commencement of payment of retirement benefits, his death
benefits shall be the actuarially determined share of the Fund Account as of the
next valuation date, and the proceeds of any Contracts.
9.3 If no insurance is purchased or in force, in the event of the death of
a Participant prior to retirement, his death benefits shall be the actuarially
determined share of the Fund Account as of the next valuation date.
9.4 The actuarially determined share of the Fund Account shall be equal to
the present value of the Accrued Benefit under the Plan, less any Cash Surrender
Value attributable to policies on the Participant's life for which he has the
right to designate a beneficiary.
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<PAGE>
9.5 The above described death benefit shall be paid to the Participant's
designated Beneficiary as soon as is convenient, but not later than 60 days
after the next valuation date.
(a) If insurance exists as a Trust asset, the following shall apply to the
insurance proceeds.
(1) The Plan Administrator, at the direction of the Participant,
shall direct the Trustee to designate a settlement option, as
enumerated in Paragraph 11.2 for the insurance.
(2) If no mode of settlement has been selected in accordance with (a)
(1) above, the Plan Administrator, at the direction of the
Beneficiary, shall direct the Trustee to designate a settlement
option, as enumerated in Paragraph 11.2, within 60 days after the
day on which a lump sum in full discharge of the death benefit
obligation under any insurance Contracts first becomes payable.
Under no circumstances may the mode of settlement from the insurance
proceeds be other than one permitted by Paragraph 11.2.
(b) In regard to non-insurance Trust assets, the following shall apply:
(1) The Plan Administrator, at the direction of the Participant,
shall direct the Trustee to designate a settlement option, as
enumerated in Paragraph 11.2 for the Trust assets.
(2) If no mode of settlement has been selected in accordance with (b)
(1) above, the Plan administrator, after consultation with the
Beneficiary, shall direct the Trustee to designate a settlement
option as permitted in Paragraph 11.2 within 60 days after the
day on which a lump sum in full discharge of the death benefit
obligation first becomes payable.
9.6 The Beneficiary or successor Beneficiary of any death benefit shall be
in accordance with the designation made by the Participant. The Participant
shall have the right to designate the Beneficiary or successor Beneficiary by
filing a Designation of Beneficiary form with the Plan Administrator. At any
time, and from time to time, each Participant shall have
IX-2
<PAGE>
the unrestricted right to change the designation of the beneficiary to receive
any death benefits hereunder. All designations shall be made in writing on the
form required by the Plan Administrator, and shall be filed with the Plan
Administrator. If no designation has been made, if the designated Beneficiary
has predeceased the Participant, or if the designation of beneficiary is
inoperative for any reason as to any part of any death benefit hereunder, then
the participant shall be deemed to have designated the following as his
Beneficiary, with priority in the order named:
(1) his widow or her widower, as the case may be;
(2) his issue, per stirpes;
(3) his parents;
(4) his brothers and sisters, per stirpes; and
(5) his estate.
Notwithstanding anything to the contrary contained herein, if a Participant is
married, no designation of a beneficiary other than the Participant's spouse, or
change of designation from a Participant's spouse to someone else, shall be
valid, unless the Participant's spouse consents in writing to such designation
or change, and the spouse's consent acknowledges the effect of such election,
and is witnessed by the Plan Administrator or a notary public, unless it is
established to the satisfaction of the Plan Administrator that such consent may
not be obtained because there is no spouse, because the spouse cannot be
located, or because of such other circumstance as may be prescribed by
regulations to be issued by the Secretary of the Treasury. Any such consent by a
spouse shall be effective only with respect to such spouse.
9.7 In the event a vested Participant separates from service with the
Company and subsequently dies before commencement of payment of benefits, the
amount of death benefits shall be determined under the provisions and
limitations of this Article and Article Eleven, but limited to his vested
Accrued Benefit, as determined on the day before his death, and the proceeds of
any Contracts (reduced by their Cash Value).
IX-3
<PAGE>
ARTICLE TEN
NONFORFEITABLE BENEFITS
10.1 A Participant shall have a nonforfeitable right, prior to death, total
and permanent disability, or Normal Retirement Date, in 100% percent of his
Accrued Benefit derived from Company Contributions.
10.2 For purposes of determining Years of Service under Paragraph 10.1
above, all Years of Service with the Company are to be credited for purposes of
vesting, except:
(a) Years of Service prior to any period of consecutive 1 year Breaks in
Service, if the Employee was not vested in benefits deriving from
Company Contributions at the time he incurs a period of consecutive 1
year Breaks in Service, and his number of consecutive 1 year Breaks in
Service equals or exceeds the greater of 5 or the aggregate number of
his Years of Service, whether or not consecutive, completed before
such period of consecutive 1 year Breaks in Service.
(b) Years of Service prior to any period of consecutive 1 year Breaks in
Service, until the Participant has completed 1 Year of Service after
such period.
(c) Years of Service during any period for which the Company did not
maintain this Plan or a predecessor plan.
(d) Years of Service completed by an Employee before he attains age 18.
10.3 The vested portion of any Participant's Accrued Benefits shall be a
percentage of each Participant's Accrued Benefit on the basis of the
Participant's number of Years of Service according to the following schedule:
Years of Service Percentage
---------------- ----------
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 100%
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<PAGE>
10.4 The nonforfeitable account of a Participant shall be the product of
his vested percentage times his Accrued Benefit. If the vesting schedule of the
Plan is or has been amended (including any change resulting from the operation
of Paragraph 19.4), for all Plan Years beginning with the Plan Year in which the
amended vesting schedule is effective, the vested percentage of a Participant's
Accrued Benefit shall be computed in accordance with the amended schedule.
However, at no time after the date of adoption of an amended vesting schedule
(or the effective date, if later) shall a participant's nonforfeitable Accrued
Benefit be less than an amount ("V") determined by the formula: V = A x C(1) + B
x (C(2) C(1)). For purposes of applying the formula: A is the vested percentage
at the date of adoption of an amended vesting schedule (or its effective date,
if later); B is the vested percentage at any time after the amendment computed
in accordance with the amended vesting schedule; C(1) is the Accrued Benefit at
the date of adoption of the amended vesting schedule (or is effective date, if
later), and C2 is the Accrued Benefit at any time subsequent to the date or
adoption (or its effective date, if later).
10.5 A Participant having at least 5 Years of Service with the Company
prior to the expiration of the election period described below may elect to have
his vested portion computed under the Plan without regard to any subsequent
amendment to the vesting schedule. An amendment to the vesting schedule includes
any amendment which directly or indirectly affects the computation of the vested
percentage of an Employee's account balance, and includes any change resulting
from the operation of Paragraph 19.4. Such an election shall be irrevocable, and
must be filed with the Plan Administrator no later than 60 days after the day
the Plan amendment is adopted, or becomes effective, or the Participant is
issued written notice of the amended vesting schedule by the Plan Administrator
(whichever last occurs).
In the event that a Participant makes the election as hereinabove provided, the
vesting schedule in effect prior to the amendment of the vesting schedule shall
apply to determine the vested percentage of such participant's account.
Notwithstanding the above, no election shall be permitted if the vesting
schedule in effect prior to the amendment did not satisfy the requirements of
Internal Revenue Code Section 411(a) (2), unless under such schedule all
Participants are at least 50 percent vested after 10 Years of Service and 100
percent vested after 15 Years of Service. Furthermore, no election shall be
allowed to any Participant whose vested percentage under the Plan, as amended,
cannot be less at any
X-2
<PAGE>
time than such percentage determined without regard to such amendment.
10.6 Any Participant who has terminated employment or who is no longer a
member of an eligible class of Employees, and who is entitled to a deferred
vested benefit under the Plan, and who has not received a distribution of such
benefit by the end of the Plan Year following the Plan Year in which such
termination of employment or eligibility occurred, shall be given notification
of the following by the Plan Administrator:
(a) the amount of his vested benefit;
(b) the amount of his pre-retirement death benefit;
(c) the Normal Retirement Date of the Plan;
(d) any benefits which are forfeitable if the Participant dies before a
certain date; and
(e) such other information as may be prescribed by regulations issued by
the Secretary of the Treasury or his delegate.
X-3
<PAGE>
ARTICLE ELEVEN
PAYMENT OF BENEFITS
11.1 When a Participant's employment is terminated, the Plan Administrator
shall determine his vested interest.
(a) Distribution. If, upon termination of a Participant's employment for
any reason other than retirement, death or total and permanent
disability, the present value of the Participant's vested Accrued
Benefit shall not exceed $3,500 (or such lesser amount as may be
prescribed by the regulations of the Secretary of the Treasury
governing such payments), the Plan Administrator may direct the
Trustee to distribute the present value of the vested Accrued Benefit
to the Participant. If the present value of the Participant's vested
Accrued Benefit exceeds the amount specified in the preceding
sentence, the Participant and his spouse, if any, may file with the
Plan Administrator a written request for the payment of the entire
amount of the present value of his vested Accrued Benefit, and the
Plan Administrator may thereupon direct the Trustee to pay out this
amount. The present value shall be determined on the basis of the
definition of Actuarial Equivalence contained in Subparagraph 2.1(b),
but the interest rate shall not be greater than the interest rate
which would be used (as of the date of distribution), by the Pension
Benefit Guaranty Corporation, for purposes of determining the present
value of a lump sum distribution on plan termination. In no event may
the amount payable prior to Normal Retirement Date exceed the amount
payable as an Early Retirement Benefit.
If an Employee, upon termination for any reason other than retirement,
death or total and permanent disability, does not consent to the
payment of all of his vested Accrued Benefit, and if the then value of
such Accrued Benefit exceeds $3,500 (or such lesser amount as may be
prescribed by the regulations of the Secretary of the Treasury
governing such payments), the Employee's vested Accrued Benefit shall
be payable at Normal Retirement Date, or an actuarial equivalent
thereof, if benefit payments are to be received under the Early
Retirement provisions of the Plan.
XI-l
<PAGE>
(b) Return to Service After Termination of Employment. If an individual
who has received a distribution of his vested benefit above,
representing less than 100 percent of the present value of his Accrued
Benefit, is rehired, and such distribution was made not later than the
second Plan Year following the Plan Year in which termination of
employment occurred, that rehired individual may repay the amount of
the distribution to the trustee together with interest. Such repayment
may be made not later than the later of:
(1) the end of the 5-year period beginning with the date of
distribution; or
(2) the end of the vesting computation period within which the
Participant has the 5th of 5 consecutive 1 year Breaks in
Service.
Interest shall be computed on the amount of the distribution, from the
date of such distribution to the date of repayment, compounded
annually from the date of the distribution, at the rate of 5%, or such
other rate as is determined under Internal Revenue Code Section 411(c)
(2) (C) in effect on the date of repayment. Upon such repayment, the
rehired individual shall, for purposes of benefit accrual, as defined
in Subparagraph 2.1(a), have his Years of Participation computed
without regard to any Break in Service years, but giving credit to the
pre-break years for benefit accrual. The rehired Employee who has
received such a repayable distribution of his vested benefit, and does
not repay such amount, shall not be credited with Years of
Participation prior to the separation from service for purposes of the
numerator in the benefit accrual fraction, as defined in Subparagraph
2.1(a), although such Years of Participation shall be included in the
denominator. Service disregarded under this Paragraph shall not be
disregarded for purposes of determining an Employee's eligibility to
participate, or his position on the Plan's vesting schedule.
It shall be the duty of the Company to give timely notification to any
rehired Employee, if such Employee is eligible to make a repayment, of
his right to make such repayment, and of the consequences of not
making such repayment.
If any Participant returns to service after terminating employment or
incurring a Break in
XI-2
<PAGE>
Service, and he has not received a distribution from the Plan, the
Participant's pre-break Accrued Benefit will be aggregated with any
post-break Accrued t, following the definition of "Accrued Benefit" in
Subparagraph 2.1(a), to determine his total Accrued Benefit, so that
no duplication of benefits will result.
If any Participant returns to service after terminating employment or
incurring a Break in Service, and has received a distribution not
subject to the repayment provision described above, the Participant's
pre-break Accrued Benefit, following the definition of "Accrued
Benefit" in Subparagraph 2.1(a), will be taken into account to
determine his total Accrued Benefit, but the actuarial value at Normal
Retirement Date of any distribution made to the Participant shall be
an offset to any total Accrued Benefit subsequently payable under the
Plan to the Participant or his Beneficiary.
For purposes of vesting, an Employee who terminates his employment,
but returns to employment without a 1 year Break in Service, continues
to vest, starting at the point in the vesting schedule where he left
employment, in both his pre-separation and post-separation benefit
accruals. For an Employee who terminates his employment and returns to
employment after a Break in Service of 1 year or more, if such
Employee terminated employment with a non-forfeitable interest, upon
reemployment his pre-break Years of Service will be considered for
purposes of determining his vested interest in all subsequent benefit
accruals deriving from Company Contributions, after he has completed a
Year of Service. However, even if such Employee has no vested interest
when he terminates his employment, but he is reemployed before the
number of consecutive 1 year Breaks in Service equals or exceeds the
greater of 5 or the aggregate number of Years of Service, whether or
not consecutive, before such period, upon reemployment his pre-break
Years of Service will be considered for purposes of determining his
vested interest in all benefit accruals deriving from Company
Contributions, after he has completed a Year of Service.
11.2 The Plan Administrator shall take action as may be necessary to
provide a settlement of Participant's account. All modes of settlement, basic
and optional, are available to Participants or Beneficiaries under Articles 7, 8
and 9 as
XI-3
<PAGE>
provided herein. Payments made under Article 11.1 shall be in the form of
complete lump sum payments only.
(a) The basic mode of settlement for a Participant married on the date
benefits commence shall be a qualified joint and survivor annuity
contract, providing for non-increasing payments of an actuarially
equivalent value of the Participant's vested Accrued Benefit. Benefits
will be distributed in the form of a qualified joint and survivor
annuity to a married Participant, unless both the Participant and his
spouse elect not to have his benefits paid in that form. If the
Participant is unmarried, benefits will be provided in the form of an
annuity for the life of the Participant, unless the Participant elects
not to receive benefits in that form.
A qualified joint and survivor annuity is an annuity for the life of
the Participant, with a survivor annuity for the life of his spouse,
which is not less than one half of, nor greater than, 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 annuity for
the life of the Participant.
The specific ratio of the survivor annuity to the joint life annuity
shall be 100%, unless the Participant requests otherwise, in which
case the ratio shall be determined by the Plan Administrator, subject
to the requirement that it be qualified.
Participants with respect to which benefits shall be paid, absent a
contrary election, in the form of a qualified joint and survivor
annuity, or a life annuity, are those who begin to receive payments on
or after the earliest date for which payments could be received in the
form of an annuity, whether by reason of Normal Retirement, Early
Retirement, Late Retirement or Disability Retirement, (the Annuity
Starting Date).
(b) During the election period described below, both the Participant and
his spouse, if any, acting jointly, or his surviving spouse if the
Participant is deceased, may elect in writing not to receive benefits
under the plan in the basic mode of settlement. In the event that both
the Participant and his spouse, if any, or the surviving spouse, make
the above election, any death benefits under the plan shall be paid as
provided in Article 9, and any
XI-4
<PAGE>
retirement benefits shall be paid as provided under Subparagraph
11.2(d) below.
The Plan Administrator shall furnish to each Participant or surviving
spouse, in writing, the following basic information:
A general description of the terms and conditions of the
qualified joint and survivor annuity, or a single life annuity,
if applicable; the circumstances in which it will be provided
unless the Participant and his spouse, if any, or the surviving
spouse, elect not to have benefits provided in that form; the
rights of the Participant's spouse with respect to such an
election; the availability of such election (and the right to
revoke such an election); a general explanation of the relative
financial effect on a Participant's or surviving spouse's benefit
of such an election (or its revocation); and the availability of
additional information, to be furnished within 30 days from the
date of the Participant's or surviving spouse's written request,
on the specific terms and conditions of the qualified joint and
survivor annuity, or the single life annuity, if applicable, and
the specific financial effect on the particular Participant or
surviving spouse of making the above election (or revoking it).
The Participant or surviving spouse must make such written
request for additional information so that it be received by the
Plan Administrator no later than 90 days prior to the
commencement of benefits.
Such basic information may be furnished to a Participant or surviving
spouse at any time, but even if the information has been previously
provided, it must be furnished by mailing or personal delivery so as
to be received on or about the 180th day before the Participant or
surviving spouse reaches the Annuity Starting Date.
The election period shall be the 90 day period ending on the Annuity
Starting Date.
Any election made by the Participant or his surviving spouse, as the
case may be, may be revoked in writing during the applicable election
period, and after such
XI-5
<PAGE>
election has been revoked, another election may be made during the
applicable election period.
A Participant's benefits shall be distributed to him no later than
April 1st of the calendar year following the later of (i) the calendar
year in which the Participant attains age 70 1/2 or (ii) the calendar
year in which the Participant retires provided, however, that this
clause (ii) shall not apply in the case of a Participant who is a
"five" (5) percent owner" at any time during the five (5) Plan Year
period ending in the calendar year in which he attains age 70 1/2 or,
in the case of a Participant who becomes a "five" (5) percent owner"
during any subsequent Plan Year, clause (ii) shall no longer apply and
the required beginning date shall be the April 1st of the calendar
year following the calendar year in which such subsequent Plan Year
ends. Alternatively, distributions to a Participant must begin no
later than the applicable April 1st as determined under the preceding
sentence and must be made over the life of the Participant (or the
lives of the Participant and the Participant's designated Beneficiary)
or the life expectancy of the Participant (or the life expectancies of
the Participant and his designated Beneficiary) in accordance with
Regulations. Notwithstanding the foregoing, clause (ii) above shall
not apply to any Participant unless the Participant had attained age
70 1/2 before January 1, 1988 and was not a "five (5) percent owner"
at any time during the Plan Year ending with or within the calendar
year in which the Participant attained age 66 1/2 or any subsequent
Plan Year.
All distributions required under this Article shall be determined and
made in accordance with the Income Tax Regulations under Section
401(a) (9) of the Code, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Income Tax
Regulations.
Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
retirement benefit paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982.
XI-6
<PAGE>
(c) Unless both a married Participant and his spouse, or a surviving
spouse, if the Participant is deceased, elect in writing during the
period described below not to have survivor benefits provided in this
form, a qualified pre-retirement survivor annuity will be payable to
the Participant's spouse for life, upon the death of the Participant,
in the event that he is vested and dies before the Annuity Starting
Date. In the event that both the Participant and his spouse acting
jointly, or the surviving spouse, make the above election, any death
benefits under the Plan shall be paid as provided in Article VII, and
any retirement benefit shall be paid as provided in Subparagraph
9.3(d) below. The Participant's spouse may direct that payment of the
pre-retirement survivor annuity commence within a reasonable period
after the Participant's death. If the spouse does not so direct,
payment of such benefit will commence at the time the Participant
would have attained the later of his Normal Retirement Age or age 62.
However, the spouse may elect a later commencement date. Any
distribution to the Participant's spouse shall be subject to the rules
specified in Section 9.3. The qualified pre-retirement survivor
annuity shall be an annuity for the life of the surviving spouse of
the Participant, in an amount which can be provided by the
Participant's death benefit, but not less in present value than the
amount the spouse would have received, had the Participant retired on
the day before his death, and had commenced receiving benefits under a
qualified joint and survivor annuity, which provided a survivor
annuity in an amount equal to the amount of the annuity payable during
the joint lives of the Participant and his spouse.
In no event, however, shall the early survivor annuity be in an amount
greater than that which can be purchased by the present value of the
Participant's Account Balance, at the time for commencement of payment
of such survivor benefit, less the Cash Value at such time of any
contract payable to a named person (other than the Trustee) who is not
the spouse of the Participant, provided that the spouse has consented
to such designation.
In the case of a qualified pre-retirement survivor annuity as
described in Section 9.2(c) of this Article, the Plan Administrator
shall provide each Participant within the applicable period for such
Participant, a written explanation of the qualified
XI-7
<PAGE>
pre-retirement survivor annuity in such terms and in such a manner as
would be comparable to the explanation provided for meeting the
requirements of Section 9.2(b) applicable to a qualified joint and
survivor annuity.
The applicable period for a Participant is whichever of the following
periods ends last; (i) 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; (ii) a reasonable period ending after the
individual becomes a Participant; (iii) a reasonable period ending
after the respective notice of benefits prescribed in this Article
ceases to apply to the Participant; (iv) a reasonable period ending
after this Article first applies to the Participant. Notwithstanding
the foregoing, notice must be provide within a reasonable period
ending after the separation of service in case of a Participant who
separates from service before attaining age 35.
For purposes of the preceding paragraph, a reasonable period ending
after the enumerated events described in (ii), (iii) and (iv) is the
end of the two year period beginning one year prior to the date the
applicable event occurs and ending one year after that date. In the
case of a Participant who separates from service before the plan year
in which age 35 is attained, notice shall be provided within the two
year period beginning one year prior to separation and ending one year
after separation. If such a Participant thereafter returns to
employment with the employer, the applicable period for such
Participant shall be redetermined.
In the event the death benefit is not paid in the form of a
pre-retirement survivor annuity, it shall be paid to the Participant's
Beneficiary by one of the optional methods, as elected by the
Participant (or if no election has been made prior to the
Participant's death by his Beneficiary), subject to the rules
specified in Section 9.3(d).
Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in
accordance with the following requirements and shall otherwise comply
with Code Section 401(a) (9) and the Regulations thereunder. If the
death benefit is paid in the form
XI-8
<PAGE>
of a pre-retirement survivor annuity, then distributions to the
Participant's surviving spouse must commence on or before the later
of: (1) December 31st of the calendar year immediately following the
calendar year in which the Participant died; or (2) December 31st of
the calendar year in which the Participant would have attained age 70
1/2. If it is determined pursuant to Regulations that the distribution
of a Participant's interest has begun and the Participant dies before
his entire interest has been distributed to him, the remaining portion
of such interest shall be distributed at least as rapidly as under the
method of distribution selected pursuant to Section 9.3 as of his date
of death. If a Participant dies before he has begun to receive any
distributions of his interest under the Plan or before distributions
are deemed to have begun pursuant to Regulations then his death
benefit shall be distributed to his Beneficiaries by December 31st of
the calendar year in which the fifth anniversary of his date of death
occurs.
However, the 5-year distribution requirement of the preceding
paragraph shall not apply to any portion of the deceased Participant's
interest which is payable to or for the benefit of a designated
Beneficiary. In such event, such portion may, at the election of the
Participant (or the Participant's designated Beneficiary), be
distributed over a period not extending beyond the life of such
designated Beneficiary: the life of such designated Beneficiary (or
over a period not extending beyond the life expectancy of such
designated Beneficiary) provided such distribution begins not later
than December 31st of the calendar year immediately following the
calendar year in which the Participant died. However, in the event the
Participant's spouse (determined as of the date of the Participant's
death) is his Beneficiary, the requirement that distributions commence
within one year of a Participant's death shall not apply. In lieu
thereof, distributions must commence on or before the later of: (1)
December 31st of the calendar year immediately following the calendar
year in which the Participant died; or (2) December 31st of the
calendar year in which the Participant would have attained age 70 1/2.
If the surviving spouse dies before distributions to such spouse
begin, then the 5-year distribution requirement of this Section shall
apply as if the spouse was the Participant.
XI-9
<PAGE>
For purposes of Section 9.3(c), the election by a designated
Beneficiary to be excepted from the 5-year distribution requirement
must be made no later than December 31st of the calendar year
following the calendar year of the Participant's death. Except,
however, with respect to a designated Beneficiary who is the
Participant's surviving spouse, the election must be made by the
earlier of: (1) December 31st of the calendar year immediately
following the calendar year in which the Participant died or, if
later, the calendar year in which the Participant would have attained
age 70 1/2; or (2) December 31st of the calendar year which contains
the fifth anniversary of the date of the Participant's death. An
election by a designated Beneficiary must be in writing and shall be
irrevocable as of the last day of the election period stated herein.
In the absence of an election by the Participant or a designated
Beneficiary, the 5-year distribution requirement shall apply.
Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
death benefits paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982.
(d) If the married Participant and his spouse elect not to receive payment
in the form of a qualified joint and survivor annuity, or if the
Participant is not married at the time benefits commence, and has
elected not to receive benefits in the form of a life annuity, the
Plan Administrator, upon consultation with the Participant, shall
provide a settlement from among the optional modes of settlement
provided below, and in conformity with the following requirements:
All modes of settlement, both basic and optional, shall have an equal
present actuarial value at the time of commencement of payment.
No optional settlement shall be allowed for payments due under Article
7 and 8, under which the actuarial present value of the payments to be
made to the Participant and his Beneficiary, except in the case of a
distribution over the joint life and last survivor expectancy of the
Participant and his spouse, is not more than 50 percent of the
actuarial
XI-10
<PAGE>
present value of the total payments to be made to the Participant and
his Beneficiaries. No insurance contract distributed as provided below
may permit the time, amount or duration of payment to be not in
conformity with the above restriction.
At any time after payments commence, but before the calendar year
following the calendar year in which he attains age 70 1/2, a
Participant may request, and the Plan Administrator may permit, a
change in the optional mode of settlement.
The following optional modes of settlement are provided:
(1) Single life annuity for the life of the Participant.
(2) Payment of all or (in the case of (5) below) part of the
Participant's vested accrued benefit in a lump sum.
(e) The timing and amount of any payment to be made (limited to the unpaid
portion of a Participant's Accrued Benefit) under an optional mode of
settlement shall be determined by the Participant, or by the Insurer
whose payments are made under a Contract (subject to such rights as
the Contract reserves to the Participant), subject to the following
minimum distribution requirement: beginning in the later of the
calendar year following the calendar year in which the Participant
attains age 70 1/2, or in the case of a Participant who is not a 5%
owner (as defined in Subparagraph 2.1(x)), the calendar year following
the calendar year in which he retires, the amount to be distributed
each year shall be no less than the lesser of the unpaid portion of
the Participant's Account Balance or an amount equal to the quotient
obtained by dividing the entire unpaid portion of the Participant's
Account Balance at the beginning of such year by the life expectancy
of the Participant (or the joint life and last survivor expectancy of
the Participant and spouse (whichever is applicable)), determined in
either case initially as of the Measurement Date,--that is, the
January 1st coinciding with or following the date the Participant
attains age 70 1/2, or in the case of a Participant who is not a 5%
owner (as defined in Subparagraph 2.1(x)) as of the age (counted in
whole years) at the January 1st coinciding with or following the date
the Participant retires, by use of
XI-11
<PAGE>
expected return multiples in Treasury Regulations Section 1.72-9, or
in case of payments by Insurer for the period computed by use of the
mortality tables utilized under the Contract, redetermined annually
for each calendar year commencing after the Measurement Date. In the
event the Participant's Beneficiary is not his spouse, and payments
are being made (other than by a life annuity) over a period of time
which requires for its justification taking into account the joint and
last survivor life expectancy of the Participant and his Beneficiary,
or the life expectancy of the Beneficiary, the life expectancy of the
Beneficiary shall not be redetermined annually, but rather shall be
reduced by one for each calendar year commencing after the Measurement
Date.
Any amount paid to a child shall be treated as if it had been paid to
a surviving spouse, if such amount will become payable to the
surviving spouse upon such child reaching maturity.
However, no distribution need be made in any year, or a lesser amount
may be distributed, if beginning with the year the minimum
distribution requirement first applies, the aggregate amounts
distributed by the end of any taxable year are at least equal to the
aggregate of the minimum amounts required to have been distributed by
the end of such year.
(f) Any sums remaining payable under an optional mode of settlement at the
death of a Participant, either before or after commencement of
distributions to him, shall be paid to his Beneficiary as follows:
If the beneficiary is the surviving spouse and distribution had not
previously commenced, the date on which distributions are required to
begin shall be the later of one year after the date of death of the
participant, or the date on which the Participant would have attained
age 70 1/2 (and if the surviving spouse dies before distributions to
such spouse begin, the rules contained in this subparagraph shall be
applied as if the surviving spouse were the Participant); provided,
that her entire interest is distributed over her lifetime, or over a
period not extending beyond her life expectancy.
If the beneficiary is other than a surviving spouse, and distribution
had not previously commenced, distributions must begin no later than
one year after the date of the Participant's death (or such later
XI-12
<PAGE>
date as the Secretary of the Treasury may prescribe by regulations),
provided that the entire interest is distributed over the
Beneficiary's lifetime, or over a period not extending beyond the
Beneficiary's life expectancy.
Notwithstanding the foregoing, if the conditions stated above either
for commencement or method of distribution, as applicable to spousal
or nonspousal beneficiaries, as the case may be, are not met, and
distributions had not commenced prior to the death of the Participant,
then the entire interest of the Participant must be paid within five
years of the date of his death. However, if distribution had commenced
to the Participant under a method of distribution which takes into
account the life or life expectancy of the Participant, or the
Participant and his Beneficiary, the remaining portion of such
interest must be distributed at least as rapidly as under the method
of distribution in effect as of the date of the Participant's death.
(g) "Spouse", for purposes of any spouse survivor benefits payable, under
any joint and survivor annuity mode of settlement available under this
Plan, shall mean "the Spouse of the Participant on the date payment of
benefits commences."
(h) Notwithstanding anything to the contrary contained herein, no
qualified joint and survivor annuity, and no qualified pre-retirement
survivor annuity will be paid, and no optional mode of settlement will
be available if the present value of such benefit does not exceed
$3,500 prior to the Annuity Starting Date. Such value will be
distributed in a lump sum immediately upon determination of the amount
due on account of retirement (including disability retirement) or
death. If the present value of such benefit exceeds $3,500, the
written consent of the Participant and his spouse, if any, is required
before the commencement of distribution of such benefits.
Present value shall be determined on the basis of the definition of
Actuarial Equivalence contained in Subparagraph 2.1(b), but the
interest rate shall not be greater than the interest rate which would
be used (as of the date of distribution) by the Pension Benefit
Guaranty Corporation for purposes of determining the present value of
a lump sum distribution on plan termination.
XI-13
<PAGE>
11.3 All payments hereunder shall be made in cash, securities or such other
property as the Plan Administrator may determine in its sole and absolute
discretion.
11.4 A claim for benefits must be filed before payment of retirement,
disability, or death benefits will commence. A claim shall be deemed filed when
a Participant, or Beneficiary, in the case of death benefits, or their
authorized representative, requests, orally or in writing, payment of benefits
due under the Plan. The claim may be filed with the Plan Administrator or any
officer of the Company; or if the Company has an organizational unit which
customarily handles Employee benefit matters, with any person employed in such
unit.
In the event that a claim for benefits is filed, the Plan Administrator, within
90 days after the claim is filed, shall give notice of the decision on the
claim; and if notice on the denial of a claim is not furnished, and the claim
has not been granted within the 90 day claims proceeding period, the claim shall
be deemed denied for the purpose of processing to the review stage as
hereinafter described.
(a) The 90 day time period mentioned above may be extended by the Plan
Administrator for an additional 90 days, if special circumstances
require an extension of time for processing the claim. If an extension
is required, the Plan Administrator shall furnish written notice of
the 90 day extension to the claimant prior to the termination of the
initial 90 day period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the
Plan Administrator expects to render the final decision.
(b) The Plan Administrator shall provide, to every claimant who is denied
a claim for benefits, written notice setting forth:
(1) The specific reason or reasons for the denial,
(2) The specific reference to the pertinent Plan provisions on which
the denial is based,
(3) 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
(4) An explanation of the Plan's claim review procedure.
XI-14
<PAGE>
(c) In the event that the claim of the Participant or Beneficiary is
denied, the claimant or his duly authorized representative may request
a review of the denied claim by means of a written application for
review delivered to the Plan Administrator. Pursuant to this right to
review, the claimant or his duly authorized representative may review
pertinent documents and submit issues and comments in writing.
(d) Any request for review of a denied claim must be filed no later than
60 days after the earlier of receipt by the claimant of written
notification of denial of a claim, or the expiration of the 90 day
claims processing period including any extension thereof.
(e) In the event a request for review has been made as herein above
provided, the Plan Administrator shall make a decision on the request
for review within 60 days after the receipt by the Plan Administrator
of the request for the review, unless special circumstances require an
extension of time for processing the review, in which case the Plan
Administrator shall render a decision as soon as possible, but in no
event later than 120 days after the Plan Administrator has received
the request for review.
If an extension is required, the Plan Administrator shall furnish
written notice of the extension to the claimant prior to the
commencement of the extension. The decision on review shall be
furnished to the claimant in writing within the time for review and
shall include specific reasons for the decision, as well as specific
references to the pertinent Plan provisions on which the decision is
based.
11.5 If the Plan Administrator is unable after diligent search to locate a
Participant or Beneficiary to whom a benefit is due under the provisions of this
Plan, such benefit shall be forfeited on the last day of the Plan Year in which
such search is concluded, and such forfeiture shall be administered in
accordance with Paragraph 5.3. If a claim is made subsequently by such
Participant or Beneficiary for the forfeited benefit, such benefit shall be
restored in full.
11.6 The Plan Administrator shall, when making a distribution qualifying
for rollover to an eligible retirement plan, provide to the recipient a written
explanation of the provisions under which such distribution will not be subject
to
XI-15
<PAGE>
tax, if transferred within 60 days after the date of distribution, and, if
applicable, the provisions relating to 10 year averaging and capital gains
treatment of lump sum distributions.
XI-16
<PAGE>
ARTICLE TWELVE
RIGHT TO ALTER, AMEND OR TERMINATE TRUST
12.1 The Company shall have the right at any time to discontinue its
contributions hereunder, and to terminate or partially terminate this Plan and
Trust. In the event that the company shall be legally dissolved, or declared
bankrupt, shall wake a general assignment for the benefit of creditors, or merge
into or with another company which shall not assume the obligations of this
Plan, this Plan shall automatically terminate.
In the event the Plan and Trust is automatically terminated as provided above,
or in the event that subsequent to the voluntary termination of the Plan by the
Company, any of the events causing automatic termination occur prior to the
final and complete distribution of assets from the Trust, Trustee shall
automatically be vested with all rights, powers and duties otherwise reserved in
this Agreement and Trust to the Company, Plan Administrator and Named Fiduciary,
including but not limited to the right to amend this Agreement and Trust, to
liquidate the Trust, and to continue the Plan and Trust in force.
12.2 The Company reserves the right to amend this Plan and Trust in writing
at any time without the consent of any Participant or Beneficiary; provided,
however, that no amendment to this Plan or Trust shall deprive any Participant
or Beneficiary (including any Participant or Beneficiary who is already
receiving benefits) of any vested interest herein, except as may be allowed by
Federal Law, nor shall such amendment increase the duties or obligations of the
Trustee herein except with his consent. Further provided, that to the extent
required by Federal Law, subject to regulations issued by the Secretary of the
Treasury, no amendment to this Plan and Trust shall be permitted which has the
effect of: (a) eliminating or reducing an early retirement benefit or a
retirement-type subsidy for a Participant who satisfied (either before or after
the amendment) the pre-amendment conditions for the benefit or subsidy, or (b)
eliminating an optional form of benefit, in both cases with respect to benefits
attributable to service before such amendment.
12.3 This Plan may not merge or consolidate with, or transfer assets or
liabilities to, any other plan unless each Participant in the Plan would, if the
plan then terminated, receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the benefit that
XII-1
<PAGE>
such Participant would have been entitled to receive immediately before the
merger, consolidation or transfer if the plan had then terminated.
12.4 In the event of partial or complete termination of this Plan and
Trust, or upon the complete discontinuance of Company contributions under the
Plan, the Trustee shall, when so directed by the Plan Administrator, distribute
the assets of the fund to the Participants affected or their Beneficiaries. The
Plan Administrator may but is not required to grant each participant the right
to elect in an irrevocable election to receive a complete distribution from his
account. Failure to elect such a distribution shall constitute an irrevocable
election to defer distribution until the times specified with regard to death,
disability and retirement payments as provided in this Plan or in any successor
Plan, and Trustee is hereby precluded from making distributions at any earlier
time to any Participant who fails to elect complete distribution and whose
employment with the Company has not terminated. Said election shall take place
during a period of time, not exceeding 60 days, prescribed by the Plan
Administrator and communicated to Plan Participants. Alternatively, the Plan
Administrator may direct that complete distributions be made to all participants
affected or their Beneficiaries, or that all distributions be made as set forth
in the other provisions of the Plan and Trust Distributions shall be made in
cash, unless the Plan Administrator directs the Trustee to make distributions in
securities or other property (including life insurance Contracts on the lives of
Participants). In the absence of any direction to make distribution to all
Participants and/or Beneficiaries, the Plan and Trust will continue in force,
and distributions will be made in the same manner and under the same conditions
as set forth in the Plan and Trust, and the Plan and Trust will not terminate
until all the assets of the Trust have been distributed. It is the intent of the
parties that the exempt status of the Trust under Section 501 of the Internal
Revenue Code of 1986, as amended, will continue.
(a) Upon the date of termination of the Plan, partial termination of the
Plan, or complete discontinuance of contributions, the rights of each
affected Participant to his benefit accrued to such date, to the
extent funded, shall be fully vested, except as provided in Article
17. An event which is considered a termination for purposes of Title
IV of the Employee Retirement Income Security Act of 1974, but which
is not a termination for purposes of the Internal Revenue Code of
1986, as amended, shall not result in full vesting for Plan
Participants.
XII-2
<PAGE>
(b) In the event a distribution of assets is directed by the Company,
assets shall be allocated as follows to affected Participants:
(1) First, to the Participant's account for voluntary contributions;
(2) Second, to that portion of each Participant's Accrued Benefit
which is derived from the Participant's mandatory contributions,
if any;
(3) Third, in the case of a benefit payable to any annuity -
(i) in the case of the benefit of a Participant or a Beneficiary
which was in pay status as of the beginning of the 3 year
period ending on the termination date of the Plan, to each
such benefit, based on the provisions of the Plan (as in
effect during the 5 year period ending on such date) under
which such benefit would be the least; and
(ii) in the case of a Participant's or Beneficiary's benefit
(other than a benefit described in (i) above) which would
have been in pay status as of the beginning of such 3 year
period if the Participant had retired prior to the beginning
of the 3 year period and if his benefits had commenced (in
the Normal Form of Retirement Benefit under this Plan) as of
the beginning of such period, to each such benefit based on
the provisions in the Plan (as in effect during the 5 year
period ending on such date) under which such benefit would
be the least;
(4) Fourth -
(i) to all other benefits (if any) of individuals under the Plan
guaranteed by the Pension Benefit Guaranty Corporation; and
(ii) to the additional benefit (if any) which would be determined
under (i) above, if Section 4022(b) (5) of the Employee
Retirement Income Security Act of 1974
XII-3
<PAGE>
(relating to substantial owners) did not apply;
(5) Fifth, to all other benefits under the Plan which are
nonforfeitable, except those benefits which become nonforfeitable
solely on account of Plan termination;
(6) Sixth, to all other benefits accrued under the Plan.
(c) In the event the value of Plan assets at termination is less than the
present value of all Accrued Benefits, the provisions of Subparagraph
12.4(b) shall apply in regard to the allocations provided for in
Subparagraphs 12.4(b)(l), (2), (3) and (4)(i) above (subject to the
limitations provided by Subparagraph 4.2(f)); but assets not so
allocated, including assets restricted from distribution by
Subparagraph 4.2(f), shall be allocated, to the extent possible, with
regard to the allocations otherwise provided for in Subparagraphs
12.4(b)(4)(ii), (5) and (6) so that, to the extent possible, rank and
file Participants receive at least the same proportion of the present
value of their Accrued Benefits as Participants who are officers,
shareholders or highly compensated (equalizing allocation), provided
that to the extent such equalizing allocation permits, assets
otherwise restricted by Subparagraph 4.2(f) may nonetheless be
allocated according to Subparagraph 12.4(b) above, and provided
further that nothing in this Subparagraph shall permit allocating any
lesser amount of assets to a rank and file Participant than would
occur if this Subparagraph and Subparagraph 4.2(f) did not exist.
XII-4
<PAGE>
ARTICLE THIRTEEN
LOANS
13.1 Loans to Participants shall not be permitted under the Plan.
XIII-1
<PAGE>
ARTICLE FOURTEEN
TRUSTEE
14.1 The duties and responsibilities of the Trustee are limited to those
set forth in this Plan and Trust, and it shall be liable only for the
safeguarding and administration of the Trust principal in accordance with the
provisions of this Plan and Trust, except as otherwise provided by state or
federal law. If at any time there is more than 1 Trustee, all of them will
jointly manage and control the fund, unless the responsibilities, obligations
and duties specified in this Plan are allocated among them in accordance with
the procedure set forth below. The Trustee shall discharge its duties with
respect to the Plan solely in the interest of the Participants and the
Beneficiaries, and for the exclusive purpose of providing benefits to the
Participants and their Beneficiaries and defraying reasonable expenses of the
Plan by administering the Plan 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 a like character and with like aims.
14.2 The Trustee shall maintain full and complete records of the
administration of the Trust, and shall be responsible for the management of the
Trust operation and its administration.
The Company and Plan Administrator may examine such records from time to time
during business hours. A Participant may also examine such records, as they
relate to his interest in the Trust principal, at such time deemed reasonable by
the Trustee.
14.3 Within a reasonable time after each Plan Year, and within 90 days
after its removal or resignation, Trustee shall file with the Company and shall
certify the accuracy of an account of its administration of the Trust during
such year, or from the end of the preceding Plan Year to the date of removal or
resignation. Neither the Company nor any other person shall be entitled to any
further accounting by Trustee, except as provided by law. The Company may, in
its discretion, waive all or any part of such accounting.
14.4 To the extent permitted by the Employee Retirement Income Security Act
of 1974, Trustee shall be released from all liability to anyone as to any
transaction shown in a statement
XIV-1
<PAGE>
of account pursuant to Section 14.3, except those as to which the Company shall,
within 90 days after the Trustee's filing of the account, file with Trustee a
written statement setting forth in detail the items in or with respect to such
account to which exception is taken. If such a statement is filed, Trustee
shall, unless the matter be compromised with the Company, file its account in
any court of competent jurisdiction for audit and adjudication.
14.5 Upon separate agreement between Trustee and the Company, the fund may
be valued more frequently than annually, for purposes of determining benefits or
costs under the Plan. If such agreement is made, the provisions of Section 14.4
shall also apply with respect to each such valuation.
14.6 The Trustee shall act at the direction of the Company and the Plan
Administrator, and the Company agrees to indemnify Trustee against any liability
imposed as a result of a claim asserted by any person or persons, with respect
to which Trustee acted in good faith at direction of the Company or the Plan
Administrator. The Trustee is authorized on behalf of the Trust to execute the
applications and any other documents required by an Insurer issuing Contracts on
the lives of the Participants, and to exercise all of the rights, privileges and
powers under such Contracts. Written notification to an Insurer setting forth
the name of the Trustee hereunder shall be conclusive evidence for all purposes
that the party so named is Trustee hereunder at the date of such notification.
The signature of the Trustee shall be conclusive proof to the Insurer that the
application is being made for the proper Contract and is in accordance with the
terms of this Plan and Trust.
14.7 The Trustee may consult with any legal counsel, even through counsel
for the Company, with respect to the construction of the Plan and Trust, either
as to its duties thereunder or with respect to any legal proceedings or
questions of law, and will be fully protected with respect to any action taken
or omitted by it in good faith pursuant to the advice of such counsel. In
addition, the Company, at the request of or with the concurrence of the Trustee,
may employ such actuaries, accountants, specialists and other persons as the
Company or Trustee deems necessary or desirable in connection with the
administration of the Plan.
14.8 A Trustee shall not be liable, either individually or as Trustee, for
any losses resulting to the Plan arising from the acts or omissions on the part
of a Co-Trustee or Investment Manager to whom responsibilities, obligations and
duties have been allocated as to certain assets of the Fund. Any such allocation
of responsibilities among Trustees and/or
XIV-2
<PAGE>
the appointment of an Investment Manager shall be made by the Named Fiduciary,
and evidenced by a written agreement executed by all of the Trustees, the Named
Fiduciary and the Investment Manager, if any. Except as stated in the foregoing,
in addition to any liability which the Trustee may have under any other section
of this Plan, the Trustee with respect to the Plan shall be liable for breach of
fiduciary duty of another Trustee;
(a) if such Trustee participates knowingly in, or knowingly undertakes to
conceal, an act or omission of such other Trustee, including knowing
such act or omission is a breach;
(b) if, by such Trustee's failure to comply with the standards in
performing its duties as set forth in Paragraph 14.1 hereof, in the
administration of such Trustee's specific responsibilities which give
rise to its status as a Trustee, it has enabled such other Trustee to
commit a breach; or
(c) if such Trustee has knowledge of a breach by such other Trustee,
unless such Trustee makes reasonable efforts under the circumstances
to remedy the breach.
14.9 Trustee shall invest and reinvest the principal and income of the
trust and keep the same invested without distinction between the principal and
income.
14.10 Trustee shall have the following powers, in addition to the powers
customarily vested in the Trustee by law, and in no way in derogation thereof:
(a) With any cash at any time held by it, to purchase or subscribe for any
authorized investment, and to retain such authorized investment in
trust.
(b) To sell for cash or on credit, convert, redeem or exchange for another
authorized investment, or otherwise dispose of, any authorized
investment at any time held by it.
(c) To maintain a cash reserve in such a manner as the Trustee shall deem
advisable from time to time. Such cash reserve may consist of
uninvested contributions or of the proceeds of the sale of the
investments of the Trust, as the Trustee in its sole discretion may
determine. Such cash reserve may be in a deposit account or invested
in the savings department, if any, of the Trustee, or as Trustee may
direct, in a bank, savings and loan association, building and loan
XIV-3
<PAGE>
association, or savings bank, including time deposits or certificates
of deposit with maturities of less than or more than one year.
(d) To exercise any options appurtenant to any authorized investment in
which the fund is invested, for conversion thereof into another
authorized investment, or to exercise any rights to subscribe for
additional authorized investments, and to make all necessary payment
therefore.
(e) To join in, consent to, dissent from, or oppose, or to deposit
securities in a voting trust, in connection with the reorganization,
consolidation, recapitalization, merger, or readjustment of the
finances of any corporation, company, or association in which the fund
may be invested; or in connection with the sale, mortgage, pledge, or
lease of any property of same, on any terms and conditions as it may
deem wise; to do any act which may be deemed necessary or advisable in
connection therewith, including the exercise of options, making
agreements or subscriptions, and payment of expenses, assessments or
subscriptions; and to accept any authorized investment which may be
issued in or as a result of any proceeding, and thereafter to hold the
same.
(f) To vote, in person or by general or limited proxy, at any election of
any corporation in which the fund is invested, and similarly to
exercise personally or by a general or limited power of attorney, any
right appurtenant to any authorized investment held in the fund.
(g) To sell, option to sell, mortgage, lease for a term of years less than
or continuing beyond the possible date of the termination of the trust
created hereunder, partition or exchange any real property which may
from time to time or at any time constitute a portion of the fund,
either at public or private sale, for such prices and upon such terms
as it may deem best and to make, execute and deliver to the purchasers
thereof good and sufficient deeds of conveyance thereof and all
assignments, transfers and other legal instruments, either necessary
or convenient for passing the title and ownership thereof to the
purchaser, free and discharge of all trusts, and without liability on
the part of such purchasers to see to the proper application of the
purchase price.
XIV-4
<PAGE>
(h) To repair, alter, or improve any buildings which may be on real estate
forming part of the fund, or to erect entirely new structures thereon.
(i) To renew or extend or participate in the renewal or extension of any
mortgage, upon such terms as may be deemed advisable, and to agree to
a reduction in the rate of interest on any mortgage or to any other
modification or change in the terms of any mortgage or of any
guarantee pertaining thereto, in any manner and to any extent that may
be deemed advisable for the protection of the fund or the preservation
of the value of the investment; to waive any default, whether in the
performance of any covenant or condition of any mortgage or in the
performance of any guarantee, or to enforce any such default in such
manner and to such extent as may be deemed advisable; to exercise and
enforce any and all rights or foreclosure, to bid on property in
foreclosure, to take a deed in lieu of foreclosure with or without
paying a consideration therefore, and in connection therewith to
release the obligation on the bond secured by such mortgage; and to
exercise and enforce in any action, suit or proceeding at law or in
equity any right or remedies in respect to any mortgage or guarantee.
(j) To purchase authorized investments at a premium or discount.
(k) To employ suitable agents and counsel with respect to investment
transactions, and to pay their reasonable expenses and compensation.
(1) To borrow or raise monies for the purpose of the Trust, in such
amounts and upon such terms and conditions as Trustee in its absolute
discretion may deem advisable, and for any sum so borrowed to issue
its promissory note as Trustee, and to secure the repayments thereof
by pledging or mortgaging all or any part of the fund, provided that
loans and repayments shall be made probata on all property and the
Contracts of the same class or type. No person lending money to
Trustee shall be bound to see to the application of the money lent or
to inquire into the validity, expediency or propriety of such
borrowing.
(m) To cause any investment in the fund to be registered in, or
transferred into, its name as Trustee or the name of its nominee or
nominees or to retain them
XIV-5
<PAGE>
unregistered or in form permitting transfer by delivery, if authorized
by the Company, but the books and records of Trustee shall at all
times show that all such investments are part of the fund, and Trustee
shall be fully responsible for any misappropriation or defalcation in
respect to any investment held by its nominee or held in unregistered
form.
(n) To do all acts which it may deem necessary or proper, and to exercise
any and all powers appurtenant to Trustee under this Plan and Trust,
upon terms and conditions as to it may seem best for the best interest
of the fund, except as otherwise provided by state or federal law.
(o) To purchase securities on margins and to rehypothecate same.
(p) To purchase life insurance on the lives of the directors, principal
officers, or other key personnel of the Company, made payable to the
Trust for the benefit of the fund.
14.11 "Authorized investment" as used herein shall include stock (whether
preferred or common), bank common trust funds (including those of the Trustee,
if any), bonds, debentures, notes or other evidences of indebtedness or
ownership (secured by mortgages including second mortgages or otherwise), put or
call options to buy or sell securities (whether listed or unlisted on any
exchange and whether covered or uncovered), any life insurance, retirement
income, endowment or annuity contract in a legal reserve life insurance company
authorized to do business in the state of domicile of the Trustee; and real and
personal property of all kinds, including leaseholds on improved and unimproved
real estate. Authorized investments shall not be limited to that class of
investments which is specifically authorized as a legal investment for trust
funds under the law of the state of domicile of the Trustee, but no investment
shall constitute an Authorized investment if such investment is prohibited by
governing local or federal law.
14.12 The Trustee shall not cause the Plan to engage in any transaction if
it knows that such transaction constitutes directly or indirectly a prohibited
transaction, as described in Sections 406 and 407 of the Employee Retirement
Income Security Act of 1974 and Section 4975 of the Internal Revenue Code, or
any amendments thereto, unless such transaction is excluded or exempted from the
provisions of Sections 406 and 407 or Code Section 4975, by Sections 407 and
408, or Code
XIV-6
<PAGE>
Section 4975, any exemption issued thereunder, or any amendments thereto.
14.13 The initial Trustee heretofore designated in this Agreement and Trust
shall serve until his respective resignation, death, incapacity or removal.
Whenever a vacancy shall exist among the Trustees, the Company shall, if no
Trustee remains, or may, if at least 1 Trustee remains, name a successor Trustee
who may be an officer or director of the Company or who may be an Employee, or
who may be a person not employed by the Company. Whenever a successor Trustee
shall be appointed, he shall immediately and automatically succeed to and become
vested with the title to any trust assets theretofore vested in the Trustee that
such successor Trustee is replacing, and the title of such former Trustee shall
automatically and immediately be extinguished. A successor Trustee shall
likewise serve until his resignation, death, incapacity or removal. The Company
shall always have the right to remove a Trustee for cause or without cause at
any time. Any Trustee may resign at any time by giving the Company 10 days
written notice in advance of such resignation.
14.14 The Company shall pay all expenses of administering the Plan and
Trust, which expenses shall include, but not be limited to, expenses incident to
the functioning of those to whom the Company has delegated certain duties, such
as the payment of professional fees and consultants fees, and the costs of
administering the Plan.
Notwithstanding the above, if any expenses of administering the Plan and trust
are not paid by the Company, they may be paid from the Trust, at the direction
of the Company.
14.15 The Trustee may be paid such reasonable compensation as shall from
time to time be agreed upon by the Company and the Trustee, except that no
Trustee who is a full-time paid Employee of the Company may be compensated for
his services as Trustee. In addition, the Trustee shall be reimbursed for any
reasonable direct expenses, including reasonable counsel fees (if specifically
authorized in advance in writing by the Company), properly and actually incurred
by it in the administration of the Trust and not otherwise reimbursed. All taxes
of any and all kinds whatsoever that may be levied or assessed under existing or
future laws upon, or in respect of, the Trust or the income thereof shall be
paid from the Trust.
14.16 The Company shall establish an investment policy to provide for the
benefits provided under this Plan.. In accordance with the foregoing, the
Company shall determine whether the Plan has a short term need for liquidity, or
XIV-7
<PAGE>
whether liquidity is a long term goal, or whatever other investment policy
should be followed, and communicate this to the Trustees or investment
manager(s), so that the investment policy can be appropriately coordinated with
Plan needs.
14.17 The Named Fiduciary shall be responsible for and have the authority
to control and manage the operation and administration of this Plan and Trust,
although fiduciary and other responsibilities may be allocated to other parties
by the Named Fiduciary by written notification to such parties of their
responsibilities, and written acceptance by such parties of such
responsibilities. Trustee responsibilities may be allocated only among Trustees
or to an investment manager. An investment manager is any fiduciary, other than
the Trustee or Named Fiduciary, who:
(a) has the power to manage, acquire or dispose of any portion of the
Fund;
(b) is registered as an investment adviser under the Investment Advisers
Act of 1940, or is a bank as defined in that Act or an insurance
company qualified to perform the services described in subsection (a)
hereof; and
(c) has acknowledged in writing that he is a fiduciary with respect to the
Plan.
14.18 Whenever the Trust has an investment in a common trust fund available
only to Trusts qualified under Section 401(a) of the Internal Revenue Code of
1986 as amended, or the corresponding provisions of subsequent law of similar
purpose, all of the provisions of the particular common trust fund declarations
of trust, as amended from time to time, shall be deemed to be incorporated
herein and be a part hereof.
14.19 If at any time there is more than 1 Trustee hereunder, The Trustees
need not call or hold meetings to make any decision or to take any action, but
any decision may be made and any action may be taken by written documents signed
by the Trustees then acting, or, if there are more than 2 Trustees, then by a
majority of the Trustees then acting. However, any one Trustee, acting alone,
will have the authority to sign checks, drafts, notes, insurance applications or
any other documents on behalf of the Trustees and to perform purely ministerial
acts. If at any time there is more than 1 Trustee hereunder, and if any
difference of opinion at any time exists between or among the Trustees in
respect of doing or omitting to do any act in the execution of the Trust, the
opinion of the majority of the Trustees will prevail.
XIV-8
<PAGE>
14.20 A Trustee may be a Participant, but if any matter pertaining to his
own particular Participation comes up for the action of the Trustee, such person
will be disqualified to act upon the particular matter (unless he is the sole
Trustee), and such matter will be resolved by the other Trustee(s).
XIV-9
<PAGE>
ARTICLE FIFTEEN
INSURER
15.1 No Insurer issuing any Contract hereunder shall be deemed a party to
this Plan and Trust or to be responsible for its validity. The obligations and
responsibilities of an Insurer shall be measured and determined solely by the
terms of its Contract, and it shall not be required to do any act not provided
for, or contrary to the provisions of its Contract.
15.2 An Insurer shall not be required to look into the terms of the Plan
and Trust or question any action of the Trustee, nor shall it be responsible to
see that any action of the Trustee is authorized.
15.3 An Insurer may conclusively assume that the Trustee has full
authority, and is acting within that authority, in any transaction concerning
the Contracts, and shall be fully discharged from any and all liabilities for
any action taken in accordance with the direction of the Trustee. In accepting
application for Contracts, an Insurer has no responsibility for determining
whether the Employee is eligible, or whether the proper Contract is being
applied for. In all transactions with the Trustee, an Insurer shall deal with it
as though it were the sole and absolute owner of the Contracts. One Trustee's
signature is sufficient in all matters regarding insurance transactions.
15.4 An Insurer shall be fully protected from any liability for any action
taken prior to receiving notice of any amendment or termination of this
Agreement and Trust, or for dealing with any prior Trustee prior to receiving
notice of appointment of a successor Trustee.
XV-1
<PAGE>
ARTICLE SIXTEEN
SPENDTHRIFT CLAUSE
16.1 The provisions of this Plan are intended as personal protection for
the Participant. A Participant shall not have any right to assign, anticipate or
hypothecate any assets held for his benefit, including amounts credited to his
account, except as security for a loan from the Plan to the Participant. The
benefits under this Plan shall not be subject to seizure, legal process or be in
any way subject to the claim of the Participant's creditors, including, without
limitation, any liability for contracts, debts, torts, alimony or support of any
relatives, except that the Plan has the right to recover overpayments of
benefits previously made to a Participant. None of the Plan's benefits or the
Trust's assets shall be considered an asset of the Participant in the event of
insolvency or bankruptcy.
16.2 Notwithstanding the provisions of this Article, the Plan Administrator
and/or Trustee is hereby authorized to comply without objection to any Qualified
Domestic Relations Order.
16.3 A Domestic Relations Order is defined as any judgment, decree or order
(including approval of a property settlement agreement) which relates to the
provision of child support, alimony payments, or marital property rights to a
spouse, former spouse, child or other dependent of a Participant (an Alternate
Payee), and is made pursuant to a State Domestic Relations Law (including a
Community Property Law).
16.4 A Qualified Domestic Relations Order is a Domestic Relations Order
which establishes or assigns to an Alternate Payee the right to receive all or a
portion of the benefits payable to a Participant under the Plan, and which meets
the following conditions:
(a) The Order clearly specifies:
(i) The name and last known mailing address (if any) of the
Participant and the name and mailing address of each Alternate
Payee covered by the order;
(ii) The amount or percentage of the Participant's 6 benefits to be
paid by the plan to each such
XVI-1
<PAGE>
Alternate Payee, or the manner in which such amount or percentage
is to be determined;
(iii) The number of payments or period to which such order applies;
and
(iv) Each plan to which such order applies.
(b) The Order does not require the Plan to provide:
(i) Any type or form of benefit, or any option, not otherwise
provided under the Plan, except as provided in Paragraph 16.5
below;
(ii) Increased benefits (determined on the basis of actuarial value);
or
(iii) Payment of benefits to an Alternate Payee which are required to
be paid to another Alternate Payee under another order previously
determined to be a Qualified Domestic Relations Order.
16.5 A Qualified Domestic Relations Order may require that payments or
benefits be made to an Alternate Payee on or after the earliest date on which,
under the Plan, the Participant could elect to receive retirement benefits, even
if still employed, as if the Participant had retired on the date on which such
payment is to begin under such order (but taking into account only the present
value of benefits earned to such date, and not taking into account the present
value of any employer subsidy for early retirement), and in any form in which
such benefits may be paid under the plan to the Participant (other than in the
form of a joint and survivor annuity with respect to the Alternate Payee and her
subsequent spouse). In determining present value, the interest assumption used
shall be as specified in any definition of actuarial equivalence or, if none, 5
percent.
16.6 A Qualified Domestic Relations order may provide that (a) a
Participant's former spouse shall be treated as a surviving spouse of such
Participant for purposes of the qualified joint and survivor and qualified
pre-retirement survivor provisions of the Plan, and (b) such surviving spouse
shall be treated as meeting any minimum marriage requirements for such benefits,
if married for at least 1 year.
16.7 The Plan Administrator shall, within 30 days, notify the Participant
and any other Alternate Payee of the receipt of a Domestic Relations Order, and
the Plan's procedures for determining whether such order is a Qualified Domestic
Relations Order. Said procedure shall consist of requesting
XVI-2
<PAGE>
within 30 days of receipt of such order, and obtaining within 30 days therefrom,
an opinion from counsel on such matter. Within 90 days of receipt of the order,
unless the Plan Administrator requests a second opinion, in which case the
period of notification shall be extended for an additional 90 days, the Plan
Administrator shall either adopt an opinion of counsel as his own, or reject it
in his sole discretion, and notify the Participant and each alternate payee of
his determination. Any party affected by this determination may appeal the Plan
Administrator's determination, and such appeal shall be subject to the
provisions contained in Paragraph 11.4 herein pertaining to appeals of claim
determinations.
16.8 During any period in which it is being determined whether or not a
Domestic Relations Order is a Qualified Domestic Relations Order, the Plan
Administrator shall segregate in a separate account the amounts which would have
been payable to the Alternate Payee during such period if the order had been
determined to be a Qualified Domestic Relations Order. If within 18 months the
order (or modification thereof) is determined to be a Qualified Domestic
Relations Order, the Plan Administrator shall pay the segregated amounts (plus
any interest thereon) to the person or persons entitled thereto, but if within
said period the issue is not resolved, or if it is determined that the order is
not a Qualified Domestic Relations Order, the Plan Administrator shall pay or
credit the segregated amounts (plus any interest thereon) to the person or
persons who would have been paid or credited if there had been no Order. Any
determination made after the 18 month period that an order is a Qualified
Domestic Relations Order shall be applied prospectively only.
XVI-3
<PAGE>
ARTICLE SEVENTEEN
NO REVERSION TO COMPANY
17.1 No part of the principal or income or other assets of the Trust shall
be used for or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries, and the Company shall not be entitled to
receive back any part of its contribution to the Trust, except as provided in
the remaining Paragraphs of this Article.
17.2 Company contributions are conditioned on initial qualification of the
Plan under Internal Revenue Code Section 401, and if the Plan does not qualify,
such contribution shall be returned to the Company within 1 year after the date
of denial of initial qualification of the Plan.
17.3 Company contributions are conditioned on the deductibility of the
contribution under Internal Revenue Code Section 404, and to the extent any
deduction is disallowed, such contribution shall be returned to the Company
within 1 year after the date of disallowance of the deduction.
17.4 In the case of a Company contribution made by reason of a mistake of
fact, such contribution shall be returned to the Company within 1 year after the
payment of the contribution. Mistakes of fact shall include but not be limited
to arithmetical errors in calculating the amounts to be contributed to the Plan
under the contribution and allocation sections of the Plan.
17.5 The Company reserves the right to recover at the termination of this
Agreement and Trust any balance remaining in the Trust by reason of erroneous
actuarial computations, after the satisfaction of all liabilities with respect
to the Participants and their Beneficiaries under this Plan and Trust. A balance
by reason of erroneous actuarial computations is the surplus arising because
actual liabilities differ from expected liabilities. In the event assets of the
Plan at the termination of the Plan exceed the liabilities of the Plan, the
Company reserves the right, in lieu of recovering any surplus assets, to amend
the Plan Benefit Formula so as to increase benefits under the Plan in a
non-discriminatory manner, thereby eliminating said surplus.
17.6 The amount which shall be returned to the Company as provided in
Paragraphs 17.3 and 17.4 is the excess of (1) the amount contributed over (2)
the amount that would have been contributed had there not occurred a mistake of
fact or a
XVII-1
<PAGE>
mistake in determining the amount of the deduction. Earnings attributable to the
excess contribution shall not be returned to the Company, but losses
attributable thereto shall reduce the amount to be so returned. Furthermore, no
excess contribution shall be returned to the Company to the extent that such
reversion would cause the balance of the account, derived from Company
contributions, of any participant to be reduced to less than the balance which
would have been in the account had the mistaken amount not been contributed.
XVII-2
<PAGE>
ARTICLE EIGHTEEN
DIRECT TRANSFERS AND ROLLOVERS
18.1 If a Participant shall be entitled to receive benefits under this Plan
the Trustee, at the direction of the Plan Administrator, may transfer the
Participant's vested benefits under this Plan directly to the Trustee of a Plan
and Trust qualified pursuant to Section 401 of the Internal Revenue Code of 1954
or any successor provisions thereof, of the Participant's current or new
employer, if the following conditions are satisfied:
(a) the Trustee of the other plan shall be authorized to accept the
benefits under this Plan; and
(b) the value of the Participant's transferred assets shall be separately
accounted for in the other Trust; and
(c) the Participant's transferred assets shall not be forfeitable or
reduce in any way the obligation of the employer receiving benefits
from this Plan.
The Trustee of this Plan is authorized to accept, at the direction of the Plan
Administrator, assets for the benefit of an Employee, upon the conditions as set
forth above, from a trustee of another plan and trust maintained by either a
corporate or non-corporate Plan sponsor, qualified pursuant to Section 401 of
the Internal Revenue Code of 1986, or any successor provisions thereof.
18.2 With the permission of the Plan Administrator, any Employee who is a
member of a class of Employees eligible to participate may make a Rollover
Contribution to the Trustee at any time. The Trustee shall credit the fair
market value of any Rollover Contribution to the account of the contributing
Employee as of the date the Rollover Contribution is made. For purposes of the
Plan's vesting provisions, a Rollover Contribution shall be considered to be an
Employee Contribution and shall be 100% vested on the date of contribution.
The term "Rollover Contribution" is defined as the contribution of a Qualifying
Rollover Distribution on or before the 60th day immediately following the day
the contributing Employee receives the Qualifying Rollover Distribution.
The term "Qualifying Rollover Distribution" is defined as:
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<PAGE>
(a) Any portion of the property received from a Qualified Plan and Trust,
provided that the balance to the credit of an Employee, reduced by any
Employee contributions, has been paid to him in one or more
distributions:
(1) within one taxable year of the Employee on account of the
termination of a qualified plan or, in the case of a
profit-sharing or stock bonus plan, a complete discontinuance of
contributions under such plan; or
(2) which constitute a lump sum distribution within the meaning of
Section 402(e)(4)(A) (determined without reference to Section 402
(e) (4) (B) and (H)) of the Internal Revenue Code of 1986.
In the case of a distribution of property other than money from a
qualified plan and trust, except for the proceeds from the sale
of such property (including appreciation from the date of
distribution), other property (including money) may not be
substituted in making a Rollover Contribution; or
(b) The entire amount (including money and any other property) in an
Individual Retirement Account, Individual Retirement Annuity, or
Individual Retirement Bond (as defined in Sections 408 and 409 of the
Internal Revenue Code of 1986) maintained for the benefit of the
Employee making the Rollover Contribution, which amount has been
distributed from such Individual Retirement Account, Individual
Retirement Annuity or Individual Retirement Bond. Such amount will
constitute a Qualifying Rollover Distribution only if the amount in
such Individual Retirement Account, Individual Retirement Annuity, or
Individual Retirement Bond is solely attributable to a Rollover
Contribution made by the Employee from his interest as a Participant
in a trust described in Section 401(a) of the Internal Revenue Code of
1986, or an annuity plan described in Section 403(a) of the Internal
Revenue Code of 1986, plus the earnings thereon; but
(c) In no case does a Qualifying Rollover Distribution include any amount
which is attributable to a distribution if any part of the
distribution is attributable to contributions made on behalf of an
Employee while he was a Key-Employee in a Top-Heavy plan.
XVIII-2
<PAGE>
18.3 No assets transferred to this Plan in accordance with the provisions
of this Article shall be considered Employee contributions for purposes of
Subparagraph 5.5.
18.4 Distribution of said assets shall follow the general provisions of the
Plan for distribution of the Participant's Accrued Benefit.
18.5 The specific assets transferred to the Plan shall be general assets of
the trust, subject to the general investment powers of the Trustees (or the
Participants, if such powers have been granted them).
18.6 For purposes of valuing gains and losses in the account(s) maintained
for transferred assets, the provisions of Paragraph 5.5(c) shall apply.
XVIII-3
<PAGE>
ARTICLE NINETEEN
DETERMINATION OF TOP-HEAVY STATUS
19.1 In determining whether or not this Plan is Top-Heavy or Super
Top-Heavy for any Plan Year, the following calculations shall be made:
(a) In the case of a defined benefit plan, a Participant's present value
of accrued benefit shall be determined as of the most recent valuation
date used for computing plan costs which is within a 12 month period
ending on the Determination Date, as if the individual terminated
service as of such valuation date. In the first year of a Plan,
however, the accrued benefit shall be determined as if the individual
terminated service as of the Determination Date. The assumptions used
for the calculation shall be the interest and post-retirement
mortality assumptions used in determining Actuarial Equivalence. The
benefit valued is that payable at Normal Retirement Date (or attained
age, if later). Employee contribution accounts shall be included in
determining the value of benefits.
(b) In the case of a defined contribution plan, a Participant's account
balance (including accounts for Employee contributions) as of the
Determination Date is the sum of:
(1) his account balance as of the most recent valuation occurring
within a 12 month period ending on the Determination Date;
(2) an adjustment for any contributions due as of the Determination
Date.
In the case of a plan not subject to the minimum funding requirements
of Internal Revenue Code Section 412, such adjustment shall be the
amount of any contributions actually made after the valuation date but
before the Determination Date, except for the first Plan Year, when
such adjustment shall also reflect the amount of any contributions
made after the Determination Date that are allocated as of a date in
that first Plan Year. In the case of a plan that is subject to the
minimum funding requirements, the account balance shall also be
adjusted to include contributions allocated as of a date not later
than
XIX-1
<PAGE>
the Determination Date, even though those amounts are not yet required
to be contributed.
Also, the adjustment shall reflect the amount of any contribution
actually made (or due to be made) after the valuation date but before
the expiration of the extended payment period in Internal Revenue Code
Section 412 (c) (10);
any Plan distributions made within the Plan Year that includes the
Determination Date or within the 4 preceding Plan Years. However, in
the case of distributions made after the valuation date and prior to
the Determination Date, such distributions are not included as
distributions for Top-Heavy purposes to the extent that such
distributions are already included in the Participant's present value
of accrued benefit or account balance as of the valuation date.
Notwithstanding anything herein to the contrary, all distributions,
including distributions made prior to January 1, 1984, and
distributions under a terminated plan which if it had not been
terminated would have been required to be included in an Aggregation
Group, will be counted. Further, distributions from the Plan
(including the cash value of life insurance policies) of a
Participant's account balance because of death shall be treated as a
distribution for the purposes of this paragraph;
(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified deductible
employee contributions shall not be considered to be a part of the
Participant's account balance;
(5) with respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by another employer),
if this Plan provides for rollovers or plan-to-plan transfers, it
shall always consider such rollover or plan-to-plan transfer made to
another plan as a distribution for the purposes of this Section. If
this Plan is the plan accepting such rollovers or plan-to-plan
transfers, it shall not consider such rollovers or plan-to-plan
transfers accepted after December 31, 1983 as part of the
Participant's account balance. However, rollovers or plan-to-plan
transfers accepted prior to January 1, 1984 shall be considered as
part of the Participant's account
XIX-2
<PAGE>
balance; with respect to related rollovers and plan-to-plan transfers
(ones either not initiated by the Employee or made to a plan
maintained by the same employer), if this Plan provides the rollover
or plan-to-plan transfer, it shall not be counted as a distribution
for purposes of this Section. If this Plan is the plan accepting such
rollover or plan-to-plan transfer, it shall consider such rollover or
plan-to-plan transfer as part of the Participant's present value of
accrued benefits or account balance, irrespective of the date on which
such rollover or plan-to-plan transfer is accepted.
In determining whether or not rollovers or plan-to-plan transfers are made
to the same or another Employer, all Employers aggregated under Internal
Revenue Code Sections 414(b), (c), (m) and (o) are treated as the same
Employer.
In calculating the accrued benefits or account balances of Participants
there shall not be considered any benefit or account balances of any
Participant who is not a Key-Employee but who in any prior year was a
Key-Employee.
(c) In the case of both a defined benefit plan and a defined contribution
plan, a Participant's accrued benefit or account balance shall be
increased by:
(1) any plan distributions made within the Plan Year that includes
the Determination Date, or within the four preceding Plan Years.
The preceding sentence shall also apply to distributions under a
terminated plan which, if it had not been terminated, would have
been required to be included in an aggregation group. However, in
the case of distributions made after the valuation date and prior
to the Determination Date, such distributions are not included as
distributions for Top-Heavy purposes, to the extent that such
distributions are already included in the Participant's present
value of accrued benefit or account balance as of the valuation
date;
(2) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified
deductible employee contributions shall not be considered to be a
part of the Participant's account balance;
(3) with respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated
XIX-3
<PAGE>
by the Employee and made from a plan maintained by one employer
to a plan maintained by another employer), if this Plan provides
for rollovers or plan-to-plan transfers, it shall always consider
such rollover or plan-to-plan transfer made to another plan as a
distribution for the purposes of this Section. If this Plan is
the plan accepting such rollovers or plan-to-plan transfers, it
shall not consider such rollover or plan-to-plan transfer
accepted after December 31, 1983 as part of the Participant's
account balance. However, any rollover or plan-to-plan transfer
accepted prior to January 1, 1984 shall be considered as part of
the Participant's account balance;
(4) with respect to related rollovers and plan-to-plan transfers
(ones either not initiated by the Employee or made to a plan
maintained by the same employer), if this Plan provides the
rollover or plan-to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. If this Plan is the
plan accepting such rollover or plan-to-plan transfer, it shall
consider such rollover or plan-to-plan transfer as part of the
Participant's present value of accrued benefits or account
balance, irrespective of the date on which such rollover or
plan-to-plan transfer is accepted.
In determining whether or not rollovers or plan-to-plan transfers are
made to the same or another Employer, all Employers aggregated under
Internal Revenue Code Sections 414(b), (c) or (in) and (o) are treated
as the same Employer.
(d) In calculating the accrued benefits or account balances of
Participants, there shall not be considered any benefit or account
balances of any Participant who is not a Key-Employee but who in any
prior year was a Key-Employee.
(e) In calculating the accrued benefits or account balances of
Participants, the accrued benefit of any individual who has not
performed services for the Employer at any time during the 5 year
period ending on the determination date (and the account of such
individual) shall not be taken into account even though such Employee
may have received payments from the Employer after separation from
service.
XIX-4
<PAGE>
(f) Solely for the purpose of determining if the plan, or any other plan
included in a required aggregation group of which this plan is a part,
is top-heavy (within the meaning of Section 416(g) of the Code) the
accrued benefit of an Employee other than a key employee (within the
meaning of Section 416(i) (1) of the Code) shall be determined under
(a) the method, if any, that uniformly applies for accrual purposes
under all plans maintained by the Affiliated Employers, or (b) if
there is no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional accrual
rate of Section 411(b) (1) (C) of the Code.
19.2 If the Company maintains more than one plan, the plans shall
constitute an Aggregation Group, provided the following conditions are
satisfied:
(a) Each plan of the Company in which a Key-Employee is a Participant, and
each other plan of the Company which enables any plan in which a Key
Employee participates to meet the requirements of Internal Revenue
Code Sections 401(a) (4) or 410, will be required to be aggregated.
Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group
will be considered a Top-Heavy Plan if the Required Aggregation Group
is a Top-Heavy Group. No plan in the Required Aggregation Group will
be considered a Top-Heavy Plan if the Aggregation Group is not a
Top-Heavy Group.
(b) The Company may by execution of a written resolution provide for the
creation of a Permissive Aggregation Group, to consist of the Required
Aggregation Group and any other plan not required to be included in
the Required Aggregation Group, provided the resulting group, taken as
a whole, would continue to satisfy the provisions of Internal Revenue
Code Sections 401(a) (4) or 410. If the Permissive Aggregation Group
is not Top-Heavy, no plan in the Group will be considered Top-Heavy.
In the case of a Permissive Aggregation Group, only a plan that is
part of the Required Aggregation Group will be considered a Top-Heavy
Plan if the Permissive Aggregation Group is a Top-Heavy Group.
XIX-5
<PAGE>
(c) Only those plans of the Employer in which the Determination Dates fall
within the same calendar year shall be aggregated in order to
determine whether such plans are Top-Heavy Plans.
(d) A Top-Heavy Group is an Aggregation Group in which, as of the
Determination Date, the sum of the present value of accrued benefits
of Key Employees under all defined benefit plans included in the
group, and the account balances of Key Employees under all defined
contribution plans included in the group, exceeds 60 percent of a
similar sum determined for all Participants.
19.3 In determining whether or not an Employee is a Key Employee, the
following shall apply:
(a) An officer shall be an administrative executive in regular and
continued service. If the number of Employees of all the employers
aggregated under Internal Revenue Code Sections 414(b), (c) or (m)
and (o) is less than 30 employees for a particular year, no more than
3 individuals shall be treated as Key Employees for that year by
reason of being officers. If the number of Employees of all
organizations aggregated under Internal Revenue Code Sections 414(b),
(c) or (m) and (o) is greater than 30 but less than 500 for a
particular year, no more than 10 percent of the number of Employees
will be treated as Key Employees for that year by reason of being
officers. If the number of Employees of employers aggregated under
Internal Revenue Code Sections 414(b), (c), (m) and (o) exceeds 500
for a particular year, no more than 50 Employees are considered as
Key-Employees for that year by reason of being officers. This limited
number of officers is comprised of the individual officers, selected
from the group of all individuals who were officers in the current
Plan Year or any one of the four preceding Plan Years, who had the
largest annual compensation in that five-year period.
(b) An individual who is a "one percent owner" shall be considered as
having compensation of more than $150,000 based on the definition of
compensation contained in Article 4 herein used for purposes of
computing limits on maximum contributions or benefits, but
contributions on behalf of a Self-Employed Individual shall be
excluded from the definition of compensation.
XIX-6
<PAGE>
19.4 In any Top-Heavy Plan Year, a Participant shall have a non-forfeitable
right to a percentage of his accrued benefit derived from Company contributions
determined as follows:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
Notwithstanding the above, the vesting schedule contained in this Paragraph
shall not apply in any Top-Heavy Plan Year if the vesting schedule contained
elsewhere herein provides for equal or more rapid vesting at every year shown on
the schedule, nor shall it apply if the Plan otherwise provides for 100 percent
vesting after 3 or fewer Years of Service.
19.5 The vesting schedule applicable to any Top-Heavy Plan Year shall not
apply to any Employee who does not have an hour of service after the Plan
becomes Top-Heavy. His vested interest shall be determined under the vesting
provision of the Plan as in effect on the date of his last hour of service.
19.6 In any Top-Heavy Plan Year, an eligible Participant who is a Non-Key
Employee shall receive no less than either a minimum contribution to a defined
contribution plan equal to the lesser of 3% of compensation or the largest
percentage of compensation provided on behalf of any Key-Employee, or a minimum
accrual in a defined benefit plan equal in value to an accrued benefit at any
point in time of 2% of his Average Annual Compensation for the five consecutive
years in which his compensation was highest, times his Years of Service for
benefit accrual beginning on or after January 1, 1984 and during which the Plan
was Top-Heavy, up to a maximum of 20%, payable at Normal Retirement Date in the
form of a straight life annuity. If a Non-Key Employee is a Participant in both
a defined benefit plan and a defined contribution plan which are Top-Heavy, the
Participant shall receive no less than either a defined contribution minimum
equal to 5% of compensation or the defined benefit minimum accrual described
above (but reducing the 20% maximum by 2% for each Top-Heavy Plan Year during
the first 10 Top-Heavy Plan Years in which the minimum 5% contribution is made
on his behalf to a defined contribution plan). Compensation for purposes of the
defined benefit minimum benefit shall not include compensation after the last
Plan Year in which the Plan is Top-Heavy and shall be compensation as defined in
Article 4 for purposes of computing limits on maximum contributions or benefits.
For Plan Years
XIX-7
<PAGE>
beginning prior to January 1, 1985, any Company contribution attributable to a
salary reduction or similar arrangement shall not be taken into account for
purposes of determining whether the minimum contribution to a defined
contribution plan required above has been made, or is in fact required to be
made, except that account balances derived from such contributions shall be
taken into account in determining whether or not the Plan is Top-Heavy.
Eligible Participants are those non-key employee Participants in defined
contribution plans who have not separated from service at the end of the Plan
Year, or who have become Participants in the Plan but who subsequently fail to
complete 1,000 hours of service for an accrual computation period. Eligible
Participants in defined benefit plans are those Participants who are credited
with at least 1,000 hours of service in an Accrual Computation Period.
19.7 In the case of a Participant in a defined benefit plan, in no case
will the operation of the Top-Heavy rules, including rules applicable to Super
Top-Heavy Plans, pertaining for example and not by way of limitation to the
definitions of the Defined Benefit Plan Fraction or Defined Contribution Plan
Fraction, effect a reduction in the Participant's accrued benefit. However, the
mere application of the rules for establishing which Plan is primary in assuring
compliance with Section 415 of the Code in the case of a Participant in both a
defined benefit plan and a defined contribution plan shall not be considered as
effecting a reduction in an accrued benefit.
XIX-8
<PAGE>
ARTICLE TWENTY
MISCELLANEOUS PROVISIONS
20.1 Purpose: This Agreement and Trust which is created is purely voluntary
on the part of the Company, and the Company may change or discontinue payments
hereunder at any time or from time to time as the Company may decide; provided,
however, that such discontinuance of payment or termination is approved as
required by federal law. Except as otherwise provided by federal law, neither
the establishment of the Agreement and Trust nor any modification hereof, nor
the creation of any fund or account, nor the payment of any benefit, shall be
construed as giving any person whomsoever any legal or equitable right against
the Company or the Trustee, but any and all claims or rights arising under this
Agreement and Trust shall be expressly limited in enforcement to the assets of
the Trust fund, and in those instances where a Contract has been issued, the
right to such benefits shall also be limited by the terms and conditions of the
Contract. Nothing contained in this Agreement and Trust shall be construed or
interpreted as giving any Employee the right to be retained in the service of
the Company or shall affect or impair the right of the Company to control its
Employees and to terminate the service of any Employee at any time.
20.2 Headings: Headings or titles of Articles are for general information
only and this Agreement and Trust shall not be construed by reference to such
titles.
20.3 Severability: If any provision of this Agreement and Trust is held
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision, and this Agreement and Trust shall be construed and
enforced as if such provision had not been included.
20.4 Situs: The terms of this Trust shall be construed in accordance with
the laws of the Trust Situs as set forth in Subparagraph 2.1(t), except to the
extent preempted by federal law.
20.5 Binding Effect: This Agreement and Trust shall be binding upon and
inure to the benefit of the Company and the Trustee, their successors and the
Participants and their Beneficiaries in accordance with the terms of this
Agreement and Trust.
20.6 Construction: Whenever used in this Agreement and Trust unless the
context indicates otherwise, singular shall
XX-1
<PAGE>
include plural and the plural shall include singular; and the male gender shall
include the female gender.
20.7 Termination: Upon the return of all contributions to the Company as
provided in Paragraph 17.2 hereof, the Trust shall terminate, and the Trustee
shall be discharged from all obligations under the Trust.
20.8 Indemnification: The Company shall indemnify those to whom the Company
has delegated fiduciary responsibilities against any and all claims, losses,
damages, expenses and liabilities arising from their responsibilities in
connection with the Plan, unless the same is determined to be due to gross
negligence or willful misconduct.
20.9 Interpretation: Except as otherwise provided by federal law, in all
matters concerning the interpretation of this Agreement and Trust and the
operation of the Plan and Trust, the decisions made by the Plan Administrator
shall be final and conclusive upon all the parties. All such decisions shall
apply uniformly to all Participants in like situations.
20.10 Rules: The Plan Administrator may from time to time formulate and
issue such rules and regulations, not inconsistent with the declared purposes
and provisions of the Plan, as the Plan Administrator may deem necessary to
administer and carry out the Plan and Trust. No such rule or regulation will be
ineffective by reason of the fact that such rule or regulation may amend the
purely administrative provisions of the Plan or conform to any change in the
Plan as may be made by amendment.
20.11 Conformity with Federal Law: This Agreement and Trust shall at all
times be construed and administered so as to conform to the requirements for
qualification under the Internal Revenue Code of 1986, as amended, as well as to
conform to the requirements of all governing federal law, and the Agreement and
Trust shall be deemed amended automatically to conform to such legal
requirements, to the extent necessary.
20.12 Controlled Group: For purposes of interpreting and administering Plan
provisions required for tax qualification under Internal Revenue Code Section
401, including Plan provisions relating to participation, vesting, benefit
accrual, and limitations on benefits and contributions, all employees of all
entities which are members of a Controlled Group of entities, as defined in
Internal Revenue Code Section 414(b) and (c), and/or which are members of an
Affiliated Service Group as defined in Internal Revenue Code Section 414(m),
shall be treated as if employed by a single employer.
XX-2
<PAGE>
For purposes of determining years of Service for eligibility and vesting
purposes for any Employee or former Employee of the company, service with any
entity which is a member of a Controlled Group or an Affiliated Service Group in
which the Company is included shall be considered service with the Company. In
determining service for purposes of benefit accrual for any Employee or former
Employee of the Company, service during any Plan Year in which an Employee was a
Participant in a Plan maintained by a member of a Controlled Group or an
Affiliated Service Group in which the Company is included shall be taken into
account.
20.13 Successor Company: Any successor organization of the Company may
adopt this Plan and Trust, with the written consent of the Company, if then in
existence. Such successor shall thereby succeed to all the rights, powers, and
duties of the Company hereunder.
XX-3
<PAGE>
IN WITNESS WHEREOF, the Company and Trustee have caused this Agreement to
be executed the day and date previously written.
ATTEST: PENNSYLVANIA SAVINGS BANK
_______________________ By:______________________
Roseanne Pauciello, Vincent J. Fumo,
Secretary President
_______________________ _______________________
Gary Polimeno, Vincent J. Fumo,
Treasurer President
_______________________
Anthony Di Sandro,
Trustee
XX-4
<PAGE>
The undersigned, President of the above named corporation, does hereby
certify that the foregoing are true and correct copies of the Defined Benefit
Pension Plan and Trust instruments, adopted by said Corporation and approved by
Unanimous Consent of its Board of Directors.
He further certifies that the Defined Benefit Pension Plan and Trust
instruments were duly executed by the Corporation and the Trustees named in said
instruments.
_________________________(SEAL)
Vincent J. Fumo,
President
XX-5
<PAGE>
AMENDED AND RESTATED
CASH OR DEFERRED
PROFIT SHARING PLAN AND TRUST
BY AND BETWEEN
PENNSYLVANIA SAVINGS BANK
AND
VINCENT J. FUMO, TRUSTEE
AND
ANTHONY DI SANDRO, TRUSTEE
<PAGE>
ARTICLE ONE
PURPOSE, CREATION AND NAME
1.1 WHEREAS, the Employer heretofore established a Cash or Deferred
Profit Sharing Plan and Trust effective December 1, 1983, (hereinafter called
the "Original Effective Date") known as the Pennsylvania Savings Association
Cash or Deferred Profit Sharing Plan and Trust and which plan shall hereinafter
be known as Pennsylvania Savings Bank Cash or Deferred Profit Sharing Plan and
Trust (herein referred to as the "Plan") in recognition of the contribution made
to its successful operation by its employees and for the exclusive benefit of
its eligible employees; and
WHEREAS, under the terms of the Plan and Trust, the Employer has the
ability to amend the Plan and Trust;
NOW, THEREFORE, effective January 1, 1990 except as otherwise provided,
the Employer and the Trustee in accordance with the provisions of the Plan
pertaining to amendments thereof, hereby amend the Plan and Trust in its
entirety and restate the Plan and Trust;
The provisions of this Plan shall apply only to an Employee who
terminates employment on or after the effective date of this amendment and
restatement. The rights and benefits, if any, of a former employee shall be
determined in accordance with the prior provisions of the Plan in effect on the
date his employment terminated;
1.2 THIS AGREEMENT, hereby made and entered into this 15th day of
November, 1990, by and between PENNSYLVANIA SAVINGS BANK (herein referred to as
the "Employer") and VINCENT J. FUMO and ANTHONY DI SANDRO (herein referred to as
the "Trustees").
I-1
<PAGE>
INDEX
Page
ARTICLE ONE
Purpose, Creation and Name ............. I-1
ARTICLE TWO
Definitions of Terms ................... II-1
ARTICLE THREE
Eligibility ............................ III-1
ARTICLE FOUR
Contributions and Management of Funds .. IV-1
ARTICLE FIVE
Retirement Benefits .................... V-1
ARTICLE SIX
Disability Benefits .................... VI-1
ARTICLE SEVEN
Death Benefits ......................... VII-1
ARTICLE EIGHT
Separation Benefits .................... VIII-1
ARTICLE NINE
Payment of Benefits .................... IX-1
ARTICLE TEN
Spendthrift Clause ..................... X-1
ARTICLE ELEVEN
Insurance Contracts .................... XI-1
ARTICLE TWELVE
Right to Alter, Amend or Terminate Trust XII-1
ARTICLE THIRTEEN
Loans .................................. XIII-1
i
<PAGE>
Page
ARTICLE FOURTEEN
Trustee ................................. XIV-1
ARTICLE FIFTEEN
Insurer ................................. XV-1
ARTICLE SIXTEEN
No Reversion to Company ................. XVI-1
ARTICLE SEVENTEEN
Direct Transfers and Rollovers .......... XVII-1
ARTICLE EIGHTEEN
Determination of Top-Heavy Status......... XVIII-1
ARTICLE NINETEEN
Miscellaneous Provisions ................ XIX-1
ii
<PAGE>
ARTICLE TWO
DEFINITION OF TERMS
2.1 The following words and terms as used in this Plan and Trust shall
have the meaning set forth below, unless a different meaning is clearly required
by the context.
(a) Actual Deferred Percentage: The total contribution, both
elective and non-elective, allocated to a Participant during
a Plan Year divided by the Compensation of the Participant.
(b) Affiliated Employer: The Employer and any corporation which
is a member of a controlled group of corporations (as
defined in Section 414(b) of the Code) which includes the
Employer; any trade or business (whether or not
incorporated) which is under common control (as defined in
Section 414(c) of the Code) with the Employer; any
organization (whether or not incorporated) which is a member
of an affiliated service group (as defined in Section 414(m)
of the Code) which includes the Employer; and any other
entity required to be aggregated with the Employer pursuant
to regulations under Section 414(o) of the Code.
(c) Age: A person's age at his last birthday.
(d) Aggregate Account: With respect to each Participant, the
value of all accounts maintained on behalf of a Participant,
whether attributable to Employer or Employee contributions,
subject to the provisions of Article XVIII.
(e) Agreement: This instrument with all amendments and
supplements thereto.
(f) Anniversary Date: First day of Plan Year.
(g) Annual Addition: Means the amount allocated to a
Participant's account during the Limitation Year that
constitutes:
(i) Employer contributions,
(ii) Employee contributions,
(iii) Forfeitures, and
II-1
<PAGE>
(iv) Amounts described in Sections 415 (1) (1) and
419(A)(d)(2) of the Code.
For the purposes of this definition, Employee contributions
are determined without regard to any rollover
contributions.
(h) Average Actual Deferred Percentage: The sum of the Actual
Deferred Percentages of Participants divided by the number
of Participants.
(i) Beneficiary: The person or persons to whom the share of a
deceased Participant's total account is payable, as provided
in the Plan. For purposes of determining whether the Plan is
a Top-Heavy Plan, a Beneficiary of a deceased Participant
shall be considered a Key Employee or a Non-Key Employee, as
the case may be.
(j) Break in Service: For the purposes of eligibility, any
Eligibility Computation Period in which an Employee has no
more than 500 hours of service. For purposes of vesting, any
Vesting Computation Period in which an Employee has no more
than 500 hours of service.
(k) Cash Value: A Cash Value of Contract providing specific
allocations of amounts to individual participants.
(1) Code: The Internal Revenue Code of 1986, as amended or
replaced from time to time.
(m) Company: Pennsylvania Savings Bank
(n) Compensation: Compensation actually paid to or for the
benefit of an Employee during the Plan Year, inclusive of
overtime pay and commissions, but excluding bonuses, except
that in the event Company is an accrual basis taxpayer,
Company may by written resolution elect to use accrued
compensation in lieu of paid compensation. Compensation
shall be such remuneration that is subject to tax under
Section 3101(a) of the Internal Revenue code, without the
dollar limitation of Section 3121(a). However, Compensation
for any Self-Employed Individual shall be equal to his
earned income; that is, the net earnings from
self-employment as defined in Code Section 401(c)(2),
(reduced by Company's deductible contribution made on
behalf of such individual for such year). Effective for Plan
Years beginning after 12/31/88 this Plan shall not take into
consideration a Participants Compensation to the extent it
exceeds 200,000.00, as indexed under Code Section 415(d).
II-2
<PAGE>
In applying this limitation, the family group of a Highly
Compensated Participant who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner" of the Employer
or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be
treated as a single Participant, except that for this
purpose Family Members shall include only the affected
Participant's spouse and any lineal descendants who have not
attained age nineteen (19) before the close of the year.
Notwithstanding the above, for any Top-Heavy Plan Year,
Compensation in excess of $200,000 (or such other amount as
the Secretary of the Treasury may designate) shall be
disregarded, except for purposes of determining maximum
permissible voluntary contributions and the Annual Additions
resulting therefrom, and for purposes of satisfying the
minimum contribution or benefit provisions regarding
Top-Heavy Plans, compensation is determined in accordance
with the definition of Compensation contained in Article IV
with respect to limits on maximum contributions or benefits.
(o) Contract: Any individual or group annuity policy or life
insurance policy for and/or on any Plan Participant, or any
unallocated investment contract issued by an insurer.
(p) Contribution: Non-Integrated.
Maximum Contribution: In any Top-Heavy Plan Year, a
Participant otherwise eligible to share in Contributions or
Forfeitures, but who is paid for fewer than 1,000 Hours of
Service, shall be limited to a maximum allocation of
Contributions and Forfeitures of 3% Percent of Compensation
from all the retirement plans maintained by the Company.
Said contribution shall be provided first from a Money
Purchase Pension Plan, if applicable, in an amount equal to
1% of Compensation and the remainder of the 3% contribution
shall next be provided from the Profit Sharing Plan in an
amount equal to 2% of Compensation. In the event said
contribution is not made from the above-mentioned Plans,
said maximum contribution shall be provided by this Plan
maintained by the Company.
If a Participant also participates in another defined
contribution plan maintained by Company, then the Maximum
Contribution referred to above shall be reduced
II-3
<PAGE>
by any allocation made on his behalf to said other
defined contribution plan.
(q) Deferred Compensation: The portion of a Participant's total
Compensation which has been contributed to the Plan in
accordance with the Participant's election pursuant to
Article IV.
(r) Defined Benefit Fraction: A fraction the numerator of which
is the projected annual benefit of the Participant under all
qualified defined benefit Plans of Company (determined as of
the close of the Limitation Year), and the denominator of
which is the lesser of:
(1) the product of 1.25 multiplied by the dollar
limitation in effect for defined benefit plans under
Internal Revenue Code Section 415(b)(1)(A) for such
year, or
(2) the product of 1.4 multiplied by the percentage of the
Participant's high three (3) consecutive years
compensation which may be taken into account under
Internal Revenue Code Section 415(b)(1)(B) with
respect to such Participant under the Plan for
such year.
Notwithstanding the foregoing, for any Top-Heavy Plan Year,
1.0 shall be substituted for 1.25 above if any Non-Key
Employee Participant eligible for an accrual of benefits
who does not have either an allocation of Company
contributions or forfeitures to a defined contribution plan
of at least 7.5 percent of Compensation for such year or an
accrued benefit in a defined benefit plan in which he
participates of not less than the 3% minimum benefit as
provided in Internal Revenue Code Section 416(h)(2)(A)
(ii)(I) (but not both). However, for any Plan Year in which
this Plan is a Super Top-Heavy Plan, 1.0 shall be
substituted for 1.25 in any event.
(s) Defined Contribution Plan Fraction: A fraction the numerator
of which is the sum of the Annual Additions to the
Participant's account(s) under all qualified defined
contribution plans of Company including voluntary
contribution accounts as of the close of the Limitation
Year, and the denominator of which is the sum of the lesser
of the following amounts determined for such year and for
each prior Year of Service with the Company:
II-4
<PAGE>
(1) Such amount as is determined by multiplying 1.25 by the
dollar limitation in effect for the defined
contribution plans under Internal Revenue Code
Subsection 415(c)(1)(A) for such year (determined
without regard to Section 415(c)(6) of the Code), or
(2) 35 percent of the Participant's compensation for such
year.
Notwithstanding the foregoing, for any Top-Heavy Plan Year,
1.0 shall be substituted for 1.25 above if any Non-Key
Employee Participant eligible for any accrual of benefits
does not have either an allocation of Company contributions
and forfeitures of at least 7.5 percent of Compensation for
such year or an accrued benefit in a defined benefit plan in
which he participates of not less than the 3% minimum benefit
as provided in Code Section 416(h)(2)(A)(ii)(I)(but not
both). However, for any Plan Year in which this Plan is a
Super Top-Heavy Plan, 1.0 shall be substituted for 1.25 in
any event.
(t) Determination Date: For purposes of determining if the Plan
is Top-Heavy, the last day of the preceding Plan Year, or in
the case of the first Plan Year, the last day of such Plan
Year.
(U) Early Retirement Date: The first day of the next Plan year
coinciding with or folowing a Participant's 55th birthday,
but preceding Normal Retirement Date.
(v) Effective Date of this Plan: First day of Plan Year
beginning January 1, 1990.
(w) Elective Contribution: The portion of the Contribution
allocated to a Participant as a result of the Participant's
election to reduce his salary during the Plan Year.
(x) Eligibility Computation Period: The consecutive 12 month
period beginning on the date on which the Employee commenced
employment, and successive consecutive 12 month periods
thereafter. An Employee's Employment Commencement Date is
the first day for which the Employee is entitled to be
credited with an Hour of Service from the Employer
maintaining the Plan. If an Employee incurs a Break in
Service and subsequently is credited with additional hours
of service, his Eligibility Computation Period shall be the
consecutive 12 month period beginning with the date on which
he is
II - 5
<PAGE>
first credited with an hour of service after the Break in
Service, and successive consecutive 12 month periods
thereafter.
(y) Employee: Means employees of the Employer, but excludes any
person who is employed as an independent contractor.
Employee shall include leased employees within the meaning
of Code Sections 414(n)(2) and 414(o)(2) unless such leased
employees are covered by a plan described in Code Section
414(n)(5) and such leased employees do not constitute more
than 20% of the recipient's non-highly compensated work
force.
(z) Employer: The Company and any corporation which is a member
of a controlled group of corporations (as defined in Section
414(b) of the Code) which includes the Company; any trade or
business (whether or not incorporated) which is under common
control (as defined in Section 414(c) of the Code) with the
Company; any organization (whether or not incorporated)
which is a member of an affiliated service group (as defined
in Section 414(m) of the Code) which includes the Company;
and any other entity required to be aggregated with the
Company pursuant to regulations under Section 414(o) of the
Code.
(aa) Excess Deferred Compensation: With respect to any taxable
year of the Participant, the excess of the aggregate amount
of such Participant's Elective Contribution and the
Non-Elective Contribution made on behalf of a Participant
for such taxable year, over the dollar limitation provided
for in Code Section 402(g), which is incorporated herein by
reference. Excess Deferred Compensation shall be treated as
an Annual Addition pursuant to Article IV.
(bb) Family Member: With respect to an affected Participant,
such Participant's spouse, such Participant's lineal
descendants and ascendants and their spouses, all as
described in Code Section 414(g)(6)(B).
(cc) 415 compensation: Compensation as defined in Section
4.10(a).
(dd) 414(s) Compensation: With respect to any Employee means his
Deferred Compensation plus 415 Compensation paid during a
Plan Year. 414(s) Compensation in excess of $200,000 shall
be disregarded. Such amount shall be adjusted at the same
time and in such manner as permitted under Code Section
415(d).
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<PAGE>
(ee) Highly Compensated Employee: An Employee who performed
services for the Employer during the "determination year"
and is in one or more of the following groups:
The "determination year" shall be the Plan Year for which
testing is being performed, and the "look-back year" shall
be the immediately preceding twelve-month period.
The "look-back year" shall be the calendar year ending with
or within the Plan Year for which testing is being
performed, and the "determination year" (if applicable)
shall be the period of time, if any, which extends beyond
the "look-back year" and ends on the last day of the Plan
Year for which testing is being performed (the "lag
period"). If the "lag period" is less than twelve months
long, the dollar threshold amounts specified in (b), (c) and
(d) below shall be prorated based upon the number of months
in the "lag period".
For purposes of this Section, the determination of "415
Compensation" shall be made without regard to Code Sections
125, 402(a)(8), 402(h)(1)(B) and, in the case of
Employer contributions made pursuant to a salary reduction
agreement, without regard to Code Section 403(b).
Additionally, the dollar threshold amounts specified in (b)
and (c) below shall be adjusted at such time and in such
manner as is provided in Regulations. In the case of such an
adjustment, the dollar limits which shall be applied are
those for the calendar year in which the "determination
year" or "look-back year" begins.
(a) Employees who at any time during the "determination
year" or "look-back year" were "five percent owners"
of the Employer. "Five percent owner" means any person
who owns (or is considered as owning within the meaning
of Code Section 318) more than five percent of the
outstanding stock of the Employer or stock possessing
more than five percent of the total combined voting
power of all stock of the Employer or, in the case of
an unincorporated business, any person who owns more
than five percent of the capital or profits interest in
the Employer. In determining percentage ownership
hereunder, employers that would otherwise be aggregated
under Code Sections 414(b), (c), (m) and (o) shall be
treated as separate employers.
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<PAGE>
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of
$75,000.
(c) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000
and were in the Top Paid Group of Employees for the
Plan Year.
(d) Employees who during the "look-back year" were officers
of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) and
received "415 Compensation" during the "look-back year"
from the Employer greater than 50 percent of the limit
in effect under Code Section 415(b)(1)(A) for any such
Plan Year. The number of officers shall be limited to
the lesser of (i) 50 employees; or (ii) the greater of
3 employees or 10 percent of all employees. If the
Employer does not have at least one officer whose
annual "415 Compensation" is in excess of 50 Percent of
the Code Section 415(b)(1)(A) limit, then the highest
paid officer of the Employer will be treated as a
Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during
the "determination year" and are also described in (b),
(c) or (d) above when these paragraphs are modified to
substitute "determination year" for "look-back year".
In determining who is a Highly Compensated Employee, all
Affiliated Employers shall be taken into account as a
single employer and leased employees within the meaning
of Code Sections 414(n)(2) and 414(o)(2) shall be
considered Employees unless such leased employees are
covered by a plan described in Code Section 414(n)(5) and
are not covered in any qualified plan maintained by the
Employer. In addition, Highly Compensated Former
Employees shall be treated as Highly Compensated
Employees without regard to whether they performed
services during the "determination year".
(ff) Highly Compensated Former Employee: A former Employee who
had a separation year prior to the "determination year" and
was a Highly Compensated Employee in the year of separation
from service or in any "determination
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<PAGE>
year" after attaining age 55. Notwithstanding the foregoing,
an Employee who separated from service prior to 1987 will be
treated as a Highly Compensated Former Employee only if
during the separation year (or year preceding the separation
year) or any year after the Employee attains 55 (or the last
year ending before the Employee's 55th birthday), the
Employee either received "415 Compensation" in excess of
$50,000 or was a "five percent owner". For purposes of this
Section, "determination year", "415 Compensation" and "five
percent owner" shall be determined in accordance with
Section 2.1(ee). Highly Compensated Former Employees shall
be treated as Highly Compensated Employees.
(gg) Highly Compensated Participant: Any Highly Compensated
Employee who is eligible to participate in the Plan.
(hh) Inactive Participant: Any Employee or former Employee who
has ceased to be a Participant and on whose behalf an
account is maintained under the Plan.
(ii) Insurer: Any legal reserve life insurance company.
(jj) Key-Employee: Any Participant (and his Beneficiary) who, at
any time during the Plan Year or any of the preceding four
(4) Plan Years, is:
(1) an officer of Company (as that term is defined
within the meaning of the regulations under
Internal Revenue Code Section 416).
(2) one of the 10 Employees owning (or considered as
owning within the meaning of Code Section 318) the
largest interests in all employers required to be
aggregated under Code Sections 414(b), (c), and
(m) and receiving Compensation at least equal to
the maximum dollar limitation under Internal
Revenue Code Section 415(c)(1) (A) as in effect
for the calendar year in which the Determination
Date falls.
(3) a "five percent owner" of Company. "Five percent
owner" means any person who owns (or is considered
as owning within the meaning of Internal Revenue
Code Section 318) more than 5 percent of the
outstanding stock of Company or stock possessing
more than 5 percent of the total combined voting
power of all stock of Company. In determining
percentage ownership hereunder, employers that
would otherwise be aggregated under Internal
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<PAGE>
Revenue Code Sections 414(b), (c), and (m) shall
be treated as separate employers.
(4) a "one percent owner" of Company having an annual
compensation from Company of more than $150,000.
