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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File No. __________
CITIZENS BANCORP
(Name of registrant in its charter)
91-1841688
Oregon (I.R.S. Employer
(State of incorporation) Identification No.)
275 Southwest Third Street
P. O. Box 30
Corvallis, Oregon 97339
(Address of principal executive offices)
Registrants's telephone number: (541) 752-5161
Agent for service: Lark E. Wysham, CFO
275 Southwest Third Street
Telephone number: (541) 752-5161
Securities registered under Section 12(b) of the Exchange Act: none
Securities registered under Section 12(g) of the Exchange Act: common stock, no
par value
Indicate by check mark whether registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
The aggregate market value of registrant's voting and non-voting
common equity held by non-affiliates is $41,430,396 based on the most recent
reported sale of registrant's common stock on March 23, 1998 at a price of
$28.00 per share. As of March 27, 1998 there were 1,945,568 shares of
registrant's common stock issued and outstanding, of which 1,479,657 were held
by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE. Part III of this Form 10-K
incorporates by reference the 1998 Annual Meeting Proxy Statement sent to
registrant's shareholders in connection with the April 21, 1998 Annual Meeting
of shareholders.
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INDEX
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
ITEM 1 - BUSINESS: GENERAL RECENT DEVELOPMENTS . . . . . . . . . . . 2
ITEM 2 - PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 3 - LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 15
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . 15
ITEM 6 - SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . 18
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . 19
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK . . . . . . . . . . . . . . . . . . . . . . 37
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . 40
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . 60
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT . . . . . . . 61
ITEM 11 - EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . 62
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 62
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . 62
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
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PART I
ITEM 1. BUSINESS
Citizens Bancorp ("Bancorp"), an Oregon Corporation, was organized
under an agreement and plan of reorganization and merger for formation of
one-bank holding company dated October 15, 1996, (ref. Agreement and Plan of
Reorganization Exhibit (2) attached). Pursuant to the Agreement, Bancorp
acquired all of the common stock of Citizens Bank (the "Bank"), an Oregon
State-Chartered Bank, in a transaction effective July 1, 1997. Citizens
Bancorp shareholders received one (1) share of Bancorp Common Stock in
exchange for every one (1) share of Citizens Bank common stock held by each
shareholder. Prior to the effective date, on June 30, 1997, Citizens Bank
issued one (1) share of common stock to Bancorp representing the entire
ownership of Citizens Bank by Bancorp.
Bancorp was formed at the direction of the Board of Directors of
Citizens Bank for the sole and express purpose of becoming the holding company
of the Bank.
ORGANIZATIONAL STRUCTURE OF BANCORP
Since the effective date of formation of the holding company, the Bank
has operated through a two-tiered corporate structure. At the holding company
level the affairs of Bancorp have been overseen by a Board of Directors
elected by the shareholders of Bancorp at the annual meeting of shareholders
held April 15, 1997. The affairs of the Bank are overseen by a Board of
Directors elected by Bancorp, the sole owner of the Bank. As of the date of
this report, the respective members of the Board of Directors of the Bank and
of the Board of Directors of Bancorp are identical.
Article II of the Bancorp Articles of Incorporation (ref. Exhibit
(3)(i) attached) authorizes the issuance of 5,000,000 no par shares of common
stock. Bancorp issued 1,830,782 to effect the merger (one-for-one exchange),
leaving 3,169,218 shares authorized but unissued. 750,000 shares have been set
aside for the purposes of the dividend reinvestment plan, (ref. Citizens
Bancorp Dividend Reinvestment Plan Exhibit (10.1)), which was considered and
adopted by the Board of Directors of Citizens Bancorp on July 15, 1997. The
capital structure of the consolidated balance sheet for Bancorp and Citizens
Bank remained substantially unchanged from the capital structure of the Bank
prior to its formation of the holding company.
Bancorp plans no business at this time other than the supervision of
its only subsidiary Citizens Bank.
THE BANK
Citizens Bank was chartered October 1, 1957 (charter #333) by the
State of Oregon as a commercial bank. The Bank's main office is located in
Corvallis, Oregon, at 275 S. W. 3rd Street. The Bank has two additional
branches in Corvallis, Circle Blvd. Office at 978 N. W. Circle Blvd., and
University Office at 855 N. W. Kings Blvd.
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The Bank also has branch offices located in Albany, Oregon, at 2315 S.
E. 1th Ave.; Philomath, Oregon, at 1224 Main Street; Junction City, Oregon, at
955 Ivy Street; and in Veneta, Oregon, at 88312 Territorial Road.
With the retirement of long-time President and Chief Executive
Officer, Ray Stephensen,
in February 1996, came a change of management as well as culture for Citizens
Bank. The new President/Chief Executive Officer, William Humphreys, who had
served as a Community Bank President for 16 of his 28 years of banking in
Oregon, brought a new style of management to Citizens Bank that included:
collaborative decision-making, focus on human resources management, a shift to
branch autonomy, and a large commitment to business development.
New branch managers were hired for six of the Bank's seven offices.
Two new lending officers were hired for the Albany office to serve that fast
growing marketplace. Two existing officers were promoted to senior lender
status in the main office, a move to penetrate a larger transaction market, and
to provide lending leadership to the smaller offices serving the Corvallis area
marketplace.
New hires were made in the areas of financial management and human
resources management as well as operations management.
The immediate result of the new culture, new focus and new people was
an increase in profitability and growth in assets. The following chart gives a
five year history of growth in selected areas.
<TABLE>
<CAPTION>
(THOUSANDS) 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Net Income $ 3,342 $ 3,138 $ 2,659 $ 2,208 $ 1,934
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Return on Average
Equity 17.53% 19.27% 19.05% 18.27% 19.55%
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Return on Average
Assets 1.77% 1.77% 1.66% 1.45% 1.56%
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Average Assets to
Average Equity 10.21% 9.42% 8.85% 7.99% 7.98%
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Dividend Payout
Ratio 39.11% 34.38% 39.75% 39.18% 36.50%
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Total Loans 120,269 114,648 100,715 89,396 75,382
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Total Deposits 161,700 161,834 138,694 134,924 132,482
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Total Assets 200,117 191,887 162,907 155,600 149,692
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</TABLE>
The long-term benefit to the Bank of these cultural and management
changes is consistent growth and development of the Bank over time. Risk
levels have been greatly reduced because of better expertise in loan and
investment management, and in managing human resources.
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The primary business strategy of the Bank is to provide community
banking and related services to individuals, professionals, and small and
medium-sized businesses. The Bank emphasizes customer relationships, attention
to the needs of the customer, and a high level of service. The Banks primary
marketing focus is on small to medium-sized businesses and commercial
customers.
The Bank offers deposit accounts, safe-deposit boxes, consumer
lending, commercial lending, and commercial and residential real estate
lending. Commercial loans include operating lines of credit, equipment and
real estate financing, capital needs, and other traditional financing products.
The Bank also has a growing emphasis in financing farm operations,
equipment and property.
The Bank's loan portfolio has some concentrations in real estate
secured loans, primarily commercial properties.
Deposit products include regular and "package" checking accounts,
savings accounts, certificates of deposit, money market accounts, and IRA
accounts.
The Bank offers, but has a very limited volume of student loans, as
well as a VISA card as part of its retail banking services. The Bank also
operates a small residential mortgage loan origination department that
originates loans and sells them into the secondary market. The Bank offers
extended banking hours in selected locations as well as Saturday banking. ATM
machines are also available at six (6) locations offering 24 hour transaction
services, including cash withdrawals, deposits, account transfers, and balance
inquiries.
The Bank also offers its customers a 24 hour automated telephone
service that offers account transfers and balance inquiries.
EMPLOYEES
At December 31, 1997 Citizens Bank had approximately 108 full-time
equivalent employees. None of these employees are represented by Labor Unions.
A number of benefit programs are available to eligible employees including
group medical insurance plans, paid vacation, paid sick leave, group life
insurance, and a 401(A) plan. The 401(A) plan is a profit sharing plan that
was re-written by the Board of Directors on December 16, 1997. (ref. Citizens
Bank Profit Sharing Plan 401(A) Exhibit (10.2)).
The Bank also provides a deferred compensation plan to the
President/Chief Executive Officer. This plan is referred to as a "Top Hat"
plan, and it defers a designated portion of the President's salary. The plan
constitutes a promise by the employer to make benefit payments in the future.
The employee has the status of general unsecured creditor of the employer.
This plan was adopted on December 30, 1997 by the chairman of the Bancorp
Board. (ref. Citizens Bank Deferred Compensation Plan Exhibit (10.3)).
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COMPETITION
At December 31, 1997, Citizens Bank was among the top 10 largest
commercial banks headquartered in the State of Oregon. The Bank competes with
other commercial banks as well as savings and loan associations, credit unions,
mortgage companies, insurance companies, investment banks, securities
brokerages and other non-bank financial service providers. Banking in the
State of Oregon has been substantially dominated by several very large banking
institutions whose headquarters are out of state. They include Wells Fargo
Bank, U. S. Bank, Key Bank, Washington Mutual Bank, First Security Bank, and
Bank of America. Together these large organizations hold a majority of the
deposit and loan balances held by banks in the State of Oregon. Citizens Bank
attempts to offset some of the advantages of these larger competitors through
superior relationship building with the customer, better service, quicker
response to the customers' needs, and local decision-making. We rely on the
fact that many businesses and individuals within small Oregon communities want
to see their money stay within the local economy, rather than see it used to
fund properties in distant places.
GOVERNMENTAL POLICIES
The earnings and growth of Bancorp and its subsidiary, Citizens Bank,
as well as their existing and future business activities, are affected not only
by general economic conditions, but also by the fiscal and monetary policies of
the Federal government and its agencies, particularly the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"). The Federal Reserve
Board implements monetary policies (intended to curb inflation and combat
recession) by its open-market operations in United States Government
securities, by adjusting the required level of reserves for financial
institutions subject to its reserve requirements, and by varying the discount
rates applicable to borrowings by banks from the Federal Reserve Banks. The
actions of the Federal Reserve Board in these areas influence the growth of
bank loans, investments and deposits, and also affect interest rates charged on
loans and deposits. As banking is a business which depends largely on interest
rate differentials (in general, the difference between the interest rates
received by the banks on loans extended to their customers and on securities
held in the banks' investment portfolios), the influence of economic conditions
and monetary policies on interest rates will directly affect earnings. The
nature and impact of any future changes in monetary policies cannot be
predicted.
SUPERVISION AND REGULATION -- GENERAL
The following generally refers to certain statutes and regulations
affecting the banking industry. These references provide brief summaries only
and are not intended to be complete. These references are qualified in their
entirety by the referenced statutes and regulations. In addition, some
statutes and regulations which apply to and regulate the operation of the
banking industry might exist which are not referenced below. Changes in
applicable statutes and regulations may have a material effect on the business
of Bancorp and its subsidiary.
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BANCORP
As a bank holding company, Bancorp is subject to the Bank Holding
Company Act of 1956 ("BHCA"), as amended, which places Bancorp under the
supervision of the Board of Governors of the Federal Reserve System ("FRB").
In general, the BHCA limits the business of bank holding companies to owning or
controlling banks and engaging in other activities related to banking. Certain
recent legislation designed to expand interstate branching and relax federal
restrictions on interstate banking may expand opportunities for bank holding
companies (for additional information see below under the heading "The Bank --
Interstate Banking and Branching"). However, the full impact of this
legislation on Bancorp is unclear at this time.
HOLDING COMPANY STRUCTURE
FRB REGULATION. Bancorp must obtain the approval of the FRB: (1)
before acquiring direct or indirect ownership or control of any voting shares
of any bank if, after such acquisition, it would own or control, directly or
indirectly, more than 5% of the voting shares of such a bank; (2) before
merging or consolidating with another bank holding company; and (3) before
acquiring substantially all of the assets of any additional banks.
Bancorp is required by the BHCA to file annual and quarterly reports
and such other reports as may be required from time to time by the FRB. In
addition, the FRB periodic examinations of Bancorp and its subsidiary Bank.
HOLDING COMPANY CONTROL OF NON-BANKS. With certain exceptions, the
BHCA prohibits bank holding companies from acquiring direct or indirect
ownership or control of voting shares in any company which is not a bank or a
bank holding company unless the FRB determines that the activities of such
company are so closely related to banking or managing or controlling banks as
to be a proper incident thereto. In making such determinations, the FRB
considers whether the performance of such activities by a bank holding company
would offer to the public that would outweigh possible adverse effects. The
Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("Economic
Growth Act) amended to BHCA to eliminate the requirement that bank holding
companies seek FRB approval before engaging de novo in permissible non-banking
activities if the holding company is well capitalized and meets certain other
specified criteria. A bank holding company meeting the specifications is now
required only to notify the FRB within 10 business days after the activity has
begun. The Economic Growth Act also established an expedited procedure for
well-capitalized bank holding companies meeting the criteria to obtain the FRB
approval to acquire smaller companies that engage in permissible non-banking
activities as well as to engage in non-banking activities that the FRB has
approved by order.
On February 28, 1997, the FRB issued a final rule incorporating the
changes enacted by the Economic Growth Act. Effective April 1, 1997, a
well-run bank holding company, without any prior notice or FRB approval, may
commence immediately any activity that is currently or at the commencement
included in the FRB's list of acceptable non-banking activities.
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TRANSACTIONS WITH AFFILIATES. Bancorp and its subsidiary will be
deemed affiliated within the meaning of the Federal Reserve Act and
transactions between affiliates are subject to certain restrictions. Covered
transactions include, subject to specific exceptions, loans by banking
subsidiaries to affiliates, investments by bank subsidiaries in securities
issued by an affiliate, the taking of such securities as collateral, and the
purchase of assets by a bank subsidiary from an affiliate. Bancorp and its
subsidiary are also subject to certain restrictions with respect to engaging in
the underwriting, public sale and distribution of securities.
SUPPORT OF SUBSIDIARIES. Under FRB policy, a bank holding company is
expected to act as a source of financial and managerial strength to, and commit
resources to support, each of its subsidiaries. Any capital loans Bancorp makes
to its subsidiary are subordinate to deposits and to certain other indebtedness
of the subsidiary. The Crime Control Act of 1990 provides that, in the event of
a bank holding company's bankruptcy, the bankruptcy trustee will assume any
commitment the bank holding company has made to a federal bank regulatory agency
to maintain the capital of a subsidiary and this obligation will be entitled to
a priority of payment.
TIE-IN ARRANGEMENTS. Bancorp and the subsidiary are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, sale or lease of property or furnishing of services. For example, with
certain exceptions, neither Bancorp nor its subsidiary may condition an
extension of credit to a customer on either (1) a requirement that the customer
obtain additional services provided by it or (2) an agreement by the customer
to refrain from obtaining other services from a competitor. Until recently,
the FRB extended its bank-tying restrictions to bank holding companies and
their non-bank subsidiaries. However, effective April 21, 1997, the bank
anti-tying rules will no longer apply to the non-bank subsidiaries of a bank
company.
STATE LAW RESTRICTIONS. As a corporation chartered under the laws of
the State of Oregon, Bancorp is also subject to certain limitations and
restrictions under applicable Oregon corporate law. For example, these include
limitations and restrictions relating to: indemnification of directors,
distributions to shareholders, transactions involving directors, officers or
interested shareholders, maintenance of books, records, and minutes, and
observance of certain corporate formalities.
SECURITIES REGISTRATION AND REPORTING. The common stock of Bancorp
is registered as a class with the Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934 and thus is subject to the periodic
reporting and proxy solicitation requirements and the insider-trading
restrictions of that Act. The periodic reports, Proxy Statements, and other
information filed by Bancorp under that Act can be inspected and copied or
obtained from the Washington, D.C., office of the SEC. In addition, the
securities issued by Bancorp are subject to the registration requirements of
the Securities Act of 1933 and applicable state securities laws unless
exceptions to registrations are available.
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CONTROL TRANSACTIONS
The Change in Bank Control Act of 1978, as amended, prohibits a person
or group of persons from acquiring "control" of a bank holding company unless
the FRB has been given 60 days prior written notice of the proposed
acquisition, and within that time period, the FRB has not issued a notice
disapproving the proposed acquisition, or extended for up to another 30 days
the period during which such a disapproval may be issued. An acquisition may
be made prior to the expiration of the disapproval period of the FRB issues
written notice of its intent not to disapprove the action. Under a rebuttable
resumption established by the FRB, the acquisition of 10% or more of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Exchange Act would, under the circumstances set forth
in the presumption, constitute the acquisition of control.
In addition, any "Company" would be required to obtain the approval of
the FRB under the BHCA before acquiring 25% (5% if the company is a bank
holding company) or more of the outstanding shares of Bancorp, or obtain
control over Bancorp.
THE BANK
Despite some recent legislative initiatives to reduce regulatory
burdens, banking remains a highly regulated industry. Legislation enacted from
time to time may increase the cost of doing business, limit or expand
permissible activities, or affect the competitive balance between banks and
other financial and non-financial institutions. Proposals to change the laws
and regulations governing the operations and taxations of banks and other
financial institutions are frequently made in Congress, in the Oregon State
Legislature, and before various bank regulatory agencies. In addition, there
continue to be proposals in Congress to restructure the banking system.
Some of the significant areas of bank regulation, including significan
federal legislation affecting state-chartered banks, are generally below.
REGULATION OF STATE BANKS
Oregon state-chartered banks are subject to primary regulation and
examination by the Oregon Director of Consumer and Business Services. The Bank
is also subject to supervision, examination, and regulation by certain federal
banking agencies. The Bank is insured (to applicable limits) by, and therefore
is subject to regulation by, the FDIC.
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Applicable federal and state statutes and regulations governing a
bank's operations relate, among other matters, to capital requirements,
required reserves against deposits, investments, loans, legal lending limits,
certain interest rates payable, mergers and consolidations, borrowings,
issuance of securities, payment of dividends (see below), establishment of
branches, and dealings with affiliated persons. The FDIC has authority to
prohibit banks under their supervision from engaging in what they consider to
be an unsafe and unsound practice in conducting their business. Depository
institutions, such as the Banks, are affected significantly by the actions of
the FRB as it attempts to control the money supply and credit availability in
order to influence the economy.
DIVIDEND RESTRICTIONS
Dividends paid by the Bank to Bancorp are a material source of all of
Bancorp's cash flow. Various federal and state statutory provisions limit the
amount of dividends the Bank is permitted to pay to Bancorp without regulatory
approval. FRB policy further limits the circumstances under which the bank
holding companies may declare dividends. For example, a bank holding company
should not continue its existing rate of cash dividends on its common stock
unless its net income is sufficient to fully fund each dividend and its
prospective rate of earnings retention appears consistent with its capital
needs, asset quality, and overall financial condition.
If, in the opinion of the applicable federal banking agency, a
depository institution under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the institution could include the payment of dividends), the
agency may require, after notice and hearing, that such institution cease and
desist from such practice. In addition, the FRB and the FDIC have issued
policy statements which provide that insured banks and bank holding companies
should generally pay dividends only out of current operating earnings.
Under Oregon law, the Oregon regulatory authorities have the authority
to suspend payment of any dividend of an Oregon institution if it is determined
that the payment would result in the stockholders' equity in the institution,
after payment of the dividend, to be inadequate for the safe and sound
operation of the institution.
REGULATION OF MANAGEMENT
Federal law: (1) sets forth circumstances under which officers or
directors of a bank may be removed by the institution's federal supervisory
agency; (2) places restraints on lending by a bank to its executive officers,
directors, principal shareholders, and their related interests; and (3)
prohibits management personnel of a bank from serving as a director or in other
management positions of another financial institution whose assets exceed a
specified amount or which has an office within a specified geographic area.
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CONTROL OF FINANCIAL INSTITUTIONS
No person may acquire "control" of a bank unless the appropriate
federal agency has been given 60 days prior written notice and within that time
the agency has not disapproved the acquisition. Substantial monetary penalties
may be imposed for violation of the change in control or other provisions of
banking laws.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted into law in late 1991. As required by FDICIA, numerous
regulations have been adopted by federal bank regulatory agencies, including
the following: (1) federal bank regulatory authorities have established five
different capital levels for banks and, as a general matter, enable banks with
higher capital levels to engage in a broader rage of activities; (2) the FRB
has issued regulations requiring standardized disclosures with respect to
interest paid on deposits; (3) the FDIC has imposed restrictions on the
acceptance of brokered deposits by weaker banks; (4) the FDIC has implemented
risk-based insurance premiums; and (5) the FDIC has issued regulations
requiring state-chartered banks to comply with certain restrictions with
respect to equity investments and activities in which the banks act as a
principal.
FDICIA recapitalized the Bank Insurance Fund ("BIF") and required the
FDIC to maintain the BIF and Savings Association Insurance Fund ("SAIF") at
1.25% of insured deposits by increasing deposit insurance premiums as necessary
to maintain such ratio. FDICIA also required federal bank regulatory
authorities to prescribe, by December 1, 1998, (1) non-capital standards of
safety and soundness; (2) operational and managerial standards for banks; (3)
asset and earnings standards for banks and bank holding companies addressing
such areas as classified assets, capital, and stock price, and (4) standards
for compensation of executive officers and directors of banks. However, this
provision was modified by recent legislation to allow federal regulatory
agencies to implement these standards through either guidelines or regulations.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") became effective on August 9, 1989. Among other things, this
far-reaching legislation (1) phased in significant increases in the FDIC
insurance premiums paid by commercial banks; (2) created two deposit insurance
pools within the FDIC, one to insure commercial banks and savings bank deposits
and the other to insure savings association deposits; (3) for the first time,
permitted bank holding companies to acquire healthy savings associations; (4)
permitted commercial banks that meet certain housing-related asset requirements
to secure advances and other federal services from their local Federal Home
Loan Banks; and (5) greatly enhanced the regulators' enforcement powers by
removing procedural barriers and sharply increasing the civil and criminal
penalties for violating statutes and regulations.
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INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act") will, over the next few months, permit nationwide
interstate banking and branching under certain circumstances. This legislation
generally authorizes interstate branching and relaxes federal law restrictions
on interstate banking. Individual states have the authority to "opt out" of
certain of these provisions. The Interstate Act currently allows states to
enact "opting-in" legislation that (I) permits interstate mergers within their
own borders before June 1, 1997, and (ii) permits out-of-state banks to
establish de novo branches within the state. As of September 29, 1996, bank
holding companies may purchase banks in any state, and states may not prohibit
such purchases. Additionally, beginning June 1, 1997, banks will be permitted
to merge with banks in other states as long as the home state of neither
merging bank has opted out. The Interstate Act requires regulators to consult
with community organizations before permitting an interstate institution to
close a branch in a low-income area.
Oregon, effective February 27, 1995, enacted "opting in" legislation
generally permitting interstate mergers, subject to certain restrictions.
Given that Oregon permitted interstate banking for a number of years, this
legislation is not expected to have profound impact on banking in Oregon or on
Bancorp or the Bank's operations in particular. Nevertheless, the impact that
the Interstate Act might have on Bancorp is impossible to predict.
CAPITAL ADEQUACY REQUIREMENTS
The FRB, the FDIC, and the OCC (collectively, the "Federal Banking
Agencies") have established uniform capital requirements for all commercial
banks. Bank holding companies are also subject to certain minimum capital
requirements. A bank that does not achieve and maintain required capital
levels may be subject to supervisory action through the issuance of a capital
directive to ensure the maintenance of adequate capital levels. In addition,
banks are required to meet certain guidelines concerning the maintenance of an
adequate allowance for loan and lease losses.
The Federal Banking Agencies' "risk-based" capital guidelines
establish a systematic, analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, takes off-balance sheet exposures into explicit account in
assessing capital adequacy, and minimizes disincentives to holding liquid,
low-risk assets. The risk-based ratio is determined by allocating assets and
specified off-balance sheet commitments into several categories, with high
levels of capital being required for the categories perceived as representing
greater risk. The risk weights assigned to assets and credit equivalent amounts
of off-balance sheet items are based primarily on credit risk. Other types of
exposure, such as interest rate, liquidity and funding risks, as well as asset
quality problems, are not factored into the risk-based ratio. Such risks,
however, will be taken into account in determining a final assessment of an
organization's capital adequacy. Under these regulations, banks were required
to achieve a minimum total risk-based capital ratio of 8% and a minimum Tier 1
risk-based capital ratio of 4%.
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The Federal Banking Agencies also have adopted leverage ratio
standards that require commercial banks to maintain a minimum ratio of core
capital to total assets (the "Leverage Ratio") of 3%. Any institution
operating at or near this level is expected to have well-diversified risk,
including no undue interest rate risk exposure, excellent asset quality , high
liquidity and good earnings, and in general, to be a strong banking
organization without any supervisory, financial, or operational weaknesses or
deficiencies. Any institutions experiencing or anticipating significant growth
would be expected to maintain capital ratios, including tangible capital
positions, well above the minimum levels (e.g., an additional cushion of at
least 100 to 200 basis points, depending upon the particular circumstances and
risk profile).
Regulations adopted by the Federal Banking Agencies as required by
FDICIA impose even more stringent capital requirements. The regulators require
the OCC and other Federal Banking Agencies to take certain "prompt corrective
action" when a bank fails to meet certain capital requirements. The
regulations establish and define five capital levels at which an institution is
deemed to be "well-capitalized," "adequately capitalized," "undercapitalized,"
significantly undercapitalized" or "critically undercapitalized." In order to
be "well-capitalized," an institution must maintain, at least 10% total
risk-based capital, 6% Tier 1 risk-based capital, and a 5% Leverage Ratio.
Increasingly sever restrictions are imposed on the payment of dividends and
mortgage fees, asset growth and other aspects of the operations of institutions
that fall below the category of "adequately capitalized" (which requires at
least 8% total risk-based capital, 4% Tier 1 risk-based capital, and a 4%
Leverage Ratio).
Undercapitalized institutions are required to develop and implement
capital plans acceptable to the appropriate federal regulatory agency. Such
plans must require that any company that controls the undercapitalized
institution must provide certain guarantees that the institution will comply
with the plan until it is adequately capitalized. As of December 31, 1997, the
Bank was not subject to any regulatory order, agreement, or directive to meet
and maintain a specific capital level for any capital measure.
Under Oregon law, an Oregon commercial bank may reduce its paid-in
capital to eliminate or reduce deficits in retained earnings arising from
losses, or in order to redeem shares. Prior approval of the Oregon Director is
required in either case, and may be refused if the Oregon Director determines
that the remaining paid-in capital of the bank would be inadequate for its safe
and sound operation.
The minimum ratio of total capital to risk-adjusted assets (including
certain off-balance sheet items, such as stand-by letters of credit) required
by the FRB for bank-holding companies is 8%. At least one-half of the total
capital must be Tier 1 capital; the remainder may consist of Tier 2 capital.
Bancorp is also subject to minimum Leverage Ratio guidelines. These guidelines
provide for a minimum Leverage Ratio of 3% for bank holding companies meeting
certain specified criteria, including achievement of the highest supervisory
rating. All other bank holding companies are required to maintain a Leverage
Ratio which is at least 100 to 200 basis points higher (4% to 5%). These
guidelines provide that banking organizations experiencing internal growth or
making acquisitions are expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant
reliance on intangible assets.
12
<PAGE> 14
In August of 1995, the Federal Banking Agencies adopted a final rule
implementing the portion of Section 305 of FDICIA that requires the banking
agencies to revise their risk-based capital standards to ensure that those
standards take adequate account of interest rate risk. Effective September 1,
1995, when evaluating the capital adequacy of a bank, the Federal Banking
Agencies' examiners stated considering exposure to declines in the economic
value of the bank's capital due to changes in interest rates. A bank may be
required to hold additional capital for interest rate risk if it has a
significant exposure or a weak interest rate risk management process.
Concurrent with the publication of this final rule, the Federal Banking
Agencies proposed for comment a joint policy statement describing the process
the Federal Banking Agencies will use to measure and assess a bank's interest
rate risk.
This joint policy statement was superseded by an updated Joint Policy
Statement in June of 1996. Any impact the joint final rules and the Joint
Policy Statement may have on Bancorp or its subsidiary cannot be predicted at
this time.
In addition, the Federal Banking Agencies published a joint final rule
on September 6, 1996, amending their respective risk-based capital standards to
incorporate a measure for market risk to cover all positions located in an
institution's trading account and foreign exchange and commodity positions
wherever located. This final rule, effective January 1, 1997, implements an
amendment to the Basle Capital Accord that sets forth a supervisory framework
for measuring market risk. The final rule effectively requires banks and bank
holding companies with significant exposure to market risk to measure that risk
using its own internal value-at-risk model, subject to the parameters of the
final rule, and to hold a sufficient amount of capital to support the
institution's risk exposure.
Institutions subject to this final rule must be in compliance with it
by January 1, 1998. This final rule applies to any bank or bank holding
company, regardless of size, whose trading activity equals 10% or more of its
total assets or amounts to $1 billion or more. The Federal Banking Agencies
may require an institution not otherwise subject to the final rule to comply
with it for safety and soundness reasons and, under certain circumstances, also
may exempt an institution otherwise subject to the final rule from compliance.
FDIC INSURANCE
Generally, customer deposit accounts in banks are insured by the
Federal Deposit Insurance Corporation (FDIC) for up to a maximum amount of
$100,000. The FDIC has adopted a risk-based insurance assessment system.
Under this system, depository institutions, such as the Bank with BIF-insured
deposits, are required to pay an assessment to the BIF ranging from $.0 to $.27
per $100 of deposits based on the institution's risk classification. On
September 30, 1996, the Deposit Insurance Funds Act of 1996 ("Funds Act") was
enacted. The Funds Act provides, among other things, for the recapitalization
of the SAIF through a special assessment on all depository institutions that
hold SAIF-insured deposits. The one-time assessment is designed to place the
SAIF at its 1.25 reserve ratio goal.
13
<PAGE> 15
The Funds Act, for the three-year period beginning in 1997, subjects
BIF-insured deposits to a Financing Corporation ("FICO") premium assessment on
domestic deposits at one-fifth the premium rate (roughly 1.3 basis points)
imposed on SAIF-imposed deposits (roughly 6.5 basis points). In addition,
service debt funding on FICO bonds for the first half of 1997 resulted in BIF
insured institutions paying .64 cents for each $100 of assessed deposits, and
SAIF insured institutions paying 3.2 cents on each $100 of deposits. Beginning
in the year 2000, BIF insured institutions will be required to pay the FICO
obligations on a pro-rata basis with all thrift institutions; annual
assessments are expected to equal approximately 2.4 basis points until 2017, to
be phased out completely by 2019.
Banking regulators are empowered under the Funds Act to prohibit
insured institutions and their holding companies from facilitating or
encouraging the shifting deposits from the SAIF to the BIF in order to avoid
higher assessment rates. Accordingly, the FDIC recently proposed a rule that
would, if adopted as proposed, impose entrance and exit fees on depository
institutions attempting to shift deposits from the SAIF to the BIF as
contemplated by the Funds Act. The Funds Act also provides for the merger of
the BIF and SAIF on January 1, 1999, only if not thrift institutions exist on
that date. It is expected that Congress will address comprehensive legislation
on the merger of the funs and elimination of the thrift charter during the 1998
session.
The risk classification is based on an assignment of the institution
by the FDIC to one of three capital groups and to one of three supervisory
subgroups. The capital groups are "well capitalized," "adequately
capitalized," and "undercapitalized." The three supervisory subgroups are
Group "A" (for financially sound institutions with only a few minor
weaknesses), Group "B" (for those institutions with weaknesses which, if
uncorrected, could cause substantial deterioration of the institution and
increase risk to the deposit insurance fund), and Group "C" (for those
institutions with a substantial probability of loss to the fund absent
effective corrective action).
ITEM 2. PROPERTIES
The principal properties of Bancorp and its subsidiary, Citizens Bank,
are comprised of banking facilities owned by the subsidiary.
The main office of Citizens Bank is located in the heart of the
business and retail center ("downtown") Corvallis, Oregon. The building was
built in 1977 and has approximately 30,000 square feet of space on two levels
above ground and a full basement. The upper (2nd) floor is occupied by the
administrative support team, which includes the President/Chief Executive
Officer, the Chief Financial Officer, the Human Resources Officer, the
Marketing Officer, the Compliance Officer, the Loan Administrator and the Loan
Service Center.
The 1st floor serves as the main banking office for the Bank. It is
occupied by a manager, a lending staff, an operations staff, tellers, bankcard
center clerks, and mortgage department staff.
14
<PAGE> 16
The basement is occupied by the Accounts Service Center. It includes
a manager, two operations officers, proof and data processing staff, accounts
payable, inventory, payroll, wire transfer, telephone and courier staff. All
of the Bank's centralized functions, i.e., management, proof and data
information, loan documentation, loan administration, cash services, mail
services, accounting and human resources, occur in this building. The Bank
owns this building.
The Bank also operates six (6) other branches, of which three (3) are
owned and three (3) are leased. These buildings range in size from 2500 square
feet to approximately 9,000 square feet. Their primary function and use is to
provide banking service to the Bank's customers. The aggregate monthly rental
of leased buildings is $8700. Two of three leases will be re-negotiated due to
expiring in 1998.
ITEM 3. LEGAL PROCEEDINGS
As of the date of filing of this Form 10K neither Bancorp nor its
subsidiary were a party to any material legal proceedings. Further, management
is not aware of any threatened or pending lawsuits or other proceedings against
Bancorp or its subsidiary which, if determined adversely, would have a material
effect on the business or financial position of either of them. Bancorp or the
Bank may from time to time become a party to litigation in the ordinary course
of business, such as debt collection litigation or an appearance as a creditor
in a bankruptcy case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1997, no
matters were submitted to the security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established market for Bancorp's common stock, and the
stock is not listed on and does not trade on or through any exchange or
quotation system. There is no expectation that an established market will
develop for Bancorp's common stock. As the transfer agent for Bancorp common
stock, Citizens Bank keeps an informal record of persons expressing an interest
in buying or selling Bancorp common stock and introduces prospective buyers and
sellers. Citizens Bank also keeps some informal records of prices paid and
received for Bancorp common stock by certain persons. Neither Bancorp nor
Citizens Bank does or will recommend prices for Bancorp common stock.
15
<PAGE> 17
The following table sets forth certain transaction prices per share
for shares of Citizens Bank and Bancorp common stock for the periods shown.
This information is based solely on prices and information reported to Citizens
Bank by those persons whose transactions have come to its attention. The
reported prices do not represent all transactions in Bancorp and Citizens Bank
stock, and Citizens Bank can give no assurances as to the accuracy of the
reported prices or the completeness of this information.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
High Low
--------------------------------------------------------------------
<S> <C> <C>
--------------------------------------------------------------------
1992 $ 17.50 $ 14.50
--------------------------------------------------------------------
1993 24.00 18.00
--------------------------------------------------------------------
1994 29.00 24.27
--------------------------------------------------------------------
1995 29.00 22.50*
--------------------------------------------------------------------
1996 30.00 18.00**
--------------------------------------------------------------------
1997 30.00 18.00
--------------------------------------------------------------------
* In 1995 Citizens Bank declared a 1 for 5 stock split. The
split became effective on August 4, 1995.
--------------------------------------------------------------------
** In 1996 Citizens Bank declared a 2 for 1 stock split. The
split became effective on October 5, 1996.
--------------------------------------------------------------------
</TABLE>
The following table sets forth certain transaction prices per share
for shares of Citizens Bank and Bancorp common stock for the quarterly periods
shown. This information is subject to the qualifications set forth above.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
HIGH LOW
--------------------------------------------------------------------
<S> <C> <C>
--------------------------------------------------------------------
First quarter 1996 $ 26.50 $ 26.00
--------------------------------------------------------------------
Second quarter 1996 $ 27.50 $ 26.50
--------------------------------------------------------------------
Third quarter 1996 $ 30.00 $ 27.50
--------------------------------------------------------------------
Fourth quarter 1996 $ 18.00* $ 18.00*
--------------------------------------------------------------------
--------------------------------------------------------------------
First quarter 1997 $ 21.75 $ 18.00
--------------------------------------------------------------------
Second quarter 1997 $ 23.00 $ 21.00
--------------------------------------------------------------------
Third quarter 1997 $ 23.50 $ 23.00
--------------------------------------------------------------------
Fourth quarter 1997 $ 30.00 $ 25.00
--------------------------------------------------------------------
* In 1996 Citizens Bank declared a 2 for 1 stock split. The
split became effective on October 5, 1996.
--------------------------------------------------------------------
</TABLE>
16
<PAGE> 18
CITIZENS BANK/BANCORP, COMMON EQUITY HOLDING. As of December 31,
1997, there were 1,922,321.304 shares outstanding, held by 689 holders of
record. As of March 15, 1998, there were 697 holders of Citizens Bancorp and
1,945,568.304 shares outstanding. All of the shares issued since December 31,
1997 were issued under the terms of the dividend reinvestment plan.
Holders are determined on the basis of ownership. Each entity that
owns one or more shares is determined to be a holder. Holders can be
individuals, partnerships, corporations, trusts, or any entity that can legally
hold assets in the State of Oregon. Two or more individuals together can also
be a holder, such as: husband and wife, parent and child, etc.
Bancorp has no formal dividend policy. The amount of any dividend
will be determined by the Bancorp Board of Directors and will depend on the
amount of profits generated and the growth objectives of Bancorp and the Bank.
Under Oregon law certain restrictions on the payment of dividends apply. Under
these restrictions, a Bank or Holding Company may not declare or pay any
dividend in an amount greater than its retained earnings, without prior
approval from the State Division of Finance and Corporate Securities.
Bancorp's management intends to follow the same practices and methods
for declaring dividends that were followed by Citizens Bank, and expects to pay
yearly dividends. The following sets forth, for the calendar years shown, the
cash and stock dividends per share of common stock declared by Citizens Bancorp
in 1997 and by Citizens Bank for the preceding years.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Cash Dividend Stock Dividend Stock Split
----------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------------
1991 $ .95 -- --
----------------------------------------------------------------------------
1992 1.00 10% --
----------------------------------------------------------------------------
1993 1.10 10% --
----------------------------------------------------------------------------
1994 1.20 10% --
----------------------------------------------------------------------------
1995 1.20 -- 1 for 5 stock
split
----------------------------------------------------------------------------
1996 .60* -- 2 for 1 stock
split
----------------------------------------------------------------------------
1997 .68** 5% --
----------------------------------------------------------------------------
* Reflects adjustment for 2 for 1 stock split effective on
October 5, 1996.
----------------------------------------------------------------------------
** Declared December 16, 1997, payable on January 12, 1998
----------------------------------------------------------------------------
</TABLE>
17
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the Company's consolidated financial statements and accompanying notes
presented herein.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands except share data)
- ---------------------------------------------------------------------------------------------------------------------------
% increase
(decrease)
1997 1996 1997 to 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income $ 15,410 $ 13,929 11% $ 12,732 $ 10,928 $ 8,811
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 5,286 5,034 5% 4,725 3,655 3,027
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 10,124 8,895 14% 8,007 7,273 5,784
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Provision for possible loan losses 165 135 22% 100 72 40
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for possible loan
losses 9,959 8,760 14% 7,907 7,201 5,744
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total other operating income 1,857 1,569 18% 1,503 1,311 1,065
- ---------------------------------------------------------------------------------------------------------------------------
Total other operating expense 6,451 5,531 17% 5,212 5,132 4,025
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Income before taxes 5,365 4,798 12% 4,198 3,380 2,784
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes 2,023 1,660 22% 1,539 1,172 850
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 3,342 $ 3,138 7% $ 2,659 $ 2,208 $ 1,934
- ---------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE (1)
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1.73 $ 1.66 4% $ 1.44 $ 1.22 $ 1.09
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends 0.68 0.60 13% 0.60 0.47 0.38
- ---------------------------------------------------------------------------------------------------------------------------
Book value 10.10 8.90 13% 7.71 6.76 5.97
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding
1,922,321 1,888,289 1,849,573 1,815,657 1,777,994
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PERIOD END BALANCES
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 200,117 $ 191,887 4% $ 162,907 $ 155,600 $ 149,692
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 120,269 114,648 5% 100,715 89,396 75,382
- ---------------------------------------------------------------------------------------------------------------------------
Deposits 161,700 161,834 0% 138,694 134,924 132,482
- ---------------------------------------------------------------------------------------------------------------------------
Repurchase agreements 14,086 10,040 40% 7,891 5,774 3,602
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 19,411 16,805 16% 14,269 12,274 10,609
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
(1) Per share amounts and the average number of shares outstanding have been restated for stock dividends of 10% in 1994
and 5% in 1997, a 2-for-1 stock split in 1996, and a 1 for 5 stock split in 1995.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995.
Earnings per share for the three years ended 1997, 1996, and 1995 was
$1.73, $1.66 and $1.44, respectively.
NET INCOME. For the three years ended December 31, 1997, Citizens
Bancorp's (in year 1997) and Citizens Bank's (in years 1996 and 1995) net
income was $3.341 million, $3.138 million, and $2.659 million, respectively.
1997 net income increased $.203 million or 6.4% over 1996, which increased
$.479 million or 18.0% over 1995. Bancorp's 1997 net income was negatively
impacted by the costs related to the formation of the Holding Company,
increased expenses in salary and benefits from new hires in the middle and
upper-middle management areas of the Bank, and the acquisition of new proof and
information processing equipment. Management sees these expenditures as
investments in increased productivity and capacity and should result in
consistent year-to-year future earnings growth.
Bancorp's increased net income in 1997 is primarily due to increased
income from loans and loan fees. This increase was due to volume increases.
Average yield on loans remained relatively constant over the year. Net income
was assisted by an increase in earning assets to total assets. Earning assets
to a total asset ratio for the years 1997, 1996 and 1995 are 94.72%, 93.94%,
and 91.44%, respectively. Yield on earning assets for the same periods was
8.91%, 8.73% and 8.82 %, respectively.
INTEREST INCOME. Interest income totaled $15.4 million for the year
ended December 31, 1997, a 10.6% increase over the $13.9 million for 1996,
which was 9.4% over the $12.7 million generated in 1995. This increase in
income was due primarily to increased loan volume.
INTEREST EXPENSE. Interest expense for the year ended December 31,
1997 was $5.3 million, a 5.0% increase over the $5.0 million expense for 1996,
and a 6.5% increase over the $4.7 million expense in 1996, these increases are
due to deposit volume increases.
NET INTEREST INCOME. Net interest income during the years 1997, 1996,
and 1995 grew to $10.1 million from $8.9 million and $8.0 million,
respectively. Additionally, for the same periods beginning with 1997, net
interest margins were 5.88%, 5.61% and 5.60%, respectively. Changes in the net
interest margins were primarily due to increased volumes and the changing
interest rate environment. The Bank was able to reprice interest-sensitive
liabilities at a faster rate than interest-sensitive assets.
19
<PAGE> 21
The following table presents for the periods indicated, information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-bearing liabilities, resulting
yield and cost ratios, interest rate spread, ratio of interest-earning assets to
interest-bearing liabilities and net interest margin for Bancorp. Average
balances for the period have been calculated using daily average balances.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES AND TAX-EQUIVALENT NET INTEREST MARGIN
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 1997 1996 1995
----------------------------------- -------------------------------- -----------------------------
Int. Int.
DECEMBER 31 Average Int. Income Avg. Rate Average Income Avg. Rate Average Income Avg. Rate
(In thousands) Balance (Expense) Earned/Paid Balance (Expense) Earned/Paid Balance (Expense) Earned/Paid
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Loans (2) $ 119,157 $ 12,250 10.28% $ 107,718 $ 10,850 10.07% $ 97,155 $ 9,733 10.02%
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES:
- ------------------------------------------------------------------------------------------------------------------------------------
Taxable 39,265 2,386 6.08% 38,610 2,315 6.00% 37,257 2,349 6.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-exempt (1) 3,918 330 8.43% 5,603 455 8.11% 7,904 600 7.59%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL
INVESTMENT
SECURITIES 43,183 2,716 6.29% 44,213 2,770 6.26% 45,161 2,949 6.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest bearing
deposits in banks
and federal funds sold 11,915 557 4.67% 9,430 464 4.92% 4,288 255 5.95%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 174,255 15,523 8.91% 161,361 14,084 8.73% 146,604 12,937 8.82%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 7,548 8,367 6,260
- ------------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 2,717 2,694 2,675
- ------------------------------------------------------------------------------------------------------------------------------------
Other assets 3,393 1,469 3,123
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for possible
loan losses (1,128) (962) (877)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 186,785 $ 172,929 $ 157,785
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits:
- ------------------------------------------------------------------------------------------------------------------------------------
Savings $ 68,601 (1,903) 2.77% $ 64,358 (1,798) 2.79% $ 61,427 (1,858) 3.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Time 53,673 (2,872) 5.35% 52,130 (2,798) 5.37% 47,237 (2,466) 5.22%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST- 122,274 (4,775) 3.91% 116,488 (4,596) 3.95% 108,664 (4,324) 3.98%
BEARING DEPOSITS
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements 11,361 (450) 3.96% 9,883 (390) 3.95% 7,408 (344) 4.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury, tax & loan 1,349 (62) 4.60% 1,123 (48) 4.27% 1,163 (57) 4.90%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES 134,984 (5,287) 3.92% 127,494 (5,034) 3.95% 117,235 (4,725) 4.03%
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 31,713 28,299 25,686
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 1,022 850 904
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 19,066 16,286 13,960
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 186,785 $ 172,929 $ 157,785
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin (1) $ 10,236 $ 9,050 $ 8,212
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income as a % of avg. earning assets 8.91% 8.73% 8.82%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense as a % of avg. earning assets 3.03% 3.12% 3.22%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 5.88% 5.61% 5.60%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes taxable equivalent adjustments related to income on securities that is exempt form federal income taxes. The federal
statutory rate was 34%
- ------------------------------------------------------------------------------------------------------------------------------------
(2) For purposes of these calculations, nonaccrual loans are included in the average loan balance outstanding. Loan fees and late
charges of $812,065 and $572,639 are included in interest income for 1997 and 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 22
The following table sets forth, on a tax-equivalent basis, a summary of
the changes in net interest income resulting from changes in volumes and rates.
CHANGES NOT DUE SOLELY TO VOLUME OR RATE CHANGES ARE ALLOCATED TO VOLUME AND
RATE IN PROPORTION TO THE RELATIONSHIP OF THE ABSOLUTE DOLLAR AMOUNTS OF THE
CHANGE IN EACH.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
1997 versus 1996 1996 versus 1995
-----------------------------------------------------------------------------------------------------------------------
Increase (decrease) Increase (decrease)
due to change in due to change in
-----------------------------------------------------------------------------------------------------------------------
Average Average Net Average Average Net
(in thousands) Volume Rate Change Volume Rate Change
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
-----------------------------------------------------------------------------------------------------------------------
Loans $ 1,172 $ 228 $ 1,400 $ 1,064 $ 53 $ 1,117
-----------------------------------------------------------------------------------------------------------------------
Investment securities (65) 11 (54) (61) (118) (179)
-----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in banks and federal funds sold 117 (24) 93 260 (51) 209
-----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 1,224 215 1,439 1,263 (116) 1,147
-----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
-----------------------------------------------------------------------------------------------------------------------
Savings deposits 118 (13) 105 86 (146) (60)
-----------------------------------------------------------------------------------------------------------------------
Time deposits 83 (9) 74 261 71 332
-----------------------------------------------------------------------------------------------------------------------
Repurchase agreement and other short-term borrowings 69 5 74 103 (66) 37
-----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 270 (17) 253 450 (141) 309
-----------------------------------------------------------------------------------------------------------------------
CHANGES IN NET INTEREST INCOME $ 954 $ 232 $ 1,186 $ 813 $ 25 $ 838
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table further reflects changes in average balances and
rates from December 31, 1997 to December 31, 1996.
<TABLE>
<CAPTION>
------------------------------------------ ------------------------------------------
INCREASE (DECREASE) IN AVERAGE BALANCE: INCREASE (DECREASE) IN AVERAGE RATE:
------------------------------------------ ------------------------------------------
<S> <C> <C> <C>
Loans 10.62 % Loans 2.06 %
------------------------------------------ ------------------------------------------
Investments (2.33)% Investments 0.39 %
------------------------------------------ ------------------------------------------
Fed Funds & Deposits 26.35 % Fed Funds & Deposits (4.99)%
------------------------------------------ ------------------------------------------
------------------------------------------ ------------------------------------------
TOTAL EARNING ASSETS 7.99 % TOTAL EARNING ASSETS 2.06 %
------------------------------------------ ------------------------------------------
------------------------------------------ ------------------------------------------
Savings, NOW, MMA 6.59 % Savings, NOW, MMA (0.71)%
------------------------------------------ ------------------------------------------
Time 2.96 % Time (0.31)%
------------------------------------------ ------------------------------------------
Other Liabilities 15.48 % Other Liabilities 1.22 %
------------------------------------------ ------------------------------------------
TOTAL INT BEAR TOTAL INT BEAR
LIABILITIES 5.87 % LIABILITIES (0.80)%
------------------------------------------ ------------------------------------------
</TABLE>
21
<PAGE> 23
The following chart further reflects changes in average balances and
rates from December 31, 1996 to December 31, 1995.
<TABLE>
<CAPTION>
------------------------------------------ ------------------------------------------
INCREASE (DECREASE) IN AVERAGE BALANCE: INCREASE (DECREASE) IN AVERAGE RATE:
------------------------------------------ ------------------------------------------
<S> <C> <C> <C>
Loans 10.87 % Loans 0.54 %
------------------------------------------ ------------------------------------------
Investments (2.10)% Investments (4.06)%
------------------------------------------ ------------------------------------------
Fed Funds & Deposits 119.92 % Fed Funds & Deposits (7.26)%
------------------------------------------ ------------------------------------------
------------------------------------------ ------------------------------------------
TOTAL EARNING ASSETS 10.07 % TOTAL EARNING ASSETS (1.09)%
------------------------------------------ ------------------------------------------
------------------------------------------ ------------------------------------------
Savings, NOW, MMA 4.77 % Savings, NOW, MMA (7.64)%
------------------------------------------ ------------------------------------------
Time 10.36 % Time 2.81 %
------------------------------------------ ------------------------------------------
Other Liabilities 28.41 % Other Liabilities (14.94)%
------------------------------------------ ------------------------------------------
TOTAL INT BEAR TOTAL INT BEAR
LIABILITIES 8.75 % LIABILITIES (2.03)%
------------------------------------------ ------------------------------------------
</TABLE>
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses was $9.9 million at
December 31, 1997, $8.7 million at December 31, 1996, and $7.9 million at
December 31, 1995. Total provision for possible loan loss expense for the
three years ending December 31, 1997, was $165,000, $134,500, and $100,000
respectively. Total provision expense was increased due to loan volume
increases. Total loan losses were $2,000, $8,000, and $53,000 for the years
1997, 1996, and 1995, respectively. The reserve for possible loan losses to
total loans for the years ended December 31, 1997, 1996, and 1995,
respectively, were .99%, .90%, and .88%. These percentages reflect a history
of very low loan loss experience. At December 31, 1997, the Bank had no
non-accrual loans.
NON-INTEREST INCOME. Non-interest income (total other operating
income) was $1.8 million for the year ended December 31, 1997, an 18.3%
increase from $1.6 million for 1996, and a 4.4% increase from $1.5 million in
1995. These increases are due to increased service charges and customer fee
income which is primarily a function of increased volumes of accounts. Very
few rate increases have been made in service charges and fees during this
period. During 1997, the low and declining interest rate environment on term
loans generated refinance activity and new home purchases, resulting in an
increased volume of home loans made for sale into the secondary market. Gains
on the sale of these loans represented a substantial portion of the increase
the Bank experienced in other operating income.
22
<PAGE> 24
NON-INTEREST EXPENSE. Non-interest expenses (other operating
expenses) have increased during the last three years ending December 31, 1997
to $6.4 million from $5.5 million in 1996 and $5.2 million in 1995. A 16.6%
increase or a $.9 million increase occurred from 1996 to 1997 and a 5.8% or a
$.3 million increase occurred from 1995 to 1996. These increases in
non-interest expense are in correlation and are a direct result of increased
non-interest income. The specific areas of increase occurred in increased
salaries and benefits, equipment, occupancy, professional fees, marketing,
printing, office supplies, communications, and other expenses. These increases
are a result of the Bank's increased volume, and management's increased
emphasis on business development, marketing, auditing, and human resource
management.
Bancorp intends to grow through strategically placed offices through
1998. At least one additional full service facility will be opened and
potentially a loan origination office. Opening new offices results in higher
operating costs, which are not offset until a certain level of growth in loans
and deposits is achieved. Initially, new branch offices will increase
non-interest expenses, thus having an adverse effect on net income for Bancorp.
At the end of 1997, Bancorp employed 108 full-time equivalent employees
compared to 102 at year end 1996 and 99 at year end 1995.
Increases in non-interest expense is generally caused by higher
operating levels associated with growth in business volume. Bancorps total
assets at December 31, 1997, were 23% greater than total assets of the Bank at
December 31, 1995.
INCOME TAXES. Income tax expense for 1997 was $2,023,000 or 37.7% of
net income before taxes, 1996 was $1,659,672 or 34.5% of net income before
taxes. In 1995 the tax provision was $1,538,922 or 36.6% of net income before
taxes. Bancorp's tax rate of 37.7% is higher than in previous years due to a
smaller percentage of Bancorp's income being generated by tax exempt items,
primarily in the Bank's investment portfolio. It is anticipated that this rate
will remain at the 1997 level or perhaps increase slightly as the Bank's
portfolio of municipal bond investments matures.
INTEREST RATE SENSITIVITY. Bancorp uses an asset/liability modeling
system called ALX to estimate the degree of interest rate risk inherent in its
mix of interest earning assets and interest bearing liabilities. Bancorps
profitability is dependent to a large extent on net interest income. Bancorp
is slightly asset sensitive, meaning that interest earning assets mature or are
otherwise subject to repricing at a faster rate than interest bearing
liabilities. A significant decrease in market rates could adversely impact
the net earnings of Bancorp. In contrast, an inclining interest rate
environment could have a positive affect on net interest income. Bancorps
strategy is to keep a position that is very close to "balanced". That is, that
the repricing of assets and liabilities would move much at the same rate.
Because the current position is slightly asset sensitive, Bancorp has been
taking measures to extend maturities on its asset base until a "balanced"
position is achieved.
23
<PAGE> 25
LIQUIDITY AND SOURCES OF FUNDS. Bancorp's primary sources of funds
for liquidity purposes are customer deposits, maturities of investment
securities, sales of "available for sale" securities, loan repayments, advances
on lines of credit from correspondent banks and from the Federal Home Loan Bank
of Seattle, and the purchase of federal funds. Bancorp can anticipate the
availability of funds from scheduled loan repayments, maturities of securities
and from borrowed funds. Customer deposits and unscheduled payments of loans
are influenced by the interest rate environment, the condition of the economy,
competition and other factors.
Deposits are Bancorp's primary source of new funds. At December 31,
1997, total deposits were $161.7 million, down from $161.8 million at December
31, 1996, and up from $138.7 million at December 31, 1995. During 1997 the
Bank experienced a shift from insured deposits to securities sold under
repurchase agreement (REPO's). Total REPO holdings for the periods December
31, 1997, 1996, and 1995 were $14.1 million, $10.0 million and $7.8 million,
respectively. The Bank also changed its policy of competitive bidding for
premium rate time certificates of deposit. This caused a significant run-off
in large interest rate sensitive time certificates of deposit which were almost
entirely replaced by lower rate, less interest rate sensitive funds. The
result was a reduced overall cost of funds as follows:
<TABLE>
<CAPTION>
---------------------------------
COST OF FUNDS
---------------------------------
1997 1996 1995
---------------------------------
<S> <C> <C>
3.92% 3.95% 4.03%
---------------------------------
</TABLE>
Management anticipates that Bancorp will rely primarily on deposit
growth, maturities of investment securities, sales of available for sale
securities, and loan repayments to meet its liquidity needs. Borrowings can be
used to provide liquidity for short-term needs but it is the practice of
Bancorp to attempt to fund long-term loans and investments with core deposits
and earnings, not short-term borrowings. A limited amount of borrowings may be
used on a long-term basis to fund lending activities and to match maturities or
repricing intervals of assets.