"one percent owner" means any person who owns (or
is considered as owning within the meaning of
Internal Revenue Code Section 318) more than one
percent (1%) of the outstanding stock of Company
or stock possessing more than one percent (1%) of
the total combined voting power of all stock of
Company. In determining percentage ownership
hereunder, employers that would otherwise be
aggregated under Internal Revenue Code Sections
414(b), (c), and (m) shall be treated as separate
employers. However, in determining whether an
individual has compensation of more than $150,000,
compensation from each employer required to be
aggregated under Internal Revenue Code Sections
414(b), (c), and (m) shall be taken into account.
(kk) Leased Employee: Any person who is not an Employee of
Company and who has, for a period of 1 or more years, and on
a substantially full-time basis, provided services to
Company of a type historically performed by Employees of the
Company, which services are or have been provided pursuant
to an agreement between Company and a leasing organization.
For any Plan Year, any Leased Employee shall be treated as
an Employee of Company for purposes of the participation
standards of Article III, the contribution standards of
Article IV and the vesting standards of Article VIII, unless
such Leased Employee is, for such Plan Year or any portion
thereof during which such Leased Employee provides services
for the Company, a participant in a safe Harbor Plan
provided for such Leased Employee by the leasing
organization leasing the services of such Leased Employee to
the Company. For purposes of the foregoing sentence, a
Leased Employee shall not be treated as an Employee of the
Company until after the close of the aforementioned 1-year
period during which such individual has provided
substantially full-time services to the Company, except that
Years of Service for the Company shall be determined by
taking into account the entire period for which the
individual performed services for the Company.
(ll) Length of Service Required:
(1) on the Effective Date of this Plan: 2 years
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<PAGE>
(2) After the Effective Date of this Plan: 2 years
(mm) Limitation Year: Any period of one year ending on the last
day of the Plan Year. If the Plan Year is changed the
limitation year shall correspond to the new Plan Year
beginning with the first full twelve month Plan Year
subsequent to the commencement of change in Plan Year. In
the event the Limitation Year is or has been changed, by
reason of change in the Plan Year or otherwise, the
limitations of Paragraph 4.1 shall be applicable in the
normal manner as if no change had occurred with respect to
the new Limitation Year, but with respect to the Limitation
Year within which the change is made (the former Limitation
Year) the following rule shall apply. The dollar limit for
Annual Additions shall be prorated for allocations made from
the first day of the former Limitation Year through the day
before the first day of the new Limitation Year (the
limitation period) by multiplying (1) the applicable dollar
limitation for the calendar year in which the limitation
period ends by (2) a fraction, the numerator of which is the
number of months (including any fractional parts of a month)
in the limitation period, and the denominator of which is
12.
(nn) Minimum Participation Age Required:
(1) on the Effective Date of the Plan: 21
(2) After the Effective Date of the Plan: 21
(oo) Named Fiduciary: President of Company, except that if
Company is an unincorporated business, the proprietor of
Company if a sole-proprietorship or the partner designated
in the summary plan description for the Plan for purposes of
service of legal process.
(pp) Net Income: The current or accumulated earnings and profits
of the Company as of the fiscal year of Company ending
within or with the Plan Year for which the contribution is
made before any contribution to any qualified retirement
plan.
(qq) Non-Elective Contribution: The portion of the Contribution
allocated to a Participant which the Company must contribute
in order to satisfy the coverage and discriminatory
requirements of Section 401(k)(3)(A)(i) of the Internal
Revenue Code of 1986, as amended.
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<PAGE>
(rr) Non-Highly Compensated Participant: shall mean any
Participant who is neither a Highly Compensated Employee nor
a Family Member.
(ss) Non-Key Employee: Any Employee who is not a Key-Employee.
(tt) Normal Retirement Age: The earlier of (1) the Participant's
65th birthday or the date 5 years following a Participant's
commencement of participation in the Plan, whichever is
later; or (2) the Normal Retirement Date.
(uu) Normal Retirement Date: Participant's 65th birthday provided
he has completed five (5) Years of Participation.
(vv) Participant: Any Employee who has qualified under this Plan.
A Participant ceases to be a Participant when all funds in
his account to which he is entitled under the Plan have been
distributed in accordance with the Plan.
(ww) Participation Date: The earlier of the first day of the Plan
Year or the first day of the seventh month of such Plan Year
coincident with or following the date an Employee completes
his eligibility requirements of Section 3.1, provided the
Employee was still employed as of that date (or if not
employed on that date, as of the date of rehire a 1-Year
Break in service has not occured).
(xx) Plan Administrator: Company
(yy) Plan Year: Any period of one year ending December 31. The
first Plan Year shall be the period January 1, 1990 through
December 31, 1990.
(zz) Safe Harbor Plan: A money purchase pension plan with a
nonintegrated employer contribution rate of at least 7 1/2
percent of compensation, and providing for immediate
participation and full and immediate vesting.
(A) Service for Predecessor Employer: In any case in which
Company maintains a plan of a predecessor employer, service
for such predecessor shall be treated as service for
Company, and in any case in which Company maintains a plan
which is not the plan maintained by a predecessor employer,
service for such predecessor shall [as provided in Internal
Revenue Code Section
II-12
<PAGE>
414(a) (2)], to the extent required in regulations
prescribed by the Secretary of the treasury or his delegate,
be treated as service for Company.
(B) Shareholder-Employee: If Company is an S Corporation, an
Employee of Company who either individually or together with
his spouse, children, grandchildren and parents, owns more
than 5% of Company's outstanding stock on any day during the
Plan Year.
(C) S Corporation: An electing small business corporation within
the meaning of Internal Revenue Code Section 1362(a).
(D) Super Top-Heavy Plan: A Top-Heavy Plan under which the
present value of accrued benefits or the sum of account
balances (including accounts for Employee contributions) of
Key-Employees under this Plan and any plan of an Aggregation
Group, exceeds 90 percent of the present value of accrued
benefits or the sum of the account balances (including
accounts for Employee contributions) of all Participants
under this Plan and any plan of an Aggregation Group,
measured as of the Determination Date.
(E) Top-Heavy Plan: For Plan Years commencing after December 31,
1983, a Plan under which the present value of accrued
benefits of Key-Employees or the sum of the account balances
(including accounts for Employee contributions) of
Key-Employees under this Plan and any plan of an Aggregation
Group, exceeds 60 percent of the present value of accrued
benefits or the sum of the account balances (including
accounts for Employee contributions) of all Participants
under this Plan and any plan of an Aggregate Group, measured
as of the Determination Date.
If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan
Year, such Participant's present value of accrued benefit
and/or account balances shall not be taken into account for
purposes of determining whether this Plan is a Top Heavy
Plan (or whether any Aggregation Group which includes this
Plan is a Top-Heavy Group).
(F) Top-Heavy Plan Year: A particular Plan Year commencing after
December 31, 1983, in which the Plan is a Top-Heavy Plan.
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<PAGE>
(G) Top Paid Group: "Top Paid Group" means the top 20 percent of
Employees who performed services for the Employer during the
applicable year, ranked according to the amount of "415
Compensation" received from the Employer during such year.
All Affiliated Employers shall be taken into account as a
single employer, and leased employees within the meaning of
Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such leased employees are covered by a plan
described in Code Section 414(n)(5) and are not covered in
any qualified plan maintained by the Employer. For the
purpose of determining the number of active Employees in any
year, the following Employees shall be excluded. However,
such Employees shall still be considered for the purpose of
identifying the particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of
service;
(b) Employees who normally work less than 17 1/2 hours
per week;
(c) Employees who normally work less than six (6)
months during a year;
(d) Employees who have not yet attained age 21;
and
(e) Employees who are non-resident aliens and who
received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer
constituting United States source income within the
meaning of Code Section 861(a)(3).
In addition, if 90 percent or more of the Employees of the
Employer are covered under agreements the Secretary of Labor
finds to be collective bargaining agreements between Employee
representatives and the Employer, and the Plan covers only
Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from
both the total number of active Employees as well as from the
identification of particular Employees in the Top Paid Group.
(H) Trust Situs: Pennsylvania
(I) Trustee: The Trustee or Trustees named above and any
successor Trustee or Trustees.
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<PAGE>
(J) Vesting Computation Period: The consecutive 12 month period
beginning on the first day of the Plan Year. If the Vesting
Computation Period is or has been changed, by reason of a
change in the Plan Year or otherwise, the first Vesting
Computation Period after such change shall begin before the
last day of the preceding Vesting Computation Period and an
Employee who is credited with a Year of Service in both the
last Vesting Computation Period before the change and the
first Vesting Computation Period after the change shall be
credited with 2 Years of Service for purposes of vesting.
(K) Year of Service: For purposes of eligibility, any
Eligibility Computation Period in which Employee has not
less than 1,000 hours of service. For purposes of vesting,
any Vesting Computation Period in which Employee has not
less than 1,000 hours of service. If the Length of Service
required under the Plan is or includes a fractional year, an
Employee shall not be required to have any minimum number of
hours of service to receive credit for such fractional year
for purposes of eligibility. For purposes of benefit
accrual, any Plan Year commencing with the Plan Year in
which the Participant commenced participation in which
Employee has not less than 1,000 hours of service.
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<PAGE>
ARTICLE THREE
ELIGIBILITY
3.1 All Employees in the employ of Company on the Effective Date shall
participate as of the Effective Date, provided that on such date they have met
the Minimum Participation Age and Length of Service requirements applicable to
such Employees.
In the event that any Employee in the employ of Company on the Effective
Date does not meet the applicable Minimum Age and service requirements
on the Effective Date, such Employee shall commence participation on the
applicable Participation Date.
3.2 All Employees whose employment commences after the Effective Date
shall commence Participation on the applicable Participation Date.
3.3 Notwithstanding any service requirement of less than one year which
may be contained herein, no Employee who is credited with 1,000 or more hours of
service in an Eligibility Computation Period shall not be considered to have met
at the expiration of said Eligibility Computation Period such required Length of
Service requirement.
3.4 An Employee shall be credited with an hour of service for purposes
of eligibility, vesting and eligibility for Company contributions according to
the following:
(a) An hour of service is each hour for which an Employee is paid, or
entitled to payment, for the performance of duties for Company
during the applicable computation period.
(b) An hour of service is each hour for which an Employee is
paid, or entitled to payment, by Company on account of a
period of time during which no duties are performed
(irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty
or leave of absence. Notwithstanding the preceding
sentence:
(1) No more than 501 hours of service are required to be
credited under this subparagraph (b) to an Employee on
account of any single continuous period during which the
Employee performs no duties (whether or not such period
occurs in a single computation period);
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<PAGE>
(2) An hour for which an Employee is directly or indirectly paid
or entitled to payment on account of a period during which
no duties are performed is not required to be credited to
the Employee if such payment is made or due under a plan
maintained solely for the purpose of complying with
applicable workmen's compensation, or unemployment
compensation or disability insurance laws; and
(3) Hours of service are not required to be credited for a
payment which solely reimburses an Employee for medical or
medically related expenses incurred by the Employee.
For purposes of this subparagraph (b), a payment shall be
deemed to be made by or due from Company regardless of whether
such payment is made by or due from Company directly, or
indirectly through, among others, a trust fund, or insurer, to
which Company contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer,
or other entity are for the benefit of particular Employees or
are on behalf of a group of Employees in the aggregate.
(c) An hour of service is each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by
Company. The same hours of service shall not be credited both
under subparagraph (a) or subparagraph (b), as the case may be,
and under this subparagraph. Crediting of hours of service for
back pay awarded or agreed to with respect to periods described
in subparagraph (b) shall be subject to the requirements set
forth in that subparagraph.
Also included is the special rule for determining hours of
service for reasons other than the performance of duties,
as well as the rule for crediting of hours of service to
computation periods, as set forth in Labor Department
Regulations Section 2530.200b-2(b) and (c), respectively.
(d) Additional hours of service in the minimum amount necessary to
prevent a break in service shall be credited to employees for the
following absences:
(1) Authorized leave of absence, provided the Employee
returns to active employment on or before the end of
such leave of absence. Authorized leave of absence
shall include
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<PAGE>
illness and reserve duty in the Armed Forces of
the United states.
(2) Absence of an Employee subsequent to the effective
date who enters the Armed Forces of the United
states and has reemployment rights under law,
provided, he complies with the requirements of the
law as to employment and reemployment.
(e) Additional Hours of Service, but not in excess of 501, based on
the number of Hours of Service which otherwise would normally
have been credited to individuals but for such absence as is
described below, (or if such number cannot be determined, 8 Hours
of Service per day of such absence), shall be credited to
individuals for purposes of eligibility and vesting, but not for
purposes of benefit accrual, (notwithstanding 3.4 above), in the
Eligibility and Vesting Computation Periods in which such absence
begins, if necessary to prevent a 1 year Break in Service in such
Computation Period, but if not so necessary, in the immediately
following Eligibilty and Vesting Computation Periods, provided
that the absence is for maternity or paternity reasons and shall
mean an absence on account of the following:
(i) The pregnancy of the individual;
(ii) The birth of a child of the individual;
(iii) The placement of a child with the
individual in connection with the
adoption of such child by such
individual;
(iv) Care of such child for a period beginning
immediately after his birth or placement.
However, no Hours of Service will be credited under this
subparagraph unless the individual furnishes to the Plan
Administrator such timely information as the Plan
Administrator may reasonably require to establish the number
of days of absence and the reason or reasons therefore.
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<PAGE>
3.5 Hours of service shall be counted for purposes of eligibility,
vesting and benefit accrual on the basis of actual hours for which an Employee
is paid or entitled to payment, as determined in accordance with Paragraph 3.4.
3.6 Within 90 days of the Participation Date on which an Employee shall
become eligible to participate, the Plan Administrator shall notify each such
Employee of his eligibility to participate by providing such Employee with a
summary plan description.
3.7 In the case of an Employee who has a vested benefit and sustains a
Break in Service, such Employee shall recommence active participation on the
first day of his first Eligibility Computation Period after the break during
which he has completed 1,000 hours of service or more. In the case of an
Employee with no vested benefit who sustains a Break in Service, where the
number of consecutive years in which he incurred a Break in service are less
than the aggregate number of years in which he attained a Year of Service before
such break, such Employee shall recommence active participation on the first day
of his first Eligibility Computation Period after the break during which he has
completed 1,000 hours of service or more. In the case of an Employee with no
vested benefit who sustains a Break in Service, where the number of consecutive
years in which he incurred a Break in service are equal to or greater than the
aggregate number of years in which he attained a Year of Service before such
break, such Employee shall be treated as if he were a new Employee for purposes
of eligibility to participate. The aggregate number of Years of Service before a
Break in service shall not include any Years of Service not required to be taken
into account under this Paragraph by reason of any prior Break in Service! For
purposes of vesting for an Employee who has sustained a Break in service, the
provisions of Article 8 shall apply. For purposes of benefit accrual, the
provisions of Article 4 shall apply.
Notwithstanding any provision of the Plan to the contrary, in the case
of an Employee who sustains a Break in Service under a Plan that
provides a Length of Service requirement in excess of one year,
provided such Employee has not satisfied such Length of Service
requirements prior to incurring a Break in service, service before such
Break in Service shall not be taken into account for purposes of
eligibility.
3.8 Notwithstanding any provision of this Plan to the contrary, this
Plan shall not provide contributions or benefits for an Owner-Employee who
controls, or a group of Owner-Employees who together control an unincorporated
trade or business with respect to which the Plan is established, and such Owner-
III-4
<PAGE>
Employee, or group of Owner-Employees also control one or more
unincorporated trades or businesses, unless this Plan and the plans
established with respect to such other trades or businesses when
coalesced constitute a single plan which satisfies the requirements of
Section 401(a) and (d) of the Internal Revenue Code with respect to
the employees of all such unincorporated trades or businesses.
Furthermore, the Plan shall not provide contributions or benefits for
one or more Owner-Employees who control one or more unincorporated
trades or businesses, unless the employees of each such unincorporated
trade or business which such Owner-Employees control are included
under a plan which satisfies the requirements of Section 401(a) and
(d) of the Internal Revenue Code and which provides contributions or
benefit for employees not less favorable than those provided for such
owner-Employees under this Plan. For purposes of this Paragraph 3.8,
an owner-Employee, or a group of Owner-Employees, shall be considered
to control a trade or business if such owner-Employee, or such group
of Owner-Employees together own the entire interest in an
unincorporated trade or business, or in the case of a partnership, own
more than 50% of either the capital interest or the profits interest
in such partnerships. An Owner-Employee shall mean a sole proprietor,
or, in the case of a partnership, any person who owns more than 10% of
the capital or profits interest.
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ARTICLE FOUR
CONTRIBUTIONS AND MANAGEMENT OF FUNDS
4.1 Company, subject to its rights to terminate and amend this Plan and
Trust, shall contribute to the Trust, within thirty (30) days after the last day
of the Plan Year, such portion of a Participant's compensation with respect to
which the Participant has made a written election to reduce his or her
compensation in accordance with the provisions of Paragraph 4.3 (hereinafter
referred to as the "Elective Contribution").
The Company may make a contribution to the Plan for any Plan Year. Said
contribution (hereinafter referred to as the "Non-Elective Contribution") shall
be a discretionary amount made out of the Company's Net Income. Participants
who perform less than a Year of Service during the Plan Year or are not employed
on the last day of the Plan Year shall not share in this Employer discretionary
contribution. Such Non-Elective Contribution shall be allocated to each
Participant in the same proportion that each such Participant's Compensation for
the year bears to the total Compensation of all Participants for such year.
Only Compensation paid or accrued during a Plan Year on and after the
date an Employee commenced participation shall be taken into account
for purposes of making contributions.
(a) For each Plan Year the annual allocation derived from Elective
Contributions to a Participant's Account shall satisfy one of the following
tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral Percentage" of the
Non-Highly Compensated Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the Highly
Compensated Participant group over the "Actual Deferral Percentage" for the
Non-Highly Compensated Participant group shall not be more than two percentage
points. Additionally, the "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not exceed the "Actual Deferral Percentage"
for the Non-Highly Compensated Participant group multiplied by 2. The provisions
of Code Section 401(k)(3) and Regulation 1.401(k)-l(b) are incorporated herein
by reference.
However, in order to prevent the multiple use of the alternative
method described in (2) above and in Code Section 401(m)(9)(A),
any Highly Compensated Participant eligible to
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make elective deferrals and to make Employee contributions or to
receive matching contributions under this Plan or under any other
plan maintained by the Employer or an Affiliated Employer shall have
his actual contribution ratio reduced pursuant to Regulation
1.401(m)-2, the provisions of which are incorporated herein by
reference.
(b) For the purposes of this Section "Actual Deferral Percentage"
means, with respect to the Highly Compensated Participant group and Non-Highly
Compensated Participant group for a Plan Year, the average of the ratios,
calculated separately for each Participant in such group, of the amount of
Employer Elective Contributions allocated to each Participant's Elective Account
for such Plan Year to such Participant's "414(s) Compensation" for such Plan
Year. The actual deferral ratio for each Participant and the "Actual Deferral
Percentage" for each group shall be calculated to the nearest one hundredth of
one percent. Elective Contributions allocated to each Non-Highly Compensated
Participant's Account shall be reduced by Excess Deferred Compensation to the
extent such excess amounts are made under this Plan or any other plan maintained
by the Employer.
(c) For the purpose of determining the actual deferral ratio of a
Highly Compensated Employee who is subject to the Family Member aggregation
rules of Code Section 414(q)(6) because such Participant is either a "five
percent owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year, the following
shall apply:
(1) The combined actual deferral ratio for the family group (which
shall be treated as one Highly Compensated Participant) shall be the
greater of: (i) the ratio determined by aggregating Elective
Contributions and "414(s) Compensation" of all eligible Family
Members who are Highly Compensated Participants without regard to
family aggregation; and (ii) the ratio determined by aggregating
Elective Contributions and "414(s) Compensation" of all eligible
Family Members (including Highly Compensated Participants). However,
in applying the $200,000 limit to "414(s) Compensation", Family
Member shall include only the affected Employee's spouse and any
lineal descendants who have not attained age 19 before the close of
the Plan Year.
(2) The Elective Contributions and "414(s) Compensation" of all
Family Members shall be disregarded for purposes of determining the
"Actual Deferral Percentage" of the Non-Highly Compensated
Participant group except to the extent taken into account in
paragraph (1) above.
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(3) If a Participant is required to be aggregated as a member of more
than one family group in a plan, all Participants who are members of
those family groups that include the Participant are aggregated as
one family group in accordance with paragraphs (1) and (2) above.
(d) For the purposes of Sections 4.1(a) and 4.2, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any Employee
eligible to make a deferral election pursuant to this Article, whether or not
such deferral election was made or suspended pursuant to such Article.
(e) For the purposes of this Section, if two or more plans (other than
an employee stock ownership plan as defined in Code Section 4975(e) (7)) which
include cash or deferred arrangements are considered one plan for the purposes
of Code Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)
the cash or deferred arrangements included in such plans shall be treated as one
arrangement.
(f) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two (2) or more cash or deferred arrangements
(other than a cash or deferred arrangement which is part of an employee stock
ownership plan as defined in Code Section 4975(e)(7) of the Employer or an
Affiliated Employer, all such cash or deferred arrangements shall be treated as
one (1) cash or deferred arrangement for the purpose of determining the deferral
percentage with respect to such Highly Compensated Participant. However, if the
cash or deferred arrangements have different Plan Year's, this paragraph shall
be applied by treating all cash or deferred arrangements ending with or within
the same calendar year as a single arrangement.
4.2 In the event that the initial allocations of the Elective
Contributions pursuant to section 4.1 do not satisfy one of the tests set forth
in Section 4.1(a) the Administrator shall adjust Excess Contributions pursuant
to the options set forth below:
(a) On or before the fifteenth day of the third month following the end
of each Plan Year, the Highly Compensated Participant having the highest actual
deferral ratio shall have his portion of Excess Contributions distributed to
him, until one of the tests set forth in Section 4.1(a) is satisfied, or until
his actual deferral ratio equals the actual deferral ratio of the Highly
Compensated Participant having the second highest actual deferral ratio. This
process shall continue until one of the tests set forth in Section 4.1(a) is
satisfied. For each Highly Compensated Participant, the amount of Excess
Contributions is equal to the Elective Contributions on behalf of such Highly
Compensated Participant determined prior to the application of this paragraph)
minus the amount determined by multiplying the
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Highly Compensated Participant's actual deferral ratio (determined after
application of this paragraph) by his "414(s) Compensation". However,
in determining the amount of Excess Contributions to be distributed with
respect to an affected Highly Compensated Participant as determined
herein, such amount shall be reduced by any Excess Deferred Compensation
previously distributed to such affected Highly Compensated Participant
for his taxable year ending with or within such Plan Year.
(1) With respect to the distribution of Excess Contributions pursuant
to (a) above, such distribution:
(i) may be postponed but not later than the close of the
succeeding Plan Year;
(ii) shall be made from Qualified Non-Elective Contributions
only to the extent that Excess Contributions exceed the balance
in the Participant's Elective Account attributable to Deferred
Compensation;
(iii) shall be adjusted for Income; and
(iv) shall be designated by the Employer as a distribution of
Excess Contributions (and Income).
(2) With respect to the recharacterization of Excess Contributions
pursuant to (a) above, such recharacterized amounts:
(i) shall be deemed to have occurred on the date on which the
last of those Highly Compensated Participants with Excess
contributions to be recharacterized is notified of the
recharacterization and the tax consequences of such
recharacterization;
(ii) shall not exceed the amount of Deferred Compensation on
behalf of any Highly Compensated Participant for any Plan Year;
(iii) shall be treated as voluntary Employee contributions for
purposes of Code Section 401(a)(4) and regulation
1.401(k)-l(b). Excess Contributions characterized as voluntary
Employee contributions shall continue to be nonforfeitable and
subject to the same distribution rules provided for in Section
4.11;
(iv) are not permitted if the amount recharacterized plus
voluntary Employee contributions actually made by such Highly
Compensated Participant, exceed the maximum amount of voluntary
Employee contributions (determined prior to application of
Section 4.5(a) that such Highly Compensated
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Participant is permitted to make under the Plan in the
absence of recharacterization; and
(v) shall be adjusted for Income.
(3) Any distribution of less than the entire amount of Excess
Contributions shall be treated as a pro rata distribution of Excess
Contributions and Income.
(b) The determination and correction of Excess Contributions of a
Highly Compensated Participant whose actual deferral ratio is determined under
the family aggregation rules shall be accomplished as follows:
(1) If the actual deferral ratio for the Highly Compensated
Participant is determined in accordance with Section 4.1(c)(1)(ii),
then the actual deferral ratio shall be reduced as required herein
and Excess Contributions for the family unit shall be allocated
among the Family Members in proportion to the Elective Contributions
of each Family Member that were combined to determine the group
actual deferral ratio.
(2) If the actual deferral ratio for the Highly Compensated
Participant is determined under Section 4.1(c)(1)(i), then the
actual deferral ratio shall first be reduced as required herein, but
not below the actual deferral ratio of the group of Family Members
who are not Highly Compensated Participants without regard to family
aggregation. The Excess Contributions resulting from this initial
reduction shall be allocated (in proportion to Elective
Contributions) among the Highly Compensated Participants whose
Elective Contributions were combined to determine the actual
deferral ratio. If further reduction is still required, then Excess
Contributions resulting from this further reduction shall be
determined by taking into account the contributions of all Family
Members and shall be allocated among then in proportion to their
respective Elective Contributions.
(c) Within twelve (12) months after the end of the Plan Year, the
Employer shall make a special Non-Elective Contribution on behalf of Non-Highly
Compensated Participants in an amount sufficient to satisfy one of the tests set
forth in Section 4.1(a). Such contribution shall be allocated to the
Participant's Account of each Non-Highly Compensated Participant in the same
proportion that each Non-Highly Compensated Participant's Compensation for the
year bears to the total Compensation of all Non-Highly Compensated Participants.
4.3 A Participant may elect to reduce his or her Compensation or to
forgo an increase in Compensation and direct that the said amount be contributed
to his account by the Company. At any time
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the Participant may file a written election, provided by the Plan Administrator
with the Plan Administrator, thus permitting a Participant to reduce his
Compensation by way of a payroll reduction. The Plan Administrator may limit the
frequency of changes in authorized payroll deductions such that no more than two
rates of reduction apply in any Plan Year and shall establish by rules of
general applicability the effective date of such reductions, but contributions
made by payroll reduction may be terminated at any time by the Participant by
means of a written request filed with the Plan Administrator at least 20 days in
advance of the date on which such termination is effective.
A Participant's election to reduce his or her salary will be limited to
fifteen percent (15%) of Compensation not to exceed the dollar limit
imposed on Deferred Compensation under Code Section 401(k) for a specific
calendar year, and further subject to the limitations contained in
Paragraphs 4.1, 4.2, 4.6, 4.8 and 4.11. If any Participant's election would
violate the aforementioned restrictions, the application of the
aforementioned limitations by the Plan Administrator shall be made in a
non-discriminatory manner and may include the distribution of Elective
Contributions.
4.4 Participants are not required to make any contributions under this
Plan. However, a Participant may each Plan Year voluntarily contribute to the
Plan on an after-tax basis up to a maximum of 10 percent of Compensation,
reduced by the voluntary contribution to any other qualified plan of the
Company. Contributions by a Participant may be made at any interval determined
by the Plan Administrator to be convenient. Said maximum shall be based upon the
Participant's cumulative Compensation paid to him by the Company since becoming
a Participant.
(a) For purposes of determining Annual Additions for a Participant
under the Plan, voluntary contributions shall be deemed credited
when made, except that contributions made within 30 days after
the close of a Limitation Year shall be deemed credited to that
Limitation Year, if made with respect thereto.
(b) The voluntary contribution made by a Participant shall be
accounted for as a separate fund under the Trust, apart from that
part of the fund which is a result of the Company's contribution.
Records of the amount contributed by a Participant shall be
maintained separately by the Trustee. A Participant's voluntary
contribution shall be 100 percent vested at the time such
contribution is made. Contributions made hereunder by
Participants are not intended to be deductible by Participants
under Section 219(a) of the Internal Revenue Code. All earnings
on the
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above mentioned fund shall immediately be 100 percent vested.
Each Participant's account shall be valued at least annually at
fair market value.
(c) Amounts credited to a voluntary account shall be invested by the
Trustee in such proportion and in such investments as Participant
shall direct (unless all assets of the Trust are invested in
Contracts), in which case any investment income and loss shall be
allocated solely to such account. In the absence of such
direction (or in the event all assets of the Trust are invested
in Contracts), Trustee, in its discretion, shall invest the
account proportionately, as Trustee determines, and income and
loss shall be allocated as provided in Subparagraph 4.5(b). The
right of a Participant to direct the investment of his account
shall cease with the termination of his employment with Company.
(d) A Participant who contributed voluntarily may withdraw his
contributions and/or earnings thereon at any time upon 60 days
written notice to the Plan Administrator of such intent to
withdraw, with the written consent of the Participant's spouse,
if any, and with the Plan Administrator's approval; except that
in the event a Participant becomes permanently disabled, retires,
dies, or otherwise terminates employment, distribution of the
amount credited to his voluntary account shall be paid to him or
his Beneficiary in a lump sum payment within a reasonable period
of time following his disability, retirement, death or
termination, if so requested by such Participant, if living; or
if not living, if so requested by the Beneficiary of such
participant. At the request of the Participant or his
Beneficiary, as the case may be, and with the consent of the Plan
Administrator, the amount credited to his voluntary account
distributable upon disability, retirement or death, may be paid
under the options for settlement provided in Paragraph 9.3. If
after a reasonable period of time following termination of a
Participant's employment, the Participant or his Beneficiary, as
the case may be, has not requested payment of the amounts
credited to his voluntary account, the Plan Administrator may
direct the trustee to distribute such amount in a lump sum
payment.
(e) Any withdrawal or distribution from a Participant's account for
voluntary contributions shall be deemed made first from
contributions. Earnings shall be withdrawn or distributed only to
the extent that the total withdrawals and distributions exceeds
the total of the Participant's voluntary contributions.
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Limitations, The Employer may limit, revoke or amend its
agreement to make employee contributions under Section 4.2 on
behalf of any Participant at any time, but only if it determines
that such limitation, revocation or amendment is necessary under
one of the following circumstances:
(i) in the case of a Participant's after-tax contributions, to
insure that the discrimination tests of Section 401(m) of the
Internal Revenue Code governing permissible levels of employee
contributions are met for such Plan Year, or to insure that one
of the following tests is met for such Plan Year.
(A) The actual Average Percentage of the employee
contributions of the Highly-Compensated Employees eligible
to participate is not more than 1.25 times the Actual
Average Percentage of the employee contributions for all
other Employees eligible to participate; or
(B) The Actual Average Percentage of the employee
contributions for the Highly-Compensated Employees eligible
to participate is not more than 2.0 times the Actual
Average Percentage of the employee contributions for all
other Employees eligible to participate and the Actual
Average Percentage of the employee contributions for the
Highly-Compensated Employees eligible to participate does
not exceed the Actual Average Percentage of the employee
contributions for all other Employees eligible to
participate by more than two (2) percentage points; or
(ii) to insure that a Participant's Additions for any calendar
year will not exceed the limitations of Section 4.3; or
(iii) to insure deductibility of the Employer's entire
contribution to the Plan for federal income tax purposes.
If a limitation or amendment becomes necessary pursuant to
paragraph (i) or (iii) above, such limitation or amendment will
be first applied to the Participant who is the
Highly-Compensated Employee electing the highest percentage of
employee contributions pursuant to Section 4.2 until the tests
of (i) or (iii) are met or until such Participant's election
pursuant to Section 4.2 is reduced to the same percentage level
as the Participant who is the Highly-Compensated Employee
electing the second highest percentage of employee contributions
pursuant to Section 4.2. If further limitations are required,
then both such
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Participants' percentage elections shall be reduced until the
tests of (i) or (iii) are met or until the two Participants'
elections pursuant to Section 4.2 are reduced to the same
percentage level as the Participant who is the Highly
Compensated Employee electing the third highest percentage of
employee contributions pursuant to Section 4.2, and such
limitations or amendments shall continue to be made in a similar
manner from the Participants who are Highly-Compensated
Employees making the highest percentage elections to the lowest
until the tests of (i) or (iii) are satisfied.
If a Participant is prevented from making a portion of his
employee contributions due to a permissible limitation,
revocation or amendment by the Employer, such portion shall be
returned to the Participant prior to its contribution to the
Trust Fund.
In applying the discrimination tests under this Section,
the employer shall treat employee contributions under plans
which are aggregated under Section 401(a)(4) or 410(b) of the
Internal Revenue Code as made under a single plan. In addition,
if a Highly-Compensated Employee is eligible under more than one
plan subject to Section 401(m) of the Code maintained by the
Employer, the Employee's Actual Average percentage is calculated
by treating all of the plans as one plan.
For purposes of this Section, the family aggregation rules
set forth in Section 2.1 of this Plan shall apply. Where the
family aggregation rule is applicable, the family group shall be
treated as one Highly-Compensated Employee and the Actual
Average Percentage for the family group shall be the greater of:
(1) the ratio determined by combining the
compensation and employee contributions of all eligible
family members who are highly-compensated without regard to
family aggregation; and
(2) the ratio determined by combining the
compensation and employee contributions of all eligible
family members.
For purposes of this Section 4.2(f) the following meanings
shall apply. The "Actual Average Percentage" for a specified
group of Employees for a Plan Year shall be the amount of
employer contributions actually paid to the Trust by each such
Employee for each Plan Year to the Employee's Compensation for
such Plan Year. The term "Compensation" shall include all
amounts paid by the
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Employer to the Employee which are currently includible in the
Employee's gross income. The Employer shall have the right to
use such alternate definition of Compensation as the Internal
Revenue Service may provide by regulation under Code Section
414(s).
4.5(a) The "Actual Contribution Percentage" for the Highly Compensated
Participant group shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly Compensated
Participant group; or participant group, or such percentage for the
Non-Highly Compensated Participant group plus 2 percentage points.
However, to prevent the multiple use of the alternative method
described in this paragraph and Code Section 401(m)(9)(A), any
Highly Compensated Participant eligible to make elective deferrals
pursuant to Section 4.1 or any other cash or deferred arrangement
maintained by the Employer or an Affiliated Employer and to make
Employee contributions or to receive matching contributions under
this Plan or under any other plan maintained by the Employer or an
Affiliated Employer shall have his actual contribution ratio reduced
pursuant to Regulation 1.401(m)-2. The provisions of Code Section
401(m) and Regulations 1.401(m)-l(b) and 1.401(m)-2 are
incorporated herein by reference.
(b) For the purposes of this Section and Section 4.6, "Actual
Contribution Percentage" for a Plan Year means, with respect to the
Highly Compensated Participant group and Non-Highly Compensated
Participant group the ratios (calculated separately for each
Participant in each group) of:
(1) the sum of voluntary Employee contributions and Excess
Contributions recharacterized as voluntary Employee contributions on
behalf of each such Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan Year.
(c) For purposes of determining the "Actual Contribution Percentage"
and the amount of Excess Aggregate Contributions pursuant to Section
4.5(d), the Administrator may elect to take into account, with respect
to Employees eligible to have Employer matching contributions;
voluntary Employee contributions; allocated to their accounts, elective
deferrals (as defined in Regulation 1.402(g)-l(b)) and qualified
non-elective contributions (as defined in Code Section 401(m)(4)(C)
contributed to any plan maintained by the Employer. Such elective
deferrals and qualified non-elective contributions shall be treated as
Employer matching contributions subject to Regulation 1.401(m)-1(b)(2)
which is incorporated herein by
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reference. However, the Plan Year must be the same as the plan year of
the plan to which the elective deferrals and the qualified
non-elective contributions are made.
(d) For the purpose of determining the actual contribution ratio of
a Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Employee is
either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual contribution ratio for the family group
(which shall be treated as one Highly Compensated Participant) shall
be the greater of: (i) the ratio determined by aggregating Employer
matching contributions made: voluntary Employee contributions,
Excess Contributions recharacterized as voluntary Employee
contributions and "414(s) Compensation" of all eligible Family
Members who are Highly Compensated Participants without regard to
family aggregation; and (ii) the ratio determined by aggregating
Employer matching contributions made : voluntary Employee
contributions made: Excess Contributions recharacterized as
voluntary Employee contributions: and "414(s) Compensation" of all
eligible Family Members (including Highly Compensated Participants).
However, in applying the $200,000 limit to "414(s) Compensation,"
Family Members shall include only the affected Employee's spouse and
any lineal descendants who have not attained age 19 before the
close of the Plan Year.
(2) The Employer matching contributions made; voluntary Employee
contributions made; Excess Contributions recharacterized as
voluntary Employee contributions; and "414(s) Compensation" of all
Family Members shall be disregarded for purposes of determining the
"Actual Contribution Percentage" of the Non-Highly Compensated
Participant group except to the extent taken into account in
paragraph (1) above.
If a Participant is required to be aggregated as a member of more
than one family group in a plan, all Participants who are members of
those family groups that include the Participant are aggregated as one
family group in accordance with paragraphs (1) and (2) above.
(e) For purposes of this Section, if two or more plans of the
Employer (other than an employee stock ownership plan as defined in
Code Section 4975(e)(7) to which matching contributions, Employee
contributions, or both, are made are treated as one plan for purposes
of Code Sections 401(a)(4) or 410(b) (other than the average
benefits test under Code Section 410(b)(2)(A)(ii) such
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plans shall be treated as one plan for purposes of this Section 4.6.
In addition, two or more plans of the Employer to which matching
contributions, Employee contributions or elective deferrals are made
may be considered as a single plan for purposes of this Section. In
such a case, the aggregated plans must satisfy Code Sections 401(a)(4)
and 410(b) as though such aggregated plans were a single plan.
Notwithstanding the above, contributions to an employee stock
ownership plan as defined in Code Section 4975(e)(7) shall not be
aggregated with this Plan.
(f) If a Highly Compensated Participant participates in two or more
plans (other than an employee stock ownership plan as defined in Code
Section 4975(e)(7) which are maintained by the Employer or an
Affiliated Employer to which matching contributions, Employee
contributions or elective deferrals are made, all such contributions
on behalf of such Highly Compensated Participant shall be aggregated
for purposes of this Section.
(g) For purposes of Sections 4.6(a) and 4.7, a Highly Compensated
Participant and Non-Highly Compensated Participant shall include any
Employee eligible to have Employer matching contributions (whether or
not a deferral election was made or suspended) voluntary Employee
contributions (whether or not voluntary Employee contributions are
made) allocated to his account for the Plan Year.
4.7 (a) In the event that the "Actual Contribution Percentage" for
the Highly Compensated Participant group exceeds the "Actual
Contribution Percentage" for the Non-Highly Compensated Participant
group pursuant to Section 4.6(a), the Administrator (on or before the
fifteenth day of the third month following the end of the Plan Year,
but in no event later than the close of the following Plan Year) shall
direct the Trustee to distribute to the Highly Compensated Participant
having the highest actual contribution ratio, his portion of Excess
Aggregate Contributions (and Income allocable to such contributions)
until either one of the tests set forth in Section 4.6(a) is
satisfied, or until his actual contribution ratio equals the actual
contribution ratio of the Highly Compensated Participant having the
second highest actual contribution ratio. This process shall continue
until one of the tests set forth in Section 4.6(a) is satisfied.
(b) Any distribution of less than the entire amount of Excess
Aggregate Contributions (and Income) shall be treated as a pro rata
distribution, of Excess Aggregate Contributions and Income.
Distribution of Excess Aggregate Contributions shall be designated by
the Employer as a distribution of Excess Aggregate Contributions (and
Income).
(c) Excess Aggregate Contributions attributable to amounts other
than voluntary Employee contributions, including forfeited
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matching contributions, shall be treated as Employer contributions for
purposes of Code Sections 404 and 415 even if distributed from the
Plan.
(d) For each Highly Compensated Participant, the amount of Excess
Aggregate contributions is equal to the total Employer matching
contributions: voluntary Employee contributions made Excess
Contributions recharacterized as voluntary Employee contributions: and
any qualified non-elective contributions or elective deferrals taken
into account pursuant to Section 4.6(c) on behalf of the Highly
Compensated Participant (determined prior to the application of this
paragraph) minus the amount determined by multiplying the Highly
Compensated Participant's actual contribution ratio (determined after
application of this paragraph) by his "414(s) Compensation". The
actual contribution ratio must be rounded to the nearest one-hundredth
of one percent. In no case shall the amount of Excess Aggregate
Contribution with respect to any Highly Compensated Participant exceed
the amount of Employer matching contributions made : voluntary Employee
contributions made, Excess Contributions recharacterized as voluntary
Employee contributions: and any qualified non-elective contributions
or elective deferrals taken into account pursuant to Section 4.6(c) on
behalf of such Highly Compensated Participant for such Plan Year.
(e) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after first
determining the Excess Contributions, if any, to be treated as
voluntary Employee contributions due to recharacterization for the plan
year of any other qualified cash or deferred arrangement (as defined in
Code Section 401(k)) maintained by the Employer that ends with or
within the Plan Year or which are treated as voluntary Employee
contributions due to recharacterization pursuant to Section 4.6(a).
(f) The determination and correction of Excess Aggregate
Contributions of a Highly Compensated Participant whose actual
contribution ratio is determined under the family aggregation rules
shall be accomplished as follows:
(1) If the actual contribution ratio for the Highly Compensated
Participant is determined in accordance-with Section 4.6 (d)(1)
(ii), then the actual contribution ratio shall be reduced and the
Excess Aggregate Contributions for the family unit shall be
allocated among the Family Members in proportion to the of Employer
matching contributions made : voluntary Employee contributions made,
Excess Contributions recharacterized as voluntary Employee
contributions : and any qualified non-elective contributions or
elective deferrals taken into account pursuant to Section 4.6(c) of
each Family
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Member that were combined to determine the group actual contribution
ratio.
(2) If the actual contribution ratio for the Highly Compensated
Participant is determined under Section 4.6(d)(1)(i), then the actual
contribution ratio shall first be reduced, as required herein, but
not below the actual contribution ratio of the group of Family
Members who are not Highly Compensated Participants without regard to
family aggregation. The Excess Aggregate Contributions resulting from
this initial reduction shall be allocated among the Highly
Compensated Participants whose Employer matching contributions made;
voluntary Employee contributions made, Excess Contributions
recharacterized as voluntary Employee contributions; and any
qualified non-elective contributions or elective deferrals taken into
account pursuant to Section 4.6(c) were combined to determine the
actual contribution ratio. If further reduction is still required,
then Excess Aggregate Contributions resulting from this further
reduction shall be determined by taking into account the
contributions of all Family Members and shall be allocated among them
in proportion to their respective Employer matching contributions
made; voluntary Employee contributions made, Excess Contributions
recharacterized as voluntary Employee contributions; and any
qualified non-elective contributions or elective deferrals taken into
account pursuant to Section 4.6(c).
(g) Notwithstanding the above, within twelve (12) months after the
end of the Plan Year, the Employer may make a special Qualified
Non-Elective Contribution on behalf of Non-Highly Compensated
Participants in an amount sufficient to satisfy one of the tests set
forth in Section 4.6(a). Such contribution shall be allocated to the
Participant's Elective Account of each Non-Highly Compensated
Participant in the same proportion that each Non-Highly Compensated
Participant's Compensation for the year bears to the total Compensation
of all Non-Highly Compensated Participants. A separate accounting shall
be maintained for the purpose of excluding such contributions from the
"Actual Deferral Percentage" tests pursuant to Section 4.1(a).
4.8 All payments by the Company shall be made to the Trustee to be
administered in accordance with the Trust Agreement, and consistent
with the provisions of Paragraph 4.11.
4.9 As of the last day of the Plan Year, the fund shall be valued at
fair market value and there shall be added to each Participant's
account derived from Company contributions:
(a) That proportion of the Company's contribution in
accordance with Paragraph 4.1; and
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(b) That portion of the net accretions and diminutions to the
fund by way of income and loss and realized and unrealized
gains and losses which bears the same ratio to the total
of such net accretions and diminutions as his account
(exclusive of Cash Value) at the preceding Anniversary
Date (reduced by any distributions during the Plan Year)
bore to the total account of all Participants (exclusive
of Cash Value and reduced by any distributions or
forfeitures during the Plan Year) plus any increases in
Cash Value and less the cost of insurance Contracts
allocated to the participant's account. (During the first
Plan Year, such proportion shall be based on the
Participant's share of the Company's contribution.)
4.10 The fact that an allocation shall be made and credited to the
account of the Participant whether by mistake or otherwise shall not
vest in the Participant any right, title or interest in and to any
assets, except at the time or times and upon the terms and conditions
expressly set forth in the Plan.
4.11 The following limits apply to allocations of Annual Additions:
(a) Notwithstanding any provision to the contrary contained
herein, no allocation of an Annual Addition shall be made
to a Participant's account(s) to the extent that such
allocation shall cause the Annual Addition to this Plan,
and to any other qualified defined contribution plan of
the Company (or of any other entity which is a member of a
controlled group of entities as defined in Internal
Revenue Code Section 414(b), (c) and (m) of which Employer
is also a member), to exceed the lesser of $30,000 or 25%
of the Participant's compensation in any given limitation
year. For purposes of applying these limitations
"compensation" shall mean the Participant's "wages,
salaries, fees for professional services and other amounts
received for personal services actually rendered in the
course of employment" with Company and such other amounts
as are specified by Treasury Department Regulation Section
1.415-2(d)(1). Compensation shall exclude all items
specified in Treasury Department Regulation Section
1.415-2(d)(2), including contributions to a plan of deferred
compensation, amounts realized from qualified or non-
qualified stock options, and other amounts which receive
special Federal Income Tax benefit (such as contributions
to 403(b) annuity contracts or premiums qualifying for
exclusion from income under Section 79 of the Code). The
above mentioned dollar limitation shall be adjusted so as
to be equal to the maximum dollar limitation for defined
contribution plans prescribed by the Secretary of the
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Treasury or his delegate. In the case of a Self-Employed
individual, "Compensation" shall mean the participant's
"Earned Income (within the meaning of Internal Revenue Code
Section 401(c)(2) but determined without regard to any
exclusion under Internal Revenue Code Section 911) from
Company."
(b) If the Annual Addition under this Plan to a Participant's
account is to be reduced as a result of the above limitation,
such reduction shall be effected by:
(i) first, returning any employee contributions made during
the Plan Year which are Annual Additions, (and any
earnings attributable thereto),
(ii) next, allocating Company contributions otherwise
allocable to a Participant's account up to the limitation
on Annual Additions.
(c) Company shall endeavor to avoid making contributions which
would, if allocated according to the terms of the Plan
result in Annual Additions in excess of the limits
described in this paragraph, (an excess amount), but if as
a result of the amount of forfeitures to be allocated or
errors in estimating Compensation or under such other
facts and circumstances as the Commissioner of Internal
Revenue permits there is an excess amount such amount
shall be held unallocated in a suspense account and
allocated in the next Limitation Year (and succeeding
Limitation Years if necessary) to all Participants for
whom allocations of contributions or forfeitures would
normally be made and in the manner and up to the limits
prescribed by this Article and shall reduce any Company
contribution which would otherwise be made to the Plan.
Investment gains and losses shall not be allocated to the
suspense account. If it is discovered that an excess
amount has been improperly allocated, such amount shall be
subtracted immediately from the affected Participant's
account (including the earnings allocated as a result of
such improper allocation) and held in suspense as
described above.
In the event of termination of the Plan the suspense account
shall revert to the Employer pursuant to Paragraph 16.5.
(d) If in any Limitation Year Company maintains any other qualified
defined contribution plan(s), Annual Additions shall be deemed
allocated first to any money purchase pension plan and next to
any profit sharing plan.
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(e) In any case in which an individual is or has been a
Participant in both a defined benefit plan and a defined
contribution plan maintained by Company (or by any other
entity which is a member of a controlled group of entities
as defined in Code Section 414(b), (c) and (m) of which
Employer Plan is a member), the sum of the Defined Benefit
Plan Fraction and the Defined Contribution Plan Fraction
for any Limitation Year may not exceed 1.0. If any
reductions are required in order not to exceed this
fraction they shall be made first to the defined
contribution plans of Company, first to any profit sharing
plan of Company and next to any money purchase pension
plan of Company. Such reduction shall be effected by
reducing the sum of the current Limitation Year Annual
Additions in accordance with the procedure of Subparagraph
4.10(d) so that the Defined Contribution Plan Fraction
does not exceed 1.0 minus the defined benefit fraction at
the end of the Limitations Year. Any amount received by
this reduction shall be held in suspense in accordance
with Subparagraph 4.10(c). Provided further that if this
reduction is insufficient to reduce the overall limit to
1.0 then the Defined Benefit Plan Fraction shall be
reduced to the extent necessary to bring about compliance.
4.12 Notwithstanding any provision of the Plan to the contrary,
Elective Contributions attributable to Participant deferrals shall not
be distributable earlier than upon the Participant's hardship,
retirement death, disability, separation from service
or attainment of age 59 1/2.
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<PAGE>
ARTICLE FIVE
RETIREMENT BENEFITS
5.1 A Participant may elect to retire on his Normal Retirement Date,
whereupon his eligibility for Company contributions hereunder shall cease. If a
Participant remains in the employ of Company subsequent to Normal Retirement
Date contributions shall be made for such Participant. If Company consents, a
participant may retire on his Early Retirement Date, whereunder his eligibility
for Company contributions hereunder shall cease.
In the case of Early Retirement, the vesting schedule shall apply. In
the case of Normal Retirement, the total amount credited to an employed
Participant's account shall become 100 percent vested at the
Participant's Normal Retirement Age. If the Company makes a contribution
for a Participant subsequent to such date, such Participant shall be 100
percent vested in that contribution and any earnings thereon.
5.2 The Trustee shall distribute to a retired Participant the value of
his vested amount in accordance with the provisions of Article 9.
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<PAGE>
ARTICLE SIX
DISABILITY BENEFITS
6.1 Any Participant who has become totally and permanently disabled
shall be entitled to retire effective the first day of the next Plan Year
subsequent to the date disability commenced, but payment shall be made only
after the Plan Administrator receives written notice of a determination of such
disability by a medical certificate issued by a doctor selected or approved by
the Plan Administrator. Total disability shall mean disability of either a
physical or mental nature, so as to prevent the Participant from performing the
duties of his employment with the Company. Permanent Disability shall mean
disability of either a physical or mental nature which is expected to last for a
period of 6 months or longer and which results in a termination of the
Participant's employment with Company. All Participants shall be treated alike
under similar circumstances.
6.2 A Participant retiring because of such disability shall receive his
total account calculated as of the most recent valuation date. Payment shall be
made after the Participant is entitled to retire and within 6 months of the date
on which the Plan Administrator receives notice in accordance with the preceding
paragraph, unless the Participant elects to defer commencement of payment,
pursuant to Paragraph 9.2, but in no circumstances shall payment be made later
than the period prescribed in Paragraph 9.2.
6.3 In lieu of a determination of disability pursuant to Paragraph 6.1
above, a determination of entitlement for disability benefits under Social
Security shall be conclusive evidence of total and permanent disability, but a
failure to attain such determination shall not be determinative of any rights to
receive disability benefits under this Plan. Recovery from total and/or
permanent disability subsequent to entitlement for receipt of benefits under
this Article shall not prejudice any right to receive or to continue to receive
such benefits.
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ARTICLE SEVEN
DEATH BENEFITS
7.1 In the event of the death of a Participant prior to the
commencement of payment of his retirement benefits, his death benefit shall be
the entire amount in his account (exclusive of Cash Value), as of the most
recent valuation date, and the proceeds of any Contract allocated to his
account, provided that the death benefit of a Participant who has terminated
service with Company shall be equal to his vested interest as computed under
Article 8 or Article 6, as the case may be, (exclusive of Cash Value) and the
proceeds of any Contracts allocated to his account. Such death benefits shall be
paid to his designated Beneficiary as soon as is convenient, but not later than
60 days after the next valuation date.
(a) If insurance exists as a Trust asset, the following shall apply
to the insurance proceeds.
(1) The Plan Administrator, at the direction of the
Participant, shall direct the Trustee to designate a
settlement option as permitted in Paragraph 9.3 for the
insurance.
(2) If no mode of settlement has been selected in accordance
with (a) (1) above, the Plan Administrator at the direction
of the Beneficiary, shall direct the Trustee to designate a
settlement option as permitted in Paragraph 9.3 within 60
days after the day on which a lump sum in full discharge of
the death benefit obligation under any insurance Contracts
first becomes payable.
Under no circumstances may the mode of settlement from the
insurance proceeds be other than one permitted by Paragraph
9.3.
(b) In regard to non-insurance Trust assets, the following shall
apply:
(1) The Plan Administrator, at the direction of the
Participant, shall direct the Trustee to designate a
settlement option as permitted in Paragraph 9.3 for the
Trust assets.
(2) If no mode of settlement has been selected in accordance
with (b) (1) above, the Plan administrator, after
consultation with the
VII-1
<PAGE>
Beneficiary, shall direct the Trustee to designate a
settlement option as permitted in Paragraph 9.3 within 60
days after the day on which a lump sum in full discharge
of the death benefit obligation first becomes payable.
7.2 The Beneficiary or successor Beneficiary of any death benefit shall
be in accordance with the designation made by the Participant. The Participant
shall have the right to designate the Beneficiary or successor Beneficiary by
filing a designation of Beneficiary form with the Plan Administrator. At any
time, and from time to time, each Participant shall have the unrestricted right
to change the designation of the Beneficiary to receive any death benefits
hereunder. All designations shall be made in writing on the form required by the
Plan Administrator and shall be filed with the Plan Administrator. If no
designation has been made, if the designated Beneficiary has predeceased the
Participant, or if the designation of beneficiary is inoperative for any reason
as to any part of any death benefit hereunder, then the Participant shall be
deemed to have designated the following as his Beneficiary with priority in the
order named:
(a) his widow or her widower, as the case may be;
(b) his issue, per stirpes;
(c) his parents;
(d) his brothers and sisters, per stirpes; and
(e) his estate.
Notwithstanding anything to the contrary contained herein, if a
Participant is married, no designation of a beneficiary other than the
Participant's spouse or change of designation from a Participant's
spouse to someone else, shall be valid, unless (a) the Participant's
spouse consents in writing to such election or change, (b) such
Participant election designates a beneficiary (or a form of benefits)
which may not be changed without spousal consent (or the consent of
the spouse expressly permits designations by the Participant without
any requirement of further consent by the spouse), and (c) the
spouse's consent acknowledges the effect of such election, and is
witnessed by the Plan Administrator or a notary public, unless it is
established to the satisfaction of the Plan Administrator that such
consent may not be obtained because there is no spouse, because the
spouse cannot be located, or because of such other circumstance as may
be prescribed by regulations to be issued by the Secretary of the
Treasury. Any such consent by a spouse shall be effective only with
respect to such spouse.
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<PAGE>
7.3 The Trustee shall be designated to receive the proceeds of any
Contract which becomes payable upon the death of the Participant. The Trustee
may, however, request Insurer to make any beneficiary designation as may be made
by the Participant under Paragraph 7.2 above. In such event the Beneficiary so
designated may be revoked only upon the completion of the requirement
established by the Insurer and the terms of any contracts and the rules of the
Insurer.
7.4 Upon the death of a Participant, the Trustee shall take all
necessary steps and shall execute all required documents to permit the
Beneficiary to collect the death benefits provided pursuant to the specified
method of payment.
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<PAGE>
ARTICLE EIGHT
SEPARATION BENEFITS
8.1(a) Vesting. A Participant shall become fully vested in his
Participant account immediately upon entry into the Plan, and as such shall have
at all times a 100% nonforfeitable right to his Participant account.
No Participant shall forfeit any part of his account until the earlier
of (a) five (5) consecutive one-year Breaks in service or (b) a
cash-out distribution of the entire vested portion of his account
balance derived from Company Contributions, following the Participant's
termination of employment. As of the last day of the Plan Year with or
within which such Breaks in Service or cash-out distribution has
occurred, the nonvested portion of such Participant's account, if any,
shall be forfeited and administered as provided in Article 4.
(b) Distribution. If, upon termination of a Participant's
employment for any reason other than retirement, death or
total and permanent disability, the present value of the
Participant's vested account shall not exceed $3,500, (or
such lesser amount as may be prescribed by the regulations
of the Secretary of the Treasury governing such payments),
the Plan Administrator may direct the Trustee to
distribute the value of the vested account to the
Participant.
If the present value of the Participant's vested account exceeds
the amount specified in the preceding sentence, the Participant
and his spouse, if any, may file with the Plan Administrator a
written request for the payment of the entire amount of his
vested account, and the Plan Administrator may thereupon direct
the Trustee to pay out this amount.
(c) Administration of Participants' Accounts. No share of gains or
losses shall be credited to the forfeitable portion of a
Participant's account, if any, after the last valuation date
prior to the date the forfeiture occurs, until the next
valuation date following the date, if any, as of which the
Participant's account is restored.
Following completion of distributions, a Participant's account
derived from Company contributions shall be cancelled, as of the
date the non-vested portion of his account, if any, would be
forfeited.
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<PAGE>
If the Participant is not vested in any portion of his account,
upon forfeiture the account shall be cancelled.
If the Participant is vested in all or a portion of his account,
and no distribution is made following termination of employment
or the occurrence of a 1 year Break in Service, a 100% vested
account shall be maintained for his vested interest in the Plan,
as of the date the nonvested portion of his account, if any,
would be forfeited. If this account is subsequently distributed,
upon completion of payment the account shall be cancelled.
Subject to Subparagraph 8.1(d) below, if the Participant,
subsequent to cancellation of his account, becomes eligible at a
later date to share in Company Contributions (including
forfeitures) and earnings thereon they shall be allocated to a
newly established regular account.
(d) Restoration of a Participant's Accounts Following Forfeiture.
The concept "Restoration of a Participant's Account" does not
apply in the case of a Participant who was already 100% vested
in his account prior to the occurrence of an event (distribution
or incurrence of a 1 year Break in Service) which would
otherwise cause a forfeiture.
Only the amount in an account which has been forfeited is
subject potentially to restoration. Such an amount shall be
equal to the amount forfeited to the Trust, unadjusted for gains
or losses, and shall be termed the "Restoration Amount".
If a Year of Service is credited to a Participant following an
event causing forfeiture, restoration of the amount forfeited is
possible, provided that said Year of Service is not preceded by
the incurrence of a period of 5 or more consecutive 1 year
Breaks in Service.
A possible restoration automatically will become an actual
restoration, if no distribution has occurred with respect to the
vested portion of the affected Participant's account deriving
from Company Contributions.
If distribution of all of a Participant's vested account
deriving from Company Contributions has occurred, in order for a
possible restoration to become an actual restoration, the
Participant must repay the full amount of the distribution. Such
repayment may be made no later than the later of: the end of the
5 year period following distribution, or the end of the Vesting
Computation Period within which the Participant has the 5th of 5
consecutive
VIII-2
<PAGE>
1 year Breaks in Service. In the event the Participant repays
the distribution within the time allowed, Company shall add the
amount of repayment to the amount in the Participant's account.
An actual restoration shall occur on the date as of which
Company Contributions, if any, would be allocated, coincident
with or next following the fulfillment of all conditions
required for restoration, and such date shall be termed the
"Restoration Date".
The Restoration Amount shall be derived from Company
contributions, which shall accrue as of the Restoration Date.
Said company Contributions shall be paid no later than the Plan
Year following the end of the Plan Year in which the
contribution is accrued, notwithstanding any absence of profits
of Company.
No repayment by any Participant and no Restoration Amount shall
constitute Annual Additions under the Plan.
It shall be the duty of the Plan Administrator to give timely
notification to any rehired Employee, if such Employee is
eligible to make repayment, of his right to make repayment.
In the event a restoration of a Participant's account following
forfeiture occurs, service performed both prior to and
subsequent to the forfeiture shall be credited, to determine his
vested interest in his entire account derived from Company
contributions.
If an Employee has the right to repay a distribution, service
performed prior to forfeiture may not be disregarded, whether or
not repayment is made, for purposes of determining the
Participant's vested interest in account allocations made
subsequent to the date of forfeiture.
If an Employee is rehired prior to a 1 year Break in Service,
and if no distribution has been made to such Employee in
accordance with Subparagraph 8.1(b), for purposes of determining
the Employee's vested interest in both his pre-termination and
post-termination account allocations under the Plan, service
performed prior to termination shall be taken into account.
If an Employee completes a Year of Service after a Break in
Service consisting of 5 or more consecutive 1 year Breaks in
Service, whether or not a distribution has been made to such
Employee, for purposes of determining the
VIII-3
<PAGE>
Employee's vested percentage in his account allocated to him
before such break, post-break Years of Service shall not be
credited, but pre-break Years of Service shall be credited to
determine the Employee's vested percentage in post-break account
allocations, unless the rule of parity provided in Subparagraph
8.2 (a) applies.
8.2 For purposes of determining Years of Service under Paragraph 8.1
above, all Years of Service with the Company are to be credited for purposes of
vesting, except:
(a) Years of Service prior to any period of consecutive 1 year
Breaks in Service, if the Employee was not vested in
benefits deriving from Company Contributions at the time
he incurs a period of consecutive 1 year Breaks in
Service, and his number of consecutive 1 year Breaks in
Service equals or exceeds the greater of 5 or the
aggregate number of his Years of Service, whether or not
consecutive, completed before such period of consecutive 1
year Breaks in Service.
(b) Years of Service prior to any period of consecutive 1 year
Breaks in Service, until the Participant has completed 1 year of
Service after such period.
8.3 The nonforfeitable account of a Participant shall be the product of
his vested percentage times his account balance. If the vesting schedule of the
Plan is or has been amended, for all Plan Years beginning with the Plan Year in
which the amended vesting schedule is effective, the vested percentage of a
Participant's account balance shall be computed in accordance with the amended
schedule.
However, at no time after the date of adoption of an amended vesting
schedule (or the effective date, if later) shall a Participant's
nonforfeitable amount be less than an amount ("V") determined by the
formula: V = (A x C(1)) + (B x (C(2) - C(1)). For purposes of applying
the formula: A is the vested percentage at the date of adoption of an
amended vesting schedule (or its effective date, if later), B is the
vested percentage at any time after the amendment, computed in
accordance with the amended vesting schedule, C(1) is the account
balance at the date of adoption of the amended vesting schedule (or its
effective date, if later), and C(2) is the account balance at any time
subsequent to the date or adoption (or its effective date, if later).
8.4 A Participant having at least 5 Years of Service with the Company,
prior to the expiration of the election period described below, may elect to
have his vested portion computed under the Plan, without regard to any
subsequent amendment to the vesting schedule. An amendment to the vesting
schedule includes any
VIII-4
<PAGE>
amendment which directly or indirectly affects the computation of the vested
percentage of an Employee's account balance, and includes any change resulting
from the operation of Paragraph 18.4. Such an election shall be irrevocable, and
must be filed with the Plan Administrator no later than 60 days after the day
the Plan amendment is adopted, or becomes effective, or the Participant is
issued written notice of the amended vesting schedule by the Plan Administrator
(whichever last occurs). In the event that a Participant makes the election as
hereinabove provided, the vesting schedule in effect prior to the amendment of
the vesting schedule shall apply to determine the vested percentage of such
participant's account.
Notwithstanding the above, no election shall be permitted if the
vesting schedule in effect prior to the amendment did not satisfy the
requirements of Internal Revenue Code Section 411(a) (2), unless under
such schedule all Participants are at least 50 percent vested after 10
Years of Service and 100 percent vested after 15 Years of Service.
Furthermore, no election shall be allowed to any Participant whose
vested percentage under the Plan, as amended, cannot be less at any
time than such percentage determined without regard to such amendment.
8.5 Any Participant who has terminated employment or who is no longer a
member of an eligible class of Employees, and who is entitled to a deferred
vested benefit under the Plan, and who has not received a distribution of such
benefit by the end of the Plan Year following the Plan Year in which such
termination of employment or eligibility occurred, shall be given notification
of the following by the Plan Administrator: the amount of his vested benefit,
the amount of his pre-retirement death benefit, the Normal Retirement Date of
the Plan, any benefits which are forfeitable if the Participant dies before a
certain date, and such other information as may be prescribed by regulations
issued by the Secretary of the Treasury or his delegate.
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ARTICLE NINE
PAYMENT OF BENEFITS
9.1 When a participant's employment is terminated or where a 1 year
Break in Service has occurred, the Plan Administrator shall determine his
interest, and if the full amount of his vested interest is not to be distributed
immediately to the Participant, the Plan Administrator shall cause such
Participant's interest to continue to be separately accounted for on the books
and records of the Plan. Until the full amount of his vested interest shall have
been distributed to the Participant in accordance with the terms hereof, there
shall be added to the balance of such Participant's account the income earned by
his account. The Plan Administrator may direct the trustee to place the value of
such account in one or more federally insured bank or savings and loan accounts
(including certificate of deposit accounts) in the name of the Trustee in trust
for said Participant, in which case the interest shall be credited to his
account at such times as are provided by the account but at least annually. In
the absence of such direction, Trustee, in its discretion shall invest the
account proportionately as Trustee determines and income and loss shall be
allocated as provided in Subparagraph 4.5(b). The Trustee may charge against
such account a prorate portion of the fees and expenses incurred in the
administration of the Plan.
9.2 Payments by Trustee to any Participant of such Participant's entire
interest hereunder shall begin on the first day of the month following the
latest to occur of:
(a) the Normal Retirement Age; or
(b) The Plan Anniversary Date coinciding with or following
termination of service with Company. However, in no event
shall such payments commence after April 1st of the
calendar year following (a) the calendar year in which he
attains age 70 1/2, or (b) in the case of a Participant
who is not a 5 percent owner (as defined in Subparagraph
2.1(t)), the calendar year in which he retires, whichever
is the later. Notwithstanding anything herein to the
contrary, clause (b) above shall not apply in the case of
an employee who is a 5 percent owner (as defined in IRC
section 416 (i) (1) (B)) at any time during the 5-plan-year
period ending in the calendar year in which the employee
attains age 70 1/2. If the employee becomes a 5 percent
owner during any subsequent plan year, the required
beginning date shall be April 1 of the calendar year
following the calendar year in which such subsequent plan
year ends.
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Trustee may make payments at an earlier date than hereinabove set
forth as directed by the Plan Administrator for reasons of death,
disability, early retirement or termination of service; provided,
however, that all Participants shall be treated alike under like
circumstances.
A Participant may make an election to defer commencement of payment of
benefits beyond the latest of the dates given above, provided that the
election is made in writing, signed by the Participant and submitted to
the Plan Administrator prior to the close of the Plan Year following
which payment of benefits would otherwise commence. The election shall
describe the mode of payment of the benefit and the date on which the
payment of such benefit will commence. If payment is to be other than in
the form of a qualified joint and survivor annuity the decision of the
Plan Administrator as to the form in which the benefit shall be payable
shall be required as provided in Subparagraph 9.3(c). In no event may an
election be made which would violate the restrictions contained in
Subparagraph 9.3(c) or which would defer commencement of benefits beyond
the taxable year of the Participant in which he attains 70 1/2.
If a Participant has separated from service with a vested benefit
before the first day of the next Plan Year after attaining his 55th
birthday, he is entitled at that date to receive a benefit equal to the
benefit to which he would be entitled at the Early Retirement Date.
9.3 The Plan Administrator shall take action as may be necessary to
provide a settlement of Participant's account. All payments hereunder shall be
made in cash, securities or such other property as the Plan Administrator may
determine in its sole and absolute discretion. All modes of settlement, basic
and optional, are available to Participants or Beneficiaries under Article 5, 6
and 7 as provided herein. Payments made under Article 8 shall be in the form of
complete lump sum payments only.
(a) The basic mode of settlement for a Participant married on
the date benefits commence shall be a qualified joint and
survivor annuity contract, providing for non-increasing
payments of an actuarially equivalent value of the
Participant's vested Account Balance derived from both
Employer and Employee contributions. Benefits will be
distributed in the form of a qualified joint and survivor
annuity to a married Participant, unless both the
Participant and his spouse elect not to have his benefits
paid in that form. If the Participant is unmarried,
benefits will be provided in the form of an annuity for
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<PAGE>
the life of the Participant, unless the Participant elects
not to receive benefits in that form.
The term "Annuity Starting Date" shall mean (a) the first day of
the first period for which an amount is payable as an annuity,
or (b) in the case of a benefit not payable in the form of an
annuity, the first day on which all events have occurred which
entitle the Participant to such benefit.
A qualified joint and survivor annuity is an annuity for the
life of the participant with a survivor annuity for the life of
his spouse which is not less than one half of, or greater than,
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 annuity for the life of the Participant.
The specific ratio of the survivor annuity to the joint life
annuity shall be 100% unless the Participant requests otherwise
in which case the ratio shall be determined by the Plan
Administrator subject to the requirement that it be qualified.
Participants with respect to which benefits shall be paid,
absent a contrary election, in the form of a qualified joint and
survivor annuity are those who:
(1) Begin to receive payments on or after the qualified Early
Retirement Date. The qualified Early Retirement Date shall
be the latest of: (A) the earliest date under the Plan for
early retirement, (B) the first day of the 120th month
beginning before the Participant reaches the Normal
Retirement Age, or (C) the date on which the Participant
begins participation; or
(2) Begin to receive payments on or after the Normal Retirement
Date.
If a Participant has not elected not to receive his benefit in
the form of a qualified joint and survivor annuity, the spouse
of such Participant if the participant dies under the
circumstances described below, shall receive a survivor annuity
for life payable at the later of Normal Retirement Date or 60
days after the date of death of the Participant. The spouse may
elect not to receive the survivor annuity, as provided below.
The amount of the survivor annuity shall be in the amount which
can be purchased by the balance in the Participant's account at
the time for commencement of payment of
IX-3
<PAGE>
benefits but not less than the amount the spouse would have
received had the Participant commenced receiving benefits at the
later of Normal Retirement Age, or the day before his death in
the form of a qualified joint and survivor annuity which
provided a survivor annuity in an amount equal to the amount of
the annuity payable during the joint lives of the Participant
and his spouse.
In no event, however, shall the spouse survivor annuity be in an
amount greater than that which can be purchased by the balance
in the Participant's account at the time for commencement of
payment of such survivor benefit, less the proceeds of any
Contract payable to a named person (other than the Trustee) who
is not the spouse of the Participant.
The spouse survivor annuity shall be paid, absent any contrary
elections, if the Participant:
(1) Dies on or after the Normal Retirement Age while
employed by Company, or
(2) Dies before beginning to receive benefits after separating
from service on or after the Normal Retirement Age or the
qualified Early Retirement Date but after satisfaction of
eligibility requirements for the payment of benefits under
the Plan.
(b) During the election period described below the Participant, or
his surviving spouse, may elect in writing not to receive
benefits under the Plan in the basic mode of settlement, or the
survivor annuity, as the case may be. In the event that the
Participant or his spouse makes the above election any death
benefits under the Plan shall be paid as provided in Article 7
and any retirement benefits shall be paid as provided under
Subparagraph 9.3(c) below.
The Plan Administrator shall furnish the married Participant in
writing the following basic information:
A general description of the qualified joint and survivor
annuity; the circumstances in which it will be provided
unless the Participant elects not to have benefits provided
in that form; the availability of such election; a general
explanation of the relative financial effect on a
Participant's benefit of such an election; and the
availability of additional information to be furnished
within 30 days from the date of the Participant's written
request on the specific terms and conditions of the
qualified joint
IX-4
<PAGE>
and survivor annuity and the specific financial
effect on the particular Participant of making the
above election.
The Participant must make such written request for additional
information so that it be received by the Plan Administrator
within 90 days prior to the commencement of benefits. Such basic
information may be furnished to a married Participant at any time
but even if the information has been previously provided, it
must be furnished by mailing or personal delivery so as to be
received on or about the later of 9 months before the married
Participant reaches the qualified early Retirement Date or the
date the married Participant begins participation in the Plan.
The election period shall commence on the day the above basic
information is furnished and shall end on the 60th day before the
commencement of benefits. If the married Participant requests
additional information as provided above the election shall be
extended, if necessary, to include the 90 days following the day
the requested additional information is personally delivered or
mailed to the Participant.
The Plan Administrator shall furnish the surviving spouse
eligible for a survivor annuity a written explanation of the
survivor annuity and of the amounts, forms, and recipients of
payments available pursuant to the provisions of Article 7 of the
Plan. Such information shall be furnished within 30 days after
notification of the death of the Participant. The surviving
spouse may elect to have benefits paid pursuant to the provisions
of Article 7, in lieu of receiving the survivor annuity for which
she is eligible. If such election is not made, the amount
otherwise payable under Article 7 shall instead be payable to the
surviving spouse pursuant to the provisions of this Paragraph.
The period for making this spousal election shall commence on the
day of the receipt of the above written explanation and shall end
on the 30th day thereafter. The period for making the above
election may be extended at the discretion of the Plan
Administrator. Any election made by the Participant or his
surviving spouse, as the case may be, may be revoked in writing
during the applicable election period, and after such election
has been revoked, another election may be made during the
applicable election period.
(c) If the married Participant elects not to receive payment in the
form of a qualified joint and survivor annuity or if the
Participant is not married at the time benefits
IX-5
<PAGE>
commence, the Plan Administrator upon consultation with the
Participant shall provide a settlement from among the optional
modes of settlement provided below and in conformity with the
following requirements. All modes of settlement, both basic and
optional, shall have an equal present actuarial value at the
time of commencement of payment. No optional settlement shall be
allowed for payments due under Article 5 and 6 under which the
actuarial present value of the payments to be made to the
Participant is not more than 50% of the actuarial present value
of the total payments to be made to the Participant and his
Beneficiaries, except in the case of a distribution over the
joint life and last survivor expectancy of the Participant and
his spouse. No insurance contract distributed as provided below
may permit the time, amount, or duration of payment to be not in
conformity with the above restriction. At any time after
payments commence but before the taxable year of the Participant
following the taxable year in which he attains 70 1/2, a
Participant may request and the Plan Administrator may permit a
change in the optional mode of settlement.
The following optional modes of settlement are provided:
(1) Payment of all or (in the case of (5) below) part of the
Participant's vested accrued benefit in a lump sum.
(2) Payments over the lifetime of the Participant or the life
of the Participant and his spouse.
(3) Payments in annual, semi-annual, quarterly or monthly
installments over a period certain not extending beyond the
life expectancy of the Participant or beyond the joint life
and last survivor expectancy of the Participant and his
spouse, with such expectancy being computed by use of the
expected return multiples contained in Treasury Regulation
Section 1.72-9, or, in the case of payments by Insurer,
the period computed by use of the mortality tables
utilized under the contract.
(4) In the form of a non-transferable annuity Contract
providing payments over a period described in (2) or (3)
above in either non-increasing payments or at a rate which
satisfies the requirements contained in subparagraph 9.3(d)
below.
(5) Any combination of the above.
IX-6
<PAGE>
(d) The timing and amount of any payment to be made (limited to the
unpaid portion of a Participant's accrued benefit) under an
optional mode of settlement shall be determined by the
Participant or by Insurer whose payments are made under a
Contract (subject to such rights as the Contract reserves to the
Participant), subject to the following minimum distribution
requirement: beginning in the later of the taxable year in which
the Participant attains age 70 1/2, or in the case of a
Participant who is not a Key-Employee in a Top-Heavy Plan the
taxable year in which he retires, the amount to be distributed
each year shall be no less than the lesser of the unpaid portion
of the participant's accrued benefit or an amount equal to the
quotations obtained by dividing the entire unpaid portion of the
Participant's accrued benefit at the beginning of such year by
the life expectancy of the Participant (or the joint life and
last survivor expectancy of the Participant and spouse (whichever
is applicable)), determined in either case as of the
Determination Date, that is the date the Participant attains age
70, or, if later, in the case of a Participant who is not a Key-
Employee in a Top-Heavy Plan as of the age (counted in whole
years) at the date the Participant retires, by use of the
expected return multiples in Treasury Regulations Section 1.72-9,
or in case of payments by Insurer or the period computed by use
of the mortality tables utilized under the Contract, reduced by 1
for each taxable year commencing after the measurement date.
However, no distribution need be made in any year, or a lessor
amount may be distributed, if beginning with the year the minimum
distribution requirement first applies, the aggregate amounts
distributed by the end of any taxable year are at least equal to
the aggregate of the minimum amounts required to have been
distributed by the end of such year.
(e) Any sums remaining payable under an optional mode of settlement
at the death of a Participant, either before or after
commencement of distributions to him, shall be paid to his
Beneficiary as follows: If the Beneficiary is the surviving
spouse, the spouse shall have available to him all methods of
distribution permitted under Article 9; if the Beneficiary is
other than a surviving spouse, unless distribution has commenced
over a period certain in accordance with Subparagraph 9. 3 (c)
(3) above, the entire balance remaining payable must be
distributed within 5 Years after the death of the Participant.
However, if distribution has commenced to the Participant under a
method of distribution which takes into account the life or life
expectancy of the Participant's spouse, the 5 year period within
which distributions must be completed will be measured from the
later of the date of death of the
IX-7
<PAGE>
Participant or his spouse. Further provided, however, that the 5
year distribution rule shall not apply if the Participant has,
prior to January 1, 1984, made a written designation to have his
death benefits paid in an alternative method. Any written
designation, if made, shall be binding upon the Plan
Administrator notwithstanding the provision of 9.3.
(f) Actuarial equivalence shall be determined by the Plan
Administrator on the basis of consistently applied reasonable
actuarial factors. Such factors shall be the same for all
Participants retiring during the same Plan Year, but they may be
adjusted from year to year in order to remain reasonable.
(g) "Spouse" for purposes of any spouse survivor benefits payable
under this Plan shall mean "the Spouse of the Participant on the
date payment of benefits commences."
(h) Notwithstanding anything to the contrary contained herein, no
qualified joint and survivor annuity, and no qualified
pre-retirement survivor annuity will be paid, and no optional
mode of settlement will be available if the present value of such
benefit does not exceed $3,500 prior to the Annuity Starting
Date. Such value will be distributed in a lump sum immediately
upon determination of the amount due on account of retirement
(including disability retirement) or death. If the present value
of such benefit exceeds $3,500, the written consent of the
Participant and his spouse, if any, is required before the
commencement of distribution of such benefits.
9.4 A claim for benefits must be filed before payment of retirement,
disability, or death benefits will commence. A claim shall be deemed
filed when a Participant, or Beneficiary, in the case of death
benefits, or their authorized representative, requests, orally or in
writing, payment of benefits due under the Plan. The claim may be
filed with the Plan Administrator; any officer of the Company; or if
the Company has an organizational unit which customarily handles
Employee benefit matters, with any person employed in such unit. In
the event that a claim for benefits is filed, the Plan Administrator,
within 90 days after the claim is filed, shall give notice of the
decision on the claim; and if notice on the denial of a claim is not
furnished, and the claim has not been granted within the 90 day claims
Proceeding period, the claim shall be deemed denied for the purpose of
processing to the review stage as hereinafter Described.
(a) The 90 day time period mentioned above may be extended by the
Plan Administrator for an additional 90 days if
IX-8
<PAGE>
special circumstances require an extension of time for
processing the claim. If an extension is required the Plan
Administrator shall furnish written notice of the 90 day
extension to the claimant prior to the termination of the
initial 90 day period. The extension notice shall indicate the
special circumstances requiring an extension of time and the
date by which the Plan Administrator expects to render the final
decision.
(b) The Plan Administrator shall provide to every claimant who is
denied a claim for benefits written notice setting forth:
(1) The specific reason or reasons for the denial,
(2) The specific reference to the pertinent Plan provisions on
which the denial is based,
(3) 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
(4) An explanation of the Plan's claim review procedure.
(c) In the event that the claim of the Participant or Beneficiary is
denied, the claimant or his duly authorized representative may
request a review of the denied claim by means of a written
application for review delivered to the Plan Administrator.
Pursuant to this right to review, the claimant or his duly
authorized representative may review pertinent documents and
submit issues and comments in writing.
(d) Any request for review of a denied claim must be filed no later
than 60 days after the earlier of receipt by the claimant of
written notification of denial of a claim, or the expiration of
the 90 day claims processing period including any extension
thereof.
(e) In the event a request for review has been made as herein above
provided, the Plan Administrator shall make a decision on the
request for review within 60 days after the receipt by the Plan
Administrator of the request for the review, unless special
circumstances require an extension of time for processing the
review, in which case the Plan Administrator shall render a
decision as soon as possible, but in no event later than 120 days
after the Plan Administrator has received the request for review.
IX-9
<PAGE>
If an extension is required the Plan Administrator shall furnish
written notice of the extension to the claimant prior to the
commencement of the extension. The decision on review shall be
furnished to the claimant in writing within the time for review
and shall include specific reasons for the decision, as well as
specific references to the pertinent Plan provisions on which the
decision is based.
9.5 If the Plan Administrator is unable after diligent search to locate
a Participant or Beneficiary to whom a benefit is due under the provisions of
this Plan, such benefit shall be forfeited on the last day of the Plan Year in
which such search is concluded and such forfeiture shall be administered in
accordance with Article 4. If a claim is made subsequently by such Participant
or Beneficiary for the forfeited benefit, such benefit shall be restored in
full.
IX-10
<PAGE>
ARTICLE TEN
SPENDTHRIFT CLAUSE
10.1 The provisions of this Plan are intended as personal protection
for the Participant. A Participant shall not have any right to assign,
anticipate or hypothecate any assets held for his benefit, including amounts
credited to his account, except as security for a loan from the Plan to the
Participant. The benefits under this Plan shall not be subject to seizure, legal
process or be in any way subject to the claim of the Participant's creditors,
including, without limitation, any liability for contracts, debts, torts,
alimony or support of any relatives, except that the Plan has the right to
recover overpayments of benefits previously made to a Participant. None of the
Plan's benefits or the Trust's assets shall be considered an asset of the
Participant in the event of insolvency or bankruptcy.
10.2 Notwithstanding the provisions of this Article the Plan
Administrator and/or Trustee are hereby authorized to comply without objection
to any court order pertaining to benefits in pay status with respect to alimony,
separate maintenance, child support or division of property in the event of
divorce, provided they have received an opinion from counsel that such
compliance would not violate any federal law, jeopardize the qualification of
the trust, or render the Plan Administrator or the Trustee liable to any Plan
Participant or Beneficiary on account of such compliance.
X-1
<PAGE>
ARTICLE ELEVEN
INSURANCE CONTRACTS
11.1 Trustee shall, within 60 days after being directed by the Plan
Administrator, by uniform procedures applicable to all Participants, and with
due regard to the preference of each Participant, purchase paid-up or annual
premium life insurance, endowment, retirement income or annuity Contracts for
the benefit of each Participant. Each Participant has the right to direct the
Plan Administrator to have the Trustee purchase Contract(s) on his life, to
specify the amount of premium on such Contract and type of Contract (subject to
the limitations of this Article and the underwriting limitations of the Insurer
selected by Trustee) or to waive any such purchase contemplated by the Plan
Administrator. Trustee shall be the complete and absolute owner of all Contracts
held in the trust and shall exercise all rights, options and privileges under or
incident to the Contracts, including the privilege to designate the Beneficiary.
Premiums shall be charged, and dividends, refunds or cash surrender values
received under a Contract shall be credited to the account of the participant
for whose benefit the Contract is held. Proceeds payable upon death shall be
paid to the Beneficiary designated, in accordance with Article 7. The aggregate
amount of the premium paid on all ordinary life insurance Contracts purchased
for the benefit of any particular participant shall, at all times, be less than
50 percent of the total Company contributions and forfeitures used to reduce
Company contributions allocated to such Participant's account, provided,
however, if such Participant so elects and voluntary contributions are made by
him, Contracts may be purchased for such Participant in excess of this
limitation, if the premiums on such Contracts will be less than 50 percent of
the total Company contributions and forfeitures used to reduce Company
contributions allocated to the Participant's account plus voluntary
contribution. The aggregate amount of the premiums paid on all term life
insurance contracts purchased for the benefit of any particular participant
shall, at all times, be less than 25 percent of the total Company contributions
and forfeitures used to reduce Company contributions allocated to such
Participant's account, provided, however, if such Participant so elects and
voluntary contributions are made by him, Contracts may be purchased for such
Participant in excess of this limitation, if the premiums on such Contracts will
be less than 25 percent of the total Company contributions and forfeitures used
to reduce Company contributions allocated to the Participant's account plus such
voluntary contribution.
XI-1
<PAGE>
If any Company contributions to any Participant's account are applied to pay
premiums on both ordinary life insurance and term life insurance policies, the
total of the term life insurance premiums and one-half of the ordinary life
insurance premiums shall be less than 25 percent of the total Company
contributions and forfeitures used to reduce Company contributions allocated to
such Participant's account, provided, however, if such Participant so elects and
voluntary contributions are made by him, Contracts may be purchased for
Participant in excess of this limitation, if the total of the term life
insurance premiums and one-half of the ordinary life insurance premiums on such
Contracts will be less than 25 percent of the total amount of Company
contributions and forfeitures used to reduce Company contributions allocated to
the Participant's account plus such voluntary contribution. Solely for purposes
of computing the limitations contained in this paragraph, contributions made by
Company prior to the end of the Plan Year shall be deemed allocated to specific
Participant accounts.
11.2 If at any time the Trustee shall be unable to pay all or any
portion of the premiums for any reason, the Trustee shall be empowered in his
sole and absolute discretion to borrow prorate all or any portion of the
required payment from the Insurer on the security of the Contract, or to convert
the Contract into a paid-up policy, or to cash in the Contract.
11.3 Trustee shall convert the entire value of any life insurance
Contract at or before retirement into cash or an annuity to provide periodic
income, so that no portion of such value may be used to continue lifetime
insurance protection beyond retirement, or Trustee may distribute the Contract
to the Participant. If a Participant terminates employment prior to retirement
such conversion shall take place no later than one year after the date any
benefits would, if forfeitable, be forfeited pursuant to Paragraph 8.1, but if a
distribution is made to such Participant prior to that time the Trustee shall,
if directed by the Plan Administrator, distribute the Contract to the
Participant. In the event that the Participant is less than 100% vested in his
account balance at the time of distribution the Trustee shall, if so directed by
the Plan Administrator, allocate the Participant's vested interest first to the
cash value of the Contract after determining the total dollar value of his
vested interest, with any value of his vested interest in excess of the cash
value of the Contract to be allocated to the remaining portion of his account.
If after making the above allocation, the Participant's vested interest in the
contract is less than the total cash value, the Trustee shall, as directed by
the Plan Administrator, either take a loan against the Contract for the amount
of the non-vested cash value and then distribute the Contract, or sell the
Contract to the Participant for an
XI-2
<PAGE>
amount equal to the difference between the total cash value and the
participant's vested interest therein.
In the event the Contract has no cash value, the trustee shall, when directed by
the Plan Administrator, distribute the Contract to the terminated Participant if
he so requests, whether or not such Participant is vested in all or any portion
of his account.
XI-3
<PAGE>
ARTICLE TWELVE
RIGHT TO ALTER, AMEND OR TERMINATE TRUST
12.1 The Company shall have the right at any time to discontinue its
contributions hereunder and to terminate or partially terminate this Plan and
Trust. In the event that Company shall be legally dissolved, or declared
bankrupt, shall make a general assignment for the benefit of creditors or merge
into or with another company which shall not assume the obligations of this
Agreement, this Plan shall automatically terminate.
In the event the Plan and Trust is automatically terminated as provided in above
or in the event that subsequent to the voluntary termination of the plan by
Company any of the events causing automatic termination occur prior to the final
and complete distribution of assets from the Trust, Trustee shall automatically
be vested with all rights, powers and duties otherwise reserved in this
Agreement and Trust to Company. Plan Administrator and Named Fiduciary,
including but not limited to the right to amend this Agreement and Trust, to
liquidate the Trust, and to continue the Plan and Trust in force.
12.2 The Company reserves the right to amend this Plan and Trust in
writing at any time without the consent of any Participant or Beneficiary;
provided, however, that no amendment to this Plan or Trust shall deprive any
Participant or Beneficiary (including any Participant or Beneficiary who is
already receiving benefits) of any vested interest herein except as may be
allowed by Federal Law nor shall such amendment increase the duties or
obligation of the Trustee herein except with his consent.
12.3 This Plan may not merge or consolidate with, or transfer assets or
liabilities to, any other plan unless each Participant in the Plan would, if the
plan then terminated, receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the benefit that
such Participant would have been entitled to receive immediately before the
merger, consolidation or transfer if the Plan had then terminated.
12.4 In the event of partial or complete termination of this Plan and
Trust, or upon the complete discontinuance of Company contributions under the
Plan, the Trustee shall when so directed by the Plan Administrator distribute
the assets of the fund to the Participants affected or their Beneficiaries. The
Plan Administrator may but is not required to grant each
XII-1
<PAGE>
Participant the right to elect in an irrevocable election to receive a complete
distribution from his account. Failure to elect such a distribution shall
constitute an irrevocable election to defer distribution until the times
specified with regard to death, disability and retirement payments as provided
in this Plan or in any successor Plan, and Trustee is hereby precluded from
making distributions at any earlier time to any Participant who fails to elect
complete distribution and whose employment with Company has not terminated. Said
election shall take place during a period of time not exceeding 60 days
prescribed by the Plan Administrator and communicated to Plan Participants.
Alternatively, the Plan Administrator may direct that complete distributions be
made to all participants affected or their Beneficiaries or that all
distributions be made as set forth in the other provisions of the Plan and
Trust. Distributions shall be made in cash, unless the Plan Administrator
directs the Trustee to make distributions in securities or other property
(including Contracts on the lives of Participants). In the absence of any
direction to make distribution to all Participants and/or Beneficiaries, the
Plan and Trust will continue in force, and distributions will be made in the
same manner and under the same conditions as set forth in the Plan and Trust,
and the Plan and Trust will not terminate until all the assets of the Trust have
been distributed. It is the intent of the parties that the exempt status of the
Trust under Section 501 of the Internal Revenue Code of 1986, as amended, will
continue.
12.5 Upon the date of termination of the Plan, partial termination of
the Plan, or complete discontinuance of contributions, the rights of each
affected Participant to the amount credited to his account at such time shall be
fully vested, except as provided in Article 16. If any funds (other than Company
contributions or forfeitures not required to be allocated to meet the
liabilities of this Plan) have not been allocated prior to date of termination,
partial termination, or complete discontinuance of contributions, such funds
shall be allocated on the earlier of the date of liquidation or the Trust on the
next regular allocation date pursuant to Paragraph 4.5, and subject to the
limitations provided in Paragraph 4.3. Any investment earnings and realized or
unrealized gains and losses subsequent to such allocation date shall likewise be
allocated pursuant to Paragraphs 4.5 and 4.3, at least annually and, in any
event, as of the date of final and complete distribution.
XII-2
<PAGE>
ARTICLE THIRTEEN
LOANS
13.1 Trustee, upon application from any Participant, in accordance with
a uniform nondiscriminatory policy, may make a loan or loans to such
Participant.
13.2 Loans will be limited to the lesser of:
(i) 1/2 of the present value of the Participant's
nonforfeitable account balance (except that loans of up to $10,000 may
be made to participants if these loans are adequately secured and are
not in excess of the present value of the Participant's total accrued
benefit);
(ii) $50,000 reduced by the maximum outstanding loan
balance (if any) during the 12 month period ending on the day before the
loan is taken.
13.3 Loans must be made available to all Participants on a reasonably
equitable basis and the availability shall be communicated to all Participants.
Loans shall not be made available to Highly Compensated Employees in an amount
greater than that made available to other Employees.
13.4 A reasonable rate of interest shall be charged on each loan. What
is reasonable depends on factors such as the amount of loan, adequacy of
security, duration of loan, repayment schedule, current market conditions,
variable or fixed rate of interest, what is customary in similar arm's length
transactions in the community; ie, average rate charged by area commercial banks
for the same type of consumer loan, and other economic and time factors.
13.5 All loan agreements shall provide for repayment within five (5)
years from the date of the loan, unless the loan is used to acquire the
Participant's primary residence.
13.6 All plans of all related businesses are to be combined for the
purposes of maximum limits on loans.
13.7 All loans must be evidenced by a written loan agreement signed by
all relevant parties to the loan and evidenced by a promissory note of the
borrower where the borrower personally guarantees the repayment of the loan and
secures the loan on the Participant's account balance.
13.8 A Participant's spouse must consent in writing for a Participant
to use any part of his account balance as security
XIII-1
<PAGE>
for the loan. Spousal consent shall be obtained no earlier than the beginning of
the 90 day period ending on the date the loan is made. The consent must
acknowledge the effect of the loan and must be witnessed by a plan
representative or notary public. The consent is binding with respect to the loan
for which it is given, on any subsequent spouse. A new consent shall be required
if the loan is revised, renegotiated, renewed or extended.
13.9 Loans may not be made to Owner-Employees or Shareholder-Employees
as defined in Code Section 1379.
13.10 The loan document must provide for payments to be made at least
quarterly in a level amount, which will fully amortize the loan over its
duration.
13.11 The Plan Administrator may provide for loans to be considered an
asset of the Trust Fund or as an investment of the borrower's account. The Plan
Administrator shall act consistently in making this determination.
13.12 A loan will not be foreclosed and security attached before a
distributable event occurs under the Plan. Any loan outstanding at the time a
Participant receives a distribution, shall be repaid by offsetting the balance
due (plus accrued interest and any costs) against the amount to be distributed.
13.13 If a valid spousal consent has been obtained in accordance with
Section 13.8, and the Participant's spouse does not receive the Participant's
entire vested benefits, then the vested benefits shall be reduced by the balance
due before determining the benefit payable to the Participant's surviving
spouse.
XIII-2
<PAGE>
ARTICLE FOURTEEN
TRUSTEE
14.1 The duties and responsibilities of the Trustee are limited to
those set forth in this Plan and Trust, and it shall be liable only for the
safeguarding and administration of the Trust principal in accordance with the
provisions of this Plan and Trust, except as otherwise provided by state or
federal law. If at any time there is more than 1 Trustee, all of them will
jointly manage and control the fund unless the responsibilities, obligations and
duties specified in this Plan are allocated among them in accordance with the
procedure set forth below. The Trustee shall discharge its duties with respect
to the Plan solely in the interest of the Participants and the Beneficiaries and
for the exclusive purpose of providing benefits to the Participants and their
Beneficiaries and defraying reasonable expenses of the Plan by administering the
Plan 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 a like character and with
like aims.
14.2 The Trustee shall maintain full and complete records of the
administration of the Trust and shall be responsible for the management of the
Trust operation and its administration.
The Company and Plan Administrator may examine such records from time to time
during business hours. A Participant may also examine such records, as they
relate to his interest in the Trust principal, at such time deemed reasonable by
the Trustee.
14.3 Within a reasonable time after each Plan Year, and within 90 days
after its removal or resignation, Trustee shall file with the Company an account
of its administration of the Trust during such year or from the end of the
preceding Plan Year to the date of removal or resignation. Neither Company nor
any other person shall be entitled to any further accounting by Trustee, except
as provided by law.
14.4 To the extent permitted by the Employee Retirement Income Security
Act of 1974, Trustee shall be released from all liability to anyone as to any
transaction shown in an account stated under Section 14.3 except those as to
which the Company shall, within 90 days after the Trustee's filing of the
account, file with Trustee a written statement setting forth in detail the items
in or with respect to such account to which exception is taken. If such a
statement is filed, Trustee shall, unless the
XIV-1
<PAGE>
matter be compromised with the Company, file its account in any court of
competent jurisdiction for audit and adjudication.
14.5 Upon separate agreement between Trustee and Company, the fund may
be valued more frequently than annually for purposes of determining benefits or
costs under the Plan. If such agreement is made, the provisions of Section 14.4
shall also apply with respect to each such valuation.
14.6 The Trustee shall act at the direction of the Company and the Plan
Administrator, and Company agrees to indemnify Trustee against any liability
imposed as a result of a claim asserted by any person or persons where Trustee
acted in good faith at direction of Company or the Plan Administrator. The
Trustee is authorized on behalf of the Trust to execute the applications and any
other documents required by an Insurer issuing Contracts on the lives of the
Participants, and to exercise all of the rights, privileges and powers under
such Contracts. Written notification to an Insurer setting forth the name of the
Trustee hereunder shall be conclusive evidence for all purposes that the party
so named is Trustee hereunder at the date of such notification. The signature of
the Trustee shall be conclusive proof to the Insurer that the application is
being made for the proper Contract and is in accordance with the terms of this
Plan and Trust.
14.7 The Trustee may consult with any legal counsel even through
counsel for Company with respect to the construction of the Plan and Trust
either as to its duties thereunder or with respect to any legal proceedings or
questions of law, and will be fully protected with respect to any action taken
or omitted by it in good faith pursuant to the advice of such counsel. In
addition, the Company at the request of or with the concurrence of the Trustee
may employ such actuaries, accountants, specialists and other persons as the
Company or Trustee deems necessary or desirable in connection with the
administration of the Plan.
14.8 A Trustee shall not be liable, either individually or as Trustee,
for any losses resulting to the Plan arising from the acts or omissions on the
part of a Co-Trustee or Investment Manager to whom responsibilities, obligations
and duties have been allocated as to certain assets of the Fund. Any such
allocation of responsibilities among Trustees and/or the appointment of an
Investment Manager shall be made by the Named Fiduciary and evidenced by a
writing executed by all of the Trustees, the Named Fiduciary and the Investment
Manager, if any. Except as stated in the foregoing, in addition to any liability
which the Trustee may have under any other section of this Plan, the Trustee
with respect to the Plan shall be liable for breach of fiduciary duty of another
Trustee (1) if such Trustee
XIV-2
<PAGE>
participates knowingly in, or knowingly undertakes to conceal, an act or
omission of such other Trustee, including knowing such act or omission is a
breach; (2) if, by such Trustee's failure to comply with the standards in
performing its duties as set forth in Paragraph 14.1 hereof, in the
administration of such Trustee's specific responsibilities which give rise to
its status as a Trustee it has enabled such other Trustee to commit a breach;
(3) if such Trustee has knowledge of a breach by such other Trustee unless such
Trustee makes reasonable efforts under the circumstances to remedy the breach.
14.9 Trustee shall invest and reinvest the principal and income of the
trust and keep the same invested without distinction between the principal and
income.
14.10 Trustee shall have the following powers in addition to the powers
customarily vested in the Trustee by law and in no way in derogation thereof:
(a) With any cash at any time held by it, to purchase or subscribe
for any authorized investment, and to retain such authorized
investment in trust.
(b) To sell for cash or on credit, convert, redeem or exchange for
another authorized investment, or otherwise dispose of, any
authorized investment at any time held by it.
(c) To maintain a cash reserve in such a manner as the Trustee
shall deem advisable from time to time. Such cash reserve
may consist of uninvested contributions or of the proceeds
of the sale of the investments of the Trust, as the
Trustee in its sole discretion may determine. Such cash
reserve may be in a deposit account or invested in the
savings department of the Trustee if any, or as Trustee
may direct, in a bank, savings and loan association,
building and loan association, or savings bank, including
time deposits or certificates of deposit with maturities
of less than or more than one year.
(d) To exercise any options appurtenant to any authorized investment
in which the fund is invested for conversion thereof into another
authorized investment, or to exercise any rights to subscribe for
additional authorized investment, and to make all necessary
payment therefore.
(e) To join in, consent to, dissent from, oppose or deposit in
connection with the reorganization, consolidation,
recapitalization, sale, merger, foreclosure, or readjustment of
the finances of any corporations or properties in which the fund
may be invested, or the sale, mortgage, pledge or lease on any
such terms and conditions
XIV-3
<PAGE>
as it may deem wise; to do any act (including the exercise of
options, making agreements or subscriptions, and payment of
expenses, assessments or subscriptions) which may be deemed
necessary or advisable in connection therewith; and to accept
any authorized investment which may be issued in or as a result
of any proceeding, and thereafter to hold the same.
(f) To vote, in person or by general or limited proxy, at any
election of any corporation in which the fund is invested, and
similarly to exercise personally or by a general or limited
power of attorney, any right appurtenant to any authorized
investment held in the fund.
(g) To sell, option to sell, mortgage, lease for a term of
years less than or continuing beyond the possible date of
the termination of the trust created hereunder, partition
or exchange any real property which may from time to time
or at any time constitute a portion of the fund either at
public or private sale, for such prices and upon such
terms as it may deem best and to make, execute and deliver
to the purchasers thereof good and sufficient deeds of
conveyance thereof and all assignments, transfers and
other legal instruments, either necessary or convenient
for passing the title and ownership thereof to the
purchaser, free and discharge of all trusts and without
liability on the part of such purchasers to see to the
proper application of the purchase price.
(h) To repair, alter, or improve any buildings which may be on real
estate forming part of the fund, or to erect entirely new
structures thereon.
(i) To renew or extend or participate in the renewal or
extension of any mortgage, upon such terms as may be
deemed advisable, and to agree to a reduction in the rate
of interest on any mortgage or to any other modification
or change in the terms of any mortgage or of any guarantee
pertaining thereto, in any manner and to any extent that
may be deemed advisable for the protection of the fund or
the preservation of the value of the investment; to waive
any default, whether in the performance of any covenant or
condition of any mortgage or in the performance of any
guarantee, or to enforce any such default in such manner
and to such extent as may be deemed advisable; to exercise
and enforce any and all rights or foreclosure, to bid in
property on foreclosure, to take a deed in lieu of
foreclosure with or without paying a consideration
therefore, and in connection therewith to release the
obligation on the bond secured by such mortgage; and to
exercise and enforce in any action, suit or proceeding at
XIV-4
<PAGE>
law or in equity any right or remedies in respect to any
mortgage or guarantee.
(j) To purchase authorized investments at a premium or discount.
(k) To employ suitable agents and counsel with respect to investment
transactions and to pay their reasonable expenses and
compensation.
(l) To borrow or raise monies for the purpose of the Trust, in such
amounts and upon such terms and conditions as Trustee in its
absolute discretion may deem advisable, and for any sum so
borrowed to issue its promissory note as Trustee, and to secure
the repayments thereof by pledging or mortgaging all or any part
of the fund, provided that loans and repayments shall be made
prorata on all property and the Contracts of the same class or
type. No person lending money to Trustee shall be bound to see to
the application of the money lent or to inquire into the
validity, expediency or propriety of such borrowing.
(m) To cause any investment in the fund to be registered in,
or transferred into, its name as Trustee or the name of
its nominee or nominees or to retain them unregistered or
in form permitting transfer by delivery, if authorized by
the Company, but the books and records of Trustee shall at
all times show that all such investments are part of the
fund, and Trustee shall be fully responsible for any
misappropriation or defalcation in respect to any
investment held by its nominee or held in unregistered
form.
(n) To do all acts which it may deem necessary or proper and to
exercise any and all powers appurtenant to Trustee under this
Plan and Trust, upon terms and conditions as to it may seem best
for the best interest of the fund, except as otherwise provided
by state or federal law.
(o) To purchase securities on margins and to rehypothecate same.
(p) To purchase life insurance on the lives of the directors,
principal officers, or other key personnel of the Company made
payable to the Trust for the benefit of the fund.
14.11 "Authorized investment" as used herein shall include stock
(whether preferred or common), bank common trust funds (including those of the
Trustee, if any), bonds, debentures, notes or other evidences of indebtedness or
ownership (secured by mortgages including second mortgages or otherwise), put or
call
XIV-5
<PAGE>
options to buy or sell securities (whether listed or unlisted on any exchange
and whether covered or uncovered), any life insurance, retirement income,
endowment or annuity contract in a legal reserve life insurance company
authorized to do business in the state of domicile of the Trustee; and real and
personal property of all kinds, including leaseholds on improved and unimproved
real estate. Authorized investments shall not be limited to that class of
investments which is specifically authorized as a legal investment for trust
funds under the law of the state of domicile of the Trustee, but no investment
shall constitute an Authorized investment if such investment is prohibited by
governing local or federal law.
14.12 The Trustee shall not cause the Plan to engage in any transaction
if it knows that such transaction constitutes directly or indirectly a
prohibited transaction as described in Section 406 and 407 of the Employee
Retirement Income Security Act of 1974 and Section 4975 of the Internal Revenue
Code, or any amendments thereto, unless such transaction is excluded or exempted
from the provisions of Section 406 and 407 or Code Section 4975, by Section 407
and 408, or Code Section 4975, any exemption issued thereunder, or any
amendments thereto.
14.13 The initial Trustee heretofore designated in this Agreement and
Trust shall serve until his respective resignation, death, incapacity or
removal. Whenever a vacancy shall exist among the Trustees, the Company shall if
no Trustee remains or may if at least 1 Trustee remains name a successor Trustee
who may be an officer or director of the Company or who may be an Employee, or
who may be a person not employed by the Company. Whenever a successor Trustee
shall be appointed, he shall immediately and automatically succeed to and become
vested with the title to any trust assets theretofore vested in the Trustee that
such successor Trustee is replacing and the title of such former Trustee shall
automatically and immediately be extinguished. A successor Trustee shall
likewise serve until his resignation, death, incapacity or removal. The Company
shall always have the right to remove a Trustee for cause or without cause at
any time. Any Trustee may resign at any time by giving the Company 10 days
written notice in advance of such resignation.
14.14 The Company shall pay all expenses of administering the Plan and
Trust, which expenses shall include, but not be limited to, expenses incident to
the functioning of those to whom the Company has delegated certain duties such
as the payment of professional fees and consultants fees, and the costs of
administering the Plan. Notwithstanding the above, if any expenses of
administering the Plan and trust are not paid by Company, they may be paid from
the Trust, at the direction of the Company.
XIV-6
<PAGE>
14.15 The Trustee may be paid such reasonable compensation as shall
from time to time be agreed upon by the Company and the Trustee, except that no
Trustee who is a fulltime paid Employee of Company may be compensated for his
services as Trustee. In addition, the Trustee shall be reimbursed for any
reasonable direct expenses, including reasonable counsel fees (if specifically
authorized in advance in writing by Company), properly and actually incurred by
it in the administration of the Trust and not otherwise reimbursed. All taxes of
any and all kinds whatsoever that may be levied or assessed under existing or
future laws upon, or in respect of, the Trust or the income thereof shall be
paid from the Trust.
14.16 The Company shall establish an investment policy to provide for
the benefits provided under this Plan. In accordance with the foregoing, the
Company shall determine whether the Plan has a short term need for liquidity, or
whether liquidity is a long term goal, or whatever other investment policy
should be followed, and communicate this to the Trustees or investment
manager(s), so that the investment policy can be appropriately coordinated with
Plan needs.
14.17 The Named Fiduciary shall be responsible for and have the
authority to control and manage the operation and administration of this Plan
and Trust, although fiduciary and other responsibilities may be allocated to
other parties by the Named Fiduciary by written notification to such parties of
their responsibilities, and written acceptance by such parties of such
responsibilities. Trustee responsibilities may be allocated only among Trustees
or to an investment manager. An investment manager is any fiduciary, other than
the Trustee or Named Fiduciary, who: (a) has the power to manage, acquire or
dispose of any portion of the Fund; (b) is registered as an investment adviser
under the Investment Advisers Act of 1940 or is a bank as defined in that Act or
an insurance company qualified to perform the services described in subsection
(a) hereof; and (c) has acknowledged in writing that he is a fiduciary with
respect to the Plan.
14.18 Whenever the Trust has an investment in a common trust fund
available only to Trusts qualified under Section 401(a) of the Internal Revenue
Code of 1986 as amended, or the corresponding provisions of subsequent law of
similar purpose, all of the provisions of the particular common trust fund
declarations of trust, as amended from time to time, shall be deemed to be
incorporated herein and be a part hereof.
14.19 If at any time there is more than 1 Trustee hereunder, The
Trustees need not call or hold meetings to make any decision or to take any
action, but any decision may be made
XIV-7
<PAGE>
and any action may be taken by written documents signed by the Trustees then
acting, or, if there are more than 2 Trustees, then by a majority of the
Trustees then acting. However, any one Trustee, acting alone, will have the
authority to sign checks, drafts, notes, insurance applications or any other
documents on behalf of the Trustees and to perform purely ministerial acts. If
at any time there is more than 1 Trustee hereunder, and if any difference of
opinion at any time exists between or among the Trustees in respect of doing or
omitting to do any act in the execution of the Trust, the opinion of the
majority of the Trustees will prevail.
14.20 A Trustee may be a Participant, but if any matter pertaining to
his own particular Participation comes up for the action of the Trustee, such
person will be disqualified to act upon the particular matter (unless he is the
sole Trustee) and such matter will be resolved by the other Trustee(s).
XIV-8
<PAGE>
ARTICLE FIFTEEN
INSURER
15.1 No Insurer issuing any Contract hereunder shall be deemed a party
to this Plan and Trust or to be responsible for its validity. The obligations
and responsibilities of an Insurer shall be measured and determined solely by
the terms of its Contract and it shall not be required to do any act not
provided for, or contrary to the provisions of its Contract.
15.2 An Insurer shall not be required to look into the terms of the
Plan and Trust or question any action of the Trustee nor shall it be responsible
to see that any action of the Trustee is authorized.
15.3 An Insurer may conclusively assume that the Trustee has full
authority, and is acting within that authority, in any transaction concerning
the Contracts, and shall be fully discharged from any and all liabilities for
any action taken in accordance with the direction of the Trustee. In accepting
application for Contracts, an Insurer has no responsibility for determining
whether the Employee is eligible or whether the proper Contract is being applied
for. In all transactions with the Trustee, an Insurer shall deal with it as
though it were the sole and absolute owner of the Contracts. one Trustee's
signature is sufficient in all matters regarding insurance transactions.
15.4 An Insurer shall be fully protected from any liability for any
action taken prior to receiving notice of any amendment or termination of this
Agreement and Trust, or for dealing with any prior Trustee prior to receiving
notice of appointment of a successor Trustee.
XV-1
<PAGE>
ARTICLE SIXTEEN
NO REVERSION TO COMPANY
16.1 No part of the principal or income or other assets of the Trust
shall be used for or diverted to purposes other than for the exclusive benefit
of the Participants or their Beneficiaries and the Company shall not be entitled
to receive back any part of its contribution to the Trust, except as provided in
the remaining Paragraphs of this Article.
16.2 Company contributions are conditioned on initial qualification of
the Plan under Internal Revenue Code Section 401 and if the Plan does not
qualify such contribution shall be returned to Company within 1 year after the
date of denial of initial qualification of the Plan.
16.3 Company contributions are conditioned on the deductibility of the
contribution under Internal Revenue Code Section 404 and to the extent any
deduction is disallowed, such contribution shall be returned to Company within 1
year after the date of disallowance of the deduction.
16.4 In the case of a Company contribution made by reason of a mistake
of fact, such contribution shall be returned to Company within 1 year after the
payment of the contribution. Mistakes of fact shall include but not be limited
to arithmetical errors in calculating the amounts to be contributed to the Plan
under the contribution and allocation sections of the Plan.
16.5 The Company reserves the right to recover at the termination of
this Agreement and Trust any balance remaining in the Trust due to erroneous
actuarial computations after the satisfaction of all liabilities with respect to
the Participants and their Beneficiaries under this Plan and Trust. A balance
due to erroneous actuarial computations is the surplus arising because actual
liabilities differ from expected liabilities. Any funds held in a suspense
account required to prevent violations of the limitations on annual additions
and benefits established by Internal Revenue Code Section 415 and which are not
required to be allocated at time of termination to satisfy the liabilities of
the Plan shall be considered a balance due to erroneous actuarial computations.
16.6 The amount which shall be returned to Company as provided in
Paragraph 16.3 and 16.4 is the excess of (1) the amount contributed over (2) the
amount that would have been contributed had there not occurred a mistake of fact
or a mistake in determining the amount of the deduction. Earnings
XVI-1
<PAGE>
attributable to the excess contribution shall not be returned to Company, but
losses attributable thereto shall reduce the amount to be so returned.
Furthermore, no excess contribution shall be returned to Company to the extent
that such reversion would cause the balance of the account, derived from Company
contributions, of any Participant to be reduced to less than the balance which
would have been in the account had the mistaken amount not been contributed.
XVI-2
<PAGE>
ARTICLE SEVENTEEN
DIRECT TRANSFERS AND ROLLOVER
17.1 If a Participant shall be entitled to receive benefits under this
Plan pursuant to Article 5, 6 and 7 or 8 above, the Trustee, at the direction of
the Plan Administrator, may transfer the Participant's vested benefits under
this Plan directly to the Trustee of a Plan and Trust qualified pursuant to
Section 401 of the Internal Revenue Code of 1986 or any successor provisions
thereof, of the Participant's current or new employer if the following
conditions are satisfied:
(a) the Trustee of the other plan shall be authorized to accept the
benefits under this Plan; and
(b) the value of the Participant's transferred assets shall be
separately accounted for in the other Trust; and
(c) the Participant's transferred assets shall not be forfeitable or
reduce in any way the obligation of the employer receiving
benefits from this Plan.
The Trustee of this Plan is authorized to accept, at the direction of the Plan
Administrator, assets for the benefit of an Employee upon the conditions as set
forth above from a trustee of another plan and trust maintained by either a
corporate or non-corporate Plan sponsor qualified pursuant to Section 401 of the
Internal Revenue Code of 1986 or any successor provisions thereof.
17.2 With the permission of the Plan Administrator any Employee who is
a member of a class of Employees eligible to participate may make a Rollover
Contribution to the Trustee at any time. The Trustee shall credit the fair
market value of any Rollover Contribution to the account of the contributing
Employee as of the date of the Rollover Contribution is made. For purposes of
the Plan's vesting provisions a Rollover Contribution shall be considered to be
an Employee Contribution and shall be 100% vested on the date of contribution.
The term "Rollover Contribution" is defined as the contribution of a Qualifying
Rollover Distribution on or before the 60th day immediately following the day
the contributing Employee receives the Qualifying Rollover Distribution.
The term "Qualifying Rollover Distribution" is defined as:
XVII-1
<PAGE>
(a) Any portion of the property received from a qualified plan and
trust, provided that the balance to the credit of an Employee
reduced by any Employee contributions has been paid to him in
one or more distributions
(1) within one taxable year of the Employee on account of the
termination of a qualified plan or, in the case of a
profit-sharing or stock bonus plan, a complete
discontinuance of contributions under such plan; or
(2) which constitute a lump sum distribution within the
meaning of Section 402 (e) (4) (A) [determined without
reference to Section 402 (e) (4) (B) and (H) ] of the
Internal Revenue Code of 1986.
In the case of a distribution of property other than money from
a qualified plan and trust, except for the proceeds from the
sale of such property (including appreciation from date of
distribution) other property (including money) may not be
substituted in making a Rollover Contribution; or
(b) The entire amount (including money and any other property)
in an Individual Retirement Account, Individual Retirement
Annuity, or Individual Retirement Bond (as defined in
Sections 408 and 409 of the Internal Revenue Code of 1986)
maintained for the benefit of the Employee making the
Rollover Contribution, which amount has been distributed
from such Individual Retirement Account, Individual
Retirement Annuity or Individual Retirement Bond. Such
amount will constitute a Qualifying Rollover Distribution
only if the amount in such Individual Retirement Account,
Individual Retirement Annuity, or Individual Retirement
Bond is solely attributable to a Rollover Contribution
made by the Employee from his interest as a Participant in
a trust described in Section 401(a) of the Internal
Revenue Code of 1986 or an annuity plan described in
Section 403(a) of the Internal Revenue Code of 1986 plus
the earnings thereon; but
(c) In no case does a Qualifying Rollover Distribution include any
amount which is attributable to a distribution from a trust or
annuity plan if the Employee who received the distribution was
an Employee within the meaning of Section 401(c) (1) of the
Internal Revenue Code of 1986 at the time contributions to such
trust or annuity plan were made on his behalf.
17.3 No assets transferred to this Plan in accordance with the
provisions of this Article shall be considered Employee contributions for
purposes of Subparagraph 2.1(d) and Paragraph 4.2.
XVII-2
<PAGE>
17.4 Distribution of said assets shall follow the general provisions of
the Plan for distribution of the Participant's account derived from employer
contributions.
17.5 The specific assets transferred to the Plan shall be general
assets of the trust, subject to the general investment powers of the Trustees
(or the Participants, if such powers have been granted them).
17.6 For purposes of valuing gains and losses in the account(s)
maintained for transferred assets, the provisions of Paragraph 4.5 shall apply.
Premiums on any insurance policies transferred to the Plan may be paid from the
account established for employer contributions, subject to the limits of
Paragraph 11.1. In the event of said premium payments, an equitable share of
increases in Cash Value from the date of transfer shall be allocated to the
account established for employer contributions. Said equitable share shall be
equal to the difference between the actual Cash Value of the policy and the Cash
Value the policy would have had if it had been placed in reduced paid-up status.
XVII-3
<PAGE>
ARTICLE EIGHTEEN
DETERMINATION OF TOP-HEAVY STATUS
18.1 In determining whether or not this Plan is Top-Heavy or Super
Top-Heavy for any Plan Year, the following calculations shall be made:
(a) In the case of a defined benefit plan, a Participant's
present value of accrued benefit shall be determined as of
the most recent valuation date used for computing plan
costs which is within a 12 month period ending on the
Determination Date, as if the individual terminated
service as of such valuation date. In the first year of a
Plan, however, the accrued benefit shall be determined as
if the individual terminated service as of the
Determination Date. The assumptions used for the
calculation shall be the interest and post-retirement
mortality assumptions used in determining Actuarial
Equivalence. The benefit valued is that payable at Normal
Retirement Date (or attained age, if later). Employee
contribution accounts shall be included in determining the
value of benefits.
(b) In the case of a defined contribution plan, a Participant's
account balance (including accounts for Employee contributions)
as of the Determination Date is the sum of:
(1) his account balance as of the most recent valuation
occurring within a 12 month period ending on the
Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date.
In the case of a plan not subject to the minimum funding
requirements of Internal Revenue Code Section 412 such
adjustment shall be the amount of any contributions
actually made after the valuation date but before the
Determination Date, except for the first Plan year when
such adjustment shall also reflect the amount of any
contributions made after the Determination Date that are
allocated as of a date in that first Plan Year. In the
case of a plan that is subject to the minimum funding
requirements, the account balance shall also be adjusted
to include contributions allocated as of a date not later
than
XVIII-1
<PAGE>
the Determination Date, even though those amounts are
not yet required to be contributed.
Also, the adjustment shall reflect the amount of any
contribution actually made (or due to be made) after the
valuation date but before the expiration of the extended
payment period in Internal Revenue Code Section 412 (c) 10);
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the 4 preceding
Plan Years. However, in the case of distributions made after
the valuation date and prior to the Determination Date, such
distributions are not included as distributions for
Top-Heavy purposes to the extent that such distributions are
already included in the Participant's present value of
accrued benefit or account balance as of the valuation date;
(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified
deductible employee contributions shall not be considered to
be a part of the Participant's account balance;
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and
made from a plan maintained by one employer to a plan
maintained by another employer), if this Plan provides for
rollovers or plan-to-plan transfers, it shall always
consider such rollover or plan-to-plan transfer made to
another plan as a distribution for the purposes of this
Section. If this Plan is the plan accepting such rollovers
or plan-to-plan transfers, it shall not consider such
rollovers or plan-to-plan transfers accepted after December
31, 1983 as part of the Participant's account balance.
However, rollovers or plan-to-plan transfers accepted prior
to January 1, 1984 shall be considered as part of the
Participant's account balance; with respect to related
rollovers and plan-to-plan transfers (ones either not
initiated by the Employee or made to a plan maintained by
the same employer), if this Plan provides the rollover or
plan-to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. If this Plan is
the plan accepting such rollover or plan-to-plan transfer,
it shall consider such rollover or plan-to-plan transfer as
part of the Participant's present value of accrued benefits
or account balance,
XVIII-2
<PAGE>
irrespective of the date on which such rollover or
plan-to-plan transfer is accepted.
In determining whether or not rollovers or plan-to-plan
transfers are made to the same or another Employer, all
Employers aggregated under Internal Revenue Code Sections
414(b), (c) or (m) are treated as the same Employer.
In calculating the accrued benefits or account balances of
Participants there shall not be considered any benefit or
account balances of any Participant who is not a Key-Employee
but who in any prior year was a Key-Employee.
(c) In the case of both a defined benefit plan and a defined
contribution plan, a Participant's accrued benefit or account
balance shall be increased by:
(1) any plan distributions made within the Plan Year that
includes the Determination Date, or within the four
preceding Plan Years. The preceding sentence shall also
apply to distributions under a terminated plan which, if it
had not been terminated, would have been required to be
included in an aggregation group. However, in the case of
distributions made after the valuation date and prior to
the Determination Date, such distributions are not included
as distributions for Top-Heavy purposes, to the extent that
such distributions are already included in the
Participant's present value of accrued benefit or account
balance as of the valuation date;
(2) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified
deductible employee contributions shall not be considered
to be a part of the Participant's account balance;
(3) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee
and made from a plan maintained by one employer to a plan
maintained by another employer), if this Plan provides for
rollovers or plan-to-plan transfers, it shall always
consider such rollover or plan-to-plan transfer made to
another plan as a distribution for the purposes of this
Section. If this Plan is the plan accepting such rollovers
or plan-to-plan transfers, it shall not consider such
rollover or plan-to-plan transfer accepted after December
31, 1983 as part of the Participant's account balance.
However, any rollover or plan-to-plan transfer accepted
prior to January 1, 1984 shall
XVIII-3
<PAGE>
be considered as part of the Participant's account
balance;
(4) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or
made to a plan maintained by the same employer), if this
Plan provides the rollover or plan-to-plan transfer, it
shall not be counted as a distribution for purposes of
this Section. If this Plan is the plan accepting such
rollover or plan-to-plan transfer, it shall consider such
rollover or plan-to-plan transfer as part of the
Participant's present value of accrued benefits or account
balance, irrespective of the date on which such rollover
or plan-to-plan transfer is accepted.
In determining whether or not rollovers or plan-to-plan
transfers are made to the same or another Employer, all
Employers aggregated under Internal Revenue Code Sections 414
(b), (c) or (m) are treated as the same Employer.
(d) In calculating the accrued benefits or account balances of
Participants, there shall not be considered any benefit or
account balances of any Participant who is not a Key-Employee
but who in any prior year was a Key-Employee.
(e) For Plan Years commencing after December 31, 1984, in
calculating the accrued benefits or account balances of
Participants, there shall not be considered any benefit or
account balance of any individual who has not performed any
service for the Company (other than benefits under the Plan) at
any time during the five year period ending on the
Determination Date.
18.2 If Company maintains more than one plan, the plans shall
constitute an Aggregation Group provided the following conditions are satisfied:
(a) Each plan of Company in which a Key Employee is a Participant,
including any terminated plan and each other plan of Company
which enables any plan in which a Key-Employee participates to
meet the requirements of Internal Revenue Code Sections 401 (a)
(4) or 410, will be required to be aggregated. Such group shall
be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the
group will be considered a Top-Heavy Plan if the Required
Aggregation Group is a Top-Heavy Group. No plan in the Required
Aggregation Group will be considered a
XVIII-4
<PAGE>
Top-Heavy Plan if the Aggregation Group is not a Top-
Heavy Group.
(b) Company may by execution of a written resolution provide
for the creation of a Permissive Aggregation Group to
consist of the Required Aggregation Group and any other
plan not required to be included in the Required
Aggregation Group, provided the resulting group, taken as
a whole, would continue to satisfy the provisions of
Internal Revenue Code Sections 401(a) (4) or 410. If the
Permissive Aggregation Group is not Top-Heavy no plans in
the Group will be considered Top-Heavy.
In the case of a Permissive Aggregation Group, only a plan
that is part of the Required Aggregation Group will be
considered a Top-Heavy Plan if the Permissive Aggregation
Group is a Top-Heavy Group.
(c) Only those plans of the Employer in which the Determination
Dates fall within the same calendar year shall be aggregated
in order to determine whether such plans are Top-Heavy Plans.
(d) A Top-Heavy Group is an Aggregation Group in which, as of the
Determination Date, the sum of the present value of accrued
benefits of Key Employees under all defined benefit plans
included in the group, and the account balances of
Key-Employees under all defined contribution plans included in
the group, exceed 60 percent of a similar sum determined for
all Participants.
18.3 In determining whether or not an Employee is a Key-Employee, the
following shall apply:
(a) An officer shall be an administrative executive in regular
and continued service. If the number of Employees of all
the employers aggregated under Internal Revenue Code
Sections 414(b), (c) or (m) is less than 30 employees for
a particular year, no more than 3 individuals shall be
treated as Key-Employees for that year by reason of being
officers. If the number of Employees of all organizations
aggregated under Internal Revenue Code Sections 414(b), (c) or
(m) is greater than 30 but less than 500 for a particular
year, no more than 10 percent of the number of Employees will
be treated as Key-Employees for that year by reason of being
officers. If the number of Employees of employers aggregated
under Internal Revenue Code Sections 414(b), (c) and (m)
exceed 500 for a particular year, no more than 50 Employees
are considered as Key Employees for that year by reason of
being officers. This limited number of officers is comprised
of the individual
XVIII-5
<PAGE>
officers, selected from the group of all individuals who were
officers in the current Plan Year or any one of the four
preceding Plan Years, who had the largest annual compensation
in that five-year period.
(b) An individual who is a "one percent owner" shall be considered
as having compensation of more than $150,000 based on the
definition of compensation contained in Article 4 herein used
for purposes of computing limits on maximum contributions or
benefits, but contributions more on behalf of a Self Employed
Individual shall be excluded from the definition of
compensation.
18.4 In any Top-Heavy Plan Year, a Participant shall have a
nonforfeitable right to a percentage of his accrued benefit derived from Company
contributions determined as follows:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
Notwithstanding the above, the vesting schedule contained in this Paragraph
shall not apply in any Top-Heavy Plan Year if the vesting schedule contained
elsewhere herein provides for equal or more rapid vesting at every year shown on
the schedule, nor shall it apply if the Plan otherwise provides for 100 percent
vesting after 3 or fewer Years of Service.
18.5 The vesting schedule applicable to any Top-Heavy Plan Year shall
not apply to any Employee who does not have an hour of service after the Plan
becomes Top-Heavy. His vested interest shall be determined under the vesting
provision of the Plan as in effect on the date of his last hour of service.
18.6 In any Top-Heavy Plan Year an eligible Participant who is a
Non-Key Employee shall receive no less than either a minimum contribution to a
defined contribution plan equal to the lesser of 3% of compensation or the
largest percentage of compensation provided on behalf of any Key-Employee or a
minimum accrual in a defined benefit plan equal in value to an accrued benefit
at any point in time of 2% of his Average Annual Compensation for the five
consecutive years in which his compensation was highest times his Years of
Service for benefit accrual beginning on or after January 1, 1984 and during
which the Plan was Top-Heavy up to a maximum of 20%, payable at Normal
Retirement Date in the form of a straight life annuity. If a
XVIII-6
<PAGE>
Non-Key Employee is a Participant in both a defined benefit plan and a defined
contribution plan which are Top-Heavy the Participant shall receive no less than
either a defined contribution minimum equal to 5% of compensation or the defined
benefit minimum accrual described above (but not including a 2% accrual and
reducing the 20% maximum by 2% for each Top-Heavy Plan Year during the first 10
Top-Heavy Plan Years in which the minimum 5% contribution is made on his behalf
to a defined contribution plan). Compensation for purposes of the defined
benefit minimum benefit shall not include compensation after the last Plan Year
in which the Plan is Top-Heavy and shall be compensation as defined in Article 4
for purposes or computing limits on maximum contributions or benefits.
For any Top Heavy Plan Year, the minimum allocations set forth above shall be
allocated to the Participant's Account of all Non-Key Employees who are
Participants and who are employed by the Employer on the last day of the Plan
Year, including Non-Key Employees who have (1) failed to complete a Year of
Service; (2) declined to make mandatory contributions (if required) to the Plan;
and (3) been excluded from participation because of their level of Compensation.
18.7 In the case of a Participant in a defined benefit plan, in no case
will the operation of the Top-Heavy rules, including rules applicable to Super
Top-Heavy Plans, pertaining for example and not by way of limitation to the
definitions of the Defined Benefit Plan Fraction or Defined Contribution Plan
Fraction, effect a reduction in the Participant's accrued benefit. However, the
mere application of the rules for establishing which Plan is primary in assuring
compliance with Section 415 of the Code in the case of a Participant in both a
defined benefit plan and a defined contribution plan shall not be considered as
effecting a reduction in an accrued benefit.
XVIII-7
<PAGE>
ARTICLE NINETEEN
MISCELLANEOUS PROVISIONS
19.1 Purpose: This Agreement and Trust which is created is purely
voluntary on the part of the Company, and the Company may change or discontinue
payments hereunder at any time or from time to time as the Company may decide;
provided, however, that such discontinuance of payment or termination is
approved as required by federal law. Except as otherwise provided by federal
law, neither the establishment of the Agreement and Trust nor any modification
hereof, nor the creation of any fund or account, nor the payment of any benefit,
shall be construed as giving any person whomsoever any legal or equitable right
against the Company or the Trustee, but any and all claims or rights arising
under this Agreement and Trust shall be expressly limited in enforcement to the
assets of the Trust fund, and in those instances where a Contract has been
issued, the right to such benefits shall also be limited by the terms and
conditions of the Contract. Nothing contained in this Agreement and Trust shall
be construed or interpreted as giving any Employee the right to be retained in
the service of the Company or shall affect or impair the right of the Company to
control its Employees and to terminate the service of any Employee at any time.
19.2 Headings: Headings or titles of Articles are for general
information only and this Agreement and Trust shall not be construed by
reference to such titles.
19.3 Severability: If any provision of this Agreement and Trust is held
invalid or unenforceable, such invalidity or unenforceability shall not effect
any other provision, and this Agreement and Trust shall be construed and
enforced as if such provision had not been included.
19.4 The terms of this Trust shall be construed in accordance with the
laws of the Trust Situs, except to the extent preempted by federal law.
19.5 Binding Effect: This Agreement and Trust shall be binding upon and
inure to the benefit of the Company and the Trustee, their successors and the
Participants and their Beneficiaries in accordance with the terms of this
Agreement and Trust.
19.6 Construction: Whenever used in this Agreement and Trust unless the
context indicates otherwise, singular shall include plural and the plural shall
include singular; and the male gender shall include the female gender.
XIX-1
<PAGE>
19.7 Termination: Upon the return of all contributions to the Company
as provided in Paragraph 16.2 hereof, the Trust shall terminate, and the Trustee
shall be discharged from all obligations under the Trust.
19.8 Indemnification: The Company shall indemnify those to whom the
Company has delegated fiduciary responsibilities against any and all claims,
losses, damages, expenses and liabilities arising from their responsibilities in
connection with the Plan, unless the same is determined to be due to gross
negligence or willful misconduct.
19.9 Interpretation: Except as otherwise provided by federal law, in
all matters concerning the interpretation of this Agreement and Trust and the
operation of the Plan and Trust, the decisions made by the Plan Administrator
shall be final and conclusive upon all the parties. All such decisions shall
apply uniformly to all Participants in like situations.
19.10 Rules: The Plan Administrator may from time to time formulate and
issue such rules and regulations, not inconsistent with the declared purposes
and provisions of the Plan, as the Plan Administrator may deem necessary to
administer and carry out the Plan and Trust. No such rule or regulation will be
ineffective by reason of the fact that such rule or regulation may amend the
purely administrative provisions of the Plan or conform to any change in the
Plan as may be made by amendment.
19.11 Conformity with federal Law: This Agreement and Trust shall at
all times be construed and administered so as to conform to the requirements for
qualification under the Internal Revenue Code of 1986, as amended, as well as to
conform to the requirements of all governing federal law and the Agreement and
Trust shall be deemed amended automatically to conform to such legal
requirements, to the extent necessary.
19.12 Controlled Group: For purposes of interpreting and administering
Plan provisions required for tax qualification under Internal Revenue Code
Section 401, including Plan provisions relating to participation, vesting,
benefit accrual, and limitations on benefits and contributions, all employees
of all entities which are members of a Controlled Group of entities, as defined
in Internal Revenue Code Section 414(b) and (c), and/or which are members of an
Affiliated Service Group as defined in Internal Revenue Code Section 414 (m),
shall be treated as if employed by a single employer.
For purposes of determining years of Service for eligibility and
vesting purposes for any Employee or former Employee of Company,
service with any entity which is a member of a Controlled Group
XIX-2
<PAGE>
or an Affiliated Service Group in which Company is included shall be
considered service with Company. In determining service for purposes
of benefit accrual for any Employee or former Employee of Company,
service during any Plan Year in which an Employee was a Participant in
a Plan maintained by a member of a Controlled Group or an Affiliated
Service Group in which Company is included shall be taken into
account.
19.13 Successor Company: Any successor organization of Company may
adopt this Plan and Trust, with the written consent of Company, if then in
existence. Such successor shall thereby succeed to all the rights, powers, and
duties of Company hereunder.
IN WITNESS WHEREOF, Company and Trustee have caused this Agreement to
be executed the day and date previously written.
ATTEST: PENNSYLVANIA SAVINGS BANK
By:
- --------------------------- -----------------------------------
Roseanne Pauciello, Vincent J. Fumo,
Secretary President
- --------------------------- -----------------------------------
Gary Polimeno, Vincent J. Fumo,
Treasurer Trustee
-----------------------------------
Anthony Di Sandro,
Trustee
XIX-3
<PAGE>
The undersigned President of the above named Corporation does hereby
certify that the foregoing are true and correct copies of the Cash or Deferred
Profit Sharing Plan and Trust instruments, adopted by said Corporation and
approved by its Board of Directors at a special meeting of the Directors.
He further certifies that the Cash or Deferred Profit Sharing Plan and
Trust instruments were duly executed by the Corporation and the Trustees named
in said instruments.
(SEAL)
----------------------------
Vincent J. Fumo,
President
XIX-4
<PAGE>
FIRST AMENDMENT TO THE AMENDED
CASH OR DEFERRED PROFIT SHARING PLAN AND TRUST
OF PENNSYLVANIA, A SAVINGS BANK
Amendment made this 17th day of November, 1994 to the above Plan and
Trust.
WHEREAS, the Employer maintains the retirement plan and trust qualified
for Federal income tax purposes; and
WHEREAS, certain changes in the plan and trust are deemed advisable and
desirable.
NOW THEREFORE, the plan and trust is amended as follows to be effective
January 1, 1994.
1. 2.1(n) compensation is amended by adding the following paragraphs at
the end thereof:
In addition to other applicable limitations set forth in the
plan, and notwithstanding any other provision of the plan to
the contrary, for plan years beginning on or after January 1,
1994, the annual compensation of each employee taken into
account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is
$150,000, as adjusted by the Commissioner for increases in the
cost of living in accordance with section 401(a)(17)(B) of the
Internal Revenue Code. The cost-of-living adjustment in
<PAGE>
effect for a calendar year applies to any period, not
exceeding 12 months, over which compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in
the determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any
reference in this plan to the limitation under section
401(a)(17) of the Code shall mean the OBRA '93 annual
compensation limit set forth in this provision. If
compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the
current plan year, the compensation for that prior
determination period is subject to the OBRA '93 annual
compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning
before the first day of the first plan year beginning on or
after January 1, 1994, the OBRA '93 annual compensation limit
is $150,000.
-2-
<PAGE>
2. There is added to the plan a new Article XX. Article XX
provides the following:
This Article applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the plan to
the contrary that would otherwise limit a distributee's
election, under this Article, a distributee may elect, at the
time and in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
a. Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an
eligible rollover distributions does not include: any
distribution that is one of a series of substantially equal
periodic payments not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent
such
-3-
<PAGE>
distribution is required under section 401(a)(9) of the Code;
and the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer
securities).
b. Eligible retirement plan: An eligible retirement plan
is an individual retirement account described in section
408(b) of the Code, an individual retirement annuity described
in Section 403(a) of the Code, or a qualified trust described
in section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of the
eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account
or individual retirement annuity.
c. Distributee: A distributee includes an employee or
former employee. In addition, the employee's or former
employee's surviving spouse and the employee's or former
employee's spouse or former spouse who is the alternate payee
under a qualified domestic relations order, as defined in
section 414(p) of the code, are distributees with regard to
the interest of the spouse or former spouse.
-4-
<PAGE>
d. Direct rollover: A direct rollover is a payment by
the plan to the eligible retirement plan specified by the
distributee.
3. Articles 12.1 and 12.2 are deleted in their entirety and restated as follows:
12.1 The Company, through its duly elected Board of
Directors, shall have the right at any time to
discontinue its contributions hereunder, and to
terminate or partially terminate this Plan and Trust. In
the event that Company shall be legally dissolved, or
declared bankrupt, shall make a general assignment for
the benefit of creditors, or merge into or with another
company which shall not assume the obligations of this
Agreement, this Plan shall automatically terminate.
In the event the Plan and Trust is automatically
terminated as provided above, or in the event that
subsequent to the voluntary termination of the plan by
Company, any of the events causing automatic termination
occur prior to the final and
-5-
<PAGE>
complete distribution of assets from the Trust, Trustee
shall automatically be vested with all rights, powers
and duties otherwise reserved in this Agreement and
Trust to Company, Plan Administrator and Named
Fiduciary, including but not limited to the right to
amend this Agreement and Trust, to liquidate the Trust,
and to continue the Plan and Trust in force.
12.2 The Company, through its duly elected Board of
Directors, reserves the right to amend this Plan and
Trust in writing at any time without the consent of any
Participant or Beneficiary; provided, however, that no
amendment to this Plan or Trust shall deprive any
Participant or Beneficiary (including any Participant or
Beneficiary who is already receiving benefits) of any
vested interest herein, except as may be allowed by
Federal Law, nor shall such amendment increase the
duties or obligations of the Trustee herein except with
his consent. Further provided, that to the extent
required by Federal Law, subject to regulations issued
by the Secretary of the Treasury, no amendment to
-6-
<PAGE>
this Plan and Trust shall be permitted which has the
effect of: (a) eliminating or reducing an early
retirement benefit or a retirement-type subsidy for a
Participant who satisfied (either before or after the
amendment) the pre-amendment conditions for the benefit
or subsidy, or (b) eliminating an optional form of
benefit, in both cases with respect to benefits
attributable to service before such amendment.
IN WITNESS WHEREOF, Pennsylvania Savings Bank has caused this Amendment
to be executed by its duly authorized officers the date above written.
ATTEST: SAVING BANK
/s/ Rosanne Pauciello BY: /s/ Anthony Di Sandro
- ------------------------------ ----------------------------------
Rosanne Pauciello Anthony Di Sandro
Secretary President
-7-
<PAGE>
AMENDMENT
TO
CASH OR DEFERRED PROFIT SHARING PLAN AND TRUST
OF
PENNSYLVANIA SAVINGS BANK
WHEREAS, Article 12 permits the Employer to amend the Plan,
WHEREAS, the Employer has determined that it is advisable to amend the
Plan to permit directed investment accounts,
Now, THEREFORE, the Plan is amended by the addition of the following
which shall be known as Article 20.
ARTICLE 20
DIRECTED INVESTMENT ACCOUNT
(a) The Administrator shall determine that all Participants be
permitted to direct a Trustee as to the investment of all or a
portion of the vested interest in any one or more of their individual
account balances. If such authorization is given, Participants may,
subject to a procedure established by the Administrator and applied
in a uniform, non-discriminatory manner, direct the Trustee in
writing to invest the vested portion of their account in specific
assets, specific funds or other investments permitted under the Plan
and the directed investment procedure. That portion of the vested
account of any Participant so directing will thereupon be considered
a directed investment account, which shall not share the trust fund
earnings.
<PAGE>
(b) A separate directed investment account shall be
established for each Participant who has directed an investment.
Transfers between the Participant's regular account and his directed
investment account shall be charged and credited as the case may be
to each account. The directed investment account shall not share in
trust fund earnings, but it shall be charged or credited as
appropriate with the net earnings, gains, losses and expenses as well
as any appreciation or depreciation in market value during each Plan
Year attributable to such account.
(c) The Trustee shall not be responsible for, nor liable
for, any loss or expense which may arise from or result from
compliance with any directions from the Participant. The Trustee
shall not be responsible for, nor liable for, any loss or expense
which may result from the Trustee's refusal or failure to comply with
any directions from the Participant. The Trustee may refuse to comply
with any direction from the Participant in the event the Trustee, in
its sole and absolute discretion, deems such direction improper by
-2-
<PAGE>
virtue of applicable law. Any costs and expenses related to compliance
with the Participant's directions shall be borne by the Participant's
account.
IN WITNESS WHEREOF, the Employer has executed this Amendment on the
date indicated below.
PENNSYLVANIA SAVINGS BANK
BY: /s/ Anthony Di Sandro
----------------------------------
President
ATTEST:
/s/ Rosanne Pauciello
----------------------------------
Secretary
DATED:
------------------------
-3-
<PAGE>
PROFIT SHARING PLAN AND TRUST
BY AND BETWEEN:
PENNSYLVANIA SAVINGS BANK
AND
VINCENT J. FUMO, TRUSTEE
AND
ANTHONY DI SANDRO, TRUSTEE
<PAGE>
INDEX
Page
----
ARTICLE ONE
Purpose, Creation and Name ................................... I-1
ARTICLE TWO
Definitions of Terms ......................................... II-1
ARTICLE THREE
Eligibility .................................................. III-1
ARTICLE FOUR
Contributions and Management of Funds ........................ IV-1
ARTICLE FIVE
Retirement Benefits .......................................... V-1
ARTICLE SIX
Disability Benefits .......................................... VI-1
ARTICLE SEVEN
Death Benefits ............................................... VII-1
ARTICLE EIGHT
Separation Benefits .......................................... VIII-1
ARTICLE NINE
Payment of Benefits .......................................... IX-1
ARTICLE TEN
Spendthrift Clause ........................................... X-1
ARTICLE ELEVEN
Insurance Contracts .......................................... XI-1
ARTICLE TWELVE
Right to Alter, Amend or Terminate Trust ..................... XII-1
ARTICLE THIRTEEN
Loans ........................................................ XIII-1
<PAGE>
Page
----
ARTICLE FOURTEEN
Trustee ...................................................... XIV-1
ARTICLE FIFTEEN
Insurer ...................................................... XV-1
ARTICLE SIXTEEN
No Reversion to Company ...................................... XVI-1
ARTICLE SEVENTEEN
Direct Transfers and Rollovers ............................... XVII-1
ARTICLE EIGHTEEN
Determination of Top-Heavy Status ............................ XVIII-1
ARTICLE NINETEEN
Miscellaneous Provisions ..................................... XIX-1
<PAGE>
ARTICLE ONE
PURPOSE, CREATION AND NAME
1.1 WHEREAS, the Employer established a Profit Sharing Plan and Trust
effective January 1, 1992 (hereinafter called the "Original Effective Date")
known as the Pennsylvania Savings Bank Profit Sharing Plan (herein referred to
as the "Plan") in recognition of the contribution made to its successful
operation by its employees and for the exclusive benefit of its eligible
employees; and
NOW, THEREFORE, effective December 30, 1992, the Employer and the Trustee,
hereby adopt the Plan and Trust:
1.2 THIS AGREEMENT, hereby made and entered into this _____ day of
______________ 19____, by and between PENNSYLVANIA SAVINGS BANK (herein referred
to as the "Employer") and VINCENT J. FUMO and ANTHONY DI SANDRO (herein referred
to as the "Trustees").
I-1
<PAGE>
ARTICLE TWO
DEFINITION OF TERMS
2.1 The following words and terms as used in this Plan and Trust shall have
the meaning set forth below, unless a different meaning is clearly required by
the context.
(a) Adjustment Factor: The cost of living adjustment factor prescribed by
the Secretary of the Treasury under Section 415(d) of the Code for
years beginning after December 31, 1987, as applied to such items and
in such manner as the Secretary shall provide.
(b) Affiliated Employer: The Employer and any corporation which is a
member of a controlled group of corporations (as defined in Section
414(b) of the Code) which includes the Employer; any trade or business
(whether or not incorporated) which is under common control (as
defined in Section 414(c) of the Code) with the Employer; any
organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Section 414(m) of the Code)
which includes the Employer; and any other entity required to be
aggregated with the Employer pursuant to regulations under Section
414(o) of the Code.
(c) Age: A person's age at his last birthday.
(d) Aggregate Account: With respect to each Participant, the value of all
accounts maintained on behalf of a Participant, whether attributable
to Employer or Employee contributions, subject to the provisions of
Article XVIII.
(e) Agreement: This instrument with all amendments and supplements
thereto.
(f) Anniversary Date: First day of Plan Year.
(g) Annual Addition: The amount allocated to a Participant's account
during the Limitation year that constitutes:
(i) Employer contributions,
(ii) Employee contributions,
(iii) Forfeitures, and
II-1
<PAGE>
(iv) Amounts described in Sections 415(1)(1) and 419(A)(d)(2) of the
Code.
(h) Beneficiary: The person or persons to whom the share of a deceased
Participant's total account is payable, as provided in the Plan. For
purposes of determining whether the Plan is a Top-Heavy Plan, a
Beneficiary of a deceased Participant shall be considered a Key
Employee or a Non-Key Employee, as the case may be.
(i) Break in Service: For the purposes of eligibility, any Eligibility
Computation Period in which an Employee has no more than 500 Hours of
Service. For purposes of vesting, any Vesting Computation Period in
which an Employee has no more than 500 Hours of Service.
(j) Cash Value: A Cash Value of Contract providing specific allocations of
amounts to individual participants.
(k) Code: The Internal Revenue Code of 1986 and amendments thereto.
(1) Company: PENNSYLVANIA SAVINGS BANK
(m) Compensation: Compensation actually paid to or for the benefit of an
Employee during the Plan Year, inclusive of overtime pay, commissions,
and bonuses, except that in the event Company is an accrual basis
taxpayer, Company may by written resolution elect to use accrued
compensation in lieu of paid compensation. Compensation shall be such
remuneration that is subject to tax under Section 3101(a) of the
Internal Revenue Code, without the dollar limitation of Section
3121(a). However, Compensation for any Self-Employed Individual shall
be equal to his earned income; that is, the net earnings from
self-employment as defined in Code Section 401(c)(2), (reduced by
Company's deductible contribution made on behalf of such individual
for such year). Effective for Plan Years beginning after 12/31/88 this
Plan shall not take into consideration a Participant's Compensation to
the extent it exceeds $200,000.00, as indexed under Code Section
415(d).
In applying this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of
Code Section 414(q)(6) because such Participant is either a "five
percent owner" of the Employer or one of the ten (10) Highly
Compensated Employees paid the greatest "415 Compensation" during the
year, shall be treated as a single Participant, except that for this
purpose Family Members shall include only the affected Participant's
spouse and any lineal
II-2
<PAGE>
descendants who have not attained age nineteen (19) before the close
of the year.
Notwithstanding the above, for any Top-Heavy Plan Year, Compensation
in excess of $200,000 (or such other amount as the Secretary of the
Treasury may designate) shall be disregarded, except for purposes of
determining maximum permissible voluntary contributions and the Annual
Additions resulting therefrom, and for purposes of satisfying the
minimum contribution or benefit provisions regarding Top-Heavy Plans,
compensation is determined in accordance with the definition of
Compensation contained in Article IV with respect to limits on maximum
contributions or benefits.
(n) Contract: Any individual or group annuity policy or life insurance
policy for and/or on any Plan Participant, or any unallocated
investment contract issued by an insurer.
(o) Contribution: Integrated:
Base Percent: 5.7%
Integration Percent: 5.7 % of the Participant's Excess Compensation.
Integration Level: Social Security Wage Base
The Integration Level shall be equal to the taxable wage base or such
lesser amount elected by the Employer. The taxable wage base is the
contribution and benefit base in effect under section 230 of the
Social Security Act at the beginning of the Plan Year.
Maximum Contribution: In any Top-Heavy Plan Year, a Participant
otherwise eligible to share in Contributions or Forfeitures, but who
is paid for fewer than 1,000 Hours of Service, shall be limited to a
maximum allocation of Contributions and Forfeitures of 3% Percent of
Compensation.
If a Participant also participates in another defined contribution
plan maintained by Company, then the Maximum Contribution referred to
above shall be reduced by any allocation made on his behalf to said
other defined contribution plan.
(p) Defined benefit fraction: A fraction, the numerator of which is the
sum of the Participant's projected annual benefit under all the
defined benefit plans (whether or not terminated) maintained by the
Employer, and the
II-3
<PAGE>
denominator of which is the lesser of 125 percent of the dollar
limitation determined for the limitation year under sections 415(b)
and (d) of the Code or 140 percent of the highest average
compensation, including any adjustments under section 415(b) of the
Code.
Notwithstanding the above, if the Participant was a Participant as of
the first day of the first limitation year beginning after December
31, 1986, in one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the denominator of
this fraction will not be less than 125 percent of the sum of the
annual benefits under such plans which the Participant had accrued as
of the close of the last limitation year beginning before January 1,
1987, disregarding any changes in the terms and conditions of the Plan
after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in aggregate satisfied the requirement
s of section 415 for all limitation years beginning before January 1,
1987.
(q) Defined Contribution Plan Fraction: A fraction the numerator of which
is the sum of the Annual Additions to the Participant's account(s)
under all qualified defined contribution plans of Company, including
voluntary contribution accounts, as of the close of the Limitation
Year, and the denominator of which is the sum of the lesser of the
following amounts determined for such year and for each prior Year of
Service with the Company:
(1) Such amount as is determined by multiplying 1.25 by the dollar
limitation in effect for the defined contribution plans under
Internal Revenue Code Subsection 415(c)(1)(A) for such year
(determined without regard to Section 415(c)(6) of the Code), or
(2) The product of 1.4 multiplied by the amount which may be taken
into account under Code Section 415(c)(1)(B) for such Limitation
Year.
Notwithstanding the foregoing, the numerator of the defined
contribution plan fraction shall be adjusted pursuant to Regulation
1.415-7(d)(1) and question T-6 and T-7 of Internal Revenue Service
Notice 83-10.
Notwithstanding the foregoing, for any Top-Heavy Plan Year, 1.0 shall
be substituted for 1.25 above, if any Non-Key Employee Participant
eligible for any accrual of benefits does not have either an
allocation of Company contributions and forfeitures of at least 7.5
percent of Compensation for such year, or an accrued benefit in a
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defined benefit plan in which he participates of not less than the 3%
minimum benefit as provided in Code Section 416(h)(2)(A)(ii)(I) (but
not both). However, for any Plan Year in which this Plan is a Super
Top-Heavy Plan, 1.0 shall be substituted for 1.25 in any event.
(r) Determination Date: For purposes of determining if the Plan is
Top-Heavy, the last day of the preceding Plan Year, or in the case of
the first Plan Year, the last day of such Plan Year.
(s) Early Retirement Date: This Plan does not provide for a retirement
date prior to Normal Retirement Date.
(t) Earned Income: With respect to a Self-Employed Individual, the net
earnings from self-employment in the trade or business with respect to
which the Plan is established, for which the personal services of the
individual are a material income-producing factor. Net earnings will
be determined without regard to items not included in gross income and
the deductions allocable to such income items. Net earnings are
reduced by contributions by the Employer to a qualified Plan to the
extent deductible under Code Section 404. Additionally, for taxable
years beginning after December 31, 1989, net earnings shall be
determined with regard to the deduction allowed to the Employer by
Code Section 164(f).
(u) Effective Date of this Plan: First day of Plan Year beginning January
1, 1992.
(v) Eligible Employee: Any Employee who has satisfied the provisions of
Section 3.1
(w) Eligibility Computation Period: The consecutive 12-month period
beginning on the date on which the Employee first performed an hour of
service and successive 12-month periods thereafter. If an Employee
incurs a Break in Service and subsequently is credited with additional
hours of service, his Eligibility Computation Period shall be the
consecutive 12 month period beginning with the date on which he is
first credited with an hour of service after the Break in Service, and
successive consecutive 12 month periods thereafter.
(x) Employee: Employees of the Employer and shall include leased employees
within the meaning of Section 414(n)(2) and 414(o)(2) of the Code.
Notwithstanding the foregoing, if such leased employees constitute
less than twenty percent of the Employer's nonhighly compensated work
force within the meaning of Section 414(n)(1)(C)(ii) of the
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Code, the term "Employee" shall not include those leased employees
covered by a plan described in Section 414(n)(5) of the Code unless
otherwise provided by the terms of the Plan other than this amendment
and restatement.
(y) Employer: The Company and any corporation which is a member of a
controlled group of corporations (as defined in Section 414(b) of the
Code) which includes the Company; any trade or business (whether or
not incorporated) which is under common control (as defined in Section
414(c) of the Code) with the Company; any organization (whether or not
incorporated) which is a member of an affiliated service group (as
defined in Section 414(m) of the Code) which includes the Company; and
any other entity required to be aggregated with the Company pursuant
to regulations under Section 414(o) of the Code.
(z) Employer Contribution Account: The account maintained for a
Participant to record his share of the contributions of the Employer
and adjustments relating thereto.
(aa) ERISA: Public Law No. 93-406, the Employee Retirement Income Security
Act of 1974, as amended from time to time.
(bb) Excess Compensation: With respect to any Participant, the
Participant's Compensation which is in excess of the Integration Level
elected by the Employer in the Plan.
(cc) Family Member: With respect to an affected Participant, such
Participant's spouse, such Participant's lineal descendants and
ascendants and their spouses, all as described in Code Section 414(q)
(6)(B).
(dd) Fiduciary: Any person who (a) exercises any discretionary authority or
discretionary control respecting management of the Plan or exercises
any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation,
direct or indirect, with respect to any monies or other property of
the Plan or has any authority or responsibility to do so, or (c) has
any discretionary authority or discretionary responsibility in the
administration of the Plan, including, but not limited to the Trustee,
the Employer and its representative body, and the Administrator.
(ee) Forfeiture: The portion of a Participant's Employer Contribution
Account that is not vested, and occurs on the earlier of:
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(a) the distribution of the entire vested portion of a participant's
Employer Contribution Account, or
(b) the last day of the Plan Year in which the Participant incurs
five (5) consecutive 1-year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
terminated Participant whose vested benefit is zero, such terminated
Participant shall be deemed to have received a distribution of his
vested benefit upon his termination of employment. In addition, the
term Forfeiture shall also include amounts deemed to be Forfeitures
pursuant to any other provision of this Plan.
(ff) Highly Compensated Employee: An Employee who performed services for
the Employer during the "determination year" and is one or more of the
following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" of the Employer.
"Five percent owner" means any person who owns (or is considered
as owning within the meaning of Code Section 318) more than five
percent of the outstanding stock of the Employer or stock
possessing more than five percent of the total combined voting
power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than five
percent of the capital or profits interest in the Employer. In
determining percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections 414(b), (c), (m)
and (o) shall be treated as separate employers.
(b) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $50,000 and were in the Top
Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received "415
Compensation" during the "look-back year" from the Employer
greater than 50 percent of the limit in effect under Code Section
415(b)(1)(A) for any such Plan Year. The number of
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officers shall be limited to the lesser of (i) 50 Employees; or
(ii) the greater of 3 Employees or 10 percent of all Employees.
If the Employer does not have at least one officer whose annual
"415 Compensation" is in excess of 50 percent of the Code Section
415(b)(1) (A) limit, then the highest paid officer of the
Employer will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees
paid the greatest "415 Compensation" during the "determination
year" and are also described in (b), (c) or (d) above when these
paragraphs are modified to substitute "determination year" for
"look-back year".
In determining who is a Highly Compensated Employee, all
Affiliated Employers shall be taken into account as a single
employer and leased employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such
leased employees are covered by a plan described in Code Section
414(n)(5) and are not covered in any qualified plan maintained by
the Employer. In addition, Highly Compensated Former Employees
shall be treated as Highly Compensated Employees without regard
to whether they performed services during the "determination
year".
(f) If an employee is, during a determination year or look-back year,
a family member of either a 5 percent owner who is an active or
former employee or a highly compensated employee who is one of
the 10 most highly compensated employees ranked on the basis of
compensation paid by the employer during such year, then the
family member and the 5 percent owner or top-ten highly
compensated employee shall be aggregated. In such case, the
family member and 5 percent owner or top-ten highly compensated
employee shall be treated as a single employee receiving
compensation and plan contributions or benefits equal to the sum
of such compensation and contributions or benefits of the family
member and 5 percent owner or top-ten highly compensated
employee. For purposes of this section, family member includes
the spouse, lineal ascendants and descendants of the employee or
former employee and the spouses of such lineal ascendants and
descendants.
The determination of who is a highly compensated employee,
including the determinations of the number
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and identity of employees in the top-paid group, the top 100
employees, the number of employees treated as officers and the
compensation that is considered, will be made in accordance with
section 414(q) of the Code and the regulations thereunder.
(Look-back year election) The "look-back year" shall be the calendar
year ending with or within the Plan Year for which testing is being
performed, and the "determination year" (if applicable) shall be the
period of time, if any, which extends beyond the "look-back year" and
ends on the last day of the Plan Year for which testing is being
performed (the "lag period"). If the "lag period" is less than twelve
months long, the dollar threshold amounts specified in (b), (c) and
(d) above shall be prorated based upon the number of months in the
"lag period".
For purposes of this Section, the determination of "415 Compensation"
shall be made without regard to Code Sections 125, 402(a)(8), 402(h)
(1)(B) and, in the case of Employer contributions made pursuant to a
salary reduction agreement, without regard to Code Section 403(b).
Additionally, the dollar threshold amounts specified in (b) and (c)
above shall be adjusted at such time and in such manner as is provided
in Regulations. In the case of such an adjustment, the dollar limits
which shall be applied are those for the calendar year in which the
"determination year" or "look-back year" begins.
(gg) Highly Compensated Former Employee: A former Employee who had a
separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the
foregoing, any Employee who separated from service prior to 1987 will
be treated as a Highly Compensated Former Employee only if during the
separation year (or year preceding the separation year) or any year
after the Employee attains 55 (or the last year ending before the
Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner". For
purposes of this Section, "determination year", "415 Compensation" and
"five percent owner" shall be determined in accordance with Section
2.l(hh). Highly Compensated Former Employees shall be treated as
Highly Compensated Employees.
(hh) Highly Compensated Participant: Any Highly Compensated Employee who is
eligible to participate in the Plan.
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(ii) Inactive Participant: Any Employee or former Employee who has ceased
to be a Participant and on whose behalf an account is maintained under
the Plan.
(jj) Insurer: Any legal reserve life insurance company.
(kk) Key-Employee: Any Employee or former Employee (and the beneficiaries
of such Employee) who at any time during the Plan Year (ending on the
Determination Date) or on the preceding four (4) Plan Years was:
(a) An officer of the Employer whose annual Compensation exceeds 50%
of the dollar limitation under section 415(b)(1)(A) of the Code.
The number of Officers is limited to a maximum of the lesser of:
(i) 50 Employees or,
(ii) the greater of 3 Employees or 10% of all Employees
(iii) If no one in the Company has Compensation in excess of 50%
of the defined contribution dollar limit, then the one
officer with the highest Compensation is considered a Key
Employee.
(b) An Owner (or considered an owner under section 318 of the code)
who:
(i) owns one of the ten largest interests in the Employer, if
such individual's Compensation exceeds 100 percent of the
dollar limitation under section 415(c)(1)(A) of the Code.
(ii) owns 5 percent of the Employer and has an annual
Compensation in excess of $150,000, or
(iii) owns 1 percent of the Employer and has annual Compensation
in excess of $150,000.
Annual Compensation means Compensation as defined in section 415(c)(3)
of the Code, but including amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludable from the
Employee's gross income under section 125, section 402(a)(8), section
402(h) or section 403(b) of the Code.
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(11) Leased Employee: Any person who is not an Employee of Company and who
has, for a period of 1 or more years, and on a substantially full-time
basis, provided services to Company of a type historically performed
by Employees of the Company, which services are or have been provided
pursuant to an agreement between Company and a leasing organization.
For any Plan Year, any Leased Employee shall be treated as an Employee
of Company for purposes of the participation standards of Article III,
the contribution standards of Article IV and the vesting standards of
Article VIII, unless such Leased Employee is, for such Plan Year or
any portion thereof during which such Leased Employee provides
services for the Company, a participant in a Safe Harbor Plan provided
for such Leased Employee by the leasing organization leasing the
services of such Leased Employee to the Company. For purposes of the
foregoing sentence, a Leased Employee shall not be treated as an
Employee of the Company until after the close of the aforementioned
1-year period during which such individual has provided substantially
full-time services to the Company, except that Years of Service for
the Company shall be determined by taking into account the entire
period for which the individual performed services for the Company.
(mm) Length of Service Required:
(1) On the effective Date of this Plan: Two years
(2) After the Effective Date of this Plan: Two years
(nn) Limitation Year: Any period of one year ending on the last day of the
Plan Year. If the Plan Year is changed, the limitation year shall
correspond to the new Plan Year, beginning with the first full twelve
month Plan Year subsequent to the commencement of change in Plan Year.
In the event the Limitation Year is or has been changed, by reason of
change in the Plan Year or otherwise, the limitations of Paragraph 4.3
shall be applicable in the normal manner, as if no change had occurred
with respect to the new Limitation Year, but with respect to the
Limitation Year within which the change is made (the former Limitation
Year), the following rule shall apply: the dollar limit for Annual
Additions shall be prorated for allocations made from the first day of
the former Limitation Year through the day before the first day of the
new Limitation Year (the limitation period), by multiplying (1) the
applicable dollar limitation for the calendar year in which the
limitation period ends by (2) a fraction, the numerator of which is
the number of months
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(including any fractional parts of a month) in the limitation period,
and the denominator of which is 12.
(oo) Maternity or Paternity Leave of Absence: For Plan Years beginning
after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement
of a child with the Employee in connection with the adoption of such
child, or any absence for the purpose of caring for such child for a
period immediately following such birth or placement.
(pp) Minimum Participation Age Required:
(1) On the Effective Date of the Plan: 21
(2) After the Effective Date of the Plan: 21
(qq) Named Fiduciary: President of Company, except that if Company is an
unincorporated business, the proprietor of Company if a
sole-proprietorship, or the partner designated in the summary plan
description for the Plan for purposes of service of legal process.
(rr) Non-Highly Compensated Participant: shall mean any Participant who is
neither a Highly Compensated Employee nor a Family Member.
(ss) Non-Key Employee: Any Employee who is not a Key-Employee.
(tt) Normal Retirement Age: The earlier of (1) the Participant's 65th
Birthday; or (2) the Normal Retirement Date.
(uu) Normal Retirement Date: The Anniversary Date coinciding with or next
following a Participant's 65th Birthday or other Anniversary Date
following a Participant's commencement of participation in the Plan,
whichever shall last occur.
(vv) Original Effective Date of this Plan: First day of Plan Year beginning
January 1, 1992.
(ww) Participant: Any Employee of the Employer who has met the eligibility
and participation requirements of the Plan.
(xx) Participation Date: The first day of the Plan Year or the first day of
the seventh month of the Plan Year, whichever is earlier, coinciding
with or next following the date on which an Employee completes his
applicable Minimum Participation Age and Length of Service
Requirements.
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(yy) Plan Administrator: Company
(zz) Plan Year: Any period of one year ending December 31. The first Plan
Year shall be the period January 1, 1992, through December 31, 1992.
(aaa) Safe Harbor Plan: A money purchase pension plan with a nonintegrated
employer contribution rate of at least 10 percent of compensation as
described in section 415(c)(3) of the Code, but including salary
deferred contributions, and providing for immediate participation and
full and immediate vesting.
(bbb) Self-Employed Individual: Any individual who has earned income for
the taxable year from the trade or business for which the Plan is
established, and, also, an individual who would have had earned income
but for the fact that the trade or business had no net profits for the
taxable year. A Self-Employed Individual shall be treated as an
Employee.
(ccc) Service for Predecessor Employer: In any case in which Company
maintains a plan of a predecessor employer, service for such
predecessor shall be treated as service for Company, and in any case
in which Company maintains a plan which is not the plan maintained by
a predecessor employer, service for such predecessor shall (as
provided in Internal Revenue Code Section 414(a)(2)), to the extent
required in regulations prescribed by the Secretary of the Treasury or
his delegate, be treated as service for Company.
(ddd) Shareholder-Employee: If Company is an S Corporation, an Employee of
Company who either individually or together with his spouse, children,
grandchildren and parents, owns more than 5% of Company's outstanding
stock on any day during the Plan Year.
(eee) S Corporation: An electing small business corporation, within the
meaning of Internal Revenue Code Section 1362(a).
(ggg) Super Top-Heavy Plan: A Top-Heavy Plan under which the present value
of accrued benefits or the sum of account balances (including accounts
for Employee contributions) of Key-Employees, under this Plan and any
plan of an Aggregation Group, exceeds 90 percent of the present value
of accrued benefits or the sum of the account balances (including
accounts for Employee contributions) of all
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Participants, under this Plan and any plan of an Aggregation Group,
measured as of the Determination Date.
(hhh) Taxable Wage Base: With respect to any year, the maximum amount of
earnings which may be considered wages for such year under Code
Section 3121(a)(1).
(iii) Top-Heavy Plan: For Plan Years commencing after December 31, 1983, a
Plan under which the present value of accrued benefits of
Key-Employees, or the sum of the account balances (including accounts
for Employee contributions) of Key-Employees under this Plan and any
plan of an Aggregation Group, exceeds 60 percent of the present value
of accrued benefits or the sum of the account balances (including
accounts for Employee contributions) of all Participants, under this
Plan and any plan of an Aggregate Group, measured as of the
Determination Date.
If any Participant is a Non-Key Employee for any Plan Year, but such
Participant was a Key Employee for any prior Plan Year, such
Participant's present value of accrued benefit and/or account balances
shall not be taken into account for purposes of determining whether
this Plan is a Top Heavy Plan (or whether any Aggregation Group which
includes this Plan is a Top-Heavy Group).
(jjj) Top-Heavy Plan Year: A particular Plan Year commencing after December
31, 1983, in which the Plan is a Top-Heavy Plan.
(kkk) Trust Situs: COMMONWEALTH OF PENNSYLVANIA
(111) Top Paid Group: "Top Paid Group" means the top 20 percent of
Employees who performed services for the Employer during the
applicable year, ranked according to the amount of "415 Compensation"
received from the Employer during such year. All Affiliated Employers
shall be taken into account as a single employer, and leased employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be
considered Employees unless such leased employees are covered by a
plan described in Code Section 414(n)(5) and are not covered in any
qualified plan maintained by the Employer. For the purpose of
determining the number of active Employees in any year, the following
Employees shall be excluded. However, such Employees shall still be
considered for the purpose of identifying the particular Employees in
the Top Paid Group:
(a) Employees with less than six (6) months of service;
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(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a
year;
(d) Employees who have not yet attained age 21; and
(e) Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the
Employer constituting United States source income within the
meaning of Code Section 861(a)(3).
In addition, if 90 percent or more of the Employees of the Employer
are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and
the Employer, and the Plan covers only Employees who are not covered
under such agreements, then Employees covered by such agreements shall
be excluded from both the total number of active Employees as well as
from the identification of particular Employees in the Top Paid Group.
(111) Trustee: The Trustee or Trustees named above and any successor
Trustee or Trustees.
(mmm) Trust Fund: The assets of the Plan and Trust as the same shall exist
from time to time.
(nnn) Vested: The nonforfeitable portion of any account maintained on
behalf of a Participant.
(ooo) Vesting Computation Period: The consecutive 12 month period beginning
on the first day of the Plan Year. If the Vesting Computation Period
is or has been changed, by reason of a change in the Plan Year or
otherwise, the first Vesting Computation Period, after such change
shall begin before the last day of the preceding Vesting Computation
Period and an Employee who is credited with a Year of Service in both
the last Vesting Computation Period before the change and the first
Vesting Computation Period after the change shall be credited with 2
Years of Service for purposes of vesting.
(ppp) Year of Service:
(a) For purposes of eligibility: any Eligibility Computation Period
in which the Employee has at least
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1,000 Hours of Service. If the Length of Service required under
the Plan is or includes a fractional year, an Employee shall not
be required to have any minimum number of Hours of Service to
receive credit for such fractional year for eligibility.
(b) For purposes of vesting: any Vesting Computation Period in which
the Employee has at least 1,000 Hours of Service.
(c) For purposes of benefit accrual: any Plan Year in which the
Participant has at least 1,000 Hours of Service.
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ARTICLE THREE
ELIGIBILITY
3.1 All Eligible Employees in the employ of Company on the Effective Date
shall participate as of the Effective Date, provided that on such date they have
met the Minimum Participation Age and Length of Service requirements applicable
to such Employees.
In the event that any Eligible Employee in the employ of Company on the
Effective Date does not meet the applicable Minimum Age and Service requirements
on the Effective Date, such Eligible Employee shall commence participation on
the applicable Participation Date.
Any Eligible Employee who was a Participant in the Plan prior to the
effective date of this amendment and restatement shall continue to participate
in accordance with the provisions of this amended and restated plan.
3.2 All Eligible Employees whose employment commences after the Effective
Date shall commence Participation on the applicable Participation Date.
3.3 Notwithstanding any service requirements of less than one year which
may be contained herein, an Employee who is credited with 1,000 or more hours of
service in an Eligibility computation period, shall be considered to have met,
at the expiration of said eligibility computation period, such required length
of service requirement.
3.4 An Employee shall be credited with an Hour of Service for purposes of
eligibility, vesting and eligibility for Company contributions according to the
following:
(a) An hour of service is each hour for which an Employee is paid, or
entitled to payment, for the performance of duties for Company
during the applicable computation period.
(b) An hour of service is each hour for which an Employee is paid, or
entitled to payment, by Company on account of a period of time
during which no duties are performed (irrespective of whether the
employment relationship has terminated), because of vacation,
holiday, illness, incapacity (including disability), layoff, jury
duty, military duty or leave of absence. Notwithstanding the
preceding sentence:
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<PAGE>
(1) No more than 501 hours of service are required to be
credited under this subparagraph (b) to an Employee on
account of any single continuous period during which the
Employee performs no duties (whether or not such period
occurs in a single computation period);
(2) An hour for which an Employee is directly or indirectly paid
or entitled to payment, on account of a period during which
no duties are performed, is not required to be credited to
the Employee if such payment is made or due under a plan
maintained solely for the purpose of complying with
applicable workmen's compensation, or unemployment
compensation or disability insurance laws; and
(3) Hours of service are not required to be credited for a
payment which solely reimburses an Employee for medical or
medically related expenses incurred by the Employee.
For purposes of this subparagraph (b), a payment shall be deemed to be made by
or due from Company regardless of whether such payment is made by or due from
Company directly, or indirectly through, among others, a trust fund, or insurer,
to which Company contributes or pays premiums, and regardless of whether
contributions made or due to the trust fund, insurer, or other entity are for
the benefit of particular Employees or are on behalf of a group of Employees in
the aggregate.
(c) An hour of service is each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by
Company. The same hours of service shall not be credited both
under subparagraph (a) or subparagraph (b), as the case may be,
and under this subparagraph. Crediting of hours of service for
back pay awarded or agreed to with respect to periods described
in subparagraph (b) shall be subject to the requirements set
forth in that subparagraph.
Also included is the special rule for determining hours of
service for reasons other than the performance of duties, as well
as the rule for crediting of hours of service to computation
periods, as set forth in Labor Department Regulations, Sections
2530.200b-2(b) and (c), respectively. Hours of service will be
credited for employment with other members of an affiliated
service group (under Section 414(m)), a controlled group of
corporations (under Section 414(b), or a group of trades or
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businesses under common control (under Section 414(c)) of which
the adopting Employer is a member, and any other entity required
to be aggregated with the employer pursuant to Section 414(o) and
the regulations thereunder.
If the Employer maintains the plan of a predecessor employer,
service with such employer will be treated as service for the
Employer.
Hours of service will also be credited for any individual
considered an employee for purposes of this Plan under Section
414(n) or Section 414(o) and the regulations thereunder.
(d) Additional hours of service in the minimum amount necessary to
prevent a break in service shall be credited to employees for the
following absences:
(1) Authorized leave of absence, provided the Employee returns
to active employment on or before the end of such leave of
absence. Authorized leave of absence shall include illness
and reserve duty in the Armed Forces of the United States.
(2) Absence of an Employee, subsequent to the effective date,
who enters the Armed Forces of the United States, and has
reemployment rights under law, provided he complies with the
requirements of the law as to employment and reemployment.
(e) Additional Hours of Service, but not in excess of 501, based on
the number of Hours of Service which otherwise would normally
have been credited to individuals but for such absence as is
described below, (or if such number cannot be determined, 8 Hours
of Service per day of such absence), shall be credited to
individuals for purposes of eligibility and vesting, but not for
purposes of benefit accrual, (notwithstanding 3.4 above), in the
Eligibility and Vesting Computation Periods in which such absence
begins, if necessary to prevent a 1 year Break in Service in such
Computation Period, but if not so necessary, in the immediately
following Eligibility and Vesting Computation Periods, provided
that the absence is on account of one or more of the following:
(i) The pregnancy of the individual;
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(ii) The birth of a child of the individual;
(iii) The placement of a child with the individual in connection
with the adoption of such child by such individual;
(iv) Care of such child for a period beginning immediately after
his birth or placement.
However, no Hours of Service will be credited under this
subparagraph unless the individual furnishes to the Plan
Administrator such timely information as the Plan Administrator
may reasonably require to establish the number of days of absence
and the reason or reasons therefore.
3.5 Hours of service shall be counted for purposes of eligibility, vesting
and benefit accrual on the basis of actual hours for which an Employee is paid
or entitled to payment, as determined in accordance with Paragraph 3.4.
3.6 Within 90 days of the Participation Date on which an Employee shall
become eligible to participate, the Plan Administrator shall notify each such
Employee of his eligibility to participate, by providing such Employee with a
summary plan description.
3.7 In the case of an Employee who is vested in benefits deriving from
Company Contributions, and who sustains a Break in Service, such Employee shall
recommence active participation on the first day of his first Eligibility
Computation Period after the break, during which he has completed 1,000 hours of
service or more. In the case of an Employee with no such vested benefit who
sustains a Break in Service, where the number of consecutive years in which he
incurred a Break in Service is less than the greater of 5 or the aggregate
number of Years of Service, whether or not consecutive, that he completed before
such break, such Employee shall recommence active participation on the first day
of his first Eligibility Computation Period after the break, during which he has
completed 1,000 hours of service or more. In the case of an Employee with no
such vested benefit who sustains a Break in Service, where the number of
consecutive years in which he incurred a Break in Service is equal to or exceeds
the greater of 5 or the aggregate number of his Years of Service, whether or not
consecutive, that he completed before such break, such Employee shall be treated
as if he were a new Employee for purposes of eligibility to participate.
The aggregate number of Years of Service before a period of Breaks in Service
shall not include any Years of Service not
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<PAGE>
required to be taken into account under this Paragraph by reason of any prior
Break in Service. For purposes of vesting for an Employee who has sustained a
Break in Service, the provisions of Article 8 shall apply. For purposes of
benefit accrual, the provisions of Article IV shall apply.
3.8 Notwithstanding any provision of this Plan to the contrary, this Plan
shall not provide contributions or benefits for an Owner-Employee who controls,
or a group of Owner-Employees who together control an unincorporated trade or
business with respect to which the Plan is established, and such Owner-
Employee, or group of Owner-Employees also control one or more unincorporated
trades or businesses, unless this Plan and the plans established with respect to
such other trades or businesses, when coalesced, constitute a single plan which
satisfies the requirements of Section 401(a) and (d) of the Internal Revenue
Code with respect to the employees of all such unincorporated trades or
businesses. Furthermore, the Plan shall not provide contributions or benefits
for one or more Owner-Employees who control one or more unincorporated trades or
businesses, unless the employees of each such unincorporated trade or business
which such Owner-Employees control are included under a plan which satisfies the
requirements of Section 401(a) and (d) of the Internal Revenue Code, and which
provides contributions or benefits for employees not less favorable than those
provided for such Owner-Employees under this Plan. For purposes of this
Paragraph 3.8, an Owner-Employee, or a group of Owner-Employees, shall be
considered to control a trade or business if such Owner-Employee, or such group
of Owner-Employees together own the entire interest in an unincorporated trade
or business, or in the case of a partnership, own more than 50% of either the
capital interest or the profits interest in such partnerships. An Owner-Employee
shall mean a sole proprietor, or, in the case of a partnership, any person who
owns more than 10% of the capital or profits interest.
3.9 Notwithstanding any provision of this Plan to the contrary, in the
event Participant is no longer a member of an eligible class of employees and
becomes ineligible to participate but has not incurred a break in service, such
Employee will participate immediately upon returning to an eligible class of
employees. If such Participant incurs a break in service, eligibility will be
determined under the break in service rules of the Plan.
In the event an Employee who is not a member of an eligible class of
employees becomes a member of an eligible class, such employee will participate
immediately if such employee has satisfied the minimum age and service
requirements and would otherwise previously become a Participant.
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<PAGE>
ARTICLE FOUR
CONTRIBUTIONS AND MANAGEMENT OF FUNDS
4.1 For each Plan Year, Company shall contribute to the Trust, no later than
such time as may be prescribed by the Internal Revenue Code, such portion, if
any, of its income as is determined by the Board of Directors, in a written
resolution, prior to the end of the Plan Year. In determining any such
contribution, Company may rely upon an estimate of its net income, the estimate
to be made by the Company's principal accounting officer, or by an independent
public accountant appointed by the Company. Net income shall mean current and
accumulated earnings and profits of the Company, as determined pursuant to the
Internal Revenue Code, before any deductions for taxes based upon income, and
before any contributions to any qualified retirement plan. In no event, however,
shall the contribution for any Plan Year exceed the amount deductible for such
Plan Year for income tax purposes as a contribution to the Trust under
applicable provisions of the Internal Revenue Code.
Allocation: Integrated: Company contributions, if any, together with forfeitures
pursuant to Paragraph 8.1, and subject to the limitations described in Paragraph
4.3, shall be allocated among the Participants, as follows:
STEP ONE: Contributions and forfeitures will be allocated to each
participant's account in the ratio that each Participant's total
Compensation bears to all Participants' total compensation, but not in
excess of 3% of each Participant's Compensation.
STEP TWO: Any contributions and forfeitures remaining after the allocation
in STEP ONE will be allocated to each Participant's account in the ratio
that each Participant's Compensation for the Plan Year in excess of the
Integration Level bears to the Excess Compensation of all Participants, but
not in excess of 3%.
Notwithstanding anything in the Plan to the contrary, STEP ONE and STEP TWO
above will apply only in years in which the Plan is top heavy.
STEP THREE: Any contributions and forfeitures remaining after the
allocation in STEP TWO will be allocated to each Participant's account in
the ratio that the sum of each Participant's total Compensation and
Compensation in excess of the Integration Level bears to the sum of all
Participants' total Compensation and Compensation in excess of the
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Integration Level but not in excess of the profit-sharing maximum disparity
rate.
The maximum profit-sharing disparity rate is equal to the lesser of:
(a) 2.7% or
(b) the applicable percentage determined in accordance with the table
below:
----------
If the Integration Level
is more than but not more than the % is
------------ ----------------- --------
the greater of $10,000
$0.00 or 20% of taxable wage base 2.7%
(TWB)
the greater of $10,000
or 20% of TWB 80% TWB 1.3%
80% TWB any amount greater than
80% of taxable wage base,
but less than 100% TWB 2.4%
If the Integration Level is equal to the taxable wage base, the applicable
percentage is 2.7%
----------
STEP FOUR: Any remaining Company contributions or forfeitures will be
allocated to each Participant's account in the ratio each Participant's
total Compensation for the Plan Year bears to all Participants' total
Compensation for that year.
The Integration Level shall be equal to the taxable wage base or such lower
amount elected by Employer. The taxable wage base is the contribution and
benefit base in effect under section 230 of the Social Security Act at the
beginning of the Plan year.
All contributions made by the Company shall be delivered to the Trustee.
The Trustee shall be accountable for all Company contributions received by it,
but shall have no duty to require any contributions to be delivered to it or
determine if contributions received comply with the Plan.
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<PAGE>
The Trustee will maintain a separate account for each Employee to which
will be credited the Company contribution and earnings thereon.
Only Compensation paid or accrued during a Plan Year on and after the date
an Employee commenced participation shall be taken into account for purposes of
allocating contributions and forfeitures.
4.2 The Plan shall accept no Employee Contributions designated by the
Participant as deductible employee contributions (within the meaning of Section
72(0) (5) (A) of the Code) for a taxable year of the Participant beginning after
December 31, 1986.
4.3 The following limits apply to allocations of Annual Additions:
(a) Notwithstanding any provision to the contrary contained herein,
no allocation of an Annual Addition shall be made to a
Participant's account(s) to the extent that such allocation shall
cause the Annual Addition to this Plan, and to any other
qualified defined contribution plan of the Company (or of any
other entity which is a member of a controlled group of entities,
as defined in Internal Revenue Code Section 414(b), (c), (m) and
(o) of which Company is also a member), to exceed the lesser of
the Defined Contribution Dollar Limitation or 25% of the
Participant's "415 Compensation" within the meaning of Section
415(c)(3) of the Code in any given limitation year. For purposes
of applying these limitations, "415 Compensation" shall mean the
Participant's wages, salaries, fees for professional services and
other amounts received for personal services actually rendered in
the course of employment with Company and such other amounts as
are specified by Treasury Department Regulation Section
1.415-2(d)(1).
"415 safe-harbor compensation" shall mean wages, salaries, and
fees for professional services and other amounts received
(without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment
with the employer maintaining the plan to the extent that the
amount are includible in gross income (including, but not limited
to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits, reimbursements, and
expense allowances), and excluding the following:
(a) Employer contributions to a plan of deferred compensation
which are not includible in the
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<PAGE>
employee's gross income for the taxable year in which
contributed, or employer contributions under a simplified
employee pension plan to the extent such contributions are
deductible by the employee, or any distributions from a plan
of deferred compensation;
(b) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(c) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(d) other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity described in section 403(b) of the Internal Revenue
Code (whether or not the amounts are actually excludible
from the gross income of the employee).
For any self-employed individual compensation will mean earned income.
For limitation years beginning after December 31, 1991, for purposes
of applying the limitations of this article, compensation for a
limitation year is the compensation actually paid or includible in
gross income during such limitation year.
Notwithstanding the preceding sentence, compensation for a participant
in a defined contribution plan who is permanently and totally disabled
(as defined in section 22(e)(3) of the Internal Revenue Code) is the
compensation such participant would have received for the limitation
year if the participant had been paid at the rate of compensation paid
immediately before becoming permanently and totally disabled; such
imputed compensation for the disabled participant may be taken into
account only if the participant is not a highly compensated employee
(as defined in section 414(g) of the Code) and contributions made on
behalf of such participant are nonforfeitable when made.
The Compensation limitation shall also not apply to any contributions
for medical benefits (within the meaning of
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<PAGE>
Section 419(A)(f)(2) of the Code) after separation from service which
is otherwise treated as an Annual Addition, or any amount otherwise
treated as an Annual Addition under Section 415(1) (1) of the Code.
The above mentioned dollar limitation shall be adjusted so as to be
equal to the maximum dollar limitation for defined contribution plans
prescribed by the Secretary of the Treasury or his delegate In the
case of a Self-Employed Individual, "Compensation" shall mean the
Participant's "Earned Income (within the meaning of Internal Revenue
Code Section 401(c)(2), but determined without regard to any exclusion
under Internal Revenue Code Section 911) from Company."
Definitions. For purposes of Section 4.3(a), "Defined Contribution
Dollar Limitation" shall mean $30,000 or, if greater, one-fourth of
the defined benefit dollar limitation set forth in Section 415(b)(1)
of the Code as in effect for the Limitation Year.
(b) If the Annual Addition under this Plan to a Participant's account is
to be reduced as a result of the above limitation, such reduction
shall be effected by:
(i) first, returning any employee contributions made during the Plan
Year which are Annual Additions, (and any earnings attributable
thereto),
(ii) next, allocating a Participant's proportionate share of
forfeitures (if any), but not to exceed the limitation on Annual
Additions; and
(iii) finally, allocating Company contributions otherwise allocable to
a Participant's account, up to the limitation on Annual Additions
provided above, reduced by any forfeitures allocated under (ii)
above.
(c) Company shall endeavor to avoid making contributions which would, if
allocated according to the terms of the Plan, result in Annual
Additions in excess of the limits described in this paragraph, (an
excess amount), but if as a result of the amount of forfeitures to be
allocated, or errors in estimating Compensation, or under such other
facts and circumstances as the Commissioner of Internal Revenue
permits, there is an excess amount, such amount shall be held
unallocated in a suspense account and allocated in the next Limitation
Year (and succeeding Limitation Years if necessary) to all
Participants for whom allocations of contributions or forfeitures
would normally be made, and in the manner and up to the limits
prescribed by this Article, and shall reduce any Company
IV-5
<PAGE>
contribution which would otherwise be made to the Plan. Investment
gains and losses shall not be allocated to the suspense account. If it
is discovered that an excess amount has been improperly allocated,
such amount shall be subtracted immediately from the affected
Participant's account (including the earnings allocated as a result of
such improper allocation), and held in suspense as described above.
In the event of termination of the Plan, the suspense account shall
revert to the Company pursuant to Paragraph 16.5.
(d) If in any Limitation Year Company maintains any other qualified
defined contribution plan(s), Annual Additions shall be deemed
allocated first to any money purchase pension plan and next to any
profit sharing plan.
(e) In any case in which an individual is or has been a Participant in
both a defined benefit plan and a defined contribution plan maintained
by Company (or by any other entity which is a member of a controlled
group of entities, as defined in Code Section 414(b), (c), (m), and
(o) of which Company Plan is a member), the sum of the Defined Benefit
Plan Fraction and the Defined Contribution Plan Fraction for any
Limitation Year may not exceed 1.0. If any reductions are required in
order not to exceed this fraction, they shall be made to the defined
contribution plans of Company, first to any profit sharing plan of
Company and next to any money purchase pension plan of Company. Such
reduction shall be effected by reducing the sum of the current
Limitation Year Annual Additions in accordance with the procedure of
Subparagraph 4.3(b), so that the Defined Contribution Plan Fraction
does not exceed 1.0 minus the defined benefit fraction at the end of
the Limitations Year. Any amount received by this reduction shall be
held in suspense in accordance with Subparagraph 4.3(c). Provided
further, that if this reduction is insufficient to reduce the overall
limit to 1.0, then the Defined Benefit Plan Fraction shall be reduced
to the extent necessary to bring about compliance.
(f) The above limitations are intended to comply with the provisions of
Section 415 of the Internal Revenue Code as amended so that the
maximum benefits provided by plans of the Employer shall be exactly
equal to the maximum amounts allowed under Section 415 of the Internal
Revenue Code and regulations thereunder. If there is any discrepancy
between the provisions of the Section 4.3 and the provisions of
Section 415 of the Internal Revenue Code and regulations thereunder,
such discrepancy shall be resolved
IV-6
<PAGE>
in such a way as to give full effect to the provisions of Section 415
of the Code.
4.4 If a benefit is forfeited because the Participant or beneficiary cannot
be found, such benefit will be reinstated if a claim is made by the Participant
or beneficiary.
4.5 As of the last day of the Plan Year, the fund shall be valued at fair
market value, and there shall be added to each Participant's account derived
from Company contributions:
(a) That proportion of the Company's contribution and forfeitures for
the year ended for the particular Participant in accordance with
Paragraph 4.1; and
(b) That portion of the net accretions and diminution to the fund by
way of income and loss and realized and unrealized gains and
losses, which bears the same ratio to the total of such net
accretions and diminutions as his account (exclusive of Cash
Value) at the preceding Anniversary Date (reduced by any
distributions during the Plan Year) bore to the total account of
all Participants (exclusive of Cash Value and reduced by any
distributions or forfeitures during the Plan Year), plus any
increases in Cash Value and less the cost of insurance Contracts
allocated to the Participant's account. (During the first Plan
Year, such proportion shall be based on the Participant's share
of the Company's contribution.)
4.6 The fact that an allocation shall be made and credited to the account
of the Participant, whether by mistake or otherwise, shall not vest in the
Participant any right, title or interest in and to any assets, except at the
time or times and upon the terms and conditions expressly set forth in the Plan.
4.7 All allocations shall be made on the basis of the nearest whole dollar
and accounting shall be done on the cash basis, modified to take into account
accrued contribution receivables. If payment is to be made to a terminated
vested participant pursuant to Articles V, VI, VII or VIII on a date subsequent
to the relevant valuation date, and insurance premium payments have been made on
behalf of said Participant subsequent to said date, the amount payable shall be
reduced by that amount of said premium payment, to the extent non-refundable by
the Insurer, and increased by the amount of increase in Cash Value, if any,
occurring consequent upon said premium payment.
IV-7
<PAGE>
ARTICLE FIVE
RETIREMENT BENEFITS
5.1 A Participant may elect to retire on his Normal Retirement Date,
whereupon his eligibility for Company contributions hereunder shall cease. If a
Participant remains in the employ of Company subsequent to Normal Retirement
Date, contributions shall be made for such Participant. If Company consents, a
participant may retire on his Early Retirement Date, whereunder his eligibility
for Company contributions hereunder shall cease.
If a Participant separates from service before satisfying the age requirement,
but has satisfied the service requirement, the Participant will be entitled to
elect an early retirement benefit upon satisfaction of such age requirement.
In the case of Early Retirement, the vesting schedule shall apply. In the case
of Normal Retirement, the total amount credited to an employed Participant's
account shall become 100 percent vested at the Participant's Normal Retirement
Age. If the Company makes a contribution for a Participant subsequent to such
date, such Participant shall be 100 percent vested in that contribution and any
earnings thereon.
5.2 The Trustee shall distribute to a retired Participant the value of his
vested amount in accordance with the provisions of Article IX.
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<PAGE>
ARTICLE SIX
DISABILITY BENEFITS
6.1 Any Participant who has become totally and permanently disabled shall
be entitled to retire, effective the first day of the next Plan Year subsequent
to the date disability commenced, but payment shall be made only after the Plan
Administrator receives written notice of a determination of such disability by a
medical certificate issued by a doctor selected or approved by the Plan
Administrator. Disability means inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or which has lasted or can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. The permanence and degree of such
impairment shall be supported by medical evidence.
If elected by the Employer in the Plan, nonforfeitable contributions will be
made to the Plan on behalf of each disabled Participant who is not a highly
compensated employee (within the meaning of Section 414(q) of the Code.
6.2 A Participant retiring because of such disability shall receive his
total account calculated as of the most recent valuation date. Payment shall be
made after the Participant is entitled to retire, and within 6 months of the
date on which the Plan Administrator receives notice in accordance with the
preceding paragraph, unless the Participant elects to defer commencement of
payment, pursuant to Paragraph 9.2, but in no circumstances shall payment be
made later than the period prescribed in Paragraph 9.2.
6.3 In lieu of a determination of disability pursuant to Paragraph 6.1
above, a determination of entitlement for disability benefits under Social
Security shall be conclusive evidence of total and permanent disability, but a
failure to attain such determination shall not be determinative of any rights to
receive disability benefits under this Plan. Recovery from total and/or
permanent disability subsequent to entitlement for receipt of benefits under
this Article shall not prejudice any right to receive or to continue to receive
such benefits.
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<PAGE>
ARTICLE SEVEN
DEATH BENEFITS
7.1 In the event of the death of a Participant prior to the commencement of
payment of his retirement benefits, his death benefit shall be the entire amount
in his account (exclusive of Cash Value), as of the most recent valuation date,
and the proceeds of any Contract allocated to his account, provided that the
death benefit of a Participant who has terminated service with Company shall be
equal to his vested interest as computed under Article VIII or Article VI, as
the case may be, (exclusive of Cash Value) and the proceeds of any Contracts
allocated to his account. Such death benefits shall be paid to his designated
Beneficiary as soon as is convenient, but not later than 60 days after the next
valuation date.
(a) If insurance exists as a Trust asset, the following shall apply to the
insurance proceeds.
(1) The Plan Administrator, at the direction of the Participant,
shall direct the Trustee to designate a settlement option as
permitted in Paragraph 9.3 for the insurance.
(2) If no mode of settlement has been selected in accordance with (a)
(1) above, the Plan Administrator, at the direction of the
Beneficiary, shall direct the Trustee to designate a settlement
option as permitted in Paragraph 9.3, within 60 days after the
day on which a lump sum in full discharge of the death benefit
obligation under any insurance Contracts first becomes payable.
Under no circumstances may the mode of settlement from the
insurance proceeds be other than one permitted by Paragraph 9.3.
(b) In regard to non-insurance Trust assets, the following shall apply:
(1) The Plan Administrator, at the direction of the Participant,
shall direct the Trustee to designate a settlement option as
permitted in Paragraph 9.3 for the Trust assets.
(2) If no mode of settlement has been selected in accordance with (b)
(1) above, the Plan Administrator, after consultation with the
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<PAGE>
Beneficiary, shall direct the Trustee to designate a settlement option
as permitted in Paragraph 9.3 within 60 days after the day on which a
lump sum in full discharge of the death benefit obligation first
becomes payable.
7.2 The Beneficiary or successor Beneficiary of any death benefit shall be
in accordance with the designation made by the Participant. The Participant
shall have the right to designate the Beneficiary or successor Beneficiary by
filing a designation of Beneficiary form with the Plan Administrator. At any
time, and from time to time, each Participant shall have the unrestricted right
to change the designation of the Beneficiary to receive any death benefits
hereunder. All designations shall be made in writing on the form required by the
Plan Administrator, and shall be filed with the Plan Administrator. If no
designation has been made, if the designated Beneficiary has predeceased the
Participant, or if the designation of beneficiary is inoperative for any reason
as to any part of any death benefit hereunder, then the Participant shall be
deemed to have designated the following as his Beneficiary, with priority in the
order named:
(a) first, to his widow or her widower, as the case may be;
(b) second, to his issue, per stirpes;
(c) third, to his parents;
(d) fourth, to his brothers and sisters, per stirpes; and
(e) fifth, to his estate.
Notwithstanding anything to the contrary contained herein, if a Participant is
married, no designation of a beneficiary other than the Participant's spouse, or
change of designation from a Participant's spouse to someone else shall be
valid, unless:
(a) the Participant's spouse consents in writing to the designation of a
specific beneficiary
(i) Such specific beneficiary will include any class of beneficiaries
or any contingent beneficiaries which may not be changed without
spousal consent,
(ii) the spouse may expressly permit designation by the Participant
without any further spousal consent
(b) Spouses consent acknowledges the effect of such election and is
witnessed by the Plan Administrator or a notary public.
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<PAGE>
(c) Spousal consent shall be effective only with respect to such spouse
(i) If it is established to the satisfaction of the Plan
Administrator that there is no spouse or the spouse cannot be
located, a waiver will be deemed a qualified election.
(ii) A revocation of a prior waiver may be made by the Participant
without consent of spouse at any time prior to the commencement
of benefits. Furthermore the number of revocations shall not be
limited.
7.3 The Trustee shall be designated to receive the proceeds of any Contract
which becomes payable upon the death of the Participant. The Trustee may,
however, request Insurer to make any beneficiary designation as may be made by
the Participant under Paragraph 7.2 above. In such event, the Beneficiary so
designated may be revoked only upon the completion of the requirements
established by the Insurer, and under the terms of any contracts and rules of
the Insurer.
7.4 Upon the death of a Participant, the Trustee shall take all necessary
steps and shall execute all required documents to permit the Beneficiary to
collect the death benefits provided, pursuant to the specified method of
payment.
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<PAGE>
ARTICLE EIGHT
SEPARATION BENEFITS
8.1 (a) Vesting. A Participant shall have a non-forfeitable right prior to
death, total and permanent disability, or Normal Retirement Age in that
percentage of his account derived from Company Contributions, including
forfeitures, as follows:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 years 0%
2 years or more 100%
Notwithstanding the vesting schedule above, the Vested Percentage of a
Participant's Account shall not be less than the Vested Percentage attained
as of the later of the Effective Date or adoption date of this amendment
and restatement. No Participant shall forfeit any part of his account until
the earlier of (a) five (5) consecutive one-year Breaks in Service or (b) a
cash-out distribution of the entire vested portion of his account balance
derived from Company Contributions, following the Participant's termination
of employment. As of the last day of the Plan Year with or within which
such Breaks in Service or cash-out distribution has occurred, the nonvested
portion of such Participant's account, if any, shall be forfeited and
administered as provided in Article IV.
(b) Distribution: If an employee terminates service, and the value of the
employee's vested account balance derived from employer and employee
contributions is not greater than $3,500, the employee will receive a
distribution of the value of the entire vested portion of such account
balance and the nonvested portion will be treated as a forfeiture. For
purposes of this section, if the value of an employee's vested account
balance is zero, the employee shall be deemed to have received a
distribution of such vested account balance. A participant's vested
account balance shall not include accumulated deductible employee
contributions within the meaning of section 72(o)(5)(B) of the Code
for plan years beginning prior to January 1, 1989.
If an employee terminates services, and elects, in accordance with the
requirements of Article Nine, to receive the value of the employee's
vested account balance, the nonvested portion will be treated as a
forfeiture. If the employee elects to have distributed less than the
entire vested portion of the account balance
VIII-1
<PAGE>
derived from employer contributions, the part of the nonvested portion
that will be treated as a forfeiture is the total nonvested portion
multiplied by a fraction, the numerator of which is the amount of the
distribution attributable to employer contributions and the
denominator of which is the total value of the vested employer derived
account balance.
If an employee receives a distribution pursuant to this section and
the employee resumes employment covered under this plan, the
employee's employer-derived account balance will be restored to the
amount on the date of distribution if the employee repays to the plan
the full amount of the distribution attributable to employer
contributions before the earlier of 5 years after the first date on
which the participant is subsequently re-employed by the employer, or
the date the participant incurs 5 consecutive 1-year breaks in service
following the date of the distribution. If an employee is deemed to
receive a distribution pursuant to this section, and the employee
resumes employment covered under this plan before the date the
participant incurs 5 consecutive 1-year breaks in service, upon the
reemployment of such employee, the employer-derived account balance of
the employee will be restored to the amount on the date of such deemed
distribution.
(c) Administration of Participants' Accounts. No share of gains or losses
shall be credited to the forfeitable portion of a Participant's
account, if any, after the last valuation date prior to the date the
forfeiture occurs, until the next valuation date following the date,
if any, as of which the Participant's account is restored.
Following completion of distributions, a Participant's account derived
from Company contributions shall be cancelled, as of the date the
non-vested portion of his account, if any, would be forfeited.
If the Participant is not vested in any portion of his account, upon
forfeiture the account shall be cancelled.
If the Participant is vested in all or a portion of his account, and
no distribution is made following termination of employment or the
occurrence of a 1 year Break in Service, a 100% vested account shall
be maintained for his vested interest in the Plan, as of the date the
nonvested portion of his account, if any, would be forfeited. If this
account is subsequently distributed, upon completion of payment the
account shall be cancelled.
VIII-2
<PAGE>
Subject to Subparagraph 8.1(d) below, if the Participant, subsequent
to cancellation of his account, becomes eligible at a later date to
share in Company Contributions (including forfeitures) and earnings
thereon, they shall be allocated to a newly established regular
account.
(d) Restoration of a Participant's Accounts Following Forfeiture. The
concept "Restoration of a Participant's Account" does not apply in the
case of a Participant who was already 100% vested in his account prior
to the occurrence of an event (distribution or incurrence of a 1 year
Break in Service) which would otherwise cause a forfeiture.
Only the amount in an account which has been forfeited is subject
potentially to restoration. Such an amount shall be equal to the
amount forfeited to the Trust, unadjusted for gains or losses, and
shall be termed the "Restoration Amount."
If a Year of Service is credited to a Participant following an event
causing forfeiture, restoration of the amount forfeited is possible,
provided that said Year of Service is not preceded by the incurrence
of a period of 5 or more consecutive 1 year Breaks in Service.
A possible restoration automatically will become an actual
restoration, if no distribution has occurred with respect to the
vested portion of the affected Participant's account deriving from
Company Contributions.
If distribution of all of a Participant's vested account deriving from
Company Contributions has occurred, in order for a possible
restoration to become an actual restoration, the Participant must
repay the full amount of the distribution. Such repayment may be made
no later than the later of: the end of the 5 year period following
distribution, or the end of the Vesting Computation Period within
which the Participant has the 5th of 5 consecutive 1 year Breaks in
Service. In the event the Participant repays the distribution within
the time allowed, Company shall add the amount of repayment to the
amount in the Participant' s account.
An actual restoration shall occur on the date as of which Company
Contributions, if any, would be allocated, coincident with or next
following the fulfillment of all conditions required for restoration,
and such date shall be termed the "Restoration Date". The Restoration
Amount shall be derived from Company contributions, which shall accrue
as of the Restoration Date. Said Company
VIII-3
<PAGE>
Contributions shall be paid no later than the Plan Year following the
end of the Plan Year in which the contribution is accrued,
notwithstanding any absence of profits of Company.
No repayment by any Participant and no Restoration Amount shall
constitute Annual Additions under the Plan.
It shall be the duty of the Plan Administrator to give timely
notification to any rehired Employee, if such Employee is eligible to
make repayment, of his right to make repayment.
In the event a restoration of a Participant's account following
forfeiture occurs, service performed both prior to and subsequent to
the forfeiture shall be credited, to determine his vested interest in
his entire account derived from Company contributions.
If an Employee has the right to repay a distribution, service
performed prior to forfeiture may not be disregarded, whether or not
repayment is made, for purposes of determining the Participant's
vested interest in account allocations made subsequent to the date of
forfeiture.
If an Employee is rehired prior to a 1 year Break in Service, and if
no distribution has been made to such Employee in accordance with
Subparagraph 8.1(b), for purposes of determining the Employee's vested
interest in both his pre-termination and post-termination account
allocations under the Plan, service performed prior to termination
shall be taken into account.
If an Employee completes a Year of Service after a Break in Service
consisting of 5 or more consecutive 1 year Breaks in Service, whether
or not a distribution has been made to such Employee, for purposes of
determining the Employee's vested percentage in his account allocated
to him before such break, post-break Years of Service shall not be
credited, but pre-break Years of Service shall be credited to
determine the Employee's vested percentage in post-break account
allocations, unless the rule of parity provided in Subparagraph 8.2
(a) applies.
Separate accounts will be maintained for the Participant's pre-break
and post- break Employer derived account balance. Both accounts will
share in the earnings and losses of the fund.
VIII-4
<PAGE>
8.2 For purposes of determining Years of Service under Paragraph 8.1 above,
all Years of Service with the Company are to be credited for purposes of
vesting, except:
(a) Years of Service prior to any period of consecutive 1 year Breaks in
Service, if the Employee was not vested in benefits deriving from
Company Contributions at the time he incurs a period of consecutive 1
year Breaks in Service, and his number of consecutive 1 year Breaks in
Service equals or exceeds the greater of 5 or the aggregate number of
his Years of Service, whether or not consecutive, completed before
such period of consecutive 1 year Breaks in Service.
(b) Years of Service prior to any period of consecutive 1 year Breaks in
Service, until the Participant has completed 1 Year of Service after
such period.
(c) Years of Service during any period for which the Company did not
maintain this Plan or a predecessor plan.
(d) Years of Service completed by an Employee before he attains age 18.
8.3 The computation of a Participant's nonforfeitable percentage of his
interest in the Plan shall not be reduced as the result of any direct or
indirect amendment to this Article. In the event that the Plan is amended to
change or modify any vesting schedule, a Participant with at least three (3)
Years of Service as of the expiration date of the election period may elect to
have his nonforfeitable percentage computed under the Plan without regard to
such election. Then such Participant shall not be subject to the new vesting
schedule. The Participant's election period shall commence on the adoption date
of the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendments,
(2) the effective date of the amendment, or;
(3) the date the Participant receives written notice of the amendment from
the Employer or Administrator.
8.4 A Participant having at least 5 Years of Service with the Company,
prior to the expiration of the election period described below, may elect to
have his vested portion computed under the Plan, without regard to any
subsequent amendment to the vesting schedule. An amendment to the vesting
schedule includes any amendment which directly or indirectly affects the
computation of the vested percentage of an Employee's account balance, and
includes any change resulting from the operation of Paragraph 18.4. Such an
election shall be irrevocable, and must be filed with the Plan Administrator no
later than 60 days after the day
VIII - 5
<PAGE>
the Plan amendment is adopted, or becomes effective, or the Participant is
issued written notice of the amended vesting schedule by the Plan Administrator
(whichever last occurs). In the event that a Participant makes the election as
hereinabove provided, the vesting schedule in effect prior to the amendment of
the vesting schedule shall apply to determine the vested percentage of such
participant's account.
Notwithstanding the above, no election shall be permitted if the vesting
schedule in effect prior to the amendment did not satisfy the requirements of
Internal Revenue Code Section 411(a)(2), unless under such schedule all
Participants are at least 50 percent vested after 10 Years of Service and 100
percent vested after 15 Years of Service. Furthermore, no election shall be
allowed to any Participant whose vested percentage under the Plan, as amended,
cannot be less at any time than such percentage determined without regard to
such amendment.
If the Plan is or becomes top-heavy in any Plan Year beginning after December
31, 1983, the provisions of Article Eighteen will supercede any conflicting
provisions in the Plan.
8.5 Any Participant who has terminated employment or who is no longer a
member of an eligible class of Employees, and who is entitled to a deferred
vested benefit under the Plan, and who has not received a distribution of such
benefit by the end of the Plan Year following the Plan Year in which such
termination of employment or eligibility occurred, shall be given notification
of the following by the Plan Administrator: the amount of his vested benefit,
the amount of his pre-retirement death benefit, the Normal Retirement Date of
the Plan, any benefits which are forfeitable if the Participant dies before a
certain date, and such other information as may be prescribed by regulations
issued by the Secretary of the Treasury or his delegate.
VIII - 6
<PAGE>
ARTICLE NINE
PAYMENT OF BENEFITS
9.1 When a Participant's employment is terminated, the Plan Administrator
shall determine his vested accrued benefit. The provisions of this Article shall
apply to a Participant who is vested in amounts attributable to employer
contributions, employee contributions (or both) at the time of death or
distribution. For purposes of this Article, Vested Accrued Benefit shall mean
the value of the Participant's vested accrued benefit derived from employer and
employee contributions (including rollovers). If the full amount of his vested
interest is not to be distributed immediately to the Participant, the Plan
Administrator shall cause such Participant's interest to continue to be
separately accounted for on the books and records of the Plan. Until the full
amount of his vested interest shall have been distributed to the Participant in
accordance with the terms hereof, there shall be added to the balance of such
Participant's account the income earned by his account. The Plan Administrator
may direct the trustee to place the value of such account in one or more
federally insured bank or savings and loan accounts (including certificate of
deposit accounts), in the name of the Trustee, in trust for said Participant, in
which case the interest shall be credited to his account at such times as are
provided by the account but at least annually. In the absence of such direction,
Trustee, in its discretion, shall invest the account proportionately as Trustee
determines, and income and loss shall be allocated as provided in Subparagraph
4.5(b). The Trustee may charge against such account a prorata portion of the
fees and expenses incurred in the administration of the Plan.
9.2 Unless the Participant elects otherwise, distribution of benefits will
begin no later than the 60th day after the latest of the close of the Plan year
in which:
(a) the Participant attains age 65 (or Normal Retirement Age, if earlier),
(b) occurs the 10th anniversary of the year in which the Participant
commenced participation if the Plan, or
(c) the Participant terminates service with the Employer
All distributions must commence by the required beginning date.
(1) General rule. The required beginning date of a Participant is the
first day of April of the calendar
IX-1
<PAGE>
year following the calendar year in which the Participant attains
age 70 1/2.
(2) Transitional rules. The required beginning date of a Participant
who attains age 70 1/2 before January 1, 1988, shall be
determined in accordance with (a) or (b) below:
(a) Non-5-percent owners. The required beginning date of a
Participant who is not a 5-percent owner is the first day of
April of the calendar year following the calendar year in
which the later of retirement or attainment of age 70 1/2
occurs.
(b) 5-percent owners. The required beginning date of a
Participant who is a 5-percent owner during any year
beginning after December 31, 1979, is the first day of April
following the later of:
(i) the calendar year in which the participant attains age
70 1/2, or
(ii) the earlier of the calendar year with or within which
ends the plan year in which the participant becomes a
5-percent owner, or the calendar-year in which the
participant retires.
The required beginning date of a participant who is not a 5-percent owner
who attains age 70 1/2 during 1988 and who has not retired as of January 1,
1989, is April 1, 1990.
(a) 5-percent owner. A participant is treated as a 5-percent owner
for purposes of this section if such participant is a 5-percent
owner as defined in section 416(i) of the Code (determined in
accordance with section 416 but without regard to whether the
plan is top-heavy) at any time during the plan year ending with
or within the calendar year in which such owner attains age 66
1/2 or any subsequent plan year.
(b) Once distributions have been to a 5-percent owner under this
section, they must continue to be distributed, even if the
participant ceases to be a 5-percent owner in a subsequent year.
Notwithstanding the foregoing, the failure of a Participant and spouse to
consent to a distribution while a benefit is immediately distributable
within the meaning of Article Nine of
IX-2
<PAGE>
this Plan, shall be deemed to be an election to defer commencement of
payment of any benefit sufficient to satisfy this section.
Trustee may make payments at an earlier date than herein above set forth,
for reasons of death, disability, early retirement or termination of
service; provided, however, that all Participants shall be treated alike
under like circumstances.
A Participant may make an election to defer commencement of payment of
benefits beyond the latest of the dates given above, provided that the
election is made in writing, signed by the Participant, and submitted to
the Plan Administrator prior to the close of the Plan Year following which
payment of benefits would otherwise commence. If payment is to be other
than in the form of a qualified joint and survivor annuity, the decision of
the Participant as to the form in which the benefit shall be payable shall
be required as provided in Subparagraph 9.3(d). In no event may an election
be made which would violate the restrictions contained in Subparagraph
9.3(d) or which would defer commencement of benefits beyond April 1st of
the calendar year following the calendar year in which he attains age 70
1/2.