The average daily amount of deposits and rates paid on deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------------------------------------------------------------
(In Thousands) Amount $ Rate % Amount $ Rate % Amount $ Rate %
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DEPOSITS
------------------------------------------------------------------------------------------------------------
Demand $31,713 -- $28,299 -- $25,686 --
------------------------------------------------------------------------------------------------------------
Savings $68,601 2.77% $64,358 2.79% $61,427 3.02%
------------------------------------------------------------------------------------------------------------
Time $53,673 5.35% 52,130 5.37% $47,237 5.22%
------------------------------------------------------------------------------------------------------------
TOTAL $153,987 $144,787 $134,350
------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 26
The following table indicates the amount of the Bank's certificates of deposits
with
balances equal to or greater than $100,000 classified by time remaining until
maturity as of December 31, 1997.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Maturity Period Certificates of Deposit
---------------------------------------------------------------------
In Thousands
---------------------------------------------------------------------
<S> <C>
3 months or less $ 8,067
---------------------------------------------------------------------
3 months through 6 months $ 1,055
---------------------------------------------------------------------
6 months through 12 months $ 2,811
---------------------------------------------------------------------
Over 12 months $ 2,367
---------------------------------------------------------------------
TOTAL $14,300
---------------------------------------------------------------------
</TABLE>
The following table is a summary of securities sold under repurchase
agreement (REPO) for each of the last three years.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
(Dollars in Thousands)
---------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------
<S> <C> <C> <C>
Securities sold under agreement to repurchase:
---------------------------------------------------------------------------
Average interest rate
---------------------------------------------------------------------------
At year end 3.28% 3.24% 3.86%
---------------------------------------------------------------------------
For the year 3.96% 3.95% 4.64%
---------------------------------------------------------------------------
Average amount outstanding during
the year $11,361 $ 9,883 $ 7,408
---------------------------------------------------------------------------
Maximum amount outstanding at any
month end $14,086 $11,231 $ 8,674
---------------------------------------------------------------------------
Amount outstanding at year end $14,086 $10,040 $ 7,892
---------------------------------------------------------------------------
</TABLE>
CAPITAL RESOURCES. The Bank is subject to various capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirement can initiate certain mandatory, and possibly
additional discretionary actions by regulators, that if undertaken, could have
a direct material effect on the Bank's financial statements. Under capital
adequacy guidelines that involve quantitative measures of the Bank's assets,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
As of December, 31, 1997, the most recent notification from the Bank's
regulator categorized the Bank as well-capitalized under the applicable
regulations. To be categorized as "well-capitalized," the Bank must maintain
at least 10% total risk based capital, 6% Tier 1 risk based capital and 5% Tier
1 leverage capital. There are not conditions or events since that notification
that management believes have changed the institution's category.
25
<PAGE> 27
The following table indicates Citizens Bancorp/Citizens Bank's capital
adequacy position at December 31, 1997, and at December 31, 1996, and compares
those positions to capital adequacy requirements.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Citizens Bancorp/Citizens Bank
--------------------------------------------------------------------------------------------------
For Capital
Actual Adequacy Purposes
--------------------------------------------------------------------------------------------------
(in thousands)
-------------
AS OF DECEMBER 31, 1997: Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Risk-Based Capital
(to Risk-Weighted Assets) $20,239 16.3 % $9,734 >8%
-
--------------------------------------------------------------------------------------------------
Tier 1 Capital
(to Risk-Weighted Assets) $19,038 15.6 % $3,042 >4%
-
--------------------------------------------------------------------------------------------------
Tier 1 Capital
(to average Total Assets) $19,038 9.69% $7,867 >4%
-
--------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996:
------------------------
Total Risk-Based Capital
(to Risk-Weighted Assets) $17,406 13.5 % $10,304 >8%
-
--------------------------------------------------------------------------------------------------
Tier 1 Capital
(to Risk-Weighted Assets) $16,368 12.7 % $5,152 >4%
-
--------------------------------------------------------------------------------------------------
Tier 1 Capital
(to Average Total Assets) $16,368 8.8 % $7,419 >4%
-
--------------------------------------------------------------------------------------------------
</TABLE>
Shareholders equity increased to $19.4 million at December 31, 1997
from $16.8 million in 1996 and $14.3 million in 1995. Bancorp's shareholders
average equity, as a percentage of average assets were 10.21% at December 31,
1997, 9.42% at December 31, 1996, and 8.85% at December 31, 1995. The change
is primarily the result of equity growth outpacing asset growth.
In a changing interest rate environment the value of the Bank's
available for sale portfolio may be negatively impacted and therefore cause a
reduction in reported shareholders equity. Equity grew at 15.51% over the
period between December 31, 1996 and December 31, 1997, while assets grew by
4.28% over the same period.
At December 31, 1997, the Bank had no material commitment for capital
expenditures that would negatively impact Bancorp's capital position.
26
<PAGE> 28
INVESTMENT PORTFOLIO
The following table shows Investments Held to Maturity.
<TABLE>
<CAPTION>
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1997
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $6,036 $6,000 12.98%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 500 482 1.04%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 3,561 3,501 7.57%
----------------------------------------------------------------------------------------------------------------
TOTAL $10,097 $9,983 21.59%
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1996
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities $10,066 $10,007 21.21%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 657 650 1.38%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 5,042 5,078 9.72%
----------------------------------------------------------------------------------------------------------------
TOTAL $15,765 $15,735 32.31%
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1995
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities $21,305 $20,851 43.56%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 642 646 1.35%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 6,870 6,776 14.15%
----------------------------------------------------------------------------------------------------------------
TOTAL $28,817 $28,273 59.06%
----------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 29
The following table sets forth the maturities and weighted average
yields of securities held to maturity at December 31, 1997.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
IN THOUSANDS
----------------------------------------------------------------------------------------------------------------
After 1 year, but After 5 years, but
----------------------------------------------------------------------------------------------------------------
Amount Within 1 year before 5 years before 10 years After 10 years
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $3,966 $2,034 0 0
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 0 0 482 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 1,442 1,310 749 0
----------------------------------------------------------------------------------------------------------------
TOTAL $5,408 $3,344 $1,231 $0
----------------------------------------------------------------------------------------------------------------
Weighted Average Yield*
U.S. Treasury Securities 7.47% 6.03% 0% 0%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 0 0 5.06 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 4.92 3.67 4.99 0
----------------------------------------------------------------------------------------------------------------
TOTAL 6.79% 4.91% 5.02% 0%
----------------------------------------------------------------------------------------------------------------
* Yield on tax exempt delegations have not been computed on a tax equivalent basis
</TABLE>
The following tables show Investments Available for Sale.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1997
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities $22,075 $22,027 47.73%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 13,570 13,527 29.35%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 613 613 1.33%
----------------------------------------------------------------------------------------------------------------
TOTAL $36,258 $36,167 78.41%
----------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1996
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities $23,564 $23,540 50.42%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 7,535 7,517 16.12%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 0 0 1.15%
----------------------------------------------------------------------------------------------------------------
TOTAL $31,099 $31,057 66.54%
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1995
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities $19,100 $19,086 39.90%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 0 0 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 499 499 1.05%
----------------------------------------------------------------------------------------------------------------
TOTAL $19,599 $19,585 40.94%
----------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the maturities, weighted average
maturities, and weighted average yields of securities available for sale.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
After 1 year, but After 5 years, but
Amount Within 1 year before 5 years before 10 years After 10 years
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $16,500 $5,527 0 0
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 1,999 11,528 0 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 0 613 0 0
----------------------------------------------------------------------------------------------------------------
TOTAL $18,499 $17,668 0 0
----------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
Investments Available For Sale
----------------------------------------------------------------------------------------------------------------
After 1 year, but After 5 years, but
Within 1 Year before 5 years before 10 years After 10 years
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted Average Yield*
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities 5.80% 5.95% 0 0
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 5.97% 6.17% 0 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 8.52% 0 0 0
----------------------------------------------------------------------------------------------------------------
TOTAL 6.10% 6.09% 0 0
----------------------------------------------------------------------------------------------------------------
* Yield information is computed using amortized cost balances and does not give effect to changes in fair value
that are reflected as a component of shareholders equity.
----------------------------------------------------------------------------------------------------------------
</TABLE>
LENDING AND CREDIT MANAGEMENT. Interest on loans is the primary
source of income for Bancorp. Net loans represented 60.0% of total assets as
of December 31, 1997. The Bank works to serve the credit needs of the entire
community, however its primary focus for lending is small-to-medium sized
businesses, professionals, and individuals for commercial and real estate
related financing needs. Substantially all of the Bank's loans are to
customers located within the Bank's service areas.
Although the risk of non-payment always exists, type and level of risk
changes with different types of loans. In the Bank's loan portfolio, real
estate is frequently used as collateral. The primary source of repayment is
the income generated by a business or by an individual, but real estate as
collateral provides an additional measure of security. There are risks
associated with taking real estate as collateral. The risks are changing
property values, changes in property tax laws, and changes in economic
conditions.
Loan risk is mitigated by lending to borrowers with proven credit
histories and demonstrated ability to repay. The Bank manages risk in the loan
portfolio by following loan policies and underwriting practices designed to
result in minimal risk.
30
<PAGE> 32
At December 31, the following table sets forth the composition of the
Bank's Loan Portfolio by type of loan as of the dates indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
In Thousands
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loan Amount % Amount % Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------
Commercial $ 23,507 20% $ 21,975 19% $ 21,169 21% $ 21,858 24% $ 17,572 23%
- ------------------------------------------------------------------------------------------------------------------------------
Agriculture 10,992 9% 9,072 8% 8,834 9% 7,742 9% 7,156 9%
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate
- ------------------------------------------------------------------------------------------------------------------------------
Construction 5,459 4% 3,865 3% 4,065 4% 2,543 3% 2,228 3%
- ------------------------------------------------------------------------------------------------------------------------------
1-4 Family 34,625 28% 34,322 29% 30,993 31% 25,080 28% 25,583 33%
- ------------------------------------------------------------------------------------------------------------------------------
Other 42,142 35% 40,300 35% 31,833 32% 25,317 28% 15,657 21%
- ------------------------------------------------------------------------------------------------------------------------------
Other -- -- -- -- 105 -- 9 -- 153 1%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer 5,423 4% 6,861 6% 5,240 4% 8,187 8% 8,163 10%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS $ 122,148 $ 116,395 $ 102,239 $ 90,736 $ 76,512
- ------------------------------------------------------------------------------------------------------------------------------
Less
Deferred
Loan Fees (678) (709) (628) (496) (351)
- ------------------------------------------------------------------------------------------------------------------------------
Less
Allowance
for Loan
Loss
Reserve (1,201) (1,038) (896) (844) (779)
- ------------------------------------------------------------------------------------------------------------------------------
NET LOANS $ 120,269 100% $ 114,648 100% $ 100,715 100% $ 89,396 100% $ 75,382 100%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest income on loans is accrued daily on the principal balance
outstanding. Generally, no interest is accrued on loans deemed to be
uncollectable, or when the principal or interest payment becomes 90 days past
due. At December 31, 1997, the Bank had loans totaling $438,000 that were 90
days or more past due and still accruing interest because in management's
judgement all of the principal and accrued interest was deemed imminently
collectable and not subject to loss.
31
<PAGE> 33
The following table shows the contractual maturity of the Bank's gross
loans at December 31, 1997. Loans having no stated schedule of repayments and
no stated maturity, demand loans, and overdrafts are reported as due in one
year or less. Loan balances do not include undisbursed loan proceeds,
deferred loan fees and discounts and allowance for losses on loans. The table
does not reflect any estimate of prepayments, which significantly shorten the
average life of all loans and may cause the Bank's actual repayment experience
to differ from that shown below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
In Thousands
- ------------------------------------------------------------------------------------------
After 1 year, but After 5 years, but
Within 1 year before 5 years before 10 years After 10 years
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Commercial $ 8,596 $ 7,652 $ 1,012 $ 6,134
- ------------------------------------------------------------------------------------------
Agriculture $ 8,384 $ 2,315 $ 293 0
- ------------------------------------------------------------------------------------------
Real Estate
Construction $ 5,459 0 0 0
- ------------------------------------------------------------------------------------------
1-4 Family $ 3,176 $ 1,997 $ 2,946 $26,133
- ------------------------------------------------------------------------------------------
Other $ 2,583 $ 4,860 $ 2,240 $32,459
- ------------------------------------------------------------------------------------------
Consumer $ 745 $ 3,473 $ 693 $ 319
- ------------------------------------------------------------------------------------------
TOTAL $28,943 $20,297 $ 7,185 $65,045
- ------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the dollar amount of all loans due one
year or more after December 31, 1997, which have fixed interest rates and have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------
Fixed Rates Floating or Adjustable Rates
----------------------------------------------------------------------
<S> <C> <C>
Commercial $ 7,317 $ 7,481
----------------------------------------------------------------------
Agriculture $ 950 $ 1,659
----------------------------------------------------------------------
Real Estate
Construction $ 0 $ 0
----------------------------------------------------------------------
1-4 Family $13,586 $17,490
----------------------------------------------------------------------
Other $13,709 $25,850
----------------------------------------------------------------------
Consumer $ 4,290 $ 195
----------------------------------------------------------------------
TOTAL $39,852 $52,675
----------------------------------------------------------------------
</TABLE>
RESERVE FOR POSSIBLE LOAN LOSSES AND PROVISION.
The provision for loan losses charged to operating expense is based on
the Bank's loan loss experience and certain other factors determined by
management that deserve recognition in estimating loan losses. Management
monitors the loan portfolio to ensure that the reserve for possible loan losses
is adequate to cover outstanding loans.
32
<PAGE> 34
It is Bank policy that once each quarter, (in January, April, July,
and October) Bank management makes recommendations to the Board regarding the
adequacy of the Bank's loan loss reserves and the amount of the provision that
should be charged against earnings for the next three months. The Board then
makes a decision regarding these amounts and these decisions are communicated
to the Banks' Lending Officers.
When determining loan reserve amounts the Board is given information
divided into the following categories.
1. Specific. Specific reserves are for loans graded substandard or
doubtful to cover the amount of exposure the Bank has calculated for
each loan.
2. General. For all loans graded higher than substandard or doubtful,
the Bank uses estimates based on its previous experience for each
category of loans.
3. Special. From time to time special reserves will be established to
facilitate a change in bank strategy. This happens only when the Bank
intentionally embarks on a strategy that has more than a normal amount
of credit risk associated with it. Special allocations are also made
to cover suspected shortfalls in other real estate owned (OREO) or to
establish a reserve for some other form of special asset.
4. Unallocated. The Board may from time to time increase the loan loss
reserve to an amount that is larger than is needed to meet specific,
general, and special reserves requirements. The Board does this by
adding unallocated reserves. The Board does this when it is
uncomfortable with the amount of the calculated allocation, when it
foresees an economic downturn, or it otherwise sees a need for
additional reserves.
Management also uses a loan grading system wherein officers grade each
of their Commercial loans at inception, annually thereafter when financial
statements are received if the loan has an annual maturity, and at other times
when there is an indication that a credit may have weakened or improved. It is
the responsibility of the loan review officer to ensure the integrity of the
loan grading system.
Loans graded substandard or doubtful, either by the Bank or by a
regulator, receive special attention in the analysis and specific reserve
amounts are set aside for each loan based upon the total principal dollar
amount of the loan. Specific reserves for doubtful and substandard loans are
50% and 25%, respectively. Estimated loss percentages are used for all other
loans by type as follows: installment (consumer loans to individual) .57%, real
estate mortgage loans .23%, and all other loans (general) .55%. These loss
percentage factors establish the required reserve amount by multiplying the
factor times the total of loans in each category.
As of December 31, 1997, the Bank held in its reserve for possible
loan losses a total of $1.2 million.
33
<PAGE> 35
The following table presents the relationship of the reserve for
possible loan loss to the loan portfolio as of December 31, 1997, 1996, 1995,
1994, and 1993.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD:
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
$ Amount % of $ Amount % of $ Amount % of $ Amount % of $ Amount % of
Loans Loans Loans Loans Loans
to to to to to
Total Total Total Total Total
Loans Loans Loans Loans Loans
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC:
- ------------------------------------------------------------------------------------------------------------------------------
Commercial,
Financial, &
Agricultural 403 28% 216 27% 207 29% 211 33% 202 32%
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate -
Construction 27 5% 89 3% 94 4% 58 3% 51 3%
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate -
Mortgage 107 63% 170 64% 143 62% 115 55% 94 54%
- ------------------------------------------------------------------------------------------------------------------------------
Installment
Loans to
Individuals 46 4% 39 6% 30 5% 46 9% 46 11%
- ------------------------------------------------------------------------------------------------------------------------------
UNALLOCATED 618 N/A 524 N/A 422 N/A 414 N/A 386 N/A
- ------------------------------------------------------------------------------------------------------------------------------
Total Allowance
for Possible Loan
Losses 1,201 100% 1,038 100% 896 100% 844 100% 779 100%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The total reserve for possible loan losses represents the Boards'
opinion at December 31, of each year as to an amount that would meet the Bank's
needs in the event of an economic downturn or unforeseen event.
It is the opinion of the management that the total reserve for
possible loan loss at December 31, 1997 was adequate to meet the policy
portfolio requirements of the Bank. Total allowance represented .99% of total
loans at that date.
34
<PAGE> 36
The following table summarizes transactions in the reserve for
possible loan losses and details the charge-offs, recoveries, and net loan
losses by loan category for the last five years.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
IN THOUSANDS
- -----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE AT BEGINNING OF
PERIOD: $1,038 $ 896 $ 844 $ 779 $ 800
- -----------------------------------------------------------------------------------------------------
Provision for Possible Loan
Losses 165 134 100 72 40
- -----------------------------------------------------------------------------------------------------
CHARGE-OFFS:
Commercial 0 0 44 0 60
- -----------------------------------------------------------------------------------------------------
Agriculture 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Real Estate 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Construction 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
1-4 Family 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Other 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Consumer 2 8 10 7 5
- -----------------------------------------------------------------------------------------------------
TOTAL CHARGE-OFFS: $ 2 $ 8 $ 53 $ 7 $ 65
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
RECOVERIES:
- -----------------------------------------------------------------------------------------------------
Commercial 0 16 5 0 4
- -----------------------------------------------------------------------------------------------------
Agriculture 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Real Estate 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Construction 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
1-4 Family 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Other 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Consumer 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
TOTAL RECOVERIES $ 0 $ 16 $ 5 $ 0 $ 4
- -----------------------------------------------------------------------------------------------------
NET RECOVERIES (CHARGE-OFFS) (2) 8 (48) (7) (61)
- -----------------------------------------------------------------------------------------------------
BALANCE AT
END OF PERIOD $1,201 $1,038 $ 896 $ 844 $ 779
- -----------------------------------------------------------------------------------------------------
RATIO OF NET CHARGE-OFFS TO
AVG. LOANS OUTSTANDING .00% .00% .05% .01% .08%
- -----------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 37
In May 1993, the Financial Accounting Standards Board (FASB) issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and in October
1996 issued SFAS No. 118," "Accounting by Creditors for Impairment of a Loan --
Income Recognition Disclosures, an amendment to SFAS No. 114." The Bank
measures impaired loans 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 market value of
the collateral if the loan is collateral dependent. The Bank excludes loans
that are currently measured at fair value or at lower of cost or fair value,
and certain large groups of smaller balance homogeneous loans that are
collectively measured for impairment. At December 31, 1997 and 1996, the Bank
had no material impaired loans.
YEAR 2000 ISSUES.
Bancorp has adopted a year 2000 management plan to ensure that its
data processing, communications and other systems will not be adversely
impacted by issues surrounding passing into the year 2000. The plan is divided
into four phases: awareness, assessment, testing, and implementation. Bancorp
has completed the awareness phase. In this phase, potential impacts on the
Company are identified. This includes addressing each software and hardware
system as well as potential effects on the Bancorp's vendors and larger
customers, especially those who borrow money from the Bank.
The assessment phase has also been completed. This includes
evaluating all hardware and software and hardware systems and categorizing the
perceived risk into a prioritization of risk. Risk is prioritized into those
applications critical to the mission of Bancorp and the Bank, and those that
are not.
Management is in the process of working through the testing phase of
the year 2000 plan. First with the mission critical applications and then the
non-mission critical applications. The Bank's main data processing hardware
and software were not developed by Bancorp or the Bank, but were purchased from
national vendors to the financial services industry. Management is working
closely with these vendors to test critical applications and see that support
and maintenance systems are in place.
Bancorp anticipates that costs associated with assuring maximum
compliance with the year 2000 plan implementation will not be material.
36
<PAGE> 38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK.
Bancorp's results of operations are largely dependent upon its ability
to manage interest rate risk. Management considers interest rate risk to be a
significant element of market risk that could have a material effect on
Bancorp's financial conditions and results of operations. Bancorp does not
currently use derivatives to manage market risk and interest rate risk.
Historically, Bancorp has managed its maturities between assets and
liabilities to be substantially "balanced." Currently there is a small amount
of mismatching so that the total position is slightly asset sensitive. The
Bank's deposit rates do not change as much as asset rates when rates change.
If rates change rapidly the change will be greater than if they change slowly.
These assumptions regarding rate changes also assume no changes in customer
behavior.
It is currently Bancorp's goal to extend slightly the maturities of
certain investment portfolio instruments and allow loan administration to
approve some new moderate-term (3 to 5 years) fixed-rate business loans. This
will reverse the mismatch between assets and liability maturities and bring
Bancorp into a more "balanced" position thus, substantially eliminating the
current interest rate risk position.
In addition to moderate-term fixed-rate business loans and
investments, Bancorp uses a number of additional strategies to minimize the
negative impact on net income during significant changes in interest rates.
They include origination of moderate term fixed-rate consumer loans, purchase
of fixed-rate non-collable treasury securities, and growth in non-interest
bearing demand accounts.
The following table sets forth the balances of Bancorp's financial
instruments at December 31, 1997. The expected maturities take into
consideration no estimated principal prepayments for loans and securities.
Principal prepayments are the amounts of principal reduction over and above the
normal amortization. Financial instruments are expected to mature on their
respective maturity dates. Although some instruments are amortized over longer
periods, such as 180 months, most have 36, 60 or 84 months "call" provisions,
which allows the Bank to renegotiate the interest rate. This use of interest
rate "call" provisions in long-term instruments act to reduce exposure to
interest rate risk. The amortization period for principal reduction usually
remains unchanged when the instrument is "called" for interest rate
renegotiation.
The expected maturities for financial liabilities with no stated
maturity reflect assumptions based on historical and estimated future roll-off
rates. The roll-off rates for non-interest bearing deposits, interest-bearing
checking accounts, money market accounts, and savings accounts are 14 percent,
20 percent, 20 percent and 20 percent, respectively. The weighted average
interest rates for financial instruments presented are actual as of December
31, 1997.
37
<PAGE> 39
The estimated fair value amounts have been determined by Bancorp using
available market information and appropriate valuation methodologies. However,
considerable judgement is necessary to interpret market data in the development
of the estimates of fair value amounts. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts Bancorp could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The carrying value of cash and cash equivalents and accrued interest
receivable is a reasonable estimate of the fair value for such financial
assets. The fair values of securities available for sale, and securities held
to maturity are based on quoted market rates and dealer quotes. The fair value
of fixed-rate loans is based on quoted market rates for similar loans. The
fair value for adjustable rate loans is based on discounted cash flows, using
estimated interest rates currently offered for loans of similar
characteristics. The fair value of deposits with no stated maturity, such as
checking accounts, money market accounts and savings accounts, is equal to the
amount payable on demand as of December 31, 1997. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows using a discount rate based on the current average rate for deposits of
like maturities of other local institutions. The fair value of FHLB advances
and securities sold under agreements to repurchase are estimated to be the rate
offered on similar borrowings with similar maturities as of December 31, 1997,
which approximates the carrying value. The fair value estimates presented are
based on information available as of December 31, 1997.
38
<PAGE> 40
The following table sets forth the balances Bancorp's financial instruments at
the expected maturity dates as well as the fair value of those financial
instruments at December 31, 1997.