If a Participant has separated from service with a vested benefit before
the first day of the next Plan Year after attaining his Early Retirement
Date, he is entitled at that date to receive a benefit equal to the benefit
to which he would be entitled at the Early Retirement Date.
9.3 The Plan Administrator shall take action as may be necessary to provide
a settlement of Participant's account. All modes of settlement, basic and
optional, are available to Participants or Beneficiaries under Articles V, VI
and VII as provided herein. Payments made under Article VIII shall be in the
form of complete lump sum payments only.
(a) The basic mode of settlement for a Participant married on the "annuity
starting date" and who does not die before the "annuity starting date"
shall be a qualified joint and survivor annuity contract, providing
for non-increasing payments of an actuarially equivalent value of the
Participant's vested Account Balance. Benefits will be distributed in
the form of a qualified joint and survivor annuity to a married
Participant, unless both the Participant and his spouse elect in
writing not to have his benefits paid in that form. If the Participant
is unmarried, benefits will be provided in the form of an annuity for
the life of the Participant, unless the Participant elects in writing
not to receive benefits in that form. The election must comply with
the provisions of
IX-3
<PAGE>
this Section as if it were an election to waive the qualified joint
and survivor annuity by a married Participant, but without the spousal
consent requirement.
A qualified joint and survivor annuity is an annuity for the life of
the Participant, with a survivor annuity for the life of his spouse,
which is not less that 50 percent and not greater than the 100 percent
of the annuity payable during the joint lives of the Participant and
spouse, and which is the amount of benefit which can be purchased with
the Participant's vested account balance. The percentage of the
survivor annuity under the Plan shall be 50 percent (unless a
different percentage is elected by the Employer in the Plan).
Any election to waive the joint and survivor annuity must be made by
the Participant in writing during the election period and be consented
to by the Participant's spouse. If the spouse is legally incompetent
to give consent, the spouse's legal guardian, even if such guardian is
the Participant, may give consent. Such election shall designate a
Beneficiary (or a form of benefits) that may not be changed without
spousal consent (unless the consent of the spouse expressly permits
designations by the Participant without the requirement of further
consent by the spouse). Such spouse's consent shall be irrevocable and
must acknowledge the effect of such election and be witnessed by a
Plan representative or a notary public. Such consent shall not be
required if it is established to the satisfaction of the Administrator
that the required consent cannot be obtained because there is no
spouse, the spouse cannot be located, or other circumstances that may
be prescribed by Regulations. The election made by the Participant in
writing without the consent of the spouse may be revoked by the
Participant in writing without the consent of the spouse at any time
during the election period. The number of revocations shall not be
limited. Any new election must comply with the requirements of this
paragraph. A former spouse's waiver shall not be binding on a new
spouse.
For purposes of this Section, the "annuity starting date" means the
first day of the first period for which an amount is paid as an
annuity, or, in the case of a benefit not payable in the form of an
annuity, the first day on which all events have occurred which entitle
the Participant to such benefit.
(b) During the election period described below, both the Participant and
his spouse, if any, acting jointly, or his surviving spouse if the
Participant is deceased, may elect
IX-4
<PAGE>
in writing not to receive benefits under the Plan in the basic mode of
settlement. In the event that both the Participant and his spouse, if
any, or the surviving spouse, make the above election, any death
benefits under the Plan shall be paid as provided in Article VII, and
any retirement benefits shall be paid as provided under Subparagraph
9.3(d) below.
The Plan Administrator shall furnish to each Participant or surviving
spouse, in writing, no less that 30 days and no more than 90 days
before the "annuity starting date", the following basic information:
A general description of the terms and conditions of the
qualified joint and survivor annuity, or a single life annuity,
if applicable; the circumstances in which it will be provided
unless the Participant and his spouse, if any, or the surviving
spouse, elect in writing not to have benefits provided in that
form; the rights of the Participant's spouse with respect to such
an election; the availability of such election (and the right to
revoke such an election); a general explanation of the relative
financial effect on a Participant's or surviving spouse's benefit
of such an election (or its revocation); and the availability of
additional information, to be furnished within 30 days from the
date of the participant's or surviving spouse's written request,
on the specific terms and conditions of the qualified joint and
survivor annuity, or the single life annuity, if applicable, and
the specific financial effect on the particular participant or
surviving spouse of making the above election (or revoking it).
The Participant or surviving spouse must make such written
request for additional information so that it be received by the
Plan Administrator no later than 90 days prior to the annuity
starting date.
Such basic information may be furnished to a participant or surviving
spouse at any time, but even if the information has been previously
provided, it must be furnished by mailing or personal delivery so as
to be received on or about the 180th day before the Participant or
surviving spouse reaches the Annuity Starting Date.
The election period shall be the 90 day period ending on the Annuity
Starting Date.
Any election made by the participant or his surviving spouse, as the
case may be, may be revoked in writing during the applicable election
period, and after such
IX-5
<PAGE>
election has been revoked, another election may be made during the
applicable election period.
All distributions required under this Article shall be determined and
made in accordance with the Income Tax Regulations under Section
401(a) (9) of the Code, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Income Tax
Regulations. Code Section 401(a)(9) will override any inconsistent
distribution option contained in the Plan.
Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
retirement benefit paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982.
(c) Unless both a married Participant and his spouse, or a surviving
spouse, if the Participant is deceased, elect in writing during the
period described below not to have survivor benefits provided in this
form, a qualified preretirement survivor annuity will be payable to
the Participant's spouse for life, upon the death of the Participant,
in the event that he is vested and dies before the Annuity Starting
Date. In the event that both the Participant and his spouse acting
jointly, or the surviving spouse, make the above election, any death
benefits under the Plan shall be paid as provided in Article VII, and
any retirement benefit shall be paid as provided in Subparagraph
9.3(d) below. The Participant's spouse may direct that payment of the
pre-retirement survivor annuity commence within a reasonable period
after the Participant's death. If the spouse does not so direct,
payment of such benefit will commence at the time the Participant
would have attained the later of his Normal Retirement Age or age 62.
However, the spouse may elect a later commencement date. Any
distribution to the Participant's spouse shall be subject to the rules
specified in Section 9.3. The qualified pre-retirement survivor
annuity shall be an annuity for the life of the surviving spouse of
the Participant, in an amount which can be provided by the
Participant's death benefit, but not less in present value than the
amount the spouse would have received, had the Participant retired on
the day before his death, and had commenced receiving benefits under a
qualified joint and survivor annuity, which provided a survivor
annuity in an amount equal to the amount of the annuity payable during
the joint lives of the Participant and his spouse.
IX-6
<PAGE>
In no event, however, shall the early survivor annuity be in an amount
greater than that which can be purchased by the present value of the
Participant's Account Balance, at the time for commencement of payment
of such survivor benefit, less the Cash Value at such time of any
contract payable to a named person (other than the Trustee) who is not
the spouse of the Participant, provided that the spouse has consented
to such designation.
In the case of a qualified pre-retirement survivor annuity as
described in Section 9.3(c) of this Article, the Plan Administrator
shall provide each Participant within the applicable period for such
Participant, a written explanation of the qualified pre-retirement
survivor annuity in such terms and in such a manner as would be
comparable to the explanation provided for meeting the requirements of
Section 9.3(b) applicable to a qualified joint and survivor annuity.
Election period shall mean the period which begins on the first day of
the plan year in which the participant attains age 35 and ends on the
date of the participant's death. If a participant separates from
service prior to the first day of the plan year in which age 35 is
attained, with respect to the account balance as of the date of
separation, the election period shall begin on the date of separation.
Pre-age 35 waiver: A participant who will not yet attain age 35 as of
the end of any current plan year may make a special qualified election
to waive the qualified preretirement survivor annuity for the period
beginning on the date of such election and ending on the first day of
the plan year in which the participant will attain age 35. Such
election shall not be valid unless the participant receives a written
explanation of the qualified preretirement survivor annuity in such
terms as are comparable to the explanation required under section 5.1.
Qualified preretirement survivor annuity coverage will be
automatically reinstated as of the first day of the plan year in which
the participant attains age 35. Any new waiver on or after such date
shall be subject to the full requirements of this article.
In the event the death benefit is not paid in the form of a
pre-retirement survivor annuity, it shall be paid to the Participant's
Beneficiary by one of the optional methods, as elected by the
Participant (or if no election has been made prior to the
Participant's death by his Beneficiary), subject to the rules
specified in Section 9.3(d).
IX-7
<PAGE>
Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in
accordance with the following requirements and shall otherwise comply
with Code Section 401(a)(9) and the Regulations thereunder. If the
death benefit is paid in the form of a pre-retirement survivor
annuity, then distributions to the Participant's surviving spouse must
commence on or before the later of: (1) December 31st of the calendar
year immediately following the calendar year in which the Participant
died; or (2) December 31st of the calendar year in which the
Participant would have attained age 70 1/2. If it is determined
pursuant to Regulations that the distribution of a Participant's
interest has begun and the Participant dies before his entire interest
has been distributed to him, the remaining portion of such interest
shall be distributed at least as rapidly as under the method of
distribution selected pursuant to Section 9.3 as of his date of death.
If a Participant dies before he has begun to receive any distributions
of his interest under the Plan or before distributions are deemed to
have begun pursuant to Regulations then his death benefit shall be
distributed to his Beneficiaries by December 31st of the calendar year
in which the fifth anniversary of his date of death occurs.
However, the 5-year distribution requirement of the preceding
paragraph shall not apply to any portion of the deceased Participant's
interest which is payable to or for the benefit of a designated
Beneficiary. In such event, such portion may, at the election of the
Participant (or the Participant's designated Beneficiary), be
distributed over a period not extending beyond the life of such
designated Beneficiary: the life of such designated Beneficiary (or
over a period not extending beyond the life expectancy of such
designated Beneficiary) provided such distribution begins not later
than December 31st of the calendar year immediately following the
calendar year in which the Participant died. However, in the event the
Participant's spouse (determined as of the date of the Participant's
death) is his Beneficiary, the requirement that distributions commence
within one year of a Participant's death shall not apply. In lieu
thereof, distributions must commence on or before the later of: (1)
December 31st of the calendar year immediately following the calendar
year in which the Participant died; or (2) December 31st of the
calendar year in which the Participant would have attained age 70 1/2.
If the surviving spouse dies before distributions to such spouse
begin, then the 5-year distribution requirement of this Section shall
apply as if the spouse was the Participant.
IX-8
<PAGE>
For purposes of Section 9.3(c), the election by a designated
Beneficiary to be excepted from the 5-year distribution requirement
must be made no later than December 31st of the calendar year
following the calendar year of the Participant's death. Except,
however, with respect to a designated Beneficiary who is the
Participant's surviving spouse, the election must be made by the
earlier of: (1) December 31st of the calendar year immediately
following the calendar year in which the Participant died or, if
later, the calendar year in which the Participant would have attained
age 70 1/2; or (2) December 31st of the calendar year which contains
the fifth anniversary of the date of the Participant's death. An
election by a designated Beneficiary must be in writing and shall be
irrevocable as of the last day of the election period stated herein.
In the absence of an election by the Participant or a designated
Beneficiary, the 5-year distribution requirement shall apply.
Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
death benefits paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity
and Fiscal Responsibility Act of 1982.
(d) If the married Participant and his spouse elect not to receive payment
in the form of a qualified joint and survivor annuity, or if the
Participant is not married at the time benefits commence, and has
elected not to receive benefits in the form of a life annuity, the
Plan Administrator, upon consultation with the Participant, shall
provide a settlement from among the optional modes of settlement
provided below, and in conformity with the following requirements:
(1) All modes of settlement, both basic and optional, shall have an
equal present actuarial value at the time of commencement of
payment.
(2) No optional settlement shall be allowed for payments due under
Article V and VI, under which the actuarial present value of the
payments to be made to the Participant and his Beneficiary,
except in the case of a distribution over the joint life and last
survivor expectancy of the Participant and his spouse, is not
more than 50 percent of the actuarial present value of the total
payments to be made to the Participant and his Beneficiaries. No
insurance
IX-9
<PAGE>
contract distributed as provided below may permit the time,
amount or duration of payment to be not in conformity with the
above restriction.
(3) At any time after payments commence, but before the April 1st of
the calendar year following the calendar year in which he attains
age 70 1/2, a Participant may request, and the Plan Administrator
may permit, a change in the optional mode of settlement.
The following optional modes of settlement are provided:
(1) Payment of all or (in the case of (5) below) part of the
Participant's vested accrued benefit in a lump sum.
(2) Payments over the lifetime of the Participant or the life of the
Participant and his Beneficiary.
(3) Payments in annual, semi-annual, quarterly or monthly
installments over a period certain not extending beyond the life
expectancy of the Participant, or beyond the joint life and last
survivor expectancy of the Participant and his Beneficiary, with
such expectancy being computed by use of the expected return
multiples contained in Treasury Regulation Section 1.72-9, or, in
the case of payments by Insurer, the period computed by use of
the mortality tables utilized under the contract. For purposes of
this subsection (3) and subsection (4) below, the life expectancy
of the Participant and his Beneficiary (if the Beneficiary is the
spouse of the Participant) may be redetermined annually.
(4) In the form of a non-transferable annuity Contract providing
payments over a period described in (2) or (3) above, in either
non-increasing payments, or at a rate which satisfies the
requirements contained in subparagraph (e) below.
(5) Any combination of the above.
(e) In the event a distribution is to be made to a minor, then the Plan
Administrator may direct that such distribution be paid to the legal
guardian, or if none, to a parent of such Beneficiary or a responsible
adult with whom the Beneficiary maintains his residence, or to the
custodian for such Beneficiary under the Uniform Gift to Minors Act or
Gift to Minors Act, if such is permitted by the laws of the state in
which said Beneficiary resides. Such a payment to the legal guardian,
custodian or parent of a
IX-10
<PAGE>
minor Beneficiary shall fully discharge the Trustee, Employer, and
Plan from further liability on account thereof.
(f) "Spouse", for purposes of any spouse survivor benefits payable, under
any joint and survivor annuity mode of settlement available under this
Plan, shall mean "the Spouse of the Participant on the date payment of
benefits commences."
(g) Notwithstanding anything to the contrary contained herein, no
qualified joint and survivor annuity, and no qualified pre-retirement
survivor annuity will be paid, and no optional mode of settlement will
be available if the present value of such benefit does not exceed
$3,500 prior to the Annuity Starting Date. Such value will be
distributed in a lump sum immediately upon determination of the amount
due on account of retirement (including disability retirement) or
death. If the present value of such benefit exceeds $3,500, the
written consent of the Participant and his spouse, if any, is required
before the commencement of distribution of such benefits.
Actuarial equivalence shall be determined by the Plan Administrator on
the basis of consistently applied reasonable actuarial factors. Such
factors shall be the same for all Participants retiring during the
same Plan Year, but they may be adjusted from year to year in order to
remain reasonable. But in no event will a rate of interest be used
greater than the interest rate which would be used (as of the date of
distribution) by the Pension Benefit Guaranty Corporation for purposes
of determining the present value of a lump sum distribution on plan
termination.
Notwithstanding the foregoing, only the participant need consent to
the commencement of a distribution in the form of a qualified joint
and survivor annuity while the account balance is immediately
distributable. (Furthermore, if payment in the form of a qualified
joint and survivor annuity is not required with respect to the
participant pursuant to section IX of the plan, only the participant
need consent to the distribution of an account balance that is
immediately distributable.) Neither the consent of the participant nor
the participant's spouse shall be required to the extent that a
distribution is required to satisfy section 401(a) (9) or section 415
of the Code. In addition, upon termination of this plan if the plan
does not offer an annuity option (purchasing from a commercial
provider) and if the employer or any entity within the same controlled
group as the employer does not
IX-11
<PAGE>
maintain another defined contribution plan (other than an employee
stock ownership plan as defined in section 4975(e)(7) of the Code),
the participant's account balance may, without the participant's
consent, be distributed to the participant. However, if any entity
within the same controlled group as the employer maintains another
defined contribution plan (other than an employee stock ownership plan
as defined in section 4975(e)(7) of the Code) then the participant's
account balance will be transferred, without the participant's
consent, to the other plan if the participant does not consent to an
immediate distribution.
An account balance is immediately distributable if any part of the
account balance could be distributed to the Participant (or surviving
spouse) before the Participant attains or would have attained if not
deceased) the later of Normal Retirement Age or age 62.
For purposes of determining the applicability of foregoing consent
requirements to distributions made before the first day of the first
Plan Year beginning after December 31, 1988, the Participant's vested
account balance shall not include amounts attributable to accumulated
deductible employee contributions within the meaning of Section
72(o)(5)B) of the Code.
9.4 All payments hereunder shall be made in cash, securities or such other
property as the Plan Administrator may determine in its sole and absolute
discretion.
9.5 A claim for benefits must be filed before payment of retirement,
disability, or death benefits will commence. A claim shall be deemed filed when
a Participant, or Beneficiary, in the case of death benefits, or their
authorized representative, requests, orally or in writing, payment of benefits
due under the Plan. The claim may be filed with the Plan Administrator or any
officer of the Company; or if the Company has an organizational unit which
customarily handles Employee benefit matters, with any person employed in such
unit. In the event that a claim for benefits is filed, the Plan Administrator,
within 90 days after the claim is filed, shall give notice of the decision on
the claim; and if notice on the denial of a claim is not furnished, and the
claim has not been granted within the 90 day claims proceeding period, the claim
shall be deemed denied for the purpose of processing to the review stage as
hereinafter described.
(a) The 90 day time period mentioned above may be extended by the Plan
Administrator for an additional 90 days, if
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<PAGE>
special circumstances require an extension of time for processing the
claim. If an extension is required, the Plan Administrator shall
furnish written notice of the 90 day extension to the claimant prior
to the termination of the initial 90 day period. The extension notice
shall indicate the special circumstances requiring an extension of
time and the date by which the Plan Administrator expects to render
the final decision.
(b) The Plan Administrator shall provide to every claimant who is denied a
claim for benefits written notice setting forth:
(1) The specific reason or reasons for the denial,
(2) The specific reference to the pertinent Plan provisions on which
the denial is based,
(3) 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
(4) An explanation of the Plan's claim review procedure.
(c) In the event that the claim of the Participant or Beneficiary is
denied, the claimant or his duly authorized representative may request
a review of the denied claim by means of a written application for
review delivered to the Plan Administrator. Pursuant to this right to
review, the claimant or his duly authorized representative may review
pertinent documents and submit issues and comments in writing.
(d) Any request for review of a denied claim must be filed no later than
60 days after the earlier of receipt by the claimant of written
notification of denial of a claim, or the expiration of the 90 day
claims processing period, including any extension thereof.
(e) In the event a request for review has been made as herein above
provided, the Plan Administrator shall make a decision on the request
for review within 60 days after the receipt by the Plan Administrator
of the request for the review, unless special circumstances require an
extension of time for processing the review, in which case the Plan
Administrator shall render a decision as soon as possible, but in no
event later than 120 days after the Plan Administrator has received
the request for review.
IX-13
<PAGE>
If an extension is required, the Plan Administrator shall furnish
written notice of the extension to the claimant prior to the
commencement of the extension. The decision on review shall be
furnished to the claimant in writing within the time for review and
shall include specific reasons for the decision, as well as specific
references to the pertinent Plan provisions on which the decision is
based.
9.6 If the Plan Administrator is unable after diligent search to locate a
Participant or Beneficiary to whom a benefit is due under the provisions of this
Plan, such benefit shall be forfeited on the last day of the Plan Year in which
such search is concluded, and such forfeiture shall be administered in
accordance with Article IV. If a claim is made subsequently by such Participant
or Beneficiary for the forfeited benefit, such benefit shall be restored in
full.
9.7 The Plan Administrator shall, when making a distribution qualifying for
rollover to an eligible retirement plan, provide to the recipient a written
explanation of the provisions under which such distribution will not be subject
to tax, if transferred within 60 days after the date of distribution, and, if
applicable, the provisions relating to 10 year averaging and capital gains
treatment of lump sum distributions.
IX-14
<PAGE>
ARTICLE TEN
SPENDTHRIFT CLAUSE
10.1 The provisions of this Plan are intended as personal protection for
the Participant. A Participant shall not have any right to assign, anticipate or
hypothecate any assets held for his benefit, including amounts credited to his
account, except as security for a loan from the Plan to the Participant. The
benefits under this Plan shall not be subject to seizure, legal process or be in
any way subject to the claim of the Participant's creditors, including, without
limitation, any liability for contracts, debts, torts, alimony or support of any
relatives, except that the Plan has the right to recover overpayments of
benefits previously made to a Participant. None of the Plan's benefits or the
Trust's assets shall be considered an asset of the Participant in the event of
insolvency or bankruptcy. However, the proscription above does not apply to
Qualified Domestic Relations Orders as defined in Code Section 414(p).
10.2 Notwithstanding the provisions of this Article, the Plan Administrator
and/or Trustee is hereby authorized to comply without objection to any Qualified
Domestic Relations Order.
10.3 A Domestic Relations Order is defined as any judgment, decree or order
(including approval of a property settlement agreement) which relates to the
provision of child support, alimony payments, or marital property rights to a
spouse, former spouse, child or other dependent of a Participant (an Alternate
Payee), and is made pursuant to a State Domestic Relations Law (including a
Community Property Law).
10.4 A Qualified Domestic Relations Order is a Domestic Relations Order
which establishes or assigns to an Alternate Payee the right to receive all or a
portion of the benefits payable to a Participant under the Plan, and which meets
the following conditions:
(a) The Order clearly specifies:
(i) The name and last known mailing address (if any) of the
Participant and the name and mailing address of each Alternate
Payee covered by the order;
(ii) The amount or percentage of the Participant's benefits to be paid
by the Plan to each such Alternate Payee, or the manner in which
such amount or percentage is to be determined;
X-1
<PAGE>
(iii) The number of payments or period to which such order applies;
and
(iv) Each plan to which such order applies.
(b) The Order does not require the Plan to provide:
(i) Any type or form of benefit, or any option, not otherwise
provided under the Plan, except as provided in Paragraph 10.5
below;
(ii) Increased benefits (determined on the basis of actuarial value);
or
(iii) Payment of benefits to an Alternate Payee which are required to
be paid to another Alternate Payee under another order previously
determined to be a Qualified Domestic Relations Order.
10.5 A Qualified Domestic Relations Order may require that payments or
benefits be made to an Alternate Payee on or after the date the Participant
attains (or would have attained) the date which is 10 years before Normal
Retirement Age, even if still employed, as if the Participant had retired on the
date on which such payment is to begin under such order (but taking into account
only the present value of benefits earned to such date, and not taking into
account the present value of any employer subsidy for early retirement), and in
any form in which such benefits may be paid under the plan to the Participant
(other than in the form of a joint and survivor annuity with respect to the
Alternate Payee and her subsequent spouse). In determining present value, the
interest assumption used shall be as specified in any definition of actuarial
equivalence or, if none, 5 percent.
10.6 A Qualified Domestic Relations order may provide that (a) a
Participant's former spouse shall be treated as a surviving spouse of such
Participant for purposes of the qualified joint and survivor and qualified
pre-retirement survivor provisions of the Plan, and (b) such surviving spouse
shall be treated as meeting any minimum marriage requirements for such benefits,
if married for at least 1 year.
10.7 The Plan Administrator shall, within 30 days, notify the Participant
and any other Alternate Payee of the receipt of a Domestic Relations Order, and
the Plan's procedures for determining whether such order is a Qualified Domestic
Relations Order. Said procedure shall consist of requesting within 30 days of
receipt of such order, and obtaining within 30 days therefrom, an opinion from
counsel on such matter. Within 90 days of
X-2
<PAGE>
receipt of the order, unless the Plan Administrator requests a second opinion,
in which case the period of notification shall be extended for an additional 90
days, the Plan Administrator shall either adopt an opinion of counsel as his
own, or reject it in his sole discretion, and notify the Participant and each
alternate payee of his determination. Any party affected by this determination
may appeal the Plan Administrator's determination, and such appeal shall be
subject to the provisions contained in Paragraph 9.5 herein pertaining to
appeals of claim determinations.
10.8 During any period in which it is being determined whether or not a
Domestic Relations Order is a Qualified Domestic Relations Order, the Plan
Administrator shall segregate in a separate account the amounts which would have
been payable to the Alternate Payee during such period if the order had been
determined to be a Qualified Domestic Relations Order. If within 18 months the
order (or modification thereof) is determined to be a Qualified Domestic
Relations Order, the Plan Administrator shall pay the segregated amounts (plus
any interest thereon) to the person or persons entitled thereto, but if within
said period the issue is not resolved, or if it is determined that the order is
not a Qualified Domestic Relations Order, the Plan Administrator shall pay or
credit the segregated amounts (plus any interest thereon) to the person or
persons who would have been paid or credited if there had been no Order. Any
determination made after the 18 month period that an order is a Qualified
Domestic Relations Order shall be applied prospectively only.
X-3
<PAGE>
ARTICLE ELEVEN
INSURANCE CONTRACTS
11.1 Trustee shall, within 60 days after being directed by the Plan
Administrator, by uniform procedures applicable to all Participants, and with
due regard to the preference of each Participant, purchase paid-up or annual
premium life insurance, endowment, retirement income or annuity Contracts for
the benefit of each Participant. The terms of any annuity Contract purchased and
distributed by the Plan to a Participant or spouse shall comply with the
requirements of the Plan. Each Participant has the right to direct the Plan
Administrator to have the Trustee purchase Contract(s) on his life, to specify
the amount of premium on such Contract and type of Contract (subject to the
limitations of this Article and the underwriting limitations of the Insurer
selected by Trustee), or to waive any such purchase contemplated by the Plan
Administrator.
The Trustee shall apply for and will be the owner of any insurance contract
purchased under the terms of this plan. The insurance contract(s) must provide
that proceeds will be payable to the trustee, however the trustee shall be
required to pay over all proceeds of the contract(s) to the participant's
designated beneficiary in accordance with the distribution provisions of this
plan. A participant's spouse will be the designated beneficiary of the proceeds
in all circumstances unless a qualified election has been made in accordance
with Article Nine, Joint and Survivor Annuity Requirements, if applicable. Under
no circumstances shall the trust retain any part of the proceeds. In the event
of any conflict between the terms of this plan and the terms of any insurance
contract purchased hereunder, the plan provisions shall control.
(a) Ordinary life-For purposes of these incidental insurance
provisions, ordinary life insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing premiums. If such contracts
are purchased, less than 1/2 of the aggregate employer contributions
allocated to any participant will be used to pay the premiums attributable
to them.
(b) Term and universal life-No more than 1/4 of the aggregate employer
contributions allocated to any participant will be used to pay the premiums
on term life insurance contracts, universal life insurance contracts, and
all other life insurance contracts which are not ordinary life.
XI-1
<PAGE>
(c) Combination-The sum of 1/2 of the ordinary life insurance premiums
and all other life insurance premiums will not exceed 1/4 of the aggregate
employer contributions allocated to any participant.
If any Company contributions to any Participant's account are applied to pay
premiums on both ordinary life insurance and term life insurance policies, the
total of the term life insurance premiums and one-half of the ordinary life
insurance premiums shall be less than 25 percent of the total Company
contributions and forfeitures allocated to such Participant's account. Solely
for purposes of computing the limitations contained in this paragraph,
contributions made by Company prior to the end of the Plan Year shall be deemed
allocated to specific Participant accounts. [Notwithstanding anything
hereinabove to the contrary, amounts credited to a Participant's Qualified
Voluntary Employee Contribution Account shall not be applied to the purchase of
life insurance contracts.]
The limits contained in this Paragraph on the aggregate amount of the premiums
paid on all ordinary and term life insurance shall apply only to the use of
trust funds accumulated for 2 years or less after their allocation to a
participant's account. No limits apply to trust funds accumulated more than 2
years.
11.2 If at any time the Trustee shall be unable to pay all or any portion
of the premiums for any reason, the Trustee shall be empowered in his sole and
absolute discretion to borrow prorata all or any portion of the required payment
from the Insurer on the security of the Contract, or to convert the Contract
into a paid-up policy, or to cash in the Contract.
11.3 Trustee shall convert the entire value of any life insurance Contract
at or before retirement into cash or an annuity to provide periodic income, so
that no portion of such value may be used to continue lifetime insurance
protection beyond retirement, or Trustee may distribute the Contract to the
Participant. If a Participant terminates employment prior to retirement, such
conversion shall take place no later than one year after the date any benefits
would, if forfeitable, be forfeited pursuant to Paragraph 8.1, but if a
distribution is made to such Participant prior to that time, the Trustee shall,
if directed by the Plan Administrator, distribute the Contract to the
Participant. However, any annuity Contract distributed here from must be
nontransferable. In the event that the Participant is less than 100% vested in
his account balance at the time of distribution, the Trustee shall, if so
directed by the Plan Administrator, allocate the Participant's vested interest
first to the cash value of the Contract, after determining the total dollar
value of his vested interest, with any value of his vested interest in excess of
the cash value of
XI-2
<PAGE>
the Contract to be allocated to the remaining portion of his account. If after
making the above allocation, the Participant's vested interest in the contract
is less than the total cash value, the Trustee shall, as directed by the Plan
Administrator, either take a loan against the Contract for the amount of the
non-vested cash value and then distribute the Contract, or sell the Contract to
the Participant for an amount equal to the difference between the total cash
value and the participant's vested interest therein.
In the event the Contract has no cash value, the Trustee shall, when
directed by the Plan Administrator, distribute the Contract to the terminated
Participant if he so requests, whether or not such Participant is vested in all
or any portion of his account.
XI-3
<PAGE>
ARTICLE TWELVE
RIGHT TO ALTER, AMEND OR TERMINATE TRUST
12.1 The Company shall have the right at any time to discontinue its
contributions hereunder, and to terminate or partially terminate this Plan and
Trust. In the event that Company shall be legally dissolved, or declared
bankrupt, shall make a general assignment for the benefit of creditors, or merge
into or with another company which shall not assume the obligations of this
Agreement, this Plan shall automatically terminate.
In the event the Plan and Trust is automatically terminated as provided
above, or in the event that subsequent to the voluntary termination of the plan
by Company, any of the events causing automatic termination occur prior to the
final and complete distribution of assets from the Trust, Trustee shall
automatically be vested with all rights, powers and duties otherwise reserved in
this Agreement and Trust to Company, Plan Administrator and Named Fiduciary,
including but not limited to the right to amend this Agreement and Trust, to
liquidate the Trust, and to continue the Plan and Trust in force.
12.2 The Company reserves the right to amend this Plan and Trust in writing
at any time without the consent of any Participant or Beneficiary; provided,
however, that no amendment to this Plan or Trust shall deprive any Participant
or Beneficiary (including any Participant or Beneficiary who is already
receiving benefits) of any vested interest herein, except as may be allowed by
Federal Law, nor shall such amendment increase the duties or obligations of the
Trustee herein except with his consent. Further provided, that to the extent
required by Federal Law, subject to regulations issued by the Secretary of the
Treasury, no amendment to this Plan and Trust shall be permitted which has the
effect of: (a) eliminating or reducing an early retirement benefit or a
retirement-type subsidy for a Participant who satisfied (either before or after
the amendment) the pre-amendment conditions for the benefit or subsidy, or (b)
eliminating an optional form of benefit, in both cases with respect to benefits
attributable to service before such amendment.
12.3 This Plan may not merge or consolidate with, or transfer assets or
liabilities to, any other plan unless each Participant in the Plan would, if the
plan then terminated, receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the benefit that
such Participant would have been entitled to receive immediately
XII-1
<PAGE>
before the merger, consolidation or transfer if the Plan had then terminated.
12.4 In the event of partial or complete termination of this Plan and
Trust, or upon the complete discontinuance of Company contributions under the
Plan, the Trustee shall, when so directed by the Plan Administrator, distribute
the assets of the fund to the Participants affected or their Beneficiaries. The
Plan Administrator may but is not required to grant each Participant the right
to elect in an irrevocable election to receive a complete distribution from his
account. Failure to elect such a distribution shall constitute an irrevocable
election to defer distribution until the times specified with regard to death,
disability and retirement payments as provided in this Plan or in any successor
Plan, and Trustee is hereby precluded from making distributions at any earlier
time to any Participant who fails to elect complete distribution and whose
employment with Company has not terminated. Said election shall take place
during a period of time, not exceeding 60 days, prescribed by the Plan
Administrator and communicated to Plan Participants. Alternatively, the Plan
Administrator may direct that complete distributions be made to all participants
affected or their Beneficiaries, or that all distributions be made as set forth
in the other provisions of the Plan and Trust. Distributions shall be made in
cash, unless the Plan Administrator directs the Trustee to make distributions in
securities or other property (including Contracts on the lives of Participants).
In the absence of any direction to make distribution to all Participants and/or
Beneficiaries, the Plan and Trust will continue in force, and distributions will
be made in the same manner and under the same conditions as set forth in the
Plan and Trust, and the Plan and Trust will not terminate until all the assets
of the Trust have been distributed. It is the intent of the parties that the
exempt status of the Trust under Section 501 of the Internal Revenue Code of
1986, as amended, will continue.
12.5 Upon the date of termination of the Plan, partial termination of the
Plan, or complete discontinuance of contributions, the rights of each affected
Participant to the amount credited to his account at such time shall be fully
vested, except as provided in Article XVI. If any funds (other than Company
contributions or forfeitures not required to be allocated to meet the
liabilities of this Plan) have not been allocated prior to date of termination,
partial termination, or complete discontinuance of contributions, such funds
shall be allocated on the earlier of the date of liquidation of the Trust, or
the next regular allocation date pursuant to Paragraph 4.5, and subject to the
limitations provided in Paragraph 4.3. Any investment earnings and realized or
unrealized gains and losses subsequent to such allocation date shall likewise be
allocated
XII-2
<PAGE>
pursuant to Paragraphs 4.5 and 4.3, at least annually and, in any event, as of
the date of final and complete distribution.
XII-3
<PAGE>
ARTICLE THIRTEEN
LOANS
13.1 Trustee, upon application from any Participant or Beneficiary, in
accordance with a uniform nondiscriminatory policy, may make a loan or loans to
such Participant or Beneficiary.
13.2 Loans will be limited to the lesser of:
(i) 1/2 of the present value of the Participant's nonforfeitable
account balance (except that loans of up to $10,000 may be made
to participants if these loans are adequately secured and are not
in excess of the present value of the Participant's total accrued
benefit);
(ii) $50,000 reduced by the excess (if any) of the highest outstanding
balance of loans during the one year period ending on the day
before the loan is made, over the outstanding balance of all
loans from the Plan on the date the loan is made.
13.3 Loans must be made available to all Participants and Beneficiaries on
a reasonably equitable basis and the availability shall be communicated to all
Participants. Loans shall not be made available to Highly Compensated Employees
in an amount greater than that made available to other Employees.
13.4 A reasonable rate of interest shall be charged on each loan. What is
reasonable depends on factors such as the amount of loan, adequacy of security,
duration of loan, repayment schedule, current market conditions, variable or
fixed rate of interest, what is customary in similar arm's length transactions
in the community; ie, average rate charged by area commercial banks for the same
type of consumer loan, and other economic and time factors.
13.5 All loan agreements shall provide for repayment within five (5) years
from the date of the loan, unless the loan is used to acquire the Participant's
primary residence.
13.6 All plans of any affiliated employers and related businesses are to be
combined for the purpose of maximum limits on loans.
13.7 All loans must be evidenced by a written loan agreement signed by all
relevant parties to the loan and evidenced by a promissory note of the borrower
where the borrower personally
XIII-1
<PAGE>
guarantees the repayment of the loan and secures the loan on the Participant's
account balance.
13.8 An assignment or pledge of any portion of the Participant's interest
in the Plan and a loan, pledge or assignment with respect to any insurance
contract purchased under the Plan will be treated as a loan.
13.9 A Participant's spouse must consent in writing for a Participant to
use any part of his account balance as security for the loan. Spousal consent
shall be obtained no earlier than the beginning of the 90 day period ending on
the date the loan is made. The consent must acknowledge the effect of the loan
and must be witnessed by a plan representative or notary public. The consent is
binding with respect to the loan for which it is given, on any subsequent
spouse. A new consent shall be required if the loan is revised, renegotiated,
renewed or extended.
13.10 Loans may not be made to Owner-Employees or Shareholder-Employees as
defined in Code Section 1379.
13.11 The loan document must provide for payments to be made at least
quarterly in a level amount, which will fully amortize the loan over its
duration.
13.12 The Plan Administrator may provide for loans to be considered an
asset of the Trust Fund or as an investment of the borrower's account. The Plan
Administrator shall act consistently in making this determination.
13.13 A loan will not be foreclosed and security attached before a
distributable event occurs under the Plan. Any loan outstanding at the time a
Participant receives a distribution, shall be repaid by offsetting the balance
due (plus accrued interest and any costs) against the amount to be distributed.
13.14 If a valid spousal consent has been obtained in accordance with
Section 13.8, and the Participant's spouse does not receive the Participant's
entire vested benefits, then the vested benefits shall be reduced by the balance
due before determining the benefit payable to the Participant's surviving
spouse.
XIII-2
<PAGE>
ARTICLE FOURTEEN
TRUSTEE
14.1 The duties and responsibilities of the Trustee are limited to those
set forth in this Plan and Trust, and it shall be liable only for the
safeguarding and administration of the Trust principal in accordance with the
provisions of this Plan and Trust, except as otherwise provided by state or
federal law. If at any time there is more than one Trustee, all of them will
jointly manage and control the fund, unless the responsibilities, obligations
and duties specified in this Plan are allocated among them in accordance with
the procedure set forth below. The Trustee shall discharge its duties with
respect to the Plan solely in the interest of the Participants and the
Beneficiaries, and for the exclusive purpose of providing benefits to the
Participants and their Beneficiaries and defraying reasonable expenses of the
Plan by administering the Plan 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 a like character and with like aims.
14.2 The Trustee shall maintain full and complete records of the
administration of the Trust, and shall be responsible for the management of the
Trust operation and its administration.
The Company and Plan Administrator may examine such records from time to
time during business hours. A Participant may also examine such records, as they
relate to his interest in the Trust principal, at such time deemed reasonable by
the Trustee.
14.3 Within a reasonable time after each Plan Year, and within 90 days
after its removal or resignation, Trustee shall file with the Company and shall
certify the accuracy of an account of its administration of the Trust during
such year, or from the end of the preceding Plan Year to the date of removal or
resignation. Neither Company nor any other person shall be entitled to any
further accounting by Trustee, except as provided by law. Company may, in its
discretion, waive all or any part of such accounting.
14.4 To the extent permitted by the Employee Retirement Income Security Act
of 1974, Trustee shall be released from all liability to anyone as to any
transaction shown in a statement of account pursuant to Section 14.3, except
those as to which the Company shall, within 90 days after the Trustee's filing
of the account, file with Trustee a written statement setting forth in detail
the items in or with respect to such account to which
XIV-1
<PAGE>
exception is taken. If such a statement is filed, Trustee shall, unless the
matter be compromised with the Company, file its account in any court of
competent jurisdiction for audit and adjudication.
14.5 Upon separate agreement between Trustee and Company, the fund may be
valued more frequently than annually, for purposes of determining benefits or
costs under the Plan. If such agreement is made, the provisions of Section 14.4
shall also apply with respect to each such valuation.
14.6 The Trustee shall act at the direction of the Company and the Plan
Administrator, and Company agrees to indemnify Trustee against any liability
imposed as a result of a claim asserted by any person or persons, with respect
to which Trustee acted in good faith at direction of Company or the Plan
Administrator. The Trustee is authorized on behalf of the Trust to execute the
applications and any other documents required by an Insurer issuing Contracts on
the lives of the Participants, and to exercise all of the rights, privileges and
powers under such Contracts. Written notification to an Insurer setting forth
the name of the Trustee hereunder shall be conclusive evidence for all purposes
that the party so named is Trustee hereunder at the date of such notification.
The signature of the Trustee shall be conclusive proof to the Insurer that the
application is being made for the proper Contract and is in accordance with the
terms of this Plan and Trust.
14.7 The Trustee may consult with any legal counsel even through counsel
for Company, with respect to the construction of the Plan and Trust, either as
to its duties thereunder or with respect to any legal proceedings or questions
of law, and will be fully protected with respect to any action taken or omitted
by it in good faith pursuant to the advice of such counsel. In addition, the
Company, at the request of or with the concurrence of the Trustee, may employ
such actuaries, accountants, specialists and other persons as the Company or
Trustee deems necessary or desirable in connection with the administration of
the Plan.
14.8 A Trustee shall not be liable, either individually or as Trustee, for
any losses resulting to the Plan arising from the acts or omissions on the part
of a Co-Trustee or Investment Manager to whom responsibilities, obligations and
duties have been allocated as to certain assets of the Fund. Any such allocation
of responsibilities among Trustees and/or the appointment of an Investment
Manager shall be made by the Named Fiduciary, and evidenced by a written
agreement executed by all of the Trustees, the Named Fiduciary and the
Investment Manager, if any. Except as stated in the foregoing, in addition to
any liability which the Trustee may have under any other section of
XIV-2
<PAGE>
this Plan, the Trustee with respect to the Plan shall be liable for breach of
fiduciary duty of another Trustee; (1) if such Trustee participates knowingly
in, or knowingly undertakes to conceal, an act or omission of such other
Trustee, including knowing such act or omission is a breach; (2) if, by such
Trustee's failure to comply with the standards in performing its duties as set
forth in Paragraph 14.1 hereof, in the administration of such Trustee's specific
responsibilities which give rise to its status as a Trustee, it has enabled such
other Trustee to commit a breach; or (3) if such Trustee has knowledge of a
breach by such other Trustee, unless such Trustee makes reasonable efforts under
the circumstances to remedy the breach.
14.9 Trustee shall invest and reinvest the principal and income of the
trust and keep the same invested without distinction between the principal and
income.
14.10 Trustee shall have the following powers, in addition to the powers
customarily vested in the Trustee by law, and in no way in derogation thereof:
(a) With any cash at any time held by it, to purchase or subscribe
for any authorized investment, and to retain such authorized
investment in trust.
(b) To sell for cash or on credit, convert, redeem or exchange for
another authorized investment, or otherwise dispose of, any
authorized investment at any time held by it.
(c) To maintain a cash reserve in such a manner as the Trustee shall
deem advisable from time to time. Such cash reserve may consist
of uninvested contributions or of the proceeds of the sale of the
investments of the Trust, as the Trustee in its sole discretion
may determine. Such cash reserve may be in a deposit account or
invested in the savings department, if any, of the Trustee, or as
Trustee may direct, in a bank, savings and loan association,
building and loan association, or savings bank, including time
deposits or certificates of deposit with maturities of less than
or more than one year.
(d) To exercise any options appurtenant to any authorized investment
in which the fund is invested, for conversion thereof into
another authorized investment, or to exercise any rights to
subscribe for additional authorized investment, and to make all
necessary payment therefore.
(e) To join in, consent to, dissent from, or oppose, to deposit
securities in a voting trust, in connection with the
reorganization, consolidation, recapitalization, merger, or
readjustment of the finances of any
XIV-3
<PAGE>
corporation, company, or association in which the fund may be
invested; or in connection with the sale, mortgage, pledge, or
lease of any property of same, on any terms and conditions as it
may deem wise; to do any act which may be deemed necessary or
advisable in connection therewith, including the exercise of
options, making agreements or subscriptions, and payment of
expenses, assessments or subscriptions; and to accept any
authorized investment which may be issued in or as a result of
any proceeding, and thereafter to hold the same.
(f) To vote, in person or by general or limited proxy, at any
election of any corporation in which the fund is invested, and
similarly to exercise personally or by a general or limited power
of attorney, any right appurtenant to any authorized investment
held in the fund.
(g) To sell, option to sell, mortgage, lease for a term of years less
than or continuing beyond the possible date of the termination of
the trust created hereunder, partition or exchange any real
property which may from time to time or at any time constitute a
portion of the fund, either at public or private sale, for such
prices and upon such terms as it may deem best and to make,
execute and deliver to the purchasers thereof good and sufficient
deeds of conveyance thereof and all assignments, transfers and
other legal instruments, either necessary or convenient for
passing the title and ownership thereof to the purchaser, free
and discharge of all trusts, and without liability on the part of
such purchasers to see to the proper application of the purchase
price.
(h) To repair, alter, or improve any buildings which may be on real
estate forming part of the fund, or to erect entirely new
structures thereon.
(i) To renew or extend or participate in the renewal or extension of
any mortgage, upon such terms as may be deemed advisable, and to
agree to a reduction in the rate of interest on any mortgage or
to any other modification or change in the terms of any mortgage
or of any guarantee pertaining thereto, in any manner and to any
extent that may be deemed advisable for the protection of the
fund or the preservation of the value of the investment; to waive
any default, whether in the performance of any covenant or
condition of any mortgage or in the performance of any guarantee,
or to enforce any such default in such manner and to such extent
as may be deemed advisable; to exercise and enforce any and all
rights or foreclosure, to bid on property in foreclosure, to take
a deed in lieu of foreclosure with or without paying a
consideration
XIV-4
<PAGE>
therefore, and in connection therewith to release the obligation
on the bond secured by such mortgage; and to exercise and enforce
in any action, suit or proceeding at law or in equity any right
or remedies in respect to any mortgage or guarantee.
(j) To purchase authorized investments at a premium or discount.
(k) To employ suitable agents and counsel with respect to investment
transactions, and to pay their reasonable expenses and
compensation.
(1) To borrow or raise monies for the purpose of the Trust, in such
amounts and upon such terms and conditions as Trustee in its
absolute discretion may deem advisable, and for any sum so
borrowed to issue its promissory note as Trustee, and to secure
the repayments thereof by pledging or mortgaging all or any part
of the fund, provided that loans and repayments shall be made
prorata on all property and the Contracts of the same class or
type. No person lending money to Trustee shall be bound to see to
the application of the money lent or to inquire into the
validity, expediency or propriety of such borrowing.
(m) To cause any investment in the fund to be registered in, or
transferred into, its name as Trustee or the name of its nominee
or nominees or to retain them unregistered or in form permitting
transfer by delivery, if authorized by the Company, but the books
and records of Trustee shall at all times show that all such
investments are part of the fund, and Trustee shall be fully
responsible for any misappropriation or defalcation in respect to
any investment held by its nominee or held in unregistered form.
(n) To do all acts which it may deem necessary or proper, and to
exercise any and all powers appurtenant to Trustee under this
Plan and Trust, upon terms and conditions as to it may seem best
for the best interest of the fund, except as otherwise provided
by state or federal law.
(o) To purchase securities on margins and to re-hypothecate same.
(p) To purchase life insurance on the lives of the directors,
principal officers, or other key personnel of the Company, made
payable to the Trust for the benefit of the fund.
14.11 "Authorized investment" as used herein shall include stock (whether
preferred or common), bank common trust funds
XIV-5
<PAGE>
(including those of the Trustee, if any), bonds, debentures, notes or other
evidences of indebtedness or ownership (secured by mortgages including second
mortgages or otherwise), put or call options to buy or sell securities (whether
listed or unlisted on any exchange and whether covered or uncovered), any life
insurance, retirement income, endowment or annuity contract in a legal reserve
life insurance company authorized to do business in the state of domicile of the
Trustee; and real and personal property of all kinds, including leaseholds on
improved and unimproved real estate. Authorized investments shall not be limited
to that class of investments which is specifically authorized as a legal
investment for trust funds under the law of the state of domicile of the
Trustee, but no investment shall constitute an Authorized investment if such
investment is prohibited by governing local or federal law.
14.12 The Trustee shall not cause the Plan to engage in any transaction if
it knows that such transaction constitutes directly or indirectly a prohibited
transaction, as described in Sections 406 and 407 of the Employee Retirement
Income Security Act of 1974 and Section 4975 of the Internal Revenue Code, or
any amendments thereto, unless such transaction is excluded or exempted from the
provisions of Sections 406 and 407 or Code Section 4975, by Sections 407 and
408, or Code Section 4975, any exemption issued thereunder, or any amendments
thereto.
14.13 The initial Trustee heretofore designated in this Agreement and Trust
shall serve until his respective resignation, death, incapacity or removal.
Whenever a vacancy shall exist among the Trustees, the Company shall, if no
Trustee remains, or may, if at least 1 Trustee remains, name a successor Trustee
who may be an officer or director of the Company or who may be an Employee, or
who may be a person not employed by the Company. Whenever a successor Trustee
shall be appointed, he shall immediately and automatically succeed to and become
vested with the title to any trust assets theretofore vested in the Trustee that
such successor Trustee is replacing, and the title of such former Trustee shall
automatically and immediately be extinguished. A successor Trustee shall
likewise serve until his resignation, death, incapacity or removal. The Company
shall always have the right to remove a Trustee for cause or without cause at
any time. Any Trustee may resign at any time by giving the Company 10 days
written notice in advance of such resignation.
14.14 The Company or Plan shall pay all expenses of administering the Plan
and Trust, which expenses shall include, but not be limited to, expenses
incident to the functioning of those to whom the Company has delegated certain
duties, such as the payment of professional fees and consultants fees, and the
costs of administering the Plan.
XIV-6
<PAGE>
Notwithstanding the above, if any expenses of administering the Plan and
trust are not paid by Company, they may be paid from the Trust, at the direction
of the Company.
14.15 The Trustee may be paid such reasonable compensation as shall from
time to time be agreed upon by the Company and the Trustee, except that no
Trustee who is a full-time paid Employee of Company may be compensated for his
services as Trustee. In addition, the Trustee shall be reimbursed for any
reasonable direct expenses, including reasonable counsel fees (if specifically
authorized in advance in writing by Company), properly and actually incurred by
it in the administration of the Trust and not otherwise reimbursed. All taxes of
any and all kinds whatsoever that may be levied or assessed under existing or
future laws upon, or in respect of, the Trust or the income thereof shall be
paid from the Trust.
14.16 The Company shall establish an investment policy to provide for the
benefits provided under this Plan. In accordance with the foregoing, the Company
shall determine whether the Plan has a short term need for liquidity, or whether
liquidity is a long term goal, or whatever other investment policy should be
followed, and communicate this to the Trustees or investment manager(s), so that
the investment policy can be appropriately coordinated with Plan needs.
14.17 The Named Fiduciary shall be responsible for and have the authority
to control and manage the operation and administration of this Plan and Trust,
although fiduciary and other responsibilities may be allocated to other parties
by the Named Fiduciary by written notification to such parties of their
responsibilities, and written acceptance by such parties of such
responsibilities. Trustee responsibilities may be allocated only among Trustees
or to an investment manager. An investment manager is any fiduciary, other than
the Trustee or Named Fiduciary, who: (a) has the power to manage, acquire or
dispose of any portion of the Fund; (b) is registered as an investment adviser
under the Investment Advisers Act of 1940, or is a bank as defined in that Act
or an insurance company qualified to perform the services described in
subsection (a) hereof; and (c) has acknowledged in writing that he is a
fiduciary with respect to the Plan.
14.18 Whenever the Trust has an investment in a common trust fund available
only to Trusts qualified under Section 401(a) of the Internal Revenue Code of
1986 as amended, or the corresponding provisions of subsequent law of similar
purpose, all of the provisions of the particular common trust fund declarations
of trust, as amended from time to time, shall be deemed to be incorporated
herein and be a part hereof.
XIV-7
<PAGE>
14.19 If at any time there is more than 1 Trustee hereunder, The Trustees
need not call or hold meetings to make any decision or to take any action, but
any decision may be made and any action may be taken by written documents signed
by the Trustees then acting, or, if there are more than 2 Trustees, then by a
majority of the Trustees then acting. However, any one Trustee, acting alone,
will have the authority to sign checks, drafts, notes, insurance applications or
any other documents on behalf of the Trustees and to perform purely ministerial
acts. If at any time there is more than 1 Trustee hereunder, and if any
difference of opinion at any time exists between or among the Trustees in
respect of doing or omitting to do any act in the execution of the Trust, the
opinion of the majority of the Trustees will prevail.
14.20 A Trustee may be a Participant, but if any matter pertaining to his
own particular Participation comes up for the action of the Trustee, such person
will be disqualified to act upon the particular matter (unless he is the sole
Trustee), and such matter will be resolved by the other Trustee(s).
XIV-8
<PAGE>
ARTICLE FIFTEEN
INSURER
15.1 No Insurer issuing any Contract hereunder shall be deemed a party to
this Plan and Trust or to be responsible for its validity. The obligations and
responsibilities of an Insurer shall be measured and determined solely by the
terms of its Contract, and it shall not be required to do any act not provided
for, or contrary to the provisions of its Contract.
15.2 An Insurer shall not be required to look into the terms of the Plan
and Trust or question any action of the Trustee, nor shall it be responsible to
see that any action of the Trustee is authorized.
15.3 An Insurer may conclusively assume that the Trustee has full
authority, and is acting within that authority, in any transaction concerning
the Contracts, and shall be fully discharged from any and all liabilities for
any action taken in accordance with the direction of the Trustee. In accepting
application for Contracts, an Insurer has no responsibility for determining
whether the Employee is eligible, or whether the proper Contract is being
applied for. In all transactions with the Trustee, an Insurer shall deal with it
as though it were the sole and absolute owner of the Contracts. One Trustee's
signature is sufficient in all matters regarding insurance transactions.
15.4 An Insurer shall be fully protected from any liability for any action
taken prior to receiving notice of any amendment or termination of this
Agreement and Trust, or for dealing with any prior Trustee prior to receiving
notice of appointment of a successor Trustee.
XV-1
<PAGE>
ARTICLE SIXTEEN
NO REVERSION TO COMPANY
16.1 No part of the principal or income or other assets of the Trust shall
be used for or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries, and the Company shall not be entitled to
receive back any part of its contribution to the Trust, except as provided in
the remaining Paragraphs of this Article.
16.2 Company contributions are conditioned on initial qualification of the
Plan under Internal Revenue Code Section 401 and if the Plan does not qualify,
such contribution shall be returned to Company within one year after the date of
denial of initial qualification of the Plan.
16.3 Company contributions are conditioned on the deductibility of the
contribution under Internal Revenue Code Section 404, and to the extent any
deduction is disallowed, such contribution shall be returned to Company within 1
year after the date of disallowance of the deduction.
16.4 In the case of a Company contribution made by reason of a mistake of
fact, such contribution shall be returned to Company within 1 year after the
payment of the contribution. Mistakes of fact shall include but not be limited
to arithmetical errors in calculating the amounts to be contributed to the Plan
under the contribution and allocation sections of the Plan.
16.5 Any contribution made by the employer because of a mistake of fact
must be returned to the employer within one year of the contribution.
In the event the deduction of the contribution made by the employer is
disallowed under section 404 of the Code, such contribution (to the extent
disallowed) must be returned to the employer within one year of the disallowance
of the deduction.
In the event that the Commissioner of Internal Revenue determines that the plan
is not initially qualified under the Internal Revenue Code, any contribution
made incident to that initial qualification is denied, but only if the
application for the qualification is made by the time prescribed by law for
filing the employer's return for the taxable year in which the plan is adopted,
or such later date as the Secretary of the Treasury may prescribe.
XVI-1
<PAGE>
16.6 The amount which shall be returned to Company as provided in
Paragraphs 16.3 and 16.4 is the excess of (1) the amount contributed over (2)
the amount that would have been contributed had there not occurred a mistake of
fact or a mistake in determining the amount of the deduction. Earnings
attributable to the excess contribution shall not be returned to Company, but
losses attributable thereto shall reduce the amount to be so returned.
Furthermore, no excess contribution shall be returned to Company to the extent
that such reversion would cause the balance of the account, derived from Company
contributions, of any Participant to be reduced to less than the balance which
would have been in the account had the mistaken amount not been contributed.
XVI-2
<PAGE>
ARTICLE SEVENTEEN
DIRECT TRANSFERS AND ROLLOVERS
17.1 If a Participant shall be entitled to receive benefits under this Plan
pursuant to Articles V, VI or VIII above, the Trustee, at the direction of the
Plan Administrator, may transfer the Participant's vested benefits under this
Plan directly to the Trustee of a Plan and Trust qualified pursuant to Section
401 of the Internal Revenue Code of 1986 or any successor provisions thereof, of
the Participant's current or new employer, if the following conditions are
satisfied:
(a) the Trustee of the other plan shall be authorized to accept the
benefits under this Plan; and
(b) the value of the Participant's transferred assets shall be
separately accounted for in the other Trust; and
(c) the Participant's transferred assets shall not be forfeitable or
reduce in any way the obligation of the employer receiving
benefits from this Plan.
The Trustee of this Plan is authorized to accept, at the direction of the Plan
Administrator, assets for the benefit of an Employee, upon the conditions as set
forth above, from a trustee of another plan and trust maintained by either a
corporate or non-corporate Plan sponsor, qualified pursuant to Section 401 of
the Internal Revenue Code of 1986, or any successor provisions thereof.
17.2 With the permission of the Plan Administrator, any Employee who is a
member of a class of Employees eligible to participate may make a Rollover
Contribution to the Trustee at any time. The Trustee shall credit the fair
market value of any Rollover Contribution to the account of the contributing
Employee as of the date of the Rollover Contribution is made. For purposes of
the Plan's vesting provisions, a Rollover Contribution shall be considered to be
an Employee Contribution and shall be 100% vested on the date of contribution.
The term "Rollover Contribution" is defined as the contribution of a Qualifying
Rollover Distribution on or before the 60th day immediately following the day
the contributing Employee receives the Qualifying Rollover Distribution.
The term "Qualifying Rollover Distribution" is defined as:
XVII-1
<PAGE>
(a) Any portion of the property received from a qualified plan and trust,
provided that the balance to the credit of an Employee, reduced by any
Employee contributions, has been paid to him in one or more
distributions
(1) within one taxable year of the Employee on account of the
termination of a qualified plan or, in the case of a
profit-sharing or stock bonus plan, a complete discontinuance of
contributions under such plan; or
(2) which constitute a lump sum distribution within the meaning of
Section 402(e)(4)(A) (determined without reference to Section
402(e)(4)(B) and (H)) of the Internal Revenue Code of 1986.
In the case of a distribution of property other than money from a
qualified plan and trust, except for the proceeds from the sale of
such property (including appreciation from date of distribution),
other property (including money) may not be substituted in making a
Rollover Contribution; or
(b) The entire amount (including money and any other property) in an
Individual Retirement Account, Individual Retirement Annuity, or
Individual Retirement Bond (as defined in Sections 408 and 409 of the
Internal Revenue Code of 1986) maintained for the benefit of the
Employee making the Rollover Contribution, which amount has been
distributed from such Individual Retirement Account, Individual
Retirement Annuity or Individual Retirement Bond. Such amount will
constitute a Qualifying Rollover Distribution only if the amount in
such Individual Retirement Account, Individual Retirement Annuity, or
Individual Retirement Bond is solely attributable to a Rollover
Contribution made by the Employee from his interest as a Participant
in a trust described in Section 401(a) of the Internal Revenue Code of
1986, or an annuity plan described in Section 403(a) of the Internal
Revenue Code of 1986, plus the earnings thereon; but
(c) In no case does a Qualifying Rollover Distribution include any amount
which is attributable to a distribution if any part of the
distribution is attributable to contributions made on behalf of an
Employee while he was a Key-Employee in a Top-Heavy plan.
17.3 No assets transferred to this Plan in accordance with the provisions
of this Article shall be considered Employee contributions for purposes of
Subparagraph 2.1(d) and Paragraph 4.2.
XVII-2
<PAGE>
17.4 Distribution of said assets shall follow the general provisions of the
Plan for distribution of the Participant's account derived from employer
contributions. Effective January 1, 1989, for existing plans and August, 1, 1986
for new plans, as described under Regulation 1.411(d) of Code Section 411(d),
for that portion of benefits representing benefits transferred to the Plan, the
forms of benefit available under the previous plan shall also be available to
the "transferred" portion of the benefits.
17.5 The specific assets transferred to the Plan shall be general assets of
the trust, subject to the general investment powers of the Trustees (or the
Participants, if such powers have been granted them).
17.6 For purposes of valuing gains and losses in the account(s) maintained
for transferred assets, the provisions of Paragraph 4.5 shall apply. Premiums on
any insurance policies transferred to the Plan may be paid from the account
established for employer contributions, subject to the limits of Paragraph 11.1.
In the event of said premium payments, an equitable share of increases in Cash
Value from the date of transfer shall be allocated to the account established
for employer contributions. Said equitable share shall be equal to the
difference between the actual Cash Value of the policy and the Cash Value the
policy would have had if it been placed in reduced paid-up status.
XVII-3
<PAGE>
ARTICLE EIGHTEEN
DETERMINATION OF TOP-HEAVY STATUS
18.1 In determining whether or not this Plan is Top-Heavy or Super
Top-Heavy for any Plan Year, the following calculations shall be made:
(a) In the case of a defined benefit plan, a Participant's present value
of accrued benefit other than a Key Employee, shall be as determined
using the single accrual method used for all defined benefit plans of
the Employer and Affiliated Employers, or if no such single method
exists, using a method which results in benefits accruing not more
rapidly than the slowest accrual rate permitted under section
411(b)(1)(c) of the Code.
(b) In the case of a defined contribution plan, a Participant's account
balance (including accounts for Employee contributions) as of the
Determination Date is the sum of:
(1) his account balance as of the most recent valuation occurring
within a 12 month period ending on the Determination Date;
(2) an adjustment for any contributions due as of the Determination
Date.
In the case of a plan not subject to the minimum funding requirements
of Internal Revenue Code Section 412, such adjustment shall be the
amount of any contributions actually made after the valuation date but
before the Determination Date, except for the first Plan Year, when
such adjustment shall also reflect the amount of any contributions
made after the Determination Date that are allocated as of a date in
that first Plan Year. In the case of a plan that is subject to the
minimum funding requirements, the account balance shall also be
adjusted to include contributions allocated as of a date not later
than the Determination Date, even though those amounts are not yet
required to be contributed.
Also, the adjustment shall reflect the amount of any contribution
actually made (or due to be made) after the valuation date but before
the expiration of the extended payment period in Internal Revenue Code
Section 412(c)(10);
XVIII-1
<PAGE>
(3) any Plan distributions made within the Plan Year that includes the
Determination Date or within the 4 preceding Plan Years. However, in
the case of distributions made after the valuation date and prior to
the Determination Date, such distributions are not included as
distributions for Top-Heavy purposes to the extent that such
distributions are already included in the Participant's present value
of accrued benefit or account balance as of the valuation date.
Notwithstanding anything herein to the contrary, all distributions,
including distributions made prior to January 1, 1984, and
distributions under a terminated plan which if it had not been
terminated would have been required to be included in an Aggregation
Group, will be counted. Further, distributions from the Plan
(including the cash value of life insurance policies) of a
Participant's account balance because of death shall be treated as a
distribution for the purposes of this paragraph;
(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified deductible
employee contributions shall not be considered to be a part of the
Participant's account balance;
(5) with respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by another employer),
if this Plan provides for rollovers or plan-to-plan transfers, it
shall always consider such rollover or plan-to-plan transfer made to
another plan as a distribution for the purposes of this Section. If
this Plan is the plan accepting such rollovers or plan-to-plan
transfers, it shall not consider such rollovers or plan-to-plan
transfers accepted after December 31, 1983 as part of the
Participant's account balance. However, rollovers or plan-to-plan
transfers accepted prior to January 1, 1984 shall be considered as
part of the Participant's account balance; with respect to related
rollovers and plan-to-plan transfers (ones either not initiated by the
Employee or made to a plan maintained by the same employer), if this
Plan provides the rollover or plan-to-plan transfer, it shall not be
counted as a distribution for purposes of this Section. If this Plan
is the plan accepting such rollover or plan-to-plan transfer, it shall
consider such rollover or plan-to-plan transfer as part of the
Participant's present value of accrued benefits or account balance,
irrespective of the date on which such rollover or plan-to-plan
transfer is accepted.
XVIII-2
<PAGE>
In determining whether or not rollovers or plan-to-plan transfers are made to
the same or another Employer, all Employers aggregated under Internal Revenue
Code Sections 414 (b), (c), (in) and (o) are treated as the same Employer.
In calculating the accrued benefits or account balances of Participants there
shall not be considered any benefit or account balances of any Participant who
is not a Key-Employee but who in any prior year was a Key-Employee.
(c) In the case of both a defined benefit plan and a defined contribution
plan, a Participant's accrued benefit or account balance shall be
increased by:
(1) any plan distributions made within the Plan Year that includes
the Determination Date, or within the four preceding Plan Years.
The preceding sentence shall also apply to distributions under a
terminated plan which, if it had not been terminated, would have
been required to be included in an aggregation group. However, in
the case of distributions made after the valuation date and prior
to the Determination Date, such distributions are not included as
distributions for Top-Heavy purposes, to the extent that such
distributions are already included in the Participant's present
value of accrued benefit or account balance as of the valuation
date;
(2) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified
deductible employee contributions shall not be considered to be a
part of the Participant's account balance;
(3) with respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated by the Employee and made from a
plan maintained by one employer to a plan maintained by another
employer), if this Plan provides for rollovers or plan-to-plan
transfers, it shall always consider such rollover or plan-to-plan
transfer made to another plan as a distribution for the purposes
of this Section. If this Plan is the plan accepting such
rollovers or plan-to-plan transfers, it shall not consider such
rollover or plan-to-plan transfer accepted after December 31,
1983 as part of the Participant's account balance. However, any
rollover or plan-to-plan transfer accepted prior to January 1,
1984 shall be considered as part of the Participant's account
balance;
XVIII-3
<PAGE>
(4) with respect to related rollovers and plan-to-plan transfers
(ones either not initiated by the Employee or made to a plan
maintained by the same employer), if this Plan provides the
rollover or plan-to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. If this Plan is the
plan accepting such rollover or plan-to-plan transfer, it shall
consider such rollover or plan-to-plan transfer as part of the
Participant's present value of accrued benefits or account
balance, irrespective of the date on which such rollover or
plan-to-plan transfer is accepted.
In determining whether or not rollovers or plan-to-plan transfers
are made to the same or another Employer, all Employers
aggregated under Internal Revenue Code Sections 414(b), (c), (m)
and (o) are treated as the same Employer.
(d) In calculating the accrued benefits or account balances of
Participants, there shall not be considered any benefit or account
balances of any Participant who is not a Key-Employee but who in any
prior year was a Key-Employee.
(e) In calculating the accrued benefits or account balances of
Participants, the accrued benefit of any individual who has not
performed services for the Employer at any time during the 5 year
period ending on the determination date (and the account of such
individual) shall not be taken into account even though such Employee
may have received payments from the Employer after separation from
service.
(f) Solely for the purpose of determining if the plan, or any other plan
included in a required aggregation group of which this plan is a part,
is top-heavy (within the meaning of Section 416(g) of the Code) the
accrued benefit of an Employee other than a key employee (within the
meaning of Section 416(i)(1) of the Code) shall be determined under
(a) the method, if any, that uniformly applies for accrual purposes
under all plans maintained by the Affiliated Employers, or (b) if
there is no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional accrual
rate of Section 411(b)(1)(C) of the Code.
18.2 If Company maintains more than one plan, the plans shall constitute an
Aggregation Group, provided the following conditions are satisfied:
(a) Each plan of Company in which a Key Employee is a Participant,
including any terminated plan and each other
XVIII-4
<PAGE>
plan of Company which enables any plan in which a Key-Employee
participates to meet the requirements of Internal Revenue Code
Sections 401(a)(4) or 410, will be required to be aggregated. Such
group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group
will be considered a Top-Heavy Plan if the Required Aggregation Group
is a Top-Heavy Group. No plan in the Required Aggregation Group will
be considered a Top-Heavy Plan if the Aggregation Group is not a
Top-Heavy Group.
(b) Company may by execution of a written resolution provide for the
creation of a Permissive Aggregation Group, to consist of the Required
Aggregation Group and any other plan not required to be included in
the Required Aggregation Group, provided the resulting group, taken as
a whole, would continue to satisfy the provisions of Internal Revenue
Code Sections 401(a) (4) or 410. If the Permissive Aggregation Group
is not Top-Heavy, no plan in the Group will be considered Top-Heavy.
In the case of a Permissive Aggregation Group, only a plan that is
part of the Required Aggregation Group will be considered a Top-Heavy
Plan if the Permissive Aggregation Group is a Top-Heavy Group.
(c) Only those plans of the Employer in which the Determination Dates fall
within the same calendar year shall be aggregated in order to
determine whether such plans are Top-Heavy Plans.
(d) A Top-Heavy Group is an Aggregation Group in which, as of the
Determination Date, the sum of the present value of accrued benefits
of Key Employees under all defined benefit plans included in the
group, and the account balances of Key-Employees under all defined
contribution plans included in the group, exceeds 60 percent of a
similar sum determined for all Participants.
18.3 In determining whether or not an Employee is a Key-Employee, the
following shall apply:
(a) An officer shall be an administrative executive in regular and
continued service. If the number of Employees of all the employers
aggregated under Internal Revenue Code Sections 414(b), (c), (in) and
(0) is less than 30 employees for a particular year, no more than 3
individuals shall be treated as Key-Employees for that year by reason
of being officers. If the number of
XVIII-5
<PAGE>
Employees of all organizations aggregated under Internal Revenue Code
Sections 414(b), (c), (m) and (o) is greater than 30 but less than
500 for a particular year, no more than 10 percent of the number of
Employees will be treated as Key-Employees for that year by reason of
being officers. If the number of Employees of employers aggregated
under Internal Revenue Code Sections 414(b), (c), (m) and (o) exceeds
500 for a particular year, no more than 50 Employees are considered as
Key Employees for that year by reason of being officers. This limited
number of officers is comprised of the individual officers, selected
from the group of all individuals who were officers in the current
Plan Year or any one of the four preceding Plan Years, who had the
largest annual compensation in that five-year period.
(b) An individual who is a "one percent owner" shall be considered as
having compensation of more than $150,000 based on the definition of
compensation contained in Article 4 herein used for purposes of
computing limits on maximum contributions or benefits, but
contributions on behalf of a Self Employed Individual shall be
excluded from the definition of compensation.
(c) Top-heavy ratio:
(1) If the employer maintains one or more defined contribution plans
(including any Simplified Employee Pension Plan) and the employer has
not maintained any defined benefit plan which during the five-year
period ending on the determination date(s) has or has had accrued
benefits, the top-heavy ratio for this plan alone or for the required
or permissive aggregation group as appropriate is a fraction, the
numerator of which is the sum of the account balances of all key
employees as of the determination date(s) (including any part of any
account balance distributed in the five-year period ending on the
determination date(s)), and the denominator of which is the sum of all
account balances (including any part of any account balance
distributed in the five-year period ending on the determination
date(s)), both computed in accordance with section 416 of the Code and
the regulations thereunder. Both the numerator and denominator of the
top-heavy ratio are increased to reflect any contribution not actually
made as of the determination date, but which is required to taken into
account on that date under section 416 of the Code and the regulations
thereunder.
(2) If the employer maintains one or more defined contribution plans
(including any Simplified Employee Pension Plan) and the employer
maintains or has maintained
XVIII-6
<PAGE>
one or more defined benefit plans which during the five-year period
ending on the determination date(s) has or has had any accrued
benefits, the top-heavy ratio for any required or permissive
aggregation group as appropriate is a fraction, the numerator of which
is the sum of account balances under the aggregated defined
contribution plan or plans for all key employees, determined in
accordance with (a) above, and the present value of accrued benefits
under the aggregated defined benefit plan or plans for all key
employees as of the determination date(s), and the denominator of
which is the sum of the account balances under the aggregated defined
contribution plan or plans for all participants, determined in
accordance with (a) above, and the present value of accrued benefits
under the defined benefit plan or plans for all participants as of the
determination date(s), all determined in accordance with section 416
of the Code and the regulations thereunder. The accrued benefits under
a defined benefit plan in both the numerator and denominator of the
top- heavy ratio are increased for any distribution of an accrued
benefit made in the five-year period ending on the determination date.
(3) For purposes of (1) and (2) above the value of account balances
and the present value of accrued benefits will be determined as of the
most recent valuation date that falls within or ends with the 12-month
period ending on the determination date, except as provided in section
416 of the Code and the regulations thereunder for the first and
second plan years of a defined benefit plan. The account balances and
accrued benefits of a participant (a) who is not a key employee but
who was a key employee in a prior year, or (b) who has not been
credited with at least one hour of service with any employer
maintaining the plan at any time during the five-year period ending on
the determination date will be disregarded. The calculation of the
top-heavy ratio, and the extent to which distributions, rollovers, and
transfers are taken into account will be made in accordance with
section 416 of the Code and the regulations thereunder. Deductible
employee contributions will not be taken into account for purposes of
computing the top-heavy ratio. When aggregating plans the value of
account balances and accrued benefits will be calculated with
reference to the determination dates that fall within the same
calendar year.
The accrued benefit of a participant other than a key employee shall
be determined under (a) the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the
employer, or
XVIII-7
<PAGE>
(b) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional
rule of section 411(b)(1)(C) of the Code.
(d) Permissive aggregation group: The required aggregation group of plans
plus any other plan or plans of the Employer which, when considered as a
group with the required aggregation group, would continue to satisfy the
requirements of sections 401(a)(4) and 410 of the Code.
(e) Required aggregation group: (1) Each qualified plan of the employer in
which at least one key employee participates or participated at any time
during the determination period (regardless of whether the plan has
terminated), and (2) any other qualified plan of the employer which enables
a plan described in (1) to meet the requirements of sections 401(a)(4) or
410 of the Code.
18.4 In any Top-Heavy Plan Year, a Participant shall have a non-forfeitable
right to a percentage of his accrued benefit derived from Company contributions
determined as follows:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 years 0%
2 years or more 100%
Notwithstanding the above, the vesting schedule contained in this Paragraph
shall not apply in any Top-Heavy Plan Year if the vesting schedule contained
elsewhere herein provides for equal or more rapid vesting at every year shown on
the schedule, nor shall it apply if the Plan otherwise provides for 100 percent
vesting after 3 or fewer Years of Service.
18.5 The vesting schedule applicable to any Top-Heavy Plan Year shall not
apply to any Employee who does not have an hour of service after the Plan
becomes Top-Heavy. His vested interest shall be determined under the vesting
provision of the Plan as in effect on the date of his last hour of service.
18.6 Except as otherwise provided in (3) and (4) below, the employer
contributions and forfeitures allocated on behalf of any participant who is not
a key employee shall not be less than the lesser of three percent of such
participant's compensation or in the case where the employer has no defined
benefit plan which designates this plan to satisfy section 401 of the Code, the
largest percentage of employer contributions and forfeitures, as a percentage of
the first $200,000 of the key employee's compensation, allocated on behalf of
any key employee for that year. The minimum allocation is determined without
regard to any
XVIII-8
<PAGE>
Social Security contribution. This minimum allocation shall be made even though,
under other plan provisions, the participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because of (i) the participant's failure to complete 1,000 hours of service (or
any equivalent provided in the plan), or (ii) the participant's failure to make
mandatory employee contributions to the plan, or (iii) compensation less than a
stated amount.
Eligible Participants are those non-key employee Participants in defined
contribution plans who have not separated from service at the end of the Plan
Year, or who have become Participants in the Plan but who subsequently fail to
complete 1,000 hours of service for an accrual computation period. Eligible
Participants in defined benefit plans are those Participants who are credited
with at least 1,000 hours of service in an Accrual Computation Period. The
minimum allocation required, to the extent required to be nonforfeitable under
Code Section 416(b), may not be forfeited under Code Sections 411(a)(3)(B) or
411(a)(3)(D).
18.7 In the case of a Participant in a defined benefit plan, in no case
will the operation of the Top-Heavy rules, including rules applicable to Super
Top-Heavy Plans, pertaining for example and not by way of limitation to the
definitions of the Defined Benefit Plan Fraction or Defined Contribution Plan
Fraction, effect a reduction in the Participant's accrued benefit. However, the
mere application of the rules for establishing which Plan is primary in assuring
compliance with Section 415 of the Code in the case of a Participant in both a
defined benefit plan and a defined contribution plan shall not be considered as
effecting a reduction in an accrued benefit.
XVIII-9
<PAGE>
ARTICLE NINETEEN
MISCELLANEOUS PROVISIONS
19.1 Purpose: This Agreement and Trust which is created is purely voluntary
on the part of the Company, and the Company may change or discontinue payments
hereunder at any time or from time to time as the Company may decide; provided,
however, that such discontinuance of payment or termination is approved as
required by federal law. Except as otherwise provided by federal law, neither
the establishment of the Agreement and Trust nor any modification hereof, nor
the creation of any fund or account, nor the payment of any benefit, shall be
construed as giving any person whomsoever any legal or equitable right against
the Company or the Trustee, but any and all claims or rights arising under this
Agreement and Trust shall be expressly limited in enforcement to the assets of
the Trust fund, and in those instances where a Contract has been issued, the
right to such benefits shall also be limited by the terms and conditions of the
Contract. Nothing contained in this Agreement and Trust shall be construed or
interpreted as giving any Employee the right to be retained in the service of
the Company or shall affect or impair the right of the Company to control its
Employees and to terminate the service of any Employee at any time.
19.2 Headings: Headings or titles of Articles are for general information
only and this Agreement and Trust shall not be construed by reference to such
titles.
19.3 Severability: If any provision of this Agreement and Trust is held
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision, and this Agreement and Trust shall be construed and
enforced as if such provision had not been included.
19.4 The terms of this Trust shall be construed in accordance with the laws
of the Trust Situs, except to the extent preempted by federal law.
19.5 Binding Effect: This Agreement and Trust shall be binding upon and
inure to the benefit of the Company and the Trustee, their successors and the
Participants and their Beneficiaries in accordance with the terms of this
Agreement and Trust.
19.6 Construction: Whenever used in this Agreement and Trust unless the
context indicates otherwise, singular shall include plural and the plural shall
include singular; and the male gender shall include the female gender.
XIX-1
<PAGE>
19.7 Termination: Upon the return of all contributions to the Company as
provided in Paragraph 16.2 hereof, the Trust shall terminate, and the Trustee
shall be discharged from all obligations under the Trust.
19.8 Indemnification: The Company shall indemnify those to whom the Company
has delegated fiduciary responsibilities against any and all claims, losses,
damages, expenses and liabilities arising from their responsibilities in
connection with the Plan, unless the same is determined to be due to gross
negligence or willful misconduct.
19.9 Interpretation: Except as otherwise provided by federal law, in all
matters concerning the interpretation of this Agreement and Trust and the
operation of the Plan and Trust, the decisions made by the Plan Administrator
shall be final and conclusive upon all the parties. All such decisions shall
apply uniformly to all Participants in like situations.
19.10 Rules: The Plan Administrator may from time to time formulate and
issue such rules and regulations, not inconsistent with the declared purposes
and provisions of the Plan, as the Plan Administrator may deem necessary to
administer and carry out the Plan and Trust. No such rule or regulation will be
ineffective by reason of the fact that such rule or regulation may amend the
purely administrative provisions of the Plan or conform to any change in the
Plan as may be made by amendment.
19.11 Conformity with federal Law: This Agreement and Trust shall at all
times be construed and administered so as to conform to the requirements for
qualification under the Internal Revenue Code of 1986, as amended, as well as to
conform to the requirements of all governing federal law, and the Agreement and
Trust shall be deemed amended automatically to conform to such legal
requirements, to the extent necessary.
19.12 Controlled Group: For purposes of interpreting and administering Plan
provisions required for tax qualification under Internal Revenue Code Section
401, including Plan provisions relating to participation, vesting, benefit
accrual, and limitations on benefits and contributions, all employees of all
entities which are members of a Controlled Group of entities, as defined in
Internal Revenue Code Section 414(b) and (c), and/or which are members of an
Affiliated Service Group as defined in Internal Revenue Code Section 414(m) and
(o), shall be treated as if employed by a single employer.
For purposes of determining years of Service for eligibility and vesting
purposes for any Employee or former Employee of Company, service with any entity
which is a member of a Controlled Group
XIX-2
<PAGE>
or an Affiliated Service Group in which Company is included shall be considered
service with Company. In determining service for purposes of benefit accrual for
any Employee or former Employee of Company, service during any Plan Year in
which an Employee was a Participant in a Plan maintained by a member of a
Controlled Group or an Affiliated Service Group in which Company is included
shall be taken into account.
19.13 Successor Company: Any successor organization of Company may adopt
this Plan and Trust, with the written consent of Company, if then in existence.
Such successor shall thereby succeed to all the rights, powers, and duties of
Company hereunder.
XIX-3
<PAGE>
The undersigned, president of the above named Corporation, does hereby
certify that the foregoing are true and correct copies of the Profit Sharing
Plan and Trust instruments, adopted by said Corporation and approved by its
Board of Directors at a special meeting of the Directors.
He further certifies that the Profit Sharing Plan and Trust instruments
were duly executed by the Corporation and the Trustees named in said
instruments.
(SEAL)
------------------------------
Vincent J. Fumo,
President
XIX-5
<PAGE>
AMENDMENT
TO
PENNSYLVANIA SAVINGS BANK
PROFIT SHARING PLAN AND TRUST AGREEMENT
WHEREAS, Article 12 permits the Employer to amend the Plan,
WHEREAS, the Employer has determined that it is advisable to amend the Plan
to permit directed investment accounts,
NOW, THEREFORE, the Plan is amended by the addition of the following which
shall be known as Article 20.
ARTICLE 20
DIRECTED INVESTMENT ACCOUNT
(a) The Administrator shall determine that all Participants be permitted to
direct a Trustee as to the investment of all or a portion of the vested interest
in any one or more of their individual account balances. If such authorization
is given, Participants may, subject to a procedure established by the
Administrator and applied in a uniform, non-discriminatory manner, direct the
Trustee in writing to invest the vested portion of their account in specific
assets, specific funds or other investments permitted under the Plan and the
directed investment procedure. That portion of the vested account of any
Participant so directing will thereupon be considered a directed investment
account, which shall not share the trust fund earnings.
<PAGE>
(b) A separate directed investment account shall be established for each
Participant who has directed an investment. Transfers between the Participant's
regular account and his directed investment account shall be charged and
credited as the case may be to each account. The directed investment account
shall not share in trust fund earnings, but it shall be charged or credited as
appropriate with the net earnings, gains, losses and expenses as well as any
appreciation or depreciation in market value during each Plan Year attributable
to such account.
(c) The Trustee shall not be responsible for, nor liable for, any loss or
expense which may arise from or result from compliance with any directions from
the Participant. The Trustee shall not be responsible for, nor liable for, any
loss or expense which may result from the Trustee's refusal or failure to comply
with any directions from the Participant. The Trustee may refuse to comply with
any direction from the Participant in the event the Trustee, in its sole and
absolute discretion, deems such direction improper by
2
<PAGE>
virtue of applicable law. Any costs and expenses related to compliance with the
Participant's directions shall be borne by the Participant's account.
IN WITNESS WHEREOF, the Employer has executed this Amendment on the date
indicated below.
PENNSYLVANIA SAVINGS BANK
BY: [ILLEGIBLE]
--------------------------------
President
ATTEST: [ILLEGIBLE]
-----------------------------
Secretary
DATED:
-------------------------
3
<PAGE>
AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 20th day of October, 1995, by
and among PSB MUTUAL HOLDING COMPANY, a Pennsylvania mutual bank holding company
(the "Company"), PENNSYLVANIA SAVINGS BANK, a Pennsylvania-chartered savings
bank (the "Bank"), and VINCENT J. FUMO, an individual (the "Executive").
WITNESSETH
WHEREAS, the Company, the Bank and the Executive desire to enter into an
agreement regarding, among other things, the employment of the Executive by the
Company and the Bank, all as hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Employment. The Company and the Bank each hereby employ the Executive,
and the Executive hereby accepts employment with the Company and the Bank, on
the terms and conditions set forth in this Agreement.
2. Duties of Employee. The Executive shall perform and discharge well and
faithfully such duties as an executive officer of the Company and of the Bank as
may be assigned to the Executive from time to time by the respective Boards of
Trustees of the Company and the Bank. The Executive shall be employed as
Chairman and Chief Executive Officer of the Company and the Bank, and shall hold
such other titles as may be given to him from time to time by the respective
Boards of Trustees of the Company and the Bank.
3. Term of Employment. The Executive's employment under this Agreement
shall be for a period (the "Employment Period") commencing upon the date of this
Agreement and ending at the end of the term of this Agreement pursuant to
Section 16 hereof, unless the Executive's employment is sooner terminated in
accordance with Section 5 hereof or one of the following provisions:
(a) Termination for Cause. The Executive's employment under this Agreement
may be terminated at any time during the Employment Period for "Cause" (as
herein defined), by action of the Boards of Trustees of the Company and of the
Bank, upon giving notice of such termination to the Executive at least fifteen
(15) days prior to the date upon which such termination shall take effect. As
used in this Agreement, "Cause" means any of the following events:
1
<PAGE>
(i) The Executive willfully violates any law, rule or regulation (other
than traffic violations or similar offenses that would not in the Boards'
determination effect his ability to perform and discharge his duties
hereunder);
(ii) The Executive breaches his fiduciary duty involving personal
profit or engages in an act of personal dishonesty in the performance of his
duties;
(iii) A court of competent jurisdiction makes a determination that the
Executive is incompetent by reason of the fact that he is unable to manage
his own affairs by reason of insanity or feeble mindedness;
(iv) The Executive willfully fails to follow the lawful instructions of
the Board of Trustees of the Company or the Bank after the Executive's
receipt of written notice of such instructions, other than a failure
resulting from the Executive's incapacity because of physical or mental
illness; or
(v) The Executive violates the covenant not to compete contained in
Section 7 hereof.
In addition, the Executive's employment under this Agreement shall not be
deemed to have been terminated for "Cause" under Sections 3(a)(i), (ii) or
(iv) above if such termination took place solely as a result of:
(i) Questionable judgment on the part of the Executive;
(ii) Any act or omission believed by the Executive, in good faith, to
have been in, or not opposed to, the best interests of the Company and the
Bank; or
(iii) Any act or omission in respect of which a determination could
properly be made that the Executive met the applicable standard of conduct
prescribed for indemnification or reimbursement or payment of expenses under
the Articles of Incorporation or By-laws of the Company or the Bank or the
directors' and officers' liability insurance of the Company or the Bank, in
each case as in effect at the time of such act or omission.
If the Executive's employment is terminated under the provisions of this Section
3(a), then all rights of the Executive under Section 4 hereof shall cease as of
the effective date of such termination.
(b) Suspension Pursuant to Notice. If the Executive is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's
affairs by a notice
2
<PAGE>
served under Section 8(e)(3) or (g)(l) of the Federal Deposit Insurance Act
(12 U.S.C. section 1818(e)(3) and (g)(1)), the Company's and the Bank's
obligations under this Agreement shall be suspended as of the date of
service unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Company and the Bank may in their discretion (i)
pay the Executive all or part of the compensation withheld while the
Company's and the Bank's obligations under this Agreement were suspended and
(ii) reinstate (in whole or in part) any of the obligations under this
Agreement which were suspended.
(c) Termination Pursuant to Order. If the Executive is removed and/or
permanently prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. section 1818(e)(4) or (g)(1)), all
obligations of the Company and the Bank under this Agreement shall terminate
as of the effective date of the order, but vested rights of the Company, the
Bank and the Executive shall not be affected.
(d) Termination Upon Default. If the Bank is in default (as defined in
Section 3(x) of the Federal Deposit Insurance Act (the "FDIA")), all
obligations under this Agreement shall terminate as of the date of default,
but this subsection shall not affect any vested rights of the Company, the
Bank or the Executive.
(e) Termination by the Federal Deposit Insurance Corporation. All
obligations under this Agreement shall terminate, if the Chairman of the
Federal Deposit Insurance Corporation (the "FDIC") or his or her designee
(i) enters into an agreement to provide assistance to or on behalf of the
Bank under the authority contained in Section 13(c) of the FDIA; or (ii)
approves a supervisory merger to resolve problems related to operation of
the Bank or when the Bank is determined by such Chairman or designee to be
in an unsafe and unsound condition. Any rights of the Company, the Bank or
the Executive that have already vested, however, shall not be affected by
such action.
(f) Termination Without Cause. The Executive's employment under this
Agreement may be terminated at any time during the Employment Period without
"Cause" (as defined in Section 3(a) hereof), by action of the Boards of
Trustees of the Company and of the Bank, upon giving notice of such
termination to the Executive at least thirty (30) days prior to the date
upon which such termination shall take effect. If the Executive's employment
is terminated under the provisions of this Section 3(f), then the Executive
shall be entitled to receive the compensation set forth in Section 6 hereof.
(g) Retirement: Death. If the Executive retires or dies, the
Executive's employment under this Agreement shall be deemed terminated as of
the date of the Executive's retirement or death, and all rights of the
Executive under Section 4 hereof
3
<PAGE>
shall cease as of the date of such termination and any benefits payable to
the Executive shall be determined in accordance with the retirement and
insurance programs of the Company and of the Bank then in effect.
(h) Incapacity. If the Executive is incapacitated by accident,
sickness, or otherwise so as to render the Executive mentally or physically
incapable of performing the services required of the Executive under Section
2 of this Agreement for a continuous period of six (6) months, then, upon
the expiration of such period or at any time thereafter, by action of the
Boards of Trustees of the Company and of the Bank, the Executive's
employment under this Agreement may be terminated immediately upon giving
the Executive notice to that effect. If the Executive's employment is
terminated under the provisions of this Section 3(h), then all rights of the
Executive under Section 4 hereof shall cease as of the last business day of
the week in which such termination occurs and any benefits payable to the
Executive shall be determined in accordance with the retirement and
insurance programs of the Company and of the Bank then in effect.
4. Employment Period Compensation.
(a) Salary. For services performed by the Executive under this
Agreement, the Bank shall pay the Executive a salary during the Employment
Period, at the rate of $130,500 per year, payable at the same times as
salaries are payable to other executive employees of the Bank. The Bank may,
from time to time, increase the Executive's salary, and any and all such
increases shall be deemed to constitute amendments to this Section 4(a) to
reflect the increased amounts, effective as of the dates established for
such increases by the Board of Trustees of the Bank in the resolutions
authorizing such increases.
(b) Bonus. For services performed by the Executive under this
Agreement, the Bank may pay the Executive an annual bonus, and such other
bonus or bonuses as the Bank, in its sole discretion, deems appropriate. The
payment of any such bonuses shall not reduce or otherwise affect any other
obligation of the Company and/or the Bank to the Executive provided for in
this Agreement.
(c) Other Benefits. The Company and/or the Bank will provide the
Executive, during the Employment Period, with insurance, vacation, pension,
and other fringe benefits in the aggregate not less favorable than those
received by executives of the Bank, as such benefits exist on the date
hereof (including, without limitation, the use of an automobile at the
Bank's expense).
(d) Salary Deferral. The Executive may request that the payment of any
portion of his base salary for any year be deferred. Such request must be
made in writing to the Bank
4
<PAGE>
before the beginning of such calendar year and must include the period of
deferral requested by the Executive (the "Deferral Period"). If the Board of
Trustees of the Bank approve such request, the Executive shall be entitled
to receive, at the end of the Deferral Period, the deferred portion of his
base salary plus interest, which interest shall be computed by reference to
an annual interest rate determined each year by the Board of Trustees of the
Bank. Any salary which is deferred as described herein shall be credited to
an account on the books of the Bank established in the name of the
Executive. However, this account shall not be funded, and neither the
Company nor the Bank shall be deemed to be a trustee for the Executive with
respect to any deferred salary. The liabilities of the Company and the Bank
to the Executive hereunder are those of a debtor pursuant to such
contractual obligations as are created by this Agreement. No liabilities
which arise under this Section 4(d) shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company or of the Bank.
The Company and the Bank shall not be required to segregate any funds
representing such deferred salary, and nothing herein shall be construed as
providing for such segregation.
5. Resignation of the Executive for Good Reason.
(a) The Executive may resign for "Good Reason" (as herein defined) at
any time during the Employment Period, as hereinafter set forth. As used in
this Agreement, "Good Reason" means any of the following:
(i) Any material adverse change in the Executive's
responsibilities or authority which are inconsistent with, or the assignment
to the Executive of duties inconsistent with, the Executive's status as
Chairman and Chief Executive Officer of the Company;
(ii) Any reduction in title:
(iii) Any reassignment of the Executive to a principal place
of employment which requires the Executive to move his principal residence
and is more than thirty (30) miles from the Bank's principal executive
office on the date of this Agreement;
(iv) Any removal of the Executive from office except for any
termination of the Executive's employment for Cause under the provisions of
Section 3(a) hereof;
(v) Any reduction in the Executive's annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
(vi) Any failure by the Company and/or the Bank to provide the
Executive with benefits at least as
5
<PAGE>
favorable as those enjoyed by the Executive under any of the pension, life
insurance, medical, health and accident, disability or other employee
benefit plans of the Company or of the Bank in which the Executive
participated on the date hereof, or the taking of any action that would
materially reduce any of such benefits, unless such reduction is part of a
reduction applicable in each case to all participant employees; or
(vii) Any material breach of this Agreement on the part of the
Company or the Bank.
(b) At the option of the Executive, exercisable by the Executive within
90 days after the occurrence of the event constituting "Good Reason," the
Executive may resign from employment under this Agreement by a notice in writing
(the "Notice of Termination") delivered to the Company and the Bank and the
provisions of Section 6 hereof shall thereupon apply.
6. Rights in Event of Termination of Emplovment. In the event that the
Executive resigns from employment for Good Reason by delivery of a Notice of
Termination to the Company and the Bank, or the Executive's employment is
terminated by the Company without Cause pursuant to Section 3(f) (and so long as
the Executive is not terminated pursuant to Section 3(b), (c), (d), (e), (g) or
(h) hereof) the Executive shall be entitled to receive the amounts and benefits
set forth in this Section 6.
(a) Over a period of 36 months from the date of termination of
employment, the Bank shall pay the Executive three times his Average Annual
Compensation (as hereinafter defined).
(i) For purposes of this Agreement, the term "Average Annual
Compensation" means the sum of (A) a dollar amount equal to the average
of the Executive's base salary during each of his five most recent
years of employment hereunder (or such fewer number of years as the
Executive is employed under the terms of this Agreement), and (B) a
dollar amount equal to the average of the bonuses the Executive
received during each of the five most recent years of employment
hereunder (or such fewer number of years as Executive is employed under
the terms of this Agreement).
(ii) Amounts required to be paid to the Executive under
Section 6(a) shall be paid in equal monthly installments, beginning
thirty (30) days following the date of termination of employment.
(b) For a period of 36 months from the date of termination of
employment, Company and the Bank shall continue to provide the Executive with
all life, disability, medical insurance and other employee insurance benefits in
effect with respect to the Executive during the year prior to his termination of
employment, or, if the Company or the Bank cannot provide such
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benefits because the Executive is no longer an employee, a dollar amount equal
to the cost to the Executive of obtaining such benefits (or substantially
similar benefits).
(c) Upon full payment of the compensation due under Section 6(a) hereof
or upon reaching the earliest age at which the Executive could retire under
plans of the Company or of the Bank then in effect, whichever is later, the Bank
shall pay to the Executive annual benefits for life equal to the difference
between (i) what the Executive would be entitled to under the retirement plan of
the Bank in effect on the date hereof if he had remained in his position (at his
Average Annual Compensation at Termination) until normal retirement at age 65
and assuming that such benefit were paid in the form of a straight life annuity,
and (ii) what he is in fact entitled to pursuant to the applicable plan,
calculated on the basis of a straight life annuity, based on the actual date of
termination.
(d) The Executive shall have the unilateral right to reduce the
benefits otherwise payable to him, or on his behalf, under this section to the
extent such reduction would result in his netting, after all applicable taxes,
more benefits.
(e) Any payments made to Executive hereunder or otherwise are subject
to and conditioned upon their compliance with both 12 USC section 1828 (k) and
Section 280G of the Internal Revenue Code, as amended and any regulations
promulgated under either.
7. Covenant Not to Compete.
(a) The Executive hereby acknowledges and recognizes the highly
competitive nature of the business of the Company and of the Bank and
accordingly agrees that, during and for the applicable period set forth in
Section 7(c) hereof, the Executive shall not:
(i) Be engaged, directly or indirectly, either for his own
account or as agent, consultant, employee, partner, officer, director,
proprietor, investor (except as an investor owning less than 5% of the
stock of a publicly owned company) or otherwise of, any person, firm,
corporation, or enterprise engaged, in (1) the banking or financial
services industry, or (2) any other activity in which the Company, the
Bank or any of their subsidiaries are engaged during the Employment
Period, in any county in which, at any time during the Employment
Period or at the date of termination of the Executive's employment, a
branch, office or other facility of the Company, the Bank or any of
their subsidiaries are located, or in any county contiguous to such a
county, including contiguous counties located outside of the
Commonwealth of Pennsylvania (the "Non-Competition Area");
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(ii) Provide financial or other assistance to any person,
firm, corporation, or enterprise engaged in (1) the banking or
financial services industry, or (2) any other activity in which the
Company, the Bank or any of their subsidiaries are engaged during the
Employment Period, in the Non-Competition Area.
(b) It is expressly understood and agreed that, although the Executive,
the Company and the Bank consider the restrictions contained in Section 7(a)
hereof reasonable for the purpose of preserving for the Company, the Bank and
their subsidiaries their good will and other proprietary rights, if a final
judicial determination is made by a court having jurisdiction that the time or
territory or any other restriction contained in Section 7(a) hereof is an
unreasonable or otherwise unenforceable restriction, the provisions of Section
7(a) hereof shall not be rendered void but shall be deemed amended to apply as
to such maximum time and territory and to such other extent as such court may
determine or indicate to be reasonable.
(c) The provisions of this Section 7 shall be applicable commencing on
the date of this Agreement and ending on one of the following dates, as
applicable:
(i) If the Executive's employment is terminated in accordance
with the provisions of Sections 3(d), (e), (f) or (h) or Section 16
hereof, the effective date of termination of employment;
(ii) If Executive's employment is terminated in accordance
with the provisions of Section 3(a), (b), (c) or (g) hereof or
Executive voluntarily terminates his employment other than in
accordance with the provisions of Section 5 hereof, twenty-four (24)
months following the effective date of termination of employment; or
(iii) If Executive voluntarily terminates his employment in
accordance with the provisions of Section 5 hereof, the date of the
Notice of Termination.
8. Remedies. The Executive acknowledges and agrees that the remedy at
law of the Company and of the Bank for a breach or threatened breach of any of
the provisions of Section 7 hereof would be inadequate and, in recognition of
this fact, in the event of a breach or threatened breach by the Executive of any
of the provisions of Section 7 hereof, it is agreed that, in addition to any
remedy at law, the Company and the Bank shall be entitled to, without posting
any bond, and the Executive agrees not to oppose any request of the Company and
the Bank for, equitable relief in the form of specific performance, a temporary
restraining order, a temporary or permanent injunction, or any other equitable
remedy which may then be available. Nothing herein contained shall be construed
as prohibiting the Company
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and the Bank from pursuing any other remedies available to them for such breach
or threatened breach.
9. Arbitration. The Company, the Bank and the Executive recognize that
in the event a dispute should arise between them concerning the interpretation
or implementation of this Agreement, lengthy and expensive litigation will not
afford a practical resolution of the issues within a reasonable period of time.
Consequently, each party agrees that all disputes, disagreements and questions
of interpretation concerning this Agreement are to be submitted for resolution
to the American Arbitration Association ("Association") in Philadelphia,
Pennsylvania. The Company and the Bank, or the Executive, may initiate an
arbitration proceeding at any time by giving notice to the others in accordance
with the rules of the Association. The Association shall designate a single
arbitrator to conduct the proceeding, but the Company and the Bank, and the
Executive, may, as a matter of right, require the substitution of a different
arbitrator chosen by the Association. Each such right of substitution may be
exercised only once. The arbitrator shall not be bound by the rules of evidence
and procedure of the courts of the Commonwealth of Pennsylvania but shall be
bound by the substantive law applicable to this Agreement. The decision of the
arbitrator, absent fraud, duress, incompetence or gross and obvious error of
fact, shall be final and binding upon the parties and shall be enforceable in
courts of proper jurisdiction. Following written notice of a request for
arbitration, the Company and the Bank, and the Executive, shall be entitled to
an injunction restraining all further proceedings in any pending or subsequently
filed litigation concerning this Agreement, except as otherwise provided herein.
10. Legal Expenses. If the Executive obtains a judgment or settlement
which enforces a right or benefit under this Agreement, the Company and/or the
Bank shall pay to the Executive all reasonable legal fees and expenses incurred
by the Executive in seeking to obtain or enforce such right or benefit.
11. Notices. Any notice required or permitted to be given under this
Agreement shall, to be effective hereunder, be given to both the Company and the
Bank, in the case of notices given by the Executive, and shall, to be effective
hereunder, be given by both the Company and the Bank. Any such notice shall be
deemed properly given if in writing and if mailed by express, registered or
certified mail, postage prepaid with return receipt requested, to the residence
of the Executive, in the case of notices to the Executive, and to the respective
principal offices of the Company and of the Bank, in the case of notices to the
Company and to the Bank.
12. Waiver. No provision of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Executive, an executive officer of the Company, and an
executive officer of
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the Bank, each such officer specifically designated by the Boards of Trustees of
the Company and of the Bank, respectively. No waiver by any party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
13. Assignment. This Agreement shall not be assignable by any party
hereto, except by the Company and the Bank to any successor in interest to the
respective businesses of the Company and the Bank.
14. Entire Agreement. This Agreement contains the entire agreement of
the parties relating to the subject matter of this Agreement and supersedes any
prior agreement of the parties.
15. Successors Binding Agreement.
(a) The Company and the Bank will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company and/or
the Bank to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company and the Bank would be required to
perform it if no such succession had taken place. Failure by the Company and the
Bank to obtain such assumption and agreement prior to the effectiveness of any
such succession shall constitute a material breach of this Agreement. As used in
this Agreement, "the Company" and the "Bank" shall mean the Company and the Bank
as hereinbefore defined and any successor to the business and/or assets of the
Company and/or the Bank as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, heirs, distributees, devisers, and legatees. If the Executive
should die while any amount would be payable to the Executive under this
Agreement if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee, or other designee, or, if there
is no such designee, to the Executive's estate.
16. Termination.
(a) Unless the Executive's employment is terminated pursuant
to the provisions of Section 3 or Section 5 hereof, the term of this Agreement
shall be for a three (3) year period commencing on October 20, 1995 and ending
on October 19, 1998. This Agreement shall be automatically renewed on October 20
of each year (the "Annual Renewal Date") for a period
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<PAGE>
ending three (3) years from each Annual Renewal Date unless either party shall
give written notice of nonrenewal to the other party at least sixty (60) days
prior to an Annual Renewal Date or the Boards of Trustees of the Company and the
Bank fail to approve the extension at a duly called meeting of such Boards. In
furtherance of the foregoing, the Company and the Bank shall each use their best
efforts to cause their Boards of Trustees to meet in the month preceding each
notice date to vote upon the extension of the term.
(b) Any termination of the Executive's employment under this
Agreement or of this Agreement shall not affect the provisions of Sections 7, 8
or 9 hereof, which shall survive any such termination and remain in full force
and effect in accordance with their respective terms.
17. Mitigation/Offset. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking employment
or otherwise; provided, however, that for each dollar of compensation earned by
the Executive from another employer, a corresponding dollar amount of any sum
otherwise payable to, or for the benefit of, the Executive under Section 6
hereof shall be reduced by twenty percent (20%). Application of this Section
shall be subject to the following rules:
(i) The reduction provision of this subsection shall apply
only to compensation earned by the Executive during the period of time
he is receiving payments described in Section 6(a) hereof.
(ii) Compensation earned from another employer shall include
compensation deferred under any qualified or nonqualified arrangement.
(iii) Compensation earned from another employer shall be
determined on an annual basis by reference to the Executive's date of
termination of employment.
(iv) Within fifteen (15) days following each anniversary date
of the Executive's termination of employment (and within fifteen (15)
days following receipt of the last Section 6(a) payment), he shall
provide the Company and the Bank with such detailed information and
records as may have been reasonably requested to confirm the
compensation he earned during the preceding twelve (12) months (or
shorter period, if applicable). In the absence of a specific request
for detailed information, he shall only be required to deliver written
notice of the total of such compensation amount.
(v) Upon receipt of the earned compensation information from
Executive, the Bank shall withhold subsequent monthly payments until
the amount withheld equals
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the reduction required with respect to the prior year. If no monthly payments
remain to be paid, the Company or the Bank will remit to Executive a bill,
setting forth the amount overpaid to him by reason of this subsection, which
bill shall become due and payable thirty (30) days following its receipt.
18. Indemnification of Executive. The Company and the Bank shall
indemnify the Executive against any action brought against him by reason of the
fact that he serves or had served as a trustee and/or officer of the Company and
the Bank for (i) reasonable costs and expenses, including reasonable attorneys
fees, actually paid or incurred by the Executive in connection with proceedings
relating to the defense or settlement of such action, (ii) any amount for which
he becomes liable by reason of any judgment in such action, and (iii) reasonable
costs and expenses, including reasonable attorney fees, actually paid or
incurred by the Executive in any action to enforce his rights under this
Section, if the Executive obtains a final judgment in his favor in such
enforcement action. Notwithstanding the foregoing, the indemnification provided
for herein shall be made to the Executive only if (i) the final judgment on the
merits is in the Executive's favor, or (ii) in case of (a) a settlement, (b) a
final judgment against the Executive, or (c) a final judgment in the Executive's
favor, other than on the merits, if a majority of the disinterested trustees of
the Bank determine that he was acting in good faith in the scope of his
employment or authority as he could have reasonably have perceived it under the
circumstances and for a purpose he reasonably believed under the circumstances
was in the best interest of the Bank or the Company.
(b) In addition, the Executive shall be indemnified by the Company and
the Bank to the fullest extent provided under their respective Articles of
Incorporation and Bylaws.
(c) For purposes of this Section, the following terms shall have the
meanings set forth below:
(i) "Action" means any action, suit or other judicial or
administrative proceeding, or threatened proceeding, whether civil, criminal, or
otherwise, including any appeal or other proceeding for review;
(ii) "Final Judgment" means a judgment, decree, or order which
is appealable and as to which the period for appeal has expired and no appeal
has been taken;
(iii) "Settlement" includes the entry of a judgment by consent
or by confession or upon a plea of guilty or of nolo contendere.
19. Separability. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity
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or enforceability of any other provision of this Agreement, which shall remain
in full force and effect.
20. Applicable Law. This Agreement shall be governed by and construed
in accordance with the domestic laws (but not the law of conflict of laws) of
the Commonwealth of Pennsylvania.
21. Headings/References to Trustees. The headings of the Sections of
this Agreement are for convenience only and shall not control or affect the
meaning or construction or limit the scope or intent of any of the provisions of
this Agreement. References to trustees in this Agreement shall include directors
to the extent that the Articles of Incorporation of the Company, the Bank or any
successor hereunder provide for management by directors rather than trustees.
22. Guaranty. The Company hereby guarantees to the Executive the full
and timely performance by the Bank of each and every obligation of the Bank
contained in this Agreement.
23. Effective Date: Termination of Prior Agreement. This Agreement
shall become effective immediately upon the execution and delivery of this
Agreement by the parties hereto. Upon the execution and delivery of this
Agreement by the parties
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hereto, any prior agreement relating to the subject matter hereof, shall be
automatically terminated and be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above writt
PSB MUTUAL HOLDING COMPANY
By /s/
-----------------------------
President
Attest: Roseanne Pauciello
-------------------------
Secretary
("Company")
PENNSYLVANIA SAVINGS BANK
By /s/
-----------------------------
President
Attest: Roseanne Pauciello
-------------------------
Secretary
("Bank")
Witness:
Roseanne Pauciello /s/ Vincent J. Fumo
- ------------------------------- -------------------------------
Vincent J. Fumo
("Executive")
<PAGE>
AGREEMENT
---------
THIS AGREEMENT ("Agreement") made as of the 20th day of October, 1995,
by and among PSB MUTUAL HOLDING COMPANY, a Pennsylvania mutual bank holding
company (the "Company"), PENNSYLVANIA SAVINGS BANK, a Pennsylvania-chartered
savings bank (the "Bank"), and ANTHONY DISANDRO, an individual (the
"Executive").
WITNESSETH
----------
WHEREAS, the Company, the Bank and the Executive desire to enter into
an agreement regarding, among other things, the employment of the Executive by
the Company and the Bank, all as hereinafter set forth.
AGREEMENT:
----------
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Employment. The Company and the Bank each hereby employ the
Executive, and the Executive hereby accepts employment with the Company and the
Bank, on the terms and conditions set forth in this Agreement.
2. Duties of Employee. The Executive shall perform and discharge well
and faithfully such duties as an executive officer of the Company and of the
Bank as may be assigned to the Executive from time to time by the respective
Boards of Trustees of the Company and the Bank. The Executive shall be employed
as President and Chief Operating Officer of the Company and of the Bank and
shall hold such other titles as may be given to him from time to time by the
respective Boards of Trustees of the Company and the Bank.
3. Term of Employment. The Executive's employment under this Agreement
shall be for a period (the "Employment Period") commencing upon the date of this
Agreement and ending at the end of the term of this Agreement pursuant to
Section 16 hereof, unless the Executive's employment is sooner terminated in
accordance with Section 5 hereof or one of the following provisions:
(a) Termination for Cause. The Executive's employment under
this Agreement may be terminated at any time during the Employment Period for
"Cause" (as herein defined), by action of the Boards of Trustees of the Company
and of the Bank, upon giving notice of such termination to the Executive at
least fifteen (15) days prior to the date upon which such termination shall take
effect. As used in this Agreement, "Cause" means any of the following events:
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(i) The Executive willfully violates any law, rule or
regulation (other than traffic violations or similar offenses that
would not in the Boards' determination effect his ability to perform
and discharge his duties hereunder);
(ii) The Executive breaches his fiduciary duty involving
personal profit or engages in an act of personal dishonesty in the
performance of his duties;
(iii) A court of competent jurisdiction makes a determination
that the Executive is incompetent by reason of the fact that he is
unable to manage his own affairs by reason of insanity or feeble
mindedness;
(iv) The Executive willfully fails to follow the lawful
instructions of the Board of Trustees of the Company or the Bank after
the Executive's receipt of written notice of such instructions, other
than a failure resulting from the Executive's incapacity because of
physical or mental illness; or
(v) The Executive violates the covenant not to compete
contained in Section 7 hereof.
In addition, the Executive's employment under this Agreement shall not be deemed
to have been terminated for "Cause" under Sections 3(a)(i), (ii) or (iv) above
if such termination took place solely as a result of:
(i) Questionable judgment on the part of the Executive;
(ii) Any act or omission believed by the Executive, in good
faith, to have been in, or not opposed to, the best interests of the
Company and the Bank; or
(iii) Any act or omission in respect of which a determination
could properly be made that the Executive met the applicable standard
of conduct prescribed for indemnification or reimbursement or payment
of expenses under the Articles of Incorporation or By-laws of the
Company or the Bank or the directors' and officers' liability insurance
of the Company or the Bank, in each case as in effect at the time of
such act or omission.
If the Executive's employment is terminated under the provisions of this Section
3(a), then all rights of the Executive under Section 4 hereof shall cease as of
the effective date of such termination.
(b) Suspension Pursuant to Notice. If the Executive is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice
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served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12
U.S.C. Section 1818(e)(3) and (g)(l)), the Company's and the Bank's obligations
under this Agreement shall be suspended as of the date of service unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Company and the Bank may in their discretion (i) pay the Executive all or part
of the compensation withheld while the Company's and Bank's obligations under
this Agreement were suspended and (ii) reinstate (in whole or in part) any of
the obligations under this Agreement which were suspended.
(c) Termination Pursuant to Order. If the Executive is removed and/or
permanently prohibited from participating in the conduct of the Bank's affairs
by an order issued under Section 8(e)(4) or (g)(l) of the Federal Deposit
Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(l)), all obligations of the
Company and Bank under this Agreement shall terminate as of the effective date
of the order, but vested rights of the Company, the Bank and the Executive shall
not be affected.
(d) Termination Upon Default. If the Bank is in default (as defined in
Section 3(x) of the Federal Deposit Insurance Act (the "FDIA")), all obligations
under this Agreement shall terminate as of the date of default, but this
subsection shall not affect any vested rights of the Company, the Bank or the
Executive.
(e) Termination by the Federal Deposit Insurance Corporation. All
obligations under this Agreement shall terminate, if the Chairman of the Federal
Deposit Insurance Corporation (the "FDIC") or his or her designee (i) enters
into an agreement to provide assistance to or on behalf of the Bank under the
authority contained in Section 13(c) of the FDIA; or (ii) approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by such Chairman or designee to be in an unsafe and unsound
condition. Any rights of the Company, the Bank or the Executive that have
already vested, however, shall not be affected by such action.
(f) Termination Without Cause. The Executive's employment under this
Agreement may be terminated at any time during the Employment Period without
"Cause" (as defined in Section 3(a) hereof), by action of the Boards of Trustees
of the Company and of the Bank, upon giving notice of such termination to the
Executive at least thirty (30) days prior to the date upon which such
termination shall take effect. If the Executive's employment is terminated under
the provisions of this Section 3(f), then the Executive shall be entitled to
receive the compensation set forth in Section 6 hereof;
(g) Retirement: Death. If the Executive retires or dies, the
Executive's employment under this Agreement shall be deemed terminated as of the
date of the Executive's retirement or death, and all rights of the Executive
under Section 4 hereof
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<PAGE>
shall cease as of the date of such termination and any benefits payable to the
Executive shall be determined in accordance with the retirement and insurance
programs of the Company and of the Bank then in effect.
(h) Incapacity. If the Executive is incapacitated by accident,
sickness, or otherwise so as to render the Executive mentally or physically
incapable of performing the services required of the Executive under Section 2
of this Agreement for a continuous period of six (6) months, then, upon the
expiration of such period or at any time thereafter, by action of the Boards of
Trustees of the Company and of the Bank, the Executive's employment under this
Agreement may be terminated immediately upon giving the Executive notice to that
effect. If the Executive's employment is terminated under the provisions of this
Section 3(h), then all rights of the Executive under Section 4 hereof shall
cease as of the last business day of the week in which such termination occurs
and any benefits payable to the Executive shall be determined in accordance with
the retirement and insurance programs of the Company and of the Bank then in
effect.
4. Employment Period Compensation.
(a) Salary. For services performed by the Executive under this
Agreement, the Bank shall pay the Executive a salary during the Employment
Period, at the rate of $145,800 per year, payable at the same times as salaries
are payable to other executive employees of the Bank. The Bank may, from time to
time, increase the Executive's salary, and any and all such increases shall be
deemed to constitute amendments to this Section 4(a) to reflect the increased
amounts, effective as of the dates established for such increases by the Board
of Trustees of the Bank in the resolutions authorizing such increases.
(b) Bonus. For services performed by the Executive under this
Agreement, the Bank may pay the Executive an annual bonus and such other bonus
or bonuses as the Bank, in its sole discretion, deems appropriate. The payment
of any such bonuses shall not reduce or otherwise affect any other obligation of
the Company and/or the Bank to the Executive provided for in this Agreement.
(c) Other Benefits. The Company and/or the Bank will provide
the Executive, during the Employment Period, with insurance, vacation, pension,
and other fringe benefits in the aggregate not less favorable than those
received by executives of the Bank, as such benefits exist on the date hereof
(including, without limitation, the use of an automobile at the Bank's expense).
(d) Salary Deferral. The Executive may request that the
payment of any portion of his base salary for any year be deferred. Such request
must be made in writing to the Bank
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<PAGE>
before the beginning of such calendar year and must include the period of
deferral requested by the Executive (the "Deferral Period"). If the Board of
Trustees of the Bank approve such request, the Executive shall be entitled to
receive, at the end of the Deferral Period, the deferred portion of his base
salary plus interest, which interest shall be computed by reference to an annual
interest rate determined each year by the Board of Trustees of the Bank. Any
salary which is deferred as described herein shall be credited to an account on
the books of the Bank established in the name of the Executive. However, this
account shall not be funded, and neither the Company nor the Bank shall be
deemed to be a trustee for the Executive with respect to any deferred salary.
The liabilities of the Company and the Bank to the Executive hereunder are those
of a debtor pursuant to such contractual obligations as are created by this
Agreement. No liabilities which arise under this Section 4(d) shall be deemed to
be secured by any pledge or other encumbrance on any property of the Company or
of the Bank. The Company and the Bank shall not be required to segregate any
funds representing such deferred salary, and nothing herein shall be construed
as providing for such segregation.
5. Resignation of the Executive for Good_Reason.
(a) The Executive may resign for "Good Reason" (as herein defined) at
any time during the Employment Period, as hereinafter set forth. As used in this
Agreement, "Good Reason" means any of the following:
(i) Any material adverse change in the Executive's
responsibilities or authority which is inconsistent with the
Executive's status as President and Chief Operating Officer of the
Company and the Bank;
(ii) Any reduction in title:
(iii) Any reassignment of the Executive to a principal place
of employment which requires the Executive to move his principal
residence and is more than thirty (30) miles from the Bank's principal
executive office on the date of this Agreement;
(iv) Any removal of the Executive from office except for any
termination of the Executive's employment for Cause under the
provisions of Section 3(a) hereof;
(v) Any reduction in the Executive's annual base salary as in
effect on the date hereof or as the same may be increased from time to
time;
(vi) Any failure by the Company and/or the Bank to provide the
Executive with benefits at least as favorable as those enjoyed by the
Executive under any of the
5
<PAGE>
pension, life insurance, medical, health and accident, disability or
other employee benefit plans of the Company or of the Bank in which the
Executive participated on the date hereof, or the taking of any action
that would materially reduce any of such benefits, unless such
reduction is part of a reduction applicable in each case to all
participant employees;
(vii) Any material breach of this Agreement on the part of the
Company or the Bank.
(b) At the option of the Executive, exercisable by the Executive within
90 days after the occurrence of the event constituting "Good Reason," the
Executive may resign from employment under this Agreement by a notice in writing
(the "Notice of Termination") delivered to the Company and the Bank and the
provisions of Section 6 hereof shall thereupon apply.
6. Rights in Event of Termination of Employment. In the event that the
Executive resigns from employment for Good Reason by delivery of a Notice of
Termination to the Company and the Bank, or the Executive's employment is
terminated by the Company or the Bank without Cause pursuant to Section 3(f)
(and so long as the Executive is not terminated pursuant to Sections 3(b), (c),
(d), (e), (g) or (h) hereof) the Executive shall be entitled to receive the
amounts and benefits set forth in this Section 6.
(a) Over a period of 36 months from the date of termination of
employment, the Bank shall pay the Executive three times his Average Annual
Compensation (as hereinafter defined).
(i) For purposes of this Agreement, the term "Average Annual
Compensation" means the sum of (A) a dollar amount equal to the average of the
Executive's base salary during each of his five most recent years of employment
hereunder (or such fewer number of years as the Executive is employed under the
terms of this Agreement), and (B) a dollar amount equal to the average of the
bonuses the Executive received during each of the five most recent years of
employment hereunder (or such fewer number of years as Executive is employed
under the terms of this Agreement).
(ii) Amounts required to be paid to the Executive under
Section 6(a) shall be paid in equal monthly installments, beginning thirty (30)
days following the date of termination of employment.
(b) For a period of 36 months from the date of termination of
employment, the Company and the Bank shall continue to provide the Executive
with all life, disability, medical insurance and other employee insurance
benefits in effect with respect to the Executive during the year prior to his
termination of employment, or, if the Company or the Bank cannot
6
<PAGE>
provide such benefits because the Executive is no longer an employee, a dollar
amount equal to the cost to the Executive of obtaining such benefits (or
substantially similar benefits).
(c) Upon full payment of the compensation due under Section 6(a) hereof
or upon reaching the earliest age at which the Executive could retire under
plans of the Company or of the Bank then in effect, whichever is later, the Bank
shall pay to the Executive annual benefits for life equal to the difference
between (i) what the Executive would be entitled to under the retirement plan of
the Bank in effect on the date hereof if he had remained in his position (at his
Average Annual Compensation at Termination) until normal retirement at age 65
and assuming that such benefit were paid in the form of a straight life annuity,
and (ii) what he is in fact entitled to pursuant to the applicable plan,
calculated on the basis of a straight life annuity, based on the actual date of
termination.
(d) The Executive shall have the unilateral right to reduce the
benefits otherwise payable to him, or on his behalf, under this section to the
extent such reduction would result in his netting, after all applicable taxes,
more benefits.
(e) Any payments made to Executive hereunder or otherwise are subject
to and conditioned upon their compliance with both 12 USC Section 1828 (k) and
Section 280G of the Internal Revenue Code, as amended and any regulations
promulgated under either.
7. Covenant Not to Compete.
(a) The Executive hereby acknowledges and recognizes the highly
competitive nature of the business of the Company and of the Bank and
accordingly agrees that, during and for the applicable period set forth in
Section 7(c) hereof, the Executive shall not:
(i) Be engaged, directly or indirectly, either for his own
account or as agent, consultant, employee, partner, officer, director,
proprietor, investor (except as an investor owning less than 5% of the
stock of a publicly owned company) or otherwise of, any person, firm,
corporation, or enterprise engaged, in (1) the banking or financial
services industry, or (2) any other activity in which the Company, the
Bank or their subsidiaries are engaged during the Employment Period, in
any county in which, at any time during the Employment Period or at the
date of termination of the Executive's employment, a branch, office or
other facility of the Company, the Bank or their subsidiaries are
located, or in any county contiguous to such a county, including
contiguous counties located outside of the Commonwealth of Pennsylvania
(the "Non-Competition Area");
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<PAGE>
(ii) Provide financial or other assistance to any person,
firm, corporation, or enterprise engaged in (1) the banking or
financial services industry, or (2) any other activity in which the
Company, the Bank or their subsidiaries are engaged during the
Employment Period, in the Non-Competition Area.
(b) It is expressly understood and agreed that, although the Executive,
the Company and the Bank consider the restrictions contained in Section 7(a)
hereof reasonable for the purpose of preserving for the Company, the Bank and
their subsidiaries their good will and other proprietary rights, if a final
judicial determination is made by a court having jurisdiction that the time or
territory or any other restriction contained in Section 7(a) hereof is an
unreasonable or otherwise unenforceable restriction, the provisions of Section
7(a) hereof shall not be rendered void but shall be deemed amended to apply as
to such maximum time and territory and to such other extent as such court may
determine or indicate to be reasonable.
(c) The provisions of this Section 7 shall be applicable commencing on
the date of this Agreement and ending on one of the following dates, as
applicable:
(i) If the Executive's employment is terminated in accordance
with the provisions of Sections 3(d), (e), (f) or (h) or Section 16
hereof, the effective date of termination of employment;
(ii) If Executive's employment is terminated in accordance
with the provisions of Section 3(a), (b), (c) or (g) hereof or
Executive voluntarily terminates his employment other than in
accordance with the provisions of Section 5 hereof, twenty-four (24)
months following the effective date of termination of employment; or
(iii) If Executive voluntarily terminates his employment in
accordance with the provisions of Section 5 hereof, the date of the
Notice of Termination.
8. Remedies. The Executive acknowledges and agrees that the remedy at
law of the Company and of the Bank for a breach or threatened breach of any of
the provisions of Section 7 hereof would be inadequate and, in recognition of
this fact, in the event of a breach or threatened breach by the Executive of any
of the provisions of Section 7 hereof, it is agreed that, in addition to any
remedy at law, the Company and the Bank shall be entitled to, without posting
any bond, and the Executive agrees not to oppose any request of the Company and
the Bank for, equitable relief in the form of specific performance, a temporary
restraining order, a temporary or permanent injunction, or any other equitable
remedy which may then be available. Nothing herein contained shall be construed
as prohibiting the Company
8
<PAGE>
and the Bank from prsuing any other remedies available to them for such breach
or threatened breach.
9. Arbitration. The Company, the Bank and the Executive recognize that
in the event a dispute should arise between them concerning the interpretation
or implementation often this Agreement, lengthy and expensive litigation will
not afford a practical resolution of the issues within a reasonable period of
time. Consequently, each party agrees that all disputes, disagreements and
questions of interpretation concerning this Agreement are to be submitted for
resolution to the American Arbitration Association ("Association") in
Philadelphia, Pennsylvania. The Company and the Bank, or the Executive, may
initiate an arbitration proceeding at any time by giving notice to the others in
accordance with the rules of the Association. The Association shall designate a
single arbitrator to conduct the proceeding, but the Company and the Bank, and
the Executive, may, as a matter of right, require the substitution of a
different arbitrator chosen by the Association. Each such right of substitution
may be exercised only once. The arbitrator shall not be bound by the rules of
evidence and procedure of the courts of the Commonwealth of Pennsylvania but
shall be bound by the substantive law applicable to this Agreement. The decision
of the arbitrator, absent fraud, duress, incompetence or gross and obvious error
of fact, shall be final and binding upon the parties and shall be enforceable in
courts of proper jurisdiction. Following written notice of a request for
arbitration, the Company and the Bank, and the Executive, shall be entitled to
an injunction restraining all further proceedings in any pending or subsequently
filed litigation concerning this Agreement, except as otherwise provided herein.
10. Legal Expenses. If the Executive obtains a judgment or settlement
which enforces a right or benefit under this Agreement, the Company and/or the
Bank shall pay to the Executive all reasonable legal fees and expenses incurred
by the Executive in seeking to obtain or enforce such right or benefit.
11. Notices. Any notice required or permitted to be given under this
Agreement shall, to be effective hereunder, be given to both the Company and the
Bank, in the case of notices given by the Executive, and shall, to be effective
hereunder, be given by both the Company and the Bank. Any such notice shall be
deemed properly given if in writing and if mailed by express, registered or
certified mail, postage prepaid with return receipt requested, to the residence
of the Executive, in the case of notices to the Executive, and to the respective
principal offices of the Company and of the Bank, in the case of notices to the
Company and to the Bank.
12. Waiver. No provision of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Executive, an executive officer of the Company, and an
executive officer of
9
<PAGE>
the Bank, each such officer specifically designated by the Boards of Trustees of
the Company and of the Bank, respectively. No waiver by any party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
13. Assignment. This Agreement shall not be assignable by any party
hereto, except by the Company and the Bank to any successor in interest to the
respective businesses of the Company and the Bank.
14. Entire Agreement. This Agreement contains the entire agreement of
the parties relating to the subject matter of this Agreement and supersedes any
prior agreement of the parties.
15. Successors Binding Agreement.
(a) The Company and the Bank will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company and/or
the Bank to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company and the Bank would be required to
perform it if no such succession had taken place. Failure by the Company and the
Bank to obtain such assumption and agreement prior to the effectiveness of any
such succession shall constitute a material breach of this Agreement. As used in
this Agreement, "the Company" and the "Bang" shall mean the Company and the Bank
as hereinbefore defined and any successor to the business and/or assets of the
Company and/or the Bank as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees. If the Executive
should die while any amount would be payable to the Executive under this
Agreement if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee, or other designee, or, if there
is no such designee, to the Executive's estate.
16. Termination.
(a) Unless the Executive's employment is terminated pursuant
to the provisions of Section 3 or Section 5 hereof, the term of this Agreement
shall be for a three (3) year period commencing on October 20, 1995 and ending
on October 19, 1998. This Agreement shall be automatically renewed on October
20th each Year (the "Annual Renewal Date") for a period
10
<PAGE>
ending three (3) years from each Annual Renewal Date unless either party shall
give written notice of nonrenewal to the other party at least sixty (60) days
prior to an Annual Renewal Date or the Boards of Trustees of the Company and the
Bank fail to approve the extension at a duly called meeting of such Boards. In
furtherance of the foregoing, the Company and the Bank shall each use their best
efforts to cause its Board of Trustees to meet in the month preceding each
notice date to vote upon the extension of the term.
(b) Any termination of the Executive's employment under this
Agreement or of this Agreement shall not affect the provisions of Sections 7, 8
or 9 hereof, which shall survive any such termination and remain in full force
and effect in accordance with their respective terms.
17. Mitigation/Offset. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking employment
or otherwise; provided, however, that for each dollar of compensation earned by
the Executive from another employer, a corresponding dollar amount of any sum
otherwise payable to, or for the benefit of, the Executive under Section 6
hereof shall be reduced by twenty percent (20%). Application of this Section
shall be subject to the following rules:
(i) The reduction provision of this subsection shall apply
only to compensation earned by the Executive during the period of time
he is receiving payments described in Section 6(a) hereof.
(ii) Compensation earned from another employer shall include
compensation deferred under any qualified or nonqualified arrangement.
(iii) Compensation earned from another employer shall be
determined on an annual basis by reference to the Executive's date of
termination of employment.
(iv) Within fifteen (15) days following each anniversary
date of the Executive's termination of employment (and within fifteen
(15) days following receipt of the last Section 6(a) payment), he shall
provide the Company and the Bank with such detailed information and
records as may have been reasonably requested to confirm the
compensation he earned during the preceding twelve (12) months (or
shorter period, if applicable). In the absence of a specific request
for detailed information, he shall only be required to deliver written
notice of the total of such compensation amount.
(v) Upon receipt of the earned compensation information from
Executive, the Bank shall withhold subsequent monthly payments until
the amount withheld equals
11
<PAGE>
the reduction required with respect to the prior year. If no monthly payments
remain to be paid, the Company or the Bank will remit to Executive a bill,
setting forth the amount overpaid to him by reason of this subsection, which
bill shall become due and payable thirty (30) days following its receipt.
18. Indemnification of Executive. The Company and the Bank shall
indemnify the Executive against any action brought against him by reason of the
fact that he serves or had served as a trustee and/or officer of the Company and
the Bank for (i) reasonable costs and expenses, including reasonable attorneys
fees, actually paid or incurred by the Executive in connection with proceedings
relating to the defense or settlement of such action, (ii) any amount for which
he becomes liable by reason of any judgment in such action, and (iii) reasonable
costs and expenses, including reasonable attorney fees, actually paid or
incurred by the Executive in any action to enforce his rights under this
Section, if the Executive obtains a final judgment in his favor in such
enforcement action. Notwithstanding the foregoing, the indemnification provided
for herein shall be made to the Executive only if (i) the final judgment on the
merits is in the Executive's favor, or (ii) in case of (a) a settlement, (b) a
final judgment against the Executive, or (c) a final judgment in the Executive's
favor, other than on the merits, if a majority of the disinterested trustees of
the Bank determine that he was acting in good faith in the scope of his
employment or authority as he could have reasonably have perceived it under the
circumstances and for a purpose he reasonably believed under the circumstances
was in the best interest of the Bank or the Company.
(b) In addition, the Executive shall be indemnified by the Company and
the Bank to the fullest extent provided under their respective Articles of
Incorporation and Bylaws.
(c) For purposes of this Section, the following terms shall have the
meanings set forth below:
(i) "Action" means any action, suit or other judicial or
administrative proceeding, or threatened proceeding, whether civil, criminal, or
otherwise, including any appeal or other proceeding for review;
(ii) "Final Judgment" means a judgment, decree, or order which
is appealable and as to which the period for appeal has expired and no appeal
has been taken;
(iii) "Settlement" includes the entry of a judgment by consent
or by confession or upon a plea of guilty or of nolo contendere.
19. Separability. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity
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<PAGE>
or enforceability of any other provision of this Agreement, which shall remain
in full force and effect.
20. Applicable Law. This Agreement shall be governed by and
construed in accordance with the domestic laws (but not the law of conflict of
laws) of the Commonwealth of Pennsylvania.
21. Headings/References to Trustees. The headings of the
Sections of this Agreement are for convenience only and shall not control or
affect the meaning or construction or limit the scope or intent of any of the
provisions of this Agreement. References to Trustees in this Agreement shall
include directors to the extent that the Articles of Incorporation of the
Company, the Bank or any successor hereunder provide for management by directors
rather than trustees.
22. Guaranty. The Company hereby guarantees to the Executive
the full and timely performance by the Bank of each and every obligation of the
Bank contained in this Agreement.
23. Effective Date: Termination of Prior Agreement. This
Agreement shall become effective immediately upon the execution and delivery of
this Agreement by the parties hereto. Upon the execution and delivery of this
Agreement by the parties
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<PAGE>
hereto, any prior agreement relating to the subject matter hereof, shall be
automatically terminated and be of no further force or effect. .
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above we i bean
PSB MUTUAL HOLDING COMPANY
By /s/ XXXXXXXXXXXXXXXXXXX
-----------------------------
Chairman
Attest: /s/ Rosanne Fauciello
-------------------------
Secretary
("Company")
PENNSYLVANIA SAVINGS BANK
By /s/ XXXXXXXXXXXXXXXX
-----------------------------
Chairman
Attest: /s/ Rosanne Fauciello
-------------------------
Secretary
("Bank")
Witness:
/s/ Rosanne Pauciello /s/ Anthony DiSandro
- ------------------------------- -------------------------------
Anthony DiSandro
("Executive")
<PAGE>
1/95
PENNSYLVANIA SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective January 1, 1995)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
INTRODUCTION ............................................................ 1
ARTICLE 2
DEFINITIONS ............................................................. 2
ARTICLE 3
ELIGIBILITY ............................................................. 13
3.1. Eligibility Generally ........................................ 13
3.2. Eligibility Computation Period ............................... 13
3.3. Commencement of Participation ................................ 13
3.4. Cessation of Participation ................................... 13
3.5. Special Rules for Participation and Vesting
Purposes ..................................................... 14
3.6. Years of Service ............................................. 14
3.7. Participation upon Reemployment .............................. 14
ARTICLE 4
VESTING ................................................................. 17
4.1. In General ................................................... 17
4.2. Normal Retirement Date ....................................... 17
4.3. Death or Disability .......................................... 17
4.4. Forfeiture of Account ........................................ 17
ARTICLE 5
CONTRIBUTIONS AND ALLOCATIONS ........................................... 19
5.1. Company Contributions ........................................ 19
5.2. Time and Manner of Contributions ............................. 19
5.3. Employee Contributions ....................................... 19
5.4. Recovery of Contributions .................................... 19
5.5. Allocation of Employer Contributions ......................... 20
5.6. Income on Investments ........................................ 20
5.7. Certain Stock Transactions ................................... 21
5.8. Valuation of Trust Fund ...................................... 21
ARTICLE 6
MAXIMUM LIMITATION ON ALLOCATIONS ....................................... 23
6.1. Participation Solely in This Plan ............................ 23
6.2. Participation in Another Defined Contribution
Plan ......................................................... 24
6.3. Participation in a Defined Benefit Plan ...................... 25
6.4. Definitions .................................................. 26
ARTICLE 7
INVESTMENT OF TRUST ASSETS .............................................. 29
7.1. Trust ........................................................ 29
(i)
<PAGE>
ARTICLE 8
COMPANY STOCK APPRAISAL ................................................. 31
ARTICLE 9
DISTRIBUTIONS ........................................................... 32
9.1. Termination of Employment .................................... 32
9.2. Death ........................................................ 32
9.3. Time of Payment .............................................. 34
9.4. Form of Payment .............................................. 34
9.5. Direct Rollover .............................................. 34
9.6. Diversification Election ..................................... 36
9.7. Election to Retain Interests in Plan ......................... 37
9.8. Mandatory Distributions ...................................... 37
9.9. Dividend Distributions ....................................... 40
9.10. Right of First Refusal ....................................... 41
9.11. Prohibited Company Stock Transactions ........................ 41
ARTICLE 10
RIGHT TO SELL COMPANY STOCK ............................................. 44
10.1. Put Requirements ............................................. 44
ARTICLE 11
VOTING AND TENDER OF COMPANY STOCK ..................................... 47
11.1. Voting ....................................................... 47
11.2. Tender ....................................................... 47
11.3. Fiduciary Responsibilities ................................... 49
11.4. Procedures for Voting and Tender ............................. 49
ARTICLE 12
ADMINISTRATION .......................................................... 51
12.1. Fiduciary Responsibilities ................................... 51
12.2. The Administrative Committee ................................. 52
12.3. Plan Expenses ................................................ 54
12.4. Meetings and Voting .......................................... 54
12.5. Compensation ................................................. 54
12.6. Claims Procedures ............................................ 54
12.7. Liabilities .................................................. 57
ARTICLE 13
AMENDMENTS .............................................................. 58
13.1. Right to Amend ............................................... 58
13.2. Amendment by Administrative Committee ........................ 58
13.3. Plan Merger and Asset Transfers .............................. 59
ARTICLE 14
TERMINATION ............................................................. 60
14.1. Right to Terminate ........................................... 60
14.2. Effect of Termination ........................................ 60
ARTICLE 15
MISCELLANEOUS ........................................................... 61
15.1. Non-alienation of Benefits ................................... 61
15.2. Appointment of Guardian ...................................... 61
15.3. Satisfaction of Benefit Claims ............................... 61
(ii)
<PAGE>
15.4. Controlling Law .............................................. 62
15.5. Non-guarantee of Employment .................................. 62
15.6. Severability and Construction of the Plan .................... 62
15.7. No Requirement of Profits .................................... 63
15.8. All Risk on Participants and Beneficiaries ................... 63
ARTICLE 16
TOP-HEAVY PROVISIONS ................................................... 64
16.1. Determination of Top-Heavy Status ............................ 64
16.2. Super Top-Heavy Plan ......................................... 64
16.3. Top-Heavy Definitions ........................................ 65
16.4. Top-Heavy Rules .............................................. 66
ARTICLE 17
EXEMPT LOANS ............................................................ 69
17.1. General ...................................................... 69
17.2. Terms of Exempt Loan Agreements .............................. 69
17.3. Prohibition on Purchase Arrangements ......................... 70
17.4. Suspense Account ............................................. 70
17.5. Sale of Financed Shares ...................................... 72
<PAGE>
ARTICLE 1
INTRODUCTION
The Pennsylvania Savings Bank Employee Stock Ownership Plan (the "Plan")
was established by Pennsylvania Savings Bank (the "Company") in order for its
employees to participate in the ownership of the Company. The Plan, effective as
of January 1, 1995, 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, and is designed to invest primarily in Common Stock of the Company
which meets the requirements for qualifying employer securities under Code
Section 409(1). The purchase of Company Stock for the Plan may be made with the
proceeds of exempt loans meeting the requirements of Section 54.4975-7(b) of the
Treasury Regulations (including any amendments thereto) and Section 2550.408(b)
- -3 of the Department of Labor Regulations (including any amendments thereto),
employer contributions, dividends on qualified employer securities or a
combination thereof.
1
<PAGE>
ARTICLE 2
DEFINITIONS
The following initially capitalized words and phrases when used herein
shall have the meanings set forth below, unless the context clearly requires
otherwise.
2.1. "Account" means the bookkeeping account established for each
Participant which reflects the value of the Participant's interest in the Plan.
This Account shall include a Company Stock Account, reflecting the number of
shares of Company Stock allocated to the Participant and an Investment Account
in which shall be reflected other investments allocated to the Participant.
2.2. "Administrative Committee" and "Committee," used interchangeably,
means the named fiduciary of the Plan, which is appointed by the Board of
Directors, as is more fully described in Article 12.
2.3. "Affiliate" means the Company and any corporation which is a member of
a controlled group of corporations (as defined in Code Section 414(b)) which
includes the Company; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Company;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Company and any other entity required to be aggregated with the Company
pursuant to regulations under Code Section 414(o).
2
<PAGE>
2.4. "Beneficiary" means the individual(s) or entities entitled to receive
the Participant's benefits under the Plan in the event of the Participant's
death prior to receiving all benefits payable under the Plan.
2.5. "Board of Directors" means the Board of Directors of the Company as
constituted from time to time.
2.6. "Break in Service" means a Plan Year during which an Employee (a) has
terminated employment or is no longer employed with the Company or an Affiliate,
and (b) fails to complete more than five hundred (500) Hours of Service.
2.7. "Code" means the Internal Revenue Code of 1986, as amended and the
regulations promulgated thereunder.
2.8. "Company" means Pennsylvania Savings Bank and any Affiliate which
adopts this Plan with the approval of the Board of Directors of the Company and
any successor to the business of the Company that agrees to assume the Company's
obligations under the Plan.
2.9. "Company Stock" means shares of common stock issued by the Company
that are qualifying employer securities within the meaning of Code Section
4975(e)(8). For purposes of Code Section 4975(e)(8), "Affiliate," as defined in
Section 2.3 of the Plan, shall be modified in accordance with Code Section
409(1)(4).
2.10. "Compensation" means the actual salary or wages paid during a Plan
Year (including shift differential and draw) to a Participant by the Company for
personal services, and including any salary reduction contributions elected by a
Participant pursuant to any plan maintained by the Company in accordance with
3
<PAGE>
Code Sections 401(k) and 125, but excluding overtime pay, severance, bonuses,
commissions and reimbursement for business, travel or entertainment expenses
incurred by the Participant and not reported to the Internal Revenue Service as
wages.
The annual compensation for each Participant taken into account under the
Plan shall not exceed $150,000, as adjusted by the Secretary or his designate at
the same time and in the same manner as under Code Section 415(d). In
determining the Compensation of a Participant for this limitation, the family
aggregation rules of Code Section 414(q)(6) shall apply, except in applying such
rules, the term "family" shall include only the spouse of the Participant and
any lineal descendants of the Participant who have not attained age 19 before
the close of the Plan Year.
2.11. "Disability" shall have the meaning set forth in the Company's
long-term disability plan.
2.12. "Effective Date" means January 1, 1995 which is the date on which the
provisions of this Plan become effective.
2.13. "Employee" means an individual who is employed as a common law
employee by the Company or an Affiliate on a salaried or hourly basis and with
respect to whom the Company or the Affiliate is required to withhold taxes from
remuneration paid to him or her by the Company or Affiliate for personal
services rendered to the Company, including any officer or director who shall so
qualify. The term shall not include leased employees within the meaning of Code
Section 414(n). Employees shall not include any individual whose employment with
the Company or an
4
<PAGE>
Affiliate is governed by a collective bargaining agreement between the Company
and employee representatives if evidence exists that retirement benefits were a
subject of good faith bargaining between the parties, and provided such
bargaining agreement does not provide for participation in this Plan.
2.14. "Employer" means the Company.
2.15. "Entry Date" means January 1 and July 1 of each Plan Year.
2.16. "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any regulations promulgated thereunder.
2.17. "Exempt Loan" means an extension of credit to the Plan which
satisfies the requirements of Treasury Regulations Section 54.4975-7(b) and
Department of Labor Regulations Section 2550.408(b)-3, or any future law or
regulation that modifies either or both of these two regulations and affects the
exemption for such loans to an employee stock ownership plan.
2.18. "Fund" means the assets and all income, gains and losses thereon held
by the Trustee under the Trust Agreement for the exclusive benefit of
Participants and Beneficiaries of the Plan.
2.19. "Highly Compensated Employee"
(a) Highly Compensated Employee means an Employee who performs service
during the determination year and is described in one or more of the
following groups:
5
<PAGE>
(i) An Employee who is a 5% owner, as defined in Code Section 416
(i)(1)(A)(iii), at any time during the determination year or the
look-back year.
(ii) An Employee who receives compensation in excess of $75,000
(indexed in accordance with Code Section 415(d)) during the look-back
year.
(iii) An Employee who receives compensation in excess of $50,000
(indexed in accordance with Code Section 415(d)) during the look-back
year and is a member of the top-paid group for the look-back year.
(iv) An Employee who is an officer, within the meaning of Code
Section 416(i), during the look-back year and who receives
compensation in the look-back year greater than 50% of the dollar
limitation in effect under Code Section 415(b)(1)(A) for the calendar
year in which the look-back year begins.
(v) An Employee who is both described in paragraphs (ii), (iii),
or (iv) above when these paragraphs are modified to substitute the
determination year for the look-back year and one of the 100 Employees
who receive the most compensation from the Employer during the
determination year.
(b) For purposes of the definition of Highly Compensated Employee, the
following definitions and rules shall apply:
(i) The determination year is the Plan Year for which the
determination of who is highly compensated is being made.
6
<PAGE>
(ii) The look-back year is the 12 month period immediately
preceding the determination year, or if the Employer elects, the
calendar year ending with or within the determination year.
(iii) The top-paid group consists of the top 20% of employees
ranked on the basis of compensation received during the year. For
purposes of determining the number of employees in the top-paid group,
employees described in Code Section 414(q)(8) and Treasury Regulations
Section 1.414(q)-1T Q&A 9(b) are excluded.
(iv) The number of officers is limited to 50 (or, if lesser, the
greater of 3 employees or 10% of employees) excluding those employees
who may be excluded in determining the top-paid group.
(v) When no officer has compensation in excess of 50% of the Code
Section 415(b)(1)(A) limit, the highest paid officer is treated as
highly compensated.
(c) Compensation is compensation within the meaning of Code Section
415(c)(3), plus, for purposes thereof, elective or salary reduction
contributions to a cafeteria plan, cash or deferred arrangement under Code
Section 401(k) or tax-sheltered annuity.
(i) Employers aggregated under Code Sections 414(b), (c), (m),
or (o) are treated as a single employer.
7
<PAGE>
2.20. "Hours of Service" means:
(a) Performance of Duties. The actual hours for which an Employee is
paid or entitled to be paid by the Company for the performance of duties;
(b) Nonworking Paid Time. Each hour for which an Employee is paid or
entitled to be paid by the Company on account of a period of time during
which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness, incapacity,
disability, layoff, jury duty, military duty or leave of absence; provided,
however, no more than 501 Hours of Service shall be credited to an Employee
on account of any single continuous period during which he performed no
duties; and provided further that no credit shall be given for payments
made or due under a plan maintained solely for the purpose of complying
with applicable worker's or unemployment compensation or disability
insurance laws or for payments which solely reimburse an Employee for
medical or medically related expenses incurred by the Employee; and
(c) Maternity, Paternity and FMLA Leave. Solely for purposes of
determining whether a one year Break in Service (as defined in Section 2.6
of the Plan) has occurred for purposes of determining eligibility to
participate and vesting, each hour for which an Employee is absent from
employment by reason of (i) pregnancy of the Employee, (ii) birth of a
child of the Employee, (iii) placement of a child in connection with the
adoption of the child by an individual, or (iv) caring for the
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child during the period immediately following the birth or placement for
adoption. Hours of Service shall also, for these limited purposes, include
each hour for which an Employee who has worked for the Company or an
Affiliate for at least 12 months and for at least 1,250 Hours of Service
during the year preceding the start of the leave, is absent from employment
on an unpaid family leave for up to 12 weeks, as provided for in the Family
and Medical Leave Act of 1993 (the "FMLA Leave"), by reason of (A) the
birth or adoption of a child, (B) the care of a spouse, child or parent
with a serious health condition, or (C) his own serious health condition,
provided that such an Employee provides the Company with a 30-day advance
notice if the leave is foreseeable, and/or medical certification
satisfactory to support his request for leave because of a serious health
condition. For purposes of determining whether an Employee's leave
qualifies as a "FMLA Leave" in order to be credited with Hours of Service
under this Plan, the Family and Medical Leave Act of 1993 ("FMLA") and the
regulations promulgated thereunder shall apply. During the period of
absence, the Employee shall be credited with the number of hours that would
be generally credited but for such absence or if the general number of work
hours is unknown, eight Hours of Service for each normal workday during the
leave (whether or not approved). These hours shall be credited to the
computation period in which the leave of absence commences if crediting of
such hours is required to prevent the occurrence of a one year Break in
Service in such computation period, and in other cases, in the immediately
following computation period.
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The computation period shall be the same as the relevant period for
determining eligibility computation periods and vesting computation
periods. Unless otherwise required under the FMLA and the regulations
promulgated thereunder, no more than 501 Hours of Service shall be credited
under this paragraph for any single continuous period (whether or not such
period occurs in a single computation period).
(d) Back Pay. Each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the Company; provided,
however, Hours of Service credited under paragraphs (a), (b) and (c) above
shall not be recredited by operation of this paragraph.
(e) Equivalencies. The Administrative Committee shall have the
authority to adopt any of the following equivalency methods for counting
Hours of Service that are permissible under regulations issued by the
Department of Labor: (i) Working Time; (ii) Periods of Employment; (iii)
Earnings; or (iv) Elapsed Time. The adoption of any equivalency method for
counting Hours of Service shall be evidenced by a certified resolution of
the Committee, which shall be attached to and made part of the Plan. Such
resolution shall indicate the date from which such equivalency shall be
effective.
(f) Miscellaneous. Unless the Administrative Committee directs
otherwise, the methods of determining Hours of Service when payments are
made for other than the performance of duties and of crediting such Hours
of Service to Plan Years set forth in Department of Labor Regulations
Sections 2530.200b-2(b)
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and (c), shall be used hereunder and are incorporated by reference into the
Plan.
Participants on military leaves of absence who are not directly or
indirectly compensated or entitled to be compensated by the Company while on
such leave shall be credited with Hours of Service as required by Section 9 of
the Military Selective Service Act.
Notwithstanding any other provision of this Plan to the contrary, an
Employee shall not be credited with Hours of Service more than once with respect
to the same period of time.
2.21. "Investment Manager" means an investment advisor, bank or insurance
company, meeting the requirements of ERISA Section 3(38), appointed by the
Company to manage the Plan's assets in accordance with the Trust Agreement.
2.22. "Normal Retirement Date" means the first day of the calendar month
coincident with or following the date on which a Participant attains age 65.
2.23. "Participant" means an Employee participating in the Plan in
accordance with Article 3.
2.24. "Plan" means the Pennsylvania Savings Bank Employee Stock Ownership
Plan, as set forth in this document and in the Trust Agreement pursuant to which
the Fund is maintained, in each case as amended from time to time.
2.25. "Plan Year" means the calendar year.
2.26. "Suspense Account" means the account established and maintained to
hold Company Stock acquired with the proceeds of an Exempt Loan and held in the
Fund, which Company Stock has not
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been allocated to the Accounts of Participants with respect to the year of such
acquisition.
2.27. "Trust Agreement" means the Agreement of Trust established by the
Company and the Trustee for purposes of holding title to the assets of the Plan.
2.28. "Trustee" means Vincent J. Fumo and Anthony DiSandro as appointed by
the Board of Directors of the Company in accordance with Article 12 to hold
legal title to the assets of the Fund and that expressly agrees to be bound by
the terms and conditions of the Trust Agreement.
2.29. "Valuation Date" shall mean the last business day of the Plan Year,
and such other more frequent dates as the Administrative Committee may from time
to time establish.
2.30. "Year of Service" means a Plan Year in which a Participant completes
at least 1,000 Hours of Service.
THE MASCULINE GENDER, WHERE APPEARING IN THE PLAN, SHALL BE DEEMED TO
INCLUDE THE FEMININE GENDER, UNLESS THE CONTEXT CLEARLY INDICATES TO THE
CONTRARY.
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ARTICLE 3
ELIGIBILITY
3.1. Eligibility Generally. Each Employee who is employed by the Company on
the Effective Date shall be eligible to become a Participant in the Plan as of
the Effective Date provided he has satisfied the requirements of Section 3.2 of
the Plan relating to the completion of an eligibility computation period and
attainment of age 21.
3.2. Eligibility Computation Period. An Employee's eligibility computation
period shall be the twelve consecutive month period beginning with the date the
Employee first performs an Hour of Service. Thereafter, the eligibility
computation period of an Employee shall be the Plan Year, including the Plan
Year that includes the first anniversary of the date of his first Hour of
Service.
3.3. Commencement of Participation. Each Employee who has satisfied the
requirements of Section 3.1 of the Plan shall commence participation in the Plan
on the later of the Effective Date or the Entry Date concurrent with or next
following the date on which he satisfies such requirements.
3.4. Cessation of Participation. An Employee shall cease to be a
Participant upon the earliest of (a) the date on which he retires under the
Plan, (b) the date on which his employment with the Company terminates for any
reason, including death or Disability, (c) the date on which his employment with
the Company is governed by a collective bargaining agreement that does not
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provide for participation in this Plan; or (d) the date on which he becomes a
"leased employee" as defined in Code Section 414(n).
3.5. Special Rules for Participation and Vesting Purposes. For purposes of
determining an Employee's eligibility to participate in the Plan pursuant to
Section 3.1 of the Plan, and for purposes of determining his Years of Service
and vested interest pursuant to this Section 3.5 and Section 4.1 of the Plan,
respectively, Hours of Service shall include an Employee's Hours of Service (a)
with an Affiliate after it became an Affiliate hereunder, (b) while a "leased
employee" as defined in Code Section 414(n) with the Company or an Affiliate
after it became an Affiliate, or (c) while an employee covered by the terms of a
collective bargaining agreement that does not provide for participation in this
Plan.
3.6. Years of Service. A participant's vested interest in his Account shall
be based on his Years of Service. Subject to the reemployment provisions of
Section 3.7 of the Plan, a Participant or Employee shall be credited with a Year
of Service for each Plan Year in which he is credited with 1,000 or more Hours
of Service with the Company.
3.7. Participation upon Reemployment. Upon the reemployment of any person
after the Effective Date who had previously been employed by the Company on or
after the Effective Date, the following rules shall apply in determining his
participation in the Plan and his Years of Service under Section 3.5 of the
Plan:
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(a) No Prior Participation. If the reemployed Employee was not a
Participant in the Plan during his prior period of employment and the
reemployed Employee incurred a one-year Break in Service, he must meet the
requirements of Section 3.1 of the Plan for participation in the Plan as if
he were a new Employee. If the reemployed Employee was not a Participant in
the Plan during his prior period of employment and the reemployed Employee
did not incur a one-year Break in Service, all Service with the Company
before termination of employment and after re-employment will be aggregated
for purposes of meeting the requirements of Section 3.1 of the Plan for
participation in the Plan. For purposes of this Article 3, the term
one-year Break in Service means a twelve consecutive month period during
which the Employee does not perform at least 500 hours of service.
(b) Prior Participation. If the reemployed Employee was a Participant
in the Plan during his prior period of employment, he shall be entitled to
resume participation in the Plan on the date of his reemployment.
(c) Years of Service. Upon reemployment following a Break in Service,
any Employee who was entitled to a nonforfeitable (vested) benefit as of
the date of his original Break in Service will have his Years of Service
before and after the Break in Service aggregated. Any Employee who was not
eligible for a nonforfeitable (vested) benefit under this Plan at the date
of his original Break in Service will have his Years of Service before the
Break in Service aggregated with his Years of
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Service after the Break in Service unless the period commencing with the
date of his termination of employment and ending with the date of his
reemployment exceeds the greater of (i) his Years of Service prior to the
Break in Service or (ii) five years.
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ARTICLE 4
VESTING
4.1. In General. Each Participant shall have a vested interest in his
Account, if any, in accordance with the following vesting schedule:
Years of Service
After the Effective Date Vested Percentage
------------------------ -----------------
0-2 Years of Service 0%
2 or more Years of Service 100%
For purposes of determining an Employee's vested interest under this
Section 4.1, an Employee's Years of Service shall be disregarded as permitted by
Code Section 411(a)(4)(D).
4.2. Normal Retirement Date. Notwithstanding the provisions of Section 4.1
of the Plan, a Participant who terminates employment on or after his Normal
Retirement Date, shall be 100 percent vested in his Account.
4.3. Death or Disability. Notwithstanding the provisions of Section 4.1 of
the Plan, if a Participant's employment is terminated on account of death or
Disability, he shall be 100 percent vested in his Account.
4.4. Forfeiture of Account. If a Participant terminates employment prior to
the time he is 100 percent vested in his Account for a reason other than death,
Disability, or Normal Retirement, then the non-vested amount shall be
immediately forfeited and allocated as of the end of the Plan Year in which the
Participant incurs a one-year Break in Service. Forfeitures shall be allocated
to the Accounts of Participants who were
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<PAGE>
employed by the Company on the last day of the Plan Year with respect to which
forfeitures are allocated in the ratio that the Compensation of each Participant
for such Plan Year bears to the total Compensation of all such Participants for
such Plan Year.
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ARTICLE 5
CONTRIBUTIONS AND ALLOCATIONS
5.1. Company Contributions. For each Plan Year, the Company may contribute
cash or shares of Company Stock, or both, in such amounts as may be determined
by the Board of Directors. In no event, however, shall Company contributions
made under this Section 5.1 exceed fifteen percent (15%) of each Participant's
Compensation, except to the extent Company contributions are used to pay the
interest on an Exempt Loan.
In the event shares of Company Stock are sold to the Trustee for a Plan
Year, the fair market value of such Company Stock shall be determined in
accordance with the provisions of Article 8. Employer contributions made under
this Section 5.1 shall be transferred to the Trustee no later than the due date
(including extensions) for filing the Company's Federal income tax return.
5.2. Time and Manner of Contributions. All Company contributions shall be
paid directly to the Trustee, and a contribution for any Plan Year shall be made
not later than the date prescribed by law for filing the Company's Federal
income tax return (including extensions, if any) for the Company's taxable year
that ends within or with that Plan Year.
5.3. Employee Contributions. Participants are neither permitted nor
required to make contributions to the Plan.
5.4. Recovery of Contributions. The Company may recover contributions to
the Plan, only as set forth in this Section 5.4.
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(a) Contributions made to the Plan shall be conditioned upon the
initial and continuing qualification of the Plan. If the Plan is determined
to be disqualified, contributions made in respect of any period subsequent
to the effective date of such disqualification shall be returned to the
Company.
(b) Contributions made to the Plan shall be conditioned upon their
deductibility under the Code. To the extent that a deduction is disallowed
for any contribution, such amount shall be returned to the Company within
one year after the disallowance of the deduction.
(c) If a contribution, or any part thereof, is made on account of a
mistake of fact, the amount of the contribution attributable to such
mistake shall be returned to the Company within one year after it is made.
5.5. Allocation of Employer Contributions. Subject to the limitations set
forth in Article 6, Employer contributions made to the Trust in the form of cash
or Company Stock for a Plan Year shall be allocated to the Accounts of
Participants in the ratio of the Compensation of each Participant for the Plan
Year to the total Compensation of all Participants for the Plan Year, provided
that the Participant has completed 1,000 Hours of Service and is actively
employed on the last date of the Plan Year.
5.6. Income on Investments. The income, gains, and losses attributable to
investments under the Plan shall be allocated annually or at such other times as
the Administrative Committee
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<PAGE>
may determine to the Accounts of Participants and Beneficiaries who have
undistributed balances in their Accounts on the Valuation Date, in proportion to
the amounts in the Accounts immediately after the preceding Valuation Date, but
after first reducing each Account by any distributions, withdrawals or transfers
from the Trust during the interim period and increasing each Account by any
transfers to the Trust and by contributions made to the Trust during the interim
period.
Distributions from the Plan shall include income, gains, and losses accrued
as of the coincident or immediately preceding Valuation Date, and shall not be
adjusted proportionately to reflect any income, gains, or losses accrued after
that Valuation Date. All valuations shall be based on the fair market value of
the assets in the Trust on the Valuation Date.
5.7. Certain Stock Transactions. Shares of Company Stock received by the
Trustee as a result of a stock split, dividend, conversion, or as a result of a
reorganization or other recapitalization of the Company shall be allocated as of
the day on which such shares are received by the Trustee in the same manner as
the shares of Company Stock to which they are attributable are then allocated.
5.8. Valuation of Trust Fund. As of each Valuation Date, the Trustee shall
determine the fair market value of the Trust, after deducting withdrawals,
distributions, and any expenses of Plan administration paid out of the Trust,
and including any contributions allocated to Participants' Accounts, for the
21
<PAGE>
valuation period ending on the Valuation Date. In determining value, the Trustee
may use such generally accepted methods as the Trustee, in its discretion, deems
advisable, which, in the case of Company Stock shall be in accordance with the
provisions of Article 8.
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ARTICLE 6
MAXIMUM LIMITATION ON ALLOCATIONS
6.1. Participation Solely in This Plan.
(a) If the Participant does not participate in, and has never participated
in another plan qualified under Code Section 401(a) that is maintained by the
Employer, or a welfare benefit fund (as defined in Code Section 419(e))
maintained by the Employer, or an individual medical account (as defined in Code
Section 415(1)(2)) maintained by the Employer, which provides an Annual
Addition, the amount of Annual Additions which may be credited to the
Participant's Account for any Limitation Year shall not exceed the lesser of the
Maximum Permissible Amount or any other limitation contained in the Plan. If the
Company's contribution that would otherwise be contributed or allocated to the
Participant's Account would cause the Annual Additions for the Limitation Year
to exceed the Maximum Permissible Amount, the excess amounts in the
Participant's Account must be allocated and reallocated to other Participants.
If the allocation or reallocation of the excess amounts cause the Maximum
Permissible Amount to be exceeded with respect to each Participant for the
Limitation Year, then these amounts must be held unallocated in a Code Section
415 suspense account. If a Code Section 415 suspense account is in existence at
any time during a Limitation Year pursuant to this Section 6.1, it will not
participate in the allocation of the Trust's investment gains and losses. If a
suspense account is in existence at any time
23
<PAGE>
during a particular Limitation Year, other than the Limitation Year
described in the preceding sentence, all amounts in the Code Section 415
suspense account must be allocated and reallocated to Participants'
Accounts (subject to the Maximum Permissible Amount) before any Employer
contributions may be made to the Plan for that Limitation Year.
(b) Prior to determining the Participant's actual Compensation for the
Limitation Year, the Company may determine the Maximum Permissible Amount
for a Participant on the basis of a reasonable estimation of the
Participant's Compensation for the Limitation Year, uniformly determined
for all Participants similarly situated.
(c) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation Year
will be determined on the basis of the Participant's actual Compensation
for the Limitation Year.
(d) If, after determining the Participant's actual Compensation or, if
as a result of an allocation of forfeitures, there is an amount in excess
of the Maximum Permissible Amount allocated to a Participant's Account, the
excess shall be allocated in the same manner as provided for in Section
6.2(a) of the Plan.
6.2. Participation in Another Defined Contribution Plan.
(a) This Section 6.2 applies if a Participant is also covered under
another defined contribution plan or a welfare benefit fund (as defined in
Code Section 419(e)) or an individual medical account (as defined in Code
Section 415(1)(2) maintained
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<PAGE>
by the Employer which provides an Annual Addition during any Limitation
Year. If the Participant participates in one or more such plans, all
reductions in Annual Additions shall be made under such plans and not under
this Plan. In the event that, notwithstanding the preceding sentence, the
Annual Additions to be credited under this Plan should exceed the Maximum
Permissible Amount, the Annual Additions which would otherwise be credited
to the Participant's Account under any other such plan shall be reduced
prior to making any reduction hereunder, which reduction shall be made to
the maximum extent possible under this Plan and shall be reduced in the
manner set forth in Section 6.1 of the Plan.
6.3. Participation in a Defined Benefit Plan.
(a) In the event a Participant participates in a defined benefit plan
or plans maintained by the Employer as well as this Plan, the sum of the
Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction
will not exceed 1.0 for any Limitation Year. If there is an excess,
appropriate adjustments to the Participant's benefits under defined benefit
plans maintained by the Employer shall be made prior to making any
adjustments to a Participant's Account under this Plan.
(b) For purposes of this Section 6.3, the Defined Benefit Plan
Fraction for any Limitation Year is a fraction:
(i) the numerator of which is the projected annual benefit of the
Participant (as determined under Code Section 415) under all defined
benefit plans of the Employer (determined as of the close of the
year); and
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(ii) the denominator of which is the lesser of - -
(A) the product of 1.25 multiplied by the dollar limitation
in effect under Code Section 415 (b)(1)(A);
(B) the product of 1.4 multiplied by the amount which may be
taken into account under Code Section 415 (b)(1)(B) with
respect to such individual under the defined benefit plan for
such year.
(c) For purposes of this Section 6.3, the Defined
Contribution Plan Fraction for any Limitation Year is a fraction
(i) the numerator of which is the sum of the Annual
Additions to the Participant's accounts under all defined
contribution plans of the Employer as of the close of such
year; and
(ii) the denominator of which is the sum of the lesser
of the following amounts determined for such year and for
each prior Year of Service with the Employer:
(A) the product of 1.25 multiplied by the dollar limitation
in effect under Code Section 415 (c)(1)(A);
(B) the product of 1.4 multiplied by the amount which may be
taken into account under Code Section 415(c)(1)(B) for the
Participant for such year.
6.4. Definitions. The following definitions apply solely for purposes of
this Article 6.
(a) Annual Additions means the sum of the following amounts credited
to a Participant's Account for the Limitation Year:
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(i) employer contributions
(ii) employee contributions
(iii) forfeitures
(iv) amounts allocated to an individual medical account (as
defined in Code Section 415(1)(2)) which is part of a pension or
annuity plan maintained by the Employer which are treated as Annual
Additions to a defined contribution plan, and
(v) amounts derived from contributions paid or accrued, which are
attributable to post-retirement medical benefits, allocated to the
separate account of a key employee, as defined in Code Section 419A(d)
(3), under a welfare benefit fund maintained by the Employer which are
treated as Annual Additions to a defined contribution plan.
(vi) Excess amounts applied to reduce Employer contributions
under Sections 6.2 or 6.1 of the Plan in the Limitation Year will be
Annual Additions for such Limitation Year.
(b) Compensation means wages, salary and other remuneration for
personal services required to be reported pursuant to Code Sections 6041(d)
and 6051(a)(3) except that Compensation will be determined without regard
to any rules under Code Section 3401(a) that limit remuneration based upon
the nature or location of the services performed.
(c) Employer means the Company and all members of a controlled group
of corporations (as defined in Code Section 414(b) and modified by Code
Section 415(h)) all commonly
27
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controlled trades or businesses (as defined in Code Section 414(c) as
modified by Code Section 415(h)), any affiliated service group (as defined
in Code Section 414(m)) of which the Company is a part, and any other
entity required to be aggregated with the Employer pursuant to regulations
under Code Section 414(o).
(d) Limitation Year means the calendar year.
(e) Maximum Permissible Amount means the Maximum Annual Additions that
may be contributed or allocated to a Participant's Account for any
Limitation Year. Such amount shall not exceed the lesser of:
(i) $30,000 (or if greater, 1/4 of the dollar limitation in
effect under Code Section 415 (b)(1)(A)), or
(ii) 25 percent of the Participant's Compensation for the
Limitation Year.
The Maximum Permissible Amount shall be pro-rated in the case of any
Limitation Year of less than 12 months created by the changing of the Limitation
Year.
If no more than one-third of Company contributions to the Plan for a Plan
Year which are deductible under Code Section 404(a)(9) are allocated to the
Accounts of Participants who are Highly Compensated Employees, there shall be
excluded in determining the Maximum Permissible Amount of each Participant for
such Plan Year (A) the contributions applied to the payment of interest on an
Exempt Loan; and (B) any forfeitures of Company contributions if the forfeited
contributions were Company Stock acquired with the proceeds of an Exempt Loan.
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ARTICLE 7
INVESTMENT OF TRUST ASSETS
7.1. Trust.
(a) All assets of the Plan shall be held in the Trust. To the extent
the Trustee deems practical, the Trustee shall use all available cash, as
directed by the Administrative Committee, to purchase Company Stock in open
market transactions, from other stockholders or to buy newly issued Company
Stock from the Company. If the purchase is from the Company or a
Disqualified Person, such purchase shall be for adequate consideration and
no commission is to be charged with respect to the purchase. If no such
stock is available for purchase, or if the Trustee determines that the
purchase of such additional stock is not practical, the Trustee shall
invest in other securities or property, real or personal, consistent with
the requirements of Title I of ERISA. These other securities, property and
cash shall be held by the Trustee in the Investment Fund. The Investment
Fund income shall be allocated as of each Valuation Date to Participant's
Investment Accounts in proportion to the balance in these accounts at the
beginning of the year.
(b) For purposes of this Article 7, Article 9, Article 10 and Article
17, the term "Disqualified Person" means a person defined in Code Section
4975(e), including but not limited to (i) a fiduciary of the Plan; (ii) a
person providing services to the Plan; (iii) an owner of 50% or more of the
combined voting power or value of all classes of stock of the Company
entitled to
29
<PAGE>
vote or the total value of shares of all classes of stock of the Company
and certain members of such owner's family; or (iv) an officer, director,
10% or greater shareholder or highly compensated employee (who earns 10% or
more of the yearly wages) of the Company.
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ARTICLE 8
COMPANY STOCK APPRAISAL
The fair market value of Company Stock shall be determined, on any relevant
day, as follows: (a) if such stock is then traded in the over-the-counter
market, the closing sale price (as reported in the National Market System by
NASDAQ with respect to such stock) for the most recent date (including such
relevant day) during which a trade in such stock has occurred, or (b) if such
stock is then traded on a national securities exchange, the closing sale price
for the most recent date (including such relevant date) during which a trade in
such stock has occurred. If Company stock is not actively traded in the
over-the-counter market, or on a national securities exchange, a valuation of
Company stock required to be made under this Plan shall be made by an
independent appraiser who satisfies requirements similar to those contained in
regulations issued under Code Section 401(a)(28)(C).
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ARTICLE 9
DISTRIBUTIONS
9.1. Termination of Employment. In the event of the Participant's
termination of employment for any reason (including attaining his Normal
Retirement Date, attainment of age 55 and the completion of Five Years of
Service or on account of death or Disability), a Participant shall be entitled
to a distribution of all amounts determined under Article 4 that are credited to
his Account at the times set forth in this Article 9.
9.2. Death. Upon the death of a Participant, all amounts credited to his
Account shall be distributed to his Beneficiary, determined in accordance with
this Section 9.2.
(a) The Administrative Committee may require such proof of death and
such other evidence of the right of any person to receive payment of the
Account of a deceased Participant as the Administrative Committee deems
necessary. The Administrative Committee's determination of death and of the
right of any person to receive payment shall be conclusive and binding on
all parties.
(b) The Beneficiary upon the death of a Participant shall be his
spouse; provided, however, that the Participant may designate, on a form
provided by the Administrative Committee for such purpose, a Beneficiary
other than his spouse, if:
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(i) the spouse has waived the right to be the Participant's
Beneficiary in the manner set forth in subsection (c) of this Section
9.2; or
(ii) the Participant has established to the satisfaction of the
Administrative Committee that he has no spouse or that his spouse
cannot be located.
(c) Any consent by a Participant's spouse to waive a death benefit
must be filed with the Administrative Committee in writing, in a manner,
and on a form provided by the Committee for such purpose. The spouse's
consent must acknowledge the effect of the consent and must be witnessed by
a notary public. The designation of a Beneficiary other than spouse made by
a married Participant must be consented to by his spouse and may be revoked
by the Participant in writing without the consent of the spouse. Any new
beneficiary designation must comply with the requirements of this
subsection (c). A former spouse's waiver shall not be binding on a new
spouse.
(d) In the event the designated Beneficiary fails to survive the
Participant, or if such designation shall be ineffective for any reason,
the Participant's Account shall be paid in the following order of priority:
first to the Participant's surviving spouse, if any; second, if there is no
surviving spouse, to the Participant's surviving children, if any, in equal
shares; third, if there is neither a surviving spouse nor surviving
children, to the legal representatives of the estate of the Participant.
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9.3. Time of Payment.
(a) The distribution of a Participant's Account shall begin as soon as
administratively feasible, but not later than 60 days after the end of the
Plan Year, in which his date of termination of employment occurred.
(b) The distribution of the Participant's Account balance will be in
one lump sum.
9.4. Form of Payment. Distributions of a Participant's Account balance
under this Article 9 shall be made in Company Stock unless the distributee
elects cash.
Such distributions shall be the fair market value of each share multiplied
by the number of shares credited to the Participant's Account, with appropriate
adjustments to reflect intervening stock dividends, stock splits, stock
redemptions, or similar changes to the number of outstanding shares. The fair
market value of a share shall be determined as of the Valuation Date immediately
preceding the date the distribution is made or, in the case of a transaction
between the Plan and a Disqualified Person, determined as of the date of the
transaction.
9.5. Direct Rollover.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article 9, a
distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible rollover distribution
paid directly to an eligible retirement plan specified by the distributee
in a direct rollover.
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For purposes of this Section 9.5, the following definitions apply:
"Eligible rollover distribution". An eligible rollover distribution is any
distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated Beneficiary, or for a specified
period of ten years or more, or any distribution to the extent such distribution
is required under Code Section 401(a)(9); or the portion of any distribution
that is not includable in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to employer securities).
"Eligible retirement plan". An eligible retirement plan is an individual
retirement account described in Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in Code Section 401(a), that
accepts the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
"Distributee". A distributee includes an employee or former employee. In
addition, the employee's or former
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employee's surviving spouse and the employee's or former employee's spouse
or former spouse who is the alternate payee under a qualified domestic
relations order, as defined in Code Section 414(p), are distributees with
respect to the interest of the spouse or former spouse.
"Direct rollover". A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.
9.6. Diversification Election. Notwithstanding any provision of this
Article to the contrary, effective for Plan Years commencing on or after January
1, 2005, a Participant who has attained age 55 and completed at least ten years
of participation in this Plan may elect in writing, on a form provided by the
Administrative Committee for such purpose, within ninety days after the close of
each Plan Year during the Qualified Election Period, to direct the investment of
a portion of his interest in the Company Stock Account not in excess of 25
percent of such interest, less amounts subject to all prior elections under this
Section 9.6 as a transfer to the Pennsylvania Savings Bank Cash or Deferred
Profit Sharing Plan. Upon a Participant's election to diversify a portion of his
interest in the Company Stock Account, Company Stock in an amount equal to the
portion so elected, valued as of the Valuation Date concurrent with or
immediately preceding the date of such election will be transferred to the
Pennsylvania Savings Bank Cash or Deferred Profit Sharing Plan. A participant
may then make investment elections among the several funds. Starting from
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the sixth Plan Year during the Qualified Election Period of a Participant, 50
percent shall be substituted for 25 percent in the preceding sentence.
For purposes of this Section 9.6, "Qualified Election Period" means, with
respect to a Participant, the period beginning with the later of (a) the Plan
Year in which the Participant attains age 55 or (b) the Plan Year in which the
Participant completes at least ten years of participation in the Plan and ending
with the year in which the Participant terminates his employment for any reason.
9.7. Election to Retain Interests in Plan. No distribution shall be made to
a Participant before his Normal Retirement Date unless (a) the Participant's
prior written consent to the distribution has been obtained by the
Administrative Committee, or (b) the value of the Participant's Account does not
exceed $3,500 as of the date of the event giving rise to the distribution.
9.8. Mandatory Distributions.
(a) Subject to the provisions of Section 9.3 of the Plan, unless a
Participant otherwise elects in writing, payment of benefits under this
Plan shall commence not later than sixty days after the close of the Plan
Year in which the latest of the following dates occur:
(i) the date on which the Participant attains age 65;
(ii) the 10th anniversary of the date on which the Participant
commenced participation in the Plan; or
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(iii) the date the Participant terminates employment with the
Company.
(b) (i) Any provision of this Plan to the contrary notwithstanding,
all amounts credited to a Participant's Account shall commence to be
distributed not later than April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2, whether or not
the Participant has terminated employment. Any subsequent distributions for
other distribution calendar years, including the minimum distribution for
the distribution calendar year in which the Participant's initial minimum
distribution on April 1 occurs, will be made in a lump-sum on or before
December 31 of that distribution calendar year. All such distributions
shall be made in accordance with the rules set forth in Code Section 401(a)
(9), including the minimum distribution incidental requirements of Treasury
Regulations Section 1.401(a)(9)-2.
(ii) In the event the Participant dies after distributions have
commenced under this Article 9 but before his entire Account is
distributed, the remaining portion of his Account shall be distributed
at least as rapidly as under the method of distribution being used as
of the date of his death.
(iii) In the event the Participant dies before distributions
under this Article 9 have commenced, then, unless the Beneficiary of
the Participant is his spouse or a designated Beneficiary, the entire
balance in the Account of the Participant shall be distributed on or
before the December 31 of
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the calendar year in which occurs the fifth anniversary of the death
of such Participant.
The preceding paragraph shall not apply if either condition of (A) or (B)
as set forth below are satisfied:
(A) If the Participant's designated Beneficiary is the surviving
spouse of such Participant or former Participant, such distribution shall
not be required to begin prior to the date on which the Participant or
former Participant would have attained age 70 1/2, and at such time may be
distributed over the life expectancy of such spouse (if the surviving
spouse dies prior to commencement of distributions to such spouse, then
this subsection (A) shall be applied as if the surviving spouse were the
Participant or former Participant);
(B) If the Participant or former Participant's distribution, or any
portion thereof, is payable to a designated Beneficiary, such distribution
or portion thereof may be distributed in accordance with regulations over
the life of such designated Beneficiary (or over, a period not extending
beyond the life expectancy of such designated Beneficiary) if such
distribution or portion thereof begins not later than one year following
the Participant or former Participant's death or such later date as may be
prescribed by regulations. For purposes of subsections (A) and (B), life
expectancy shall be calculated in accordance with the provisions of Code
Section 72. Life expectancy of a surviving spouse may be calculated
annually, however. In the case of any other designated Beneficiary, life
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expectancy must be calculated at the time payment first commences.
Any amount payable to a child pursuant to the death of a Participant
or former Participant shall be treated as if it were payable to the
Participant's or former Participant's surviving spouse if such amount would
become payable to the surviving spouse upon such child reaching majority
(or other designated event permitted by regulations).
Any distribution required under the incidental death benefit
requirements of Code Section 401(a)(9) shall be treated as a distribution
required under this Section of 9.8.
9.9. Dividend Distributions.
(a) Any cash dividends on Company Stock acquired with the proceeds of
an Exempt Loan and held in Suspense Account shall be applied first to repay
the principal and, at the Committee's discretion, the interest, of the
Exempt Loan. In addition, if any cash dividends on shares of such Company
Stock allocated to Participant's Accounts are used to pay the principal
and/or the interest of the Exempt Loan at the Committee's discretion,
Company Stock with a fair market value not less than the amount of the
dividends so used must be allocated to the Participants' Accounts to which
such cash dividends would have been allocated.
(b) After the payment of the principal and the interest of the Exempt
Loan, any remaining cash dividends on Company Stock may be used to purchase
Company Stock or allocated to Accounts of Participants to subsection (c)
below.
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(c) In the case of any cash dividends on Company Stock that are
allocable to the Accounts of Participants with respect to vested shares,
they may be paid currently (or within ninety days after the end of the Plan
Year in which the dividends are paid to the Trust) as cash, or the Company
may pay such dividends directly to the Participants' Accounts as the
Administrative Committee may determine.
9.10. Right of First Refusal. In the event a Participant (or former
Participant) or his Beneficiary desires to sell to a third person Company Stock
he received as a distribution from the Plan, the Participant must first offer
the Company, then the Plan, the right to purchase his Company Stock at a price
and on such terms not less favorable to the Participant than the greater of (a)
the price established by a bona fide offer or (b) the fair market value of the
Company Stock using the value determined as of the most recent Valuation Date.
The right of the Company and the Plan to purchase such stock shall lapse on the
14th day after the Participant or former Participant or Beneficiary gives
written notice to the Company or the Plan of the fact that he has received an
offer from a third party to purchase his Company Stock and of the price and
other terms of such offer.
9.11. Prohibited Company Stock Transactions.
(a) No portion of the assets of the Plan attributable to (or allocable
in lieu of) Company Stock acquired by the Plan in a sale to which Code
Section 1042 applies may be allocated to the Account of (i) any Qualifying
Selling Shareholder during the Nonallocation Period, or (ii) any other
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person who owns (after application of Code Section 318(a) without regard to
the employee trust exception in Paragraph _______ hereof) more than 25
percent of (A) any class of outstanding stock of the Company or any of its
Affiliates, or (B) the total value of any class of outstanding stock of the
Company or any of its Affiliates. For purposes of this Section, the
definition of "Affiliate" under Section 1.2 of the Plan shall be modified
in accordance with Code Section 409(1)(4).
(b) For purposes of this Section 9.11, the following initially
capitalized words shall carry the following meanings:
(i) "Qualifying Selling Shareholder" means any shareholder of
Company Stock who makes an election under Code Section 1042(a) with
respect to Company Stock, or any individual who is related to (within
the meaning of Code Section 267(b)) the shareholder of Company Stock
as defined above. The term shall not include any lineal descendant of
such shareholder or if the aggregate amount allocated to the benefit
of all such lineal descendants during the Nonallocation Period does
not exceed more than 5 percent of Company Stock (or amounts allocated
in lieu thereof) held by the Plan which are attributable to a sale to
the Plan by any person related to such descendants (within the meaning
of Code Section 267(c)(4)) in a transaction to which Code Section
1042 applied.
(ii) "Nonallocation Period" means the period beginning on the
date of the sale of Company Stock and ending on the later of the date
which is 10 years after the date of the
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sale, or the date of the Plan allocation attributable to the final
payment of acquisition indebtedness incurred in connection with such
sale.
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ARTICLE 10
RIGHT TO SELL COMPANY STOCK
10.1. Put Requirements.
(a) In the event Company Stock is distributed and is not publicly
traded in the over-the-counter market or on a national securities exchange
at the time of distribution, the Participant, former Participant, or
Beneficiary may have an option (the "Put") to require the Company to
purchase all of the shares actually distributed to him. The Put may be
exercised at any time during the Option Period (as defined in subsection
(f) below) by giving the Administrative Committee and the Company written
notice of the election to exercise the Put. The Put may be exercised by a
former Participant or a Beneficiary only during the Option Period with
respect to which the former Participant or Beneficiary receives a
distribution of Company Stock.
(b) (i) The price paid for Company Stock sold to the Plan or the
Company pursuant to the Put shall be the fair market value of each share
multiplied by the number of shares to be sold under the Put, with
appropriate adjustments to reflect intervening stock dividends, stock
splits, stock redemptions, or similar changes to the number of outstanding
shares. The fair market value of a share shall be determined (A) as of the
Valuation Date immediately preceding the date the Put is exercised, or (B)
in the case of a transaction between the Plan and a Disqualified Person,
determined as of the date of the transaction.
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(ii) If the distribution of Company Stock to a former Participant
or Beneficiary constituted a distribution within one taxable year of
the balance of his Account, the Company reserves the right to
establish guidelines to be exercised in a uniform and
nondiscriminatory manner, to make payment for the shares subject to
the Put on an installment basis in substantially equal annual,
quarterly or monthly payments over a period not to exceed five years,
such period beginning no later than thirty days after exercise of the
Put. The Company shall pay reasonable interest at least annually on
the unpaid balance of the price and shall provide to the former
Participant or Beneficiary adequate security with respect to the
unpaid balance. If the distribution was part of an installment
distribution, the Company shall pay the Participant in cash within
thirty days after exercise of the Put.
(c) The Put shall not be assignable, except that the Participant's or
former Participant's legal representative (in the event of a Participant's
incapacity) or, in the event of a Participant's or former Participant's
death, his Beneficiary shall be entitled to exercise the Put during the
Option Period for which it is applicable.
(d) The Trustee (on behalf of the Plan) in its discretion, may assume
the Company's obligations under this Section at the time a Participant,
former Participant, or Beneficiary exercises the Put, with the Company's
consent. If the Trustee assumes the Company's obligations, the provisions
of
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this Section that apply to the Company shall also apply to the Trustee.
(e) The Administrative Committee shall notify each Participant, former
Participant, and Beneficiary who is eligible to exercise the Put of the
fair market value of each share of Company Stock as soon as practicable
following its determination. The Administrative Committee shall send all
notices required under this Section to the last known address of a
Participant, former Participant, or Beneficiary, and it shall be the duty
of those persons to inform the Administrative Committee of any changes in
address.
(f) For purposes of this Section, the "Option Period" is the period of
sixty days following the day on which a Participant, former Participant, or
Beneficiary receives a distribution. If such person does not exercise the
Put during that sixty-day period, the Option Period shall also be the
sixty-day period beginning on the first anniversary of the day on which he
received a distribution. Notwithstanding the preceding sentences, when
Company Stock is acquired with the proceeds of an Exempt Loan, the "Option
Period" shall be the fifteen (15) month period beginning on the date such
Company Stock is distributed to a Participant (or his Beneficiary). Such
15-month period shall be extended by a period equal to the number of days,
if any, during which the Company is precluded from honoring the put option
by reason of applicable federal or state law.
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ARTICLE 11
VOTING AND TENDER OF COMPANY STOCK
11.1. Voting.
(a) All shares of Company Stock held in the Trust shall be voted by
the Trustee.
(b) Each Participant and Beneficiary shall be entitled to direct the
Trustee as to the manner in which Company Stock allocated to his Account is
to be voted on any and all matters which may be presented to the
shareholders of Company Stock.
(c) With respect to (i) allocated Company Stock as to which no
direction is received, (ii) unallocated shares of Company Stock in the
Suspense Account and (iii) allocated shares of Company Stock that are not
subject to voting right pass through requirement under Code Section 409
(e), the Trustee shall vote such shares in proportion to the response
received from Participants and Beneficiaries for allocated shares under (b)
above. In exercising such discretion, the Trustee shall comply with its
fiduciary duties as required by ERISA.
11.2. Tender.
(a) The Trustee shall not sell, alienate, encumber, pledge, transfer
or otherwise dispose of any Company Stock; except (i) as specifically
provided for in the Plan or a Trust Agreement, or (ii) in the case of a
"tender or exchange offer", as set forth in subsection (b) of this Section
11.2.
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For purposes of this Article 11, the term "tender or exchange offer"
shall mean: (A) any offer for, or request for or invitation for tenders or
exchanges of, or offers to purchase or acquire any shares of Company Stock
that is directed generally to shareholders of the Company, or (B) any
transaction involving Company Stock which may be defined as a "tender
offer" under proposed or final rules or regulations promulgated by the
Securities and Exchange Commission.
(b) (i) In the event of a tender or exchange offer, each Participant
or, if the Participant is not alive, his Beneficiary, shall have the right
to determine confidentially whether to tender or exchange any whole and
fractional shares of Company Stock allocated to his Account and shall be
entitled to instruct the Trustee as to the tender of such shares. Upon
receipt of such instructions, the Trustee shall act with respect to such
Company Stock as instructed. With respect to Company Stock as to which no
instruction is received and shares of Company Stock in the Suspense
Account, the Trustee shall tender such shares in proportion to the response
received from Participants and Beneficiaries as to allocated shares of
Company Stock. In exercising such discretion, the Trustee shall comply with
its fiduciary requirements of ERISA.
(ii) All shares of Company Stock held in the Fund and not
tendered pursuant to subsection (b) (i) of this Section 11.2,
including allocated shares for which no instructions are received,
shall continue to be held by the Trustee.
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(iii) Any shares of Company Stock not tendered by a Participant
or Beneficiary pursuant to subsection (b) (i) of this Section 11.2
shall continue to be held by the Trustee in such Participant's or
Beneficiary's Account. The Account of each Participant or Beneficiary
tendering shares of Company Stock pursuant to subsection (b) (i) of
this Section 11.2 shall be credited with the cash received by the
Trustee in exchange for the shares tendered from such Participant's or
Beneficiary's Account.
11.3. Fiduciary Responsibilities.
Each Participant shall be a "named fiduciary," within the meaning of
ERISA Section 402 (a), with respect to the voting and tender of Company Stock
pursuant to Sections 11.1 and 11.2 of the Plan.
11.4. Procedures for Voting and Tender.
(a) The Administrative Committee shall establish and maintain
procedures by which Participants and Beneficiaries shall be (i) timely
notified of their right to direct the voting and tender of Company Stock
allocated to their Accounts and the manner in which any such directions are
to be conveyed to the Trustee, and (ii) given information relevant to
making such decisions. No directions shall be honored by the Trustee unless
timely and properly conveyed in accordance with such procedures.
(b) Voting instructions received from Participants and Beneficiaries
shall be held in confidence by the Trustee or its delegate for this purpose
and shall not be
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divulged to the Company or to any officer or employee of the Company or to
any other person.
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ARTICLE 12
ADMINISTRATION
12.1. Fiduciary Responsibilities. A fiduciary shall have only those
specific powers, duties, responsibilities and obligations as are specifically
given him under the Plan or the Trust. The Company shall have sole
responsibility to make the contributions provided for under the Plan and, by
action of the Board of Directors, to amend or terminate, in whole or in part,
the Plan or the Trust. The Board of Directors shall have sole responsibility to
appoint and remove members of the Administrative. Committee and the Trustees of
the Plan. The Administrative Committee shall have sole responsibility for the
general administration of this Plan and for the investment policies of the Plan,
for the selection of the Plan's investment funds pursuant to the Plan, and for
the appointment and removal of any Investment Manager. Subject to the provisions
of the Plan and the Trust Agreement, the Trustee shall have sole responsibility
for the administration of the Trust and the management of the assets held in the
Trust, as set forth in the Plan and the Trust. It is intended that each
fiduciary shall be responsible for the proper exercise of his own powers,
duties, responsibilities, and obligations and, except as otherwise provided by
law, shall not be responsible for any act or failure to act by another
fiduciary. A fiduciary may serve in more than one fiduciary capacity with
respect to the Plan. A fiduciary of
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the Plan who is also an Employee shall not be compensated in his capacity as
fiduciary.
12.2. The Administrative Committee. Any member of the Administrative
Committee may resign with sixty (60) days advance written notice to the Board of
Directors. The Administrative Committee shall select a Chairman and a Secretary
to keep records or to assist it in the discharge of its responsibilities. The
Administrative Committee shall have such duties and powers as are necessary to
discharge its responsibilities under the Plan, including, but not limited to,
the following:
(a) To require any person to furnish such information as it requests
for the purpose of the proper administration of the Plan;
(b) To make and enforce such rules and regulations and prescribe the
use of such forms as it deems necessary for the efficient administration of
the Plan;
(c) To construe and interpret the Plan, including the right to
determine eligibility for participation, eligibility for payment, the
amount of benefits payable, the timing of distributions and all other
issues arising under the Plan as well as the right to remedy possible
ambiguities, inconsistencies or omissions; provided, however, that all such
interpretations and decisions shall be applied in a uniform manner to all
similarly situated Participants and Beneficiaries;
(d) To employ and rely upon such advisors (including attorneys,
independent public accountants, investment advisors and enrolled actuaries)
as it deems appropriate or
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helpful in connection with the operation and administration of the Plan;
(e) To maintain complete records of the administration of the Plan;
(f) To prepare and file with the appropriate governmental agencies
such reports as required from time to time with respect to the Plan under
ERISA, the Code, or other laws and regulations governing the administration
of the Plan;
(g) To furnish or disclose to Participants, Employees who may become
Participants, and Beneficiaries information about the Plan and statements
of accrued benefits under the Plan, in accordance with ERISA, the Code, or
other laws and regulations governing the administration of the Plan;
(h) To delegate to one or more members of the Administrative
Committee, or to persons other than Administrative Committee members, any
authority, duty or responsibility pertaining to the administration or
operation of the Plan; provided, however, that each such delegation shall
be made by a written instrument authorized by the Administrative Committee
and maintained with the records of the Plan. If any person other than an
Employee is so designated, such person must acknowledge in writing his
acceptance of the duties and responsibilities delegated to him. All such
instruments and acknowledgements shall be considered a part of the Plan;
(i) To determine, pursuant to procedures adopted by it, whether a
state domestic relations order served upon the Plan is a "qualified
domestic relations order" (as defined in
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Code Section 414 (p)); to place in escrow any benefits payable in the
period during which the Administrative Committee determines the status of
an order; and to take any necessary action to administer distributions
under the terms of a "qualified domestic relations order";
(j) To discharge any responsibilities which are allocated to the
Administrative Committee elsewhere in this Plan.
All decisions and interpretations of the Administrative Committee shall be
binding and shall be entitled to the maximum deference permitted under the law.
12.3. Plan Expenses. The Company shall pay all expenses authorized and
incurred by the Administrative Committee, except to the extent such expenses are
paid from assets of the Trust.
12.4. Meetings and Voting. The Administrative Committee shall act by a
majority vote of its respective members at a meeting or, by written consent of a
majority of its members, without a meeting. The Administrative Committee shall
hold meetings, as deemed necessary by them, although any member may call a
special meeting of his committee by giving reasonable notice to the other
members. The Secretary of the Administrative Committee shall have authority to
give certified notice in writing of any action taken by his committee.
12.5. Compensation. The members of the Administrative Committee, if
Employees, shall serve without compensation.
12.6. Claims Procedures.
(a) Any Participant or Beneficiary ("Claimant") may file a written
claim for a benefit under the Plan with the
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Administrative Committee or with a person named by the Administrative
Committee to receive such claims;
(b) In the event of a denial or limitation of any benefit or payment
due or requested by any Claimant, such Claimant shall be given a written
notification containing specific reasons for the denial or limitation of
his benefit. The written notification shall contain specific reference to
the pertinent Plan provisions on which the denial or limitation is based.
In addition, it shall contain a description of any additional material or
information necessary for the Claimant to perfect a claim and an
explanation of why such material or information is necessary. Further, the
notification shall provide appropriate information as to the steps to be
taken if the Claimant wishes to submit his claim for review. This written
notification shall be given to a Claimant within ninety days after receipt
of his claim by the Administrative Committee (or its delegatee to receive
such claims), unless special circumstances require an extension of time for
processing the claim. If such an extension of time is required, written
notice of the extension shall be furnished to the Claimant prior to the
termination of the ninety-day period and such notice shall indicate the
special circumstances which make the postponement appropriate;
(c) In the event of a denial or limitation of benefits, the Claimant
or his duly authorized representative shall be permitted to review
pertinent documents and to submit issues and comments in writing to the
Administrative Committee.
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In addition, the Claimant or his duly authorized representative may make a
written request for a full and fair review of his claim and its denial by
the Administrative Committee; provided, however, that such written request
must be received by the Administrative Committee (or its delegatee to
receive such requests) within sixty days after receipt by the Claimant of
written notification of the denial or limitation. The sixty-day requirement
may be waived by the Administrative Committee in appropriate cases; and
(d) (i) A decision shall be rendered by the Administrative Committee
within sixty days after the receipt of the request for review; provided,
however, that where special circumstances require an extension of time for
processing the decision, it may be postponed, on written notice to the
Claimant (prior to the expiration of the initial sixty-day period) for an
additional sixty days, but in no event shall the decision be rendered more
than one hundred and twenty days after the receipt of such request for
review.
(ii) Notwithstanding subsection (d) (i) of this Section 12.6, if
the Administrative Committee holds regularly scheduled meetings at
least quarterly to review such appeals, a Claimant's request for
review shall be acted upon at the meeting immediately following the
receipt of the Claimant's request unless such request is filed within
thirty days preceding such meeting. In such instance, the decision
shall be made no later than the date of the second meeting following
the receipt of such request by the Administrative Committee (or its
delegatee
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to receive such requests). If special circumstances require a further
extension of time for processing a request, a decision shall be
rendered not later than the third meeting of the Administrative
Committee following the receipt of such request for review, and
written notice of the extension shall be furnished to the Claimant
prior to the commencement of the extension.
(iii) Any decision by the Administrative Committee shall be
furnished to the Claimant in writing and in a manner calculated to be
understood by the Claimant and shall set forth the specific reason(s)
for the decision and the specific Plan provision(s) on which the
decision is based.
12.7. Liabilities. The Administrative Committee, each member or former
member of such Committee, and each person to whom duties and responsibilities
have been delegated under the Plan shall be indemnified and held harmless by the
Company, to the fullest extent permitted by ERISA, other applicable laws, and
the charter and By-laws of the Company.
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ARTICLE 13
AMENDMENTS
13.1. Right to Amend. Except as otherwise set forth in this Article 13 or
as may be required by law, the Board of Directors reserves the right to amend
the Plan at any time and in any manner, without prior notification,
consultation, or bargaining with any Employee or representative of Employees by
written resolution of the Board of Directors adopted at a duly convened meeting
of the Board of Directors in accordance with the By-Laws of the Company and the
laws of the Commonwealth of Pennsylvania. To the extent required by the Code or
ERISA, no amendment to the Plan shall decrease a Participant's benefit or
eliminate an optional form of distribution. No amendment shall make it possible
for any assets of the Plan to be used for or diverted to any purposes other than
for the exclusive benefit of Participants and Beneficiaries.
13.2. Amendment by Administrative Committee. The Administrative Committee
may adopt any ministerial and nonsubstantive amendment it deems necessary or
appropriate to (a) facilitate the administration, management and interpretation
of the Plan, (b) conform the Plan to current practice, or (c) cause the Plan and
its related Trust to qualify under Code Sections 401 (a) (1), 501 (a) and 4975
(e) (7) or to comply with ERISA or any other applicable laws; provided that such
amendment does not have any material effect on the estimated cost to the Company
of maintaining the Plan.
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13.3. Plan Merger and Asset Transfers. No assets of the Trust shall be
merged or consolidated with, nor shall any assets or liabilities be transferred
to any other plan, unless the benefits payable to each Participant or
Beneficiary, if this Plan were terminated immediately after such action, would
be equal to or greater than the benefits such individuals would have been
entitled to receive if this Plan had been terminated immediately before such
action.
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ARTICLE 14
TERMINATION
14.1. Right to Terminate. While the Company intends the Plan to be
permanent, the Board of Directors reserves the right to terminate the Plan at
any time, without prior notification, consultation, or bargaining with any
Employee or representative of Employees by written resolution of the Board of
Directors adopted at a duly convened meeting of the Board of Directors in
accordance with the By-laws of the Company and the laws of the Commonwealth of
Pennsylvania.
14.2. Effect of Termination. If the Plan is terminated, contributions shall
cease, and the assets remaining in the Trust, after payment of any expenses,
including expenses of administration or liquidation, shall be retained in the
Trust for distribution in accordance with the terms of the Plan. Upon
termination (including a partial termination), or upon the complete
discontinuance of contributions by the Company, all Participants shall be 100
percent vested in their Accounts.
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<PAGE>
ARTICLE 15
MISCELLANEOUS
15.1. Non-alienation of Benefits. Except to the extent set forth in a
"qualified domestic relations order" (as defined in Code Section 414 (p)), or as
otherwise permitted or required by law, no distribution or payment under this
Plan to any Participant or Beneficiary, or assets held in the Trust or Plan,
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, whether voluntary or involuntary, and
any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber
or charge shall be void. Nor shall any such distribution or payment be subject
to the debts, contracts, liabilities, engagements or torts of any person
entitled to such distribution or payment.
15.2. Appointment of Guardian. Where it is established to the satisfaction
of the Administrative Committee that a guardian has been duly appointed on
behalf of a person entitled to a distribution under the Plan, the Administrative
Committee may cause payment to be made to the guardian for the benefit of the
entitled person. The Administrative Committee shall have no responsibility with
respect to the application of amounts so paid.
15.3. Satisfaction of Benefit Claims. The assets of the Trust shall be the
sole source of benefits under this Plan, and each Participant or any other
person who shall claim the right to any payment or benefit under this Plan shall
be entitled to look
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<PAGE>
only to the Trust for such payment or benefit, and shall not have any right,
claim or demand against the Company or any officer or director of the Company.
Such Participant or person shall not have a right to or interest in any assets
of the Trust, except as provided from time to time under this Plan.
15.4. Controlling Law. The provisions of the Plan shall be construed,
administered and enforced under the laws of the United States and the
Commonwealth of Pennsylvania.
15.5. Non-guarantee of Employment. Nothing contained in this Plan shall be
construed as a contract of employment between the Company and any Employee, or
as a right of any Employee to be continued in the employment of the Company or
as a limitation of the right of the Company to discharge any of its Employees,
with or without cause.
15.6. Severability and Construction of the Plan.
(a) If any provision of the Plan or the application of it to any
circumstance(s) or person(s) is invalid, the remainder of the Plan and the
application of such provision to other circumstances or persons shall not
be affected thereby.
(b) Unless the context otherwise indicates, the masculine wherever
used shall include the feminine and neuter; the singular shall include the
plural; and words such as "herein", "hereof," "hereby," "hereunder" and
words of similar import shall refer to the Plan as a whole and not any
particular part of it.
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<PAGE>
15.7. No Requirement of Profits. Contributions may be made to the Plan
without regard to current or accumulated profits of the Company.
15.8. All Risk on Participants and Beneficiaries. Each Participant and
Beneficiary shall assume all risk in connection with any decrease in the value
of the assets of the Trust and the Participants' and Beneficiaries' Accounts.
63
<PAGE>
ARTICLE 16
TOP-HEAVY PROVISIONS
16.1. Determination of Top-Heavy Status.
(a) Any provision of this Plan to the contrary notwithstanding, for
any Plan Year commencing after December 31, 1983, in which the Plan is a
Top-Heavy Plan or a Super Top-Heavy Plan, the provisions of this Article
shall apply. The provisions of this Article shall have effect only to the
extent required under Code Section 416. This Plan shall be deemed a
Top-Heavy Plan only with respect to any Plan Year in which, as of the
Determination Date, the aggregate of the Accounts of Key Employees under
the Plan exceeds 60 percent of the aggregate of the Accounts of all
Employees under the Plan.
(b) If the Plan is not included in a Required Aggregation Group with
other plans, then it shall be Top-Heavy only if (i) when considered by
itself it is a Top-Heavy Plan and (ii) it is not included in a Permissive
Aggregation Group that is not a Top-Heavy Group.
(c) If the Plan is included in a Required Aggregation Group with other
plans, it shall be Top-Heavy only if the Required Aggregation Group,
including any permissively aggregated plans, is Top-Heavy.
16.2. Super Top-Heavy Plan. This Plan shall be a Super Top-Heavy Plan if it
would be a Top-Heavy Plan if 90 percent were substituted for 60 percent.
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<PAGE>
16.3. Top-Heavy Definitions. Solely for purposes of this Article, the
following words and phrases shall have the following meaning;
(a) "Aggregation Group or Top Heavy Group" means either a Required
Aggregation Group or a Permissive Aggregation Group.
(b) "Determination Date" means, with respect to any Plan Year, the
last day of the preceding Plan Year or in the case of the first Plan Year
of any plan, the last day of such Plan Year or such other date as permitted
under rules issued by the U.S. Department of the Treasury.
(c) "The Company" means and all members of a controlled group of
corporations (as defined in Code Section 414(b) as modified by Code Section
415(h)), all commonly controlled trades or businesses (as defined in Code
Section 414(c) as modified by Code Section 415(h)), or affiliated service
groups (as defined in Code Section 414(m)) of which the Company is a part.
(d) "Key Employee" means any employee or former employee (and the
Beneficiaries of such employee) who at any a time during the period of five
years ending on the Determination Date was an officer of the Company if
such individual's annual compensation (as defined in Treasury Regulations
Section 1.415-2(d)) exceeds 50 percent of the dollar limitation under Code
Section 415 (b) (1) (A); an employee who is an owner (or person considered
an owner under Code Section 318) of one of the ten largest interests in the
Company if such individual's
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<PAGE>
compensation exceeds 100 percent of the dollar limitation under Code
Section 415 (c) (1) (A); an owner of 5 percent of the Company; or an owner
of 1 percent of the Company who has annual compensation of more than
$150,000. The determination of who is a Key Employee will be made in
accordance with Code Section 416(i). A Non-Key Employee means any Employee
who is not a Key Employee.
(e) "Permissive Aggregation Group" means a Required Aggregation Group
plus any other plans maintained and selected by the Company; provided that
all such plans when considered together satisfy the requirements of Code
Sections 401(a) (4) and 410.
(f) "Required Aggregation Group" means each qualified plan of the
Company in which at least one Key Employee participates or which enables
any plan in which a Key Employee participates to meet the requirements of
Code Sections 401(a) (4) or 410.
(g) "Valuation Date" means, for purposes of determining if the Plan is
Top-Heavy, the most recent Valuation Date in the period of twelve months
ending on the Determination Date.
16.4. Top-Heavy Rules. For any year in which a Plan is determined to be a
Top-Heavy Plan or a Super Top-Heavy Plan the following rules shall apply:
(a) For each Plan Year in which the Plan is Top-Heavy or Super
Top-Heavy, minimum contributions for a Participant who is a Non-Key
Employee shall be required to be made on behalf
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<PAGE>
of each Participant who is employed by the Company on the last day of the
Plan Year. The amount of the minimum contribution shall be the lesser of
the following percentage of compensation:
(i) 3 percent, or
(ii) the highest percentage at which Contributions are made under
the Plan for the Plan Year on behalf of any Key Employee.
(A) For purposes of this paragraph (ii), all defined
contribution plans included in a Required Aggregation Group shall
be treated as one plan.
(B) This paragraph (ii) shall not apply if the Plan is
included in a Required Aggregation Group and the Plan enables a
defined benefit plan included in the Required Aggregation Group
to meet the requirements of Code Sections 401(a) (4) or 410.
(C) If the highest percentage at which Contributions are
made under the Plan for a top-heavy Plan Year on behalf of Key
Employees is less than 3%, the amounts contributed as a result of
a salary reduction agreement must be included in determining
Contributions made on behalf of Key Employees.
This subsection (a) shall not apply to the extent a Participant other than
a Key Employee is covered by any other qualified plan(s) of the Company and the
Company has provided that the minimum contribution requirements applicable to
this Plan will be satisfied by the other plan(s).
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<PAGE>
(b) For any Plan Year in which the Plan is Top -Heavy or Super
Top-Heavy, only the first $150,000 (or such larger amount as may be
prescribed in rules issued by the U.S. Department of the Treasury) of a
Participant's annual compensation shall be taken into account for purposes
of determining employer contributions under this Plan.
(c) The contributions made to the Plan by the Company on behalf of a
Participant shall be fully vested at all times.
(d) For any Plan Year in which the Plan is Super Top-Heavy, or for any
Plan Year in which the Plan is Top-Heavy and the additional minimum
contributions or benefits required under Code Section 416(h) are not
provided, the dollar limitations in the denominator of the Defined Benefit
Fraction and Defined Contribution Fraction (as defined in Article 6 of this
Plan) shall be multiplied by 100 percent rather than 125 percent. If the
application of the provisions of this Section 16.4 would cause any
Participant to exceed 1.0 for any Limitation Year, then the application of
this Section shall be suspended as to such Participant until such time as
it no longer exceeds 1.0. During the period of such suspension, appropriate
adjustments to the Participant's benefits under defined benefit plans
maintained by the Employer shall be made prior to making any adjustments to
a Participant's Account under this Plan.
(e) The vesting schedule set forth in Section 4.1 of the Plan shall
apply.
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<PAGE>
ARTICLE 17
EXEMPT LOANS
17.1. General. The Trustee shall have the authority and discretion to
borrow money from a Disqualified Person, or another source which is guaranteed
by a Disqualified Person for the purpose of (a) purchasing Company Stock, or (b)
repaying a prior Exempt Loan. Any Exempt Loan shall satisfy all of the
requirements of this Article 17.
17.2. Terms of Exempt Loan Agreements. All Exempt Loans shall satisfy the
following requirements:
(a) The loan shall be primarily for the benefit of Participants and
their Beneficiaries;
(b) The loan shall be for a specified term and shall bear no more than
a reasonable rate of interest.
(c) The collateral pledged by the Trustee shall consist only of the
Company Stock purchased with the borrowed funds, or Company Stock that was
pledged as collateral in connection with a prior Exempt Loan that was
repaid with the proceeds of the current Exempt Loan.
(d) Under the terms of the agreement, the lender shall have no
recourse against the Trust, or any of its assets, except with respect to
the collateral and contributions (other than contributions of Company
Stock) by the Company that are made to satisfy its obligations under the
loan agreement and earnings attributable to such collateral and such
contributions.
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<PAGE>
(e) The payments made on the loan during a Plan Year shall not exceed
an amount equal to the sum of such contributions and the earnings received
during or prior to the year less such payments on the exempt loan in prior
years.
(f) In the event of default, the value of the assets transferred in
satisfaction of the loan shall not exceed the amount of default; moreover,
if the lender is a Disqualified Person, the loan agreement shall provide
for a transfer of assets upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the loan.
17.3. Prohibition on Purchase Arrangements. Except as hereinafter provided
in this Article 17, no Company Stock acquired with the proceeds of an Exempt
Loan shall be subject to a put, call, or other option, or buy-sell or similar
arrangement while held by and when distributed from the Trust, whether or not at
the time of distribution the Plan is an employee stock ownership plan. These
protections and rights which attach to Company Stock acquired with the proceeds
of an Exempt Loan shall not be terminable.
17.4. Suspense Account.
(a) If the Trust has entered into an Exempt Loan, each Participant
Account shall be adjusted for the payment of the Exempt Loan in the manner
set forth in the Trust Agreement. Company contributions made to the Trust
in the form of Company Stock purchased with the proceeds of an Exempt Loan
shall be held in the Suspense Account as the collateral for that Exempt
Loan. Such stock shall be released from the Suspense Account on a
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<PAGE>
pro-rata basis according to the amount of the payment on the Exempt Loan
for the Plan Year, determined under one of the following two alternative
formulas in the discretion of the Administrative Committee:
(i) for each Plan Year during the duration of the Exempt Loan,
the number of shares of Company Stock released shall equal the number
of such shares held in the Suspense Account immediately before release
for the current Plan Year multiplied by a fraction, the numerator of
which is the amount of principal and interest paid for the year and
the denominator of which is the sum of the numerator plus the
remaining principal and interest to be paid for all future years. The
number of future years under the Exempt Loan must be definitely
ascertainable and must be determined without taking into account any
possible extensions or renewal periods. If the interest rate under the
loan is variable, the interest to be paid in future years must be
computed by using the interest rate applicable as of the end of the
Plan Year. If the collateral includes more than one class of Company
Stock, the number of shares of each class to be released for a Plan
Year must be determined by applying the same fraction to each class;
or
(ii) for each Plan Year during the duration of the Exempt Loan,
the number of shares of Company Stock released is determined solely
with reference to the principal payment of the Exempt Loan. If Company
Stock in the Suspense Account is released in accordance with this
subsection (ii), (A) the Exempt Loan must provide for annual payments
of principal
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<PAGE>
and interest at a cumulative rate that is not less rapid at any time
than level annual payments of such amounts for 10 years; and (B)
interest included in any payment is disregarded only to the extent
that it would be determined to be interest under standard loan
amortization tables.