<TABLE>
<CAPTION>
Year ended December 31, 1997
$ in thousands EXPECTED MATURITY
1998 1999 2000 2001 2002 Thereafter Total Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 9,268 $ 9,268 $ 9,268
Interest-bearing deposits at other banks $15,299 $15,299 $15,299
Weighted average interest rate 5.35%
Federal funds sold
Fixed rate $ 2,800 $ 2,800 $ 2,800
Weighted average interest rate 5.13%
Securities available for sale $ -
Fixed rate $18,523 $13,061 $ - $ - $4,674 $ - $36,258 $36,258
Weighted average interest rate 6.10% 6.01% 0.00% 0.00% 6.32% 0.00%
Securities held to maturity
Fixed rate $ 5,408 $ 2,624 $ 455 $ 120 $ 145 $ 1,231 $ 9,983 $10,097
Weighted average interest rate 6.79% 6.14% 4.93% 4.60% 5.00% 5.02%
Loans receivable, net $ -
Fixed rate $10,566 $ 2,034 $ 3,059 $6,408 $3,989 $21,375 $47,431 $47,399
Weighted average interest rate 9.75% 9.55% 9.95% 9.81% 10.04% 9.22%
Adjustable rate $18,377 $ 553 $ 639 $1,645 $1,767 $49,857 $72,838 $72,838
Weighted average interest rate 10.21% 10.44% 10.21% 10.10% 9.24% 9.28%
FINANCIAL LIABILITIES
Non-interest bearing deposits $ 4,996 $ 4,297 $ 3,695 $3,178 $2,733 $16,784 $35,683 $35,683
Interest bearing checking accounts $ 6,076 $ 4,861 $ 3,889 $3,111 $2,489 $ 9,952 $30,378 $30,378
Weighted average interest rate 1.75% 1.75% 1.75% 1.75% 1.75% 1.75%
Money market accounts $ 4,932 $ 3,946 $ 3,157 $2,526 $2,021 $ 8,078 $24,660 $24,660
Weighted average interest rate 2.75% 2.75% 2.75% 2.75% 2.75% 2.75%
Savings accounts $ 3,105 $ 2,484 $ 1,987 $1,590 $1,272 $ 5,086 $15,524 $15,524
Weighted average interest rate 2.78% 2.78% 2.78% 2.78% 2.78% 2.78%
Certificates of deposit
Fixed rate $45,020 $ 5,575 $ 2,070 $ 504 $ 1,064 $ 30 $54,263 $54,357
Weighted average interest rate 5.35% 5.44% 5.70% 5.82% 6.00% 5.75%
Adjustable rate $ 769 $ 413 $ -- $ -- $ 10 $ -- $ 1,192 $ 1,052
Weighted average interest rate 5.12% 5.13% 0.00% 0.00% 5.75% 0.00%
Repurchase Agreements
Fixed rate $14,086 $14,086 $14,086
Weighted average interest rate 3.28%
Treasury Tax and Loan
Fixed rate $ 2,814 $ 2,814 $ 2,814
Weighted average interest rate 4.5%
</TABLE>
39
<PAGE> 41
While the table presented on the previous page helps provide some
information about Bancorp's interest sensitivity, it does not predict the
trends of future earnings. For this reason, Bancorp uses financial modeling to
forecast earnings under different interest rate projections. While this
modeling is helpful in managing interest rate risk, it does require significant
assumptions for the projection of liability funding sources that may prove to
be inaccurate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements and related documents
are set forth in this Annual Report on Form 10-K on the pages indicated:
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . 41
Consolidated Statements of Condition . . . . . . . . . . . . . . . . . . . . . . . 42
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . 43
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 44
Consolidated Statements of Changes in Shareholders' Equity . . . . . . . . . . . . 46
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
40
<PAGE> 42
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Citizens Bancorp and Subsidiary (Citizens Bank)
Corvallis, Oregon
We have audited the accompanying consolidated balance sheets of Citizens
Bancorp and Subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income and changes in shareholders' equity for each
of the three years in the period ended December 31, 1997, and the consolidated
statements of cash flows for the years ended December 31, 1997 and 1996 and
1995. These consolidated financial statements are the responsibility of the
Citizens Bancorp 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 consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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 position of Citizens Bancorp
and subsidiary as of December 31, 1997 and 1996 and 1995 and the results of its
operations for each of the three years in the period ended December 31, 1997,
and its cash flows for the years ended December 31, 1997 and 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ DAVE CHRISTENSEN
Dave Christensen
Certified Public Accountant
Portland, Oregon
February 27, 1998
41
<PAGE> 43
CITIZENS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ASSETS: 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and Due from Banks (Note 21) $ 9,268,406 $ 8,415,515
Interest-Bearing Deposits at Banks 15,299,483 16,380,480
Investment Securities (Notes 1 and 2 )
U.S. Treasury & U.S. Agencies Securities 41,646,142 44,013,602
States and Political Subdivisions 4,595,811 2,820,062
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES $ 46,241,953 $ 46,833,664
Federal Funds Sold 2,800,000 --
Loans, Net (Notes 1, 3 and 16) 120,268,770 114,647,608
Premises and Equipment, Net (Note 4) 2,755,773 2,567,489
Other Real Estate Owned (Note 1) 239,852 59,303
Core Deposit Intangible 310,000 350,000
Other Assets 2,933,221 2,632,751
- ------------------------------------------------------------------------------------------
TOTAL ASSETS (NOTE 15) $200,117,458 $191,886,810
==========================================================================================
- ------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------
Demand Deposits 35,682,828 43,874,759
Savings Deposits 70,562,032 66,551,764
Time Deposits (Note 5 and 16) 55,455,119 51,407,640
- ------------------------------------------------------------------------------------------
TOTAL DEPOSITS $161,699,979 $161,834,163
Repurchase Agreements (Note 10) 14,085,719 10,040,409
Treasury Tax and Loan 2,814,167 1,581,686
Other Liabilities 2,106,549 1,625,918
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES $180,706,414 $175,082,176
==========================================================================================
- ------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
- ------------------------------------------------------------------------------------------
Common Stock, No Par Value,
5,000,000 Shares Authorized, 1,922,321
Issued and Outstanding at December 31,
1997 and 1,798,397 Issued and Outstanding
at December 31, 1996 (Note 12) 9,245,450 8,991,984
Surplus 4,715,331 4,349,051
Undivided Profits 5,387,946 3,435,685
Unrealized Gain/Loss on Securities (Note 16) 62,317 27,914
- ------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (NOTE 15) $ 19,411,044 $ 16,804,634
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $200,117,458 $191,886,810
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
42
<PAGE> 44
CITIZENS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INTEREST INCOME: 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and Fees on Loans (Note 1) $12,249,564 $10,849,524 $ 9,732,617
Interest on Investments 2,603,729 2,615,212 2,744,756
Interest on Federal Funds Sold 8,043 9,495 5,762
Interest on Other Deposits 549,038 454,632 248,990
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $15,410,374 $13,928,863 $12,732,125
INTEREST EXPENSE:
- ------------------------------------------------------------------------------------------------
Interest on Deposits 4,775,237 4,595,699 4,324,320
Interest on Other Borrowings 511,445 438,226 400,932
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 5,286,682 $ 5,033,925 $ 4,725,252
NET INTEREST INCOME $10,123,692 $ 8,894,938 $ 8,006,873
================================================================================================
PROVISION FOR POSSIBLE LOAN
LOSSES (Notes 1 and 3) 165,000 134,500 100,000
- ------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES $ 9,958,692 $ 8,760,438 $ 7,906,873
- ------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
- ------------------------------------------------------------------------------------------------
Service Charges on Deposit Accounts 819,585 691,359 654,165
Gains on Sales of Securities 938 11,852 4,041
Other Operating Income 1,036,898 865,844 845,371
- ------------------------------------------------------------------------------------------------
TOTAL OTHER OPERATING INCOME $ 1,857,421 $ 1,569,055 $ 1,503,577
OTHER OPERATING EXPENSE:
- ------------------------------------------------------------------------------------------------
Salaries & Employee Benefits (Notes 1 & 6) 3,413,295 2,976,150 2,694,618
Net Occupancy Expense 982,003 939,985 813,603
Other Operating Expenses (Note 14) 2,056,261 1,615,220 1,703,929
- ------------------------------------------------------------------------------------------------
TOTAL OTHER OPERATING EXPENSE $ 6,451,559 $ 5,531,355 $ 5,212,150
INCOME BEFORE INCOME TAXES $ 5,364,554 $ 4,798,138 $ 4,198,300
================================================================================================
PROVISION FOR INCOME TAXES (Note 8) $ 2,023,000 $ 1,659,672 $ 1,538,922
- ------------------------------------------------------------------------------------------------
NET INCOME $ 3,341,554 $ 3,138,466 $ 2,659,378
================================================================================================
EARNINGS PER COMMON SHARE (Note 11)
- ------------------------------------------------------------------------------------------------
Income Before Extraordinary Items $ 1.73 $ 1.66 $ 1.44
Extraordinary Items -- -- --
NET INCOME $ 1.73 $ 1.66 $ 1.44
================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 1,992,321 1,888,289 1,849,573
================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
43
<PAGE> 45
<TABLE>
<CAPTION>
CITIZENS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) (NOTE 1)
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and fees received $ 15,357 $ 14,168 $ 12,371
Service charges and other income 1,857 1,569 1,504
Interest paid (5,304) (5,037) (4,713)
Cash paid to bank suppliers and staff (7,356) (5,167) (5,139)
Income taxes paid (2,195) (1,792) (1,539)
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,359 3,741 2,484
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------------
Purchases of available-for-sale securities (24,337) (21,391) (10,198)
Proceeds from sale of available-for-sale securities 2,000 3,000 2,000
Proceeds from maturity of available-for-sale securities 21,000 9,000 --
Purchases of held to maturity securities (449) (201) (9,556)
Proceeds from maturities of held-to-maturity securities 6,205 10,435 17,080
Proceeds from sale of held to maturity securities -- 3,053 --
Net increase in loans (5,755) (14,536) (11,263)
Proceeds from sale of fixed assets -- 14 288
Capital expenditures (46) (54) (121)
Other (3,899) -- --
Net decrease in interest-bearing deposits 1,081 -- --
Net (Increase) in Federal Funds (2,800) -- --
(Increase)/decrease Other Real Estate owned (181) -- 455
Purchases of Certificates of Deposit -- (10,500) --
- --------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,181) (21,180) (11,315)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in demand deposits and savings accounts (4,182) 21,705 (817)
Net increase in time deposits and repurchase agreements 8,093 3,584 6,705
Increase in treasury tax and loan note 1,233 986 (849)
Fed Funds Sold and Other -- 302 197
Dividends paid (declared in prior year) (1,079) (1,057) (865)
Dividends reinvested in stock 528 458 375
Other -- 30 (567)
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,593 26,008 4,179
NET INCREASE OR (DECREASE) IN CASH AND CASH EQUIVALENTS (229) 8,569 (4,652)
- --------------------------------------------------------------------------------------------------------------
Cash/cash equivalents at beginning of year 24,796 16,227 20,879
Cash/cash equivalents at end of year 24,567 24,796 16,227
==============================================================================================================
</TABLE>
44
<PAGE> 46
CITIZENS BANCORP AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(CONTINUED) (IN THOUSANDS)
Reconciliation of net income to net cash provided by operating activities:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 3,342 3,138 2,659
- -------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 347 420 290
Provision for possible loan losses 165 135 100
(Increase)/decrease in interest receivable (53) 239 (361)
Increase/(decrease) in other liabilities (841) 142 153
(Increase)/decrease in other assets (601) (333) (357)
- -------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (983) 603 (176)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,359 $ 3,741 2,484
===========================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
45
<PAGE> 47
CITIZENS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN
COMMON UNDIVIDED (LOSS ON)
STOCK SURPLUS PROFITS SECURITIES TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1994 $ 3,602,494 $ 5,005,903 $ 3,673,778 $ (7,825) $ 12,274,350
- ----------------------------------------------------------------------------------------------------------------------
Net Income for 1995 -- -- 2,659,378 -- 2,659,378
Cash Dividend Reinvestment (Note 7)
($27.87 Per Share) 67,293 307,802 -- -- 375,095
Transfer from Undivided Profits to Surplus -- 900,000 (900,000) -- --
Stock Split (1 for 5)
(Note 12) 733,958 (733,958) -- -- --
Unrealized Gain/Loss on Securities -- -- -- 17,171 17,171
Cash dividend ($0.60 Per Share) (Note 12) -- -- (1,056,899) -- (1,056,899)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1995 $ 4,403,745 $ 5,479,747 $ 4,376,257 $ 9,346 $ 14,269,095
- ----------------------------------------------------------------------------------------------------------------------
Net Income for 1996 (Note 20) -- -- 3,138,466 -- 3,138,466
Cash Dividend Reinvestment
(Note 7) ($ 24.80 Per Share) 92,247 365,296 -- -- 457,543
Transfer from Undivided Profits to Surplus -- 3,000,000 (3,000,000) -- --
Stock Split (2- for-1) (Note 12) 4,495,992 (4,495,992) -- -- --
Unrealized Gain/Loss on Securities -- -- 18,568 18,568
Cash dividend ($0.60 Per Share) (Note 12) -- -- (1,079,038) -- (1,079,038)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1996 $ 8,991,984 $ 4,349,051 $ 3,435,685 $ 27,914 $ 16,804,634
- ----------------------------------------------------------------------------------------------------------------------
Net Income for 1997 -- -- 3,341,554 -- 3,341,554
Cash Dividend Reinvestment (Note 7)
($ 16.31 Per Share) 161,927 366,280 -- -- 528,207
Prior Percent Adjustment (Note 20) -- -- 9,424 -- 9,424
5% Stock Dividend (Note 12) 91,539 -- (91,539) -- --
Unrealized Gain/Loss on Securities -- -- -- 34,403 34,403
Cash dividend ($0.68 Per Share) (Note 12) -- -- (1,307,178) -- (1,307,178)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1997 $ 9,245,450 $ 4,715,331 $ 5,387,946 $ 62,317 $ 19,411,044
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
46
<PAGE> 48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Citizens Bancorp and subsidiary
(Citizens Bank) conform with generally accepted accounting principles. The
following is a description of significant policies.
NATURE OF OPERATIONS
The company provides a variety of financial services to individuals and
corporate customers in Lane, Linn, and Benton Counties in Oregon.
FORMATION AND COMBINATION OF CITIZENS BANCORP AND CITIZENS BANK
Citizens Bancorp was incorporated on September 18, 1996, and became the parent
holding company of Citizens Bank through a pooling-of-interests merger and a
one-for-one stock exchange. The effective date of the merger was July 1, 1997.
As a result of the merger, Citizens Bancorp acquired 100% of the common stock
of Citizens Bank, and the shareholders of the Citizens Bank became shareholders
of Citizens Bancorp.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Citizens Bancorp
and its wholly owned subsidiary, Citizens Bank. All material intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of foreclosed real estate. In connection with the
determination of the estimated losses on loans and foreclosed real estate,
management obtains independent appraisals for significant properties.
A majority of the Company's loan portfolio consist of single-family residential
loans and commercial loans secured by real estate in the Lane, Linn and Benton
County areas. Real estate prices in this market are stable at this time. The
ultimate collectibility of a substantial portion of the Company's loan
portfolio may be susceptible to change in local market conditions in the
future.
47
<PAGE> 49
While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Company to recognize additional
losses based on their judgments about information available to them at the time
of their examination. Because of these factors, it is reasonably possible
that the estimated losses on loans may change materially in the near term.
However, the amount of the change that is reasonably possible cannot be
estimated.
Investment Securities
The Company accounts for its investment securities using Financial Accounting
Standards Board Statement SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." Under the standard, investment securities are
classified as either available for sale or held to maturity. Available for
sale securities are carried at fair value with unrealized gains and losses, net
of any tax effect, added to or deducted directly from stockholders' equity.
Held to maturity securities are carried at amortized cost.
Loans and Loan Fee Income
Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan losses. Interest on loans is calculated by using the simple interest
method on daily principal amounts outstanding. Loan fee income is recognized
net of costs over the life of the loan. The direct incremental costs are not
reduced or amortized over the life of the loan as the amounts are not
considered material to the financial statements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
considered necessary to secure the loan is based on the amount of the loan and
management's credit evaluation of the customer. Collateral may include
accounts receivable, inventory, property, plant and equipment, real estate,
marketable securities and other income producing property. The loans are
generally expected to be repaid from the income and cash flow of the customer
or from the sale of selected assets of the customer.
Reserve for Possible Loan Losses
The reserve for possible loan losses is based upon management's periodic
analysis of the loan portfolio, evaluation of current economic conditions, and
other pertinent factors. Ultimate losses may vary from the current estimates
and, as additions to the reserve become necessary, are reported in earnings in
the period in which they become known. Losses are charged and recoveries are
credited to the reserve.
Other Real Estate Owned
Other real estate owned, which represents real estate acquired through
foreclosure, is stated at the lower of the carrying value of the loan or the
estimated fair market value of the related real estate. Loan balances in
excess of the fair market values of the real estate at the date of acquisition
are charges against the allowance for loan losses. Any subsequent operating
expenses or income and gains or losses on sales of such properties are charged
to current operations.
Statement of Cash Flows
The company considers all cash, amounts due from depository institutions and
interest-bearing deposits in other banks to be cash equivalents for purposes
of the statements of cash flows.
48
<PAGE> 50
Reclassifications
Certain amounts in 1996 and 1995 have been reclassified to conform with the 1997
financial statement presentation.
2. INVESTMENT SECURITIES:
The book value and approximate market value of securities, and the unrealized
gains and losses on these securities were as follows (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
---------------------------------------
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAIN LOSS
----------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31,1997
U.S. Treasury & U.S. Agency Securities 35,554 35,645 97 (6)
States & Political Subdivisions 613 613 -- --
----------------------------------------------------
36,167 36,258 97 (6)
====================================================
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
------------------------------------------------
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAIN LOSS
------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Treasury & U.S. Agency Securities 31,057 31,099 41 --
States & Political Subdivisions -- -- -- --
------------------------------------------------
31,057 31,099 41 --
================================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
HELD-TO-MATURITY
--------------------------------------------------
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAIN LOSS
--------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury & U.S. Agency Securities 6,000 6,036 36 --
States & Political Subdivisions 3,983 4,061 78 --
--------------------------------------------------
9,983 10,097 114 --
==================================================
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
HELD-T-TO-MATURITY
-------------------------------------------------------
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAIN LOSS
-------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Treasury & U.S. Agency Securities 10,007 10,066 59 --
States & Political Subdivisions 5,728 5,699 -- (29)
----------------------------------------------------
15,735 15,765 59 (29)
====================================================
</TABLE>
49
<PAGE> 51
As of December 31, 1997 and 1996, securities carried at $28,738,000
(Market value $28,843,960) and approximately $31,865,967 (Market value
$32,029,905), respectively, were pledged to secure public funds on deposit and
for other purposes required by law.
The book value and approximate market value of securities summarized by
their maturity dates were as follows (in thousands):
<TABLE>
<CAPTION>
DATES OF MATURITIES
----------------------------------------------
AVAILABLE-FOR-SALE
----------------------------------------------
UNDER 1-5 6-10 OVER
1 YEAR YEARS YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury & U.S. Agency Securities
Book Value 18,499 17,055 -- --
Market Value 18,523 17,123 -- --
States & Political Subdivisions
Book Value -- 612 -- --
Market Value -- 612 -- --
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
DATES OF MATURITIES
------------------------------------------------
HELD-TO-MATURITY
------------------------------------------------
UNDER 1-5 6-10 OVER
1 YEAR YEARS YEARS 10 YEARS
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury & U.S. Agency Securities
Book Value 3,966 2,034 -- --
Market Value 3,988 2,048 -- --
States & Political Subdivisions
Book Value 1,442 1,310 1,134 97
Market Value 1,450 1,339 1,171 101
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, proceeds from
the sale of available-for-sale securities were approximately $2,000,000,
$3,018,464 and $19,585,000, respectively. In 1997, the gross realized gains on
these sales were $1,000. In 1996, the gross realized losses on these sales were
$2,798. In 1995, the gross realized losses on these sales were $14,000.
50
<PAGE> 52
3. LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES: The loan portfolio consisted of
the following (in thousands):
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996
-----------------------------
<S> <C> <C>
Commercial $ 23,507 $ 21,975
Agriculture 10,992 9,072
Real Estate
Construction 5,459 3,865
1-4 Family 34,625 34,322
Other 42,142 40,300
Consumer 5,423 6,861
Less: unearned income and deferred fees (678) (709)
TOTAL LOANS $ 121,470 $ 115,686
-----------------------------
Less: reserve for possible loan losses (1,201) (1,038)
-----------------------------
NET LOANS $ 120,269 $ 114,648
=============================
</TABLE>
As of December 31, 1997 and 1996, the Bank had loans to persons serving as
directors, officers and entities related to such individuals. An analysis of
activity with respect to these loans at December 31, 1997 was as follows:
<TABLE>
<S> <C>
Balance at December 31, 1996 $ 2,003,111
Additions 1,223,111
Repayments (1,066,350)
-----------
Balance at December 31, 1997 $ 2,159,872
</TABLE>
The following, is an analysis of the changes in the reserve for possible loan
losses (in thousands):
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Beginning Balance $ 1,038 $ 896 $ 844
Provision for Possible Loan Losses 165 134 100
Recoveries -- 16 5
Losses (2) (8) (53)
-----------------------------------------
Ending Balance $ 1,201 $ 1,038 $ 896
=========================================
</TABLE>
51
<PAGE> 53
NON-PERFORMING LOANS (IN THOUSANDS):
<TABLE>
<CAPTION>
FOR YEARS ENDED
DECEMBER 31,
-------------------
1997 1996
-------------------
<S> <C> <C>
Loans 90 days or more past due and still
accruing interest $438 $ 23
Non-Accrual loans -- 4
-------------------
$438 $ 27
===================
</TABLE>
4. BANK PREMISES AND EQUIPMENT:
Bank premises, furniture and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Land and Buildings 3,935 3,863
Furniture and Equipment 2,134 2,006
-----------------------
6,069 5,869
Less: Accumulated Depreciation (3,313) (3,302)
-----------------------
2,756 2,567
=======================
</TABLE>
The provision for depreciation is computed using straight-line and
accelerated methods and totaled $307,299, $350,303, and $289,502, in 1997,
1996 and 1995, respectively. Depreciation is based on useful lives of 10
to 40 years for buildings and components; 10 to 15 years for leasehold
improvements, or terms of lease, whichever is less; and 3 to 10 years for
furniture and equipment.
5. TIME DEPOSITS:
Time certificates of deposit in excess of $100,000 aggregated approximately
$14,300,000 and $13,953,984 at December 31, 1997 and 1996, respectively.
6. EMPLOYEE BENEFIT PLANS:
The Bank maintains a non-contributory, profit-sharing plan which covers
substantially all full-time employees. Contributions to the Plan were $280,991,
$251,719, and $270,275, in 1997, 1996 and 1995, respectively. Contributions in
similar amounts are expected to continue. The Bank follows the policy of funding
all accrued contributions to the Plan. The Plan is administered under the terms
of the Citizens Bank profit sharing and Salary Deferral 401(A) Plan.
7. CASH DIVIDEND REINVESTMENT PLAN:
The Bank established a cash dividend reinvestment plan in 1990 and Citizens
Bancorp adopted a revised plan on July 15, 1997. The revised reinvestment plan
allows for 50% or 100% of the cash dividends to be reinvested based upon
shareholder election. The plan is for shareholders who may reinvest their cash
dividends to receive shares of additional stock. For the years ended December
31, 1997 and 1996, $528,207 of cash dividends were reinvested in 32,385 shares
of stock valued at $16.31 per share, and $457,543 of cash dividends were
reinvested in 18,449 shares of stock valued at $24.80 per share, respectively.
52
<PAGE> 54
8. INCOME TAXES:
The company and Subsidiary Bank file consolidated federal income tax returns on
a calendar-year basis (in thousands):
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Currently Payable:
Federal $ 1,752 $ 1,415 $ 1,250
State 213 330 140
Deferred Tax Expense/(Benefit):
Federal 48 (80) 148
State 10 (6) 1
----------------------------------------
$ 2,023 $ 1,659 $ 1,539
========================================
</TABLE>
Deferred tax assets and liabilities included in other assets at December 31
consist of the following:
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Deferred Tax Assets:
Allowance for loan losses $ 414 $ 525 $ 280
Deferred compensation 51 (54) 58
-----------------------------------
465 $ 471 338
Deferred tax liabilities:
Accumulated depreciation (32) (54) (114)
Other (19) -- 22
-----------------------------------
(51) (54) (92)
-----------------------------------
Net deferred tax asset $ 414 $ 417 $ 246
===================================
</TABLE>
53
<PAGE> 55
As a result of the following items, the total tax expense for 1997 was more, and
1996 and 1995 were less, that the amount computed by applying the statutory U.S.
Federal income tax rate to income before taxes (in thousands):
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------------------------------
PERCENT PERCENT PERCENT
OF OF OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal rate $ 1,836 34% $ 1,635 34% $ 1,427 34%
Changes due to
State income tax, net of
Federal tax benefit 140 195 92 --
Exempt interest (59) -- (108) -- (128) --
Other 106 -- (63) -- 148 --
-------------------------------------------------------------------------------------
Total $ 2,023 37% $ 1,659 35% $ 1,539 36%
=====================================================================================
</TABLE>
The tax provision differs from the Federal statutory rate of 34% due principally
to the effect of tax exemptions for interest received on state and municipal
bonds and the change in the temporary differences between the company expense
and tax return deduction.
9. LEASES
The Applegate office building the Circle building and the University office
building are being leased by the Company under a noncancelable leases. The
Applegate office lease has two five-year option periods after 1998. The Circle
office is being leased under a noncancelable lease expiring on January 31, 2020.
The following is a schedule of minimum future rental payments to be made under
operating leases as of December 31, 1997:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
--------------------------------------------------
<S> <C>
1998 91,000
1999 93,000
2000 93,000
2001 93,000
2002 93,000
--------------------------------------------------
Total $463,000
</TABLE>
10. REPURCHASE AGREEMENTS:
At December 31, 1997 and 1996, the securities sold under repurchase agreements
aggregated $14,085,719 and $10,040,409, respectively. U.S. Treasury Notes
aggregating $20,024,748 and $10,040,409 were pledged to these agreements at
December 31, 1997 and 1996, respectively. Fair market values of the securities
pledged were approximately $20,073,129 and $10,051,900 at December 31, 1997 and
1996, respectively.
11. EARNINGS PER SHARE:
Net income per share is based upon the weighted average number of shares
outstanding during each period and adjusted retroactively to reflect stock
splits, and stock dividends.
54
<PAGE> 56
12. COMMON STOCK:
A total of 32,385, 18,449 and 13,459 shares were issued in 1997, 1996, and 1995,
respectively, as a result of the cash dividend reinvestment plan. A 5% stock
dividend, a 2-for-1 stock split, and a 20% stock split were declared in 1997,
1996, and 1995, respectively. The number of shares issued and outstanding, as
well as all stock-related transactions, and dividends per share have been
adjusted retroactively in the financial statements and the accompanying notes
for all periods presented prior to 1997 to give effect for these transactions.
The par value of the stock has not been changed due to a legal requirement. If
the par value of the 2-for-1 stock split in 1996 had been adjusted, then the
balance of Common Stock would have been $4,495,992, as of December 31, 1996 and
as of December 31, 1997, and total Shareholders Equity unchanged.
13. COMMITMENTS:
In the normal course of business, the Bank enters into financial instruments
with off-balance-sheet risk to meet financing needs of its customers. These
instruments, which include commitments to extend credit and standby letters of
credit, involve varying degrees of credit and interest rate risk which are not
reflected in the financial statements. These instruments generally have fixed
expiration dates and do not necessarily represent future cash requirements since
they often expire without being drawn upon. The Bank's criterion for issuing
such instruments are the same as those for loans made in the normal course of
business.
Those financial instruments whose contract amount represents the maximum credit
risk were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Loan Commitments $18,716 $20,097
Standby Letters of Credit 2,165 2,365
</TABLE>
14. OTHER EXPENSES
The following is a breakdown of other operating expenses for the years ended
December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Advertising 108 54 61
Bank Card Expense 481 391 --
Cash Management Fees 83 82 81
Postage 130 108 116
Travel 56 37 23
Office Supplies 182 151 145
Other 1041 783 1,278
------------------------------------
Total $2,081 $1,606 $1,704
====================================
</TABLE>
55
<PAGE> 57
15. REGULATORY CAPITAL MATTERS:
Citizens Bank is subject to various regulatory capital requirements administered
by its federal regulator, the Federal Deposit Insurance Corporation (FDIC) and
the Federal Reserve. Failure to meet the minimum regulatory capital requirements
can initiate certain mandatory, and possible additional discretionary actions by
regulators, that if undertaken, could have a direct material affect on the
Bank's financial statements. Under the regulatory capital adequacy guidelines
and the regulatory framework for prompt corrective action, the bank must meet
specific capital guidelines involving quantitative measures of the bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
under the prompt corrective action guidelines are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total risk-based
capital and Tier 1 capital to risk-weighted assets (as defined in the
regulation), and Tier 1 capital to adjusted total assets. Management believes,
as of December 31, 1997, and 1996, and by the most recent notification from the
FDIC, the Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action. To remain categorized as well
capitalized, the Bank will have to maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as disclosed in the table below. There
are no conditions or events since the most recent notification that management
believes have changed the Bank's prompt corrective action category.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
CITIZENS BANK UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
(IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- ------ ----- ------ ----- ------ -----
AS OF DECEMBER 31, 1997:
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Risk-Based Capital
(to Risk-Weighted Assets) 20,239 16.3% 9,734 >8% 12,167 >10%
- -
Tier 1 Capital
(to Risk-Weighted Assets) 19,038 15.6% 3,042 >4% 6,084 >6%
- -
Tier 1 Capital
(To average Total Assets) 19,038 9.69% 7,867 >4% 9,834 >5%
- -
AS OF DECEMBER 31, 1996:
- ------------------------
Total Risk-Based Capital 17,406 13.5% 10,304 >8% 12,881 >10%
- -
(to Risk-Weighted Assets)
Tier 1 Capital
(to Risk-Weighted Assets) 16,368 12.7% 5,152 >4% 7,729 >6%
- -
Tier 1 Capital
(To average Total Assets) 16,368 8.8% 7,419 >4% 9,274 >5%
- -
</TABLE>
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial accounting standards require disclosure in the footnotes to the
financial statements information about the fair value of financial
instruments. The following methods and assumptions were used to estimate
the fair value of financial instruments:
56
<PAGE> 58
INVESTMENT SECURITIES
For U.S. Treasury and U.S. Government Agency securities, fair values are
based on market prices. For other investment securities, fair value
equals quoted market price if available. If a quoted market price is not
available, the value is estimated using quoted market prices for similar
securities.
LOANS
The fair value for loans with variable interest rates is the carrying
amount. The fair value of fixed rate loans is derived by calculating the
discounted value of the future cash flows expected to be received by the
various homogeneous categories of loans.