This subsection (ii) will not be applicable if by reason of a renewal,
extension, or refinancing, the sum of the expired duration of the Exempt
Loan, the renewal period, the extension period, and the duration of a new
Exempt Loan exceeds 10 years.
(b) Shares of Company Stock released in accordance with Section
17.4(a) of the Plan shall then be allocated to the Accounts of Participants
first, in an amount equal in value to any dividends paid on shares
previously allocated to Participant's Accounts that are used to repay the
Exempt Loan. The remaining shares of such stock shall be allocated to the
Accounts of Participants in the same manner as described in Section 5.5.
17.5. Sale of Financed Shares. In the event the Plan receives an offer to
participate in a corporate transaction (i.e., a stock sale, asset sale, merger
or consolidation) before all the shares of Company Stock have been released from
the Suspense Account, the Trustee may enter into an agreement for the sale of
all Company Stock which is not allocated to the accounts of Participants, and
use the proceeds thereof to repay an Exempt Loan. Any proceeds of the sale of
unallocated Company Stock
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which is not required to repay the Exempt Loan, will be allocated as earnings to
Participant's Accounts.
73
<PAGE>
IN WITNESS WHEREOF, Pennsylvania Savings Bank has caused this Plan to be
duly executed under seal this 20th day of October, 1995.
PENNSYLVANIA SAVINGS BANK
By /s/ ANTHONY DISANDRO
------------------------
Anthony DiSandro,
President and Chief Operating
Officer
Attest:
/s/ ROSEANNE PAUCIELLO
- -------------------------
Secretary
[SEAL]
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<PAGE>
COMMENCEMENT DATE AGREEMENT
THIS COMMENCEMENT DATE AGREEMENT ("Agreement") dated May 23, 1996 is
between ELEVEN COLONIAL PENN PLAZA ASSOCIATES, a Pennsylvania limited
partnership, whose address is do 275 East Broad Street, Columbus, Ohio 43215,
acting as the duly authorized nominee of The State Teachers Retirement System of
Ohio ("Landlord"), whose address is 275 East Broad Street, Columbus, Ohio 43215
and Pennsylvania Savings Bank, a Pennsylvania corporation ("Tenant"), whose
address is Eleven Penn Center, Philadelphia, Pa.
A. Landlord and Tenant executed a certain Office Lease dated October 10,
1995 (the "Lease").
B. The Lease provides that the Lease will commence on the date that
Landlord delivers possession of the Premises (as defined in the Lease) to
Tenant.
C. Landlord and Tenant now desire to set forth in writing the actual date
of delivery of the Premises and the actual commencement date of the Lease.
NOW THEREFORE in consideration of the mutual covenants and promises
contained herein and other valuable consideration, the parties agree that the
Lease commenced on May 23, 1996 and shall terminate on May 31, 2006.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on the day and year first above written.
Signed and Acknowledged LANDLORD:
the Presence of: ELEVEN COLONIAL PENN PLAZA
ASSOCIATES, a limited partnership
/s/ KELLI A. MURDOCK
- ----------------------
/s/ JEAN M. GIBBONS
- ----------------------
By: The Board of the State Teachers Retirement
System of Ohio
By: /s/ [ILLEGIBLE]
------------------------------
PENNSYLVANIA SAVINGS BANK
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: /s/ [ILLEGIBLE]
--------------------------------
<PAGE>
FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE, entered into as of the 23 day of December,
1996 by and between ELEVEN COLONIAL PENN PLAZA ASSOCIATES, a Pennsylvania
limited partnership, ("Landlord") and PENNSYLVANIA SAVINGS BANK, a Pennsylvania
corporation ("Tenant").
BACKGROUND
A. Landlord and Tenant entered into a lease (the "Original Lease") dated
October 10, 1995 for certain office space consisting of Ten Thousand Seven
Hundred Seventy-Nine (10,779) rentable square feet on a portion of the
Twenty-Sixth (26th) floor (the "Premises") of the Building known as Eleven Penn
Center located in Philadelphia, Pennsylvania. The Original Lease as amended
hereby shall hereinafter be referred to as the "Lease".
B. Landlord and Tenant desire to amend the Original Lease, under the terms
and conditions set forth below, to expand the "Term" of the Original Lease and
in consideration thereof, to provide to Tenant certain concessions as more
particularly set forth herein.
NOW, THEREFORE, intending to be legally bound, and for good and valuable
consideration, the parties agree that the Original Lease is modified and amended
as follows:
1. Extended Term. The Term of the Original Lease shall be extended for one
(1) additional year. Accordingly, Section 2(a) of the Original Lease is hereby
deleted in its entirety and replaced with the following:
"(a) Initial Term. Subject to and upon the terms and conditions set
forth below, the initial term of this Lease shall be for a period of eleven
(11) Lease Years (as hereinafter defined), commencing on the Commencement
Date (as hereinafter defined) and ending on last day of the last month of
the Eleventh (11th) Lease Year."
2. Amendment to Base Rent. In accordance with the extension of the Term as
provided in Paragraph 1 hereof, Section 3(a) of the Original Lease is deleted in
its entirety and replaced with the following:
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<PAGE>
"(a) Base Rental. Tenant shall pay to Landlord, as full service, base
rental (the "Base Rental") during the Term of this Lease, in equal monthly
installments, in advance, on or before the first day of each and every
month during the Term, without notice, demand or set-off, as follows:
Lease Year Per R.S.F. Annual Monthly
---------- ---------- ------ -------
1 $18.00 $194,022.00 $16,168.50
2 $18.25 $196,716.75 $16,393.06
3 $18.50 $199,411.50 $16,617.63
4 $18.75 $202,106.25 $16,842.19
5 $19.00 $204,801.00 $17,066.75
6 $20.00 $215,580.00 $17,965.00
7 $21.00 $226,359.00 $18,863.25
8 $21.50 $231,748.50 $19,312.38
9-11 $22.00 $237,138.00 $19,761.50
The first month's rent due hereunder shall be due and payable upon
execution of this Lease. Notwithstanding the foregoing and provided that Tenant
is not then in default of its obligations beyond applicable grace periods under
this Lease, Tenant shall be entitled to two months of free Base Rent, such
months to be the first two calendar months following the Commencement Date."
3. Abatement of Base Rent. Landlord and Tenant agree and acknowledge that
Tenant's obligations with respect to Base Rent shall abate in their entirety for
the months of November, 1996 and December 1996. Thereafter, Tenant shall not be
entitled to any further rental abatements, free rent, construction allowances,
moving allowances, special concessions or any other leasing concessions with
respect to the Premises except as expressly provided for in this Amendment.
-2-
<PAGE>
4. Renewal Option. Notwithstanding the extension of the Term as set forth
in Paragraph 1 hereof, Landlord and Tenant agree and acknowledge that the
Renewal Option set forth in Section 48 of the Original Lease shall remain in
full force and effect.
5. Estoppel Certificates. Within ten (10) days after written request by
Landlord, Tenant shall execute, acknowledge and deliver to Landlord or to
Landlord's mortgagee, prospective mortgagee, land lessor or prospective
purchaser of the Building and the real property upon which the Building is
erected, an estoppel certificate in form and substance substantially similar to
that attached as Exhibit "A" hereto. Tenant shall make such modifications to
such estoppel certificate as may be necessary to make such certificate true and
accurate, it being intended that any such statement delivered pursuant to this
Paragraph 5 and Section 11 of the Original Lease may be relied upon by any such
mortgagee, prospective mortgagee, prospective purchaser, or land lessor of the
above-referenced property. If Tenant fails to provide such estoppel certificate
with ten (10) days after Landlord's request, Tenant shall be deemed to have
approved the contents of any such certificate submitted to Tenant by Landlord
and Landlord is hereby authorized to so certify.
6. Binding Agreement. This First Amendment shall be binding upon, and shall
Inure to the benefit of, the parties hereto and their respective successors and
assigns.
7. Capitalized Terms. Capitalized terms used but not otherwise defined
herein shall have the same meaning as contained in the Original Lease.
8. Survival of Lease Terms. All of the terms and conditions contained in
the Original Lease shall apply to the Premises except as specifically amended by
the terms and conditions set forth in this First Amendment. As amended and
supplemented by this First Amendment, the Original Lease continues
-3-
<PAGE>
In full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Lease as of the date first above written.
LANDLORD:
ELEVEN COLONIAL PENN PLAZA
ASSOCIATES, a Pennsylvania limited partnership
BY: ELEVEN PENN CENTER CORPORATION
By: /s/ [ILLEGIBLE]
------------------------------------
Attest: /s/ [ILLEGIBLE]
--------------------------------
[Corporate Seal]
TENANT:
PENNSYLVANIA SAVINGS BANK.,
A Pennsylvania corporation
By: /s/ [ILLEGIBLE]
Attest: /s/ [ILLEGIBLE]
------------------------------
[Corporate Seal]
-4-
<PAGE>
EXHIBIT "A"
TENANT ESTOPPEL CERTIFICATE
RE: Premises: Premises of Pennsylvania Savings Bank
Lease Dated: October 10, 1995
Amendment(s) Dated: October __, 1996
Between Eleven Colonla Penn Plaza Associates (Landlord)
and Pennsylvania Savings Bank (Tenant)
Square Footage Leased: 10,779
Floor(s)/Suite #(s): Twenty-Sixth (26th) Floor
The undersigned, Tenant under the above-referenced lease ("Lease"), certifies to
the following:
1. We have taken possession of and accepted the Premises described above, except
as follows:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
___________
2. The lease terms as described below are true and accurate, and the lease is
in full force and effect:
Base Rent:______________________________ per year
Expense Stop:____________________________ per square foot
Escalations:_____________________________________________
Free Rent:__________________________
Commencement Date:_________________________
Expiration Date:_________________________
Renewals:__________________________________
3. No part of the Premises has been subleased or assigned except as follows:____
________________________________________________________________________________
________________________________________________________________________________
___________
4. The rent has been paid
through:___________________________________________________________________
5. The security deposit is
___________________________________________________________________________
There are no tax or insurance
escrows____________________________________________________________________
6. We are not in default of our obligations under the Lease. Landlord, to the
best of our knowledge, is not in default of its obligations under the
Lease. There exists no defense or counterclaim to rent or other sums
required to be paid by us under or pursuant to the Lease.
If Tenant is a corporation, the undersigned is a duly appointed officer of the
corporation signing this certificate and is the incumbent in the office
indicated under his/her name. In any event, the undersigned individual is duly
authorized to execute this certificate.
Date ______________, 19__
Signed: /s/[ILLEGIBLE]
-------------------------------
(Signature)
-------------------------------
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<PAGE>
LEASE AGREEMENT
BETWEEN
ELEVEN COLONIAL PENN PLAZA ASSOCIATES
Landlord
AND
PENNSYLVANIA SAVINGS BANK
A PENNSYLVANIA CORP., Tenant
DATED OCT. 10, 1995
<PAGE>
TABLE OF CONTENTS
1. Premises .............................................................. 1
2. Term .................................................................. 1
(a) Initial Term ................................................... 1
(b) Definitions .................................................... 1
3. Rental ................................................................ 2
(a) Base Rental .................................................... 2
(b) Definitions .................................................... 2
(c) Additional Rental .............................................. 3
(d) Payment of Tax and Operating Expense Adjustment ................ 3
(e) Stabilization .................................................. 4
(f) Dispute of Operating Expenses and Taxes ........................ 4
(g) Adjustments to Operating Expenses and Real Estate Taxes ........ 4
(h) Real Estate Tax Appeal ......................................... 4
(i) Other Charges .................................................. 5
(j) Place of Payment ............................................... 5
4. Construction
(a) Improvements to be Constructed ................................. 5
(b) Work Prior to Commencement Date ................................ 6
(c) Availability of Premises Prior to Commencement Date ............ 6
(d) Substantial Completion ......................................... 6
(e) Delays ......................................................... 7
(f) Condition of Premises .......................................... 7
(g) Effect of Delays ............................................... 7
(h) Overload ....................................................... 7
5. Use of the Premises ................................................... 7
(a) Use ............................................................ 7
(b) Advertisement .................................................. 8
(c) Solicitation ................................................... 8
(d) Care ........................................................... 8
(e) Noise; Odors ................................................... 8
6. Alterations ........................................................... 8
(a) Prohibition .................................................... 8
(b) Indemnification ................................................ 8
(c) Compliance and Supervision of Alterations ...................... 9
(d) Landlord's Property ............................................ 9
(e) Wiring ......................................................... 9
7. Mechanics' liens ...................................................... 9
(a) Tenant's Discharging of liens ................................. 9
(b) Landlord's Discharging of liens ................................ 10
8. Maintenance and Repair ................................................ 10
(a) Tenant's Maintenance ........................................... 10
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<PAGE>
(b) Landlord's Maintenance ......................................... 10
(c) Inspection ..................................................... 10
9. Common Areas .......................................................... 11
(a) Grant .......................................................... 11
(b) Right to Change Common Areas ................................... 11
10. Building Services ..................................................... 11
(a) Electric ....................................................... 11
(b) Water .......................................................... 11
(c) Air-Conditioning and Heat ...................................... 12
(d) Janitor Service ................................................ 12
(e) Elevator Service ............................................... 12
(f) Interruption of Services ....................................... 12
(g) Energy Curtailment ............................................. 12
(h) Normal Business Hours .......................................... 13
(i) Holidays ....................................................... 13
(j) Directory ...................................................... 13
11. Estoppel Certificates ................................................. 13
12. Indemnification; Waiver of Claims ..................................... 13
13. Insurance ............................................................. 14
(a) Tenant's Insurance ............................................. 14
(b) Landlord as Additional Insured ................................. 14
(c) Landlord's Insurance ........................................... 14
(d) Increase in Premiums ........................................... 14
14. Waiver of Subrogation ................................................. 14
15. Holding Over .......................................................... 15
16. Assignment and Sublease ............................................... 15
(a) Prohibition .................................................... 15
(b) Option to Cancel ............................................... 15
(c) Right to Collect Rents Directly ................................ 15
(d) Excess Rent .................................................... 16
17. Quiet Enjoyment ....................................................... 16
18. Compliance with Laws and with Rules and Regulations ................... 16
(a) Laws ........................................................... 16
(b) Rules and Regulations .......................................... 16
19. Fire and Casualty ..................................................... 16
(a) Termination .................................................... 16
(b) Restoration .................................................... 17
20. Eminent Domain ........................................................ 17
(a) Taking ......................................................... 17
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(b) Termination .................................................... 17
(c) No Reduction in Rent ........................................... 17
21. Default ............................................................... 18
(a) Defaults ....................................................... 18
(b) Accelerated Rent Component ..................................... 19
(c) Re-entry ....................................................... 19
(d) Continuing Liability ........................................... 19
(e) No Duty to Relet ............................................... 19
(f) Additional Rights .............................................. 19
(g) Bankruptcy ..................................................... 20
(h) Overdue Payments ............................................... 20
(i) Waiver of Defects .............................................. 20
(j) Right or Remedy ................................................ 20
(k) Confession of Judgment ......................................... 20
22. Waiver of Default or Remedy ........................................... 21
23. Landlord's Lien ....................................................... 21
24. Uniform Commercial Code ............................................... 21
25. Force Majeure ......................................................... 21
26. Subordination of Lease ................................................ 22
(a) General ........................................................ 22
(b) Rights of Purchaser ............................................ 22
(c) Rights of Mortgagee ............................................ 22
27. Notices and Consents .................................................. 22
28. Security Deposit ...................................................... 23
29. Miscellaneous Taxes; Use and Occupancy Tax ............................ 23
(a) Other Taxes .................................................... 23
(b) Use and Occupancy Tax .......................................... 23
30. Substitute Premises ................................................... 23
31. Brokerage Commission .................................................. 23
32. Hazardous Devices and Contaminants .................................... 23
(a) Prohibition .................................................... 23
(b) Indemnification ................................................ 23
(c) Definitions .................................................... 24
33. Exculpation ........................................................... 24
34. Signs ................................................................. 24
35. Locks ................................................................. 24
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36. Employment ............................................................ 25
37. Plumbing .............................................................. 25
38. Certain Rights Reserved to Landlord ................................... 25
39. Miscellaneous ......................................................... 25
40. Relationship of Parties ............................................... 26
41. Gender and Number ..................................................... 26
42. Topic Headings ........................................................ 26
43. Counterparts .......................................................... 26
44. Entire Agreement ...................................................... 26
45. Recording ............................................................. 26
46. Governing Law; Invalidity of any Provisions ........................... 26
47. Right of First Offer .................................................. 26
48. Renewal .............................................................. 27
49. Conditions ............................................................ 27
50. 2002 Termination ...................................................... 28
51. Building Name/Termination ............................................. 28
EXHIBITS
A Floor Plan
B Legal Description
C Commencement Date Agreement
D Tenant Improvements
E Tenant Estoppel Certificate
F Rules and Regulations
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LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), dated Oct. 10, 1995, is between Eleven
Colonial Penn Plaza Associates, a Pennsylvania limited partnership ("Landlord")
and PENNSYLVANIA SAVINGS BANK, PENNSYLVANIA CORPORATION ("Tenant").
1. Premises. In consideration of the rents, terms, provisions and covenants
of this Lease, Landlord hereby leases exclusively unto Tenant and Tenant hereby
rents and accepts from Landlord those certain premises containing approximately
10,779 rentable square feet, located on the 26th Floor, including all entrances
thereto (the "Premises"), of that certain building known as Eleven Penn Center
(or such other name as Landlord may from time to time designate) and located at
the northeast corner of 19th and Market Streets, Philadelphia, Pennsylvania (the
"Building"), which Building contains approximately Six Hundred Seventy Nine
Thousand Six Hundred Eighteen (679,618) net rentable square feet of office space
and approximately Four Thousand One Hundred and Eighty-Seven (4,187) net
rentable square feet of retail space. The Premises are outlined on the floor
plan attached hereto as Exhibit A and incorporated herein by reference. The land
on which the Building is situated, together with all improvements located
thereon (collectively, the "Property"), is more particularly described on
Exhibit B, attached hereto and incorporated herein by reference. Tenant shall
have the non-exclusive right, in common with Landlord and other tenants, to use
the Common Areas of the Building, including the lobby, the entrances and the
elevators.
2. Term.
(a) Initial Term. Subject to and upon the terms and conditions set forth
below, including without limitation the provisions of Paragraph 2(d), the
initial term of this Lease shall be for a period of ten (10) Lease Years (as
hereinafter defined), commencing on the Commencement Date (as hereinafter
defined) and ending on last day of the last month of the tenth (10th) Lease
Year.
(b) Definitions. For purposes of this Lease, the following terms shall have
the following meanings:
(i) "Commencement Date" shall mean the later of (i) January 1, 1996 or
(ii) the date upon which the Premises are substantially completed (as
hereinafter defined) or (iii) the date on which all conditions set forth in
Section 49 below are satisfied. Promptly upon determination of the
Commencement Date, Landlord and Tenant shall execute a memorandum, setting
forth the Commencement Date and the expiration date of this Lease, in form
and substance substantially similar to that attached hereto as Exhibit C
and incorporated by reference.
(ii) "Lease Year" shall mean each twelve (12) month period commencing
on the first day of the first full month after the Commencement Date and
each anniversary thereafter during the Term (as hereinafter defined) of
this Lease; provided, however, that if the Commencement Date is the first
day of the month, the first Lease Year shall commence on the Commencement
Date. The first Lease Year shall commence on the Commencement Date and end
on the last day of the last month of the first Lease Year regardless of
whether the first Lease Year is longer than twelve (12) months.
(iii) "Term" shall mean the initial term of this Lease and any
renewals or extensions thereoL
(iv) "Base Year" shall mean calendar year 1996.
<PAGE>
3. Rental.
(a) Base Rental. Tenant shall pay to Landlord base rental (the "Base
Rental") during the Term of this Lease, in equal monthly installments, in
advance, or or before the first day of each and every month during the Term,
without notice, demand or set-off, as follows:
Lease Year Per R.S.F. Annual Monthly
- ---------- ---------- ------ -------
1. $18.00 $194,022.00 $16,168.50
2 $18.25 $196,716.75 $16,393.06
3 $18.50 $199,411.50 $16,617.63
4 $18.75 $202,106.25 $16,842.19
5 $19.00 $204,801.00 $17,066.75
6 $20.00 $215,580.00 $17,965.00
7 $21.00 $226,359.00 $18,863.25
8 $21.50 $231,748.50 $19,312.38
9-10 $22.00 $237,138.00 $19,761.50
The first month's rent due hereunder shall be due and payable upon
execution of this Lease. Notwithstanding the foregoing and provided that Tenant
is not then in default under this Lease, Tenant shall be entitled to two months
of free Base Rent, such months to be the first two calendar months following the
Commencement Date.
(b) Definitions. For purposes of this Lease, the following terms shall have
the following meanings:
(i) "Tenant's Proportionate Share of Operating Expenses" shall mean a
percentage factor, determined by dividing the net rentable square footage
contained in the Premises by the net rentable square footage contained in
the office portion the Building, or one and 59/100 percent (1.59%).
(ii) "Tenant's Proportionate Share of Real Estate Taxes" shall mean a
percentage factor, determined by dividing the net rentable square footage
contained in the Premises by the net rentable square footage contained in
the office and retail portions of the Building, or one and 58/100 percent
(1.58%).
(iii) "Operating Expenses" shall mean those expenses paid or incurred
by or on behalf of Landlord in respect to the management, operation,
service and maintenance of the Property. Operating Expenses shall include,
but not be limited to, (A) premium cots for liability, boiler, extended
coverage, casualty and other insurance covering the Property to be
maintained by Landlord and required by the terms of this Lease; (B)
electricity, gas, water and other utility charges for the Property other
than that paid by tenants; (C) repair and maintenance of HVAC systems,
elevators, irrigation systems and other mechanical systems; (D) repair and
maintenance of the Common Areas (as hereinafter defined) and the Building
structure and roof; (E) trash removal and snow removal; (F) janitorial
service; (G) wages, salaries and fees of operating, auditing, accounting,
maintenance and management personnel in connection with the Property; (H)
all payroll charges for such personnel, such as unemployment and social
security taxes, workers' compensation, health, accident and group
insurance, and other so-called fringe benefits; (I) rental charges for
office space chargeable to the operation and management of the Property;
(J) license permits and inspection fees; (K) supplies and materials used in
the operation and management of the Property; (L) furnishings and
equipment not treated by Landlord as capital expenditures of the Property;
(M) the cost of any labor saving devices that may, from time to time, be
placed in operation as a part of Landlord's program; (N) personal property
taxes on property used in the operation, maintenance, service
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and management of the Property; (O) the cost, as reasonably amortized by
Landlord, with interest at the rate of ten percent (10%) per annum on the
unamortized amount, of any capital improvement made after completion of initial
construction of the Building which reduces Operating Expenses, but in an amount
not to exceed such reduction for the relevant year; (P) the cost, as amortized
by Landlord in accordance with generally accepted accounting principles and
Internal Revenue Service rulings, with interest at the rate of ten percent (10%)
per annum on the unamortized amount, of any capital improvement made after
completion of initial construction of the Building, which directly enhances the
safety of the tenants in the Building generally; (Q) reasonable management fees
for the Property which are comparable to the market rate for management fees at
other similar first-class office buildings in the City of Philadelphia; (R) the
cost of any installation or improvement, capital or otherwise, required by
reason of any law, ordinance or regulation, which requirement did not exist on
the date of the Lease and is generally applicable to similar office buildings;
and (S) all other similar expenses necessary for the operation and management of
the Property. Operating Expenses shall not include Real Estate Taxes; the cost
of special services rendered to tenants; any cost of preparation of space for
new tenants; costs of repairs or other work occasioned by fire or other casualty
to the extent covered by insurance; any cost borne directly by Tenant under this
Lease; leasing commissions; advertising or related costs; depreciation; interest
payments; debt service payments; the cost of any repair or replacement which by
standard accounting practice should be capitalized; environmental clean up costs
incurred as a result of actions by parties other than Tenant, legal costs for a
sale or refinance, leasing of space, collection of rent or bankruptcy.
(iv) "Real Estate Taxes" shall mean all taxes and assessments, special
or otherwise, exclusive of penalties or discounts levied upon or with
respect to the Property, including the Premises, imposed by any federal,
state or local governmental agency, including, without limitation, any form
of real property tax or assessment, rapid transit tax or assessment,
benefit assessment, business or license fee or tax, commercial rental tax,
assessment for Center City District services or any use, occupancy, excise,
sales or other like taxes (other than general income taxes on rent or other
income from the Building). Real Estate Taxes also shall include the expense
of contesting the amount or validity of any such taxes, charges or
assessments, such expense to be applicable to the period of the item
contested. Real Estate Taxes shall not, however, include income, franchise,
capital stock, estate or inheritance taxes unless Landlord reasonably
determines that such taxes are in lieu of real estate taxes, assessments,
rental, occupancy and other like excise taxes. For purposes of this Lease,
Real Estate Taxes for any calendar year shall be those taxes the last
timely payment date for which occurs within such calendar year. In case of
special taxes or assessments payable in installments, only the amount of
the installment(s) the last timely payment date for which occurs on or
after the first day and on or before the last day of such year shall be
included in Real Estate Taxes for that year. Landlord acknowledges that,
based on representations from Tenant, Tenant is an exempt entity for
purposes of the City of Philadelphia Use and Occupancy Tax.
(c) Additional Rental. For and with respect to each calendar year
subsequent to the Base Year, Tenant shall pay to Landlord, as "Additional
Rental", (i) Tenant's Proportionate Share of Operating Expenses of the total
dollar increase, if any, in Operating Expenses for such year over Operating
Expenses for the Base Year and (ii) Tenant's Proportionate Share of Real Estate
Taxes of the total dollar increase, if any, in Real Estate Taxes for such year
over Real Estate Taxes for the Base Year (collectively the "Tax and Operating
Expense Adjustment"). Said Additional Rental shall be prorated on a per diem
basis for any partial calendar year included within the Term. Base Year for Real
Estate Taxes and Operating Expenses shall be the calendar year of 1996;
therefore, payments for Tax Adjustment and Operating Expense Adjustment shall be
applied to calendar year 1997.
(d) Payment of Tax and Operating Expense Adjustment. To provide for current
payments of Operating Expenses and Real Estate Taxes, Tenant shall pay the Tax
and Operating Expense Adjustment, as estimated by Landlord from time to time, in
twelve (12) monthly installments, commencing on the first day of the month
following the month in which Landlord notifies Tenant of the amount of its
estimated Tax and Operating Expense Adjustment. It is intended that Landlord
shall collect an estimated amount of
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Tenant's Tax and Operating Expense Adjustment for each year and then reconcile
such estimated expenses in the following year based on actual Operating Expenses
and Real Estate Taxes for such year paid by Landlord. If Tenant's Tax and
Operating Expense Adjustment shall be greater than or less than the aggregate of
all installments so paid on account to Landlord for such twelve (12) month
period, then within ten (10) days of Tenant's receipt of Landlord's statement of
reconciled Real Estate Taxes and Operating Expenses ("Landlord's Statement"),
Tenant shall pay to Landlord the amount of such underpayment, or Landlord shall
credit Tenant for the amount of such overpayment against the next maturing
installment(s) of rent, as the case may be. The obligation of Tenant with
respect to the payment of Tenant's Tax and Operating Expenses Adjustment shall
survive the termination of this Lease. Any payment, refund, or credit made
pursuant to this subparagraph 3(d) shall be made without prejudice to any right
of Tenant to dispute Landlord's Statement as hereinafter provided, or of
Landlord to correct any item(s) as billed pursuant to the provisions hereof.
Landlord's failure to give Landlord's Statement shall not constitute a waiver by
Landlord of its right to recover rent that is due and payable pursuant to this
subparagraph 3(d).
(e) Stabilization. Intentionally deleted prior to execution.
(f) Dispute of Operating Expenses and Taxes. If Tenant questions in writing
Landlord's Statement (or a revised Landlord's Statement as described below), and
if the question is not amicably settled between Landlord and Tenant within
thirty (30) days after Landlord's Statement (or revised Landlord's Statement)
has been given, Landlord shall, during the sixty (60) days next following the
expiration of such thirty (30) day period, employ an independent certified
public accountant reasonably satisfactory to Tenant to audit Landlord's
Statement. The determination of such accountant shall be final, conclusive and
binding upon Landlord and Tenant. Tenant understands that the actual itemization
of, and the amount of individual items constituting Landlord's Statement is
confidential; and while Landlord shall keep and make available to such
accountant all records in reasonable detail, and shall permit such accountant to
examine and audit such of Landlord's records as may reasonably be required to
verify Landlord's Statement, at reasonable times during business hours, Landlord
shall not be required to (and the accountant shall not be permitted to) disclose
to any person, firm or corporation, including to Tenant, any such details (it
being the intent of the parties that such accountant shall merely certify to
Landlord and to Tenant the correct amount of Landlord's Statement for the
calendar year). Any change in Landlord's Statement required such accountant's
determination shall be made within thirty (30) days after such determination has
been rendered. The expenses involved in such determination shall be borne by
Tenant and deemed to be Other Charges (as hereinafter defined) under this Lease,
unless the results of such audit determine that the difference between the
Landlord's Statement as determined by the audit and Landlord's Statement as
determined by Landlord is greater than three percent (3%) of Landlord's
Statement as determined by Landlord, in which case such expenses shall be borne
by Landlord. If Tenant does not, in writing, question the reconciled Landlord's
Statement within thirty (30) days after such statement has been given, Tenant
shall be deemed to have approved and accepted such reconciled Landlord's
Statement.
(g) Adjustments to Operating Expenses and Real Estate Taxes. If any error
occurs or Landlord or Landlord's accountants discover facts or circumstances,
which error or discovery causes Tenant's Tax and Operating Expense Adjustment
for any period to increase or decrease, upon notice by Landlord to Tenant of the
adjustment to Tenant's Tax and Operating Expense Adjustment for such calendar
year, said adjustment and corresponding deficiency or overpayment shall be paid
by Tenant or taken as a credit by Tenant according to the provisions set forth
above. This provision shall survive the termination of the Lease.
(h) Real Estate Tax Appeal. Landlord shall retain the sole right to
participate in any proceedings to establish or contest the amount of Real Estate
Taxes. If a complaint against valuation, protest of tax rates or other action
increases or decreases the Real Estate Taxes for any calendar year,
4
<PAGE>
resulting in an increase or decrease in rent hereunder, the Real Estate Taxes
for the affected calendar year shall be recalculated accordingly and the
resulting increased rent plus the expenses incurred in connection with such
contest, or decreased rent, less the expenses incurred in connection with such
contest, shall be paid simultaneously with or applied as a credit against, as
the case may be, the rent next becoming due.
(i) Other Charges. All costs, expenses and other sums that Tenant assumes
or agrees to pay to Landlord pursuant to this Lease ("Other Charges") shall be
deemed rental and, in the event of nonpayment thereof, Landlord shall have all
the rights and remedies herein provided for in case of nonpayment of Base
Rental. If a monthly installment of rent is not received on or before the tenth
(10th) day of the month in which it is due, other remedies for nonpayment of
rent notwithstanding, Tenant shall pay to Landlord, a late charge of five
percent (5%) of such installment as rent for the purpose of defraying Landlord's
administrative expenses incident to the handling of such overdue payment, and
such past due rent shall bear interest at a rate of interest equal to the prime
rate as announced from time to time by Bank One, Columbus, NA, plus two percent
(2%) per annum (the "Default Rate"), for each day from the first day of the
month through the date such monthly installment of rent is received by Landlord.
For purposes of this Lease, "rent" shall mean Base Rental, Additional Rental,
and Other Charges.
(j) Place of Payment. Tenant shall pay all rent and other charges due under
this Lease without demand, deduction or set off to Landlord c/o CB Commercial
Real Estate Group, Department 1396, Cincinnati, Ohio 45263-1396, or at such
other place as Landlord may designate from time to time hereafter by written
notice to Tenant.
4. Construction.
(a) Construction Documents. Landlord, with Tenant's approval, shall consult
with its architect, engineer, designer and such other consultants as it shall
deem necessary for the development and timely completion of certain documents as
described in this Section 4(a). Landlord will procure competitive bids for all
construction work done in connection with the Landlord's Work Tenant shall have
the right to reasonably approve the general contractor employed by Landlord,
which approval shall not be unreasonably withheld, delayed or conditioned.
Tenant shall not be liable, directly or indirectly, for the payment of a
construction management fee.
(i) Landlord shall cause to be prepared and delivered to Tenant complete
and final "Construction Drawings", consisting of (a) working drawings and (b)
specifications, for the construction of the Premises for Tenant's occupancy.
(ii) Landlord shall submit the Construction Documents to Tenant for
Tenant's approval, which approval shall not be unreasonably withheld or delayed.
The approval Tenant of the Construction Documents shall be subject to the
following procedural requirements: Tenant shall review the Construction
Documents and either approve the same or return the same to Landlord with
requested modifications. Any Construction Document or modified Construction
Document submitted to Tenant for approval and not returned to Landlord with a
written notice from Tenant requesting modifications within fifteen (15) business
days after the date the document is received Tenant shall be deemed approved by
Tenant.
(iii) In the event that Tenant is unable to obtain the approvals required
by Paragraph 49, Tenant shall reimburse Landlord the costs and expenses incurred
by Landlord in preparing the Construction Documents.
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(b) Improvements to be Constructed.
(i) Landlord shall cause its contractor to construct and install the
improvements to the Premises, other than those improvements which are specified
as "Tenant's Work" on the Construction Documents, in accordance with the
Construction Documents (the "Landlord's Work"); provided, however, that Landlord
reserves the right (a) to make substitutions of materials or components of
equivalent grade and quality when and if any specified material or component
shall not be readily available, and to make changes to the work necessitated by
conditions met in the course of construction, provided that if the architect
determines that any change is material and substantial in nature, then Tenant's
approval of such change shall first be obtained (which approval shall be deemed
given unless withheld in writing within two (2) business days following
Landlord's request therefor). In the event Landlord and Tenant have any
differences with respect to changes each desires to make to the Construction
Documents, Landlord and Tenant shall promptly meet and use good faith efforts to
resolve the differences.
(ii) Tenant shall be entitled to a construction allowance equal to
Thirty-Five Dollars ($35.00) per rentable square foot of the Premises or Three
Hundred Seventy-Seven Thousand Two Hundred Sixty-Five Dollars ($377,265.00) (the
"Allowance"). The Allowance shall be applied against the total cost the
Construction Documents, the cost of the demolition of the Premises and the cost
of providing improvements in accordance with the Plans, including, but not
limited to, the Landlord's Work. To the extent such costs exceed the Allowance,
the excess shall be additional rent and shall be paid by Tenant to Landlord
within thirty (30) days of Tenant's receipt of an invoice therefor. If the cost
of the Landlord's Work and the Construction Documents exceeds the amount of the
Allowance, Tenant may apply any unused portion of the Allowance provided to
Tenant under that certain lease between Landlord and Tenant concerning the
retail space on the ground floor of the Building (the "Bank Lease") to the of
such excess costs, and, if after the application of the unused portion, if any,
of the Allowance under the Bank Lease to the payment of the excess costs, there
are any remaining costs, Tenant shall reimburse Landlord for such remaining
costs within thirty (30) days of Tenant's receipt of an invoice therefor, and
the amount of such remaining costs shall be considered additional rent. If the
cost of the Landlord's Work and the Construction Drawings is less than the
amount of the Allowance, Tenant may apply the unused portion to the cost of
Tenant improvements under the Bank Lease or request Landlord to defer the
payment of the unused amount of the Allowance until such time as Tenant desires
to undertake alterations to the Premises. Landlord shall not be required to
publicly-bid any of the contracts for the Landlord's Work. Except as expressly
set forth in the Construction Documents, Landlord has made no promise to alter,
remodel or improve the Premises, the Building or the Property.
(c) Availability of Premises Prior to Commencement Date. Landlord shall
make the Premises available to Tenant before the Commencement Date to perform
the Tenant's Work and/or to decorate, furnish, and equip the Premises, and
Tenant shall not interfere with the completion of Landlord's Work. Tenant's use
of the Premises for such work shall not create a landlord-tenant relationship
between the parties, or constitute occupancy of the Premises within the meaning
of the next sentence, but the provisions of Paragraphs 12 and 13 of this Lease
shall apply.
(d) Substantial Completion. As used herein, the work in the Premises shall
be "substantially completed" when the work has been completed in accordance with
the plans and specifications (subject to the completion of punch list items) to
a level which satisfies all substantive requirements for the issuance of a
certificate of occupancy, if one is needed (provided that the foregoing
statement shall not be deemed to require the issuance of a certificate of
occupancy as a precondition to substantial completion), and which will, except
for any improvements or work to be performed by Tenant, allow Tenant to utilize
the Premises for its intended purposes without material interference to the
customary business activities of Tenant by reason of the completion of the punch
list items of Landlord's Work.
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(e) Delays. In the event of delays in substantial completion of the
Premises by reason of any of the following, rent shall commence to accrue as if
the delay had not occurred. Accordingly, on the Commencement Date, Tenant shall
pay to Landlord, on account of such accrued rent, 1/365 of the annual Base
Rental multiplied by the aggregate number of days of such delays:
(i) changes in the work to be performed by Landlord in preparing the
Premises for Tenant's occupancy, which are requested by Tenant after Landlord's
approval of Tenant's plans and specifications; or
(ii) any failure by Tenant, without regard to any grace period applicable
thereto, to furnish any required plan, information, approval or consent within a
required period of time.
(f) Condition of Premises. Except for punch list items and as otherwise
agreed to in writing, Tenant's taking possession of the Premises shall be
conclusive evidence against Tenant that the Premises were in good order and
satisfactory condition when Tenant took possession. Landlord has made no
representation respecting the condition of the Premises, the Building or the
Property, except as is expressly set forth in Exhibit D. At the termination of
this Lease, by lapse of time or otherwise, Tenant shall remove all Tenant's
property, including but not limited to, trade fixtures, from the Premises, and
shall return the Premises broom-clean and in good condition, except for ordinary
wear and tear, loss by fire or other casualty, and repairs that Landlord is
required to make under this Lease. If Tenant fails to remove any or all of its
property upon termination of this Lease, such property shall be deemed to be
abandoned and shall become the property of Landlord.
(g) Effect of Delays. Landlord presently estimates that the date of
substantial completion of the Premises will be ninety (90) days after the date
on which Tenant obtains the approvals required by Paragraph 49. If substantial
completion of the Premises shall occur at a later date, or if Landlord shall be
delayed in the delivery of possession of the Premises to Tenant, or if repairs
or improvements of the Premises to be performed by Landlord are not completed,
or for any other reason, whether or not within Landlord's control, Landlord
shall not be subject to any liability to Tenant. Under such circumstances, but
subject to the provisions of Section 4(e) concerning delays attributable to
Tenant, the rent reserved and covenanted to be paid herein shall not commence
until possession of the Premises can be given to Tenant in the required state,
and no such failure to give possession shall in any other respect affect the
validity of this Lease or any obligation of the Tenant hereunder.
(h) Overload. To coordinate orderly move-ins and move-outs, no furniture,
freight or equipment of any kind exceeding three hundred (300) pounds shall be
brought into the Building without prior notice to Landlord and Landlord shall
designate the time and manner of moving of the same. Landlord shall have the
right to prescribe the weight, size and position of all safes and other heavy
equipment brought into the Building and also the times and manner of moving the
same in and out of the Building. Safes or other heavy objects shall, if
considered necessary by Landlord, stand on supports of such thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any such safe or property from any cause, and all
damage done to the Building by moving or maintaining any such safe or other
property shall be repaired at Tenant's expense.
5. Use of the Premises.
(a) Use. Tenant shall use the Premises for banking and general office
purposes compatible with the Building's character as a first-class office
building and for no other purpose whatsoever. Tenant shall not, without the
prior written consent of Landlord, exhibit, sell or offer for sale on the
Premises or in the Building any article or thing, except those articles and
things essentially connected with Tenant's stated use of the Premises.
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(b) Advertisement. Tenant shall not advertise the business, profession or
activities of Tenant conducted in the Building in any manner which violates the
letter or spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business of Tenant, and shall never use any
picture or likeness of the Building in any circulars, notices, advertisements or
correspondence without Landlord's prior written consent.
(c) Solicitation. Tenant shall not disturb, solicit, or canvass any
occupant of the Building and shall cooperate with Landlord to prevent same.
(d) Care. Tenant shall use and occupy the Premises so that no other
occupant of any adjoining premises will be unreasonably disturbed and shall
create no nuisance in, upon or about the Premises. Subject to the provisions of
Paragraph 8(b), Tenant shall take good care of the Premises, the fixtures and
appurtenances thereto, and all alterations, additions and improvements thereto.
Tenant will not make or permit to be made any use of the Premises or any part
thereof, and will not bring into or keep anything in the Premises or any part
thereof, that (i) violates any of the covenants, agreements, terms, provisions
and conditions of this Lease; (ii) directly or indirectly is forbidden by public
law, ordinance or regulation of any governmental or public authority (including
zoning ordinances); (iii) is dangerous to life, limb or property; (iv) increases
the risk to Landlord or any other tenant or invalidate or increase the premium
cost of any policy of insurance carried on the Building or covering its
operation; or (v) in the sole judgment of Landlord, in any way impairs or tends
to impair the character, reputation or appearance of the Property as a
first-class office building, or impairs or interferes with any of the services
performed by Landlord for the Property.
(e) Noise; Odors. Tenant shall not use, keep or permit to be used or kept
any foul or noxious gas or substance in the Premises; permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations; interfere in any way with other tenants or those having business
therein; or bring in or keep any animals or birds in the Premises. Tenant shall
not use the Premises for housing accommodations or lodging or sleeping purposes,
or do any cooking therein, or use any illumination other than electric light.
6. Alterations.
(a) Prohibition. Tenant shall not make any alterations, additions or
improvements (collectively, the "Alterations") in or to the Premises, or in or
to the Building without the express prior written consent of Landlord; provided,
however, that Landlord shall not be unreasonable in withholding or delaying
consent to nonstructural Alterations. Before commencing any work in connection
with the Alterations, Tenant shall furnish to Landlord for its approval the
following: (i) detailed plans and specifications therefor, (ii) names and
addresses of each of the contractors and subcontractors, (iii) copies of all
contracts, subcontracts and necessary permits, (iv) a payment and performance
bond, or other indemnification, in form and amount satisfactory to Landlord,
protecting Landlord against any and all claims, costs, damages, liabilities and
expenses that may arise in connection with the Alterations if such Alterations
exceed $25,000.00, (v) sworn contractor's statements and mechanic lien waivers
covering all work to be performed and such other documentation as is necessary
to comply fully with the mechanics' lien law of the state in which the Premises
is located, and (vi) certificates of insurance, in form and amount satisfactory
to Landlord, from all contractors and subcontractors who will perform labor or
furnish materials, insuring Landlord against any and all liability for personal
injury, including workers' compensation claims and for property damage that may
arise out of or be in any manner connected with the Alterations.
(b) Indemnification. In addition to the indemnity set forth in Paragraph 12
of this Lease, Tenant hereby specifically agrees to indemnify and hold harmless
Landlord from and against any and all liabilities, costs and expenses of every
kind and description, including attorneys' fees, that may arise out of
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or in any manner be connected with any Alterations made by Tenant. Tenant shall
pay the cost of all such Alterations and all costs associated with decorating
the Premises that may be occasioned thereby. Upon completion of any such
Alterations, Tenant shall furnish Landlord with (i) receipted bills covering all
labor and materials used, together with such documentation as is necessary to
comply fully with the mechanics' lien law of the state in which the Premises are
located; (ii) a true and correct copy of the certificate of occupancy, if one is
issued; and (iii) a certificate of Tenant's architect or engineer stating that
such Alterations were made in accordance with the plans and specifications.
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for such labor or material shall attach to or affect
the reversion or other estate or interest of Landlord in and to the Premises.
(c) Compliance and Supervision of Alterations. All Alterations made by
Tenant hereunder shall be installed in a good and workmanlike manner, using only
materials of the same or higher quality as those installed in the Building. All
Alterations shall comply with all requirements of Landlord's insurance carriers
and with all laws, rules, ordinances and regulations of any lawful authority.
Tenant shall permit Landlord to supervise construction operations in connection
with any such Alterations, if Landlord requests the right to do so (but Landlord
shall have no obligation to make such requests, or having done so, to supervise
construction). Landlord's supervision of construction shall be done solely for
the benefit of Landlord and shall not alter Tenant's liability and
responsibility under this Paragraph 6.
(d) Landlord's Property. All Alterations, whether temporary or permanent,
including hardware, non-trade fixtures and wall and floor coverings, whether
placed in or upon the Premises by Landlord or Tenant, shall become Landlord's
property and shall remain with the Premises at the termination of this Lease,
whether by lapse of time or otherwise, without compensation, allowance or
credit to Tenant; provided, however, that notwithstanding the foregoing,
Landlord may request that any or all of said Alterations in or upon the Premises
made by Tenant be removed by Tenant at the termination of this Lease. If
Landlord requests such removal or if Tenant removes its trade fixtures, Tenant
shall remove the same prior to the end of the Term and shall repair all damage
to the Premises, the Building or the Property caused by such removal. Tenant
shall not, however, be required to remove floors, ceilings and pipes and wires
concealed in floors, walls or ceilings, provided that Tenant properly cuts and
caps the same, and seals them off in a safe, lawful and workmanlike manner, in
accordance with Landlord's reasonable requirements and all applicable building
codes. If Tenant does not remove any Alterations when requested by Landlord to
do so, Landlord may remove the same and repair all damage caused thereby, and
Tenant shall pay to Landlord the cost of such removal and repair immediately
upon demand therefor by Landlord, plus five percent (5%) of the cost of such
removal to reimburse Landlord for its administrative expense. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
termination of this Lease.
(e) Wiring. Landlord will direct electricians as to where and how telephone
and computer wires are to be introduced. No boring or cutting for wires will be
allowed without Landlord's written consent. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to
Landlord's approval.
7. Mechanics' Liens.
(a) Tenant's Discharging of Liens. If, because of any act or omission of
Tenant, any mechanic's lien or other lien, charge or order for the payment of
money shall be filed against any portion of the Premises, Tenant, at its own
cost and expense, shall cause the same to be discharged of record or bonded
against within thirty (30) days of the filing thereof unless Tenant shall
contest the validity of such lien by appropriate legal proceedings diligently
conducted in good faith and without expense to Landlord; and Tenant shall
indemnify and save harmless Landlord against and from all costs, liabilities,
suits, penalties, claims and demands, including attorneys' fees, on account
thereof
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(b) Landlord's Discharging of Liens. If Tenant shall fail to cause such
liens to be discharged of record or bonded against within the aforesaid thirty
(30) day period or shall fail to satisfy such liens within ten (10) days after
any judgment in favor of such lien-holders from which no further appeal might be
taken, then Landlord shall have the right to cause the same to be discharged.
All amounts paid by Landlord to cause such liens to be discharged, plus interest
on such amounts at the Default Rate shall constitute Other Charges payable by
Tenant to Landlord.
8. Maintenance and Repair.
(a) Tenant's Maintenance. Tenant, at its sole cost and expense, shall
maintain and repair during the Term of this Lease the Premises and every part
thereof and any and all appurtenances thereto, including but not limited to, the
doors and interior walls of the Premises; special light fixtures; kitchen
fixtures; auxiliary heating, ventilation, or air-conditioning equipment serving
the Premises; and rugs, carpeting, wall coverings, and drapes within the
Premises, whether installed by Tenant or by Landlord on behalf of Tenant, and
whether or not such items will become Landlord's property upon expiration or
termination of this Lease. Notwithstanding the foregoing, Landlord shall
maintain and repair all plumbing fixtures and water supply in the Premises and
Building at Landlord's cost. Notwithstanding the provisions hereof, in the event
that repairs required to be made by Tenant become immediately necessary to avoid
possible injury or damage to persons or property, Landlord may, but shall not be
obligated to, make repairs to such items at Tenant's expense, which shall
constitute Other Charges payable by Tenant to Landlord. Within ten (10) days
after Landlord renders a bill for the cost of said repairs, Tenant shall
reimburse Landlord.
(b) Landlord's Maintenance. Subject to Paragraph 8(a) above, Landlord shall
keep, repair and maintain the Building (including the roof, exterior walls and
structural members, the Common Areas, mechanical and electrical equipment, the
exterior and architectural finish, and all items except those excepted elsewhere
in this Lease) of which the Premises are a part, and the lawn, shrubs and other
landscaping on the Property, all in good and tenantable condition during the
Term of this Lease. Landlord shall, in addition, supply reasonable snow removal
for the walkways of the Property during Normal Business Hours (as hereinafter
defined). Tenant shall notify Landlord immediately when any repair to be made by
Landlord is necessary. If any portion of the Building or the Premises is damaged
through the fault or negligence of Tenant, its agents, employees, invitees or
customers, then Tenant shall promptly and properly repair the same at no cost to
Landlord; provided, however, that Landlord may, at its option, make such repairs
and Tenant shall, on demand, pay the cost thereof, together with interest at
the Default Rate to Landlord as Other Charges. Tenant shall immediately give
Landlord written notice of any defect or need for repairs, after which notice
Landlord shall have reasonable opportunity to repair same or cure such defect.
For the purposes of making any repairs or performing any maintenance, Landlord
may block, close or change any entrances, doors, corridors, elevators, or other
facilities in the Building or in the Premises, and may close, block or change
sidewalks, driveways or parking areas of the Property provided that any such
action does not materially or adversely impact Tenant's use of the Premises for
its Permitted Use and Tenant, its customers and employees have access to the
Premises during Normal Business Hours. Landlord shall not be liable to Tenant,
except as expressly provided in this Lease, for any damage and Tenant shall not
be entitled to any abatement of rent by reason of any repairs, alterations or
additions made by Landlord under this Lease provided that any such action does
not materially or adversely impact Tenant's use of the Premises for its
Permitted Use and Tenant, its customers and employees have access to the
Premises during Normal Business Hours.
(c) Inspection. Tenant shall permit Landlord, its agents, employees and
contractors, at any time in the event of an emergency, and otherwise at
reasonable times after advance written notice to Tenant, to take any and all
measures, including inspections, repairs, alterations, additions and
improvements to the Premises or to the Building, as may be necessary or
desirable to safeguard, protect or preserve the Premises, the Building or
Landlord's interests; to operate or improve the Building; to comply
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on behalf of Tenant with all laws, orders and requirements of governmental or
other authority (if Tenant fails to do so); to examine the Premises to verify
Tenant's compliance with all of the terms, covenants, obligations and conditions
of this Lease; or to exercise any rights with respect to the Premises that
Landlord may exercise in the event of default by Tenant.
9. Common Areas.
(a) Grant. During the Term of this Lease, Landlord grants to Tenant, its
employees, customers and invitees, a nonexclusive license to use, in common with
all others to whom Landlord has granted or may hereafter grant a license to use,
the common areas of the Property, including but not limited to, the sidewalks,
lobbies, halls, passages, exits, entrances, elevators, stairways, restrooms,
parking areas (except as provided for in subparagraph (b) below), driveways and
landscaped areas (collectively, the "Common Areas") subject to reasonable rules
and regulations respecting the Common Areas as Landlord may from time to time
promulgate. The Common Areas shall not be obstructed by Tenant or used for any
purpose other than for ingress to and egress from the Premises. The Common Areas
are not for the use of the general public (but in no way prohibiting entry by
Tenant's customers and invitees) and Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose presence, in
the judgment of Landlord, shall be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that nothing
herein contained shall be construed to prevent such access to persons with whom
Tenant normally deals in the ordinary course of Tenant's business unless such
persons are engaged in illegal activities. Neither Tenant nor its employees,
customers or invitees shall go upon the roof or mechanical floors or into
mechanical areas of the Building.
(b) Right to Change Common Areas. Landlord may do and perform such acts in
and to the Common Areas as, Landlord, in its good business judgment, shall
determine to be advisable but Landlord shall not do anything to materially
disrupt or interfere with access to the Premises. Landlord hereby reserves the
right to make alterations, additions, deletions or changes to the Common Areas,
including, but not limited to, changes in its size and configuration but
Landlord shall not do anything to materially disrupt or interfere with access to
the Premises.
10. Building Services.
(a) Electric. Landlord shall provide electric power to the Premises.
Electric power furnished by Landlord is intended to be that consumed in normal
office use during Normal Business Hours for lighting, heating, ventilating, air
conditioning and operating all office equipment, and shall replace light bulbs
and tubes when required, if requested by Tenant (the cost of such replacement
light bulbs and tubes, plus the labor cost of such replacement, to be chargeable
to Tenant). Landlord reserves the right, if Tenant's consumption of electricity
exceeds that required for normal office use during Normal Business Hours, to
include a charge for such electricity as rent. Such charge shall be based upon
Landlord's actual cost per unit of electricity for the Building applied to the
excess use as determined by an independent engineer selected by Landlord, or at
Landlord's option, to be determined by a submeter to be furnished and installed
at Tenant's expense. If Tenant refuses to pay upon demand of Landlord such
excess charge, such refusal shall constitute a breach of the obligation to pay
rent under this Lease and shall entitle Landlord to the rights granted in this
Lease for such breach. Tenant shall use strict care and caution to ensure that
all electricity is carefully shut off to prevent waste or damage.
(b) Water. Landlord shall provide water for drinking, lavatory and toilet
purposes from the regular Building supply (at the prevailing temperature)
through fixtures installed by Landlord (or by Tenant with Landlord's prior
written consent); provided that Tenant shall reimburse Landlord, at rates fixed
by Landlord, for water used by Tenant for supplementary air-conditioning or
refrigerating installed by or for Tenant and for any other water used by Tenant
(except for public drinking water and public lavatory use).
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(c) Air-Conditioning and Heat. Landlord shall provide air conditioning
and heat to the Premises for comfortable occupancy during Normal Business
Hours, subject at all times, however, to restrictions placed upon Landlord
by any duly constituted governmental agency and/or by any utility supplier.
Tenant shall cooperate fully with Landlord to assure the effective
operation of the Building's air-conditioning and heating systems, including
the closing of venetian blinds and drapes, and if windows are operable, to
keep them closed when the air-conditioning or heating system is in use.
Tenant shall not use any apparatus or device in, upon or about the Premises
that in any way may increase the amount of such services usually furnished
or supplied to tenants in the Building, and Tenant shall not connect any
apparatus or device with the conduits or pipes, or other means by which
such services are supplied for the purpose of using additional or unusual
amounts of such services, without the prior written consent of Landlord. If
Tenant uses such services under this provision to excess, Landlord reserves
the right to charge Tenant for such services, as rent. If Tenant refuses to
make payment upon demand of Landlord, such excess charge shall constitute a
breach of the obligation to pay rent under this Lease and shall entitle
Landlord to the rights granted in this Lease for such breach.
(d) Janitor Service. Landlord shall provide janitor service in and
about the Premises and the Building at the end of each Monday, Tuesday,
Wednesday, Thursday and Friday, except for Holidays (as hereinafter
defined). Tenant shall not provide any janitor service without Landlord's
prior written consent. If Landlord consents to janitor service provided by
Tenant, the same shall be subject to Landlord's rules and regulations and
to Landlord's supervision, but at Tenant's sole cost and expense (without
reduction in Base Rental or Additional Rental). Landlord shall further
provide carpet cleaning in the Common Areas and window cleaning at such
times as Landlord in its sole opinion, considers that such cleaning is
necessary. Each Tenant shall cooperate with any janitor service in keeping
the Premises neat and clean. Landlord shall be in no way responsible to
Tenant, its agents, employees or invitees, for any loss of property from
the Premises or for any damage to property thereon, from any cause.
(e) Elevator Service. Landlord shall provide passenger elevator during
Normal Business Hours and after hours subject to security restrictions.
(f) Interruption of Services. Tenant hereby acknowledges that any one
or more of the utilities or building services specified in this Paragraph
10 may be interrupted or diminished temporarily by Landlord or other person
until certain repairs, alterations or other improvements to the Premises or
other parts of the Property can be made or by any event or cause which is
beyond Landlord's reasonable control, including, without limitation, any
ration or curtailment of utility services; that Landlord does not
represent, warrant or guarantee to Tenant the continuous availability of
such utilities or building services; and that any such interruption shall
not be deemed or construed to be an interference with Tenant's right of
possession, occupancy and use of the Premises, shall not render Landlord
liable to Tenant for damages or entitle Tenant to any reduction of Base
Rental, and shall not relieve Tenant from its obligation to pay Base Rental
and to perform its other obligations under this Lease, unless such
interruption of service continues and renders the Premises or a portion
thereof unusable for more than ten (10) business days, in which event
Tenant shall have a right to abate rent to the extent of the interruption.
(g) Energy Curtailment. Landlord and Tenant specifically acknowledge
that energy shortages in the region in which the Property is located may
from time to time necessitate reduced or curtailed energy consumption on
the Property. Tenant shall comply with all such rules and regulations as
may be promulgated from time to time by any governmental authority with
respect to energy consumption, and during such period of time as such
governmental authority may so require, Tenant shall reduce or curtail
operations in the Premises as shall be directed by Landlord or such
governmental authority. Compliance with such rules and regulations and/or
such reduction or curtailment of operation shall not constitute a breach of
Landlord's covenant of quiet enjoyment or otherwise invalidate or affect
this Lease, and Tenant shall not be entitled to any diminution or abatement
in Base Rental during the periods of reduction or curtailment of
operations.
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(h) Normal Business Hours. For purposes of this Lease, "Normal
Business Hours" shall mean 8:00 a.m. to 6:00 p.m., Monday through Friday,
and 8:00 a.m. to 1:00 p.m. on Saturday and not including Sundays and
Holidays.
(i) Holidays. For purposes of this Lease, Holidays shall mean New
Year's Day, Memorial Day. Fourth of July, Labor Day, Thanksgiving and
Christmas.
(j) Directory. Landlord shall maintain a directory of office tenants
in the lobby area of the Building, on which shall be listed the name of
Tenant and its organizational divisions.
11. Estoppel Certificates. Within ten (10) days after written request by
Landlord or Tenant, the other party shall execute, acknowledge and deliver to
the other party or to Landlord's mortgagee, prospective mortgagee, land lessor
or prospective purchaser of the Property or any part thereof, an estoppel
certificate, in form and substance substantially similar to that attached as
Exhibit E and incorporated herein by reference. Tenant shall make such
modifications to such estoppel certificate as may be necessary to make such
certificate true and accurate, it being intended that any such statement
delivered pursuant to this Paragraph 11 may be relied upon by any such
mortgagee, prospective mortgagee, prospective purchaser, or land lessor of the
Property. If either party fails to provide such estoppel certificate with ten
(10) days after the other party's request, the other party shall be deemed to
have approved the contents of any such certificate submitted.
12. Indemnification: Waiver of Claims.
(a) Tenant shall protect, indemnify, defend, and hold harmless Landlord,
its agents, servants, employees, officers, directors and partners forever
against and from (i) any penalty, damages, charges or costs imposed or resulting
from any violation of any law, order or ordinance of any governmental agency, or
by the use and occupancy of the Premises by Tenant, whether occasioned by the
neglect of Tenant or those holding under Tenant; (ii) all claims, losses, costs,
damages and expenses, including attorneys' fees, arising out of or from any
accident or other occurrence on or about the Premises or the Property causing
injury to any person or property, except caused by the sole active negligence or
intentional act or omission of Landlord or its servants, agents or employees;
(iii) all claims, losses, costs, damages and expenses, including attorneys'
fees, arising out of any failure of Tenant in any respect to comply with or
perform all the requirements and provisions of this Lease or arising out of any
use of the Premises or the Property by Tenant or any one claiming by, through or
under Tenant.
(b) Landlord shall not be liable for, and Tenant hereby waives all claims
against Landlord, (i) for any and all damage or loss to fixtures, equipment or
other property of Tenant and Its servants, agents, employees, contractors,
suppliers, invitees, patrons and guests, in, upon or about the Premises or the
Property, or (ii) for injury or death to any person, occurring in, upon or about
the Premises or the Property, resulting from any cause whatever (except caused
by the sole active negligence or intentional act or omission of Landlord or its
servants, agents or employees), including, but not limited to, water, snow,
frost, ice, explosion, falling plaster, fire or gas, smoke or other fumes, nor
by reason of the leaking, breaking, backing up or other malfunction of any
lines, wires, pipes, tanks, boilers, lifts or any other appurtenances,
regardless by whom installed or maintained (Tenant hereby expressly assuming all
responsibility for the safety and security of the person and property of Tenant,
and its servants, agents, employees, contractors, suppliers, invitees, patrons
and guests, while in, upon or about the Premises). The occurrence of any event
described in this Paragraph 12 shall not constitute a breach of Landlord's
covenant of quiet enjoyment set forth in Paragraph 17.
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13. Insurance.
(a) Tenant's Insurance. Tenant, at its sole cost and expense, shall carry
during the entire Term of this Lease, the following types of insurance:
(i) A commercial general liability insurance, covering both the
Premises and the premises under the Bank Lease, against injuries to persons
occurring in, upon or about the Premises, with minimum coverage of Three
Million Dollars ($3,000,000.00) per occurrence and Three Million Dollars
($3,000,000.00) aggregate coverage per one (1) accident or disaster, and
One Million Dollars ($1,000,000.00) for property damage;
(ii) Fire, extended coverage, vandalism and malicious mischief, and
sprinkler damage and all-risk insurance coverage on all personal property,
trade fixtures, floor coverings, wall coverings, furnishings, furniture,
and contents for their full insurable value on a replacement cost basis;
(iii) Business interruption insurance, against loss or damage
resulting from the same risks as are covered by the insurance mentioned in
subparagraph (i) above in an amount equal to the aggregate of one (1)
year's requirement of (A) Base Rental, (B) the amounts payable by Tenant
for Additional Rental as provided in subparagraph 3(b), and (C) insurance
premiums necessary to comply with this Paragraph 13; and
(iv) Workers' Compensation or similar insurance, if and to the extent
required by law and in form and amounts required by law.
(b) Landlord as Additional Insured. All such insurance required to be
maintained by Tenant shall name Landlord as an additional insured and shall be
written with a company or companies reasonably satisfactory to Landlord, having
a policyholder rating of at least "A" and be assigned a financial size category
of at least "Class XIV" as rated in the most recent edition of "Best's Key
Rating Guide" for insurance companies, and authorized to engage in the business
of insurance in the state in which the Premises are located. Tenant shall
deliver to Landlord copies of such policies and customary insurance certificates
evidencing such paid-up insurance. Such insurance shall further provide that the
same may not be canceled, terminated or modified unless the Insurer gives
Landlord and Landlord's mortgagee(s) at least thirty (30) days' prior written
notice thereof.
(c) Landlord's Insurance. Landlord shall maintain in force, at all times
during the Term of this Lease, a policy or policies of fire and extended risk
insurance including malicious mischief and vandalism to the extent of at least
eighty percent (80%) of the insurable value of the Building, including the value
of the Landlord's Work and the Common Areas.
(d) Increase in Premiums. If insurance premiums payable by Landlord or any
other tenant are increased as a result of any breach of Tenant's obligations
under this Lease or as a result of Tenant's use and occupancy of the Premises,
Tenant shall pay to Landlord an amount equal to any increase in such insurance
premiums.
14. Waiver of Subrogation. Neither Landlord nor Tenant shall be liable to
the other for any business interruption or any loss or damage to property or in
any manner growing out of or connected with Tenant's use and occupation of the
Premises, the Building or the Property or the condition thereof or of the
adjoining property, whether or not caused by the negligence or other fault of
Landlord or Tenant or of their respective agents, employees, subtenants,
licensees or assignees provided, however, that this release shall apply only to
the extent that such business interruption or loss or damage Is covered by
insurance, regardless of whether such insurance is payable to or protects
Landlord or Tenant or both.
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Nothing in this Paragraph 14 shall be construed to impose any other or greater
liability upon either Landlord or Tenant than would have existed in the absence
hereof. Because this Paragraph 14 will preclude the assignment of any claim
mentioned in it by way of subrogation (or otherwise) to an insurance company (or
any other person), each party to this Lease agrees immediately to give to each
insurance company that has issued to it policies of fire and extended coverage
insurance, written notice of the terms of the mutual waivers contained in this
paragraph, and to have the insurance policies properly endorsed, if necessary,
to prevent the invalidation of the insurance coverages because of the mutual
waivers contained in this Paragraph 14.
15. Holding Over. If Tenant retains possession of the Premises or any part
thereof after the termination of this Lease, such tenancy shall (without
limitation on any one of Landlord's rights or remedies therefor) be one at
sufferance from month to month and Tenant shall pay Landlord rent at one and one
half (1-1/2) times the monthly rate in effect immediately prior to the
termination of this Lease for the time the Tenant remains in possession. No
acceptance of rent by, or other act or statement whatsoever on the part of
Landlord or its agent or employee, in the absence of a writing signed by
Landlord, shall be construed as an extension of or as a consent for further
occupancy. Tenant shall indemnify Landlord for all damages, consequential as
well as direct, sustained by reason of Tenant's retention of possession. The
provisions of this Paragraph 15 do not exclude pursuit of Landlord's right of
re-entry or any other right hereunder.
16. Assignment and Sublease.
(a) Prohibition. Tenant shall not assign, convey, mortgage, pledge,
encumber or otherwise transfer this Lease or any interest therein, sublet the
Premises or any part thereof, or permit the use or occupancy of the Premises or
any part thereof by anyone other than Tenant, without receiving Landlord's prior
written consent, which consent shall not be unreasonably withheld or delayed. A
transfer by operation of law, merger or consolidation, or a change of any
partnership interest in Tenant or in the ownership of the voting stock of Tenant
or any direct or indirect parent of Tenant shall be deemed an assignment for
purposes of this Paragraph 16. Notwithstanding the foregoing, this Lease may be
assumed by any bank or savings and loan institution or holding company thereof
which acquires Tenant or is the surviving entity after a merger or consolidation
involving Tenant, provided that the acquiring entity or the entity with which
Tenant is merged or consolidated must have an asset size which is the same as or
larger than Tenant's asset size on the date of the acquisition, merger or
consolidation. Any purported transfer, encumbrance, pledge, mortgage, assignment
or subletting not in compliance herewith shall be void and of no force or
effect. In the event of any assignment, subletting, transfer or occupancy by
someone other than Tenant, whether or not expressly or impliedly approved by
Landlord, Tenant shall, nevertheless, at all times, remain fully responsible and
jointly and severally liable for the payment of the rent and for compliance with
all other obligations imposed upon Tenant under the terms, provisions and
covenants of this Lease. Any assignment or sublease shall contain a provision
whereby the assignee or subtenant agrees to comply with and be bound by all of
the terms, covenants, conditions, provisions and agreements of this Lease to the
extent applicable, and Tenant shall deliver to Landlord, promptly after
execution, an executed copy of each assignment or sublease and an agreement of
compliance by each assignee or subtenant. Any sublease shall also contain a
provision that in the event of default by Tenant hereunder and a termination of
this Lease by Landlord, such subtenant shall, at Landlord's option, attorn to
Landlord as if Landlord were the lessor under the sublease.
(b) Intentionally deleted prior to execution.
(c) Right to Collect Rents Directly. Upon the occurrence of an "event of
default" as set forth in Paragraph 21 hereof, if all or any part of the Premises
is then assigned, sublet, transferred or occupied by someone other than Tenant,
then, in addition to any other remedies provided in this Lease or provided by
law, Landlord, at its option, may collect directly from the assignee, subtenant,
transferee or occupant all
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rent becoming due to Tenant by reason of the assignment, sublease, transfer or
occupancy. Any collection directly by Landlord from the assignee or subtenant
shall not be construed to constitute a novation or a release of Tenant from the
further performance of its obligations under this Lease.
(d) Excess Rent. If Tenant assigns this Lease or sublets all or a portion
of the Premises for an amount in excess of the Base Rental (or the pro rata
share of Base Rental in the case of a sublease of a portion of the Premises),
then Tenant shall pay to Landlord, as rent, fifty percent (50%) of such excess
received by Tenant.
17. Quiet Enjoyment. If Tenant shall pay the rents and other sums due to be
paid by Tenant hereunder as and when the same become due and payable, and if
Tenant shall keep, observe and perform all of the other terms, covenants and
agreements of this Lease on Tenant's part to be kept, observed and performed,
Tenant shall, at all times during the Term herein granted, peacefully and
quietly have and enjoy possession of the Premises without any encumbrance or
hindrance by, from or through Landlord, its successors and assigns, except for
regulations imposed by any governmental or quasi-governmental agency on the
occupancy of Tenant or the conduct of Tenant's business operations.
18. Compliance with Laws and with Rules and Regulations.
(a) Laws. Tenant, at its sole cost and expense, shall procure any permits
and licenses required for the transaction of Tenant's business in the Premises.
Tenant, at its sole cost and expense, shall promptly observe and comply with all
present and future laws, ordinances, requirements, orders, directives, rules and
regulations of all state, federal, municipal and other agencies or bodies having
jurisdiction relating to the use, condition and occupancy of the Premises, the
Building and the Property ("Governmental Requirements") at any time in force,
applicable to the Premises or to Tenant's use thereof, except that Tenant shall
not be under any obligation to comply with any law, ordinance, rule or
regulation requiring any structural alteration of the Premises, unless such
alteration is required because of a condition that has been created by, or at
the instance of, Tenant, or is required by reason of a breach of any of Tenant's
covenants and agreements under this Lease. Landlord shall not be required to
repair any injury or damage by fire or other cause, or to make any repairs or
replacements of any panels, decoration, office fixtures, railing, ceiling, floor
covering, partitions, or any other property installed in the Premises by Tenant.
Tenant, shall also, during the Term and any extension or renewals hereunder,
comply with at its own cost and expense, and shall promptly correct any
violation of all requirements of any insurance underwriters ("Insurance
Requirements"). Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all losses, damages, claims of third parties and cost of
correcting expenses (including attorneys fees and costs of suit or
administrative proceedings) or fines arising out of Tenant's failure to comply
with Governmental Requirements or Insurance Requirements. The provisions of this
Paragraph 18(a) shall survive the expiration or termination of this Lease.
(b) Rules and Regulations. Tenant shall comply with all rules and
regulations for the Building, which current rules and regulations are attached
hereto as Exhibit F and with such commercially reasonable modifications thereof
and additions thereto as Landlord may make hereafter, from time to time.
Notwithstanding anything contained in this Lease, Landlord shall not be
responsible nor liable to Tenant, it agents, representatives, employees,
invitees or licensees, for the nonobservance by any other tenant of any rules
and regulations.
19. Fire and Casualty.
(a) Termination. If the Premises or the Building or any substantial part of
either is damaged or destroyed by fire or other casualty, cause or condition
whatsoever, and Landlord reasonably determines that such damage or destruction
cannot be repaired within one hundred sixty-five (165) days from the date of the
casualty, Landlord shall give written notice thereof to Tenant within forty-five
(45) days of the date
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of the casualty, and thereafter either party may terminate this Lease, by
written notice to the other party given within thirty (30) days after the date
of Tenant's receipt of Landlord's determination. If the Premises are damaged or
destroyed or access thereto or use thereof is affected by the damage, then
Landlord's termination shall be effective as of the date of such damage;
otherwise said termination shall be effective thirty (30) days after such
notice. If this Lease is not terminated by the parties within the foregoing
thirty (30) day period and Landlord does not complete the repair and restoration
of the Premises or the Building, as applicable, within one hundred sixty-five
(165) days of the date of the casualty, Tenant shall have the right, exercisable
no later than one hundred eighty (180) days after the casualty, to terminate
this Lease; provided, however, that Tenant's right to terminate this Lease shall
become null and void if Landlord restores or repairs the Premises or the
Building to a state of substantial completion before Tenant has exercised its
right to terminate this Lease. If the damage is solely to the Premises and not
to the Building generally, the termination of this Lease shall not affect the
Bank Lease.
(b) Restoration. Unless this Lease is terminated as herein above provided,
Landlord shall proceed with due diligence to restore, repair and replace the
Premises and the Building to the same condition as they were in as of the
Commencement Date. Provided such damage or destruction was not caused or
contributed to by an intentional act or negligence of Tenant, its agents,
employees, invitees or those for whom Tenant is responsible, from and after the
date of such damage to date of completion of said repairs, replacements and
restorations allowing Tenant occupancy for business purposes, a just proportion
of the rent shall abate according to the extent the full use and enjoyment of
the Premises are rendered impossible by reason of such damage. Landlord shall be
under no duty to restore any alterations, improvements or additions made by
Tenant. In all cases, due allowance shall be given to Landlord for any
reasonable delays caused by adjustment of insurance loss, strikes, labor
difficulties or any cause beyond Landlord's control in no event shall Landlord
be obligated to replace or repair (i) improvements to the Premises made by or
for any prior tenant, or (ii) any of Tenant's property, including furniture,
furnishings or equipment, Tenant-installed improvements. Tenant shall, promptly
after the completion of Landlord's repairs or restoration, repair and restore
any Tenant-installed improvements and any other improvements to the Premises
made for Tenant at least to the extent of the value and as nearly as possible to
the character of the property involved immediately prior to the casualty, all at
Tenant's cost and expense.
20. Eminent Domain.
(a) Taking. If all the Premises or a substantial part thereof shall be
taken for any public or quasi-public use under any statute or by rights of
eminent domain or by private purchase in lieu thereof; this Lease shall
terminate as of the date of vesting of title. Landlord shall be entitled to
receive the entire award paid for such taking or condemnation, Tenant hereby
assigning to Landlord all Tenant's right, title and interest therein, if any.
Nothing contained herein shall be deemed to give Landlord any interest in or to
require Tenant to assign to Landlord any award made to Tenant for the taking of
personal property or fixtures belonging to Tenant, for the interruption of or
damage to Tenant's business or for Tenant's moving expenses but only if such
award shall be in addition to the award for the Property and the Building (or
portion thereof) containing the Premises.
(b) Termination. If fifty percent (50%) or more of the Building other than
the Premises shall be condemned, taken or purchased in lieu thereof, then
Landlord may terminate this Lease by notifying Tenant of such termination within
sixty (60) days after the date of vesting of title. This Lease shall expire on
the date specified in such notice of termination, which date shall be not less
than sixty (60) days after the giving of such notice. The rent hereunder shall
be apportioned as of such termination date.
(c) No Reduction in Rent. Any such taking, condemnation or temporary
requisition which does not result in a termination of this Lease, as
hereinbefore provided in this Paragraph 20, shall not be cause for any reduction
or diminution of the rental payment hereunder.
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21. Default.
(a) Defaults. If (i) Tenant fails to pay when due any rent, or any other
sums required to be paid hereunder by Tenant, or (ii) Tenant defaults in the
performance or observance of any other agreement or condition on its part to be
performed or observed, and Tenant shall fail to cure said default within thirty
(30) days after receipt of written notice thereof by Landlord, or (iii) Tenant
files a voluntary petition in bankruptcy or is adjudicated a bankrupt or
insolvent, or files any petition or answer seeking any arrangement, composition,
liquidation or dissolution under any present or future federal, state or other
statute, law or regulation relating to bankruptcy, insolvency or other relief
for debtors or seeks or consents to or acquiesces in the appointment of any
trustee, receiver or liquidator of Tenant or of all or any substantial part of
its properties, or of the Premises, or makes any general assignment for the
benefit of creditors, or admits in writing its inability to pay its debts
generally as they become due; or (iv) a court enters an order, judgment or
decree approving a petition filed against Tenant seeking any arrangement,
composition, liquidation, dissolution or similar relief under any present or
future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such order, judgment or
decree shall remain unvacated or unstayed for an aggregate of sixty (60) days
(whether or not consecutive); or (v) Landlord believes in its commercially
reasonable judgment that the prospect of payment or performance of any of the
terms, conditions and covenants of this Lease to be paid or performed by Tenant
are about to be impaired; or (vi) Tenant fails to operate or closes its business
upon the Premises, for reasons other than fire or other casualty or
condemnation, for a period of fifteen (15) consecutive days; or (vii) Tenant
abandons or vacates the Premises or (viii) Tenant defaults in the performance or
observance of any agreement or condition under the Bank Lease not cured within
allowable grace, cure or notice periods; then in any such event and at any time
thereafter, Landlord may, without further notice to Tenant, and in addition to
and not in lieu of any other rights or remedies available to Landlord at law or
in equity, exercise any one or more of the following rights: (i) Upon five (5)
days notice to Tenant, declare to be immediately due and payable, on account of
rent and other charges herein reserved for the balance of the Term (taken
without regard to any early termination of the Term on account of default), a
sum equal to the Accelerated Rent Component (as hereinafter defined), and Tenant
shall remain liable to Landlord as hereinafter provided, and/or (ii) Whether or
not Landlord has elected to recover the Accelerated Rent Component, terminate
this Lease on at least five (5) days notice to Tenant and, on the date specified
in said notice, this Lease and the term hereby demised and all rights of Tenant
hereunder shall expire and terminate and Tenant shall thereupon quit and
surrender possession of the Premises to Landlord in the condition elsewhere
herein required and Tenant shall remain liable to Landlord as hereinafter
provided.
(b) Accelerated Rent Component. For purposes hereof the Accelerated Rent
Component shall mean the aggregate of:
(i) all Base Rental, Additional Rental and Other Charges due from
Tenant to Landlord and in arrears at the time of the election of Landlord
to recover the Accelerated Rent Component,
(ii) the Base Rental reserved for the then entire unexpired balance of
the Term (taken without regard to any early termination of the Term by
virtue of any default), plus all other charges, payments, costs and
expenses herein agreed to be paid by Tenant up to the end of the Term which
shall be capable of precise determination at the time of Landlord's
election to recover the Accelerated Rent Component, discounted to present
value at the rate of five percent (5%) per annum; and
(iii) Landlord's good faith estimate of the Additional Rental and
Other Charges herein agreed to be paid by Tenant up to the end of the Term
which shall not be capable of precise determination as aforesaid (and for
such purposes no estimate of any component of Additional Rental or Other
Charges to accrue pursuant to the provisions of this Lease shall be less
than the amount which
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would be due if each such component continued at the highest monthly rate or
amount in effect during the twelve (12) months immediately preceding the
default), discounted to present value at the rate of five percent (5%) per
annum.
(c) Re-entry. In any case in which this Lease shall have been terminated,
or in any case in which Landlord shall have elected to recover the Accelerated
Rent Component and any portion of such sum shall remain unpaid, Landlord may
without further notice, enter upon and repossess the Premises in accordance with
applicable law, by summary proceedings or ejectment and may dispossess Tenant
and remove Tenant and all other persons and property from the Premises and may
have, hold and enjoy the Premises and the rents and profits therefrom. Landlord
may, in its own name, as agent for Tenant, if this Lease has not been
terminated, relet the Premises or any part thereof for such term or terms (which
may be greater or less than the period which would otherwise have constituted
the balance of the Term) and on such conditions and provisions (which may
include concessions or free rent) as Landlord in its sole discretion may
determine. Landlord may, in connection with any such reletting, cause the
Premises to be redecorated, altered, divided, consolidated with other space or
otherwise changed or prepared for reletting. No reletting shall be deemed a
surrender and acceptance of the Premises.
(d) Continuing Liability. Tenant shall, with respect to all periods of time
up to and including the expiration of the Term (or what would have been the
expiration date in the absence of default or breach) remain liable to Landlord
as follows:
(i) In the event of termination of this Lease on account of Tenant's
default or breach, Tenant shall remain liable to Landlord for damages equal
to the rent payable under this Lease by Tenant as if this Lease were still
in effect, less the net proceeds of any reletting after deducting all costs
incident thereto (including without limitation all repossession costs,
brokerage and management commissions, operating and legal expenses and
fees, alteration costs and expenses of preparation for reletting) and to
the extent such damages shall not have been recovered by Landlord by virtue
of payment by Tenant of the Accelerated Rent Component (but without
prejudice to the right of Landlord to demand and receive the Accelerated
Rent Component), such damages shall be payable to Landlord, at Landlord's
option, monthly upon presentation to Tenant of a bill for the amount due,
or at such other intervals or times as Landlord shall determine.
(ii) In the event and so long as this Lease shall not have been
terminated after default or breach by Tenant, the rent payable under this
Lease shall be reduced by the net proceeds of any reletting by Landlord
(after deducting all costs incident thereto as above set forth) and by any
portion of the Accelerated Rent Component paid by Tenant to Landlord (but
without prejudice to the right of Landlord to demand and receive the
Accelerated Rent Component), and any amount due to Landlord shall be
payable monthly, at Landlord's option, upon presentation to Tenant of a
bill for the amount due, or at such other intervals or times as Landlord
shall determine.
(e) No Duty to Relet. Provided that Landlord has used reasonable efforts to
do so, Landlord shall in no event be responsible or liable for any failure to
relet the Premises or any part thereof, or for any failure to collect any rent
due upon a reletting.
(f) Additional Rights. As a cumulative and alternative remedy of Landlord
in the event of termination of this Lease by Landlord following any breach or
default by Tenant, Landlord, at its option, shall be entitled to recover damages
for such breach in an amount equal to the Accelerated Rent Component (determined
from and after the date of Landlord's election under this Section 21(f)) less
the fair rental value of the Premises (determined with an equivalent discount to
present value) for the remainder of the Term (taken without regard to the early
termination), and such damages shall be payable by Tenant upon demand.
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(g) Bankruptcy. Nothing contained in this Lease shall limit or prejudice
the right of Landlord to prove for and obtain as damages incident to a
termination of this Lease, in any bankruptcy, reorganization or other court
proceedings, the maximum amount allowed by any statute or rule of law in effect
when such damages are to be proved.
(h) Overdue Payments. If rent due from Tenant to Landlord shall be overdue
for more than fifteen (15) days after written notice from Landlord, it shall
thereafter bear interest at the Default Rate, including without limitation from
and after judgment, execution sale, filing of a bankruptcy petition and the
like.
(i) Waiver of Defects. No waiver by Landlord of any breach by Tenant or any
of Tenant's obligations, agreements or covenants herein shall be a waiver of any
subsequent breach or of any obligation, agreement or covenant, nor shall any
forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by
Landlord of any rights and remedies with respect to such or any subsequent
breach.
(j) Right or Remedy. No right or remedy herein conferred upon or reserved
to Landlord is intended to be exclusive of any other right or remedy provided
herein or by law, including without limitation consequential damages, but each
shall be cumulative and in addition to every other right or remedy given herein
or now or hereafter existing at law or in equity or by statute.
(k) Confession of Judgment. LANDLORD SHALL HAVE THE FOLLOWING RIGHTS TO
CONFESS JUDGMENT AGAINST TENANT AND ALL PERSONS CLAIMING THROUGH TENANT, FOR
POSSESSION OF THE PREMISES:
(i) Intentionally deleted prior to execution.
(ii) When this Lease shall be terminated by reason of a default by
Tenant or any other reason whatsoever, either during the Term or any
renewal or extension thereof, and also when the Term or any extension
thereof shall have expired, it shall be lawful for any attorney as attorney
for Tenant to confess judgment in ejectment in any competent court against
Tenant and all persons claiming under Tenant for the recovery by Landlord
of possession of the Premises, for which this Lease shall be Landlord's
sufficient warrant. Upon such confession of judgment for possession, if
Landlord so desires, a writ of execution or of possession may issue
forthwith, without any prior writ or proceedings whatsoever. If for any
reason after such action shall have been commenced, the same shall be
determined and the possession of the Premises shall remain in or be
restored to Tenant, then Landlord shall have the right upon any subsequent
or continuing default or defaults, or after expiration of the Lease, or
upon the termination of this Lease as hereinbefore set forth, to confess
judgment in ejectment against Tenant as hereinbefore set forth to recover
possession of the Premises.
(iii) In any action of ejectment and/or for rent in arrears or other
Amount Due, Landlord shall cause to be filed in such action an affidavit
made by Landlord or someone acting for Landlord setting forth the facts
necessary to authorize the entry of judgment, of which facts such affidavit
shall be conclusive evidence. If a true copy of this Lease shall be filed
in such action (and of the truth of the copy such affidavit shall be
sufficient evidence), it shall not be necessary to file the original Lease
as a warrant of attorney, any rule of court, custom or practice to the
contrary notwithstanding.
(iv) Tenant expressly agrees, to the extent not prohibited by law,
that any judgment, order or decree entered against it by or in any court or
magistrate by virtue of the powers of attorney contained in this Lease
shall be final, and that Tenant will not take an appeal, certiorari, writ
of error, exception or objection to the same, or file a motion or rule to
strike off or open or to stay execution of the same, and releases to
Landlord and to any and all attorneys who may appear for Tenant all errors
in the said proceedings and all liability therefor.
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(v) The right to enter judgment against Tenant and to enforce all of
the other provisions of this Lease herein provided for, at the option of
any assignee of this Lease, may be exercised by any assignee of Landlord's
right, title and interest in this Lease in Tenant's own name,
notwithstanding the fact that any or all assignments of said right, title
and interest may not be executed and/or witnessed in accordance with the
Act of Assembly of May 28, 1715, 1 Sm. L. 94, and all supplements and
amendments thereto that have been or may hereafter be passed. Tenant hereby
expressly waives the requirements of said Act of Assembly and any and all
laws regulating the manner and/or form in which such assignments shall be
executed and witnessed.
22. Waiver of Default or Remedy. No waiver of any covenant or condition or
of the breach of any covenant or condition of this Lease shall be taken to
constitute a waiver of any subsequent breach of such covenant or condition nor
to justify or authorize the nonobservance on any other occasion of the same or
of any other covenant or condition hereof, nor shall the acceptance of rent by
Landlord at any time when Tenant is in default under any covenant or condition
hereof be construed as a waiver of such default or of Landlord's right to
terminate this Lease on account of such default, nor shall any waiver or
indulgence granted by Landlord to Tenant be taken as an estoppel against
Landlord, it being expressly understood that if at any time Tenant shall be in
default in any of its covenants or conditions hereunder an acceptance by
Landlord of rental during the continuance of such default or the failure on the
part of Landlord promptly to avail itself of such rights or remedies as Landlord
may have, shall not be construed as a waiver of such default, but Landlord may
at any time thereafter, if such default continues, terminate this Lease or
assert any other rights or remedies available to it on account of such default
in the manner hereinbefore provided.
23. Landlord's Lien. As security for Tenant's payment of rent, damages and
all other payments required to be made by Tenant pursuant to this Lease, Tenant
hereby grants to Landlord a lien upon all property of Tenant now or subsequently
located upon the Premises. If Tenant abandons or vacates any substantial portion
of the Premises or is in default in the payment of any rental, damage or other
payments required to be made pursuant to this Lease, Landlord may enter upon the
Premises in accordance with applicable law and take possession of all or any
part of the personal property, and may sell all or part of the personal property
at a public or private sale, in one or successive sales, with notice, to the
highest bidder for cash, and, on behalf of Tenant, sell and convey all or part
of the personal property delivering to the highest bidder all of Tenant's title
and interest in the personal property sold. The proceeds of the sale of the
personal property shall be applied by Landlord toward the cost of the sale and
then toward the payment of all sums then due by Tenant to Landlord pursuant to
the terms of this Lease.
24. Uniform Commercial Code. To the extent, if any, this Lease grants
Landlord any lien or lien rights greater than provided by the laws pertaining to
"Landlord's Liens", this Lease as intended as and constitutes a security
agreement within the meaning of the Uniform Commercial Code of the state in
which the Premises are located. This Lease does not grant, and is not intended
to grant, Landlord a lien in any property which is not lienable under applicable
banking laws and regulations, including the automated teller machine, teller
terminals and safe deposit boxes. In addition to the rights prescribed in this
Lease, Landlord shall have all of the rights, titles, liens and interests in and
to Tenant's property now or hereafter located upon the Premises that are granted
a secured party, as that term is defined under the Uniform Commercial Code of
the state in which the Premises are located, to secure payment to Landlord of
the various amounts required to be paid by Landlord pursuant to the terms of
this Lease. Tenant will on request execute and deliver to Landlord a financing
statement for the purpose of perfecting Landlord's security interest under this
Lease or Landlord may file this Lease or a memorandum of lease as a financing
statement.
25. Force Majeure. If Landlord or Tenant shall be delayed, hindered in or
prevented from the performance of any act required hereunder (other than the
payment of rent and other charges payable by
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Tenant) by reason of strikes, lockouts, labor troubles, inability to procure
materials, failure of power, riots, insurrection, the act, failure to act or
default of the other party, war or any other reason beyond the reasonable
control of the party who is seeking additional time for the performance of such
act, then performance of such act shall be excused for the period of the delay
and the period for the performance of any such act shall be extended for a
reasonable period, in no event to exceed a period equivalent to the period of
such delay. No such interruption of any service to be provided by Landlord shall
ever be deemed to be an eviction, actual or constructive, or disturbance of
Tenant's use and possession of the Premises, the Building or the Property.
26. Subordination of Lease.
(a) General. Landlord reserves the right and privilege to subject and
subordinate this Lease to any and all mortgages, deeds of trust or land leases
now existing upon or that may be hereafter placed upon the Premises and the
Property and to all advances made or to be made thereon and all renewals,
modifications, consolidations, replacements or extensions thereof and if such
right is exercised, the lien of any such mortgages, deeds of trust or land
leases shall be superior to all rights hereby or hereunder vested in Tenant, to
the full extent of all sums secured thereby. In confirmation of such
subordination, Tenant shall, on request of Landlord or the holder of any such
mortgages, deed(s) of trust and land leases, execute and deliver to Landlord
within ten (10) days any instrument that Landlord or such holder may reasonably
request.
(b) Rights of Purchaser. If the interest of Landlord under this Lease shall
be transferred by reason of foreclosure, deed in lieu of foreclosure, or other
proceedings for enforcement of any first mortgage or deed of trust on the
Premises, Tenant shall be bound to the transferee (the "Purchaser") and subject
to subparagraph (a) above, Purchaser shall be bound to Tenant under the terms,
covenants and conditions of this Lease for the balance of the Term remaining,
and any extensions or renewals, with the same force and effect as if the
Purchaser were the landlord under this Lease, and at the option of Purchaser,
Tenant shall attorn to the Purchaser (including the mortgagee under any such
mortgage, if It be the Purchaser), as its landlord, the attornment to be
effective and self-operative without the execution of any further instruments
upon the Purchaser succeeding to the interest of Landlord under this Lease. The
respective rights and obligations of Tenant and the Purchaser upon the
attornment, to the extent of the then remaining balance of the Term of this
Lease, and any extensions and renewals, shall be and are the same as those set
forth in this Lease.
(c) Rights of Mortgagee. In the event of any act or omission of Landlord
which would give Tenant the right, immediately or after lapse of a period of
time, to cancel or terminate this Lease, or to claim a partial or total
eviction, Tenant shall not exercise such right (i) until it has given written
notice of such act or omission to the holder of each such mortgage and ground
lease whose name and address shall previously have been furnished to Tenant in
writing, and (ii) until a reasonable period for such holder to remedy such act
or omission shall have elapsed following the giving of such notice (which
reasonable period shall in no event be less than the period to which Landlord
would be entitled, under this Lease or otherwise, after similar notice, to
effect such remedy).
27. Notices and Consents. All notices, demands, requests, consents and
approvals that may or are required to be given by either party to the other
shall be in writing and shall be deemed given when sent by United States
certified or registered mail, postage prepaid, or by overnight courier (a) if
for Tenant, addressed to Tenant at the Building, or at such other place as
Tenant may from time to time designate by notice to Landlord, or (b) if for
Landlord, addressed to Eleven Colonial Penn Plaza Associates, do the BOARD OF
THE STATE TEACHERS RETIREMENT SYSTEM OF OHIO, 275 E. Broad Street, Columbus,
Ohio 43215-3771, Attention: Director Real Estate Assets, with a copy to CB
Commercial Real Estate Group, Inc., Eleven Penn Center, Suite 2705, 1835 Market
Street, Philadelphia, Pennsylvania 19103, or at such other place as Landlord may
from time to time designate by notice to Tenant. All
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consents and approvals provided for herein must be in writing to be valid.
Notice shall be deemed to have been given if addressed and mailed as above
provided on the date two (2) days after deposit in the United States mail or one
(1) day after deposit with an overnight courier.
28. Security Deposit. INTENTIONALLY DELETED PRIOR TO EXECUTION.
29. Miscellaneous Taxes: Use and Occupancy Tax.
(a) Other Taxes. Tenant shall pay, prior to delinquency, all taxes assessed
against or levied upon its occupancy of the Premises, or upon the fixtures,
furnishings, equipment and all other personal property of Tenant located in the
Premises, if nonpayment thereof shall give rise to a lien on the Premises, and
when possible Tenant shall cause said fixtures, furnishings, equipment and other
personal property to be assessed and billed separately from the property of
Landlord. In the event any or all of Tenant's fixtures, furnishing, equipment
and other personal property, or upon Tenant's occupancy of the Premises, shall
be assessed and taxed with the property of Landlord, Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's fixtures, furnishings, equipment or personal property.
(b) Use and Occupancy Tax. Based upon representations made by Tenant to
Landlord, Landlord acknowledges that Tenant is not currently subject to the City
of Philadelphia Use and Occupancy Tax. Without limiting the foregoing, if Tenant
becomes subject to such tax, Tenant will pay promptly when due and in any event
not later than fifteen (15) days after receipt of a bill (whether said bill be
submitted by Landlord, the City of Philadelphia or otherwise), all City of
Philadelphia School District Use and Occupancy Tax imposed upon the use and
occupancy of the Premises.
30. Substitute Premises. Intentionally deleted prior to execution.
31. Brokerage Commission. Except for any broker, agent or other person
named below, Landlord and Tenant represent and warrant each to the other that
each has dealt with no broker, agent or other person in connection with this
transaction and that no broker, agent or other person brought about this
transaction. Landlord hereby agrees to pay to CB Commercial Real Estate Group,
Inc. ("Agent") a leasing commission as set forth in that certain Property
Management Agreement between Landlord and Agent. Tenant agrees to indemnify and
hold Landlord harmless from and against any claims by any other broker, agent or
other person claiming a commission or other form of compensation by virtue of
having dealt with Tenant with regard to this leasing transaction. The provisions
of this Paragraph 31 shall survive the termination of this Lease.
32. Hazardous Devices and Contaminants.
(a) Prohibition. Except with the prior written consent of Landlord, Tenant
shall not install or operate any steam or internal combustion engine, boiler,
machinery, refrigerating or heating device or air-conditioning apparatus in or
about the Premises, or carry on any mechanical business therein. Except for
Contaminants (as hereinafter defined) used in the ordinary course of business
and in compliance with Requirements of Law (as hereinafter defined) Tenant and
its agents, employees, contractors and invitees shall not use, store, release,
generate or depose of or permit to be used, stored, released, generated or
disposed of any Contaminants on or in the Premises.
(b) Indemnification. Tenant shall indemnify and hold harmless Landlord, Its
agents, servants, employees, officers and directors forever from and against any
and all liability, claims, demands and causes of action, including, but not
limited to, any and all liability, claims, demands and causes of action by any
governmental authority, property owner or any other third person and any and all
expenses, including
23
<PAGE>
attorneys' fees (including, but not limited to, attorneys' fees to enforce
Tenant's obligation of indemnification under this Paragraph 32(b)), relating to
any environmental liability resulting from (i) any Release (as hereinafter
defined) of any Contaminant at the Premises or emanating from the Premises to
adjacent properties or the surrounding environment during the Term of this
Lease; (ii) during the Term of this Lease, any generation, transport, storage,
disposal, treatment or other handling of any Contaminant at the Premises,
including, but not limited to, any and all off-site transport, storage,
disposal, treatment or other handling of any Contaminant generated, produced,
used and/or originating in whole or in part from the Premises; and (iii) any
activities at the Premises during the Term of this Lease that in any way might
be alleged to fail to comply with any Requirements of Law.
(c) Definitions.
(i) "Contaminant" shall mean any substance or waste containing
hazardous substances, pollutants, and contaminants as those terms are
defined in the federal Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.Q Section 9601 et seq. and any substance
similarly defined or identified in any other federal, provincial or state
laws, rules or regulations governing the manufacture, import, use,
handling, storage, processing, release or disposal of substances or wastes
deemed hazardous, toxic, dangerous or injurious to public health or to the
environment. This definition includes friable asbestos and petroleum or
petroleum-based products.
(ii) "Requirements of Law" shall mean any federal, state or local law,
rule, regulation, permit, agreement, order or other binding determination
of any governmental authority relating to the environment, health or
safety.
(iii) "Release" shall have the same meaning as in the federal
Comprehensive Environmental Response Compensation and Liability Act, 42
U.S.C. Section 9601, et seq.
33. Exculpation. This Lease is executed by certain general partners of
Landlord, not individually, but solely on behalf of, and as the authorized
nominee and agent for STRBO, and in consideration for entering into this Lease,
Tenant hereby waives any rights to bring a cause of action against the
individuals executing this Lease on behalf of Landlord (except for any cause of
action based upon lack of authority or fraud), and all persons dealing with
Landlord must look solely to STRBO's assets for the enforcement of any claim
against Landlord, and the obligations hereunder are not binding upon, nor shall
resort be had to the private property of any of the trustees, officers,
directors, employees or agents of STRBO.
34. Signs. Tenant shall not display, inscribe, print, paint, maintain or
affix on any place in or about the Building any sign, notice, legend, direction,
figure or advertisement, except on the doors of the Premises, and then only such
name(s) and matter, and in such color, size, place and materials, as shall first
have been approved by Landlord in writing which approval shall not be
unreasonably withheld or delayed. Landlord reserves the right to install and
maintain a sign or signs on the exterior or interior of the Building, If Tenant
desires, Landlord shall list Tenant on the Building directory board, at no cost
to Tenant; provided, that if Tenant desires to have Landlord list any of
Tenant's personnel on the Building directory, Landlord may do so, subject to
space limitations, at Tenant's sole cost and expense.
35. Locks. No additional locks or similar devices shall be attached to any
door or window without Landlord's prior written consent. Landlord shall approve
Tenant's security program. Except for those keys provided by Landlord, no keys
for any door shall be made. If more than two keys for one lock are desired,
Landlord will provide the same upon payment by Tenant. All keys must be returned
to Landlord at the expiration or Termination of this Lease. Tenant shall see
that the doors and windows, if operable, of the Premises are closed and securely
locked before leaving the Building.
24
<PAGE>
36. Employment. Tenant shall not contract for any work or service that
might involve the employment of labor incompatible with the Building employees
or employees of contractors doing work or performing services by or on behalf of
Landlord.
37. Plumbing. Tenant must observe strict care and caution that all water
faucets and water apparatus are shut off before Tenant or its employees leave
the Building to prevent waste or damage. Plumbing fixtures and appliances shall
be used only for purposes for which constructed, and no sweepings, rubbish, rags
or other unsuitable material shall be thrown or placed therein. Damage resulting
to any such fixtures or appliances from misuse by Tenant shall be paid by Tenant
and Landlord shall not in any case be responsible therefor.
38. Certain Rights Reserved to Landlord. Landlord reserves the following
rights:
(a) To name the Building and to change the name or street address of
the Building; provided, however, that if Landlord names the Building after
another bank or savings and loan institution, Tenant shall have the right
to terminate this Lease in accordance with the provisions of Paragraph 51
below.
(b) To designate all sources furnishing sign painting and lettering,
ice, drinking water, towels, toilet supplies, shoe shining, vending
machines, mobile vending service, catering, and like services used on the
Premises or in the Building, provided, however, that Landlord may not take
any action which will diminish the size of Tenant's signage as permitted
hereunder.
(c) On reasonable prior notice to Tenant, to exhibit the Premises to
prospective tenants during the last twelve (12) months of the Term, and to
exhibit the Premises to any prospective purchaser, mortgagee, or assignee
of any mortgage on the Property and to others having a legitimate interest
at any time during the Term; and
(d) To install vending machines of all kinds in the Property,
including, without limitation, the Premises, and to provide mobile vending
service therefor, and to receive all of the revenue derived therefrom;
provided, however, that no vending machines shall be installed by Landlord
in the Premises nor shall any mobile vending service be provided therefor,
unless Tenant so requests.
39. Miscellaneous.
(a) No receipt of money by Landlord from Tenant after the termination of
this Lease or after the service of any notice or after the commencement of any
suit, or after final judgment for possession of the Premises shall reinstate,
continue or extend the Term of this Lease or affect any such notice, demand or
suit or imply consent for any action for which Landlord's consent is required.
(b) The term "Landlord" as used in this Lease, so far as covenants or
agreements on the part of Landlord are concerned, shall be limited to mean and
include only the owner (or ground lessor, as the case may be) for the time being
of the Premises. If the Premises or the underlying lease, if any, be sold or
transferred, the seller thereof shall be automatically and entirely released of
all covenants and obligations under this Lease from and after the date of
conveyance or transfer, provided the purchaser on such sale has assumed and
agreed to carry out all covenants and obligations contained in this Lease to be
performed on the part of Landlord hereunder, it being hereby agreed that the
covenants and obligations, contained in this Lease to be performed on the part
of Landlord, hereunder it being hereby agreed that the covenants and obligations
contained in this Lease shall be binding under Landlord, its successors and
assigns, only during their respective successive period of ownership. The
liability of Landlord and its successors in interest, under or with respect to
this Lease, shall be strictly limited to and enforceable only out of its or
their interest in the Building and Land, and shall not be enforceable Out of any
other assets. No mortgagee or ground lessor which shall succeed to the interest
of Landlord hereunder (either in terms of
25
<PAGE>
ownership or possessory rights) shall: (i) be liable for any previous act or
omission of a prior landlord, (ii) be subject to any rental offsets or defenses
against a prior Landlord, (iii) be bound by any amendment of this Lease made
without its written consent, or by payment by Tenant of rent in advance in
excess of one (1) month's rent, (iv) be liable for any security not actually
received by it, or (v) be liable for any initial construction of the
improvements to be made to the Premises or for any allowance or credit to Tenant
for rent, construction costs or other expenses. Subject to the foregoing, the
provisions hereof shall be binding upon and inure to the benefit of the
successors and assigns of Landlord.
(c) It is understood that Landlord may occupy portions of the Building in
the conduct of Landlord's business. In such event, all references herein to
other tenants of the Building shall be deemed to include Landlord as occupant.
(d) All of the covenants of Tenant hereunder shall be deemed and construed
to be "conditions" as well as "covenants" as though the words specifically
expressing or implying covenants and conditions were used in each separate
instance.
(e) In the event of variation or discrepancy among counterparts, Landlord's
original copy of this Lease shall control.
(f) This Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns, provided that this
provision shall in no manner enlarge Tenant's rights of assignment, which right
of assignment has been restricted under the foregoing provisions of this Lease.
40. Relationship of Parties. Any intention to create a joint venture,
partnership or principal and agent relationship between the parties hereto is
hereby expressly disclaimed. This Lease shall create the relationship of
landlord and tenant between Landlord and Tenant.
41. Gender and Number. Whenever words are used herein in any gender, they
shall be construed as though they were used in the gender appropriate to the
context and the circumstances, and whenever words are used herein in the
singular or plural form, they shall be construed as though they were used in the
form appropriate to the context and the circumstances.
42. Topic Heading. Headings and captions in this Lease are inserted for
convenience and reference only and in no way define, limit or describe the scope
or intent of this Lease nor constitute any part of this Lease and are not to be
considered in the construction of this Lease.
43. Counterparts. Several copies of this Lease may be executed by all of
the parties. All executed copies constitute one and the same Lease, binding upon
all parties.
44. Entire Agreement. This Lease contains the entire understanding between
the parties and supersedes any prior understanding or agreements between them
respecting the subject matter. No representations, arrangement, or
understandings except those fully expressed herein, are or shall be binding upon
the parties. No changes, alterations, modifications, additions or qualifications
to the terms of this Lease shall be made or be binding unless made in writing
and signed by each of the parties.
45. Recording The parties agree that this Lease shall not be recorded.
46. Government Law Invalidity of any Provisions. This Lease shall be
subject to and governed by the laws of the Commonwealth of Pennsylvania. If any
term or provision of this Lease or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the other terms of
this Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Lease shall
be valid and be enforced to the fullest extent permitted by law.
47. Right of First Offer. Subject to the rights of other tenants in the
Building and provided that Tenant is not in default of its obligations under
this Lease, Tenant shall have a continuing right of first offer on all or any
portion of the space on the 26th floor of Building that becomes vacant during
the first
26
<PAGE>
eight years of the Term of this Lease, including all extensions or renewals (the
"Right of First Offer Space"). Tenant's right of first offer shall be subject to
the following terms and conditions:
(a) In the event that Tenant leases a portion of the Right of First
Offer Space, such portion shall not be less than 500 rentable square feet
and the configuration of such space shall be approved in writing by
Landlord, such approval not to be unreasonably withheld.
(b) Landlord shall provide Tenant with written notice ("Availability
Notice") of the availability of the Right of First Offer Space when such
space becomes available and within Landlord's possession and control, or at
such earlier time as Landlord is otherwise desirous of providing Tenant
with advance notice of the availability of such space. The Availability
Notice shall include Landlord's determination of the Base Rent for the
Right of First Offer Space, which shall be that monthly base rental per
square foot which Landlord is willing to quote to and accept from a third
party for a lease with respect to the Right of First Offer Space to begin
upon substantial completion of the tenant improvements for the Right of
First Refusal Space (for a term coterminous with the Term of this Lease),
subject to any additional rent or rent escalation provisions and factors
which Landlord is willing to quote to and accept from such third party,
including but not limited to, such provisions and factors based on
increases in operating costs, taxes and the Consumer Price Index
("Landlord's Right of First Offer Space Rent"). The Availability Notice
shall also specify any other applicable terms and conditions which Landlord
would require as a part of its lease with a third party.
(c) If Tenant desires to lease such Right of First Offer Space, Tenant
shall, within ten (10) business days after its receipt of the Availability
Notice, notify Landlord in writing that it elects to exercise its right of
first offer for the Right of First Offer Space, which notification shall be
deemed an acceptance of the terms and conditions of the Availability
Notice. If Tenant does not so notify Landlord, Tenant will be deemed to
have irrevocably waived its right of first offer respecting the Right of
First Offer Space.
(d) Tenant shall confirm the exercise of its right of first offer by
its execution of a written amendment to the Lease (to be prepared by
Landlord) consistent with the terms of the Availability Notice, within
fifteen (15) days after receipt by Tenant of such amendment.
48. Renewal.
(a) Conditions. Subject to the provisions of Paragraph 50 below, Tenant is
granted the right and option to extend the term of this Lease with respect to
the then leased premises for two (2) additional period of five (5) years, such
renewal term to commence upon the expiration of the initial term of the Lease,
provided that:
(i) Such option must be exercised, if at all, by written notice to
Landlord given at least nine (9) months prior to the expiration of the
initial term, and
(ii) At the time of the exercise of such option, the Lease shall be in
full force and effect and there shall exist no default by Tenant beyond any
applicable period of grace; and
(iii) Tenant must exercise its renewal options set forth in the Bank
Lease.
(b) Renewal Terms. In the event the foregoing option is effectively
exercised, all the terms and conditions contained in the Lease shall continue to
apply during the renewal term except that:
(i) There shall be a construction allowance equal to fifty percent
(50%) of the construction allowance then being given by Landlord to new
tenants in the Building for new leases of comparable space, but no other
tenant incentives or concessions, and no further right of renewal and
(ii) For and during the renewal term, the minimum annual rent shall be
adjusted to ninety-five percent (95%) of the "Fair Market Rental" (defined
in Paragraph 48(c) below) of the then leased premises and
27
<PAGE>
(c) Fair Market Rental. As used herein, the term "Fair Market Rental" shall
mean the prevailing rental rate (taking into account all concessions furnished
over the lease term, but without deduction for tenant improvements or
architectural-related costs or allowances) being obtained by Landlord, based
upon previous rental rates obtained for the Building and/or comparable buildings
in comparable areas; provided that if the manner of charging operating costs or
other items of escalation to tenants in the Building (or for any comparable
buildings utilized by Landlord) is different from that set forth in this Lease,
Landlord shall make a further adjustment to take such difference into account.
(d) Notice. Promptly after the determination by Landlord of the Fair Market
Rental, as set forth above, Landlord shall send written notice to Tenant thereof
and shall advise Tenant of the adjustment to minimum annual rent resulting
therefrom.
49. Conditions. This Lease, and the obligations of the parties hereunder,
are expressly conditioned on the satisfaction of the conditions contained in
this Paragraph 49. If the conditions contained in (i) of this Paragraph 49 are
not satisfied after notice of termination from Tenant or in (ii) of this
Paragraph 49 are not satisfied after notice of termination from either Landlord
or Tenant, then this Lease shall automatically terminate unless the parties
agree otherwise in writing. In the event of such termination, neither party
shall have any further liability hereunder or obligation to the other party.
(i) Landlord shall negotiate an agreement, acceptable to Landlord in
its sole discretion, with CoreStates Bank, N.A. ("CoreStates") concerning
CoreStates' buy-out of its obligations under that certain lease between the
predecessor of Landlord and a predecessor of CoreStates dated August 13,
1985 concerning the retail space on the Ground Floor of the Building on or
before the date which is thirty (30) days from the date hereof.
(ii) Tenant shall obtain all necessary approvals from all governmental
agencies which must approve the location of Tenant's banking facilities on
or before the date which is ninety days from the date hereof Tenant shall
apply for all necessary approvals within ten (10) days from the date hereof
and shall pursue all necessary approvals in good faith and with due
diligence.
50. 2002 Termination. Tenant acknowledges that another tenant in the
building has an option, to lease all or a portion of the space constituting the
Premises commencing on April 30, 2002. If the other tenant exercises its option
to lease the Premises, Landlord shall give notice thereof to Tenant within sixty
(60) days after Landlord receives notice from the other tenant of the exercise
by such tenant of its right to lease the space constituting the Premises.
Thereafter, Tenant shall have the right either (i) to terminate this Lease
effective January 1,2002 (the "2002 Termination Date"), in which event Landlord
shall pay reimburse Tenant for its reasonable moving expenses, but not to exceed
the sum equal to $3.00 per rentable square foot of the Premises then subject to
the terms of this Lease (but in no event including the retail space on the
ground floor of the Building) or (ii) to request Landlord to relocate Tenant to
comparable space within the Building. If Tenant exercises option (ii) above,
Landlord shall make reasonable efforts to find comparable space within the
Building for Tenant's relocation. If comparable relocation space (the
"Relocation Premises") is available in the Building, Landlord shall notify
Tenant and Tenant shall have thirty (30) days from the date of its receipt of
Landlord's notice either to approve of the Relocation Premises or to terminate
this Lease effective on the 2002 Termination Date. If Tenant approves the
Relocation Premises, the following shall occur:
(i) The term of this Lease shall be automatically extended for an
additional four (4) years without the necessity of any further action on
the part of either party, in which case one of the renewal options
contained in Paragraph 48 shall be deleted. The provisions of this Lease
shall remain in full force and effect, except that (i) the amount of Base
Rent applicable to Lease Years 11 through 14 shall be determined by Section
48(c) and (ii) any free rent, rent abatements, Tenant Improvement Allowance
or other concessions which were afforded to Tenant during the original Term
of this Lease shall be deleted from the Lease.
(ii) Landlord and Tenant shall perform their respective obligations
under Section 4 of this Lease relating to Landlord's Work and Tenant's Work
in the Relocation Premises. Landlord shall provide
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<PAGE>
Tenant with a construction allowance determined by multiplying $35.00 per
rentable square foot of the Relocation Premises by a fraction, the
numerator of which is the Price Index (defined below) on January 1, 2002
and the denominator of which is the Price Index on the date hereof, but not
to exceed the sum of $40.00 per rentable square foot of the Relocation
Premises. The "Price Index" is defined as the United States Bureau of Labor
Statistics Consumer Price Index, U.S. Average Urban, Northeast, (1967=100)
or a comparable index most clearly reflecting the rate of inflation if such
Price Index is discontinued.
(iii) Tenant shall relocate to the Relocation Premises when the
Relocation Premises are substantially complete.
51. Building Name/Termination. In the event that Landlord names the
Building after another bank or savings and loan institution, Landlord shall give
Tenant written notice of the new name of the Building at least ten (10) days
before the effective date of such change, and Tenant shall have the right,
exercisable within ninety (90) days after Tenant's receipt of Landlord's notice,
to terminate this Lease or the Bank Lease or both, by giving written notice
thereof to Landlord. If Tenant exercises its right to terminate this Lease,
Tenant shall vacate and surrender the Premises no later than one hundred eighty
(180) days from the date of Landlord's receipt of Tenant's notice of
termination. Upon Tenant's vacation, the Lease shall terminate and the parties
shall have no further obligations to one another except those obligations which
accrued prior to the date of termination. Neither party shall be obligated to
make any payments to the other party on account of the foregoing termination.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
Witness: LANDLORD:
ELEVEN COLONIAL PENN PLAZA ASSOCIATES
By: THE BOARD OF THE STATE TEACHERS RETIREMENT
SYSTEM OF OHIO
/s/ PAMELA J. MCCAMMON By: [ILLEGIBLE]
- ---------------------- ------------------------------------------
Name:
Title:
TENANT:
PENNSYLVANIA SAVINGS BANK
/s/ [ILLEGIBLE] By: /s/ ANTHONY DISANDRO
------------------------------------------
Name: Anthony DiSandro
Title: President
29
<PAGE>
STATE OF OHIO )
)SS:
COUNTY OF FRANKLIN )
BE IT REMEMBERED, that on this 10th day of Oct., 1995 before me, the
subscriber, a Notary Public, personally appeared Stephen A. Mitchell, the Dep.
Ex. Director of The Board of The Board of the State Teachers Retirement System
of Ohio, the general partner of Eleven Colonial Penn Plaza Associates, a
Pennsylvania limited partnership, known to me and known to me to be the person
who signed the foregoing instrument as such partner, who acknowledged to me that
he signed said instrument as such partner, duly authorized by the partnership so
to do, and that the signing of the same was his free act and deed, as such
partner, for and on behalf of said partnership, for the uses and purposes
therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed by name and affixed the
official seal of my office at Columbus, Ohio, on and year last above written.
[NOTARIAL SEAL] PAMELA J. McCAMMON PAMELA J. MCCAMMON
STATE OF OHIO Notary Public, State of Ohio ----------------------------
My Commission Expires Notary Public
June 25, 1997
COMMONWEALTH OF PENNSYLVANIA )
)SS:
COUNTY OF PHILADELPHIA )
BE IT REMEMBERED, that on this 27 day of September 1995, before me, the
subscriber, a Notary Public and for said County and State personally appeared
the above-named PSB organized under the laws of the State of by A. DiSandro its
President known to me and known to me to be the person who signed the foregoing
instrument as such President, who acknowledged to me that he signed said
instrument as President, duly authorized by the Board of Trustees of said PSB so
to do, and that the signing of the same was a free act and deed, as such
officer, for and on behalf of said PSB, for the uses and purposes therein set
forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the my
office at Phila, PA, on the day and year last above written.
/s/ RENEE L. D'ORAZIO
---------------------------------
-----------------------------------
RENEE L. D'ORAZIO
PA COMMISSIONER OF DEEDS
MY COMMISSION EXPIRES DEC. 19, 1998
-----------------------------------
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<PAGE>
EXHIBIT A
FLOOR PLAN
----------
<PAGE>
EXHIBIT "A"
11 PENN CENTER DEMISED AREA PLAN
- --------------------------------------------------------------------------------
TWENTY-SIXTH FLOOR
[GRAPHIC OF FLOOR PLAN]
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
ALL THAT CERTAIN tract of ground situated in the City of Philadelphia,
Commonwealth of Pennsylvania bound and described as follows:
Beginning at the point of intersection of the northerly side of Market
Street (100 feet wide) with the easterly side of Nineteenth Street (50 feet
wide); thence from said point of beginning extending along said side of
Nineteenth Street in a northerly direction 180.00 feet to the southerly side of
Commerce Street (32 feet wide); thence extending in an easterly direction along
said side of Commerce Street 196.00 feet to a point thence leaving the side of
Commerce Street and extending in a southerly direction parallel with Nineteenth
Street 180.00 feet to a point on the northerly side of Market Street, thence
extending along said side of Market Street in a westerly direction 196.00 feet
to the point and place of beginning.
<PAGE>
EXHIBIT C
COMMENCEMENT DATE AGREEMENT
THIS COMMENCEMENT DATE AGREEMENT ("Agreement") dated 1995 is between Eleven
Colonial Penn Plaza Associates, a Pennsylvania general partnership, whose
address is 275 East Broad Street, Columbus, Ohio 43215, acting as the duly
authorized nominee of The State Teachers Retirement System of Ohio ("Landlord"),
whose address is 275 East Broad Street, Columbus, Ohio 43215, and PENNSYLVANIA
SAVINGS BANK, a ____________ ("Tenant"), whose address is Eleven Penn Center,
Philadelphia, Pennsylvania 19103.
WITNESSETH:
A. Landlord and Tenant executed a certain Lease dated __________________,
1995 (the "Lease").
B. The Lease provides that the Lease will commence on the date that
Landlord delivers possession of the Premises (as defined in the Lease) to Tenant
C. Landlord and Tenant now desire to set forth in writing the actual date
of delivery of the Premises and the actual commencement date of the Lease.
NOW THEREFORE in consideration of the mutual covenants and promises
contained herein and other valuable consideration, the parties agree that the
Lease commenced on __________, 199_ and shall terminate on _______________,
____.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on the day and year first above written.
Signed and Acknowledged LANDLORD: Eleven Colonial Penn Plaza Associates
___________________________ By:________________________________
_____________, a general partner
TENANT: PENNSYLVANIA SAVINGS BANK,
a _________________________________
___________________________ By:________________________________
___________________________ Its:____________________________
<PAGE>
STATE OF OHIO )
)SS:
COUNTY OF FRANKLIN )
BE IT REMEMBERED, that on this _____ day __________, 19__ before me, the
subscriber, a Notary Public, personally appeared _________________, the
________________ of The Board of the State Teachers Retirement System of Ohio,
the general partner of Eleven Colonial Penn Plaza Associates, a Pennsylvania
limited partnership, by known to me and known to me to be the person who signed
the foregoing instrument as such partner, who acknowledged to me that he signed
said instrument being duly authorized by the partnership and the general partner
so to do, and that the signing of the same was his free act and deed for and on
behalf of said partnership and its general partner, for the uses and purposes
therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed by name and affixed the
official seal of my office at _____________, ______________, on the day and year
last above written.
___________________________________
Notary Public
COMMONWEALTH OF PENNSYLVANIA )
)SS:
COUNTY OF PHILADELPHIA )
BE IT REMEMBERED, that on this __ day ______, 19__, before me, the
subscriber, a Notary Public and for said County and State, personally appeared
the above-named corporation organized under the laws of the State of _________
by ____________, its __________, known to me and known to me to be the person
who signed the foregoing instrument as such ____________ who acknowledged to me
that ____ signed said instrument as such, duly authorized by the
_____________________ of said _____________ so to do, and that the signing of
the same was __ free act and deed, as such officer, for and on behalf of said
______________,for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the
official seal of my office at ________, ________, on the day and year last above
written.
___________________________________
Notary Public
2
<PAGE>
EXHIBIT D
TENANT IMPROVEMENTS
<PAGE>
EXHIBIT E
TENANT ESTOPPEL CERTIFICATE
RE: Premises:___________________________________
Lease Dated:________________________________
Amendment(s) Dated:_________________________
Between_____________________________________ (Landlord)
and_________________________________________ (Tenant)
Square Footage Leased.______________________
Floor(s)/Suite #(s):________________________
The undersigned, Tenant under the above-referenced lease ("Lease"), certifies
to the following:
1. We have taken possession of and accepted the Premises described above,
except as follows:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
___________________________
2. The lease terms as described below are true and accurate, and the lease is
in full force and effect:
Base Rent:__________________________________ per year
Expense Stop:_______________________________ per square foot
Escalations:________________________________
Free Rent:__________________________________
Commencement Date:__________________________
Expiration Date:____________________________
Renewals:___________________________________
3. No part of the Premises has been subleased or assigned except as
follows:___________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
___________________
4. The rent has been paid through:____________________________________________
5. The security deposit is ___________________________________________________
There are no tax or insurance escrows______________________________________
6. We are not in default of our obligations under the Lease. Landlord, to the
best of our knowledge, is not in default of its obligations under the
Lease. There exists no defense or counterclaim to rent or other sums
required to be paid by us under or pursuant to the Lease.
If Tenant is a corporation, the undersigned is a duly appointed officer of the
corporation signing this certificate and is the incumbent in the office
indicated under his/her name. In any event, the undersigned individual is duly
authorized to execute this certificate.
Date:________________, 19__ Signed:_______________________________
(Signature)
_______________________________
(Print Name & Title)
<PAGE>
EXHIBIT F
RULES AND REGULATIONS
1. The sidewalks, entryways, passages, corridors, stairways and elevators shall
not be obstructed by any of the tenants, their employees or agents, or used by
them for purposes other than ingress or egress to and from their respective
suites. All safes or other heavy articles shall be carried up or into the
Demised Premises only at such times and in such manner as shall be prescribed by
the Landlord and the Landlord shall in all cases have the right to specify a
maximum weight and proper position or location of any such safe or other heavy
article. Any damage done to the Building by taking in or removing any safe or
from overloading any floor in any way shall be paid by the Tenant The cost of
repairing or restoring any part of the Building which shall be defaced or
injured by a tenant, its agents or employees, shall be paid for by the tenant
2. Each tenant will refer all contractors, contractors' representatives and
installation technicians rendering any service on or to the Demised Premises for
the tenant to Landlord for Landlord's approval before performance of any
contractual service. This provision shall apply to all work performed in the
Building, including installation of telephones, telegraph equipment, electrical
devices and attachments and installations of any nature affecting floors, walls,
woodwork, trim windows, ceilings, equipment or any other physical portion of the
Building.
3. Intentionally deleted prior to execution.
4. The janitor of the Building may at all times keep a pass key, and he and
other agents of the Landlord shall at all times be allowed admittance to the
Demised Premises for purposes permitted in tenant's lease.
5. Intentionally deleted prior to execution.
6. No windows or other openings that reflect or admit light into the corridors
or passageways, or to any other place in the Building, shall be covered or
obstructed by any of the tenants.
7. The water closets and other water fixtures shall not be used for any purpose
other than those for which they were constructed, and any damage resulting to
them from misuse or abuse by a tenant or its agents, employees or invitees,
shall be borne by the tenant
8. No person shall disturb the occupants of the Building by the use of any
musical instruments, the making or transmittal of noises which are audible
outside the Demised Premises, or any unreasonable use. No dogs or other animals
or pets of any kind will be allowed in the Building,
9. No bicycles or similar vehicles will be allowed in the Building,
10. Nothing shall be thrown out the windows of the building or down the
stairways or other passages.
11. Tenants shall not be permitted to use or to keep in the Building any
kerosene, camphene, burning fluid or other illuminating materials.
12. If any tenant desires telegraphic, telephonic or other electric connections,
Landlord or its agents will direct the electricians as to where and how the
wires may be introduced, and without such directions no boring or cutting for
wires will be permitted.
13. If a tenant desires shades, they must be of such shape, color, materials and
make as shall be prescribed by Landlord. No outside awnings shall be permitted.
14. No portion of the Building shall be used for the purpose of lodging rooms or
for any immoral or unlawful purposes.
15. Tenants will see each day that the doors of the Demised Premises are
securely locked before leaving the Building.
16. No tenant and no employees of any tenant shall go upon the roof of said
Building without the written consent of Landlord or of the agent of Landlord.
<PAGE>
17. The delivery of newspapers and other supplies to tenants in the Building
will be permitted in a manner and at times approved by Landlord.
18. All entrance doors leading from the hallways are to be kept closed at all
times.
19. For the protection of tenants, Landlord reserves the right to refuse
admittance to the Building between the hours of 6:00 P.M.. and 8:00 AM. Monday
through Friday at all times on Saturdays, Sundays, and Legal Holidays, to any
person not producing both a key to such tenant's office or suite and a pass
issued by building management upon the direction of the tenant Tenants will
please instruct the building manager from time to time as to the number of
persons to whom they desire passes issued for this purpose. It will be the
responsibility of the tenant to pick up the passes and key whenever the
employment of a passholder is discontinued.
20. Tenant shall not place door mats in the halls or corridors of the Building.
21. Tenant shall, before closing and leaving the Demised Premises at any time,
turn off all lights, turn off all office machines and other electrical and
mechanical equipment, and lock all doors to the Demised Premises.
<PAGE>
LEASE AGREEMENT BETWEEN
ELEVEN COLONIAL PENN PLAZA ASSOCIATES
Landlord
AND
PENNSYLVANIA SAVINGS BANK
a __________________, Tenant
DATED __________, 1995
<PAGE>
Exh. 10.8
Retail Lease
COMMENCEMENT DATE AGREEMENT
THIS COMMENCEMENT DATE AGREEMENT ("Agreement") dated May 23, 1996 is
between ELEVEN COLONIAL PENN PLAZA ASSOCIATES, a Pennsylvania limited
partnership, whose address is c/o 275 East Broad Street, Columbus, Ohio 43215,
acting as the duly authorized nominee of The State Teachers Retirement System of
Ohio ("Landlord"), whose address is 275 East Broad Street, Columbus, Ohio 43215
and Pennsylvania Savings Bank, a Pennsylvania corporation ("Tenant"), whose
address is Eleven Penn Center, Philadelphia, Pa.
WITNESSETH:
A. Landlord and Tenant executed a certain Retail Lease dated October 12,
1995 (the "Lease").
B. The Lease provides that the Lease will commence on the date that
Landlord delivers possession of the Premises (as defined in the Lease) to
Tenant.
C. Landlord and Tenant now desire to set forth in writing the actual date
of delivery of the Premises and the actual commencement date of the Lease.
NOW THEREFORE in consideration of the mutual covenants and promises
contained herein and other valuable consideration, the parties agree that the
Lease commenced on May 23, 1996 and shall terminate on May 31, 2006.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on the day and year first above written.
Signed and Acknowledged LANDLORD:
the Presence of: ELEVEN COLONIAL PENN PLAZA
ASSOCIATES, a limited partnership
/s/ [ILLEGIBLE]
- ---------------
/s/ [ILLEGIBLE]
- --------------- By: The Board of the State Teachers Retirement
System of Ohio
By: /s/ [ILLEGIBLE]
---------------
TENANT:
PENNSYLVANIA SAVINGS BANK
- ------------------------ By: /s/ [ILLEGIBLE]
---------------
- ------------------------ Title: /s/ [ILLEGIBLE]
---------------
<PAGE>
FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE, entered into as of the 23 day of December
1996 by and between ELEVEN COLONIAL PENN PLAZA ASSOCIATES, a Pennsylvania
limited partnership, ("Landlord") and PENNSYLVANIA SAVINGS BANK, a Pennsylvania
corporation ("Tenant").
BACKGROUND
A. Landlord and Tenant entered into a lease (the "Original Lease") dated
October 12, 1995 for certain retail space consisting of Four Thousand One
Hundred Eighty-Seven (4,187) rentable square feet on a portion of the ground
floor (the "Premises") of the Building known as Eleven Penn Center located in
Philadelphia, Pennsylvania. The Original Lease as amended hereby shall
hereinafter be referred to as the "Lease".
B. Landlord and Tenant desire to amend the Original Lease, under the terms
and conditions set forth below, to expand the "Term" of the Original Lease and
in consideration thereof, to provide to Tenant certain concessions as more
particularly set forth herein.
NOW, THEREFORE, intending to be legally bound, and for good and valuable
consideration, the parties agree that the Original Lease is modified and amended
as follows:
1. Extended Term. The Term of the Original Lease shall be extended for one
(1) additional year. Accordingly, Section 2(a) of the Original Lease is hereby
deleted in its entirety and replaced with the following:
"(a) Initial Term. Subject to and upon the terms and conditions set
forth below, the initial term of this Lease shall be for a period of eleven
(11) Lease Years (as hereinafter defined), commencing on the Commencement
Date (as hereinafter defined) and ending on last day of the last month of
the Eleventh (11th) Lease Year."
2. Amendment to Base Rent. In accordance with the extension of the Term as
provided in Paragraph 1 hereof, Section 3(a) of the Original Lease is deleted in
its entirety and replaced with the following:
-1-
<PAGE>
"(a) Base Rental. Tenant shall pay to Landlord, as full service, base
rental (the "Base Rental") during the Term of this Lease, in equal monthly
installments, in advance, on or before the first day of each and every
month during the Term, without notice, demand or set-off, as follows:
Lease Year Per R.S.F. Annual Monthly
---------- ---------- ------ -------
1 $30.00 $125,610.00 $10,467.50
2-4 35.00 146,545.00 12,212.08
5-7 38.00 159,106.00 13,258.83
8-11 40.00 167,480.00 13,956.67
The first month's rent due hereunder shall be due and payable upon
execution of this Lease. Notwithstanding the foregoing and provided that Tenant
is not then in default of its obligations beyond applicable grace periods under
this Lease, Tenant shall be entitled to two months of free Base Rent, such
months to be the first two calendar months following the Commencement Date."
3. Abatement of Base Rent. Landlord and Tenant agree and acknowledge that
Tenant's obligations with respect to Base Rent shall abate in their entirety for
the months of November, 1996 and December 1996. Thereafter, Tenant shall not be
entitled to any further rental abatements, free rent, construction allowances,
moving allowances, special concessions or any other leasing concessions with
respect to the Premises except as expressly provided for in this Amendment.
4. Estoppel Certificates. Within ten (10) days after written request by
Landlord, Tenant shall execute, acknowledge and deliver to Landlord or to
Landlord's mortgagee, prospective mortgagee, land lessor or prospective
purchaser of the Building and the real property upon which the Building is
erected, an estoppel certificate, in form and substance substantially similar to
that attached as Exhibit "A" hereto. Tenant shall make such modifications to
such estoppel certificate as may be necessary to make such certificate true and
accurate, it being intended that any such statement delivered pursuant to this
Paragraph 4 and Section 11 of the Original Lease may be relied upon by any such
mortgagee, prospective mortgagee, prospective purchaser, or land lessor of the
above-referenced property. If Tenant fails to
-2-
<PAGE>
provide such estoppel certificate with ten (10) days after Landlord's request,
Tenant shall be deemed to have approved the contents of any such certificate
submitted to Tenant by Landlord and Landlord is hereby authorized to so certify.
5. Parking. Landlord has agreed to provide for the use of Tenant and its
agents, employees and invitees, at no charge to Tenant two (2) parking spaces.
Accordingly, Section 47 of the Original Lease is hereby deleted in its entirety
and replaced with the following:
"47. Parking. Provided that Tenant is not in default under its Lease beyond
applicable grace periods, Tenant shall have the right to use and occupy two
(2) non-reserved parking spaces in the parking garage adjacent to the
Building at no charge to Tenant and the right to lease two (2) non-reserved
parking spaces in the parking garage adjacent to the Building at the then
applicable monthly rate and subject to the rules and regulations applicable
to the parking garage. Tenant shall have the right to utilize up to twenty
(20) parking spaces in the parking garage one evening each month for
Tenant's board meetings at the then applicable hourly rate and subject to
the rules and regulations applicable to the parking garage.
6. Renewal Option. Notwithstanding the extension of the Term as set forth
in Paragraph 1 hereof, Landlord and Tenant agree and acknowledge that the
Renewal Option set forth in Section 49 of the Original Lease shall remain in
full force and effect.
7. Binding Agreement. This First Amendment shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
assigns.
8. Capitalized Terms. Capitalized terms used but not otherwise defined
herein shall have the same meaning as contained in the Original
9. Survival of Lease Terms. All of the terms and conditions contained in
the Original Lease shall apply to the Premises except as specifically amended by
the terms and conditions set forth in this First Amendment. As amended and
supplemented by this First Amendment, the Original Lease continues
-3-
<PAGE>
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Lease as of the date first above written.
LANDLORD:
ELEVEN COLONIAL PENN PLAZA
ASSOCIATES, a Pennsylvania limited partnership
BY: ELEVEN PENN CENTER CORPORATION
By: /s/ [ILLEGIBLE]
---------------
Attest /S// [ILLEGIBLE]
---------------
[Corporate Seal]
TENANT:
PENNSYLVANIA SAVINGS BANK,
a Pennsylvania corporation
By: /s/ [ILLEGIBLE]
---------------
Title: /s/ [ILLEGIBLE]
---------------
[Corporate Seal]
-4-
<PAGE>
EXHIBIT "A"
TENANT ESTOPPEL CERTIFICATE
RE Premises: Premises of Pennsylvania Savings Bank
Lease Dated: October 12, 1995
Amendment(s) Dated: October __, 1996
Between Eleven Colonia Penn Plaza Associates (Landlord)
and Pennsylvania Savings Bank (Tenant)
Square Footage Leased: 4,187
Floor(s)/Suite #(s): Ground Floor
The undersigned, Tenant under the above-referenced lease ("Lease"), certifies to
the following:
1. We have taken possession of and accepted the Premises described above,
except as follows:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
______________________
2. The lease terms as described below are true and accurate, and the lease is
in full force and effect.
Base Rent:_______________________________ per year
Expense Stop:_____________________________ per square foot
Escalations:______________________________________________________
Free Rent:__________________________
Commencement Date:_______________________
Expiration Date:__________________________
Renewals:__________________________________
3. No part of the Premises has been subleased or assigned except as follows:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
4. The rent has been paid
through:_________________________________________________________
5. The security deposit is
______________________________________________________________________
There are no tax or insurance
escrows_______________________________________________________
6. We are not in default of our obligations under the Lease. Landlord to the
best of our knowledge, is not in default of its obligations under the
Lease. There exists no defense or counterclaim to rent or other sums
required to be paid by us under or pursuant to the Lease.
If Tenant is a corporation, the undersigned is a duly appointed officer of the
corporation signing this certificate and is the incumbent in the office
indicated under his/her name. In any event, the undersigned individual is duly
authorized to execute this certificate.
Date______________ 19__ Signed: /S/ [ILLEGIBLE]
---------------
(Signature)
__________________________
-5-
<PAGE>
LEASE AGREEMENT
BETWEEN
ELEVEN COLONIAL PENN PLAZA ASSOCIATES
Landlord
AND
PENNSYLVANIA SAVINGS BANK
a Pennsylvania Corp. Tenant
DATED Oct. 12, 1995
<PAGE>
TABLE OF CONTENTS
1. Premises ........................................................ 1
2. Term ............................................................ 1
(a) Initial Term ...................................... 1
(b) Definitions ....................................... 1
3. Rental .......................................................... 2
(a) Base Rental ....................................... 2
(b) Definitions ....................................... 3
(c) Additional Rental ................................. 3
(d) Payment of Tax Adjustment ......................... 3
(e) Stabilization ..................................... 3
(f) Dispute of Taxes .................................. 3
(g) Adjustments to Real Estate Taxes .................. 3
(h) Real Estate Tax Appeal ............................ 3
(i) Other Charges ..................................... 4
(j) Place of Payment .................................. 4
4. Construction .................................................... 4
(a) Construction Documents ............................ 4
(b) Improvements to be Constructed .................... 4
(c) Availability of Premises Prior to Commencement Date 5
(d) Substantial Completion ............................ 5
(e) Delays ............................................ 5
(t) Condition of Premises ............................. 6
(g) Effect of Delays .................................. 6
(h) Overload .......................................... 6
5. Use of the Premises ............................................. 6
(a) Use ............................................... 6
(b) Advertisement ..................................... 6
(c) Solicitation ...................................... 7
(d) Care .............................................. 7
(e) Noise; Odors ...................................... 7
6. Alterations ..................................................... 7
(a) Prohibition ....................................... 7
(b) Indemnification ................................... 7
(c) Compliance and Supervision of Alterations ......... 8
(d) Landlord's Property ............................... 8
(e) Wiring ............................................ 8
7. Mechanics' Liens
(a) Tenant's Discharging of liens ..................... 8
(b) Landlord's Discharging of liens ................... 9
8. Maintenance and Repair .......................................... 9
(a) Tenant's Maintenance .............................. 9
(b) Landlord's Maintenance ............................ 9
i
<PAGE>
(c) Inspection ....................................... 9
9. Common Areas ................................................... 10
(a) Grant ............................................ 10
(b) Right to Change Common Areas ..................... 10
10. Building Services .............................................. 10
(a) Electric ......................................... 10
(b) Water ............................................ 11
(c) Air-Conditioning and Heat ........................ 11
(d) Janitor Service .................................. 11
(e) Elevator Service ................................. 11
(f) Interruption of Services ......................... 11
(g) Energy Curtailment ............................... 11
(h) Normal Business Hours ............................ 12
(i) Holiday .......................................... 12
(j) Directory ........................................ 12
11. Estoppel Certificates .......................................... 12
12. Indemnification; Waiver of Claims .............................. 12
13. Insurance ...................................................... 13
(a) Tenant's Insurance ............................... 13
(b) Landlord as Additional Insured ................... 13
(c) Landlord's Insurance ............................. 13
(d) Increase in Premiums ............................. 13
14. Waiver of Subrogation .......................................... 13
15. Holding Over ................................................... 14
16. Assignment and Sublease ........................................ 14
(a) Prohibition ...................................... 14
(b) Option to Cancel ................................. 14
(c) Right to Collect Rents Directly .................. 14
(d) Excess Rent ...................................... 15
17. Quiet Enjoyment .............................................. 15
1& Compliance with Laws and with Rules and Regulations .......... 15
(a) Laws ............................................. 15
(b) Rules and Regulations ............................ 15
19. Fire and Casualty ............................................ 15
(a) Termination ...................................... 15
(b) Restoration ...................................... 16
20. Eminent Domain ............................................... 16
(a) Taking .......................................... 16
(b) Termination. ..................................... 16
(c) No Reduction in Rent ............................. 16
ii
<PAGE>
21. Default ........................................................ 17
(a) Defaults ......................................... 17
(b) Accelerated Rent Component ....................... 17
(c) Re-entry ......................................... 18
(d) Continuing Liability ............................. 18
(e) No Duty to Relet ................................. 18
(f) Additional Rights ................................ 18
(g) Bankruptcy ....................................... 19
(h) Overdue Payments ................................. 19
(i) Waiver of Defects ................................ 19
(j) Right or Remedy .................................. 19
(k) Confession of Judgment ........................... 19
22. Waiver of Default or Remedy .................................... 20
23. Landlord's Lien ................................................ 20
24. Uniform Commercial Code ........................................ 20
25. Force Majeure .................................................. 21
26. Subordination of Lease ......................................... 21
(a) General .......................................... 21
(b) Rights of Purchaser .............................. 21
(c) Rights of Mortgagee .............................. 21
27. Notices and Consents ........................................... 21
28. Security Deposit ............................................... 22
29. Miscellaneous Taxes; Use and Occupancy Tax ..................... 22
(a) Other Taxes ...................................... 22
(b) Use and Occupancy Tax ............................ 22
30. Substitute Premises ............................................ 22
31. Brokerage Commission ........................................... 22
32. Hazardous Devices and Contaminants ............................. 22
(a) Prohibition ...................................... 22
(b) Indemnification .................................. 22
(c) Definitions ...................................... 23
33. Exculpation .................................................... 23
34. Signs .......................................................... 23
35. Locks .......................................................... 24
36. Employment ..................................................... 24
37. Plumbing ....................................................... 24
iii
<PAGE>
38. Certain Rights Reserved to Landlord ............................ 24
39. Miscellaneous .................................................. 24
40. Relationship of Parties ........................................ 25
41. Gender and Number .............................................. 25
42. Topic Headings ................................................. 25
43. Counterparts ................................................... 25
44. Entire Agreement ............................................... 25
45. Recording ...................................................... 25
46. Governing Law; Invalidity of any Provisions .................... 25
47. Parking ........................................................ 26
48. Satellite Dish ................................................. 26
49. Renewal ........................................................ 26
50. Conditions ..................................................... 27
51. Building Name/Termination ...................................... 27
52. Restrictions ................................................... 27
EXHIBITS
A Floor Plan
B Legal Description
C Commencement Date Agreement
D Tenant Improvements
E Tenant Estoppel Certificate
F Rules and Regulations
G Satellite Dish
H Initial Signage Specifications
iv
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), dated Oct. 12, 1995, is between ELEVEN
COLONIAL PENN PLAZA ASSOCIATES, a Pennsylvania limited partnership ("Landlord")
and PENNSYLVANIA SAVINGS BANK, a Pennsylvania Corporation ("Tenant").
1. Premises. In consideration of the rents, terms, provisions and covenants
of this Lease, Landlord hereby exclusively leases unto Tenant and Tenant hereby
rents and accepts from Landlord those certain premises containing approximately
4,187 rentable square feet of retail space, located on the Ground Floor
including all entrances thereto (the "Premises"), of that certain building known
as Eleven Penn Center (or such other name as Landlord may from time to time
designate) and located at the northeast corner of 19th and Market Streets,
Philadelphia, Pennsylvania (the "Building"), which Building contains
approximately Six Hundred Seventy Nine Thousand Six Hundred Eighteen (679,618)
net rentable square feet of office space and approximately Four Thousand One
Hundred Eighty-Seven (4,187) net rentable square feet of retail space. The
Premises are outlined on the floor plan attached hereto as Exhibit A and
incorporated herein by reference. The land on which the Building is situated,
together with all improvements located thereon (collectively, the "Property"),
is more particularly described on Exhibit B, attached hereto and incorporated
herein by reference. Tenant shall have the non-exclusive right, in common with
Landlord and other tenants, to use the Common Areas of the Building.
2. Term.
(a) Initial Term. Subject to and upon the terms and conditions set forth
below, the initial term of this Lease shall be for a period of ten (10) Lease
Years (as hereinafter defined), commencing on the Commencement Date (as
hereinafter defined) and ending on last day of the last month of the Tenth
(10th) Lease Year.
(b) Definitions. For purposes of this Lease, the following terms shall have
the following meanings:
(i) "Commencement Date" shall mean the later of (i) January 1, 1996,
(ii) the date on which all conditions set forth in Paragraph 50 below are
satisfied, or (iii) the date upon which the Premises are substantially
completed (as hereinafter defined). Promptly upon determination of the
Commencement Date, Landlord and Tenant shall execute a memorandum, setting
forth the Commencement Date and the expiration date of this Lease, in form
and substance substantially similar to that attached hereto as Exhibit C
and incorporated by reference.
(ii) "Lease Year" shall mean each twelve (12) month period commencing
on the first day of the first full month after the Commencement Date and
each anniversary thereafter during the Term (as hereinafter defined) of
this Lease; provided, however, that if the Commencement Date is the first
day of the month, the first Lease Year shall commence on the Commencement
Date. The first Lease Year shall commence on the Commencement Date and end
on the last day of the last month of the first Lease Year regardless of
whether the first Lease Year is longer than twelve (12) months.
(iii) "Term" shall mean the initial term of this Lease and any
renewals or extensions thereof.
(iv) "Base Year" shall mean calendar year 1996.
<PAGE>
3. Rental.
(a) Base Rental. Tenant shall pay to Landlord, as full service, base rental
(the "Base Rental") during the Term of this Lease, in equal monthly
installments, in advance, on or before the first day of each and every month
during the Term, without notice, demand or set-off, as follows:
Lease Year Per R.S.F. Annual Monthly
- ---------- ---------- ------ -------
1 $30.00 $125,610.00 $10,467.50
2-4 35.00 146,545.00 12,212.08
5-7 38.00 159,106.00 13,258.83
8-10 40.00 167,480.00 13,956.67
The first month's rent due hereunder shall be due and payable upon
execution of this Lease. Notwithstanding the foregoing and provided that Tenant
is not then in default of its obligations beyond applicable grace periods under
this Lease, Tenant shall be entitled to two months of free Base Rent, such
months to be the first two calendar months following the Commencement Date.
(b) Definitions. For purposes of this Lease, the following terms shall have
the following meanings:
(i) "Tenant's Proportionate Share of Real Estate Taxes" shall mean a
percentage factor, determined by dividing the net rentable square footage
contained in the Premises by the net rentable square footage contained in
the office and retail portions of the Building, or 61/100 percent (0.61%).
(ii) "Real Estate Taxes" shall mean all taxes and assessments, special
or otherwise, exclusive of penalties or discounts levied upon or with
respect to the Property, including the Premises, imposed by any federal,
state or local governmental agency, including, without limitation, any form
of real property tax or assessment, rapid transit tax or assessment,
benefit assessment, business or license fee or tax, commercial rental tax,
assessment for Center City District services or any use, occupancy, excise,
sales or other like taxes (other than general income taxes on rent or other
income from the Building). Real Estate Taxes also shall include the expense
of contesting the amount or validity of any such taxes, charges or
assessments, such expense to be applicable to the period of the item
contested. Real Estate Taxes shall not, however, include income, franchise,
capital stock, estate or inheritance taxes unless Landlord reasonably
determines that such taxes are in lieu of real estate taxes, assessments,
rental, occupancy and other like excise taxes. For purposes of this Lease,
Real Estate Taxes for any calendar year shall be those taxes the last
timely payment date for which occurs within such calendar year. In case of
special taxes or assessments payable in installments, only the amount of
the installment(s) the last timely payment date for which occurs on or
after the first day and on or before the last day of such year shall be
included in Real Estate Taxes for that year. Based on representations made
by Tenant, Landlord acknowledges that Tenant currently is an exempt entity
for purposes of the City of Philadelphia Use and Occupancy Tax
(c) Additional Rental. For and with respect to each calendar year
subsequent to the Base Year, Tenant shall pay to Landlord, as "Additional
Rental", Tenant's Proportionate Share of Real Estate Taxes of the total dollar
increase, if any, in Real Estate Taxes for such year over Real Estate Taxes for
the Base Year (collectively the "Tax Adjustment"). Said Additional Rental shall
be prorated on a per diem basis for any partial calendar year included within
the Term. Base Year for Real Estate Taxes shall be the calendar year of 1996;
therefore, payments for the Tax Adjustment shall be applied to calendar year
1997.
(d) Payment of Tax Adjustment. To provide for current payments of Real
Estate Taxes, Tenant shall pay the Tax Adjustment, as estimated by Landlord from
time to time, in twelve (12) monthly
2
<PAGE>
installments, commencing on the first day of the month following the month in
which Landlord notifies Tenant of the amount of its estimated Tax Adjustment. It
is intended that the estimated amount of Tenant's Tax Adjustment for each year
and then to reconcile such estimated expenses in the following year based on
actual Real Estate Taxes for such year paid by Landlord. If Tenant's Tax
Adjustment shall be greater than or less than the aggregate of all installments
so paid on account to Landlord for such twelve (12) month period, then within
ten (10) days of Tenant's receipt of Landlord's statement of reconciled Real
Estate Taxes ("Landlord's Statement"), Tenant shall pay to Landlord the amount
of such underpayment, or Landlord shall credit Tenant for the amount of such
overpayment against the next maturing installment(s) of rent, as the case may
be. The obligation of Tenant with respect to the payment of Tenant's Tax
Adjustment shall survive the termination of this Lease. Any payment, refund,
or credit made pursuant to this subparagraph 3(d) shall be made without
prejudice to any right of Tenant to dispute Landlord's Statement as hereinafter
provided, or of Landlord to correct any item(s) as billed pursuant to the
provisions hereof. Landlord's failure to give Landlord's Statement shall not
constitute a waiver by Landlord of its right to recover rent that is due and
payable pursuant to this subparagraph 3(d).
(e) Dispute of Taxes. If Tenant questions in writing Landlord's Statement
(or a revised Landlord's Statement as described below), and if the question is
not amicably settled between Landlord and Tenant within thirty (30) days after
Landlord's Statement (or revised Landlord's Statement) has been given, Landlord
shall, during the sixty (60) days next following the expiration of such thirty
(30) day period, employ an independent certified public accountant reasonably
satisfactory to Tenant to audit Landlord's Statement. The determination of such
accountant shall be final, conclusive and binding upon Landlord and Tenant.
Tenant understands that the actual itemization of, and the amount of individual
items constituting Landlord's Statement is confidential; and while Landlord
shall keep and make available to such accountant all records in reasonable
detail, and shall permit such accountant to examine and audit such of Landlord's
records as may reasonably be required to verify Landlord's Statement, at
reasonable times during business hours, Landlord shall not be required to (and
the accountant shall not be permitted to) disclose to any person, firm or
corporation, including to Tenant, any such details (it being the intent of the
parties that such accountant shall merely certify to Landlord and to Tenant the
correct amount of Landlord's Statement for the calendar year). Any change in
Landlord's Statement required by such accountant's determination shall be made
within thirty (30) days after such determination has been rendered. The expenses
involved in such determination shall be borne by Tenant and deemed to be Other
Charges (as hereinafter defined) under this Lease, unless the results of such
audit determine that the difference between the Landlord's Statement as
determined by the audit and Landlord's Statement as determined by Landlord is
greater than three percent (3%) of Landlord's Statement as determined by
Landlord, in which case such expenses shall be borne by Landlord. If Tenant does
not, in writing, question the reconciled Landlord's Statement within thirty (30)
days after such statement has been given, Tenant shall be deemed to have
approved and accepted such reconciled Landlord's Statement.
(f) Adjustments to Real Estate Taxes. If any error occurs or Landlord or
Landlord's accountants discover facts or circumstances, which error or discovery
causes Tenant's Tax Adjustment for any period to increase or decrease, upon
notice by Landlord to Tenant of the adjustment to Tenant's Tax Adjustment for
such calendar year, said adjustment and corresponding deficiency or overpayment
shall be paid by Tenant or taken as a credit by Tenant according to the
provisions set forth above. This provision shall survive the termination of the
Lease.
(g) Real Estate Tax Appeal. Landlord shall retain the sole right to
participate in any proceeding to establish or contest the amount of Real Estate
Taxes. If a complaint against valuation, protest of tax rates or other action
increases or decreases the Real Estate Taxes for any calendar year, resulting in
an increase or decrease in rent hereunder, the Real Estate Taxes for the
affected calendar year shall be recalculated accordingly and the resulting
increased rent plus the expenses incurred in connection with such contest, or
decreased rent, less the expenses incurred in connection with such contest,
shall be paid simultaneously with or applied as a credit against, as the case
may be, the rent next becoming due.
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(h) Other Charges. All costs, expenses and other sums that Tenant assumes
or agrees to pay to Landlord pursuant to this Lease ("Other Charges") shall be
deemed rental and, in the event of nonpayment thereof, Landlord shall have all
the rights and remedies herein provided for in case of nonpayment of Base
Rental. If a monthly installment of rent is not received on or before the tenth
(10th) day of the month in which it is due, other remedies for nonpayment of
rent notwithstanding, Tenant shall pay to Landlord, a late charge of five
percent (5%) of such installment as rent for the purpose of defraying Landlord's
administrative expenses incident to the handling of such overdue payment, and
such past due rent shall bear interest at a rate equal to the prime rate as
announced from time to time by Bank One, Columbus, N.A., plus two percent (2%)
per annum (the "Default Rate"), for each day from the first day of the month
through the date such monthly installment of rent is received by Landlord. For
purposes of this Lease, "rent" shall mean Base Rental, Additional Rental, and
Other Charges.
(i) Place of Payment. Tenant shall pay all rent and other charges due under
this Lease without demand, deduction or set off to Landlord c/o CB Commercial
Real Estate Group, Department 1396, Cincinnati, Ohio 45263-1396; or at such
other place as Landlord may designate from time to time hereafter by written
notice to Tenant.
4. Construction.
(a) Construction Documents. Landlord, with Tenant's approval, shall consult
with its architect, engineer, designer and such other consultants as it shall
deem necessary for the development and timely completion of certain documents
as described in this Section 4(a). Landlord shall procure competitive bids for
all construction work done in connection with the Landlord's Work. Tenant shall
have the right to reasonably approve the general contractor which will be
constructing the Landlord's Work. Tenant shall not be liable, directly or
indirectly, for the payment of a construction management fee.
(i) Landlord shall cause to be prepared and delivered to Tenant
complete and final "Construction Drawings," consisting of (a) working
drawings and (b) specifications, for the construction of the Premises for
Tenant's occupancy.
(ii) Landlord shall submit the Construction Documents to Tenant for
Tenant's approval, which approval shall not be unreasonably withheld or
delayed. The approval by Tenant of the Construction Documents shall be
subject to the following procedural requirements: Tenant shall review the
Construction Documents and either approve the same or return the same to
Landlord with requested modifications. Any Construction Document or
modified Construction Document submitted to Tenant for approval and not
returned to Landlord with a written notice from Tenant requesting
modifications within fifteen (15) business days after the date the document
is received by Tenant shall be deemed approved by Tenant.
(iii) In the event that Tenant is unable to obtain the approvals
required by Paragraph 50, Tenant shall reimburse Landlord the costs and
expenses incurred by Landlord in preparing the Construction Documents.
(b) Improvements to be Constructed.
(i) Landlord shall cause its contractor to construct and install the
improvements to the Premises, other than those improvements which are
specified as "Tenant's Work" on the Construction Documents, in accordance
with the Construction Documents (the "Landlord's Work); provided, however,
that Landlord reserves the right (a) to make substitutions of materials or
components of equivalent grade and quality when and if any specified
material or component shall not be readily available, and to make changes
to the work necessitated by conditions met in the course of construction,
provided that if the architect determines that any change is material and
substantial in nature, then Tenant's approval of such
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change shall first be obtained (which approval shall be deemed given unless
withheld in writing within two (2) business days following Landlord's
request therefor). In the event Landlord and Tenant have any differences
with respect to changes each desires to make to the Construction Documents,
Landlord and Tenant shall promptly meet and use good faith efforts to
resolve the differences.
(ii) Tenant shall be entitled to a construction allowance equal to
Fifteen Dollars ($15.00) per rentable square foot of the Premises or
Sixty-two Thousand Eight Hundred Five Dollars ($62,805.00) (the
"Allowance"). The Allowance shall be applied against the total cost the
Construction Documents, the cost of the demolition of the Premises and the
cost of providing improvements in accordance with the Plans, including, but
not limited to, the Landlord's Work. To the extent such costs exceed the
Allowance, the excess shall be additional rent and shall be paid by Tenant
to Landlord within thirty (30) days of Tenant's receipt of an invoice
therefor. If the cost of the Landlord's Work and the Construction Documents
exceeds the amount of the Allowance, Tenant may apply any unused portion of
the Allowance provided to Tenant under that certain lease between Landlord
and Tenant of even date herewith concerning certain premises on the 26th
floor of the Building (the "Office Lease") to the payment of such excess
costs, and, if after the application of the unused portion, if any, of the
Allowance under the Office Lease to the payment of the excess costs, there
are any remaining costs, Tenant shall reimburse Landlord for such remaining
costs within thirty (30) days of Tenant's receipt of an invoice therefor,
and the amount of such remaining costs shall be considered additional rent.
If the cost of the Landlord's Work and the Construction Drawings is less
than the amount of the Allowance, Tenant may apply the unused portion to
the cost of Tenant improvements under the Office Lease or request Landlord
to defer the payment of the unused amount of the Allowance until such time
as Tenant desires to undertake alterations to the Premises. Landlord shall
not be required to publicly-bid any of the contracts for the Landlord's
Work. Except as expressly set forth in the Construction Documents, Landlord
has made no promise to alter, remodel or improve the Premises, the Building
or the Property.
(c) Availability of Premises Prior to Commencement Date. Landlord shall
make the Premises available to Tenant before the Commencement Date to perform
the Tenant's Work and/or to decorate, furnish, and equip the Premises, and
Tenant shall not interfere with the completion of Landlord's Work. Tenant's use
of the Premises for such work shall not create a landlord-tenant relationship
between the parties, or constitute occupancy of the Premises within the meaning
of the next sentence, but the provisions of Paragraphs 12 and 13 of this Lease
shall apply.
(d) Substantial Completion. As used herein, the work in the Premises shall
be "substantially completed" when the work has been completed in accordance with
the plans and specifications (subject to the completion of punch list items) to
a level which satisfies all substantive requirements for the issuance of a
certificate of occupancy, if one is needed (provided that the foregoing
statement shall not be deemed to actually require the issuance of a certificate
of occupancy in order to accomplish substantial completion), which will, except
for any improvements or work to be performed by Tenant, allow Tenant to utilize
the Premises for its intended purposes without material interference to the
customary business activities of Tenant by reason of the completion of the punch
list items of Landlord's Work.
(e) Delays. In the event of delays in substantial completion of the
Premises by reason of any of the following, rent shall commence to accrue as if
the delay had not occurred. Accordingly, on the Commencement Date, Tenant shall
pay to Landlord, on account of such accrued rent, 1/365 of the annual Base
Rental multiplied by the aggregate number of days of such delays:
(i) changes in the work to be performed by Landlord in preparing the
Premises for Tenant's occupancy, which are requested by Tenant after
Landlord's approval of Tenant's plans and specifications; or
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(ii) any failure by Tenant, without regard to any grace period
applicable thereto, to furnish any required plan, information, approval or
consent within a required period of time.
(f) Condition of Premises. Except for punch list items and as otherwise
agreed to in writing, Tenant's taking possession of the Premises shall be
conclusive evidence against Tenant that the Premises were in good order and
satisfactory condition when Tenant took possession. Landlord has made no
representation respecting the condition of the Premises, the Building or the
Property, except as is expressly set forth in Exhibit D. At the termination of
this Lease, by lapse of time or otherwise, Tenant shall remove all Tenant's
property, including but not limited to, trade fixtures, from the Premises, and
shall return the Premises broom-clean and in good condition, except for ordinary
wear and tear, loss by fire or other casualty, and repairs that Landlord is
required to make under this Lease. If Tenant fails to remove any or all of its
property upon termination of this Lease, such property shall be deemed to be
abandoned and shall become the property of Landlord.
(g) Effect of Delays. Landlord presently estimates that the date of
substantial completion of the Premises will be ninety (90) days after the date
on which Tenant obtains the approvals required by Paragraph 50. If substantial
completion of the Premises shall occur at a later date, or if Landlord shall be
delayed in the delivery of possession of the Premises to Tenant, or if repairs
or improvements of the Premises to be performed by Landlord are not completed,
or for any other reason, whether or not within Landlord's control, Landlord
shall not be subject to any liability to Tenant. Under such circumstances, but
subject to the provisions of Section 4(e) concerning delays attributable to
Tenant, the rent reserved and covenanted to be paid herein shall not commence
until possession of the Premises can be given to Tenant in the required state,
and no such failure to give possession shall in any other respect affect the
validity of this Lease or any obligation of the Tenant hereunder.
(h) Overload. To coordinate orderly move-ins and move-outs, no furniture,
freight or equipment of any kind exceeding three hundred (300) pounds shall be
brought into the Building without prior notice to Landlord and Landlord shall
designate the time and manner of moving of the same. Landlord shall have the
right to prescribe the weight, size and position of all safes and other heavy
equipment brought into the Building and also the times and manner of moving the
same in and out of the Building. Safes or other heavy objects shall, if
considered necessary by Landlord, stand on supports of such thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any such safe or property from any cause, and all
damage done to the Building by moving or maintaining any such safe or other
property shall be repaired at Tenant's expense.
5. Use of the Premises.
(a) Use. Tenant shall use the Premises for the conduct of Tenant's banking
business and for office and retail uses which are comparable to and compatible
with a banking business and the character of the building as a first-class
office building, such as, but not limited to, use by a mortgage broker,
securities broker, insurance sales or other financial services which are
compatible with Tenant's banking business and the character of the Building as a
first class office building and for no other purpose whatsoever. The term
"compatible" financial services does not include, among other things, and Tenant
shall not use the Premises as, a check-cashing establishment or a pawn shop.
Tenant shall not, without the prior written consent of Landlord, exhibit, sell
or offer for sale on the Premises or in the Building any article or thing,
except those articles and things essentially connected with Tenant's stated use
of the Premises.
(b) Advertisement. Tenant shall not advertise the business, profession or
activities of Tenant conducted in the Building in any manner which violates the
letter or spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business of Tenant, and shall never use
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any picture or likeness of the Building in any circulars, notices,
advertisements or correspondence without Landlord's prior written consent.
(c) Solicitation. Tenant shall not disturb, solicit, or canvass any
occupant of the Building and shall cooperate with Landlord to prevent same.
(d) Care. Tenant shall use and occupy the Premises so that no other
occupant of any adjoining premises will be unreasonably disturbed and shall
create no nuisance in, upon or about the Premises. Subject to the provisions of
Paragraph 8(b), Tenant shall take good care of the Premises, the fixtures and
appurtenances thereto, and all alterations, additions and improvements thereto.
Tenant will not make or permit to be made any use of the Premises or any part
thereof, and will not bring into or keep anything in the Premises or any part
thereof, that (i) violates any of the covenants, agreements, terms, provisions
and conditions of this Lease; (ii) directly or indirectly is forbidden by public
law, ordinance or regulation of any governmental or public authority (including
zoning ordinances); (iii) is dangerous to life, limb or property, (iv) increases
the risk to Landlord or any other tenant or invalidate or increase the premium
cost of any policy of insurance carried on the Building or covering its
operation, or (v) in the sole judgment of Landlord, in any way impairs or tends
to impair the character, reputation or appearance of the Property as a
first-class office building, or impairs or interferes with any of the services
performed by Landlord for the Property.
(e) Noise; Odors. Tenant shall not use, keep or permit to be used or kept
any foul or noxious gas or substance in the Premises; permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations; interfere in any way with other tenants or those having business
therein; or bring in or keep any animals or birds in the Premises. Tenant shall
not use the Premises for housing accommodations or lodging or sleeping purposes,
or do any cooking therein, or use any illumination other than electric light.
6. Alterations.
(a) Prohibition. Tenant shall not make any alterations, additions or
improvements (collectively, the "Alterations") in or to the Premises, or in or
to the Building without the express prior written consent of Landlord, provided,
however, that Landlord shall not be unreasonable in withholding or delaying
consent to nonstructural Alterations. Before commencing any work in connection
with the Alterations, Tenant shall furnish to Landlord for its approval the
following: (i) detailed plans and specifications therefor, (ii) names and
addresses of each of the contractors and subcontractors, (iii) copies of all
contracts, subcontracts and necessary permits, (iv) a payment and performance
bond, or other indemnification, in form and amount satisfactory to Landlord,
protecting Landlord against any and all claims, costs, damages, liabilities and
expenses that may arise in connection with the Alterations if such Alterations
exceed $25,000.00, (v) sworn contractor's statements and mechanic lien waivers
covering all work to be performed and such other documentation as is necessary
to comply fully with the mechanics' lien law of the state in which the Premises
is located, and (vi) certificates of insurance, in form and amount satisfactory
to Landlord, from all contractors and subcontractors who will perform labor or
furnish materials, insuring Landlord against any and all liability for personal
injury, including workers' compensation claims and for property damage that may
arise out of or be in any manner connected with the Alterations.
(b) Indemnification. In addition to the indemnity set forth in Paragraph 12
of this Lease, Tenant hereby specifically agrees to indemnify and hold harmless
Landlord from and against any and all liabilities, costs and expenses of every
kind and description, including attorneys' fees, that may arise out of or in any
manner be connected with any Alterations made by Tenant. Tenant shall pay the
cost of all such Alterations and all costs associated with decorating the
Premises that may be occasioned thereby. Upon completion of any such
Alterations, Tenant shall furnish Landlord with (i) receipted bills covering all
labor
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and materials used, together with such documentation as is necessary to comply
fully with the mechanics' lien law of the state in which the Premises are
located; (ii) a true and correct copy of the certificate of occupancy, if one is
issued; and (iii) a certificate of Tenant's architect or engineer stating that
such Alterations were made in accordance with the plans and specifications.
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for such labor or material shall attach to or affect
the reversion or other estate or interest of Landlord in and to the Premises.
(c) Compliance and Supervision of Alterations. All Alterations made by
Tenant hereunder shall be installed in a good and workmanlike manner, using only
materials of the same or higher quality as those installed in the Building. All
Alterations shall comply with all requirements of Landlord's insurance carriers
and with all laws, rules, ordinances and regulations of any lawful authority.
Tenant shall permit Landlord to supervise construction operations in connection
with any such Alterations, if Landlord requests the right to do so (but Landlord
shall have no obligation to make such requests, or having done so, to supervise
construction). Landlord's supervision of construction shall be done solely for
the benefit of Landlord and shall not alter Tenant's liability and
responsibility under this Paragraph 6.
(d) Landlord's Property. All Alterations, whether temporary or permanent,
including hardware, non-trade fixtures and wall and floor coverings, whether
placed in or upon the Premises by Landlord or Tenant, shall become Landlord's
property and shall remain with the Premises at the termination of this Lease,
whether by lapse of time or otherwise, without compensation, allowance or credit
to Tenant, provided, however, that notwithstanding the foregoing, Landlord may
request that any or all of said Alterations in or upon the Premises made by
Tenant be removed by Tenant at the termination of this Lease. Notwithstanding
the foregoing, Landlord shall deliver the Premises in its "as is" condition
including Tenant's use of the existing banking. i.e., vault and safes, however,
Tenant shall have no obligation to remove the same at the termination of the
Lease. If Landlord requests such removal or if Tenant removes its trade
fixtures, Tenant shall remove the same prior to the end of the Term and shall
repair all damage to the Premises, the Building or the Property caused by such
removal. Tenant shall not, however, be required to remove floors, walls (other
than temporary walls or partitions), ceilings, pipes and wires concealed in
floors, walls or ceilings, provided that Tenant properly cuts and caps the same,
and seals them off in a safe, lawful and workmanlike manner, in accordance with
Landlord's reasonable requirements and all applicable building codes. If Tenant
does not remove any Alterations when requested by Landlord to do so, Landlord
may remove the same and repair all damage caused thereby, and Tenant shall pay
to Landlord the cost of such removal and repair immediately upon demand therefor
by Landlord, plus five percent (5%) of the cost of such removal to reimburse
Landlord for its administrative expense. Tenant's obligation to observe or
perform this covenant shall survive the expiration or termination of this Lease.
(e) Wiring Landlord. will direct electricians as to where and how telephone
and computer wires are to be introduced. No boring or cutting for wires will be
allowed without Landlord's written consent. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to
Landlord's approval.
7. Mechanics' Liens.
(a) Tenant's Discharging of Liens. If, because of any act or omission of
Tenant, any mechanic's lien or other lien, charge or order for the payment of
money shall be filed against any portion of the Premises, Tenant, at its own
cost and expense, shall cause the same to be discharged of record or bonded
against within thirty (30) days of the filing thereof unless Tenant shall
contest the validity of such lien by appropriate legal proceedings diligently
conducted in good faith and without expense to Landlord; and Tenant shall
indemnify and save harmless Landlord against and from all costs, liabilities,
suits, penalties, claims and demands, including attorneys' fees, on account
thereof.
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(b) Landlord's Discharging of Liens. If Tenant shall fail to cause such
liens to be discharged of record or bonded against within the aforesaid thirty
(30) day period or shall fail to satisfy such liens within ten (10) days after
any judgment in favor of such lien-holders from which no further appeal might be
taken, then Landlord shall have the right to cause the same to be discharged.
All amounts paid by Landlord to cause such liens to be discharged, plus interest
on such amounts at the Default Rate shall constitute Other Charges payable by
Tenant to Landlord.
8. Maintenance and Repair.
(a) Tenant's Maintenance. Tenant, at its sole cost and expense, shall
maintain and repair during the Term of this Lease the Premises and every part
thereof and any and all appurtenances thereto, including but not limited to, the
doors and interior walls of the Premises; special light fixtures; kitchen
fixtures; auxiliary heating, ventilation, or air-conditioning equipment serving
the Premises; and rugs, carpeting, wall coverings, and drapes within the
Premises, whether installed by Tenant or by Landlord on behalf of Tenant, and
whether or not such items will become Landlord's property upon expiration or
termination of this Lease. Notwithstanding the aforementioned, Landlord shall
maintain and repair all plumbing fixtures and water supply in the Premises and
the Building at Landlord's cost. Notwithstanding the provisions hereof in the
event that repairs required to be made by Tenant become immediately necessary to
avoid possible injury or damage to persons or property, Landlord may, but shall
not be obligated to, make repairs to such items at Tenant's expense, which shall
constitute Other Charges payable by Tenant to Landlord. Within ten (10) days
after Landlord renders a bill for the cost of said repairs, Tenant shall
reimburse Landlord.
(b) Landlord's Maintenance. Subject to Paragraph 8(a) above, Landlord shall
keep, repair and maintain the Building (including the roof, structural walls,
and structural members, the Common Areas, mechanical and electrical equipment,
the exterior and architectural finish, and all items except those excepted
elsewhere in this Lease) of which the Premises are a part, and the lawn, shrubs
and other landscaping on the Property, all in good and tenantable condition
during the Term of this Lease. Landlord shall, in addition, supply reasonable
snow removal for the walkways of the Property during Normal Business Hours (as
hereinafter defined). Tenant shall notify Landlord immediately when any repair
to be made by Landlord is necessary. If any portion of the Building or the
Premises is damaged through the fault or negligence of Tenant, its agents,
employees, invitees or customers, then Tenant shall promptly and properly repair
the same at no cost to Landlord; provided, however, that Landlord may, at its
option, make such repairs and Tenant shall, on demand, pay the cost thereof,
together with interest at the Default Rate to Landlord as Other Charges. Tenant
shall immediately give Landlord written notice of any defect or need for
repairs, after which notice Landlord shall have reasonable opportunity to repair
same or cure such defect. For the purposes of making any repairs or performing
any maintenance, Landlord may block, close or change any entrances, doors,
corridors, elevators, or other facilities in the Building or in the Premises,
and may close, block or change sidewalks, driveways or parking areas of the
Property provided that any such action does not materially or adversely impact
Tenant's use of the Premises for its Permitted Use and Tenant, its customers and
employees have access to the Premises during Normal Business Hours. Landlord
shall not be liable to Tenant, except as expressly provided in this Lease, for
any damage or inconvenience and Tenant shall not be entitled to any abatement of
rent by reason of any repairs, alterations or additions made by Landlord under
this Lease provided that any such action does not materially or adversely impact
Tenant's use of the Premises for its Permitted Use and Tenant, its customers and
employees have access to the Premises during Normal Business Hours.
(c) Inspection. Tenant shall permit Landlord, its agents, employees and
contractors, at any time in the event of an emergency, and otherwise at
reasonable times, after advance written notice to Tenant, to take any and all
measures, including inspections, repairs, alterations, additions and
improvements to the Premises or to the Building, as may be necessary or
desirable to safeguard, protect or preserve the Premises, the Building or
Landlord's interests; to operate or improve the Building, to comply
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on behalf of Tenant with all laws, orders and requirements of governmental or
other authority (if Tenant fails to do so); to examine the Premises to verify
Tenant's compliance with all of the terms, covenants, obligations and conditions
of this Lease; or to exercise any rights with respect to the Premises that
Landlord may exercise in the event of default by Tenant.
9. Common Areas.
(a) Grant. During the Term of this Lease, Landlord grants to Tenant, its
employees, customers and invitees, a nonexclusive license to use, in common with
all others to whom Landlord has granted or may hereafter grant a license to use,
the common areas of the Property, including but not limited to, the sidewalks,
lobbies, halls, passages, exits, entrances, elevators, stairways, restrooms,
parking areas (except as provided for in subparagraph (b) below), driveways and
landscaped areas (collectively, the "Common Areas") subject to reasonable rules
and regulations respecting the Common Areas as Landlord may from time to time
promulgate. The Common Areas shall not be obstructed by Tenant or used for any
purpose other than for ingress to and egress from the Premises. The Common Areas
are not for the use of the general public (but in no way prohibits entry by
Tenant's customers and invitees and Landlord shall in all cases retain the right
to control and prevent access thereto by all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
and interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom Tenant
normally deals in the ordinary course of Tenant's business unless such persons
are engaged in illegal activities. Neither Tenant nor its employees, customers
or invitees shall go upon the roof or mechanical floors or into mechanical areas
of the Building.
(b) Right to Chance Common Areas. Landlord may do and perform such acts in
and to the Common Areas as, Landlord, in its good business judgment, shall
determine to be advisable but Landlord shall not do anything to materially
disrupt or interfere with access to the Premises. Landlord hereby reserves the
right to make alterations, additions, deletions or changes to the Common Areas,
including, but not limited to, changes in its size and configuration but
Landlord shall not do anything to materially disrupt or interfere with access to
the Premises.
10. Building Services.
(a) Electric. Landlord shall provide electric power to the Premises.
Electric power furnished by Landlord is intended to be that consumed in normal
office use during Normal Business Hours for lighting, heating, ventilating, air
conditioning and operating all office equipment, and shall replace light bulbs
and tubes when required, if requested by Tenant (the cost of such replacement
light bulbs and tubes, plus the labor cost of such replacement, to be chargeable
to Tenant). Tenant's use of electricity in the Premises, including the ATM,
shall be submetered, and Tenant shall pay as Additional Rent the amount by which
the cost of the electricity used by Tenant in the Premises, including the ATM,
exceeds the cost of the electricity used by Tenant in the Premises, including
the ATM, during the Base Year of 1996. Landlord may elect to estimate the cost
of Tenant's usage of electricity in the Premises, including the ATM, based upon
the previous year's usage, and Tenant shall pay such estimated cost in twelve
(12) equal monthly installments, commencing on the first day of the month
following the month in which Landlord notifies Tenant of such estimated charges.
If Landlord elects to collect estimated costs, Tenant's actual costs shall be
reconciled in the manner set forth in Section 3(d) of the Office Lease with
respect to the reconciliation of Operating Expenses under the Office Lease. If
Tenant fails to pay such Additional Rent, the failure shall constitute a breach
of the obligation to pay rent under this Lease and shall entitle Landlord to the
rights granted in this Lease for such breach. Tenant shall use strict care and
caution to ensure that all electricity is carefully shut off to prevent waste or
damage. Except as set forth above and except for after-hours utilities, all
utilities are included in Base Rent.
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(b) Water. Landlord shall provide water for drinking, lavatory and toilet
purposes from the regular Building supply (at the prevailing temperature)
through fixtures installed by Landlord (or by Tenant with Landlord's prior
written consent); provided that Tenant shall reimburse Landlord, at rates fixed
by Landlord, for water used by Tenant for supplementary air-conditioning or
refrigerating installed by or for Tenant and for any other water used by Tenant
(except for public drinking water and public lavatory use). Notwithstanding the
foregoing, Tenant shall be solely responsible for the cost of all water used
in connection with the Tenant's automatic teller machine or machines, which
costs shall be treated as additional rent for purposes of this Lease. If
Landlord and Tenant jointly determine that the ATM does not require special
utility needs, Tenant may elect to connect the ATM to the balance of the
Premises for HVAC purposes thus eliminating the need for additional water cost.
Except as set forth above and in subparagraph (a) above and except for
after-hours utilities, all utilities are included in Base Rent.
(c) Air-Conditioning and Heat. Landlord shall provide air conditioning and
heat to the Premises for comfortable occupancy during Normal Business Hours,
subject at all times, however, to restrictions placed upon Landlord by any duly
constituted governmental agency and/or by any utility supplier. Tenant shall
cooperate fully with Landlord to assure the effective operation of the
Building's air-conditioning and heating systems, including the closing of
venetian blinds and drapes, and if windows are operable, to keep them closed
when the air-conditioning or heating system is in use. Tenant shall not use any
apparatus or device in, upon or about the Premises that in any way may increase
the amount of such services usually furnished or supplied to tenants in the
Building, and Tenant shall not connect any apparatus or device with the conduits
or pipes, or other means by which such services are supplied for the purpose of
using additional or unusual amounts of such service, without the prior written
consent of Landlord. If Tenant uses such services under this provision to
excess, Landlord reserves the right to charge Tenant for such services, as rent.
If Tenant refuses to make payment upon demand of Landlord, such excess charge
shall constitute a breach of the obligation to pay rent under this Lease and
shall entitle Landlord to the rights granted in this Lease for such breach.
(d) Janitor Service. Landlord shall provide no janitor service to the
Premises. Any janitor services desired by Tenant shall be arranged for directly
by Tenant at Tenant's sole cost and expense and shall be acceptable to Landlord.
(e) Interruption of Services. Tenant hereby acknowledges that any one or
more of the utilities or building services specified in this Paragraph 10 may be
interrupted or diminished temporarily by Landlord or other person until certain
repairs, alterations or other improvements to the Premises or other parts of the
Property can be made or by any event or cause which is beyond Landlord's
reasonable control, including, without limitation, any ration or curtailment of
utility services; that Landlord does not represent, warrant or guarantee to
Tenant the continuous availability of such utilities or building services; and
that any such interruption shall not be deemed or construed to be an
interference with Tenant's right of possession, occupancy and use of the
Premises, shall not render Landlord liable to Tenant for damages or entitle
Tenant to any reduction of Base Rental, and shall not relieve Tenant from its
obligation to pay Base Rental and to perform its other obligations under this
Lease unless such interruption of service continues and renders the Premises or
a portion thereof unusable for more than ten (10) business days, in which event
Tenant shall have a right to abate rent to the extent of the interruption.
(f) Energy Curtailment. Landlord and Tenant specifically acknowledge that
energy shortages in the region in which the Property is located may from time to
time necessitate reduced or curtailed energy consumption on the Property. Tenant
shall comply with all such rules and regulations as may be promulgated from time
to time by any governmental authority with respect to energy consumption, and
during such period of time as such governmental authority may so require, Tenant
shall reduce or curtail operations in the Premises as shall be directed by
Landlord or such governmental authority. Compliance with such rules and
regulations and/or such reduction or curtailment of operation shall not
constitute a breach of Landlord's covenant of quiet enjoyment or otherwise
invalidate or affect this Lease, and Tenant
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shall not be entitled to any diminution or abatement in Base Rental during the
periods of reduction or curtailment of operations.
(g) Normal Business Hours. For purposes of this Lease, "Normal Business
Hours" shall mean 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m.
to 1:00 p.m. on Saturday and not including Sundays and Holidays. Landlord
acknowledges that the ATM will be available to Tenant's customers on a 24 hour a
day basis.
(h) Holidays. For purposes of this Lease, Holidays shall mean New Year's
Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving and Christmas.
11. Estoppel Certificates. Within ten (10) days after written request by
Landlord or Tenant, the other party shall execute, acknowledge and deliver to
the other party or to Landlord's mortgagee, prospective mortgagee, land lessor
or prospective purchaser of the Property or any part thereof, an estoppel
certificate, in form and substance substantially similar to that attached as
Exhibit E and incorporated herein by reference. The parties shall make such
modifications to such estoppel certificate as may be necessary to make such
certificate true and accurate, it being intended that any such statement
delivered pursuant to this Paragraph 11 may be relied upon by any such
mortgagee, prospective mortgagee, prospective purchaser, or land lessor of the
Property. If either party fails to provide such estoppel certificate with ten
(10) days after the other party's request, the other party shall be deemed to
have approved the contents of any such certificate submitted.
12. Indemnification; Waiver of Claims.
(a) Tenant shall protect, indemnify, defend, and hold harmless Landlord,
its agents, servants, employees, officers, directors and partners forever
against and from (i) any penalty, damages, charges or costs imposed or resulting
from any violation of any law, order or ordinance of any governmental agency, or
by the use and occupancy of the Premises by Tenant, whether occasioned by the
neglect of Tenant or those holding under Tenant, (ii) all claims, losses, costs,
damages and expenses, including attorneys' fees, arising out of or from any
accident or other occurrence on or about the Premises or the Property causing
injury to any person or property, except caused by the sole active negligence or
intentional act or omission of Landlord or its servants, agents or employees;
(iii) all claims, losses, costs, damages and expenses, including attorneys'
fees, arising out of any failure of Tenant in any respect to comply with or
perform all the requirements and provisions of this Lease or arising out of any
use of the Premises or the Property by Tenant or any one claiming by, through or
under Tenant.
(b) Landlord shall not be liable for, and Tenant hereby waives all claims
against Landlord, (i) for any and all damage or loss to fixtures, equipment or
other property of Tenant and its servants, agents, employees, contractors,
suppliers, invitees, patrons and guests, in, upon or about the Premises or the
Property, or (ii) for injury or death to any person, occurring in, upon or about
the Premises or the Property, resulting from any cause whatever (except caused
by the sole active negligence or intentional act or omission of Landlord or its
servants, agents or employees), including, but not limited to, water, snow,
frost, ice, explosion, falling plaster, fire or gas, smoke or other fumes, nor
by reason of the leaking, breaking, backing up or other malfunction of any
lines, wires, pipes, tanks, boilers, lifts or any other appurtenances,
regardless by whom installed or maintained (Tenant hereby expressly assuming all
responsibility for the safety and security of the person and property of Tenant,
and its servants, agents, employees, contractors, suppliers, invitees, patrons
and guests, while in, upon or about the Premises). The occurrence of any event
described in this Paragraph 12 shall not constitute a breach of Landlord's
covenant of quiet enjoyment set forth in Paragraph 17.
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13. Insurance.
(a) Tenant's Insurance. Tenant, at its sole cost and expense, shall carry
during the entire Term of this Lease, the following types of insurance:
(i) A commercial general liability insurance (covering both the
Premises and the premises which is the subject of the Office Lease) against
injuries to persons occurring in, upon or about the Premises, with minimum
coverage of Three Million Dollars ($3,000,000.00) per occurrence and Three
Million Dollars ($3,000,000.00) aggregate coverage per one (1) accident or
disaster, and One Million Dollars ($1,000,000.00) for property damage;
(ii) Fire, extended coverage, vandalism and malicious mischief, and
sprinkler damage and all-risk insurance coverage on all personal property,
trade fixtures, floor coverings, wall coverings, furnishings, furniture,
and contents for their full insurable value on a replacement cost basis;
(iii) Business interruption insurance, against loss or damage
resulting from the same risks as are covered by the insurance mentioned in
subparagraph (i) above in an amount equal to the aggregate of one (1)
year's requirement of (A) Base Rental, (B) the amounts payable by Tenant
for Additional Rental as provided in subparagraph 3(b), and (C) insurance
premiums necessary to comply with this Paragraph 13; and
(iv) Workers' Compensation or similar insurance, if and to the extent
required by law and in form and amounts required by law.
(b) Landlord as Additional Insured. All such insurance required to be
maintained by Tenant shall name Landlord as an additional insured and shall be
written with a company or companies reasonably satisfactory to Landlord, having
a policyholder rating of at least "A" and be assigned a financial size category
of at least "Class XIV" as rated in the most recent edition of "Best's Key
Rating Guide" for insurance companies, and authorized to engage in the business
of insurance in the state in which the Premises are located. Tenant shall
deliver to Landlord copies of such policies and customary insurance certificates
evidencing such paid-up insurance. Such insurance shall further provide that the
same may not be canceled, terminated or modified unless the insurer gives
Landlord and Landlord's mortgagee(s) at least thirty (30) days' prior written
notice thereof.
(c) Landlord's Insurance. Landlord shall maintain in force, at all times
during the Term of this Lease, a policy or policies of fire and extended risk
insurance including malicious mischief and vandalism to the extent of at least
eighty percent (80%) of the insurable value of the Building, including the
Landlord's Work, plate glass, perimeter walls, doors, steps and Common Areas.
(d) Increase in Premiums. If insurance premiums payable by Landlord or any
other tenant are increased as a result of any breach of Tenant's obligations
under this Lease or as a result of Tenant's use and occupancy of the Premises,
Tenant shall pay to Landlord an amount equal to any increase in such insurance
premiums.
14. Waiver of Subrogation. Neither Landlord nor Tenant shall be liable to
the other for any business interruption or any loss or damage to property or in
any manner growing out of or connected with Tenant's use and occupation of the
Premises, the Building or the Property or the condition thereof, or of the
adjoining property, whether or not caused by the negligence or other fault of
Landlord or Tenant or of their respective agents, employees, subtenants,
licensees or assignees; provided, however, that this release shall apply only to
the extent that such business interruption or loss or damage is covered by
insurance, regardless of whether such insurance is payable to or protects
Landlord or Tenant or both. Nothing in this Paragraph 14 shall be construed to
impose any other or greater liability upon either
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Landlord or Tenant than would have existed in the absence hereoL Because this
Paragraph 14 will preclude the assignment of any claim mentioned in it by way of
subrogation (or otherwise) to an insurance company (or any other person), each
party to this Lease agrees immediately to give to each insurance company that
has issued to it policies of fire and extended coverage insurance, written
notice of the terms of the mutual waivers contained in this paragraph, and to
have the insurance policies properly endorsed, if necessary, to prevent the
invalidation of the insurance coverages because of the mutual waivers contained
in this Paragraph 14.
15. Holding Over. If Tenant retains possession of the Premises or any
part thereof after the termination of this Lease, such tenancy shall (without
limitation on any one of Landlord's rights or remedies therefor) be one at
sufferance from month to month and Tenant shall pay Landlord rent at one and one
half (1-112) times the monthly rate in effect immediately prior to the
termination of this Lease for the time the Tenant remains in possession. No
acceptance of rent by, or other act or statement whatsoever on the part of
Landlord or its agent or employee, in the absence of a writing signed by
Landlord, shall be construed as an extension of or as a consent for further
occupancy. Tenant shall indemnify Landlord for all damages, consequential as
well as direct, sustained by reason of Tenant's retention of possession. The
provisions of this Paragraph 15 do not exclude pursuit of Landlord's right of
re-entry or any other right hereunder.
16. Assignment and Sublease.
(a) Prohibition. Tenant shall not assign, convey, mortgage, pledge,
encumber or otherwise transfer this Lease or any interest therein, sublet the
Premises or any part thereof, or permit the use or occupancy of the Premises or
any part thereof by anyone other than Tenant, without receiving Landlord's prior
written consent, which consent shall not be unreasonably withheld or delayed.
Based on a representation made by Tenant, Landlord acknowledges that Tenant
intends to sublet a portion of the Premises for a Permitted Use. A transfer by
operation of law, merger or consolidation, or a change of any partnership
interest in Tenant or in the ownership of the voting stock of Tenant or any
direct or indirect parent of Tenant shall be deemed an assignment for purposes
of this Paragraph 16. Notwithstanding the foregoing, this Lease may be assumed
by any bank or savings and loan institution or holding company thereof which
acquires Tenant or is the surviving entity after a merger or consolidation
involving Tenant, provided that the acquiring entity or the entity with which
Tenant is to be merged or consolidated must have an asset size which is the same
as or larger than Tenant's asset size on the date of the acquisition, merger or
consolidation. Any purported transfer, encumbrance, pledge, mortgage, assignment
or subletting not in compliance herewith shall be void and of no force or
effect. In the event of any assignment, subletting, transfer or occupancy by
someone other than Tenant, whether or not expressly or impliedly approved by
Landlord, Tenant shall, nevertheless, at all times, remain fully responsible and
jointly and severally liable for the payment of the rent and for compliance with
all other obligations imposed upon Tenant under the terms, provisions and
covenants of this Lease any assignment or sublease shall contain a provision
whereby the assignee or subtenant agrees to comply with and be bound by all of
the terms, covenants, conditions, provisions and agreements of this Lease to the
extent applicable, and Tenant shall deliver to Landlord, promptly after
execution, an executed copy of each assignment or sublease and an agreement of
compliance by each assignee or subtenant. Any sublease shall also contain a
provision that in the event of default by Tenant hereunder and a termination of
this Lease by Landlord, such subtenant shall, at Landlord's option, attorn to
Landlord as if Landlord were the lessor under the sublease.
(b) Intentionally deleted prior to execution.
(c) Right to Collect Rents Directly. Upon the occurrence of an
"event of default" as set forth in Paragraph 21 hereof, if all or any part of
the Premises is then assigned, sublet, transferred or occupied by someone other
than Tenant, then, in addition to any other remedies provided in this Lease or
provided by law, Landlord, at its option, may collect directly from the
assignee, subtenant, transferred or occupant all
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rent becoming due to Tenant by reason of the assignment, sublease, transfer or
occupancy. Any collection directly by Landlord from the assignee or subtenant
shall not be construed to constitute a novation or a release of Tenant from the
further performance of its obligations under this Lease.
(d) Excess Rent. If Tenant assigns this Lease or sublets all or a
portion of the Premises for an amount in excess of the Base Rental (or the pro
rata share of Base Rental in the case of a sublease of a portion of the
Premises), then Tenant shall pay to Landlord, as rent, fifty percent (50%) of
such excess received by Tenant.
17. Quiet Enjoyment. If Tenant shall pay the rents and other sums due to
be paid by Tenant hereunder as and when the same become due and payable, and if
Tenant shall keep, observe and perform all of the other terms, covenants and
agreements of this Lease on Tenant's part to be kept, observed and performed,
Tenant shall, at all times during the Term herein granted, peacefully and
quietly have and enjoy possession of the Premises without any encumbrance or
hindrance by, from or through Landlord, its successors and assigns, except for
regulations imposed by any governmental or quasi-governmental agency on the
occupancy of Tenant or the conduct of Tenant's business operations.
18. Compliance with Laws and with Rules and Regulations.
(a) Laws. Tenant, at its sole cost and expense, shall procure any
permits and licenses required for the transaction of Tenant's business in the
Premises. Tenant, at its sole cost and expense, shall promptly observe and
comply with all present and future laws, ordinances, requirements, orders,
directives, rules and regulations of all state, federal, municipal and other
agencies or bodies having jurisdiction relating to the use, condition and
occupancy of the Premises, the Building and the Property ("Governmental
Requirements") at any time in force, applicable to the Premises or to Tenant's
use thereof, except that Tenant shall not be under any obligation to comply with
any law, ordinance, rule or regulation requiring any structural alteration of
the Premises, unless such alteration is required because of a condition that has
been created by, or at the instance of, Tenant, or is required by reason of a
breach of any of Tenant's covenants and agreements under this Lease. Landlord
shall not be required to repair any injury or damage by fire or other cause, or
to make any repairs or replacements of any panels, decoration, office fixtures,
railing, ceiling, floor covering, partitions, or any other property installed in
the Premises by Tenant. Tenant, shall also, during the Term and any extension or
renewals hereunder, comply with at its own cost and expense, and shall promptly
correct any violation of all requirements of any insurance underwriters
("Insurance Requirements"). Tenant shall indemnify, defend and hold Landlord
harmless from and against any and all losses, damages, claims of third parties
and cost of correcting expenses (including attorneys fees and costs of suit or
administrative proceedings) or fines arising out of Tenant's failure to comply
with Governmental Requirements or Insurance Requirements. The provisions of this
Paragraph 18(a) shall survive the expiration or termination of this Lease.
(b) Rules and Regulations. Tenant shall comply with all rules and
regulations for the Building, which current rules and regulations are attached
hereto as Exhibit F and with such commercially reasonable modifications thereof
and additions thereto as Landlord may make hereafter, from time to time.
Notwithstanding anything contained in this Lease, Landlord shall not be
responsible nor liable to Tenant, it agents, representatives, employees,
invitees or licensees, for the nonobservance by any other tenant of any rules
and regulations.
19. Fire and Casualty.
(a) Termination. If the Premises or the Building or any substantial
part of either is damaged or destroyed by fire or other casualty, cause or
condition whatsoever, and Landlord reasonably determines that such damage or
destruction cannot be repaired within one hundred sixty-five days (165) days
from the date of the casualty, Landlord shall give written notice thereof to
Tenant within forty-five (45) days of the
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date of the casualty, and thereafter either party may terminate this Lease, by
written notice to the other party given within thirty (30) days after the date
of Tenant's receipt of Landlord's determination. If the Premises are damaged or
destroyed or access thereto or use thereof is affected by the damage, then
Landlord's termination shall be effective as of the date of such damage;
otherwise said termination shall be effective thirty (30) days after such
notice. If this Lease is not terminated by the parties within the foregoing
thirty (30) day period and Landlord does not complete the repair and restoration
of the Premises or the Building, as applicable, within one hundred sixty-five
(165) days of the date of the casualty, Tenant shall have the right, exercisable
no later than one hundred eighty (180) days after the casualty, to terminate
this Lease; provided, however, that Tenant's right to terminate this Lease shall
become null and void if Landlord restores or repairs the Premises or the
Building to a state of substantial completion before Tenant has exercised its
right to terminate this Lease. If the damage is solely to the Premises and not
to the Building generally, the termination of this Lease shall not affect the
Office Lease.
(b) Restoration. Unless this Lease is terminated as herein above provided,
Landlord shall proceed with due diligence to restore, repair and replace the
Premises and the Building to the same condition as they were in as of the
Commencement Date. Provided such damage or destruction was not caused or
contributed to by an intentional act or negligence of Tenant, its agents,
employees, invitees or those for whom Tenant is responsible, from and after the
date of such damage to date of completion of said repairs, replacements and
restorations allowing Tenant occupancy for business purposes, a just proportion
of the rent shall abate according to the extent the full use and enjoyment of
the Premises are rendered impossible by reason of such damage. Landlord shall be
under no duty to restore any alterations, improvements or additions made by
Tenant. In all cases, due allowance shall be given to Landlord for any
reasonable delays caused by adjustment of insurance loss, strikes, labor
difficulties or any cause beyond Landlord's control. In no event shall Landlord
be obligated to replace or repair (i) improvements to the Premises made by or
for any prior tenant, or (ii) any of Tenant's property, including furniture,
furnishings or equipment, Tenant-installed improvements. Tenant shall, promptly
after the completion of Landlord's repairs or restoration, repair and restore
any Tenant-installed improvements and any other improvements to the Premises
made for Tenant at least to the extent of the value and as nearly as possible to
the character of the property involved immediately prior to the casualty, all at
Tenant's cost and expense.
20. Eminent Domain
(a) Taking. If all the Premises or a substantial part thereof shall be
taken for any public or quasi-public use under any statute or by rights of
eminent domain or by private purchase in lieu thereof, this Lease shall
terminate as of the date of vesting of title. Landlord shall be entitled to
receive the entire award paid for such taking or condemnation, Tenant hereby
assigning to Landlord all Tenant's right, title and interest therein, if any.
Nothing contained herein shall be deemed to give Landlord any interest in or to
require Tenant to assign to Landlord any award made to Tenant for the taking of
personal property or fixtures belonging to Tenant, for the interruption of or
damage to Tenant's business or for Tenant's moving expenses but only if such
award shall be in addition to the award for the Property and the Building (or
portion thereof) containing the Premises.
(b) Termination. If fifty percent (50%) or more of the Building other than
the Premises shall be condemned, taken or purchased in lieu thereof, then
Landlord may terminate this Lease by notifying Tenant of such termination within
sixty (60) days after the date of vesting of title. This Lease shall expire on
the date specified in such notice of termination, which date shall be not less
than sixty (60) days after the giving of such notice. The rent hereunder shall
be apportioned as of such termination date.
(c) No Reduction in Rent. Any such taking, condemnation or temporary
requisition which does not result in a termination of this Lease, as
hereinbefore provided in this Paragraph 20, shall not be cause for any reduction
or diminution of the rental payment hereunder.
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21. Default.
(a) Defaults. If (i) Tenant fails to pay when due any rent, or any other
sums required to be paid hereunder by Tenant, or (ii) Tenant defaults in the
performance or observance of any other agreement or condition on its part to be
performed or observed, and Tenant shall fail to cure said default within thirty
(30) days after receipt of written notice thereof by Landlord, or (iii) Tenant
files a voluntary petition in bankruptcy or is adjudicated a bankrupt or
insolvent, or files any petition or answer seeking any arrangement, composition,
liquidation or dissolution under any present or future federal, state or other
statute, law or regulation relating to bankruptcy, insolvency or other relief
for debtors or seeks or consents to or acquiesces in the appointment of any
trustee, receiver or liquidator of Tenant or of all or any substantial part of
its properties, or of the Premises, or makes any general assignment for the
benefit of creditors, or admits in writing its inability to pay its debts
generally as they become due; or (iv) a court enters an order, judgment or
decree approving a petition filed against Tenant seeking any arrangement,
composition, liquidation, dissolution or similar relief under any present or
future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such order, judgment or
decree shall remain unvacated or unstayed for an aggregate of sixty (60) days
(whether or not consecutive); or (v) Landlord believes in its commercially
reasonable judgment that the prospect of payment or performance of any of the
terms, conditions and covenants of this Lease to be paid or performed by Tenant
are about to be impaired; or (vi) Tenant fails to operate or closes its business
upon the Premises, for reasons other than fire or other casualty or
condemnation, for a period of fifteen (15) consecutive days; or (vii) Tenant
abandons or vacates the Premises or (viii) Tenant defaults in the performance or
observance of any agreement or condition under the Office Lease not cured within
allowable grace, notice or cure periods; then in any such event and at any time
thereafter, Landlord may, without further notice to Tenant, and in addition to
and not in lieu of any other rights or remedies available to Landlord at law or
in equity, exercise any one or more of the following rights: (i) Upon five (5)
days notice to Tenant, declare to be immediately due and payable, on account of
rent and other charges herein reserved for the balance of the Term (taken
without regard to any early termination of the Term on account of default), a
sum equal to the Accelerated Rent Component (as hereinafter defined), and Tenant
shall remain liable to Landlord as hereinafter provided; and/or (ii) Whether or
not Landlord has elected to recover the Accelerated Rent Component, terminate
this Lease on at least five (5) days notice to Tenant and, on the date specified
in said notice, this Lease and the term hereby demised and all rights of Tenant
hereunder shall expire and terminate and Tenant shall thereupon quit and
surrender possession of the Premises to Landlord in the condition elsewhere
herein required and Tenant shall remain liable to Landlord as hereinafter
provided.
(b) Accelerated Rent Component. For purposes hereof, the Accelerated Rent
Component shall mean the aggregate of:
(i) all Base Rental, Additional Rental and Other Charges due from
Tenant to Landlord and in arrears at the time of the election of Landlord
to recover the Accelerated Rent Component;
(ii) the Base Rental reserved for the then entire unexpired balance of
the Term (taken without regard to any early termination of the Term by
virtue of any default), plus all other charges, payments, costs and
expenses herein agreed to be paid by Tenant up to the end of the Term which
shall be capable of precise determination at the time of Landlord's
election to recover the Accelerated Rent Component, discounted to present
value at the rate of five percent (5%) per annum; and
(iii) Landlord's good faith estimate of the Additional Rental and
Other Charges herein agreed to be paid by Tenant up to the end of the Term
which shall not be capable of precise determination as aforesaid (and for
such purposes no estimate of any component of Additional Rental or Other
Charges to accrue pursuant to the provisions of this Lease shall be less
than the amount which would be due if each such component continued at the
highest monthly rate or amount in effect during the
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twelve (12) months immediately preceding the default), discounted to present
value at the rate of five percent (5%) per annum.
(c) Re-entry. In any case in which this Lease shall have been terminated,
or in any case in which Landlord shall have elect& to recover the Accelerated
Rent Component and any portion of such sum shall remain unpaid, Landlord may
without further notice, enter upon and repossess the Premises in accordance with
applicable law, by summary proceedings or ejectment and may dispossess Tenant
and remove Tenant and all other persons and property from the Premises and may
have, hold and enjoy the Premises and the rents and profits therefrom. Landlord
may, in its own name, as agent for Tenant, if this Lease has not been
terminated, relet the Premises or any part thereof for such term or terms (which
may be greater or less than the period which would otherwise have constituted
the balance of the Term) and on such conditions and provisions (which may
include concessions or free rent) as Landlord in its sole discretion may
determine. Landlord may, in connection with any such reletting, cause the
Premises to be redecorated, altered, divided, consolidated with other space or
otherwise changed or prepared for reletting. No reletting shall be deemed a
surrender and acceptance of the Premises.
(d) Continural Liability. Tenant shall, with respect to all periods of time
up to and including the expiration of the Term (or what would have been the
expiration date in the absence of default or breach) remain liable to Landlord
as follows:
(i) In the event of termination of this Lease on account of Tenant's
default or breach, Tenant shall remain liable to Landlord for damages equal
to the rent payable under this Lease by Tenant as if this Lease were still
in effect, less the net proceeds of any reletting after deducting all costs
incident thereto (including without limitation all repossession costs,
brokerage and management commissions, operating and legal expenses and
fees, alteration costs and expenses of preparation for reletting) and to
the extent such damages shall not have been recovered by Landlord by virtue
of payment by Tenant of the Accelerated Rent Component (but without
prejudice to the right of Landlord to demand and receive the Accelerated
Rent Component), such damages shall be payable Landlord, at Landlord's
option, monthly upon presentation to Tenant of a bill for the amount due,
or at such other intervals or times as Landlord shall determine.
(ii) In the event and so long as this Lease shall not have been
terminated after default or breach by Tenant, the rent payable under this
Lease shall be reduced by the net proceeds of any reletting by Landlord
(after deducting all costs incident thereto as above set forth) and by any
portion of the Accelerated Rent Component paid by Tenant to Landlord (but
without prejudice to the right of Landlord to demand and receive the
Accelerated Rent Component), and any amount due to Landlord shall be
payable monthly, at Landlord's option, upon presentation to Tenant of a
bill for the amount due, or at such other intervals or times as Landlord
shall determine.
(e) No Duty to Relet. Provided Landlord has used reasonable efforts to do
so, Landlord shall in no event be responsible or liable for any failure to relet
the Premises or any part thereof, or for any failure to collect any rent due
upon a reletting.
(f) Additional Rights. As a cumulative and alternative remedy of Landlord
in the event of termination of this Lease by Landlord following any breach or
default by Tenant, Landlord, at its option, shall be entitled to recover damages
for such breach in an amount equal to the Accelerated Rent Component (determined
from and after the date of Landlord's election under this Section 21(f)) less
the fair rental value of the Premises (determined with an equivalent discount to
present value) for the remainder of the Term (taken without regard to the early
termination), and such damages shall be payable by Tenant upon demand.
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(g) Bankruptcy. Nothing contained in this Lease shall limit or prejudice
the right of Landlord to prove for and obtain as damages incident to a
termination of this Lease, in any bankruptcy, reorganization or other court
proceedings, the maximum amount allowed by any statute or rule of law in effect
when such damages are to be proved.
(h) Overdue Payments. If rent due from Tenant to Landlord shall be overdue
for more than fifteen (15) days after written notice from Landlord, it shall
thereafter bear interest at the Default Rate, including without limitation from
and after judgment, execution sale, filing of a bankruptcy petition and the
like.
(i) Waiver of Defects. No waiver by Landlord of any breach by Tenant or any
of Tenant's obligations, agreements or covenants herein shall be a waiver of any
subsequent breach or of any obligation, agreement or covenant, nor shall any
forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by
Landlord of any rights and remedies with respect to such or any subsequent
breach.
(j) Right or Remedy. No right or remedy herein conferred upon or reserved
to Landlord is intended to be exclusive of any other right or remedy provided
herein or by law, including without limitation consequential damages, but each
shall be cumulative and in addition to every other right or remedy given herein
or now or hereafter existing at law or in equity or by statute.
(k) Confession of Judgment. LANDLORD SHALL HAVE THE FOLLOWING RIGHTS TO
CONFESS JUDGMENT AGAINST TENANT AND ALL PERSONS CLAIMING THROUGH TENANT, FOR
POSSESSION OF THE PREMISES:
(i) Intentionally deleted prior to execution.
(ii) When this Lease shall be terminated by reason of a default by
Tenant or any other reason whatsoever, either during the Term or any
renewal or extension thereof, and also when the Term or any extension
thereof shall have expired, it shall be lawful for any attorney as attorney
for Tenant to confess judgment in ejectment in any competent court against
Tenant and all persons claiming under Tenant for the recovery by Landlord
of possession of the Premises, for which this Lease shall be Landlord's
sufficient warrant. Upon such confession of judgment for possession, if
Landlord so desires, a writ of execution or of possession may issue
forthwith, without any prior writ or proceedings whatsoever. If for any
reason after such action shall have been commenced, the same shall be
determined and the possession of the Premises shall remain in or be
restored to Tenant, then Landlord shall have the right upon any subsequent
or continuing default or defaults, or after expiration of the Lease, or
upon the termination of this Lease as hereinbefore set forth, to confess
judgment in ejectment against Tenant as hereinbefore set forth to recover
possession of the Premises.
(iii) In any action of ejectment and/or for rent in arrears or other
Amount Due, Landlord shall cause to be filed in such action an affidavit
made by Landlord or someone acting for Landlord setting forth the facts
necessary to authorize the entry of judgment, of which facts such affidavit
shall be conclusive evidence. If a true copy of this Lease shall be filed
in such action (and of the truth of the copy such affidavit shall be
sufficient evidence), it shall not be necessary to file the original Lease
as a warrant of attorney, any rule of court, custom or practice to the
contrary notwithstanding.
(iv) Tenant expressly agrees, to the extent not prohibited by law,
that any judgment, order or decree entered against it by or in any court or
magistrate by virtue of the powers of attorney contained in this Lease
shall be final, and that Tenant will not take an appeal, certiorari, writ
of error, exception or objection to the same, or file a motion or rule to
strike off or open or to stay execution of the same, and
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releases to Landlord and to any and all attorneys who may appear for Tenant
all errors in the said proceedings and all liability therefor.
(v) The right to enter judgment against Tenant and to enforce all of
the other provisions of this Lease herein provided for, at the option of
any assignee of this Lease, may be exercised by any assignee of Landlord's
right, title and interest in this Lease in Tenant's own name,
notwithstanding the fact that any or all assignments of said right, title
and interest may not be executed and/or witnessed in accordance with the
Act of Assembly of May 28, 1715, 1 Sm. L. 94, and all supplements and
amendments thereto that have been or may hereafter be passed. Tenant hereby
expressly waives the requirements of said Act of Assembly and any and all
laws regulating the manner and/or form in which such assignments shall be
executed and witnessed.
22. Waiver of Default or Remedy. No waiver of any covenant or condition or
of the breach of any covenant or condition of this Lease shall be taken to
constitute a waiver of any subsequent breach of such covenant or condition nor
to justify or authorize the nonobservance on any other occasion of the same or
of any other covenant or condition hereof, nor shall the acceptance of rent by
Landlord at any time when Tenant is in default under any covenant or condition
hereof be construed as a waiver of such default or of Landlord's right to
terminate this Lease on account of such default, nor shall any waiver or
indulgence granted by Landlord to Tenant be taken as an estoppel against
Landlord, it being expressly understood that if at any time Tenant shall be in
default in any of its covenants or conditions hereunder an acceptance by
Landlord of rental during the continuance of such default or the failure on the
part of Landlord promptly to avail itself of such rights or remedies as Landlord
may have, shall not be construed as a waiver of such default, but Landlord may
at any time thereafter, if such default continues, terminate this Lease or
assert any other rights or remedies available to it on account of such default
in the manner hereinbefore provided.
23. Landlord's Lien. As security for Tenant's payment of rent, damages and
all other payments required to be made by Tenant pursuant to this Lease, Tenant
hereby grants to Landlord a lien upon all property of Tenant now or subsequently
located upon the Premises. If Tenant abandons or vacates any substantial portion
of the Premises or is in default in the payment of any rental, damage or other
payments required to be made pursuant to this Lease, Landlord may enter upon the
Premises in accordance with applicable law and take possession of all or any
part of the personal property, and may sell all or part of the personal property
at a public or private sale, in one or successive sales, with notice, to the
highest bidder for cash, and, on behalf of Tenant, sell and convey all or part
of the personal property delivering to the highest bidder all of Tenant's title
and interest in the personal property sold. The proceeds of the sale of the
personal property shall be applied by Landlord toward the cost of the sale and
then toward the payment of all sums then due by Tenant to Landlord pursuant to
the terms of this Lease.
24. Uniform Commercial Code. To the extent, if any, this Lease grants
Landlord any lien or lien rights greater than provided by the laws pertaining to
Landlord's Liens, this Lease is intended as and constitutes a security
agreement within the meaning of the Uniform Commercial Code of the state in
which the Premises are located. This Lease does not grant, and is not intended
to grant, Landlord a lien on any property which is not lienable under applicable
banking law or regulations, including the ATM, safe deposit boxes or teller
terminals. In addition to the rights prescribed in this Lease, Landlord shall
have all of the rights, titles, liens and interests in and to Tenant's property
now or hereafter located upon the Premises that are granted a secured party, as
that term as defined under the Uniform Commercial Code of the state in which the
Premises are located, to secure payment to Landlord of the various amounts
required to be paid by Landlord pursuant to the terms of this Lease. Tenant will
on request execute and deliver to Landlord a financing statement for the purpose
of perfecting Landlord's security interest under this Lease or Landlord may file
this Lease or a memorandum of lease as a financing statement.
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25. Force Majeure. If Landlord or Tenant shall be delayed, hindered in or
prevented from the performance of any act required hereunder (other than the
payment of rent and other charges payable by Tenant) by reason of strikes,
lockouts, labor troubles, inability to procure materials, failure of power,
riots, insurrection, the act, failure to act or default of the other party, war
or any other reason beyond the reasonable control of the party who is seeking
additional time for the performance of such act, then performance of such act
shall be excused for the period of the delay and the period for the performance
of any such act shall be extended for a reasonable period, in no event to exceed
a period equivalent to the period of such delay. No such interruption of any
service to be provided by Landlord shall ever be deemed to be an eviction,
actual or constructive, or disturbance of Tenant's use and possession of the
Premises, the Building or the Property.
26. Subordination of Lease.
(a) General. Landlord reserves the right and privilege to subject and
subordinate this Lease to any and all mortgages, deeds of trust or land leases
now existing upon or that may be hereafter placed upon the Premises and the
Property and to all advances made or to be made thereon and all renewals,
modifications, consolidations, replacements or extensions thereof and if such
right is exercised, the lien of any such mortgages, deeds of trust or land
leases shall be superior to all rights hereby or hereunder vested in Tenant, to
the full extent of all sums secured thereby. In confirmation of such
subordination, Tenant shall, on request of Landlord or the holder of any such
mortgages, deed(s) of trust and land leases, execute and deliver to Landlord
within ten (10) days any instrument that Landlord or such holder may reasonably
request.