DEPOSITS
The fair value of demand deposits, savings deposits, savings accounts,
and NOW accounts is defined as the amount payable on demand at December
31, 1997. The fair value of fixed maturity certificates of deposit is
estimated based on the discounted value of the future cash flows expected
to be paid on the deposits, or current market value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
parties involved. For fixed-rate loan commitments, fair value also
considered the difference between current levels of interest rates and
committed rates. The fair values of guarantees and letters of credit are
based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations with
parties involved at December 31, 1997. The estimated fair values of
Citizens Bancorp financial instruments are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) DECEMBER 31, 1997 DECEMBER 31, 1997
CARRYING AMOUNT FAIR VALUE
-------- --------
<S> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 9,268 $ 9,268
Investment securities 46,242 46,356
Loans, gross 121,470 121,438
FINANCIAL LIABILITIES
Certificates of deposit 55,455 55,409
Other deposits 106,245 106,245
Repurchase agreements 14,086 14,086
UNRECOGNIZED FINANCIAL INSTRUMENTS
Commitments to extend credit 18,716 18,716
Standby letters of credit 2,165 2,165
</TABLE>
57
<PAGE> 59
17. CONDENSED FINANCIAL INFORMATION OF CITIZENS BANCORP (PARENT COMPANY)
(IN THOUSANDS:)
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION
ASSETS 1997 1996
<S> <C> <C>
Cash 1,326 1
Investments in Subsidiary 19,270 --
Prepaid and Other 59 --
------ ------
TOTAL ASSETS 20,655 1
================================================================================
LIABILITIES
Dividends Payable 1,307 --
Loan Payable -- 10
STOCKHOLDER'S EQUITY
Common Stock 13,960 --
Retained Earnings 5,388 (9)
------ ------
Total Stockholders Equity 19,348 (9)
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 20,655 1
================================================================================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
INCOME 1997 1996
<S> <C> <C>
Interest and other income -- --
EXPENSE
Amortization and other expense 59 9
Interest expense 1 --
Net (Loss) Income Before Tax Benefit (60) (9)
Tax benefit of parent's operating expenses 24 4
--- ---
TOTAL INCOME (LOSS) (36) (5)
================================================================================
</TABLE>
58
<PAGE> 60
17. CONDENSED PARENT COMPANY:
(IN THOUSANDS) (CONTINUED)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Transfer from Bank for Dividends 1,307 --
Dividend received from Citizens Bank 92 --
Interest Paid (1) --
Cash paid for operating expenses (59) (9)
---- ---
Net Cash Provided (Used) by Operating Activities 1,339 (9)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Software (15) --
CASH FLOWS FROM FINANCING ACTIVITIES
Short-Term debt 20 10
Other 11 --
Principal payment on short- term debit (30) --
Net Cash Provided (Used) by Financing Activities 1 1
----- --
NET INCREASE/(DECREASE) IN CASH 1,325 1
CASH, beginning of year 1 --
CASH, end of year 1,326 1
====================================================================================================================
RECONCILIATION OF NET INCREASE TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income (Loss) (59) (9)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Amortization 3 --
Distribution for Dividends to be paid 1,307 --
(Increase)/decrease in prepaid and other 36 --
Other 52 --
----- --
Total Adjustments 1,398 --
----- --
Net Cash Provided by Operating Activities 1,339 (9)
</TABLE>
59
<PAGE> 61
18. RESTRICTION ON TRANSFERS OF FUNDS TO PARENT
There are legal limitations on the ability of the Bank to provide funds to
the company. Dividends declared by the Bank may not exceed, in any
calendar year, without the approval of the State Banking Department, net
income for the year and the retained net income for the preceding two
years. Section 23A of the Federal Reserve Act restricts the Bank from
extending credit to the Parent Company amounting to more than 20% of its
contributed capital and retained earnings.
19. CONTINGENCIES:
The Bank is presently involved in certain legal matters arising from the
normal course of business. In the opinion of management and the Bank's
legal counsel, adverse disposition of any such legal matters will not have
a material effect on the Bank's financial statements.
20. PRIOR PERIOD ADJUSTMENT:
In 1996, the Bank paid approximately $9,424 of Citizens Bancorp expenses
prior to formation of the Holding Company. This amount was reflected as a
reduction of undivided profits and was also reflected in consolidated net
income of the combined company in 1997.
21. RESTRICTED ASSETS:
Federal Reserve board regulations require that the Company maintain
certain minimum reserve balances on deposit with the Federal Reserve Bank.
The amounts of such balances for the years ended December 31, 1997 and
1996 were approximately $2,023,000 and $2,351,000, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
Within the 24 months prior to December 31, 1997, Citizens Bancorp has
neither changed independent accountants, David O. Christensen, CPA, at either
Citizens Bancorp's election or by reason of the accountant's resignation, nor
had any disagreements in regards to matters of accounting principles, practices
or financial statement disclosure.
FISCAL 1998
In December of 1997 Bancorp's management recommended to the
Audit/Examination Committee of the Board of Directors that Bancorp solicit bids
from independent certified public accountants to perform its accounting and
auditing work beginning in the 1998 fiscal year. The Committee approved the
recommendation, and directed management to schedule interviews to evaluate
qualified candidates to serve as Bancorp's independent accountant.
60
<PAGE> 62
The Audit/Examination Committee scheduled interviews with three
accounting firms as part of its review and evaluation process. David O.
Christensen, C.P.A., Bancorp's auditor and independent accountant was invited to
be considered as a candidate for Bancorp's future accounting and auditing work
and to be included among firms interviewed. Mr. Christensen notified Bancorp on
January 9, 1998 that he declined to stand for consideration or for re-election
as Bancorp's independent accountant. The Committee held its interviews on
February 11, 1998, and thereafter recommended that the accounting firm of
Knight, Vale and Gregory, Inc., P.S. ("KVG") be retained as Bancorp's
independent accountant. The recommendation was approved by the Bancorp Board of
Directors on February 17, 1998.
The recommendation did not arise from any disagreements, within the
meaning of Item 304 of SEC Regulation S-K, between Bancorp and David O.
Christensen, and there have been no such disagreements, or any "reportable
events" under paragraph (a)(1)(v) of Item 304, with respect to any financial
statement, audit, report or tax return or any matters relating thereto for
Bancorp's two most recent fiscal years or any subsequent interim period through
January 9, 1998. In particular, with respect to such financial statements, Mr.
Christensen's report did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
Mr. Christensen was retained by Bancorp to complete Bancorp's fiscal
1997 financial statements, audit, and tax return. Beginning on February 18, 1998
KVG commenced providing accounting and audit services to Bancorp for matters
arising in fiscal 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding "Directors and Executive Officers" of
Bancorp, see pages 2-11 of Bancorp's 1997 Annual Meeting Proxy Statement ("Proxy
Statement"), which is herein incorporated by reference.
Section 16(a) Beneficial Ownership Reporting Compliance
With respect to Item 405 of Regulation S-K, the following executive
officers did not timely report initial acquisitions of Bancorp common stock
during the 1997 fiscal year.
1. Scott Zimbrick, Senior Vice President and Branch Manager of
Citizens Bank, and his spouse jointly acquired 40 shares of
Bancorp common stock on 11/14/97 at a price of $25.00 per
share. The first report of this acquisition was on Form 5
file on or about March 17, 1998. There were no other stock
acquisitions or untimely filings during fiscal 1997 for
this individual.
61
<PAGE> 63
2. Lark E. Wysham, Chief Financial Officer of Bancorp and
Citizens Bank, and her spouse jointly acquired 40 shares of
Bancorp common stock on 11/14/97 at a price of $25.00 per
share. The first report of this was on Form 5 filed on or
about March 17, 1998. There were no other stock
acquisitions or untimely filings during fiscal 1997 for
this individual.
ITEM 11. EXECUTIVE COMPENSATION
For information regarding executive compensation, see "Executive
Compensation" on pages 8-9 in the Proxy Statement, which is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information regarding the security ownership of certain
beneficial owners and management, see page 5 "Bancorp Stock Ownership of Board
Nominees, Board Members and Executive Officers" and page 6 "Bancorp Stock
Ownership Holders of more than 5% Stock" in the Proxy Statement, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information regarding certain relationships and related
transactions, see pages 2-11 and see page 10 "Transactions Involving Executive
Officers and Directors of Bancorp and Citizens Bank" in the Proxy Statement,
which is incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.
List of Financial Statements and Financial Statement Schedules (a)
(1) and (2) Financial Statements:
The financial statements and related documents listed in the index
set forth in Item 8 of this report are filed as part of this report.
All other schedules to the consolidated financial statements required
by Regulation S-X are omitted because they are not applicable, not material, or
because the information is included in the consolidated financial statements or
related notes.
62
<PAGE> 64
(c) LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER Page
- ----------------
<S> <C> <C>
(2) Agreement and Plan of Reorganization and Merger for Formation of
One-Bank Holding Company...................................................... ii
(3)(i) Articles of Incorporation Citizens Bancorp.................................... x
(ii) Bylaws of Citizens Bancorp.................................................... xv
(10.1) Citizens Bancorp Dividend Reinvestment Plan .................................. xxi
(10.2) Citizens Bank Profit Sharing Plan and Trust [401(A)].......................... xxxvi
(10.3) Citizens Bank Deferred Compensation Plan...................................... clxv
(16) Letter Re: Change in Certifying Accountant.................................... clxxvii
</TABLE>
No Reports on Form 8K were filed during the fourth quarter of the
1997 calendar year.
63
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned; thereunto duly authorized, on the ___ day of
March, 1998.
CITIZENS BANCORP
(Registrant)
By: /s/
-------------------------------------
William V. Humphreys
President and Chief Executive Officer
Each person whose individual signature appears below hereby
authorizes and appoints William V. Humphreys and Lark Wysham, and each of them,
with full power of substitution and full power to act without the other, as
his/her true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person individually and
in each capacity stated below, and to file any and all amendments to this
Registration Statement, including any and all post-effective amendments.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of March 1998.
PRINCIPAL EXECUTIVE OFFICER:
/s/ William V. Humphreys President and Chief Executive Officer
- --------------------------------------------------------------------------
William V. Humphreys
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Lark Wysham Senior Vice President and Chief Financial Officer
- --------------------------------------------------------------------------
Lark Wysham
REMAINING DIRECTORS:
/s/ /s/
- ------------------------------- ---------------------------------
Gene Thompson Jock Gibson
/s/ /s/
- ------------------------------- ---------------------------------
Rosetta Venell Jim Richards
/s/ /s/
- ------------------------------- ---------------------------------
John Truax Scott Fewel
/s/
- -------------------------------
Larry Hunter
64
<PAGE> 1
EXHIBIT (2)
AGREEMENT AND PLAN OF REORGANIZATION
AND MERGER FOR FORMATION OF
ONE-BANK HOLDING COMPANY
PARTIES: CITIZENS BANK ("Citizens")
CITIZENS BANCORP ("Bancorp")
DATE: October 15, 1996
RECITALS
A. Citizens is a bank organized and existing under the laws of the State
of Oregon with its principal office at 275 South Third Street, Corvallis,
Oregon, and with branches in Corvallis, Albany, Veneta, Philomath, and Junction
City, Oregon.
B. Bancorp is a newly formed Oregon corporation organized at the direction
of the Board of Directors of Citizens for the purpose of becoming the one-bank
holding company of Citizens within the meaning of ORS 715.010(2).
C. The respective members of the Board of Directors of Citizens and the
Board of Directors of Bancorp are identical.
D. Bancorp intends to form a wholly owned subsidiary, Interim Bank
Citizens, Inc. ("IBC"), under ORS 707.025 as a so-called "phantom bank" for the
purpose of effecting the plan of reorganization and merger described in this
Agreement (the "Agreement").
E. The Board of Directors of Citizens has concluded that the formation of
Bancorp and IBC, and the merger of IBC and Citizens so as to constitute Bancorp
as the holding company of Citizens, are in the best interests of the
shareholders of Citizens.
NOW, THEREFORE, THE PARTIES AGREE:
1. THE MERGER.
1.1 Merger of Citizens and IBC. Subject to the terms and conditions of the
Agreement and applicable law, on the Effective Date as defined herein Citizens
and IBC shall merge (the "Merger"). Following the Merger, Citizens shall be the
"resulting bank" as defined in ORS 711.005(5).
ii
<PAGE> 2
1.2 Effective Date. The Merger shall become effective (the "Effective
Date") on the date specified in the Certificate of Merger issued by the Director
of the Department of Consumer and Business Services, Division of Finance and
Corporate Securities, State of Oregon (the "Director") pursuant to ORS 711.030.
The Effective Date shall be no earlier than March 1, 1997, and no later than May
31, 1997, except that the Effective Date may be extended beyond May 31, 1997, by
a written amendment to the agreement.
1.3 Effects of the Merger. On the Effective Date, Citizens shall become a
wholly owned subsidiary of Bancorp, and the existing shareholders of Citizens
shall become shareholders of Bancorp. The Merger shall not implement any change
in the places of business, business operations or personnel of Citizens other
than as expressly provided in the Agreement.
1.4 Role of IBC. IBC shall be organized under ORS 707.025 and shall apply
for a Charter solely for the purpose of serving as the "phantom bank" in the
Merger. IBC shall at no time prior to the Effective Date have any business
operations, employees, liabilities or material assets, and shall not survive the
Merger.
1.5 Bank Charter, Articles and Bylaws. The Charter of Citizens in effect
prior to the Effective Date shall be the Charter of Citizens on the Effective
Date. The Articles of Incorporation and Bylaws of Citizens in effect prior to
the Effective Date shall be the Articles of Incorporation and Bylaws of Citizens
on the Effective Date.
1.6 Directors and Officers of Citizens. The Merger shall have no effect on
the number, identity or terms of service of the directors and officers of
Citizens. All such directors and officers serving immediately prior to the
Effective Date shall be the directors and officers of Citizens on the Effective
Date, all of whom shall continue in office until their respective successors are
duly qualified and elected as provided in the Articles of Incorporation and
Bylaws of Citizens.
1.7 Directors and Officers of Bancorp. The Merger shall have no effect on
the number, identity or terms of service of the directors and officers of
Bancorp. All such directors and officers serving immediately prior to the
Effective Date shall be the directors and officers of Bancorp on the Effective
Date, all of whom shall continue in office until their respective successors are
duly qualified and elected as provided in the Articles of Incorporation and
Bylaws of Bancorp. Approval of the Merger by the shareholders of Citizens shall
constitute the election by such shareholders of the directors of Bancorp
commencing as of the Effective Date, provided that in the case of staggered
terms or otherwise, such election shall not extend any existing term of service
of such directors.
1.8 Issuance of Shares by Subsidiary. Prior to the Effective Date IBC
shall issue one (1) share of stock to Bancorp, its parent corporation and sole
shareholder. On or after the Effective Date, Citizens as the resulting Bank
shall issue shares of common stock to Bancorp, its parent corporation and sole
shareholder, and the share of stock of IBC issued prior to the Effective Date
shall be surrendered and cancelled. The shares issued to Bancorp by Citizens
shall be in an amount sufficient to preserve Citizens' capital structure prior
to the Effective Date, including the par value of Citizens' stock, surplus, and
undivided profits.
iii
<PAGE> 3
1.9 Exchange of Pre-Merger Citizens Shares for Bancorp Shares. On the
Effective Date, stockholders of Citizens will be entitled to receive one (1)
share of Bancorp common stock in exchange for one (1) share of Citizens common
stock owned by such shareholder. Bancorp or Citizens shall serve as the exchange
agent for the purpose of exchanging shares. On or promptly after the Effective
Date, Bancorp shall issue sufficient shares to effect the exchange. Bancorp may
do so either by issuing certificates or by issuing shares without certificates
under ORS 60.164. In either case stockholders of Citizens shall be requested to
surrender for cancellation all certificates representing shares of Citizens.
1.10 Conversion of Pre-Merger Citizens Shares. Each share of common stock
of Citizens which is issued and outstanding prior to the Effective Date (except
for shares held by dissenters) shall, on the Effective Date, by virtue of the
Merger and without any action on the part of the holder thereof, cease to exist
and shall be cancelled and converted into the right to receive one share of
common stock of Bancorp.
1.11 Dissenters. Any stockholders of Citizens who have exercised and
perfected their rights as dissenters pursuant to ORS 711.042 and 711.045 shall
be entitled to receive, in exchange for their shares, the amount determined in
accordance with ORS 711.045(2)-(6).
1.12 Post-Merger Transfers. After the Effective Date, there shall be no
transfers on the stock transfer books of Citizens of the shares which were
outstanding immediately prior to the Effective Date. If, after the Effective
Date, certificates representing Citizens shares are presented to Citizens, they
shall be cancelled and exchanged for shares of Bancorp. Citizens shall hold any
unissued stock in accordance with the Agreement and applicable law.
1.13 Citizens Stockholders' Meeting. The Board of Directors of Citizens
shall, in accordance with its Articles of Incorporation, Bylaws and applicable
law:
1.13.1 Present the Agreement and Merger at the 1997 annual meeting
(the "Annual Meeting") of Citizens stockholders for the purpose of allowing the
stockholders to consider and vote upon the Merger;
1.13.2 Include in the proxy statement for the Annual Meeting (the
"Proxy Statement") a statement that the Board of Directors of Citizens recommend
that stockholders vote in favor of the Merger; and
1.13.3 Use its best efforts to obtain the requisite approval the
Merger by the stockholders.
iv
<PAGE> 4
2. CLOSING.
2.1 Closing Date. Subject to the satisfaction or waiver of all conditions
set forth in Section 5, the closing of the Merger (the "Closing") shall occur on
a date not later than thirty (30) business days after the Merger has been
approved by all applicable regulatory authorities and all required waiting
periods have elapsed.
2.2 Actions to Take Place at Closing. At the Closing, Citizens and Bancorp
shall execute and deliver the closing certificates of executive officers and
other documents required of each of them under the Agreement.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 Limitation of Representations and Warranties. The parties acknowledge
and agree that the Merger does not constitute a negotiated, arms-length
transaction between two independent entities, but rather is an organizational
device permitted by statue and by state and federal regulations to effect the
formation of a one-bank holding company. For this reason, warranties and
representations that would otherwise be appropriate or necessary between
independent entities are neither appropriate nor necessary in this instance.
Notwithstanding the foregoing, Bancorp warrants and represents, for itself and
for its subsidiary IBC, that neither of them will, at any time prior to the
Effective Date, and other than as may be necessary to consummate the Merger or
as otherwise expressly provided herein:
3.1.1 Open any branch or other offices, operate any business, incur
any material liabilities, enter into any transactions, (including transactions
with insiders or affiliates), or hire any employees, except that the directors
of Bancorp may appoint officers to serve without compensation prior to the
Effective Date;
3.1.2 Fail to perform or do any act or thing necessary to effect the
Merger;
3.1.3 Fail to comply with any applicable law or regulation pertaining
to or necessary to effect the Merger;
3.1.4 Cause the election or appointment of directors or officers of,
or cause the hiring of employees of, IBC;
3.1.5 Issue any shares of stock;
3.1.6 Do any other act or thing which would constitute an impediment
to the Merger, or which, on the Effective Date, would cause or give rise to a
material change in or to the liabilities or business operations of Citizens.
v
<PAGE> 5
3.2 Organization. Each duty is duly organized, validly existing and in
good standing under the laws of the state of Oregon, and has all requisite
corporate power and authority to own and operate its properties and assets, to
lease the leased properties used in its business, and to carry on its business
as now conducted. Each owns or possesses all franchises, licenses, permits,
branch certificates, consents, approvals, waivers and other authorizations,
governmental or otherwise, which are necessary for it to conduct its business as
not conducted, non of which will lapse or be adversely affected by reason of the
consummation of the transactions contemplated by the Agreement. Each is duly
qualified and licensed to do business and is in good standing in every
jurisdiction in which such qualification or license is required or with respect
to which the failure to be so qualified or licensed could result in liability or
adversely affect the business or operations of either party in any material
respect.
3.3 Execution and Performance of Agreement. Each party has all requisite
corporate power and authority to execute and deliver the Agreement and to
consummate the transactions contemplated by the Agreement. The execution and
delivery of the Agreement, compliance with its terms and the consummation of the
transactions contemplated by the Agreement have been duly and validly authorized
by each Board of Director, and no other corporate proceedings are necessary to
authorize the Agreement or to consummate the transactions contemplated other
than stockholder approval of the Merger.
3.4 Binding Obligation. This Agreement has been duly and validly executed
and delivered by the parties and constitutes the valid, legal and binding
agreement of each, enforceable against each of them in accordance with its
terms.
3.5 No Violations. Neither the execution and delivery of the Agreement nor
the consummation of the transactions contemplated hereby, nor compliance by the
parties with any of the provisions hereof will (I) conflict with or result in
any breach of any provision of their respective Articles of Incorporation or
Bylaws, (ii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, lease, agreement or
other instrument or obligation of either party or by which either party or any
of their properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, statue, rule, or regulation applicable to either party, or
any of their properties or assets.
3.6 Regulatory Applications and Approvals. Citizens and Bancorp shall, as
soon as reasonably practicable after the date of the Agreement, prepare and file
with the Federal Deposit Insurance Corporation (the "FDIC"), the Federal Reserve
Board ("FRB"), the Director or any other governmental agency that may have or
assert jurisdiction over the transaction or the actions contemplated herein,
appropriate applications for approval to effect the Merger, and such other
documents, instruments, and notices as may be necessary or desirable to assist
in the securing of approval of the applicable governmental agencies.
vi
<PAGE> 6
3.7 Capital Structure of Citizens. The authorized capital stock of
Citizens consists of 5,000,000 shares of common stock, par value of $5.00 per
share (the "Shares"), of which 899,198 Shares were issued and outstanding as of
June 30, 1996. All issued and outstanding Shares have been duly authorized and
validly issued in compliance with applicable law including, without limitation,
federal and state securities laws. All issued and outstanding shares are fully
paid and nonassessable. None of the Shares has been issued in violation of the
preemptive rights of any stockholder.
3.8 Capital Structure of Bancorp. The authorized capital stock of Bancorp
consists of 5,000,000 shares of common stock, no par value. No shares of Bancorp
stock have been or shall be issued prior to the Effective Date.
3.9 Further Assurances. Each party shall use its best efforts to promptly
to do or cause to be done all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
the Agreement.
4. EMPLOYEES.
4.1 Employees. The employees of Bancorp, if any, and of Citizens who are
employed immediately prior to the Effective Date shall be the employees of
Bancorp and of Citizens on the Effective Date, all of whom shall continue such
employment on the same terms and conditions as existed prior to the Effective
Date. The Merger shall effect no modifications to the terms of any employment
agreements to which Citizens is a party existing prior to the Effective Date.
4.2 Employee Benefit Plans. The Merger shall effect no modifications to
the terms of any employee benefit, profit sharing or retirement plans of
Citizens or Bancorp existing prior to the Effective Date.
5. CONDITIONS PRESENT
5.1 Conditions Precedent to Parties' Obligations. The obligation of the
parties to effect the Merger contemplated by the Agreement shall be subject to
the satisfaction or waiver of each of the following conditions on or before the
Effective Date:
5.1.1 Stockholder Approval. The Agreement and the Merger shall have
been duly and validly authorized, approved and adopted at the Annual Meeting,
duly and properly called for such purpose, by the holders of not less than
two-thirds of the then outstanding shares of stock of Citizens which are
entitled to vote on the Merger. The notice for the Annual Meeting shall be
accompanied by the Proxy Statement in form and substance satisfactory to
Citizens and its counsel. The parties' obligation to proceed with the Merger is
conditioned upon not more than six percent (6%) of all shares of Citizens
entitled to vote on the Merger exercising and perfecting their dissenters'
rights of appraisal under applicable Oregon law. If more than six percent (6%)
of all shares entitled to vote on the Merger exercise and perfecting their
rights as dissenters, either party may terminate the Agreement.
vii
<PAGE> 7
5.1.2 Regulatory Approvals and Consents. Orders, consents, and
approvals, in form and substance satisfactory to the parties, shall have been
entered by the FRB, the FDIC, the Director, and such other regulatory
authorities having jurisdiction over the parties and the transactions
contemplated hereby, granting the authority necessary for the consummation of
the transaction contemplated by the Agreement; all other requirements prescribed
by law or by the rules and regulations of any other regulatory authority have
jurisdiction over such transactions shall have been satisfied; and the parties
shall have received evidence satisfactory to them of the satisfaction of the
foregoing conditions. No order or approval shall contain any term, provision, or
condition that either party deems materially burdensome.
5.1.3 No Litigation. The absence of any material suit, action or
proceeding (made or threatened) against Bancorp or Citizens or any of their
directors or officers seeking to challenge, restrain, enjoin or otherwise affect
the Agreement or the transactions contemplated by the Agreement; seeking to
restrict the rights of the parties or the operation of the business of Bancorp
or Citizens after the consummation of the Agreement; or seeking to subject the
parties hereto or any of their officers or directors to any liability, fine,
forfeiture, or penalty on the grounds that the parties hereto or their directors
of officers have violated or will violate their fiduciary duties or will violate
any applicable laws or regulations in connection with the transactions
contemplated by the Agreement.
6. TERMINATION AND AMENDMENT.
6.1 Termination. Prior to the Effective Date, the Agreement may be
terminated and the Merger abandoned at any time notwithstanding approval by the
stockholders of Citizens or by any of the applicable regulatory authorities:
6.1.1 Through written consent of the Board of Directors of Bancorp and
Citizens;
6.1.2 By the parties if the Effective Date shall not have occurred on
or before May 31, 1997, unless the Boards of Directors of Bancorp and Citizens
have agreed to extend the time in which the Merger may be consummated;
6.1.3 By the parties if any court of competent jurisdiction or any
governmental agency has issued an order, decree, or ruling or taken any other
action restraining, enjoining, or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
6.1.4 By the parties if the conditions set forth in Section 5 have not
been complied with or performed in any material respect and such noncompliance
or nonperformance has not been cured or eliminated (or by its nature cannot be
cured or eliminated) by Citizens or Bancorp on or before the Effective Date;
6.1.5 Upon the final disapproval of any of the FRB, the FDIC, the
Director, or any other regulatory authority whose approval is required, in whole
or in part, of the transactions contemplated by the Agreement.
viii
<PAGE> 8
6.2 Amendment. The Agreement may not be amended except by a subsequent
written agreement signed by all parties hereto.
6.3 Regulation Y, Section 225.15 Compliance. In order to assure compliance
with the notice and approval procedures of the FRB set forth in Section 225.15
of Regulation Y, the parties agree that the Merger will terminate unless,
following the vote on the Merger by Citizens' shareholders at the Annual
Meeting, (I) the shareholders of Citizens who control at least 80 percent (80%)
of the shares of Bancorp in substantially the same proportion, except for
changes in shareholders' interests resulting form the exercise of dissenters'
rights, and (ii) no shareholders acting in concert would, after the Effective
Date, own or control 10 percent (10%) or more of any class of voting shares of
Bancorp, where such ownership or control is not authorized under federal law.
7. MISCELLANEOUS.
7.1 Governing Law. Each and every portion of the Agreement is contractual
and not a mere recital, and all recitals shall be deemed incorporated into the
Agreement. The Agreement shall be governed by and interpreted according to
Oregon law and any applicable federal law.
7.2 Integration. The Agreement contains the entire understanding and
agreement of the parties with respect to the parties' relationship, and all
prior negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior negotiations, discussions or agreements not
contained herein or in such documents shall be binding or enforceable against
the parties.
7.3 Counterparts. The Agreement may be signed in several counterparts. The
signature of one party on any counterpart shall bind such party just as if all
parties had signed that counterpart. Each counterpart shall be considered an
original. All counterparts of the Agreement shall together constitute one
original document.
7.4 Expenses. All expenses of the Merger, including without limitation
attorneys' fees, accounting fees, application fees, publication costs, and
printing and mailing costs, shall be paid by Bancorp. In accordance with Section
23A of the Federal Reserve Act, no such expenses shall be paid by Citizens.
CITIZENS BANK CITIZENS BANCORP
- ---------------------------- -----------------------------
Board Chairman Board Chairman
- ---------------------------- -----------------------------
Chief Executive Officer Chief Executive Officer
ix
<PAGE> 1
EXHIBIT (3) (i)
FILED SEPTEMBER 18, 1996
OREGON SECURITY OF STATE
REGISTRY NO. 536391-84
ARTICLES OF INCORPORATION
CITIZENS BANCORP
ARTICLE I
The name of the Corporation is Citizens Bancorp.
ARTICLE II
(1) The Corporation is authorized to issued 5,000,000 shares of
Common Stock.
(2) Holders of Common Stock are entitled to one vote per share on
any matter submitted to the shareholders. On dissolution of the
Corporation, after any preferential amount with respect to Preferred Stock
or other share classes has been paid or set aside, the holders of Common
Stock and the holders of any series of other share classes entitled to
participate in the distribution of assets are entitled to receive the net
assets of the Corporation.
(3) The Board of Directors (the "Board") is authorized, subject to
limitations prescribed by the Oregon Business Corporation Act, as amended
from time to time (the "Act"), and by the provisions of this Article, to
provide for the issuance of other classes of shares in series, including
without limitation Preferred Stock, to establish from time to time the
number of shares to be included in each series, and to determine the
designations, relative rights, preferences and limitations of the shares
of each series. The authority of the Board with respect to each series
includes, without limitation, determination of the following:
(a) The number of shares in and the distinguishing designation
of that series;
(b) Whether shares of that series shall have full, special,
conditional, limited or no voting rights, except to the extent otherwise
provided by the Act;
(c) Whether shares of that series shall be convertible and the
terms and conditions of the conversion, including provision for the
adjustment of the conversion rate in circumstances determined by the
Board;
x
<PAGE> 2
(d) Whether shares of that series shall be redeemable and the
terms and conditions of the redemption, including the date or dates upon
or after which they shall be redeemable and the amount per share payable
in case of redemption, which amount may vary under different conditions or
at different redemption dates;
(e) The dividend rate, if any, on shares of that series, the
manner of calculating any dividends, and the preferences of any dividends;
(f) The rights of shares of that series in the event of
voluntary or involuntary dissolution of the Corporation, and the rights of
priority of that series relative to the Common Stock and any other series
of Preferred Stock on the distribution of assets on dissolution; and
(g) Any other rights, preferences and limitations of that series
that are permitted by law to vary.
ARTICLE III
(1) The Board shall supervise the business of the Corporation.
(2) The Board shall consist of not more than twelve (12) and not less
than eight (8) members. The exact number of directors at any given time shall be
fixed within these limits by approval of the directors.
(3) The Board shall be divided into three classes, none of which shall
have less than two (2) members, identified as class (A), class (B), and class
(C). The term of office of directors of class (A) shall expire at the first
annual meeting of shareholders after their election or when their successors are
qualified and elected. The term of office of directors in class (B) shall expire
at the second annual meeting of shareholders after their election or when their
successors are qualified and elected. The term of office of directors in class
(C) shall expire at the third annual meeting of shareholders after their
election or when their successors are qualified and elected. At each meeting
thereafter, the number of directors equal to the number in the class whose term
expires at the time of such meeting shall be elected to hold office until the
third succeeding annual meeting or until their successors are qualified and
elected.
(4) The shareholders of the Corporation may remove one or more
directors only for cause, and only by a vote of two-thirds of the shareholders
entitled to vote on the matter. If the director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in the
vote to remove the director. A director may be removed by the shareholders only
at a meeting called for the purpose of removing the director. The notice of such
meeting must state that the purpose, or one of the purposes, of the meeting is
the removal of the director. For the purposes of this Article, "cause" shall
mean (I) any breach of a director's duty of loyalty to the Corporation or its
shareholders, (ii) acts or omissions of a director which are not in good faith
or which involve intentional misconduct or a knowing violation of the law, (iii)
any distribution to a director which is unlawful under the provisions of ORS
60.367, or (iv) any transaction with the Corporation from which the director
derived an improper illegal personal benefit.
xi
<PAGE> 3
(5) Any directorship to be filled by reason of a vacancy in the
Board or a vacancy resulting from an increase in the number of directors shall
be filled by the affirmative vote of a majority of all the directors remaining
in office. Such vacancy shall be filled by the Board for the unexpired term of
such vacancy at the first regular meeting of the Board after the vacancy occurs.
Shareholders may not fill vacancies.
(6) The directors of the Corporation may remove one or more
directors with or without cause by a two-thirds vote of the directors in office
at the time of the vote.
(7) Notwithstanding any other provisions of these Articles of
Incorporation or the bylaws of the Corporation, the provisions of this Article
III may not be amended or repealed, and no provisions inconsistent herewith may
be adopted by the Corporation, without the affirmative vote of two-thirds of all
of the votes entitled to cast on the matter.
ARTICLE IV
(1) Any offer, proposal, or plan to (a) merger, consolidate, or
combine the Corporation and/or any of its subsidiaries or assets to any other
corporation, entity or affiliate thereof, which offer, proposal or plan is not
approved by a majority of the Board, must be approved by the affirmative vote of
two-thirds of the shares of each class of stock of the Corporation entitled to
vote on the proposal.
(2) Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation, the provisions of this Article
IV may not be amended or repealed, and no provisions inconsistent herewith may
be adopted by the Corporation, without the affirmative vote of two-thirds of all
the votes entitled to be cast on the matter.
ARTICLE V
(1) No director of the Corporation shall be personally liable to
the Corporation or its shareholders for monetary damages for conduct as a
director, provided that this Article shall not eliminate the liability of a
director for (I) any breach of a director's duty to loyalty to the Corporation
or its shareholders, (ii) acts or omissions of a director which are not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) any distribution to a director which is unlawful under the provisions of
ORS 60.367, (iv) any transaction with the Corporation from which the director
derived an improper or illegal personal benefit, or (v) any act or omission for
which such elimination of liability is not permitted under the Act.
(2) No amendment to the Act that further limits the acts or
omissions for which elimination of liability is permitted shall affect the
liability of a director for any act or omission occurring prior to the effective
date of the amendment.
(3) If the Act or other Oregon law is amended to authorize the
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Act or by Oregon law as so amended.
ARTICLE VI
xii
<PAGE> 4
(1) The Corporation shall indemnify to the fullest extent not
prohibited by the Act or other law any current or former director of the
Corporation who is made, or threatened to be made, a party to an action, suit or
proceeding, whether civil, criminal, administrative, investigative, or other,
including an action, suit or proceeding by or in the right of the Corporation,
by reason of the fact that such person was or is a director, employee or agent
of the Corporation or any of its subsidiaries, or was or is a fiduciary within
the meaning of the Employee Retirement Income Security Act of 1974 with respect
to any employee benefit plan of the Corporation or any of its subsidiaries, or
serves or served at the request of the Corporation as a director, officer,
employee or agent, or as a fiduciary of an employee benefit plan, of another
corporation, partnership, joint venture, trust or other enterprise.
(2) The Corporation shall reimburse or pay for the reasonable expenses
incurred by any such current or former director in any such action, suit or
proceeding in advance of the final disposition of the same if the director sets
forth in writing (I) the director's good faith belief to entitlement to
indemnification under this Article, and (ii) the director's agreement to repay
all advances if it is ultimately determined that the director is not entitled to
indemnification.
(3) No amendment to this Article that limits that Corporation's
obligation to indemnify any person shall have any effect on such obligation for
any act or omission that occurs prior to the later of the effective date of the
amendment or the date on which notice of the amendment is given to the person.
This Article shall not be deemed exclusive of any other provisions for
indemnification or advancement of expenses of directors, officers, employees,
agents and fiduciaries that may be part of or included in any statute, bylaw,
agreement, general or specific action of the Board, vote of shareholders, or
other document or arrangement. The Corporation may enter into written agreements
of indemnification.
ARTICLE VII
(1) Unless otherwise permitted by the Board, any business, including
without limitation nominations of directors, may be properly brought before an
annual shareholders meeting, or before any special meeting of shareholders, by a
shareholder only upon the shareholder's timely notice in writing to the
secretary of the Corporation. To be timely, a shareholder's written notice must
be physically received at the principal executive offices of the Corporation not
later than the close of business on the thirtieth (30th) calendar day before the
date of the meeting.
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<PAGE> 5
(2) A shareholder's notice under this Article VII shall set forth (I)
a brief description of each matter desired to be brought before the meeting and
the reason for conducting such business at the meeting, (ii) the name and
address of the proposing shareholder, (iii) the class and number of shares of
stock of the Corporation which are beneficially owned by the proposing
shareholder, (iv) any material interest of the shareholder in the business
proposed, and (v) as for each person whom the shareholder proposes to nominate
for election as a director (a) the name, age, business address, and residence
address of such person, (b) the principal occupation or employment of such
person, (c) the class and number or shares of stock, if any, of the Corporation
which are beneficially owned by such person, (d) the proposed nominee's written
consent, and (e) any other information relating to such person that is required
to be disclosed or is otherwise required by applicable law.
(3) Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation, the provisions of this Article
VII may not be amended or repealed, and no provisions inconsistent herewith may
be adopted by the Corporation, without the affirmative vote of two-thirds of all
of the votes entitled to be cast on the matter.
ARTICLE VIII
The street address and the mailing address of the initial registered
office of the Corporation is 275 South Third Street, Corvallis, Oregon, 97333,
and the name of its initial registered agent is William V. Humphreys.
ARTICLE IX
The name and address of the incorporator is Bennett H. Goldstein,
Attorney at Law, 2548 SW St. Helens Court, Portland, Oregon, 97201.
ARTICLE X
The mailing address for notices to the Corporation is c/o Bennett H.
Goldstein, Attorney at Law, 2548 SW St. Helens Court, Portland, Oregon, 97201.
Date: September 18, 1996.
------------------------------------------
Bennett H. Goldstein, Incorporator
EXHIBIT (3)(ii)
xiv
<PAGE> 6
BYLAWS OF CITIZENS BANCORP
ARTICLE I - SHAREHOLDER MEETINGS
1.1 Annual Meeting. The annual meeting of shareholders shall be held
within 120 days after the close of the fiscal year of the Corporation, for the
election of directors and the transaction of any other business, in Benton
County, Oregon, or at such other time and place permissible under the laws of
Oregon as may be determined by the Board of Directors. If for any cause and
election of directors is not held on the day fixed by this Section, such meeting
shall be adjourned to some future date within thirty (30) days of the annual
meeting date. Business may be brought before the annual meeting by shareholders
as provided in Article VII of the Articles of Incorporation of the Corporation.
1.2 Special Meeting. Special meetings of shareholders may be called by
the Chief Executive Officer, a majority of the Board of Directors, or upon
request of not less than three shareholders who represent in the aggregate not
less than one-third of the capital stock of the Corporation. Notice of all
special meetings shall state specifically the purposes thereof. No business
other than that specified in said notice shall be transacted at any special
meeting unless all shareholders of the Corporation are present either in person
or by proxy, and the holders of not less than two-thirds of all stock shall
consent thereto.
1.3 Notice of Meetings. Written or printed notice stating the place,
day, and hour of the meeting, and the purpose or purposes for which the meeting
is called shall be delivered by the Secretary not less than ten (10) days, but
not more than fifty (50) days, before the date of the meeting, either personally
or by mail, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the shareholder at his or her address as it appears on
the stock transfer books of the Corporation, with postage thereon prepaid.
1.4 Record Date. For the purpose of determining shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof; or shareholders entitled to receive any payment of any dividend or in
order to make determination of shareholders for any other purpose; the Board of
Directors shall fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
(50) days and, in the case of a meeting of shareholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken.
1.5 Proxies. Shareholders may vote at any meeting by proxy. Every
proxy shall be in writing, dated, and signed by the shareholder granting the
same, shall be valid for only one meeting to be specified therein, or any
adjournment thereof, shall specify one or more proxyholders by name, and shall
be revocable by the shareholder granting it at any time prior to its exercise.
xv
<PAGE> 7
1.6 Quorum. At all meetings of shareholders, the holders of a majority
of the capital stock of the Corporation issued and outstanding, present either
in person or by proxy, shall constitute a quorum and shall be necessary for the
transaction of business, but less representation may adjourn such meetings to a
time certain. At any legally constituted meeting of shareholders action by the
holders of a majority of the shares of stock represented shall control unless
otherwise provided for in these bylaws or by law.
1.7 Vote. At all meetings of shareholders, each shareholder shall be
entitled to one vote for each share of stock held by such shareholder on the
record for such meeting.
ARTICLE II - DIRECTORS
2.1 Responsibilities. The business of the Corporation shall be run
under the supervision of the Board of Directors.
2.2 Number and Term. The number and terms of service of the members of
the Board of Directors shall be provided as in Article III of the Articles of
Incorporation of the Corporation.
2.3 Organization. Within one month of the date of its election of
executive officers and a chairman of the Board hereinafter specified. No
director shall take office prior to qualifying and taking an oath of office as
required by law.
2.4 Regular Meetings. The Board of Directors shall hold a regular
meeting at least once a month on such dates as may be fixed by the Chairman of
the Board and the Chief Executive Officer, on not less than five (5) days
notice. At every such meeting, the Chief Executive Officer or President shall
submit a report, in such detail as the Board may specify, concerning business
activities during the preceding month or since the last report, including loans
or other extensions of credit to officers, directors, and employees thereof. The
Board of Directors shall examine and pass upon such report and make the same a
part of the record of such meeting, by recording the same in full in the
minutes, and such record shall show their approval or disapproval of same and be
subscribed to by each director present at such meeting.
2.5 Special Meetings. Special meetings of the Board of Directors may
be held from time to time upon the call of the Chairman of the Board, the Chief
Executive Officer, or not less than one-half of the duly elected, qualified and
acting directors. Notice of such meeting shall be given by the person or persons
calling the same, by mail not less than five (5)days before the time fixed for
such meeting. The presence of any director shall constitute a waiver of the
notice of such meeting. Notice of all special meetings shall state specifically
the purposes thereof.
2.6 Quorum. A majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business.
xvi
<PAGE> 8
2.7 Employment of Officers. The Board of Directors shall authorize
the employment and compensation of all officers of the Corporation.
2.8 Director of Attendance. All directors shall attend each meeting
of the Board of Directors. If unable to attend, the director will be given and
excused or unexcused absence by a majority of the directors. If any director has
a total of three (3) unexcused absences within the operating year (between
annual meetings) such director shall cease to be a member of the Board of
Directors, which shall thereafter declare a vacancy which may be filled in the
usual manner.
2.9 Retirement. No person shall be eligible for nomination, election
or re-election as a director emeritus of the Corporation who has attained the
age of seventy (70) years, or who will attain such age prior to the first day of
July in the calendar year in which such nomination, election or re-election
would otherwise occur.
2.10 Non-voting Emeritus Directors. The Board of Directors may in its
sole discretion, and at any time, elect one or more non-voting emeritus
directors to serve as provided below.
2.10.1 An emeritus director shall be at least sixty (60) years of
age and no more than seventy (70) years of age.
2.10.2 An emeritus director shall have been for five (5) years or
more, and on the date of such director's 60th birthday shall have been a member
of the Board of Directors of the Corporation or of a subsidiary or other
affiliate of the Corporation, and on the date of election as an emeritus
director shall no longer be a member of the Board of Directors, either through
resignation or from the Board or otherwise. An individual who has resigned from
the Board as a regular director may be elected as an emeritus director by a
simple majority of the Board. An individual who failed to be re-elected to the
Board as a regular director may be elected as an emeritus director by a
two-thirds majority of the board.
2.10.3 No emeritus director may serve in such capacity for more
than five (5) years, and the term of office of an emeritus director shall
terminate automatically on the date of such director's seventieth (70th)
birthday.
2.10.4 An emeritus director may attend meetings of the Board of
Directors by invitation of the Board only, may participate in discussions in
such meetings, but shall have no voting rights as a director.
2.10.5 An emeritus director shall receive the regular monthly fee
payable to members of the Board whether or not such emeritus director attends
meetings of the Board; provided, that any emeritus director receiving or
eligible to receive benefits from any pension or profit sharing plan of the
Corporation or any subsidiary or other affiliate of the Corporation shall not
receive a monthly director's fee.
2.10.6 An emeritus director may be removed from office by a
simple
xvii
<PAGE> 9
majority vote of the Board of Directors at any time and for any reason.
2.10.7 The shareholders of the Corporation shall have no right to
elect emeritus directors.
ARTICLE III - COMMITTEES
3.1 Committees. The Board of Directors may establish one or more
committees in its sole discretion, which shall have such duties as may be
delegated by the Board.
3.2 Term and Purposes. All committees established by the Board of
Directors shall exist for such time and such purposes as it determines.
ARTICLE IV - OFFICERS
4.1 Officers. The officers of the Corporation shall be a President,
who shall be a member of the Board of Directors, a Chief Executive Officer, and
one or more Vice Presidents. One of the above officers shall be designated
Secretary. Other officers may be appointed by the Board of Directors from time
to time. One individual may serve as both President and Chief Executive Officer.
4.2 Terms of Office. The Chief Executive Officer, the President, any
Vice Presidents, and the Secretary shall hold office for the current year for
which they shall be appointed, or as provided under any written employment
agreements, unless and until they shall resign, become disqualified or be
removed. Any vacancies occurring in any of the said offices shall be filled by
the Board of Directors.
4.3 Duties of the Chief Executive Officer and President. The Chief
Executive Officer and President shall perform all such duties as the Board of
Directors may from time to time prescribe or as may be required by law.
4.4 Duties of Secretary. The Secretary shall keep a complete record of
the proceedings of all meetings of shareholders and directors, shall have the
custody of the corporate seal, if any, shall attest the signature of the
Corporation and affix the seal when required to do so in the usual course of
business and pursuant to law, and shall perform all such other duties as the
Board of Directors may from time to time prescribe or as may be required by law.
ARTICLE V - CORPORATE STOCK
5.1 Shares of Stock. The shares of stock of the Corporation may be
represented by stock certificates, signed by both the Chief Executive Officer
and the Secretary of the Corporation, with the corporate seal, if any, affixed.
In the absence of the signature of the Secretary, any Vice-President may provide
the second signature. Each stock certificate shall state upon the face thereof
that if it is transferable only on the books of the Corporation.
xviii
<PAGE> 10
5.2 Stock Certificates. Certificates of stock shall be numbered and
registered in the order in which they are issued. All certificates shall be
issued in consecutive order therefrom and upon the stub of each certificate
shall be entered the name of the person owning all shares therein represented,
the number of shares represented thereby, and the date of the issuance thereof.
All certificates exchanged or returned to the Corporation shall be marked
"cancelled," the date of cancellation shall be noted thereon, and the
certificate shall be retained.
5.3 Stock Transfer. The shares of stock of the Corporation shall be
transferable and assignable only upon the books of the Corporation. No new stock
certificate shall be issued until the old certificate has been properly
assigned, transferred, and surrendered for cancellation.
5.4 Lost Certificate. If any certificate is accidentally destroyed or
lost, upon satisfactory proof of such destruction or loss and the receipt of
satisfactory indemnity from the shareholder, the Board of Directors may
authorize issuance of a new certificate.
5.5 Shares without Certificates. The Corporation may issue shares of
stock without certificates as provided under ORS 60.164
ARTICLE VI - INDEMNIFICATION
6.1 Indemnification. The Corporation shall indemnify officers and
directors of the Corporation to the fullest extent permitted under law.
ARTICLE VII - GENERAL PROVISIONS
7.1 Real Estate. All instruments for the purpose of transferring and
conveying real estate or any agreement involving real estate shall be executed
in the name of the Corporation under authority of a resolution by the Board of
Directors, signed by the Chief Executive Officer or President, with the
corporate seal affixed when required.
7.2 Satisfaction of Mortgages. Mortgages, trust deeds and security
agreements, upon payment thereof, may be released by the Chief Executive Officer
or to the extent directed by the Chief Executive Officer. Such releases may be
made in any manner as now or may hereafter be provided by law.
7.3 Signing Authorization. All checks, drafts, vouchers, or other
obligations representing the current expenses and current business transactions
of the Corporation shall be signed by the Chief Executive Officer, or by such
officer or employee of the Corporation as may be designated by the Chief
Executive Officer. The Corporation shall not be liable upon any obligation that
does not arise in the ordinary course of business as a current transaction,
unless the same is authorized by a resolution of the Board of Directors.
xix
<PAGE> 11
7.4 Records. The organization papers of the Corporation, records of
proceedings at all regular and special meetings of the Board of Directors, the
Bylaws and all changes and all amendments thereof, the reports of committees,
and all other proceedings shall be recorded in detail in the minutes book. Every
official communication from any State of Oregon regulatory authority shall be
noted in the minutes as required by law. The minutes of each meeting of the
Board of Directors shall be signed by all directors who were in attendance and
in addition thereto attested by the Secretary.
7.5 Inspection of Bylaws. A copy of the Bylaws of the Corporation and
all amendments thereto shall be kept in a convenient place at the head of office
of the Corporation and made accessible to any stockholder during the regular
hours of business.
7.6 Amendments of Bylaws. The Bylaws may be amended, altered, or
repealed at any regular or special meeting of the shareholders, or at any
regular or special meeting of the Board of Directors by a vote of a majority of
the number of directors on the Board of Directors at the time of such vote.
7.7 Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
7.8 Articles of Incorporation. The provisions of the Bylaws are
subject to the Articles of Incorporation of the Corporation. In the event of any
conflict between the Bylaws and the Articles of Incorporation, the Articles of
Incorporation shall control.
Date of Adoption: October 15, 1996.
xx
<PAGE> 1
EXHIBIT 10.1
CITIZENS BANCORP
750,000 SHARES
COMMON STOCK
(NO PAR VALUE)
CITIZENS BANCORP DIVIDEND REINVESTMENT PLAN
This prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such an offer or solicitation in such
jurisdiction. No person has been authorized to give any information or to make
any representation other than those contained in this prospectus in connection
with the offering made hereby, and if given or made such information or
representation must not be relied upon as having been authorized by Citizen's
Bancorp. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE REGULATORY AGENCY, NOR HAS THE COMMISSION
OR ANY SUCH AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION OF THE CONTRARY IS A CRIMINAL DEFENSE.
-------------------------
THE OFFERED SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR NON BANK SUBSIDIARY OF THE CITIZENS BANCORP AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY.
--------------------------
The date of this Prospectus is November 1, 1997.
--------------------------
xxi
<PAGE> 2
AVAILABLE INFORMATION
Citizens Bancorp (hereinafter, the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and in accordance therewith file reports and other information with the
Securities and Exchange Commission (the "Commission"). The Company is the
holding company of and the successor entity for reporting purpose to Citizens
Bank, an Oregon banking corporation. Through the second quarter of 1997,
Citizens Bank filed quarterly and annual statements under Section 13 of the
Exchange Act with the offices of the Federal Deposit Insurance Corporation.
Beginning with its 10-Q for the third quarter of the 1997 fiscal year, which
ended September 30, the Company, as the successor reporting entity to Citizens
Bank, will file quarterly and annual reports under the Exchange Act with the
Commission.
Proxy statement, reports and other information concerning the Company
filed for the period beginning October 1, 1997 can be inspected at public
reference facilities maintained by the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, and at the Commission's Pacific Regional Office in Los
Angeles, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California
90036-3648, and copies of such material can be obtained from such facilities and
the Public Reference Section of the Commission at 450 Fifth Street, N. W.,
Washington, D.C. 20549, at prescribed rates.
Proxy statements, reports, and other information concerning Citizens
Bank filed prior to November 1, 1997 can be inspected at public reference
facilities maintained by the Federal Deposit Insurance Corporation at 550 17th
Street, N. W., Washington, D.C. 20429 and at the offices of the Federal Reserve
Bank of San Francisco, 101 Market Street, San Francisco, California 94105, and
copies of such material can be obtained from such facilities at prescribed
rates.
This Prospectus does not contain all information set forth in the
Registration Statement and Exhibits thereto which the Company has filed with the
Commission under the Securities Act of 1933 and to which reference is hereby
made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
following documents: the Annual Report of Citizens Bank on Federal Deposit
Insurance Corporation Form F-2 for the year ended December 31, 1996, including
all financial statements and other exhibits attached to Form F-2, and the
Quarterly Reports of Citizens Bank on Federal Deposit Insurance Corporation Form
F-4 for the quarters ending March 31, 1997 and June 30, 1997.
xxii
<PAGE> 3
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the shares of Common Stock hereby
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the date of filing such documents.
Any person receiving a copy of this Prospectus may obtain without
charge, upon oral or written request, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such documents
unless such exhibits are specifically incorporated by reference into the
information that the Prospectus incorporates. Requests should be directed to
Citizens Bank, attention Lark E. Wysham, Chief Financial Officer, P. O. Box 30,
Corvallis, Oregon 97339, telephone (541) 752-5161. The executive offices of the
Company are located at 275 S. W. Third Street, Corvallis, Oregon 97339,
telephone (541) 752-5161.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
xxiii
<PAGE> 4
DIVIDENDS
CITIZENS BANK DIVIDEND HISTORY
The Company, as a newly formed corporate entity established for the
purpose of serving as the holding company of Citizens Bank, has no history of
paying dividends. The Company's management intends to follow the same practices
and methods for declaring dividends that were followed by Citizens Bank, and
expects to pay yearly dividends. There is no assurance, however, that the
dividends to be paid by the Company will be comparable in amount to the
dividends previously paid by Citizens Bank.
The following sets forth, for the calendar years shown, the cash and
stock dividends declared by Citizens Bank per share of its common stock in each
such year:
<TABLE>
<CAPTION>
Cash Dividend Stock Dividend
------------- --------------
<S> <C> <C>
1991 $ .95 --
1992 1.00 1 for 10
1993 1.10 1 for 10
1994 1.20 1 for 10
1995 1.20 --
1996 .60* --
</TABLE>
* Reflects adjustment for 2 for 1 stock split effective on October 5, 1996.
SPECIAL 1997 COMPANY STOCK DIVIDEND
In September of 1997 the Company declared a special 5% stock dividend
payable on October 5, 1997 to all Company shareholders of record on September
16, 1997.
PRICE RANGE OF COMMON STOCK
As was the case with the common stock of Citizens Bank, there is no
established market for the Company's Common Stock, and the stock is not listed
on and does not trade on any exchange or system. There is not expectation that
an established market will develop for the Company's Common Stock.
As it did for its own stock prior to the creation of the Company,
Citizens Bank will keep an informal record of persons expressing an interest in
buying or selling the Company's Common Stock and will introduce prospective
buyers and sellers. Citizens bank will also keep some informal records of prices
paid and received for Company Common Stock by certain persons, and will serve as
the transfer agent for Company Common Stock. Citizens Bank does not and will not
recommend prices for Company Common Stock.
xxiv
<PAGE> 5
The following table sets forth certain transaction prices per share for shares
of Citizens Bank stock for the periods shown. This information is based solely
on prices and information reported to Citizens Bank by those persons whose
transactions have come to its attention. The reported prices do not represent
all transactions in Citizens Bank stock, and Citizens Bank can give no
assurances as to the accuracy of the reported prices or the completeness of this
information.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1992 $17.50 $14.50
1993 24.00 18.00
1994 29.00 24.27
1995 29.00 22.50*
1996 30.00 16.00**
Six months ending June 30, 1997 23.00 16.31
</TABLE>
* In 1995 Citizens Bank declared a 1 for 5 stock split. The
split became effective on August 4, 1995.
** In 1996 Citizens Bank declared a 2 for 1 stock split. The
split became effective on October 5, 1996.