(b) Rights of Purchaser. If the interest of Landlord under this Lease shall
be transferred by reason of foreclosure, deed in lieu of foreclosure, or other
proceedings for enforcement of any first mortgage or deed of trust on the
Premises, Tenant shall be bound to the transferee (the "Purchaser") and, subject
to subparagraph (a) above, Purchaser shall be bound to Tenant, under the terms,
covenants and conditions of this Lease for the balance of the Term remaining,
and any extensions or renewals, with the same force and effect as if the
Purchaser were the landlord under this Lease, and at the option of Purchaser,
Tenant shall attorn to the Purchaser (including the mortgagee under any such
mortgage, if it be the Purchaser), as its landlord, the attornment to be
effective and self-operative without the execution of any further instruments
upon the Purchaser succeeding to the interest of Landlord under this Lease. The
respective rights and obligations of Tenant and the Purchaser upon the
attornment, to the extent of the then remaining balance of the Term of this
Lease, and any extensions and renewals, shall be and are the same as those set
forth in this Lease.
(c) Rights of Mortgagee. In the event of any act or omission of Landlord
which would give Tenant the right, immediately or after lapse of a period of
time, to cancel or terminate this Lease, or to claim a partial or total
eviction, Tenant shall not exercise such right (i) until it has given written
notice of such act or omission to the holder of each such mortgage and ground
lease whose name and address shall previously have been furnished to Tenant in
writing, and (ii) until a reasonable period for such holder to remedy such act
or omission shall have elapsed following the giving of such notice (which
reasonable period shall in no event be less than the period to which Landlord
would be entitled, under this Lease or otherwise, after similar notice, to
effect such remedy).
27. Notices and Consents. All notices, demands, requests, consents and
approvals that may or are required to be given by either party to the other
shall be in writing and shall be deemed given when sent by United States
certified or registered mail, postage prepaid, or by overnight courier (a) if
for Tenant, addressed to Tenant at the Building, or at such other place as
Tenant may from time to time designate by notice to Landlord, or (b) if for
Landlord, addressed to Eleven Colonial Penn Plaza Associates, do THE BOARD OF
THE STATE TEACHERS RETIREMENT SYSTEM OF OHIO, 275 E Broad Street, Columbus, Ohio
43215-3771, Attention: Director Real Estate Assets, with a copy to CB Commercial
Real
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Estate Group, Inc., Eleven Penn Center, Suite 2705, 1835 Market Street,
Philadelphia, Pennsylvania 19103, or at such other place as Landlord may from
time to time designate by notice to Tenant. All consents and approvals provided
for herein must be in writing to be valid. Notice shall be deemed to have been
given if addressed and mailed as above provided on the date two (2) days after
deposit in the United States mail or one (1) day after deposit with an overnight
courier.
28. Security Deposit. INTENTIONALLY DELETED PRIOR TO EXECUTION.
29. Miscellaneous Taxes: Use and Occupancy Tax.
(a) Other Taxes. Tenant shall pay, prior to delinquency, all taxes assessed
against or levied upon its occupancy of the Premises, or upon the fixtures,
furnishings, equipment and all other personal property of Tenant located in the
Premises, if nonpayment thereof shall give rise to a lien on the Premises, and
when possible Tenant shall cause said fixtures, furnishings, equipment and other
personal property to be assessed and billed separately from the property of
Landlord. In the event any or all of Tenant's fixtures, furnishing, equipment
and other personal property, or upon Tenant's occupancy of the Premises, shall
be assessed and taxed with the property of Landlord, Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's fixtures, furnishings, equipment or personal property.
(b) Use and Occupancy Tax. Based upon representations made by Tenant to
Landlord, Landlord acknowledges that Tenant is exempt from the City of
Philadelphia Use and Occupancy Tax. However, if such tax is applicable to
Tenant, without limiting the foregoing, Tenant will pay promptly when due and in
any event not later than fifteen (15) days after receipt of a bill (whether said
bill be submitted by Landlord, the City of Philadelphia or otherwise), all City
of Philadelphia School District Use and Occupancy Tax imposed upon the use and
occupancy of the Premises.
30. Substitute Premises. INTENTIONALLY DELETED PRIOR TO EXECUTION.
31. Brokerage Commission. Except for any broker, agent or other person
named below, Landlord and Tenant represent and warrant each to the other that
each has dealt with no broker, agent or other person in connection with this
transaction and that no broker, agent or other person brought about this
transaction. Landlord hereby agrees to pay to CB Commercial Real Estate Group,
Inc. ("Agent") a leasing commission as set forth in that certain Property
Management Agreement between Landlord and Agent. Tenant agrees to indemnify and
hold Landlord harmless from and against any claims by any other broker, agent or
other person claiming a commission or other form of compensation by virtue of
having dealt with Tenant with regard to this leasing transaction. The provisions
of this Paragraph 31 shall survive the termination of this Lease.
32. Hazardous Devices and Contaminants.
(a) Prohibition. Except with the prior written consent of Landlord, Tenant
shall not install or operate any steam or internal combustion engine, boiler,
machinery, refrigerating or heating device or air-conditioning apparatus in or
about the Premises, or carry on any mechanical business therein. Except for
Contaminants (as hereinafter defined) used in the ordinary course of business
and in compliance with Requirements of Law (as hereinafter defined), Tenant and
its agents, employees, contractors and invitees shall not use, store, release,
generate or depose of or permit to be used, stored, released, generated or
disposed of any Contaminants on or in the Premises.
(b) Indemnification. Tenant shall indemnify and hold harmless Landlord, its
agents, servants, employees, officers and directors forever from and against any
and all liability, claims, demands and causes
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of action, including, but not limited to, any and all liability, claims, demands
and causes of action by any governmental authority, property owner or any other
third person and any and all expenses, including attorneys' fees (including, but
not limited to, attorneys' fees to enforce Tenant's obligation of
indemnification under this Paragraph 32(b)), relating to any environmental
liability resulting from (i) any Release (as hereinafter defined) of any
Contaminant at the Premises or emanating from the Premises to adjacent
properties or the surrounding environment during the Term of this Lease; (ii)
during the Term of this Lease, any generation, transport, storage, disposal,
treatment or other handling of any Contaminant at the Premises, including, but
not limited to, any and all off-site transport, storage, disposal, treatment or
other handling of any Contaminant generated, produced, used and/or originating
in whole or in part from the Premises; and (iii) any activities at the Premises
during the Term of this Lease that in any way might be alleged to fail to comply
with any Requirements of Law.
(c) Definitions.
(i) "Contaminant" shall mean any substance or waste containing
hazardous substances, pollutants, and contaminants as those terms are
defined in the federal Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq. and any substance
similarly defined or identified in any other federal, provincial or state
laws, rules or regulations governing the manufacture, import, use,
handling, storage, processing, release or disposal of substances or wastes
deemed hazardous, toxic, dangerous or injurious to public health or to the
environment This definition includes friable asbestos and petroleum or
petroleum-based products.
(ii) "Requirements of Law" shall mean any federal, state or local law,
rule, regulation, permit, agreement, order or other binding determination
of any governmental authority relating to the environment, health or
safety.
(iii) "Release" shall have the same meaning as in the federal
Comprehensive Environmental Response Compensation and Liability Act, 42
U.S.C. Section 9601, et seq.
33. Exculpation. This Lease Is executed by certain general partners of
Landlord, not Individually, but solely on behalf of, and as the authorized
nominee and agent for STRBO, and in consideration for entering into this Lease,
Tenant hereby waives any rights to bring a cause of action against the
individuals executing this Lease on behalf of Landlord (except for any cause of
action based upon lack of authority or fraud), and all persons dealing with
Landlord must look solely to STRBO's assets for the enforcement of any claim
against Landlord, and the obligations hereunder are not binding upon, nor shall
resort be had to the private property of any of, the trustees, officers,
directors, employees or agents of STRBO.
34. Signs. Tenant shall not display, inscribe, print, paint, maintain or
affix on any place in or about the Building any sign, notice, legend, direction,
figure or advertisement, except on the doors of the Premises, and then only such
name(s) and matter, and in such color, size, place and materials, as shall first
have been approved by Landlord in writing which approval shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, Tenant may
display, inscribe, print, paint, or affix Tenant's name and logo in or about the
same locations as was permitted the former tenant of the Premises without
Landlord's approval Landlord reserves the right to install and maintain a sign
or signs on the exterior or interior of the Building provided that such
installation does not diminish the size of or obstruct Tenant's approved
signage. Further, Tenant may grant to any subtenant such signage rights under
this Lease that, when added to Tenant's signage, do not exceed the signage
permitted hereunder. If Tenant desires, Landlord shall list Tenant on the
Building directory board, at no cost to Tenant, If Tenant desires to have its
employees listed on the Building directory, Landlord may do so, subject to space
limitations at Tenant's sole cost and expense.
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35. Locks. No additional locks or similar devices shall be attached to any
door or window without Landlord's prior written consent. Landlord shall approve
Tenant's security program. Except for those keys provided by Landlord, no keys
for any door shall be made. If more than two keys for one lock are desired,
Landlord will provide the same upon payment by Tenant. All keys must be returned
to Landlord at the expiration or Termination of this Lease. Tenant shall see
that the doors and windows, if operable, of the Premises are closed and securely
locked before leaving the Building.
36. Employment. Tenant shall not contract for any work or service that
might involve the employment of labor incompatible with the Building employees
or employees of contractors doing work or performing services by or on behalf of
Landlord.
37. Plumbing Tenant must observe strict care and caution that all water
faucets and water apparatus are shut off before Tenant or its employees leave
the Building to prevent waste or damage. Plumbing fixtures and appliances shall
be used only for purposes for which constructed, and no sweepings, rubbish, rags
or other unsuitable material shall be thrown or placed therein. Damage resulting
to any such fixtures or appliances from misuse by Tenant shall be paid by Tenant
and Landlord shall not in any case be responsible therefor.
38. Certain Rights Reserved to Landlord. Landlord reserves the following
rights:
(a) To name the Building and to change the name or street address of
the Building provided, however, that if Landlord names the Building after
another bank or savings and loan institution, Tenant shall have the right
to terminate this Lease in accordance with the provisions of Paragraph 51
below;
(b) To designate all sources furnishing sign painting and lettering,
ice, drinking water, towels, toilet supplies, shoe shining, vending
machines, mobile vending service, catering, and like services used on the
Premises or in the Building provided, however, that Landlord may not take
any action which will diminish the size of Tenant's signage as permitted
hereunder,
(c) On reasonable prior notice to Tenant, to exhibit the Premises to
prospective tenants during the last twelve (12) months of the Term, and to
exhibit the Premises to any prospective purchaser, mortgagee, or assignee
of any mortgage on the Property and to others having a legitimate interest
at any time during the Term; and
(d) To install vending machines of all kinds in the Property,
including, without limitation, the Premises, and to provide mobile vending
service therefor, and to receive all of the revenue derived therefrom,
provided, however, that no vending machines shall be installed by Landlord
in the Premises nor shall any mobile vending service be provided therefor,
unless Tenant so requests.
39. Miscellaneous.
(a) No receipt of money by Landlord from Tenant after the termination of
this Lease or after the service of any notice or after the commencement of any
suit, or after final judgment for possession of the Premises shall reinstate,
continue or extend the Term of this Lease or affect any such notice, demand or
suit or imply consent for any action for which Landlord's consent is required.
(b) The term "Landlord" as used in this Lease, so far as covenants or
agreements on the part of Landlord are concerned, shall be limited to mean and
include only the owner (or ground lessor, as the case may be) for the time being
of the Premises. If the Premises or the underlying lease, if any, be sold or
transferred, the seller thereof shall be automatically and entirely released of
all covenants and obligations under this Lease from and after the date of
conveyance or transfer, provided the purchaser on such sale has assumed and
agreed to carry out all covenants and obligations contained in this Lease to be
performed
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on the part of Landlord hereunder, it being hereby agreed that the covenants and
obligations, contained in this Lease to be performed on the part of Landlord,
hereunder it being hereby agreed that the covenants and obligations contained in
this Lease shall be binding under Landlord, its successors and assigns, only
during their respective successive period of ownership. The liability of
Landlord and its successors in interest, under or with respect to this Lease,
shall be strictly limited to and enforceable only out of its or their interest
in the Building and Land, and shall not be enforceable out of any other assets.
No mortgagee or ground lessor which shall succeed to the interest of Landlord
hereunder (either in terms of ownership or possessory rights) shall: (i) be
liable for any previous act or omission of a prior landlord, (ii) be subject to
any rental offsets or defenses against a prior Landlord, (iii) be bound by any
amendment of this Lease made without its written consent, or by payment by
Tenant of rent in advance in excess of one (1) month's rent, (iv) be liable for
any security not actually received by it, or (v) be liable for any initial
construction of the improvements to be made to the Premises or for any
;allowance or credit to Tenant for rent, construction costs or other expenses.
Subject to the foregoing, the provisions hereof shall be binding upon and inure
to the benefit of the successors and assigns of Landlord.
(c) It is understood that Landlord may occupy portions of the Building in
the conduct of Landlord's business. In such event, all references herein to
other tenants of the Building shall be deemed to include Landlord as occupant.
(d) All of the covenants of Tenant hereunder shall be deemed and construed
to be "conditions" as well as "covenants" as though the words specifically
expressing or implying covenants and conditions were used in each separate
instance.
(e) In the event of variation or discrepancy among counterparts, Landlord's
original copy of this Lease shall control.
(f) This Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns, provided that this
provision shall in no manner enlarge Tenant's rights of assignment, which right
of assignment has been restricted under the foregoing provisions of this Lease.
40. Relationship of Parties. Any intention to create a joint venture,
partnership or principal and agent relationship between the parties hereto is
hereby expressly disclaimed. This Lease shall create the relationship of
landlord and tenant between Landlord and Tenant.
41. Gender and Number. Whenever words are used herein in any gender, they
shall be construed as though they were used in the gender appropriate to the
context and the circumstances, and whenever words are used herein in the
singular or plural form, they shall be construed as though they were used in the
form appropriate to the context and the circumstances.
42. Topic Headings. Headings and captions in this Lease are inserted for
convenience and reference only and in no way define, limit or describe the scope
or intent of this Lease nor constitute any part of this Lease and are not to be
considered in the construction of this Lease.
43. Counterparts. Several copies of this Lease may be executed by all of
the parties. All executed copies constitute one and the same Lease, binding upon
all parties.
44. Entire Agreement. This Lease contains the entire understanding between
the parties and supersedes any prior understanding or agreements between them
respecting the subject matter. No representations, arrangement, or
understandings except those fully expressed herein, are or shall be binding upon
the parties. No changes, alterations, modifications, additions or qualifications
to the terms of this Lease shall be made or be binding unless made in writing
and signed by each of the parties.
45. Recording. The parties agree that this Lease shall not be recorded.
46. Governing Law; Invalidity of any Provisions. This Lease shall be
subject to and governed by the laws of the Commonwealth of Pennsylvania. If any
term or provision of this Lease or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the other terms of
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this Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Lease shall
be valid and be enforced to the fullest extent permitted by law.
47. Parking. Provided that Tenant is not in default under its Lease beyond
applicable grace periods, Tenant shall have the right to lease four (4)
non-reserved parking spaces in the parking garage adjacent to the Building at
the then applicable monthly rate and subject to the rules and regulations
applicable to the parking garage. Tenant shall have the right to utilize up to
twenty (20) parking spaces in the parking garage one evening each month for
Tenant's board meetings at the then applicable hourly rate and subject to the
rules and regulations applicable to the parking garage.
48. Satellite Dish. Landlord shall provide Tenant, free of charge, with
space on the roof of the Building atop the elevator shafts measuring
approximately three (3') feet by three (3') feet upon which Tenant shall have
the right to install a satellite dish, antenna or other communication device
(the "Dish"). The Dish shall be subject to the terms and conditions set forth on
Exhibit G attached hereto and made a part hereof.
49. Renewal.
(a) Conditions. Tenant is granted the right and option to extend the term
of this Lease with respect to the then leased premises for two (2) additional
period of five (5) years, such renewal term to commence upon the expiration of
the initial term of the Lease, provided that:
(i) Such option must be exercised, if at all, by written notice to
Landlord given at least nine (9) months prior to the expiration of the
initial term; and
(ii) At the time of the exercise of such option, the Lease shall be in
full force and effect and there shall exist no default by Tenant beyond any
applicable period of grace; and
(iii) Tenant must exercise its renewal options set forth in Paragraph
48 of the Office Lease if the Office Lease is then in effect; provided,
however, that if at the end of the original term of the Office Lease,
Tenant requests additional office space in the Building and Landlord is
unable to provide Tenant with the lesser of (x) the amount of space
requested by Tenant or (y) ten thousand square feet (10,000) of office
space anywhere in the Building, Tenant may allow the Office Lease to
expire, take no less than the amount of space requested from Landlord in
another office building and still renew the Bank Lease.
(b) Renewal Terms. In the event the foregoing option is effectively
exercised, all the terms and conditions contained in the Lease shall continue to
apply during the renewal term except that
(i) There shall be a construction allowance equal to fifty percent
(50%) of the construction allowance then being given by Landlord to new
tenants in the Building for new leases of comparable space, but no other
tenant incentives or concessions, and no further right of renewal; and
(ii) For and during the renewal term, the minimum annual rent shall be
adjusted to ninety-five percent (95%) of the "Fair Market Rental" (defined
in Paragraph 49(c) below) of the then leased premises; and
(c) Fair Market Rental. As used herein, the term "Fair Market Rental" shall
mean the prevailing rental rate (taking into account all concessions furnished
over the lease term, but without deduction for tenant improvements or
architectural-related costs or allowances) being obtained by Landlord, based
upon previous rental rates obtained for the Building and/or comparable buildings
in comparable areas; provided that if the manner of charging operating costs or
other Items of escalation to tenants in the Building (or for any comparable
buildings utilized by Landlord) is different from that set forth in this Lease,
Landlord shall make a further adjustment to take such difference into account.
26
<PAGE>
(d) Notice. Promptly after the determination by Landlord of the Fair Market
Rental, as set forth above, Landlord shall send written notice to Tenant thereof
and shall advise Tenant of the adjustment to minimum annual rent resulting
therefrom.
50. Conditions. This Lease, and the obligations of the parties hereunder,
are expressly conditioned on the satisfaction of the conditions contained in
this Paragraph 50. If the conditions contained in (i) of this Paragraph 50 are
not satisfied after notice of termination from Tenant or in (ii) if this
Paragraph 50 are not satisfied after notice of termination by either Landlord or
Tenant, then this Lease shall automatically terminate unless the parties agree
otherwise in writing. In the event of such termination, neither party shall have
any further liability to the other party, except for Tenant's liability set
forth in Paragraph 4(a)(iii).
(i) Landlord shall negotiate an agreement, acceptable to Landlord in its
sole discretion, with CoreStates Bank, N.A. ("CoreStates") concerning
CoreStates' buy-out of its obligations under that certain lease between the
predecessor of Landlord and a predecessor of CoreStates dated August 13, 1985
concerning the retail space on the Ground Floor of the Building on or before the
date which is thirty days (30) from the date hereof.
(ii) Tenant shall obtain all necessary approvals from all governmental
agencies which must approve the location of Tenant's banking facilities on or
before the date which is ninety days from the date hereof Tenant shall apply for
all necessary approvals within ten (10) days from the date hereof and shall
pursue all necessary approvals in good faith and with due diligence.
51. Building Name/Termination. In the event that Landlord names the
Building after another bank or savings and loan institution or a holding company
thereof, Landlord shall give Tenant written notice of the new name of the
Building at least ten (10) days before the effective date of such change, and
Tenant shall have the right, exercisable within ninety (90) days after Tenant's
receipt of Landlord's notice, to terminate this Lease or the Office Lease or
both, by giving written notice thereof to Landlord. If Tenant exercises its
right to terminate this Lease, Tenant shall vacate and surrender the Premises no
later than one hundred eighty (180) days from the date of Landlord's receipt of
Tenant's notice of termination. Upon Tenant's vacation, the Lease shall
terminate and the parties shall have no further obligations to one another
except those obligations which accrued prior to the date of termination. Neither
party shall be obligated to make any payments to the other party on account of
the foregoing termination.
52. Restrictions.
(a) Landlord shall not install or permit the installation for public use of
an automatic teller machine other than Tenant's ATM in the Building during the
term of this Lease, provided, however, that any tenant in the Building may
install an automatic teller machine in Its premises for the use of such tenant
and its employees and officials.
(b) Landlord shall not operate or permit the operation of, or lease any
space on the ground floor of the Building to any tenant other than Tenant that
plans to operate such space as, a bank, savings and loan facility on the ground
floor of the Building.
27
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
Witness: LANDLORD:
ELEVEN COLONIAL PENN PLAZA ASSOCIATES
By THE BOARD OF THE STATE TEACHERS RETIREMENT
SYSTEM OF OHIO
/s/ Pamela J. McCammon
- ---------------------------- By: /s/ [ILLEGIBLE]
------------------------------------------
Name:
Title:
TENANT:
PENNSYLVANIA SAVINGS BANK
/s/ [ILLEGIBLE]
- ---------------------------- By: /s/ Anthony DiSandro
------------------------------------------
Name: Anthony DiSandro
Title: President
28
<PAGE>
STATE OF OHIO )
)SS:
COUNTY OF FRANKLIN )
BE IT REMEMBERED, that on this 12th day of Oct., 1995 before me, the
subscriber, a Notary Public, personally appeared Stephen A. Mitchell, the, Dep.
Ex. Dir. of The Board of the State Teachers Retirement System of Ohio, the
general partner of Eleven Colonial Penn Plaza Associates, a Pennsylvania limited
partnership, known to me and known to me to be the person who signed the
foregoing instrument as such partner, who acknowledged to me that he signed said
instrument as such partner, duly authorized by the partnership so to do, and
that the signing of the same was his free act and deed, as such partner, for and
on behalf of said partnership, for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed by name and affixed the
official seal of my office at Columbus, Ohio, on the day and year last above
written.
[SEAL] PAMELA J. McCAMMON /s/ Pamela J. McCammon
NOTARIAL SEAL Notary Public, State of Ohio -----------------------
STATE OF OHIO My Commission Expires June 25, 1997 Notary Public
COMMONWEALTH OF PENNSYLVANIA )
)SS:
COUNTY OF PHILADELPHIA )
BE IT REMEMBERED, that on this 27 day of SEPTEMBER, 1995, before me, the
subscriber, a Notary Public and for said County and State, personally appeared
the above-named PSB organized under the laws of the State of PA. by A. DiSandro,
its President known to me and known to me to be the person who signed the
foregoing instrument as such President, who acknowledged to me that he signed
said instrument as such President, duly authorized by the Board of Trustees of
said PSB so to do, and that the signing of the same was a free act and deed, as
such officer, for and on behalf of said PSB, for the uses and purposes therein
set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the
official seal of my office at PHILA, PA, on the day and year last above written.
/s/ Renee L. D'Orazio
-----------------------------------
Notary Public
-----------------------------------
RENEE L. D'ORAZIO
PA COMMISSIONER OF DEEDS
MY COMMISSION EXPIRES DEC. 19, 1998
-----------------------------------
29
<PAGE>
EXHIBIT A
FLOOR PLAN
<PAGE>
EXHIBIT "B"
11 PENN CENTER DEMISED AREA PLAN
- --------------------------------------------------------------------------------
[LOGO] PLAZA LEVEL
[FLOOR PLAN]
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
ALL THAT CERTAIN tract of ground situated in the City of Philadelphia,
Commonwealth of Pennsylvania bound and described as follows:
Beginning at the point of intersection of the northerly side of Market
Street (100 feet wide) with the easterly side of Nineteenth Street (50 feet
wide); thence from said point of beginning extending along said side of
Nineteenth Street in a northerly direction 180.00 feet to the southerly side of
Commerce Street (32 feet wide); thence extending in an easterly direction along
said side of Commerce Street 196.00 feet to a point; thence leaving the side of
Commerce Street and extending in a southerly direction parallel with Nineteenth
Street 180.00 feet to a point on the northerly side of Market Street; thence
extending along said side of Market Street in a westerly direction 196.00 feet
to the point and place of beginning.
<PAGE>
EXHIBIT C
COMMENCEMENT DATE AGREEMENT
THIS COMMENCEMENT DATE AGREEMENT ("Agreement") dated __________________,
1995 is between Eleven Colonial Penn Plaza Associates, a Pennsylvania general
partnership, whose address is 275 East Broad Street, Columbus, Ohio 43215,
acting as the duly authorized nominee of The State Teachers Retirement System of
Ohio ("Landlord"), whose address is 275 East Broad Street, Columbus, Ohio 43215,
and PENNSYLVANIA SAVINGS BANK, a __________ ("Tenant"), whose address is Eleven
Penn Center, Philadelphia, Pennsylvania 19103.
WITNESSETH:
A. Landlord and Tenant executed a certain Lease dated ____________, 1995
(the "Lease").
B. The Lease provides that the Lease will commence on the date that
Landlord delivers possession of the Premises (as defined in the Lease) to
Tenant.
C. Landlord and Tenant now desire to set forth in writing the actual date
of delivery of the Premises and the actual commencement date of the Lease.
NOW THEREFORE in consideration of the mutual covenants and promises
contained herein and other valuable consideration, the parties agree that the
Lease commenced on __________, 199_ and shall terminate on __________, ____.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on the day and year first above written.
Signed and Acknowledged LANDLORD: OTR, an Ohio general partnership
the Presence of: acting as the duly authorized nominee of The
State Teachers Retirement System of Ohio
____________________________ By:_________________________________________
____________________, a general partner
____________________________
TENANT: PENNSYLVANIA SAVINGS BANK,
a __________________________________________
____________________________ By:_________________________________________
Its:__________________________
____________________________
<PAGE>
STATE OF OHIO )
)SS:
COUNTY OF FRANKLIN )
BE IT REMEMBERED, that on this ____ day of __________, 19__ before me, the
subscriber, a Notary Public, personally appeared ___________________,
the__________ of The Board of the State Teachers Retirement System of Ohio, the
general partner of Eleven Colonial Penn Plaza Associates, a Pennsylvania limited
partnership, known to me and known to me to be the person who signed the
foregoing instrument as such partner, who acknowledged to me that he signed said
instrument as such partner, duly authorized by the partnership so to do, and
that the signing of the same was his free act and deed, as such partner, for and
on behalf of said partnership, for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed by name and affixed the
official seal of my office at __________________, _________,on the day and year
last above written.
___________________________________
Notary Public
COMMONWEALTH OF PENNSYLVANIA )
)SS:
COUNTY OF PHILADELPHIA )
BE IT REMEMBERED, that on this ____ day ___________, 19__, before me, the
subscriber, a Notary Public and for said County and State, personally appeared
the above-named corporation organized under the laws of the State of________ by
_____________, its ___________, known to me and known to me to be the person who
signed the foregoing instrument as such ____________ who acknowledged to me that
_____ signed said instrument as such __________, duly authorized by the
______________________ of said _____________ so to do, and that the signing of
the same was __ free act and deed, as such officer, for and on behalf of said
_____________,for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the
official seal of my office at __________, ___________, on the day and year last
above written.
___________________________________
Notary Public
2
<PAGE>
EXHIBIT D
TENANT IMPROVEMENTS
<PAGE>
EXHIBIT E
TENANT ESTOPPEL CERTIFICATE
RE: Premises:_______________________________________
Lease Dated:____________________________________
Amendment(s) Dated:_____________________________
Between_________________________________________ (Landlord)
and_____________________________________________ (Tenant)
Square Footage Leased.__________________________
Floor(s)/Suite #(s):____________________________
The undersigned, Tenant under the above-referenced lease ("Lease"), certifies to
the following:
1. We have taken possession of and accepted the Premises described above,
except as follows:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_____________________________
2. The lease terms as described below are true and accurate, and the lease is
in full force and effect:
Base Rent:_______________________________ per year
Expense Stop:__________________________ per square foot
Escalations:_______________________________________________________
Free Rent:_______________________________
Commencement Date:_______________________
Expiration Date:_________________________
Renewals:________________________________
3. No part of the Premises has been subleased or assigned except as
follows:___________________________________________________________________
________________________________________________________________________________
4. The rent has been paid through:____________________________________________
5. The security deposit is ___________________________________________________
There are no tax or insurance escrows______________________________________
6. We are not in default of our obligations under the Lease. Landlord, to the
best of our knowledge, is not in default of its obligations under the
Lease. There exists no defense or counterclaim to rent or other sums
required to be paid by us under or pursuant to the Lease.
If Tenant is a corporation, the undersigned is a duly appointed officer of the
corporation signing this certificate and is the incumbent in the office
indicated under his/her name. In any event, the undersigned individual is duly
authorized to execute this certificate.
Date:__________________, 19__ Signed:__________________________
(Signature)
__________________________
(Print Name & Title)
<PAGE>
EXHIBIT F
RULES AND REGULATIONS
1. The sidewalks, entryways, passages, corridors, stairways and elevators shall
not be obstructed by any of the tenants, their employees or agents, or used by
them for purposes other than ingress or egress to and from their respective
suites. All safes or other heavy articles shall be carried up or into the
Demised Premises only at such times and in such manner as shall be prescribed by
the Landlord and the Landlord shall in all cases have the right to specify a
maximum weight and proper position or location of any such safe or other heavy
article. Any damage done to the Building by taking in or removing any safe or
from overloading any floor in any way shall be paid by the Tenant. The cost of
repairing or restoring any part of the Building which shall be defaced or
injured by a tenant, its agents or employees, shall be paid for by the tenant.
2. Each tenant will refer all contractors, contractors' representatives and
installation technicians rendering any service on or to the Demised Premises for
the tenant to Landlord for Landlord's approval before performance of any
contractual service. This provision shall apply to all work performed in the
Building, including installation of telephones, telegraph equipment, electrical
devices and attachments and installations of any nature affecting floors, walls,
woodwork, trim windows, ceilings, equipment or any other physical portion of the
Building.
3. Intentionally deleted prior to execution.
4. Intentionally deleted prior to execution.
5. Intentionally deleted prior to execution.
6. No windows or other openings that reflect or admit light into the corridors
or passageways, or to any other place in the Building, shall be covered or
obstructed by any of the tenants.
7. The water closets and other water fixtures shall not be used for any purpose
other than those for which they were constructed, and any damage resulting to
them from misuse or abuse by a tenant or its agents, employees or invitees,
shall be borne by the tenant.
8. No person shall disturb the occupants of the Building by the use of any
musical instruments, the making or transmittal of noises which are audible
outside the Demised Premises, or any unreasonable use. No dogs or other animals
or pets of any kind will be allowed in the Building.
9. No bicycles or similar vehicles will be allowed in the Building.
10. Nothing shall be thrown out the windows of the building or down the
stairways or other passages.
11. Tenants shall not be permitted to use or to keep in the Building any
kerosene, camphene, burning fluid or other illuminating materials.
12. If any tenant desires telegraphic, telephonic or other electric connections,
Landlord or its agents will direct the electricians as to where and how the
wires may be introduced, and without such directions no boring or cutting for
wires will be permitted.
13. If a tenant desires shades, they must be of such shape, color, materials and
make as shall be prescribed by Landlord. No outside awnings shall be permitted.
14. No portion of the Building shall be used for the purpose of lodging rooms or
for any immoral or unlawful purposes.
15. Tenants will see each day that the doors of the Demised Premises are
securely locked before leaving the Building.
16. No tenant and no employees of any tenant shall go upon the roof of said
Building without the written consent of Landlord or of the agent of Landlord.
<PAGE>
17. The delivery of newspapers and other supplies to tenants in the Building
will be permitted in a manner and at times approved by Landlord.
18. All entrance doors leading from the hallways are to be kept closed at all
times.
19. For the protection of tenants, Landlord reserves the right to refuse
admittance to the Building between the hours of 6:00 P.M. and 8:00 A.M. Monday
through Friday at all times on Saturdays, Sundays, and Legal Holidays, to any
person not producing both a key to such tenant's office or suite and a pass
issued by building management upon the direction of the tenant. Tenants will
please instruct the building manager from time to time as to the number of
persons to whom they desire passes issued for this purpose. It will be the
responsibility of the tenant to pick up the passes and key whenever the
employment of a passholder is discontinued.
20. Tenant shall not place door mats in the halls or corridors of the Building.
21. Tenant shall, before closing and leaving the Demised Premises at any time,
turn off all lights, turn off all office machines and other electrical and
mechanical equipment, and lock all doors to the Demised Premises.
<PAGE>
EXHIBIT "G"
1. GRANT OF LICENSE. Effective on _______________,19__ (the "Effective
Date"), and terminating on the expiration or earlier termination of the term of
the Lease, Landlord hereby grants Tenant a license to use and have access to the
portion of the roof of the Building set forth in Paragraph 48 of the Lease
(hereinafter referred to as the "Permitted Space"), for the installation,
maintenance and repair and removal of the Dish. Detailed plans and
specifications for the Dish (including plans and specifications for all
electrical installations and facilities, and the type and locations of all
coaxial and telephone cable and wave guides from the roof to the Premises) shall
be submitted to Landlord for review and approval by Landlord prior to the
performance by Tenant of any installations or work. In no event shall the
Satellite Dish exceed _______ feet in height, _______ feet in width or ______
feet in length.
2. INSTALLATION. If Tenant elects to install a Dish, Tenant shall install,
maintain and repair the Dish in a good and workmanlike manner and to secure all
permits required for the installation and operation thereof, and keep the
Building free of any liens which might arise therefrom, and hereby indemnifies
Landlord from and against any claims, costs, liability, or damages against
Landlord arising in any manner whatsoever from the installation, use, operation,
maintenance, repair and removal of the Dish. The insurance required to be
carried by Tenant as tenant under the Lease shall also apply to the Permitted
Space. Landlord does not in any way warrant or represent that Tenant has the
right under any applicable law, ordinance, rule or regulation to install,
operate or maintain the same or that such installation, use or maintenance will
be permitted in the future by applicable laws, ordinances or regulations. Tenant
undertakes sole responsibility to procure and maintain throughout the term of
this Lease, at Tenant's expense, all permits and licenses which may be required
for the foregoing purposes.
3. REMOVAL Upon the expiration or earlier termination of this Lease, Tenant
shall remove the Dish and restore the Permitted Space to substantially the same
condition as existed prior to installation of the Dish.
4. LIMITATION OF LIABILITY. Tenant hereby releases Landlord from any cost,
damage or liability caused by or done to the Dish from any cause whatsoever.
Tenant shall place the Dish on the roof of the Building as aforesaid at its own
risk and Landlord assumes no responsibility for the Dish in any manner
whatsoever.
5. ELECTRICITY. Any electricity consumption applicable to the use,
operation or maintenance of the Dish shall be at the sole cost and expense of
Tenant. To the extent that any changes in existing electrical facilities in the
Building are required to meet the needs of Tenant's equipment, the changes shall
be made at Tenant's expense, provided Landlord approves such changes, which
approval shall be in Landlord's sole discretion.
6. REPAIRS. Landlord shall be under no obligation to maintain or repair the
Dish or any part thereof. All such maintenance and repair shall be at the cost
and expense of Tenant, using responsible contractors, approved by Landlord,
provided that any repairs or maintenance affecting the structure of the Building
or any Building systems may, at Landlord's option, be performed by Landlord's
contractors at Tenant's expense.
7. OTHER USERS AND RELOCATION. The license conferred herein is
non-exclusive. Landlord reserves the right from time to time to permit other
users to operate, install and maintain antennas and other equipment including
other communications devices and equipment, on the roof of the Building or
elsewhere. Landlord further reserves the right to require that the Dish be
relocated from time to time, at Landlord's expense, to minimize interference
with any other activity conducted within or upon the Building, provided that any
such move shall not interfere with or interrupt the signal to the Dish. Tenant
agrees that its use and operation of the Dish shall not in any way interfere
with the operations of any tenant or occupant of the Building. In the event that
other dishes are installed in the building after the date hereof or any dishes
are relocated after the date hereof, Landlord shall use its best efforts to
ensure that such dishes do not interfere with the signal to the Dish.
<PAGE>
EXHIBIT H
INITIAL SIGNAGE SPECIFICATIONS
<PAGE>
INITIAL SIGNAGE SPECIFICATIONS
EXHIBIT "H"
Pg 1 of 2
[LOGO]
CUTLER
================================================================================
ATM Environments
Corporate Identity Programs
Cutler Sign Associates Sign Identification and Graphics
================================================================================
September 19, 1995
Mr. Anthony DiSandro
President
Pennsylvania Savings Bank
1210 Tasker Street
Philadelphia, PA 19146
Re: Sign Specifications - 11 Penn Center
Dear Tony:
The following are the specifications for the proposed signs at 11 Penn Center.
A. Exterior Signs
A 1. Market Street Elevation, A2 Corner 19th and Market Street elevation,
A3. 19th Street elevation - Manufacture and install (3) sets 12-1/2" logo
and 7-1/2" letters 4" deep reading: "PSB Pennsylvania Savings Bank". The
letters will be silhouette lighted with white neon enclosed in a reverse
aluminum channel. The stripes of the logo will be facelit with a white
plexiglas face and blue vinyl stripes. The "PSB" will also be silhouette
lighted. The letters will be fabricated from 090 aluminum face with a
heliarc welded 090 aluminum 4" deep return. The back of each lettter will
be enclosed in clear lexan to eliminate dirt and the elements. All aluminum
will be finished in your corporate blue color with PPG Deltron Polyurethane
enamel.
The electrodes will be terminated into metal green field which will
penetrate the wall two times for each letter, enclosed in sleeve glass. All
wiring will take place behind the wall, above the ceiling with UL approved
enclosed transformer boxes and wiring.
B. Interior signs
Entrance doors - Manufacture and install (1) 10-1/2" high x 46" wide
non-illuminated logo, wall mounted. The logo will be fabricated from 090
aluminum 2" deep finished with PPG Deltron Polyurethane in your corporate
blue color
2071 Hartel Street o Levittown, PA 19057 o 215-547-1595 o Fax 215-547-3999
<PAGE>
EXHIBIT "H"
Pg 2 of 2
C. Bezel
Manufacture and install (1) custom 5' wide MAC bezel to conform to ADA
requirements. The bezel will have a standard blue aluminum header with push
through plexiglas graphics
Shoud you or the building owners have any further questions about the signage or
the type of construction, please feel free to contact us. We would be happy to
meet with you if you need further information.
We thank you for the opportunity to offer our services and look forward to
working with you on this project.
Very truly yours,
/s/ Mark A. Cutler
Mark A. Cutler
President
<PAGE>
Stockton Bates
&
Company, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion of our Independent Auditors' Report
dated February 6, 1998, pertaining to the financial statements of Pennsylvania
Savings Bank at and for the years ended December 31, 1997 and 1996 and September
30, 1995 for use in Amendment No. 2 to the Registration Statement on Form S-1 of
PSB Bancorp, Inc. under the Securities Act of 1933.
/s/ Stockton Bates & Company, P.C.
Certified Public Accountants
Philadelphia, Pennsylvania
May 1, 1998
42 South 15th Street, Suite 600; Philadelphia, Pennsylvania
19102; 215.241.7500 Fax 215.567.3813
Offices in Haddonfield, New Jersey and Lancaster, Pennsylvania.
Member of American Group of CPA Firms with Worldwide Affiliations
<PAGE>
RP FINANCIAL, LC
Financial Servies Industry Consultants
April 30, 1998
Board of Directors
PSB Mutual Holding Company
Pennsylvania Savings bank
1835 Market Street
Philadelphia, Pennsylvania 19103
Gentlemen:
We hereby consent to the use of our firm's name in the
Application for Conversion of PSB Mutual Holding Company, the
mutual holding company for Pennsylvania Savings Bank,
Philadelphia, Pennsylvania and any amendments thereto, in the
Form 18(c) and any amendments thereto, in the Form S-1
Registration Statement and any amendments thereto and in the
Form FRY-1 for PSB Bancorp, Inc. We also hereby consent to the
inclusion of, summary of and references to our Appraisal Report,
including any updated appraisal reports, in such filings
including the Prospectus of PSB Bancorp, Inc.
Sincerely,
RP FINANCIAL, L.C.
/s/ James J. Oren
James J. Oren
Senior Vice President
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210
Arlington, VA 22209 Telephone: (703) 528-1700
Fax No: (703) 528-1788
MARKETING MATERIAL
<PAGE>
PSB MUTUAL HOLDING COMPANY
11 Penn Center
Suite 2601
1835 Market Street
Philadelphia, Pennsylvania 19103
(215) 979-7900
NOTICE OF SPECIAL MEETING OF MEMBERS
To be Held on ______________, 1998
Notice is hereby given that a special meeting (the "Special Meeting")
of members of PSB Mutual Holding Company (the "MHC") will be held at the main
office of Pennsylvania Savings Bank (the "Savings Bank") at 11 Penn Center,
Suite 2600, 1835 Market Street, Philadelphia, Pennsylvania, on ________,
______________, 1998, at __:__ _.m., Eastern Time. Business to be taken up at
the Special Meeting shall be:
(1) To approve a Plan of Conversion from Mutual Holding Company to Stock
Holding Company and Agreement and Plan of Reorganization (the "Plan of
Conversion") between the MHC and the Savings Bank, pursuant to which
the Savings Bank organized PSB Bancorp, Inc. (the "Holding Company")
and, upon consummation of the following transactions, the Savings Bank
will become a wholly-owned subsidiary of the Holding Company: (i) the
MHC, which currently owns 51.5% of the outstanding shares of common
stock of the Savings Bank, will convert from mutual holding company to
a state interim stock savings bank ("Interim A") and simultaneously
merge with and into the Savings Bank, with the Savings Bank as the
surviving entity; (ii) the Savings Bank will merge with and into an
interim stock savings bank ("Interim B") to be formed as a wholly-owned
subsidiary of the Holding Company, with the Savings Bank being the
surviving entity; (iii) the outstanding shares of common stock of the
Savings Bank (other than those held by the MHC which will be canceled)
(the "Public Savings Bank Shares") will be exchanged for shares of
common stock of the Holding Company (the "Exchange Shares") pursuant to
a ratio that will result in the holders of such shares owning in the
aggregate approximately the same percentage of the outstanding shares
of common stock of the Holding Company (the "Common Stock") as they
currently own in the Savings Bank, before giving effect to such
shareholders purchasing additional shares of Common Stock (the
"Conversion Shares") in a concurrent stock offering by the Holding
Company (the "Conversion Offerings") or by the Savings Bank's employee
stock ownership plan thereafter or receiving cash in lieu of fractional
Exchange Shares; and (iv) the offer and sale of Conversion Shares by
the Holding Company in the Conversion Offerings (collectively, the
"Conversion and Reorganization"), all undertaken pursuant to the laws
of the United States and the rules and regulations of the Office of the
<PAGE>
Federal Deposit Insurance Corporation (the "FDIC") and the
Department of Banking of the Commonwealth of Pennsylvania (the
"PDOB"); and
(2) To consider and vote upon any other matters that may lawfully
come before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of Directors
is not aware of any other matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those
members of the MHC at the close of business on ___________, 1997, and who
continue as members until the Special Meeting, and should the Special Meeting
be, from time to time, adjourned to a later time, until the final adjournment
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
ANTHONY DISANDRO
PRESIDENT AND CHIEF OPERATING
OFFICER
Philadelphia, Pennsylvania
________________, 1998
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WELL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY BY
WRITTEN INSTRUMENT DELIVERED TO ANTHONY DISANDRO, PRESIDENT AND CHIEF OPERATING
OFFICER, PSB MUTUAL HOLDING COMPANY, AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO
OR AT THE SPECIAL MEETING.
2
<PAGE>
PSB MUTUAL HOLDING COMPANY
11 PENN CENTER
SUITE 2601
1835 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 979-7900
PROXY STATEMENT
______________, 1998
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF
DIRECTORS OF PSB MUTUAL HOLDING COMPANY FOR USE AT A SPECIAL MEETING OF MEMBERS
TO BE HELD ON ______________, 1998, AND ANY ADJOURNMENT OF THAT MEETING, FOR THE
PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING - SUMMARY
A special meeting of members (the "Special Meeting") of PSB Mutual
Holding Company (the "MHC") will be held at the Savings Bank's main office at 11
Penn Center, Suite 2601, 1835 Market Street, Philadelphia, Pennsylvania, on
_________, ______________, 1998, at __:00 _.m., Eastern Time, for the purpose of
considering and voting upon a Plan of Conversion from Mutual Holding Company to
Stock Holding Company and Agreement and Plan of Reorganization (the "Plan of
Conversion"), which, if approved by a majority of the total votes of the members
eligible to be cast, will permit the Savings Bank to become a subsidiary of the
Holding Company, a newly-organized Pennsylvania corporation formed by the
Savings Bank. The reorganization of the Savings Bank and the acquisition of
control of the Savings Bank by the Holding Company are collectively referred to
herein as the "Conversion and Reorganization."
Pursuant to Pennsylvania law and action of the Board of Trustees of the
MHC, depositors of the Savings Bank, are members of the MHC. Members entitled to
vote on the Plan of Conversion are members of the MHC as of ______________, 1997
("Voting Record Date") who continue as members until the Special Meeting, and
should the Special Meeting be, from time to time, adjourned to a later time,
until the final adjournment thereof. The Conversion and Reorganization requires
the approval of not less than a majority of the total votes eligible to be cast
at the Special Meeting.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
state-chartered mutual holding company to a state-chartered interim stock
savings bank (i.e. Interim A) and simultaneously merge with and into the Savings
Bank, pursuant to which the MHC will cease to exist and the shares of Savings
Bank Common Stock held by the MHC will be canceled, and (ii) Interim A will then
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merge with and into the Savings Bank. As a result of the merger of Interim A
with and into the Savings Bank, the Savings Bank will become a wholly-owned
subsidiary of the Holding Company and the shares of Savings Bank Common Stock
held by persons other than the MHC (the "Public Savings Bank Shares") will be
converted into shares of common stock of the Holding Company (the "Exchange
Shares") pursuant to a ratio (the "Exchange Ratio"), which will result in the
holders of such shares owning in the aggregate approximately the same percentage
of the Common Stock to be outstanding upon the completion of the Conversion and
Reorganization as the percentage of Savings Bank Common Stock owned by them in
the aggregate immediately prior to consummation of the Conversion and
Reorganization, without regard to (a) the payment of cash in lieu of issuing
fractional Exchange Shares and (b) any Conversion Shares (defined below)
purchased by the Savings Bank's shareholders in the Conversion Offerings
(defined below) or the ESOP thereafter.
As part of the Plan of Conversion, nontransferable rights to subscribe
("Subscription Rights") for up to ____________ shares of Common Stock
("Conversion Shares") have been granted, in order of priority, to (i) depositors
with $50.00 or more on deposit at the Savings Bank as of June 30, 1996 (the
"Eligible Account Holders"), (ii) the ESOP, a tax-qualified employee benefit
plan, and (iii) depositors with $50.00 or more on deposit at the Savings Bank as
of _____________________ (the "Supplemental Eligible Account Holders"), subject
to the priorities and purchase limitations set forth in the Plan of Conversion
(the "Subscription Offering"). Concurrently, but subject to the prior rights of
Subscription Rights holders, the Holding Company is offering the Conversion
Shares for sale to members of the general public through a direct community
offering (the "Direct Community Offering") with preference given first to Public
Shareholders (who are not Eligible Account Holders or Supplemental Eligible
Account Holders) and then to natural persons and trusts of natural persons who
are permanent residents of Philadelphia and Montgomery Counties of Pennsylvania
(the "Local Community"). It is anticipated that any Conversion Shares not
subscribed for in the Subscription Offering or purchased in the Direct Community
Offering will be offered to eligible members of the general public on a best
efforts basis by a selling group of broker-dealers managed by Charles Webb and
Company in a syndicated community offering (the "Syndicated Community
Offering"). The Subscription Offering, Direct Community Offering and the
Syndicated Community Offering are referred to collectively as the "Conversion
Offerings." The Holding Company, Savings Bank and MHC are collectively referred
to herein as the "Primary Parties." The Primary Parties reserve the right, in
their absolute discretion, to accept or reject, in whole or in part, any or all
orders in the Direct Community Offering or the Syndicated Community Offering
either at the time of receipt of an order or as soon as practicable following
the termination of the Conversion Offerings. If an order is rejected in part,
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the purchaser does not have the right to cancel the remainder of the order.
PSB MUTUAL HOLDING COMPANY
The MHC is the state-chartered mutual holding company for the Savings
Bank. The MHC was formed in October 1995 as a result of the reorganization of
the Savings Bank into a state-chartered savings bank (the "MHC Reorganization").
The members of the MHC consist of depositors of the Savings Bank. Currently, the
MHC's sole business activity is holding the shares of Savings Bank Common Stock,
which represents 51.5% of the outstanding shares thereof as of the date of this
Proxy Statement. As part of the Conversion and Reorganization, the MHC will
convert to a state-chartered interim stock savings bank and simultaneously merge
with and into the Savings Bank, with the Savings Bank as the surviving entity.
The MHC's main office is located at Eleven Penn Center, Suite 2601, 1835 Market
Street, Philadelphia, Pennsylvania 19103, and its telephone number is (215)
979-7900.
PENNSYLVANIA SAVINGS BANK
The Savings Bank is a state-chartered savings bank incorporated under
the laws of the Commonwealth of Pennsylvania and headquartered in Philadelphia,
Pennsylvania. New deposits of the Savings Bank are insured by the FDIC up to
applicable legal limits under the Savings Bank Insurance Fund of the FDIC (the
"BIF"). The Savings Bank's deposits are insured by the Savings Association
Insurance Fund (the "SAIF") of the FDIC to the extent that such deposits were
assumed from the mutual savings bank in the MHC Reorganization. The Savings Bank
has been a member of the Federal Home Loan Bank ("FHLB") system since 1937. The
Savings Bank is regulated by the Pennsylvania Department of Banking (the "PDOB")
and the FDIC. At September 30, 1997, the Savings Bank had total assets of $126.4
million, total deposit accounts of $106.3 million, and total shareholders'
equity of $14.8 million, on a consolidated basis.
On October 20, 1995, when the MHC Reorganization was consummated, the
Savings Bank completed its initial stock offering by issuing 1,173,250 shares of
Savings Bank Common Stock, of which 534,750 shares were purchased by the Public
Shareholders and 615,250 shares were issued to the MHC. Stock dividends issued
and stock options exercised subsequent to the initial public offering have
increased the total shares issued and outstanding to 1,194,640 shares of Savings
Bank Common Stock. Currently 579,390 shares of Savings Bank Common Stock are
held by the Public Shareholders and 615,250 shares are held by the MHC.
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The Savings Bank is primarily engaged in the business of attracting
deposits from the general public in the Savings Bank's market area and investing
such deposits in loans secured by one- to four-family residential real estate,
commercial real estate loans, commercial business loans, construction loans and
investment and mortgage-backed securities.
The Savings Bank conducts its operations from its six full-service
offices. Five offices are located in Philadelphia, Pennsylvania and one office
is located in Glenside, Montgomery County, Pennsylvania. See "Business of the
Savings Bank -- Properties" in the Prospectus. The Savings Bank's main office is
located at 11 Penn Center, Suite 2601, 1835 Market Street, Philadelphia,
Pennsylvania 1903, and its telephone number is (215) 979-7900.
PSB BANCORP, INC.
General. The Holding Company was organized as a Pennsylvania business
corporation at the direction of the Savings Bank on October 3, 1997 for the
purpose of becoming a holding company for the Savings Bank upon completion of
the Conversion and Reorganization. As a result of the Conversion and
Reorganization, the Savings Bank will be a wholly-owned subsidiary of the
Holding Company and all of the issued and outstanding capital stock of the
Savings Bank will be owned by the Holding Company.
Business. Prior to the Conversion and Reorganization, the Holding
Company has not and will not engage in any significant activities other than
that of an organizational nature. Upon completion of the Conversion and
Reorganization, the Holding Company's primary business activity will be the
ownership of the outstanding capital stock of the Savings Bank. In the future,
the Holding Company may acquire or organize other operating subsidiaries,
although there are no current plans, arrangements, agreements or understandings,
written or oral, to do so.
Initially, the Holding Company will neither own nor lease any property
but will instead use the premises, equipment and furniture of the Savings Bank.
Because the Holding Company will only hold the outstanding capital
stock of the Savings Bank upon consummation of the Conversion and
Reorganization, the competitive conditions applicable to the Holding Company
will be the same as those confronting the Savings Bank. See "BUSINESS --
Business of the Savings Bank" in the Prospectus.
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VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The MHC's Board of Directors has fixed the close of business on
______________, 1997 as the record date for the determination of members
entitled to notice of and to vote at the Special Meeting. All holders of savings
accounts of the Savings Bank are members of the MHC. All members of record as of
the close of business on the Voting Record Date who continue to be members of
the MHC on the date of the Special Meeting or any adjournment thereof will be
entitled to vote at the Special Meeting or such adjournment.
Each eligible depositor member will be entitled at the Special Meeting
to cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of the depositor's savings accounts in the Savings Bank as of the
Voting Record Date. No member is entitled to cast more than 1,000 votes. Any
number of members present and voting, represented in person or by proxy, at the
Special Meeting will constitute a quorum.
Consummation of the Plan of Conversion is contingent upon (i) the
affirmative vote of a majority of the total outstanding votes of the MHC's
members eligible to vote at the Special Meeting (the "Voting Members"), (ii) the
affirmative vote of the holders of a majority of the Public Savings Bank Shares
as of the Voting Record Date, (iii) the affirmative vote of holders of 2/3 of
the Savings Bank Common Stock (including the MHC), (iv) the sale of at least
1,105,000 Conversion Shares pursuant to the Plan of Conversion, and (v) the
receipt of all applicable regulatory approvals. As of the Voting Record Date for
the Special Meeting, there were approximately ____________ votes that may be
cast by Voting Members.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible member
to vote on the Plan of Conversion. All properly executed proxies received by
management will be voted in accordance with the instructions indicated thereon
by the members giving such proxies. If no instructions are given, such proxies
will be voted in favor of the Plan of Conversion. If any other matters are
properly presented at the Special Meeting and may properly be voted on, all
proxies will be voted on such matters in accordance with the best judgment of
the proxy holders named therein. If the enclosed proxy is returned, it may be
revoked at any time before it is voted by written notice to the Secretary of the
Savings Bank, by submitting a later-dated proxy, or by attending and voting in
person at the Special Meeting. The proxies being solicited are only for use at
the Special Meeting and at any and all adjournments thereof and will not be used
for any other meeting. Management is not aware of any other business to be
presented at the Special Meeting.
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The trustees for individual retirement accounts at the Savings Bank,
will vote in favor of the Plan of Conversion, unless the beneficial owner
executes and returns the enclosed proxy for the Special Meeting or attends the
Special Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, trustees or regular employees of the MHC,
in person, by telephone or through other forms of communication. Such persons
will be reimbursed by the MHC for their reasonable out-of-pocket expenses
incurred in connection with such solicitation. If necessary, the Special Meeting
may be adjourned to an alternative date.
RECOMMENDATION OF THE BOARD OF TRUSTEES
The Board of Trustees unanimously recommends that you vote "FOR" the
Plan of Conversion. Voting in favor of the Plan of Conversion will not obligate
any voter to purchase any Conversion Stock.
THE CONVERSION AND REORGANIZATION
The PDOB and the Board of Governors of the Federal Reserve System (the
"Federal Reserve") have approved and the FDIC has issued a letter of
nonobjection with respect to the Plan of Conversion subject to its approval by
the members of the MHC, by 2/3 of the shareholders of the Savings Bank entitled
to vote thereon, by a majority of the holders of Public Savings Bank Shares and
to the satisfaction of certain other conditions imposed by the PDOB and FDIC.
PDOB, FDIC and Federal Reserve approval does not constitute a recommendation or
endorsement of the Plan of Conversion.
General. On July 17, 1997, the Boards of Trustees of the MHC and the
Savings Bank, and on ______________, 1997, the Holding Company's Board of
Directors, unanimously adopted the Plan of Conversion, pursuant to which the MHC
will convert from a mutual holding company to a stock holding company and the
Savings Bank simultaneously will reorganize as a wholly-owned subsidiary of the
Holding Company. The following discussion of the Plan of Conversion is qualified
in its entirety by reference to the Plan of Conversion, which is attached as
Exhibit A to this Proxy Statement. The Plan of Conversion is also filed as an
exhibit to the Registration Statement. See "ADDITIONAL INFORMATION."
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
state-chartered mutual holding company to a state-chartered interim stock
savings bank (i.e. Interim A) and simultaneously merge with and into the Savings
Bank, pursuant to which the MHC will cease to exist and the shares of Savings
Bank Common Stock held by the MHC will be canceled, and (ii) Interim A will then
merge with and into the Savings Bank. As a result of the merger of Interim A
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with and into the Savings Bank, the Savings Bank will become a wholly-owned
subsidiary of the Holding Company and the Public Savings Bank Shares will be
converted into the Exchange Shares pursuant to the Exchange Ratio, which will
result in the holders of such shares owning in the aggregate approximately the
same percentage of the Common Stock to be outstanding upon the completion of the
Conversion and Reorganization (i.e. the Conversion Shares and the Exchange
Shares) as the percentage of Savings Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and Reorganization
without regard to (a) the payment of cash in lieu of issuing fractional
Exchange Shares and (b) Conversion Shares that may be purchased by the Savings
Bank's shareholders in the Conversion Offerings or the ESOP thereafter.
As part of the Conversion and Reorganization, the Holding Company is
offering Conversion Shares in the Subscription Offering to holders of
Subscription Rights in the following order of priority: (i) Eligible Account
Holders (depositors of the Savings Bank with $50.00 or more on deposit as of
June 30, 1996); (ii) the ESOP; and (iii) Supplemental Eligible Account Holders
(depositors of the Savings Bank with $50.00 or more on deposit as of
______________, 1997).
Concurrently with the Subscription Offering, any Conversion Shares not
subscribed for in the Subscription Offering may be offered for sale in the
Direct Community Offering to members of the general public, with priority being
given first to Public Shareholders (who are not Eligible Account Holders or
Supplemental Eligible Account Holders) and then to natural persons and trusts of
natural persons residing in the Local Community. Conversion Shares not sold in
the Subscription and Direct Community Offerings may be offered in the Syndicated
Community Offering. Regulations require that the Direct Community and Syndicated
Community Offerings be completed within 45 days after completion of the fully
extended Subscription Offering unless extended by the Savings Bank or the
Holding Company with the approval of the regulatory authorities. If the
Syndicated Community Offering is determined not to be feasible, the Board of
Trustees of the Savings Bank will consult with the regulatory authorities to
determine an appropriate alternative method for selling the unsubscribed
Conversion Shares. The Plan of Conversion provides that the Conversion and
Reorganization must be completed within 24 months after the date of the approval
of the Plan of Conversion by the members of the MHC.
No sales of Common Stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offerings unless the
Plan of Conversion is approved by the members of the MHC and the shareholders of
the Savings Bank.
The completion of the Conversion Offerings, however, is subject to
market conditions and other factors beyond the Savings Bank's control. No
assurance can be given as to the length of time after approval of the Plan of
Conversion at the Special Members Meeting and the Shareholders Meeting that will
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be required to complete the Direct Community or the Syndicated Community
Offerings or other sale of the Conversion Shares. If delays are experienced,
significant changes may occur in the estimated pro forma market value of the MHC
and the Savings Bank, as converted, together with corresponding changes in the
net proceeds realized by the Holding Company from the sale of the Conversion
Shares. If the Conversion and Reorganization is terminated, the Savings Bank
would be required to charge all Conversion and Reorganization expenses against
current income.
Orders for Conversion Shares will not be filled until at least
1,105,000 Conversion Shares have been subscribed for or sold and the PDOB and
FDIC approve the final valuation and the Conversion and Reorganization closes.
If the Conversion and Reorganization is not completed within 45 days after the
last day of the fully extended Subscription Offering and the PDOB and FDIC
consent to an extension of time to complete the Conversion and Reorganization,
subscribers will be given the right to increase, decrease or rescind their
subscriptions. Unless an affirmative indication is received from subscribers
that they wish to continue to subscribe for shares, the funds will be returned
promptly, together with accrued interest at the Savings Bank's passbook rate
from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the Conversion
and Reorganization is not completed, all withdrawal authorizations will be
terminated and all funds held will be promptly returned together with accrued
interest at the Savings Bank's passbook rate from the date payment is received
until the Conversion and Reorganization is terminated.
Purposes of Conversion and Reorganization
The MHC, as a state-chartered mutual holding company, does not have
shareholders and has no authority to issue capital stock. As a result of the
Conversion and Reorganization, the Holding Company will be structured in the
form used by holding companies of commercial banks, most business entities and a
growing number of savings institutions. The holding company form of organization
will provide the Holding Company with the ability to diversify the Holding
Company's and the Savings Bank's business activities through acquisition of or
mergers with both stock savings institutions and commercial banks, as well as
other companies. Although there are no current arrangements, understandings or
agreements regarding any such opportunities, the Holding Company will be in a
position after the Conversion and Reorganization, subject to regulatory
limitations and the Holding Company's financial position, to take advantage of
any such opportunities that may arise.
The Conversion and Reorganization will be important to the future
growth and performance of the Savings Bank and the Holding Company by providing
a larger capital base to support the operations of the Savings Bank and Holding
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Company and by enhancing their future access to capital markets, their ability
to diversify into other financial services related activities, and their ability
to provide services to the public. Although the Savings Bank currently has the
ability to raise additional capital through the sale of additional shares of
Savings Bank Common Stock, that ability is limited by the mutual holding company
structure which, among other things, requires that the MHC hold a majority of
the outstanding shares of Savings Bank Common Stock.
The Conversion and Reorganization also will result in an increase in
the number of shares of Common Stock to be outstanding as compared to the number
of outstanding shares of Public Savings Bank Shares which will increase the
likelihood of the development of an active and liquid trading market for the
Common Stock. See "MARKET FOR COMMON STOCK" in the Prospectus. In addition, the
Conversion and Reorganization will permit the Holding Company to engage in stock
repurchases without adverse federal income tax consequences, unlike the Savings
Bank. Currently, the Holding Company has no plans or intentions to engage in any
stock repurchases.
An additional benefit of the Conversion and Reorganization will be an
increase in the accumulated earnings and profits of the Savings Bank for federal
income tax purposes. When the Savings Bank (as a mutual institution) transferred
substantially all of its assets and liabilities to its stock savings bank
successor in the MHC Reorganization, its accumulated earnings and profits tax
attribute was not able to be transferred to the Savings Bank because no tax-free
reorganization was involved. Accordingly, this tax attribute was retained by the
Savings Bank when it converted its charter to that of the MHC, even though the
underlying retained earnings were transferred to the Savings Bank. The
Conversion and Reorganization has been structured to re-unite the accumulated
earnings and profits tax attribute retained by the MHC in the MHC Reorganization
with the retained earnings of the Savings Bank by merging the MHC with and into
the Savings Bank in a tax-free reorganization. This transaction will increase
the Savings Bank's ability to pay dividends to the Holding Company in the
future. See "DIVIDEND POLICY" in the Prospectus.
If the Savings Bank had undertaken a standard conversion involving the
formation of a stock holding company in 1995, applicable FDIC regulations would
have required a greater amount of common stock to be sold than the amount of net
proceeds raised in the MHC Reorganization. Management believed that it was
advisable to profitably invest the $5.58 million of net proceeds raised in the
MHC Reorganization rather than raising the larger amount of capital that would
have been raised in a standard conversion. A standard conversion in 1995 also
would have immediately eliminated all aspects of the mutual form of
organization.
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In light of the foregoing, the Boards of Trustees and Board of
Directors, respectively, of the Primary Parties believe that the Conversion and
Reorganization is in the best interests of the MHC and the Savings Bank, their
respective members and shareholders, and the communities served by the Savings
Bank.
Effects of Conversion and Reorganization on Depositors and
Borrowers of the Savings Bank
General. Prior to the Conversion and Reorganization, each depositor in
the Savings Bank has both a deposit account in the institution and a pro rata
interest in the net worth of the MHC based upon the balance in his or her
account. This interest may only be realized in the event of a liquidation of the
MHC. Furthermore, this interest is dependent upon the existence of the
depositor's account and has no tangible market value separate from such deposit
account. A depositor who reduces or closes his account receives a portion or all
of the balance in the account but nothing for his interest in the net worth of
the MHC, which is lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Savings Bank have only an inchoate
ownership interest in the MHC, which has realizable value only in the unlikely
event that the MHC is liquidated. In such event, the depositors of record at
that time would share pro rata in any residual surplus and reserves of the MHC
after other claims are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Holding Company. The Common Stock is separate and apart from
deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
deposit and/or loan account(s) the seller may hold in the Savings Bank.
Continuity. The Conversion and Reorganization will not interrupt the
Savings Bank's normal business of accepting deposits and making loans. The
Savings Bank will continue to be subject to regulation by the PDOB and the FDIC.
After the Conversion and Reorganization, the Savings Bank will continue to
provide services for depositors and borrowers under current policies by its
present management and staff.
The trustees and officers of the Savings Bank at the time of the
Conversion and Reorganization will continue to serve as trustees and officers of
the Savings Bank after the Conversion and Reorganization. The directors and
officers of the Holding Company consist of individuals currently serving as
trustees and officers of the MHC and the Savings Bank, and they generally will
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retain their positions in the Holding Company after the Conversion and
Reorganization.
Effect on Public Savings Bank Shares. Under the Plan of Conversion,
upon consummation of the Conversion and Reorganization, the Public Savings Bank
Shares shall be converted into Exchange Shares based upon the Exchange Ratio
without any further action on the part of the holder thereof. Upon surrender of
the Public Savings Bank Shares, Common Stock will be issued in exchange for such
shares and the Public Shareholders will become shareholders of the Holding
Company.
Voting Rights. Presently, depositors of the Savings Bank are members
of, and have very limited voting rights in, the MHC. Upon completion of the
Conversion and Reorganization, the MHC will cease to exist and all voting rights
in the Savings Bank will be vested in the Holding Company as the sole
shareholder of the Savings Bank. Exclusive voting rights with respect to the
Holding Company will be vested in the holders of Common Stock. Depositors of the
Savings Bank will not have voting rights in the Holding Company after the
Conversion and Reorganization, except to the extent that they become
shareholders of the Holding Company.
Savings Accounts and Loans. The Savings Bank's savings accounts,
account balances and existing FDIC insurance coverage of savings accounts will
not be affected by the Conversion and Reorganization. Furthermore, the
Conversion and Reorganization will not affect the loan accounts, loan balances
or obligations of borrowers under their individual contractual arrangements with
the Savings Bank.
Tax Effects. The Savings Bank has received an opinion from Stevens &
Lee, Wayne, Pennsylvania, that the Conversion and Reorganization will constitute
a nontaxable reorganization under Section 368(a)(1)(A) of the Code. Among other
things, the opinion provides that: (i) the conversion of the MHC from a
mutualholding company to a state-chartered interim stock savings bank (i.e.
Interim A) and its simultaneous merger with and into the Savings Bank, with the
Savings Bank as the surviving entity will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code, (ii) no gain or loss will be
recognized by the Savings Bank upon the receipt of the assets of the MHC in such
merger, (iii) the merger of Interim B with and into the Savings Bank, with the
Savings Bank as the surviving entity, will qualify as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code, (iv) no gain or loss will be
recognized by Interim B upon the transfer of its assets to the Savings Bank, (v)
no gain or loss will be recognized by the Savings Bank upon the receipt of the
assets of Interim B, (vi) no gain or loss will be recognized by the Holding
Company upon the receipt of Savings Bank Common Stock solely in exchange for
Common Stock, (vii) no gain or loss will be recognized by the Public
Shareholders upon the receipt of Exchange Shares in exchange for their Public
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Savings Bank Shares, (viii) the basis of the Exchange Shares to be received by
the Public Shareholders will be the same as the basis of the Public Savings Bank
Shares surrendered in exchange therefor, without regard to any payment of cash
in lieu of fractional Exchange Shares, (ix) the holding period of the Exchange
Shares to be received by the Public Shareholders will include the holding period
of the Public Savings Bank Shares, provided that the Public Savings Bank Shares
were held as a capital asset on the date of the exchange, (x) no gain or loss
will be recognized by the Holding Company upon the sale of Conversion Shares in
the Conversion Offerings, (xi) the Eligible Account Holders and Supplemental
Eligible Account Holders will recognize gain, if any, upon the issuance to them
of withdrawable savings accounts in the Savings Bank following the Conversion
and Reorganization, interests in the liquidation account and nontransferable
subscription rights to purchase Conversion Stock, but only to the extent of the
value, if any, of the subscription rights, and (xii) the tax basis to the
holders of Conversion Shares purchased in the Conversion Offerings will be the
amount paid therefor, and the holding period for the Conversion Shares will
begin on the date of consummation of the Conversion Offerings, if purchased
through the exercise of Subscription Rights, and on the day after the date of
purchase, if purchased in the Community Offering or the Syndicated Community
Offering. Unlike a private letter ruling issued by the IRS, an opinion of
counsel is not binding on the IRS and the IRS could disagree with the
conclusions reached therein. In the event of such disagreement, no assurance can
be given that the conclusions reached in an opinion of counsel would be
sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that
the receipt of Subscription Rights by Eligible Account Holders and Supplemental
Eligible Account Holders under the Plan of Conversion will be taxable to the
extent, if any, that the Subscription Rights are deemed to have a fair market
value. RP Financial, LC ("RP Financial"), a financial consulting firm retained
by the Savings Bank, whose findings are not binding on the IRS, has issued a
letter indicating that the Subscription Rights do not have any value, based on
the fact that such rights are acquired by the recipients without cost, are
nontransferable and of short duration and afford the recipients the right only
to purchase shares of the Common Stock at a price equal to its estimated fair
market value, which will be the same price paid by purchasers in the Direct
Community Offering for unsubscribed shares of Common Stock. If the Subscription
Rights are deemed to have a fair market value, the receipt of such rights may
only be taxable to those Eligible Account Holders and Supplemental Eligible
Account Holders who exercise their Subscription Rights. The Savings Bank could
also recognize a gain on the distribution of such Subscription Rights. Eligible
Account Holders and Supplemental Eligible Account Holders are encouraged to
consult with their own tax advisors as to the tax consequences in the event the
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Subscription Rights are deemed to have a fair market value.
The Savings Bank has also received an opinion from Stevens & Lee, that,
assuming the Conversion and Reorganization does not result in any federal income
tax liability to the Savings Bank, its account holders, or the Holding Company,
implementation of the Plan of Conversion will not result in any Pennsylvania tax
liability to such entities or persons.
The opinions of Stevens & Lee and the letter from RP Financial are
filed as exhibits to the Registration Statement. See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION AND REORGANIZATION PARTICULAR
TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
the MHC, each depositor of the Savings Bank would receive his or her pro rata
share of any assets of the MHC remaining after payment of claims of all
creditors. Each depositor's pro rata share of such remaining assets would be in
the same proportion as the value of his or her deposit account was to the total
value of all deposit accounts in the Savings Bank at the time of liquidation.
After the Conversion and Reorganization, each depositor, in the event of a
complete liquidation of the Savings Bank, would have a claim as a creditor of
the same general priority as the claims of all other general creditors of the
Savings Bank. However, except as described below, his or her claim would be
solely in the amount of the balance in his or her deposit account plus accrued
interest. Each shareholder would not have an interest in the value or assets of
the Savings Bank or the Holding Company above that amount.
The Plan of Conversion provides for the establishment, upon the
completion of the Conversion and Reorganization, of a special "liquidation
account" for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders in an amount equal to the amount of the greater of (1) the
Savings Bank's retained earnings of $8.74 million at December 31, 1995, the date
of the latest statement of financial condition contained in the final offering
circular utilized in the MHC Reorganization, or (2) ______% of the Savings
Bank's total shareholders' equity as reflected in its latest statement of
financial condition contained in the final Prospectus utilized in the Conversion
Offerings. As of the date of this Proxy Statement, the initial balance of the
liquidation account would be $______ million. Each Eligible Account Holder and
Supplemental Eligible Account Holder, if he or she were to continue to maintain
his deposit account at the Savings Bank, would be entitled, upon a complete
liquidation of the Savings Bank after the Conversion and Reorganization to an
interest in the liquidation account prior to any payment to the Holding Company
15
<PAGE>
as the sole shareholder of the Savings Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook accounts,
transaction accounts such as checking accounts, money market deposit accounts
and certificates of deposit, held in the Savings Bank at the close of business
on ___________________ or ___________________, as the case may be. Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account for each of his or her deposit
accounts based on the proportion that the balance of each such deposit account
on the Eligibility Record Date or the Supplemental Eligibility Record Date, as
the case may be, bore to the balance of all deposit accounts in the Savings Bank
on such date.
If, however, on any December 31 annual closing date of the Savings
Bank, commencing December 31, 1997, the amount in any deposit account is less
than the amount in such deposit account on ___________________ or
______________, 1997, as the case may be, or any other annual closing date, then
the interest in the liquidation account relating to such deposit account would
be reduced by the proportion of any such reduction, and such interest will cease
to exist if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Any assets remaining after the above liquidation
rights of Eligible Account Holders and Supplemental Eligible Account Holders are
satisfied would be distributed to the Holding Company as the sole shareholder of
the Savings Bank.
REVIEW OF PDOB ACTION
Any person aggrieved by a final action of the PDOB which approves, with
or without conditions, a Plan of Conversion which results in a stock savings
bank pursuant to this part may obtain review of such action by filing in the
Commonwealth Court of the Commonwealth of Pennsylvania within twenty (20) days
after notice of the approval appears in the Pennsylvania Bulletin. However,
members should be aware that in most instances the decision of the PDOB is
nonreviewable.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on
Form SB-2 (File No. 333-37511) under the Securities Act of 1933, as amended,
with respect to the Common Stock offered in the Conversion and Reorganization.
The accompanying Prospectus does not contain all the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. Such information may be inspected at
the public reference facilities maintained by the SEC at 450 Fifth Street N.W.,
Room 1024, Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Room
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<PAGE>
1024, Chicago, Illinois 60661; and 75 Park Place, New York, New York 10007.
Copies may be obtained at prescribed rates from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The Registration
Statement also is available through the SEC's World Wide Web Site on the
Internet (http://www.sec.gov).
Copies of the Holding Company's Articles of Incorporation and Bylaws
may be obtained by written request to the Savings Bank.
All persons eligible to vote at the Special Meeting should review both
this Proxy Statement and the accompanying Prospectus carefully. However, no
person is obligated to purchase any Common Stock. For additional information,
you may call the Stock Information Center at (215) 979-7904.
BY ORDER OF THE BOARD OF DIRECTORS
ANTHONY DISANDRO
PRESIDENT AND CHIEF OPERATING OFFICER
Philadelphia, Pennsylvania
____________________, 1998
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND THE PROSPECTUS AND, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES
WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND
THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED
TO THE SECRETARY OF THE SAVINGS BANK AT ANY TIME PRIOR TO OR AT THE SPECIAL
MEETING OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
<PAGE>
PENNSYLVANIA SAVINGS BANK
Eleven Penn Center, Suite 2601
1835 Market Street
Philadelphia, Pennsylvania 19103
(215) 979-7900
_________________, 1998
Dear Shareholder:
On behalf of the Board of Trustees and management of Pennsylvania
Savings Bank (the "Bank"), I cordially invite you to attend a Special Meeting of
Shareholders to be held at the Bank's executive offices located at Eleven Penn
Center, Suite 2601, 1835 Market Street, Philadelphia, Pennsylvania 19103 on
_________ __, 1998. The attached Notice of Special Meeting and Proxy Statement
describe the formal business to be transacted at the Meeting. During the
Meeting, certain trustees and officers of the Bank will be present to respond to
questions shareholders may have.
Whether or not you plan to attend the Meeting, please sign and date the
enclosed Proxy Card and return it in the postage-paid return envelope provided
as promptly as possible. This will not prevent you from voting in person at the
Meeting, but will assure that your vote is counted if you are unable to attend
the Meeting.
Thank you for your continued interest in Pennsylvania Savings Bank.
Sincerely,
Anthony DiSandro,
President and Chief Operating Officer
<PAGE>
PENNSYLVANIA SAVINGS BANK
-------------------------------
NOTICE
OF
SPECIAL MEETING OF SHAREHOLDERS
to be held _________ __, 1998
-------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Pennsylvania Savings Bank (the "Bank") will be held on
________________ __, 1998 at ______, _.m. (Local Time) at the Bank's executive
offices located at Eleven Penn Center, Suite 2601, 1835 Market Street,
Philadelphia, Pennsylvania 19103 for the following purposes:
(1) To approve a Plan of Conversion from Mutual Holding
Company to Stock Holding Company and Agreement and Plan of Reorganization (the
"Plan of Conversion"), pursuant to which the Bank organized PSB Bancorp, Inc.
(the "Holding Company") and, upon consummation of the following transactions,
the Bank will become a wholly-owned subsidiary of the Holding Company: (i) PSB
Mutual Holding Company (the "MHC"), which currently owns 51.5% of the
outstanding shares of common stock of the Bank, will convert from mutual holding
company to a state interim stock savings bank ("Interim A") and simultaneously
merge with and into the Bank, with the Bank as the surviving entity; (ii) the
Bank will merge with and into an interim stock savings bank ("Interim B") to be
formed as a wholly-owned subsidiary of the Holding Company, with the Bank being
the surviving entity; (iii) the outstanding shares of common stock of the Bank
(other than those held by the MHC which will be canceled) (the "Public Bank
Shares") will be exchanged for shares of common stock of the Holding Company
(the "Exchange Shares") pursuant to a ratio that will result in the holders of
such shares owning in the aggregate approximately the same percentage of the
outstanding shares of common stock of the Holding Company (the "Common Stock")
as they currently own in the Bank, before giving effect to such shareholders
purchasing additional shares of Common Stock (the "Conversion Shares") in a
concurrent stock offering by the Holding Company (the "Conversion Offerings") or
by the Bank's employee stock ownership plan thereafter or receiving cash in lieu
of fractional Exchange Shares; and (iv) the offer and sale of Conversion Shares
by the Holding Company in the Conversion Offerings (collectively, the
"Conversion and Reorganization"), all undertaken pursuant to the laws of the
United States and the rules and regulations of the Office of the Federal Deposit
Insurance Corporation (the "FDIC"), the Department of Banking of the
Commonwealth of Pennsylvania (the "PDOB") and the Board of Governors of the
Federal Reserve System (the "Federal Reserve"); and
(2) To transact such other business as may properly be
presented at the Meeting or any adjournment or adjournments thereof.
Only shareholders of record at the close of business on ______________,
1997, will be entitled to notice of, and to vote at, the Meeting. A proxy card
and proxy statement for the Meeting are enclosed.
SHAREHOLDERS ARE URGED TO SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN
THE ENVELOPE PROVIDED.
BY ORDER OF THE BOARD OF TRUSTEES
_________ __, 1997 Anthony DiSandro,
President and Chief Operating Officer
<PAGE>
PROXY STATEMENT
For Special Meeting
_________ __, 1998
INTRODUCTION
The Bank
Pennsylvania Savings Bank (the "Bank") is a Pennsylvania stock savings
bank headquartered at Eleven Penn Center, Suite 2601, 1835 Market Street,
Philadelphia, Pennsylvania 19103. The Bank's predecessor, Pennsylvania Savings
Association, converted from a state-chartered mutual savings association to a
state-chartered mutual savings bank in 1990. Effective on October 20, 1995, this
state-chartered mutual savings bank reorganized into a mutual savings bank
holding company and transferred substantially all of its assets and liabilities
to the Bank, a newly-formed stock savings bank. The Bank is now majority owned
by PSB Mutual Holding Company (the "MHC"). References to the Bank in this proxy
statement include the Bank's predecessors as the context requires.
Solicitation of Proxies
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Trustees of the Bank for use at the Bank's Special
Meeting of Shareholders to be held _________ __, 1998 (the "Meeting"). The
expense of soliciting proxies will be borne by the Bank. It is expected that the
solicitation of proxies will be primarily by mail. The Bank's trustees, officers
and employees may also solicit proxies personally and by telephone.
The execution and return of the enclosed proxy will not affect a
shareholder's right to attend the Meeting and vote in person. Any shareholder
filing a proxy may revoke it at any time before it is exercised by either
submitting to the Secretary of the Bank a written notice of its revocation or a
subsequently executed proxy, or by attending the Meeting and electing to vote in
person. Only shareholders of record at the close of business on _____________,
1997 (the "Record Date") are entitled to notice of, and to vote at, the Meeting.
On that date there were 1,194,640 shares of the Bank's common stock par value
$1.00 per share (the "Bank Common Stock") outstanding, each of which will be
entitled to one vote at the Meeting. Of this number, 615,250 shares are held by
the MHC and 579,390 shares are held by other shareholders. This Proxy Statement
and the accompanying Proxy Card were first mailed to shareholders on or about
_________ __, 1998.
If the enclosed proxy is appropriately marked, signed and returned in
time to be voted at the Meeting, the shares represented by the proxy will be
voted in accordance with the instructions marked thereon. Signed proxies not
marked to the contrary will be voted "FOR" the approval of the Plan of
Conversion. Signed proxies will be voted "for" or "against" each other matter
that properly comes before the Meeting or any adjournment or adjournments
thereof, in the discretion of the persons named as proxyholders.
Detailed information regarding the Bank's activities and operating
performance during the year ended December 31, 1996 and the nine months ended
September 30, 1997, is contained in the Holding Company's Prospectus dated
_________ __, 1997, which is enclosed and is also available upon written request
delivered to Anthony DiSandro, President and Chief Operating Officer,
Pennsylvania Savings Bank, Eleven Penn Center, Suite 2601, 1835 Market Street,
Philadelphia, Pennsylvania 19103.
Principal Shareholders
The following table illustrates certain information as to ownership by
beneficial owners of 5% or more of the Bank Common Stock outstanding as of the
Record Date.
1
<PAGE>
Amount and Percent of
Nature of Outstanding
Name and Address of Beneficial Shares of
Title of Class Beneficial Ownership Ownership Common Stock
- -------------- -------------------- ---------- ------------
Common Stock par PSB Mutual Holding Company 615,250 51.50%
value $1.00 per Eleven Penn Center
share Suite 2601
1835 Market Street
Philadelphia, Pennsylvania 19103
Vincent J. Fumo and 137,264 11.33%
Jane Scaccetti Fumo
1818 South 13th Street
Philadelphia, Pennsylvania 19148(1)
Anthony DiSandro 105,283 8.69%
1071 Welsh Road
Philadelphia, Pennsylvania 19115(2)
- --------------------
(1) Vincent Fumo and Jane Scaccetti Fumo are husband and wife. Amount
includes 18,000 shares held through the Bank's Cash or Deferred Profit
Sharing Plan (the "401(k) Plan"), 7,205 shares held through the Bank's
Profit Sharing Plan (the "Profit Sharing Plan"), 42,045 held in IRA
accounts, 10,161 shares held by the 1995 Pennsylvania Savings Bank
Management Recognition Plan (the "1995 MRP") that have been awarded to
Mr. Fumo, 200 shares held by Jane Scaccetti Fumo, 300 shares held on
behalf of the daughter of Vincent and Jane Scaccetti Fumo and 16,593
shares subject to immediately exercisable options. Also includes 42,280
shares held by the Pennsylvania Savings Bank Employee Stock Ownership
Plan (the "ESOP") of which Mr. Fumo is a trustee.
(2) Amount includes 19,636 shares held indirectly through the 401(k) Plan,
10,000 shares held through the Profit Sharing Plan, 10,160 shares held
by the MRP that have been awarded to Mr. DiSandro, 6,114 shares held by
Mr. DiSandro directly and 16,593 shares subject to immediately
exercisable options. Also includes 42,280 shares held by the ESOP of
which Mr. DiSandro is a trustee.
2
<PAGE>
APPROVAL OF PLAN OF CONVERSION FROM MUTUAL
HOLDING COMPANY TO STOCK HOLDING
COMPANY AND AGREEMENT AND PLAN OF REORGANIZATION
On July 17, 1997, the Boards of Directors of the MHC and the Bank, and
on ________________, 1997, the Holding Company's Board of Directors, unanimously
adopted the Plan of Conversion, pursuant to which the MHC will convert from a
mutual holding company to a stock holding company and the Bank simultaneously
will reorganize as a wholly-owned subsidiary of the Holding Company, a
newly-formed Pennsylvania corporation. Consummation of the Conversion and
Reorganization is contingent upon (i) approval of the Plan of Conversion by at
least a majority of the total number of votes eligible to be cast by the MHC's
members, (ii) approval by the holders of a majority of the Public Bank Shares,
(iii) approval by holders of 2/3 of the Bank Common Stock (including the MHC),
(iv) the sale of at least 969,000 Conversion Shares pursuant to the Plan of
Conversion, and (v) the receipt of all applicable regulatory approvals. The
following discussion is qualified in its entirety by reference to the Plan of
Conversion, which is attached as an exhibit to this Proxy Statement, and the
information set forth under "INCORPORATION BY REFERENCE" below.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
state-chartered mutual holding company to a state-chartered interim stock
savings bank ("Interim A") and simultaneously merge with and into the Bank,
pursuant to which the MHC will cease to exist and the shares of Bank Common
Stock held by the MHC will be canceled, and (ii) Interim A will then merge with
and into the Bank. As a result of the merger of Interim A with and into the
Bank, the Bank will become a wholly-owned subsidiary of the Holding Company and
the shares of Bank Common Stock held by persons other than the MHC (the "Public
Bank Shares") will be converted into shares of common stock of the Holding
Company (the "Exchange Shares") pursuant to a ratio (the "Exchange Ratio"),
which will result in the holders of such shares owning in the aggregate
approximately the same percentage of the common stock of the Holding Company
(the "Common Stock") to be outstanding upon the completion of the Conversion and
Reorganization as the percentage of Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and Reorganization
without regard to (a) the payment of cash in lieu of issuing fractional Exchange
Shares and (b) any shares of Conversion Stock (defined below) purchased by the
Bank's shareholders in the Conversion Offerings (defined below) or the ESOP
thereafter.
As part of the Conversion and Reorganization, the Holding Company is
offering shares of Common Stock (the "Conversion Shares") in the Subscription
Offering to holders of Subscription Rights in the following order of priority:
(i) Eligible Account Holders (depositors of the Bank with $50.00 or more on
deposit as of June 30, 1996); (ii) the ESOP; and (iii) Supplemental Eligible
Account Holders (depositors of the Bank with $50.00 or more on deposit as of
______________, 1997).
Concurrently with the Subscription Offering, any Conversion Shares not
subscribed for in the Subscription Offering may be offered for sale in the
Direct Community Offering to members of the general public, with priority being
given first to Public Shareholders (who are not Eligible Account Holders or
Supplemental Eligible Account Holders) and then to natural persons and trusts of
natural persons residing in the Local Community. Conversion Shares not sold in
the Subscription and the Direct Community Offerings may be offered in the
Syndicated Community Offering. The Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering are collectively referred to
herein as the "Conversion Offerings." Regulations require that the Direct
Community and the Syndicated Community Offerings be completed within 45 days
after completion of the fully extended Subscription Offering unless extended by
the Bank or the Holding Company with the approval of the regulatory authorities.
If the Syndicated Community Offering is determined not to be feasible, the Board
of Trustees of the Bank will consult with the regulatory authorities to
determine the appropriate alternative method for selling the unsubscribed
Conversion Shares. The Plan of Conversion provides that the Conversion and
Reorganization must be completed within 24 months after the date of the approval
of the Plan of Conversion by the members of the MHC.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" APPROVAL OF THE PLAN OF
CONVERSION.
3
<PAGE>
INCORPORATION BY REFERENCE
Each person receiving this Proxy Statement is also receiving the
accompanying Prospectus of PSB Bancorp, Inc. dated ___________ __, 1997.
Although such Prospectus is incorporated herein by reference, this Proxy
Statement does not constitute an offer to buy or a solicitation of an offer to
by Common Stock.
The Bank urges each recipient of this Proxy Statement to read carefully
the sections of the Prospectus that describe (i) the Conversion and
Reorganization (see "THE CONVERSION AND REORGANIZATION") and the (ii) business
of the Holding Company and the Bank (see "Business of the Holding Company" and
"Business of the Savings Bank"), (iii) the reasons for the Conversion and
Reorganization and management's belief that the Conversion and Reorganization is
in the best interests of the Bank and its shareholders, (iv) the employment
agreements, severance agreements, severance plans and stock benefit plans that
the Bank and/or the Holding Company intend to implement in connection with the
Conversion and Reorganization (see "MANAGEMENT -- Management of the Savings
Bank"), (v) the Common Stock (see "DESCRIPTION OF CAPITAL STOCK"), (vi) the
historical capitalization of the Bank and the pro forma capitalization of the
Holding Company (see "CAPITALIZATION"), (vii) the historical and pro forma
capital compliance of the Bank (see "HISTORICAL AND PRO FORMA REGULATORY CAPITAL
COMPLIANCE"), (viii) pro forma financial information with respect to the
Conversion and Reorganization (see "PRO FORMA DATA"), (ix) the Holding Company
and the Bank's respective intended use of proceeds of the Conversion Offerings
(see "USE OF PROCEEDS"), (x) the Holding Company's proposed dividend policy (See
"DIVIDEND POLICY"), (xi) restrictions on the acquisition of the Holding Company,
including anti-takeover provisions in the Holding Company's Articles of
Incorporation and Bylaws (see "CERTAIN RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY"), and (xii) the consolidated financial statements of the Bank
appearing in the Prospectus.
MISCELLANEOUS ADDITIONAL INFORMATION
Conduct of the Meeting
Management knows of no business other than as described above that is
planned to be brought before the Meeting. Should any other matters arise
however, the persons named on the enclosed proxy will vote thereon according to
their best judgment.
Abstentions or broker nonvotes will be counted for purposes of
determining whether a quorum is present at the meeting but will not be counted
as votes cast for or against any matter to be considered at the meeting.
Dissenters' Rights
Pursuant to the Pennsylvania Banking Code of 1965, as amended (the
"Code"), shareholders are entitled to dissent with respect to the approval of
the Plan of Conversion, and to obtain payment of the "fair value" (as defined in
the Pennsylvania Business Corporation Law of 1988, as amended (the "BCL")) of
their Bank Common Stock if the Plan of Conversion is consummated.
Any shareholder who contemplates exercising the right to dissent is
urged to read carefully the provisions of Section 1930 and Subchapter D of
Chapter 15 of the BCL.
The following summary of the steps to be taken if the right to dissent
is to be exercised is qualified in its entirety by the full text of Section 1930
and Subchapter D of Chapter 15 of the BCL, which is attached as Annex C to this
Proxy Statement.
Each step must be taken in the indicated order and in strict compliance
with the applicable provisions of the statute in order to perfect dissenters'
rights. The failure of any shareholder to comply with the aforesaid steps will
result in the shareholder receiving the consideration contemplated by the Plan
of Conversion. See the Holding Company Prospectus "THE CONVERSION AND
REORGANIZATION."
4
<PAGE>
Any written notice or demand which is required in connection with the
exercise of dissenters' rights, whether before or after the Effective Date, must
be sent to the Bank, at Eleven Penn Center, Suite 2601, 1835 Market Street,
Philadelphia, Pennsylvania 19103 (Attention: Anthony DiSandro).
The term "fair value" means the value of Bank Common Stock immediately
before the effectuation of the Conversion and Reorganization, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the Conversion and Reorganization.
A person who wishes to dissent must file with the Bank, prior to the
vote of shareholders on the Conversion and Reorganization at the Special
Meeting, a written notice of intention to demand that he be paid the fair value
for his Bank Common Stock if the Conversion and Reorganization is effected, must
effect no change in the beneficial ownership of his Bank Common Stock from the
date of such filing through the Effective Date, and must refrain from voting his
Bank Common Stock to approve the Conversion and Reorganization. Neither a proxy
nor a vote against approval of the Conversion and Reorganization will constitute
the necessary written notice of intention to dissent. A beneficial owner of the
Bank Common Stock whose shares are held of record in "street name" by a
brokerage firm or other nominee must obtain the written consent of such record
holder to such beneficial owner's exercise of dissenters' rights and must submit
such consent to the Bank no later than the time of the filing of his notice of
intention to dissent.
If the Conversion and Reorganization is approved by the required vote
of the Bank's shareholders, the Bank will mail a notice to all dissenters who
gave due notice of intention to demand payment and who refrained from voting in
favor of the Conversion and Reorganization. The notice will state where and when
a demand for payment must be sent and certificates for Bank Common Stock must be
deposited in order to obtain payment, and will include a form for demanding
payment and a copy of Subchapter D of Chapter 15 of the BCL. The time set for
receipt of the demand for payment and deposit of share certificates will be not
less than 30 days from the date of mailing of the notice.
A shareholder who fails to timely demand payment or fails to timely
deposit share certificates, as required by the Bank's notice, will not have any
right to receive payment of the fair value of his Bank Common Stock.
Promptly after effectuation of the Conversion and Reorganization, or
upon timely receipt of demand for payment if the Conversion and Reorganization
already has been effectuated, the Bank will either remit to dissenters who have
made demand and have deposited their share certificates the amount that the Bank
estimates to be the fair value of the Bank Common Stock or give written notice
that no such remittance is being made. The remittance or notice will be
accompanied by (i) a closing balance sheet and an income statement of the Bank
for a fiscal year ending not more than 16 months before the date of remittance,
together with the latest available interim financial statements, (ii) a
statement of the Bank's estimate of the fair value of the Bank Common Stock, and
(iii) notice of the right of the dissenter to demand payment or supplemental
payment under the BCL, as the case may be, accompanied by a copy of Subchapter D
of Chapter 15 of the BCL. If the Bank fails to remit the estimated fair value
for shares with respect to which demand for payment has been made and share
certificates have been deposited, then the Bank will return any certificates
that have been deposited. Returned certificates, and any certificates
subsequently issued in exchange therefor, will be marked to record the fact that
demand for payment has been made. Transferees of shares so marked shall not
acquire any rights in the Bank other than those rights held by the original
dissenter after such dissenter demanded payment of fair value.
If a dissenter believes that the amount stated or remitted by the Bank
is less than the fair value of the Bank's Common Stock, he may send to the Bank
his own estimate of the fair value of the Bank Common Stock, which will be
deemed to be a demand for payment of the amount of the deficiency. If the Bank
remits payment of its estimated value of a dissenter's Bank Common Stock and the
dissenter does not file his own estimate within 30 days after the mailing by the
Bank of its remittance, the dissenter will be entitled to no more than the
amount remitted to him by the Bank.
Within 60 days after the latest to occur of effectuation of the
Conversion and Reorganization, timely receipt by the Bank of any demands for
payment, or timely receipt by the Bank of any estimates by dissenters of fair
value,
5
<PAGE>
if any demands for payment remain unsettled, the Bank may file in the Court of
Common Pleas of Philadelphia County (the "Court") an application requesting that
the fair value of the Bank Common Stock be determined by the Court. In such
case, all dissenters, wherever residing, whose demands have not been settled
shall be made parties to the proceeding as in an action against their shares,
and a copy of the application shall be served on each such dissenter.
If the Bank were to fail to file such an application, then any
dissenters, on behalf of all dissenters who have made a demand and who have not
settled their claim against the Bank, may file an application in the name of the
Bank at any time within the 30-day period after the expiration of the 60-day
period and request that the fair value be determined by the Court. The fair
value determined by the Court may, but need not, equal the dissenters' estimates
of fair value. If no dissenter files such an application, then each dissenter
entitled to do so shall be paid the Bank's estimate of the fair value of the
Bank Common Stock and no more, and may bring an action to recover any amount not
previously remitted, plus interest at a rate the Court finds fair and equitable.
The Bank intends to negotiate in good faith with any dissenting
shareholder. If after negotiation, a claim cannot be settled, then the Bank
intends to file an application requesting that the fair value of the Bank's
Common Stock be determined by the Court.
The costs and expenses of any valuation proceedings in Court, including
the reasonable compensation and expenses of any appraiser appointed by the Court
to recommend a decision on the issue of fair value, will be determined by the
Court and assessed against the Bank, except that any part of the costs and
expenses may be apportioned and assessed by the Court against all or any of the
dissenters who are parties and whose action in demanding supplemental payment
the Court finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith.
Comparison of Rights of Holders of Common Stock and Bank Common Stock
The Holding Company and the Bank are both incorporated under the laws
of the Commonwealth of Pennsylvania. However, the rights of the shareholders of
the Holding Company will be governed by the BCL as well as the Holding Company's
articles of incorporation and bylaws and the rights of the shareholders of the
Bank are governed by the Code and the BCL to the extent any matter is not
governed by the Code and the Bank's articles of incorporation and bylaws. Upon
consummation of the Conversion and Reorganization, the shareholders of the Bank
will become shareholders of the Holding Company and their rights will be
governed by the BCL and by the Bank's articles of incorporation and bylaws.
Certain differences between the rights of the Bank's shareholders and the
Holding Company's shareholders are described below.
The following discussion does not purport to be a complete discussion
of, and is qualified in its entirety by reference to, the governing law and the
articles of incorporation and bylaws of each of the Holding Company and the
Bank.
Authorized Capital. The authorized capital stock of the Holding Company
consists of 15,000,000 shares of common stock, without par value (the "Common
Stock") and 5,000,000 shares of preferred stock, having such par value as the
Board of Directors of the Holding Company shall direct from time to time (the
"Preferred Stock"). No shares of the Common Stock or the Preferred Stock have
been issued.
Classification of the Board of Directors or Trustees. The Holding
Company's articles of incorporation provide for a classified Board of Directors
and the Bank's articles of incorporation provide for a classified Board of
Trustees. Under the articles of incorporation of both the Holding Company and
the Bank, approximately one-third of the directors or trustees, as the case may
be, are elected each year for a three-year term.
Removal of Directors or Trustees. Any or all of the directors of the
Holding Company may be removed without cause by the affirmative vote of the
Holding Company's shareholders entitled to cast a majority of the total votes
which are entitled to be cast by the Holding Company shareholders at an annual
meeting for the election of directors.
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The Bank's bylaws and articles of incorporation do not refer to the
removal of trustees.
Advance Notice of Nominations of Director or Trustee Candidates.
Pursuant to the Holding Company's bylaws, a shareholder of the Holding Company
may nominate a person to serve on the Holding Company's Board of Directors only
if such shareholder gives the Holding Company written notice delivered or mailed
to the President of the Holding Company not less than 90 days prior to any
meeting of shareholders called for the election of directors, unless notice of
such meeting is mailed less than 21 days before such meeting, then the
shareholder must make the nomination within seven days of receiving notice.
The Bank's bylaws provide for shareholder nomination of a person for
election to serve on the Bank's Board of Trustees on the same terms.
Director's or Trustee's Liability. The Holding Company's bylaws limit
the circumstances under which directors (but not officers or directors acting in
their capacity as officers) could be held personally liable for monetary damages
arising out of any action taken or the failure to take any action unless:
(i) such director has breached or failed to perform
the duties of his office as provided by Pennsylvania law, and such
breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness;
(ii) the responsibility or liability of a director is
pursuant to a criminal statute; or
(iii) the liability of a director is for the payment
of taxes pursuant to a local, state or federal law.
The personal liability of the Bank's trustees has been similar limited.
Indemnification of Directors or Trustees. The Holding Company's bylaws
provide that the directors, officers, agents and employees of the Holding
Company shall be indemnified against liability in any third party action and, to
a more limited extent, against a derivative action; provided, however, that no
indemnification shall be made in any case where the act or failure to act giving
rise to the claim is determined by a court to have constituted willful
misconduct or recklessness. In addition, expenses of defending any third party
or derivative action may be advanced to any person upon receipt of an
undertaking by or on behalf of such person to repay the amount if it is
ultimately determined that such person is not entitled to be indemnified under
law. If a person defending any third party or derivative action prevails on the
merits or otherwise, a Pennsylvania corporation must pay expenses actually and
reasonably incurred by such person in connection with such defense.
The Bank's bylaws contain substantially the same provisions concerning
indemnification and advancement of expenses as the Holding Company.
Mergers, Consolidations and Similar Transactions. The Holding Company's
articles of incorporation require a majority vote of 80% of the votes which all
shareholders of the Corporation are entitled to cast, and if any class of shares
is entitled to vote as a class, a majority of such votes, to effect a merger,
sale of assets, liquidation or other significant transaction, if such other
corporation, person or entity is the beneficial owner, directly or indirectly,
of shares of the Holding Company issued, outstanding and entitled to cast five
percent (5%) or more of the votes which all shareholders of the Holding Company
are entitled to cast. If no such beneficial owner is the party to the
significant transaction, then a majority of the votes entitled to be cast is
required.
The Bank's articles of incorporation and bylaws do not require a
super-majority vote to effect a merger, sale or assets, liquidation or other
significant transaction. Therefore, in accordance with the provisions of the
BCL, the affirmative vote of at least a majority of the votes cast by all the
shareholders entitled to vote on any such transaction is required for approval.
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The Bank's articles of incorporation do not contain any limitation on
the acquisition of the Bank's Common Stock; however, 51.5% of the Bank Common
Stock is owned by the MHC.
Voting. Each shareholder of the Holding Company Common Stock has one
vote for each share of the Holding Company Common Stock held.
The Bank's articles of incorporation also provide that each holder of
the Bank's Common Stock shall be entitled to one vote for each share held.
Amendment of Articles and Bylaws. The Holding Company's articles of
incorporation may be amended as provided by statute, except that provisions of
Articles SEVENTH, EIGHTH and TENTH through THIRTEENTH, inclusive, unless by
affirmative vote of shareholders of the Holding Company entitled to cast at
least 80% of the votes which all shareholders of the Holding company are
entitled to cast or by affirmative vote of 80% of the Board of Directors
entitled to vote and a majority of the votes of the shareholders of the Holding
Company entitled to cast a vote. The Holding Company's bylaws may be amended by
the affirmative vote of a majority of the Holding Company's Board of Directors
then in office at any regular or special meeting of the Holding Company's Board
of Directors, subject to the power of shareholders to change such action by
affirmative vote of shareholders of the Holding Company entitled to cast at
least 663 percent of the votes which all shareholders of the Holding Company are
entitled to cast. Additionally, provisions relating to liabilities and
indemnification of directors, officers and others may not be amended except by
663% affirmative vote of the entire Board of Directors or at least 80% of the
votes of shareholders entitled to be cast.
The Bank's articles of incorporation may be amended only after such
amendments have been proposed by the Bank's Board of Trustees and approved by a
majority of the votes entitled to be cast at any duly noticed and called regular
or special meeting of the Bank's shareholders. The Bank's bylaws provide for
amendment by an affirmative vote of a majority of the entire Bank Board of
Trustees subject to the power of the Bank's shareholders to change such action
at any duly noticed and called regular or special meeting of the Bank's
shareholders, except that Articles VII and VIII may not be amended without the
affirmative vote of 75% of votes entitled to be cast by the Board of Trustees or
by the shareholders of the Bank entitled to vote thereon.
In general, the requirement that the Bank's Board of Trustees must
propose any amendment to the Bank's Articles of Incorporation means that Bank's
shareholders have a greater ability to effect fundamental changes in the
articles of incorporation of the Holding Company, including changes that may
facilitate a change in control of the Holding Company as a result of a proxy
contest or a nonnegotiated tender or exchange offer.
Shareholder Action Without Meeting. The Holding Company's bylaws
provide that the shareholders may not consent in writing to action without a
meeting. Although the Bank's bylaws allow the shareholders to consent in writing
to action without a meeting, including both annual and special meetings of the
shareholders, however, such action must be submitted to the PDOB for approval as
specified by the laws of the Commonwealth of Pennsylvania.
Special Meetings of Shareholders. The Holding Company's bylaws provide
that special meetings of the Holding Company's shareholders may be called at any
time by the Chairman of the Board, the Chief Executive officer, or the President
of the Holding Company. The Bank's bylaws provide that special meetings of the
Bank's shareholders may be called at any time by the Chief Executive Officer,
the President, the Bank's Board of Trustees, one or more shareholders entitled
to vote at least one-fifth (5) of the votes which all shareholders are entitled
to cast at the particular meeting, the Executive Committee, or the Chairman of
the Board, upon written request of the holders of not less than one-half of
outstanding Bank capital stock entitled to vote at the meeting, voting together
as a single class.
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Financial Statements
The Prospectus of PSB Bancorp, Inc. dated _____________ __, 1997, which
includes consolidated financial statements of the Bank, has been mailed to all
shareholders of record as of the close of business on the Voting Record Date.
Any shareholder who has not received a copy of such Prospectus may obtain a copy
by writing to Anthony DiSandro, President and Chief Operating Officer of the
Savings Bank. The Prospectus is incorporated herein in its entirety.
BY ORDER OF THE BOARD OF TRUSTEES
Anthony DiSandro,
President and Chief Operating Officer
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