The creation of the Company as the holding company of Citizens Bank
became effective on July 1,on which date each share of Citizens Bank stock,
pending the actual exchange of the physical stock certificates, become converted
into the right to receive one share of Company Common Stock. For the months of
July, August, and September, 1997 a total of 1,057 shares of such stock changed
hands. The highest reported transfer price was $25.00 per share, and the lowest
was $23.00 per share.
xxv
<PAGE> 6
DESCRIPTION OF THE PLAN
The following, in question-and-answer form, are the provisions of the
Citizens Bancorp Dividend Reinvestment Plan (the "Plan"). As used below,
"Company" refers to Citizens Bancorp, "Common Stock" refers to the common stock
of Citizens Bancorp and "Plan Administrator" refers to Citizens Bank.
PARTICIPATION IN THE PLAN IS COMPLETELY VOLUNTARY. THOSE HOLDERS OF
THE COMMON STOCK OF THE COMPANY WHO DO NOT CHOOSE TO PARTICIPATE IN THE PLAN
WILL RECEIVE CASH DIVIDENDS, AS DECLARED, AS USUAL. THE PLAN APPLIES ONLY TO
CASH DIVIDENDS, NOT TO STOCK DIVIDENDS OR STOCK SPLITS. NEITHER COMPANY NOR
CITIZENS BANK CAN PROVIDE ANY ASSURANCE OF A PROFIT OR PROTECTION AGAINST LOSS
ON ANY SHARES OF COMMON STOCK UNDER THE PLAN.
PURPOSE
1. What is the purpose of the Plan?
The purpose of the Plan is to provide holders of the Company's Common
Stock with a simple and convenient way to reinvest cash dividends otherwise
payable on their shares of Company Common Stock. The investment is made without
payment of any brokerage commission or service charge. Further, insofar as the
shares of Common Stock issued under the Plan will be acquired directly from the
Company, the Company will receive additional funds for general corporate
purposes.
ADVANTAGES
2. What are the advantages of the Plan?
Participants in the Plan may automatically reinvest either 50% or 100%
of the cash dividends otherwise payable on their Common Stock in additional
shares of Common Stock without any transaction fees or transaction charges.
CERTAIN RESTRICTIONS
3. Are there any restrictions on reinvestment with cash dividends under
the Plan?
At the time of enrollment in the Plan, a shareholder must elect
whether to apply 50% or 100% of the cash dividends otherwise payable to the
shareholder for reinvestment under the Plan. A shareholder may change this
election at any time in writing by following the procedures established for the
administration of the Plan, but a shareholder may not specify any cash dividend
reinvestment percentage other than 50% or 100%.
xxvi
<PAGE> 7
In addition, the Company shall not issue fractional shares under the
Plan. Any cash dividends insufficient to acquire a non-fractional share of
Company Common Stock shall be paid in cash to the shareholder enrolled in the
Plan.
4. How does the Plan differ from the previous dividend reinvestment plan
offered by Citizens Bank?
The two key differences are that shareholders must elect to reinvest
either 50% or 100% of the dividend, and that no fractional shares will be issued
under the Plan. Under the plan previously offered by Citizens Bank, a
shareholder could elect to invest either 50%, 75%, or 100% of the dividend, and
a shareholder could receive fractional shares.
5. Why must I enroll in the plan if I was already enrolled in the
Citizens Bank plan?
On July 1, 1997 the Company became the sole shareholder and holding
company of Citizen's Bank, and all shareholders of Citizens Bank became
shareholders of the Company. The previous plan offered by Citizens Bank is
therefore no longer in effect. All shareholders of the Company who wish to
participate must therefore affirmatively elect to do so by returning the
Enrollment Authorization Form.
PARTICIPATION
6. Who is eligible to participate?
Registered shareholders with addresses in the United States are
eligible to participate in the Plan. Beneficial owners of Common Stock whose
shares are held of record by a holder with an address in the United States are
also eligible to participate in the Plan. You are a registered shareholder if
your shares are registered in your name on the stock transfer books of the
Company. You are a beneficial owner of Common Stock if your shares are
registered in some other name, like that of a bank, broker or other nominee.
While a registered shareholder may participate in the Plan directly, a
beneficial owner must become a registered shareholder, by having shares
transferred into his or her own name, or must make arrangements with his or her
broker, bank or other nominee to participate in the Plan on his or her behalf.
You are not eligible to participate in the Plan if you reside in a
jurisdiction in which it is unlawful for the Company to permit your
participation. Your right to participate in the Plan is not transferable apart
from a transfer of your underlying Common Stock to another person.
xxvii
<PAGE> 8
7. How does an eligible shareholder participate?
A registered holder of Common Stock may join by signing an Enrollment
Authorization Form and returning it to Citizens Bank, which will act as the Plan
Administrator. An Enrollment Authorization Form has been enclosed with the
mailing of this Prospectus to Company shareholders. In addition, Enrollment
Authorization Forms may be obtained at any time by written or telephone request
to the Plan Administrator at the address or telephone number provided under
Question 25 below.
If a participant's shares are registered in more than one name or a
representative capacity is indicated (e.g., joint tenants, trustees, etc.), all
registered shareholders must sign the Enrollment Authorization Form exactly as
their names appear on the account registration. However, the new Enrollment
Application Form changing the investment option must be received by the Plan
Administrator no later than five (5) business days prior to the payment date
established for a particular cash dividend in order for the change to apply to
that dividend.
Beneficial owners whose shares are held at a securities depository and
who wish to participate in the Plan must instruct their broker, bank or other
nominee to make arrangements with the depository to permit such beneficial
owners to participate in the Plan.
8. When may I join the Plan?
An eligible shareholder may join the Plan at any time. If an
Enrollment Authorization Form specifying reinvestment of cash dividends is
received by the Plan Administrator no later than five (5) business days prior to
the payment date established for a particular cash dividend, reinvestment will
commence with that cash dividend. If the Enrollment Authorization Form is
received later than five (5) business days prior to the payment date established
for a particular cash dividend, then the reinvestment of cash dividends will not
begin until the cash dividend payment date following the next record date.
For example, if the cash dividend payment date is January 31, the
shareholder's Enrollment Authorization Form must be received by the Plan
Administrator no later than five (5) business days prior to January 31 for the
shareholder's election to participate in the Plan to be effective for that
particular payment. If the Enrollment Authorization Form is received later than
the deadline, the shareholder's election to participate in the Plan will be
effective for dividend payments made after January 31.
The Company expects to pay cash dividends yearly, and expects the
record date for payment to be on or before December 1 of each year. However, the
Board of Directors of the Company may in its discretion set a different record
date, declare more than one cash dividend or declare no cash dividend in any
given year at any time while the Plan is in effect.
xxviii
<PAGE> 9
9. What does the Enrollment Authorization Form provide?
The Enrollment Authorization Form provides for the acquisition of
additional shares of Common Stock through the reinvestment of either 50% or 100%
of the cash dividend payable to the enrolled shareholder. If the 50% option is
chosen, then 50% of the cash dividend will be used to acquire additional shares
of Company Common Stock (excluding fractional shares) for the enrolled
shareholder, and 50% of the cash dividend will be paid to the shareholder in
cash. If the 100% option is chosen, then 100% of the cash dividend will be used
to acquire additional shares of Company Common Stock (excluding fractional
shares) for the enrolled shareholder.
Once a shareholder has enrolled in the Plan, the shareholder will
continue with the investment option most recently selected until a new
Enrollment Authorization Form is submitted or until participation in the Plan is
terminated. See the discussion under Question 19 for more information about
terminating participation.
10. How may I change my dividend reinvestment option under the Plan?
As a participant, you may change your investment option at any time by
requesting a new Enrollment Authorization Form and returning it to the Plan
Administrator at the address provided under Question 25 below. However, the new
Enrollment Authorization Form changing your investment option must be received
by the Plan Administrator no later than five (5) business days prior to the
payment date established for a particular cash dividend in order to apply to
that dividend.
COSTS
11. Are there any expenses to participants in connection with the Plan?
Participants will incur no brokerage commissions or service charges
for reinvestments made under the Plan. All costs of record-keeping and
administration of the Plan will be paid by the Company. There is no charge for
the issuance of a certificate evidencing Common Stock acquired under the Plan.
TIME AND MANNER OF REINVESTMENTS
12. When will shares be acquired under the Plan?
Cash dividends will be reinvested on or promptly after the date which
is the cash dividend payment date. No interest shall be paid on funds held by
the Plan Administrator pending reinvestment.
xxix
<PAGE> 10
13. At what price will shares of Common Stock be acquired under the Plan?
The price per share of Common Stock acquired under the Plan shall be
equal to the weighted average price per share of stock sales for which the
Company has written records for the quarter in which the Company declares a cash
dividend (the "Base Period"). Notwithstanding the foregoing, if during such Base
Period the total number of shares of Company Common Stock sold, according to the
Company's written records, is equal to less than 1% of all issued and
outstanding stock of the Company as of the dividend declaration date, one or
more additional immediately preceding quarters shall be included in the Base
Period such that the total number of shares of Company Common Stock sold during
the Base Period equals 1% or more of all issued and outstanding stock of the
Company as of the dividend date.
As was the case with the common stock of Citizens Bank, there is no
established market for the Company's Common Stock, and the Common Stock is not
listed and does not trade on any exchange or system. There is no expectation
that an established market will develop for the Company's Common Stock.
14. What will be the source of the shares acquired under the Plan?
The shares acquired with cash dividends under the Plan shall derive
from the authorized but unissued shares of Company Common Stock. The Company
shall not purchase shares from shareholders in order to implement any provision
of the Plan.
15. How are shares acquired under the Plan?
The cash dividends otherwise payable to a participant under the Plan
shall be automatically reinvested in additional shares of Common Stock effective
as of the payment date for the dividend, except when prohibited under any
applicable federal or state securities laws. Common Stock acquired under the
Plan shall be newly issued shares.
16. Does the Plan apply to stock dividends or stock splits?
No. The Plan applies only to the reinvestment of cash dividends
declared by the Board of Directors of the Company. If the Board of Directors
declares a stock dividend, or in the event of a stock split, shareholders on the
applicable record date will receive stock in accordance with the terms of the
stock dividend or stock split.
18. What will Plan participants receive to show their reinvestments under
the Plan?
As soon as practicable after each reinvestment date, participants who
are shareholders of record will receive a certificate showing their acquisition
of shares of Common Stock of the Company. The custody and safe keeping of the
certificate shall be the sole responsibility of the shareholder.
xxx
<PAGE> 11
TERMINATION OF PARTICIPATION IN THE PLAN
19. How may I terminate my participation in the Plan?
A registered shareholder who wishes to terminate participation in the
Plan must submit a written request clearly indicating his or her intention to
terminate the reinvestment of dividends on all shares owned by the participant.
A request to terminate participation in the Plan must be sent to the Plan
Administrator a the address provided under Question 25 below. The termination
request must be received by the Plan Administrator no later than five (5)
business days prior to the payment date established for a particular cash
dividend in order to be effective with respect to that dividend.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
20. Are there any federal or state income tax consequences of
participation in the Plan?
The following brief summary is based upon an interpretation of current
federal tax law which the Company intends to follow for information reporting
purposes. Nothing in the summary should be construed as tax or legal advice to
any Company shareholder. Each participant should consult with his or her own tax
advisor to determine the particular tax consequences to the Plan participant,
including state tax consequences (which will vary from state to state),
resulting from participation in the Plan and a subsequent disposition of shares
of Common Stock acquired under the Plan.
A. Dividend Reinvestment
A participant will be treated for federal income tax purposes as
having received, on the cash dividend payment date, a cash dividend equal to the
amount reinvested by the participant on that date in shares of Common Stock
acquired directly from the Company. Such shares will have a tax basis equal to
the amount of the cash dividend reinvested in Company Common Stock. The Company
will issue a Form 1099 to all shareholders, including Plan participants,
reflecting all cash dividends paid to shareholders or reinvested in Common Stock
under the Plan.
B. Holding Period
A participant's holding period for Common Stock acquired pursuant to
the Plan will begin on the day following the date on which shares are acquired
for the participant's account.
C. Backup Withholding
Any dividends credited to a participant who is subject to backup
withholding (presently 31%) under federal income tax law will have the required
amount withheld before the cash dividends are reinvested under the Plan.
D. Additional Information
xxxi
<PAGE> 12
A participant will realize gain or loss upon the sale or exchange of
shares of Common Stock acquired under the Plan. The amount of any such gain or
loss will be the difference between the amount that the participant received on
the sale or exchange of the shares, or fractional share equivalent, and the tax
basis of the shares transferred or exchanged. Such gain or loss will be capital
in character if such shares are capital asset in the hands of the participant,
or may be an ordinary gain, depending on how the sale or exchange is
characterized for tax purposes.
For further information as to the tax consequences of participation in
the Plan, participants should consult their own tax advisors.
ADDITIONAL ADMINISTRATIVE MATTERS
21. What liability does the Plan Administrator have under the Plan?
The Plan Administrator shall not be liable for any act done in good
faith or for any good faith omission to act, including, without limitation, any
claim of liability arising out of failure to terminate a participant's account
upon a participant's death, the prices at which shares are acquired under the
Plan, the times when reinvestments are made, or the value of the Common Stock.
The participant should recognize that neither the Company nor the Plan
Administrator can provide any assurance of a profit or protection against loss
on any shares of Common Stock acquired under the Plan.
22. Can the Company or the Plan Administrator terminate a person's
participation in the Plan?
The Company or the Plan Administrator may terminate any person's
participation in the Plan at any time for any reason by notice in writing mailed
to the participant.
23. May the Plan be changed or discontinued?
The Company reserves the right to suspend or terminate the Plan at any
time, including the period between a dividend record date and the related
dividend payment date. It also reserves the right to make modifications to the
Plan. Participants will be notified of any such suspension, termination or
modification.
xxxii
<PAGE> 13
24. Who interprets and resolves questions arising under the Plan?
Any question of interpretation arising under the Plan shall be
determined by the Company and any such determination shall be final.
25. Where should I send correspondence regarding the Plan?
All correspondence and other communications regarding the Plan should
be directed to Lark E. Wysham, Chief Financial Officer, Citizens Bank, P. O. Box
30, Corvallis, Oregon 97339, telephone (541) 752-5161. Please mention the Plan
in all correspondence.
DESCRIPTION OF CAPITAL STOCK
Common Stock
The Company is authorized to issue five million shares of Common
Stock, no par value. As of the date of this Prospectus, the Company had
1,922,321 shares of Common Stock issued and outstanding. All shares of Common
Stock are fully paid and non-assessable. Holders of Common Stock are entitled to
receive such dividends as are declared by the Board of Directors out of funds
legally available therefore, subject to the limitations described below. In the
event of liquidation, holders of Common Stock are entitled to receive pro-rata
any assets distributable after payment of liabilities and the liquidation
preference on shares of Preferred Stock, if any, then outstanding. There are no
conversion, preemptive or redemption rights of Common Stock.
Preferred Stock
The Board of Directors has the authority to issue Preferred Stock in
one or more series and to fix the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption, liquidation preferences,
and the number of shares constituting any such series without any further action
by the shareholders unless such action is required by applicable rules or
regulations or by the terms of other outstanding series of Preferred Stock. As
of the date of this Prospectus there were no shares of Company Preferred Stock
issued or outstanding.
Transfer Agent
The transfer agent and registrar for the Common Stock is Citizens
Bank, P. O. Box 30, Corvallis, Oregon, 97339, telephone (541) 752-5161.
LEGAL OPINION
Bennett H. Goldstein, attorney at law and outside counsel to the
company, has rendered a legal opinion concerning the Common Stock of the Company
described in this Prospectus. As of the date hereof, Mr. Goldstein owned 420
shares of Common Stock.
xxxiii
<PAGE> 14
EXPERTS
Financial Statements Subject to Outside Audit
The balance sheets of Citizens Bank as of December 31, 1996 and 1995,
the related statements of income and changes in shareholders' equity for each of
the three years in the period ending December 31, 1996, and the statements for
cash flows for the years December 31, 1996 and 1995, all of which are
incorporated by reference herein and in the Registration Statement filed in
connection herewith, have been incorporated by reference herein and therein in
reliance upon the audit report and opinion of David O. Christensen, an
independent Certified Public Accountant, and upon the authority of said
Certified Public Accountant as an expert in accounting and auditing. Such audit
report and opinion is incorporated by reference herein.
Financial Statements and Materials Not Subject to Outside Audit
Citizens Bank's Annual Report on Federal Deposit Insurance Corporation
Form F-2 for the year ended December 31, 1996, which incorporated by reference
the audited financial statements referred to above, was not subject to an
outside audit and opinion by a certified public accountant. Such Annual Report
was prepared by Citizens bank personnel.
The Quarterly Reports of Citizens Bank on Federal Deposit Insurance
Corporation Form F-4 for the quarters ending March 31, 1997 and June 30, 1997
and the financial statements contained therein, which are also incorporated by
reference herein and in the Registration Statement filed in connection herewith,
were not subject to an outside audit and opinion by a certified public
accountant. Such Quarterly Reports were prepared by Citizen's Bank personnel.
INDEMNIFICATION
Under Oregon statutory law and the Articles of Incorporation and
Bylaws of the Company, the Company has broad powers to indemnify its directors
and officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act of 1933. The Company's Articles of
Incorporation and Bylaws require the Company to indemnify its directors,
officers and employees to the fullest extent permitted by Oregon law. Such
indemnification extends to liabilities and expenses incurred as a result of
proceedings involving such persons in their capacities as such, including
proceedings under the Securities Act of 1933 or the Securities Exchange Act of
1934. These documents further provide that the rights conferred under them shall
not be deemed to be exclusive of any other right such persons may have or
acquire under any statue, bylaw, agreement, general or specific action of the
Board of Directors of the Company, vote of agreement, general or specific action
of the Board of Directors of the Company, vote of shareholders or other document
or arrangement. The Articles of Incorporation of the Company preclude, with
certain exceptions, the Company and its shareholders from recovering monetary
damages from directors for business decisions found by a court to have been
negligent, including decision relating to a change in control of the Company.
Subject to certain exclusions as to coverage, under policies of
insurance issued to the Company each director and each officer of the Company
and its subsidiary is insured against
xxxiv
<PAGE> 15
liability for losses incurred while acting as such director or officer. Subject
to a deductible and certain exclusions, the Company is entitled to reimbursement
under such policies for amounts paid by it as indemnification to such directors
and officers. The cost of such insurance is borne by the Company.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, or person
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
xxxv
<PAGE> 1
EXHIBIT 10.2
ADOPTION AGREEMENT
NONSTANDARDIZED PROFIT SHARING PLAN AND TRUST
FOR
CITIZENS BANK
PROFIT SHARING PLAN
CAUTION: THE FAILURE TO PROPERLY FILL OUT THIS ADOPTION
AGREEMENT MAY RESULT IN DISQUALIFICATION OF THE PLAN.
xxxvi
<PAGE> 2
EMPLOYER INFORMATION
The undersigned Employer adopts the Union Bank Of California SelectBENEFIT
Nonstandardized Profit Sharing Plan and Trust for those Employees who shall
qualify as Participants hereunder, to be known as the
A1 FULL NAME OF PLAN: CITIZENS BANK PROFIT SHARING PLAN
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
B1 NAME OF EMPLOYER: Citizens Bank
B2 ADDRESS:(Street): 275 S. W. Third Street
(City, State Zipcode): Corvallis, OR 97330
(Phone Number): (541) 752-5161
B3 EMPLOYER IDENTIFICATION NUMBER: 93-0462799
B4 DATE BUSINESS COMMENCED: October 5, 1957
B5 TYPE OF ENTITY
a. ( ) S Corporation
b. ( ) Professional Service Corporation
c. (x) Corporation
d. ( ) Sole Proprietorship
e. ( ) Partnership
f. ( ) Other:
AND, is the Employer a member of
g. a controlled group?
( ) Yes (x) No
h. an affiliated service group?
( ) Yes (x) No
B6 NAME OF TRUSTEE: Union Bank of California
xxxvii
<PAGE> 3
B7 TRUSTEES' ADDRESS
Address: 14500 Roscoe Blvd., Suite 300
City, State Zipcode: Panorama City, CA 91402
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:
a. (x) State
b. ( ) Commonwealth of c. Oregon and this Plan and Trust shall be
governed under the same.
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period:
Commencing on (month day) a. January 1st (e.g., January 1st) and
ending on (month day) b. December 31st
PLAN INFORMATION
C1 EFFECTIVE DATE
This Adoption Agreement of the Union Bank Of California SelectBENEFIT
Nonstandardized Profit Sharing Plan and Trust shall:
a. ( ) establish a new Plan and Trust effective as of ____ (hereinafter
called the "Effective Date").
b. (x) constitute an amendment and restatement in its entirety of a
previously established qualified Plan and Trust of the Employer
which was effective January 1, 1960 ____________________
(hereinafter called the "Effective Date"). Except as specifically
provided in the Plan, the effective date of this amendment and
restatement is January 1, 1997
(For TRA '86 amendments, enter the first day of the first Plan Year
beginning in 1989).
C2 PLAN YEAR means the 12 consecutive month period:
Commencing on (month day) a. January 1st (e.g., January 1st) and
ending on (month day) b. December 31st
xxxviii
<PAGE> 4
IS THERE A SHORT PLAN YEAR?
c. (x) No
d. ( ) Yes, beginning:
and ending:
C3 ANNIVERSARY DATE of Plan (Annual Valuation Date)
a. (month day): December 31st
C4 PLAN NUMBER assigned by the Employer (select one)
a. (x) 001
b. ( ) 002
c. ( ) 003
d. ( ) Other:
C5 NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to appoint
an Administrator. If none is named, the Employer will become the
Administrator.)
a. (x) Employer (Use Employer Address)
b. ( ) Other: (Name):
(Address):
(City, State Zipcode):
(Phone Number):
(Administrator's Identification Number):
C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS
a. (x) Employer (Use Employer Address)
b. ( ) Other: (Name):
(Address):
(City, State Zipcode):
(Phone Number):
xxxix
<PAGE> 5
ELIGIBILITY, VESTING AND RETIREMENT AGE
D1 ELIGIBLE EMPLOYEES (Plan Section 1.15) shall mean:
NOTE: For purposes of this section, the term Employee shall include all
Employees of this Employer and any leased employees deemed to be Employees
under Code Section 414(n) or 414(o).
a. ( ) all Employees who have satisfied the eligibility requirements.
b. (x) all Employees who have satisfied the eligibility requirements
except those checked below:
1. ( ) Employees paid by commissions only.
2. ( ) Employees hourly paid.
3. ( ) Employees paid by salary.
4. (x) Employees whose employment is governed by a collective
bargaining agreement between the Employer and "employee
representatives" under which retirement benefits were the
subject of good faith bargaining. For this purpose, the term
"employee representatives" does not include any organization
more than half of whose members are employees who are owners,
officers, or executives of the Employer.
5. ( ) Highly Compensated Employees.
6. ( ) Employees who are non-resident aliens who received no earned
income (within the meaning of Code Section 911(d)(2)) from
the Employer which constitutes income from sources within
the United States (within the meaning of Code Section
861(a)(3)).
7. ( ) Other:
D2 EMPLOYEES OF AFFILIATED EMPLOYERS (Plan Section 1.16)
NOTE: If D2b is elected, each Affiliated Employer should execute this
Adoption Agreement as a Participating Employer.
Employees of Affiliated Employers:
a. ( ) will not (or N/A) be treated as Employees of the Employer
adopting the Plan.
b. (x) will be treated as Employees of the Employer adopting the
Plan.
xl
<PAGE> 6
D3 HOURS OF SERVICE (Plan Section 1.31) will be determined on the basis of the
method selected below. Only one method may be selected. The method selected
will be applied to all Employees covered under the Plan.
a. (x) On the basis of actual hours for which an Employee is paid or
entitled to payment.
b. ( ) On the basis of days worked. An Employee will be credited with
ten (10) Hours of Service if under the Plan such Employee would
be credited with at least one (1) Hour of Service during the day.
c. ( ) On the basis of weeks worked. An Employee will be credited with
forty-five (45) Hours of Service if under the Plan such Employee
would be credited with at least one (1) Hour of Service during the
week.
d. ( ) On the basis of semi-monthly payroll periods. An Employee will
be credited with ninety-five (95) Hours of Service if under the
Plan such Employee would be credited with at least one (1) Hour of
Service during the semi-monthly payroll period.
e. ( ) On the basis of months worked. An Employee will be credited
with one hundred ninety (190) Hours of Service if under the Plan
such Employee would be credited with at least one (1) Hour of
Service during the month.
D4 YEARS OF SERVICE
a. (x) 1,000 hour method
b. ( ) Elapsed Time Method
D5 CONDITIONS OF ELIGIBILITY (Plan Section 3.1) (Check either a OR b and c, and
if applicable, d) Any Eligible Employee will be eligible to participate in the
Plan if such Eligible Employee has satisfied the service and age requirements,
if any, specified below:
a. ( ) No Age or Service Required.
b. (x) SERVICE REQUIREMENT (may not exceed 2 years; if more than one Year
of Service is required, 100% immediate vesting is mandatory).
1. ( ) None
2. ( ) 1/2 Year of Service
3. (x) 1 Year of Service
4. ( ) 1 1/2 Years of Service
5. ( ) 2 Years of Service
6. ( ) Other:
NOTE: If the Year(s) of Service selected is or includes a fractional year, an
Employee will not be required to complete any specified number of Hours
of Service to receive credit for such fractional year. If expressed in
Months of Service, an Employee will not be required to complete any
specified number of Hours of Service in a particular month.
xli
<PAGE> 7
c. (x) Age Requirement (may not exceed 21)
1. ( ) N/A - No Age Requirement.
2. ( ) 20 1/2
3. ( ) 21
4. (x) Other: 18
d. ( ) For New Plans Only - Regardless of any of the above age or
service requirements, any Eligible Employee who was employed on
the Effective Date of the Plan shall be eligible to participate
hereunder and shall enter the Plan as of such date. (This
option may not be selected if more than (1) Year of Service is
required above.)
D6 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2) An Eligible Employee
shall become a Participant as of:
a. ( ) the first day of the Plan Year in which he met the requirements.
b. ( ) the first day of the Plan Year in which he met the requirements,
if he met the requirements in the first 6 months of the Plan Year,
or as of the first day of the next succeeding Plan Year if he met
the requirements in the last 6 months of the Plan Year.
c. (x) the earlier of the first day of the seventh month or the first
day of the Plan Year coinciding with or next following the date
on which he met the requirements.
d. ( ) the first day of the Plan Year next following the date on which
he met the requirements. (Eligibility must be 1/2 Year of Service
or less or 1 1/2 Years of Service or less if 100% immediate vesting
is selected and age 20 1/2 or less.)
e. ( ) the first day of the month coinciding with or next following the
date on which he met the requirements.
f. ( ) Other ___________________________________________________________,
provided that an Employee who has satisfied the maximum age and
service requirements that are permissible in Section D5 above
and who is otherwise entitled to participate, shall commence
participation no later than the earlier of (a) 6 months after
such requirements are satisfied, or (b) the first day of the
first Plan Year after such requirements are satisfied, unless
the Employee separates from service before such participation
date.
D7 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b)) The vesting
schedule, based on number of Years of Service, shall be as follows:
a. ( ) 100% upon entering Plan. (Required if eligibility requirement is
greater than one (1) Year of Service.)
xlii
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
b. ( ) YEARS OF PERCENT c. ( ) YEARS OF PERCENT
SERVICE VESTED SERVICE VESTED
-------- ------- -------- -------
0 - 2 years 0% 0 - 4 years 0%
3 years 100% 5 years 100%
d. ( ) YEARS OF PERCENT e. (X) YEARS OF PERCENT
SERVICE VESTED SERVICE VESTED
0 - 1 year 0% 1 year 25%
2 years 20% 2 years 50%
3 years 40% 3 years 75%
4 years 60% 4 years 100%
5 years 80%
6 years 100%
f. ( ) YEARS OF PERCENT g. ( ) YEARS OF PERCENT
SERVICE VESTED SERVICE VESTED
1 year 20% 0 - 2 years 0%
2 years 40% 3 years 20%
3 years 60% 4 years 40%
4 years 80% 5 years 60%
5 years 100% 6 years 80%
7 years 100%
</TABLE>
h. ( ) Other - (must be at least as YEARS PERCENT
liberal as either c or g above): VESTED VESTED
----------- ----------
----------- ----------
----------- ----------
----------- ----------
----------- ----------
----------- ----------
----------- ----------
----------- ----------
xliii
<PAGE> 9
D8 FOR AMENDED PLANS (Plan Section 6.4(f))
If the vesting schedule has been amended to a less favorable schedule,
enter the pre-amended schedule below:
a. (x) Vesting schedule has not been amended or amended schedule is
more favorable in all years.
b. ( )
YEARS OF PERCENT
SERVICE VESTED
----------- ----------
----------- ----------
----------- ----------
----------- ----------
----------- ----------
----------- ----------
----------- ----------
----------- ----------
D9 TOP HEAVY VESTING (Plan Section 6.4(c))
If this Plan becomes a Top Heavy Plan, the following vesting schedule,
based on number of Years of Service, for such Plan Year and each succeeding
Plan Year, whether or not the Plan is a Top Heavy Plan, shall apply and
shall be treated as a Plan amendment pursuant to this Plan. Once effective,
this schedule shall also apply to any contributions made prior to the
effective date of Code Section 416 and/or before the Plan became a Top
Heavy Plan.
NOTE: This section does not apply to the Account balances of any
Participant who does not have an Hour of Service after the Plan has
initially become top heavy. Such Participant's Account balance attributable
to Employer contributions and Forfeitures will be determined without regard
to this section.
a. ( ) N/A (D7a, b, d, e or f was selected)
<TABLE>
<CAPTION>
b. (X) YEARS OF PERCENT c. ( ) YEARS OF PERCENT
SERVICE VESTED SERVICE VESTED
-------- ------- -------- -------
<S> <C> <C> <C>
0 - 1 year 0% 0 - 2 years 0%
2 years 20% 3 years 100%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
</TABLE>
xliv
<PAGE> 10
D10 VESTING (Plan Section 6.4(h)) In determining Years of Service for vesting
purposes, Years of Service attributable to the following shall be EXCLUDED:
a. ( ) Service prior to the Effective Date of the Plan or a predecessor
plan.
b. (x) N/A.
c. ( ) Service prior to the time an Employee attained age 18.
d. (x) N/A.
D11 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
NOTE: If the predecessor Employer maintained this qualified Plan, then
Years of Service with such predecessor Employer shall be recognized
pursuant to Section 1.78 and b. must be marked.
a. (x) No.
b. ( ) Yes: Years of Service with shall be recognized for the
purpose of this Plan.
D12 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.43) means:
a. (x) the date a Participant attains his 65th birthday. (not to exceed
65th)
b. ( ) the later of the date a Participant attains his birthday (not to
exceed 65th) or the c. (not to exceed 5th) anniversary of the
first day of the Plan Year in which participation in the Plan
commenced.
D13 NORMAL RETIREMENT DATE (Plan Section 1.44) shall commence:
a. ( ) as of the Participant's "NRA".
OR (must select b. or c. AND 1. or 2.)
b. ( ) as of the first day of the month...
c. (x) as of the Anniversary Date...
1. (x) coinciding with or next following the Participant's "NRA".
2. ( ) nearest the Participant's "NRA".
D14 EARLY RETIREMENT DATE (Plan Section 1.12) means the:
a. ( ) No Early Retirement provision provided.
b. ( ) date on which a Participant...
c. ( ) first day of the month coinciding with or next following the
date on which a Participant...
d. (x) Anniversary Date coinciding with or next following the date on
which a Participant...
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<PAGE> 11
AND, if b, c or d was selected
1. (x) attains his 60th birthday and has
2. (x) completed at least 5 Years of Service.
CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
E1 COMPENSATION (Plan Section 1.9)
a. COMPENSATION with respect to any Participant means:
1. (x) Wages, Tips and other Compensation (Form W-2).
2. ( ) Section 3401(a) wages (wages for withholding purposes).
3. ( ) 415 Safe-harbor compensation.
AND, Compensation
1. ( ) shall
2. (x) shall not
exclude (even if includible in gross income) reimbursements or other
expense allowances, fringe benefits (cash or noncash), moving expenses,
deferred compensation, and welfare benefits.
b. COMPENSATION shall be
1. (x) actually paid (must be selected if Plan is integrated)
2. ( ) accrued
c. HOWEVER, FOR NON-INTEGRATED PLANS, Compensation shall exclude (select
all that apply):
1. (x) N/A. No exclusions
2. ( ) overtime
3. ( ) bonuses
4. ( ) commissions
5. ( ) other:
d. FOR PURPOSES OF THIS SECTION E1, Compensation shall be based on:
NOTE: The Limitation Year shall be the same as the year on which
Compensation is based.
1. (x) the Plan Year.
2. ( ) the Fiscal Year coinciding with or ending within the Plan
Year.
3. ( ) the Calendar Year coinciding with or ending within the Plan
Year.
xlvi
<PAGE> 12
e. HOWEVER, for an Employee's first year of Participation, Compensation
shall be recognized as of:
1. ( ) the first day of the Plan Year.
2. (x) the date the Participant entered the Plan.
f. IN ADDITION, COMPENSATION and "414(s) Compensation"
1. (x) shall
2. ( ) shall not
include compensation which is not currently includible in the
Participant's gross income by reason of the application of Code
Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b).
E2 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION (Plan Section 4.1)
a. ( ) Discretionary, out of current or accumulated Net Profits, to be
determined by the Employer.
b. (x) Discretionary, not limited to Net Profits, to be determined by
the Employer.
E3 CONTRIBUTION ALLOCATIONS (Plan Section 4.3)
FOR A NON-INTEGRATED PLAN
a. (x) The Employer contribution for the Plan Year shall be allocated
to all Participant's eligible to share in the allocations in the
same proportion that each Participant's Compensation bears to the
total Compensation of all Participants for such year.
FOR AN INTEGRATED PLAN
b. ( ) The total Employer contribution for the Plan Year shall be
allocated in accordance with Plan Section 4.3(b)(2) based on a
Participant's Compensation in excess of:
c. ( ) The Taxable Wage Base.
d. ( ) The greater of $10,000 or 20% of the Taxable Wage Base.
e. ( ) __________% of the Taxable Wage Base. (see note below)
f. ( ) $_________. (see note below)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if e. or f. above is more than 20% and less than or
equal to 80% of the Taxable Wage Base.
2. 5.4% if e. or f. above is less than 100% and more than 80%
of the Taxable Wage Base.
xlvii
<PAGE> 13
E4 FORFEITURES (Plan Section 4.3(e))
a. ( ) Forfeitures shall be added to the Employer's contribution under
the Plan.
b. (x) Forfeitures shall be allocated to all Participants eligible to
share in the allocations in the same proportion that each
Participant's Compensation for the year bears to the Compensation
of all Participants for such year.
AND, regardless of the above, shall Forfeitures first be used to pay any
Administrative expenses?
c. (x) Yes.
d. ( ) No.
E5 ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 4.3) With respect to Plan
Years beginning after 1989, a Participant shall be required to complete
a. ( ) a Year of Service (Plan may become discriminatory)
b. (x) 500 hours of service. (Note: specified hours of service may not
exceed 1,000 and may become discriminatory if over 500)
c. ( ) one hour of service
in order to share in any Non-Elective Contributions (other than matching
contributions) or Qualified Non-Elective Contributions. For Plan Years
beginning before 1990, the Plan provides that a Participant must complete a
Year of Service to share in the allocations.
E6 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.3(k)) Any
Participant who terminated employment during the Plan Year for reasons
other than death, Total and Permanent Disability or retirement:
a. For Plan Years beginning after 1989...
NOTE: If a.2 or a.3 is chosen, the Plan could violate minimum
participation and coverage requirements under Code Sections
401(a)(26) and 410.
1. (x) shall share in the allocations of Contributions and
Forfeitures provided such Participant completed more than
500 Hours of Service.
2. ( ) shall share in the allocations of Contributions and
Forfeitures provided such Participant completed a Year of
Service.
3. ( ) shall not share in the allocations of Contributions and
Forfeitures regardless of Hours of Service.
b. For Plan Years beginning prior to 1990...
1. (x) N/A, new Plan, or same as for Plan Years beginning after
1989.
2. ( ) shall share in the allocations of Contributions and
Forfeitures provided such Participant completed a Year of
Service.
xlviii
<PAGE> 14
3. ( ) shall not share in the allocations of Contributions and
Forfeitures regardless of Hours of Service.
c. For Plan Years beginning prior to 1990, any Participant who terminated
employment during the Plan Year for reason of...
1. (x) Death
2. (x) Disability
3. (x) Retirement
shall share in the allocations of Contributions and Forfeitures
regardless of Hours of Service completed during the Plan Year.
d. For Plan Years beginning after 1989, any Participant who terminated
employment during the Plan Year for reason of...
1. (x) Death
2. (x) Disability
3. (x) Retirement
shall share in the allocations of Contributions and Forfeitures
regardless of Hours of Service completed during the Plan Year.
E7 LIMITATIONS ON ALLOCATIONS (Plan Section 4.4)
a. If any Participant is or was covered under another qualified defined
contribution plan maintained by the Employer, other than a Master or
Prototype Plan, or if the Employer maintains a welfare benefit fund, as
defined in Code Section 419(e), or an individual medical account, as
defined in Code Section 415(l)(2), under which amounts are treated as
Annual Additions with respect to any Participant in this Plan:
1. (x) N/A.
2. ( ) The provisions of Section 4.4(b) of the Plan will apply as
if the other plan were a Master or Prototype Plan.
xlix
<PAGE> 15
3. ( ) Provide the method under which the Plans will limit total
Annual Additions to the Maximum Permissible Amount, and will
properly reduce any Excess Amounts, in a manner that precludes
Employer discretion.
b. If any Participant is or ever has been a Participant in a defined
benefit plan maintained by the Employer:
1. (x) N/A.
2. ( ) In any Limitation Year, the Annual Additions credited to the
Participant under this Plan may not cause the sum of the
Defined Benefit Plan Fraction and the Defined Contribution
Fraction to exceed 1.0. If the Employer's contribution that
would otherwise be made on the Participant's behalf during
the limitation year would cause the 1.0 limitation to be
exceeded, the rate of contribution under this Plan will be
reduced so that the sum of the fractions equals 1.0. If the
1.0 limitation is exceeded because of an Excess Amount, such
Excess Amount will be reduced in accordance with Section
4.4(a)(4) of the Plan.
3. ( ) Provide the method under which the Plans involved will
satisfy the 1.0 limitation in a manner that precludes
Employer discretion.
E8 DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h))
Distributions upon the death of a Participant prior to receiving any
benefits shall
a. (x) be made pursuant to the election of the Participant or
beneficiary.
b. ( ) begin within 1 year of death for a designated beneficiary and be
payable over the life (or over a period not exceeding the life
expectancy) of such beneficiary, except that if the beneficiary
is the Participant's spouse, begin within the time the
Participant would have attained age 70 1/2.
c. ( ) be made within 5 years of death for all beneficiaries.
d. ( ) other:
l
<PAGE> 16
E9 LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions required
pursuant to Code Section 401(a)(9) shall...
a. ( ) be recalculated at the Participant's election.
b. (x) be recalculated.
c. ( ) not be recalculated.
E10 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION
Distributions upon termination of employment pursuant to Section 6.4(a) of
the Plan shall not be made unless the following conditions have been
satisfied:
a. (x) N/A. Immediate Distributions may be made at Participant's election.
b. ( ) The Participant has incurred 1-Year Break(s) in Service.
c. ( ) The Participant has reached his or her Early or Normal Retirement
Age.
d. ( ) Distributions may be made at the Participant's election on or
after the Anniversary Date following termination of employment.
e. ( ) Other:
E11 FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6) Distributions under the
Plan may be made...
a. 1. ( ) in lump sums.
2. (x) in lump sums or installments.
b. AND, pursuant to Plan Section 6.13,
1. (x) no annuities are allowed (avoids Joint and Survivor rules).
2. ( ) annuities are allowed (Plan Section 6.13 shall not apply).
NOTE: b1. may not be elected if this is an amendment to a plan
which permitted annuities as a form of distribution or if this Plan
has accepted a plan to plan transfer of assets from a plan which
permitted annuities as a form of distribution.
c. AND may be made in...
1. (x) cash only (except for insurance or annuity contracts).
2. ( ) cash or property.
E12 PARTICIPATING EMPLOYER CONTRIBUTIONS
The contributions made by a Participating Employer shall:
a. (x) be allocated to all Employees.
b. ( ) only be allocated to the Employees of the Participating Employer
making the contribution.
TOP HEAVY REQUIREMENTS
li
<PAGE> 17
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.3(I))
When a Non-Key Employee is a Participant in this Plan and a Defined Benefit
Plan maintained by the Employer, indicate which method shall be utilized to
avoid duplication of top heavy minimum benefits.
a. (x) The Employer does not maintain a Defined Benefit Plan.
b. ( ) A minimum, non-integrated contribution of 5% of each Non-Key
Employee's total Compensation shall be provided in this Plan, as
specified in Section 4.3(I). (The Defined Benefit and Defined
Contribution Fractions will be computed using 100% if this choice
is selected.)
c. ( ) A minimum, non-integrated contribution of 7 1/2% of each
Non-Key Employee's total Compensation shall be provided in this
Plan, as specified in Section 4.3(I). (If this choice is selected,
the Defined Benefit and Defined Contribution Fractions will be
computed using 125% for all Plan Years in which the Plan is Top
Heavy, but not Super Top Heavy.)
d. ( ) Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude
Employer discretion and avoid inadvertent omissions, including
any adjustments required under Code Section 415(e).
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy purposes
where the Employer maintains a Defined Benefit Plan in addition to this
Plan, shall be based on...
a. (x) N/A. The Employer does not maintain a defined benefit plan.
b. ( ) Interest Rate:
Mortality Table:.
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
Contribution Plans.
a. (x) N/A.
b. ( ) A minimum, non-integrated contribution of 3% of each Non-Key
Employee's total Compensation shall be provided in the Money
Purchase Plan (or other plan subject to Code Section 412), where
the Employer maintains two (2) or more non-paired Defined
Contribution Plans.
c. ( ) Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude
Employer discretion and avoid inadvertent omissions, including
any adjustments required under Code Section 415(e).
lii
<PAGE> 18
MISCELLANEOUS
G1 LOANS TO PARTICIPANTS (Plan Section 7.1)
a. (x) Yes, loans may be made up to $50,000 or 1/2 Vested interest.
b. ( ) No, loans may not be made.
If YES, (check all that apply)...
c. (x) loans shall be treated as a Directed Investment.
d. ( ) loans shall only be made for hardship or financial necessity.
e. (x) the minimum loan shall be $1,000. Note: Minimum loan amount may
not exceed $1,000.
NOTE: Department of Labor Regulations require the adoption of a
SEPARATE written loan program setting forth the requirements outlined in
Plan Section 7.1.
G2 PARTICIPANT DIRECTED INVESTMENTS (Plan Section 4.8)
a. (x) Yes, for all accounts of the Participant.
b. ( ) Yes, but subject to the following limitations:
c. ( ) No, participant directed investments are not permitted.
d. (x) If participant direction of investment is permitted, transfers
pursuant to this Section 4.8 shall be effected by:
1. ( ) the first day of the following month.
2. ( ) the first day of the following calendar quarter.
3. ( ) the sooner of the first day of the following Plan Year or
the first day of the following seventh month of the plan
Year.
4. ( ) the first day of the following Plan Year.
5. (x) daily, to the extent administratively feasible.
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.6)
a. (x) Yes, transfers from qualified plans (and rollovers) will be
allowed.
b. ( ) No, transfers from qualified plans (and rollovers) will not be
allowed.
AND, transfers shall be permitted...
c. (x) from any Employee, even if not a Participant.
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<PAGE> 19
d. ( ) from Participants only.
G4 HARDSHIP DISTRIBUTIONS (Plan Section 6.11)
a. ( ) Yes, hardship distributions may be made from any accounts which are
100% Vested.
b. ( ) Yes, but limited to the following account(s):
c. (x) No hardship distributions are permitted.
G5 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)
a. ( ) If a Participant has reached the age of ______, distributions may
be made, at the Participant's election, from the following
account(s):______ which are 100% Vested without requiring the
Participant to terminate employment.
b. (x) No pre-retirement distribution may be made.
G6 LIFE INSURANCE may be purchased with Plan contributions.
a. (x) No life insurance may be purchased.
b. ( ) Yes, at the option of the Administrator.
c. ( ) Yes, at the option of the Participant.
AND, the purchase of initial or additional life insurance shall be
subject to the following limitations: (select all that apply)
d. ( ) N/A, no limitations.
e. ( ) each initial Contract shall have a minimum face amount of
$__________.
f. ( ) each additional Contract shall have a minimum face amount of
$__________.
g. ( ) the Participant has completed __________ Years of Service.
h. ( ) the Participant has completed __________ Years of Service while a
Participant in the Plan.
I. ( ) the Participant is under age _________ on the Contract issue date.
j. ( ) the maximum amount of all Contracts on behalf of a Participant
shall not exceed $__________.
k. ( ) the maximum face amount of life insurance shall be $__________.
liv
<PAGE> 20
DISCLOSURE
The adopting Employer may not rely on an opinion letter issued by the National
Office of the Internal Revenue Service as evidence that the plan is qualified
under Code Section 401. In order to obtain reliance with respect to plan
qualification, the Employer must apply to the appropriate Key District Office
for a determination letter.
This Adoption Agreement may be used only in conjunction with basic Plan document
#04. This Adoption Agreement and the basic Plan document shall together be known
as Union Bank of California SelectBENEFIT Non-Standardized Profit Sharing Plan
and Trust #04-001.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
Union Bank of California will notify the Employer of any amendments made to the
Plan or of the discontinuance or abandonment of the Plan provided this Plan has
been acknowledged by Union Bank of California or its authorized representative.
Furthermore, in order to be eligible to receive such notification, we agree to
notify Union Bank of California of any change in address.
lv
<PAGE> 21
EXECUTION
IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on this _____________ day of _______________, 19__. Furthermore, this
Plan may not be used unless acknowledged by Union Bank of California or its
authorized representative.
UNION BANK OF CALIFORNIA, TRUSTEE
<TABLE>
<S> <C>
_____________________________
Name of Authorized Signer for Union Bank of California Title
_____________________________
Signature of Authorized Signer for Union Bank of California Date
EMPLOYER
_____________________________
Name of Authorized Signer for Plan Sponsor Title
_____________________________
Signature of Authorized Signer for Plan Sponsor Date
PARTICIPATING EMPLOYER
_____________________________
Name of Authorized Signer for Plan Sponsor Title
_____________________________
Signature of Authorized Signer for Plan Sponsor Date
</TABLE>
This Plan may not be used, and shall not be deemed to be a Prototype Plan,
unless an authorized representative of Union Bank of California has acknowledged
the use of the Plan. Such acknowledgment is for administerial purposes only. It
acknowledges that the Employer is using the Plan but does not represent that
this Plan, including the choices selected on the Adoption Agreement, has been
reviewed by a representative of the sponsor or constitutes a qualified
retirement plan.
UNION BANK OF CALIFORNIA, COMPLIANCE OFFICER
<TABLE>
<S> <C>
_____________________________
Name of Authorized Signer for Union Bank of California Title
_____________________________
Signature of Authorized Signer for Union Bank of California Date
</TABLE>
With regard to any questions regarding the provisions of the Plan, adoption of
the Plan, or the effect of an opinion letter from the IRS, call or write (this
information must be completed by the sponsor of this Plan or its designated
representative):
Name: Ernest L. Tichenor, c/o Union Bank of California Phone: (818) 895-4135
Street Address: 14500 Roscoe Blvd., Suite 300
City, State Zipcode: Panorama City, California 91402
lvi
<PAGE> 22
EXHIBIT 10.2
UNION BANK OF CALIFORNIA SelectBENEFIT
Copyright 1996 Union Bank of California
Copyright 1996 Union Bank of California
lvii
<PAGE> 23
ARTICLE I
DEFINITIONS
As used in this Plan, the following words and phrases shall have the
meanings set forth herein unless a different meaning is clearly required by
the context:
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may
be amended from time to time.
1.2 "Administrator" means the person(s) or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Adoption Agreement" means the separate Agreement which is executed by the
Employer and accepted by the Sponsor and the Trustee which sets forth the
elective provisions of this Plan and Trust as specified by the Employer.
1.4 "Affiliated Employer" means the Employer and any corporation which is a
member of a controlled group of corporations (as defined in Code Section
414(b)) which includes the Employer; any trade or business (whether or not
incorporated) which is under common control (as defined in Code Section
414(c)) with the Employer; 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 Employer; and any other entity required
to be aggregated with the Employer pursuant to Regulations under Code
Section 414(o).
1.5 "Aggregate Account" means 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 Section
2.2.
1.6 "Anniversary Date" means the anniversary date specified in C3 of the
Adoption Agreement.
1.7 "Beneficiary" means the person to whom a share of a deceased Participant's
interest in the Plan is payable, subject to the restrictions of Sections
6.2 and 6.6.
1.8 "Code" means the Internal Revenue Code of 1986, as amended or replaced from
time to time.
1.9 "Compensation" with respect to any Participant means one of the following
as elected in the Adoption Agreement. However, Compensation for any
Self-Employed Individual shall be equal to his Earned Income.
lviii
<PAGE> 24
a) Information required to be reported under Sections 6041, 6051 and 6052
(Wages, Tips and Other Compensation Box on Form W-2). Compensation is
defined as wages as defined in Section 3401(a) and all other payments
of compensation to an Employee by the Employer (in the course of the
Employer's trade or business) for which the Employer is required to
furnish the Employee a written statement under Code Sections 6041(d)
and 6051 (a)(3). Compensation must be determined without regard to any
rules under Code Section 3401(a) that limit the remuneration included
in wages based on the nature or location of the employment or the
services performed (such as the exception for agricultural labor in
Section 3401 (a)(2))
b) Section 3401(a) wages. Compensation is defined as wages within the
meaning of Code Section 3401 (a) for the purposes of income tax
withholding at the source but determined without regard to any rules
that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the
exception for agricultural labor in Code Section 3401(a)(2)).
c) 415 safe-harbor compensation. Compensation is defined as 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 amounts
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, allowances under a nonaccountable plan (as described in
1.62-2(c)), and excluding the following:
i. Employer contributions to a plan of deferred compensation which
are not includible in the 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;
ii. 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;
iii. Amounts realized the sale, exchange or other disposition of stock
acquired under a qualified stock option; and
lix
<PAGE> 25
iv. 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 contract
described in Code Section 403(b) (whether or not the
contributions are actually excludable from the gross income of
the Employee).
If, in connection with the adoption of this Plan or of any amendment to the
Plan, the definition of Compensation is modified, then, for Plan Years
prior to the Plan Year which includes the adoption date of such amendment,
Compensation means compensation determined pursuant to the Plan then in
effect.
In addition, if specified in the Adoption Agreement, Compensation for all
Plan purposes shall also include compensation which is not currently
includible in the Participant's gross income by reason of the application
of Code Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b).
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).
Notwithstanding the above, 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 Code Section 401
(a)(17)(B), of the Internal Revenue Code. The cost of living adjustment in
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 Code Section 401 (a)(17) shall mean the
OBRA'93 annual Compensation limit set forth in this Section.
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<PAGE> 26
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. If,
as a result of the application of such rules, the adjusted limitation is
exceeded, then (except for purposes of determining the portion of
Compensation up to the integration level if this plan is integrated), the
limitation shall be prorated among the affected individuals in proportion
to each such individual's Compensation as determined under this Section
prior to the application of this limitation.
For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top
Heavy Plan Years and shall not be adjusted.
1.10 "Contract" or "Policy" means any life insurance policy, retirement income
policy, or annuity contract (group or individual) issued by the Insurer. 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.
1.11 "Deferred Compensation" means, with respect to any Participant, that
portion of the Participant's total Compensation which has been contributed
to the Plan in accordance with the Participant's deferral election pursuant
to Section 11.2.
1.12 "Early Retirement Date" means the date specified in the Adoption Agreement
on which a Participant or Former Participant has satisfied the age and
service requirements specified in the Adoption Agreement (Early Retirement
Age). A Participant shall become fully Vested upon satisfying this
requirement if still employed at his Early Retirement Age.
A Former Participant who terminates employment after satisfying the service
requirement for Early Retirement and who thereafter reaches the age
requirement contained herein shall be entitled to receive his benefits
under this Plan.
1.13 "Earned Income" means 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 items. Net earnings are reduced by
contributions by the Employer to a qualified Plan to the extent deductible
under Code Section 404. In addition, for Plan 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).
lxi
<PAGE> 27
1.14 "Elective Contribution" means the Employer's contributions to the Plan that
are made pursuant to the Participant's deferral election pursuant to
Section 11.2, excluding any such amounts distributed as "excess annual
additions" pursuant to Section 4.4. In addition, if selected in E3 of the
Adoption Agreement, the Employer's matching contribution shall or shall not
be considered an Elective Contribution for purposes of the Plan, as
provided in Section 1 1.1 (b). Elective Contributions shall be subject to
the requirements of Sections 11.2(b) and 11.2(c) and shall further be
required to satisfy the discrimination requirements of Regulation 1.401
(k)-1 (b)(3), the provisions of which are specifically incorporated herein
by reference.
1.15 "Eligible Employee" means any Employee specified in D1 of the Adoption
Agreement.
1.16 "Employee" means any person who is employed by the Employer, but excludes
any person who is employed as an independent contractor. The term Employee
shall also include Leased Employees as provided in Code Section 414(n) or
(o).
Except as provided in the Non-Standardized Adoption Agreement, all
Employees of all entities which are an Affiliated Employer will be treated
as employed by a single employer.
1.17 "Employer" means the entity specified in the Adoption Agreement, any
Participating Employer (as defined in Section 10.1) which shall adopt this
Plan, any successor which shall maintain this Plan and any predecessor
which has maintained this Plan.
1.18 "Excess Compensation" means, with respect to a Plan that is integrated with
Social Security, a Participant's Compensation which is in excess of the
amount set forth in the Adoption Agreement.
1.19 "Excess Contributions" means, with respect to a Plan Year, the excess of
Elective Contributions and Qualified Non-Elective Contributions made on
behalf of Highly Compensated Participants for the Plan Year over the
maximum amount of such contributions permitted under Section 1 1.4(a).
1.20 "Excess Deferred Compensation" means, with respect to any taxable year of a
Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section
11.2(f) actually made on behalf of such 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 Section 4.4 when contributed to
the Plan unless distributed to the affected Participant not later than the
first April 1 5th following the close of the Participant's taxable year.
1.21 "Family Member" means, with respect to an affected Participant, such
Participant's spouse, and such Participant's lineal descendants and
ascendants and their spouses, all as described in Code Section
4l4(q)(6)(B).
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<PAGE> 28
1.22 "Fiduciary" means 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.
1.23 "Fiscal Year" means the Employer's accounting year as specified in the
Adoption Agreement.
1.24 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Participant's
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.
1.25 "Former Participant" means a person who has been a Participant, but who has
ceased to be a Participant for any reason.
1.26 "414(s) Compensation" with respect to any Employee means his Compensation
as defined in Section 1.9. However, for purposes of this Section,
Compensation shall be Compensation paid and, if selected in the Adoption
Agreement, shall only be recognized as of an Employee's effective date of
participation. If, in connection with the adoption of this Plan or of any
amendment to this Plan, the definition of "414(s) Compensation" is
modified, then, for Plan Years prior to the Plan Year which includes the
adoption of such an amendment, "414(s) Compensation" means compensation
determined pursuant to the Plan then in effect.
In addition, if specified in the Adoption Agreement, "414(s) Compensation"
shall also include compensation which is not currently includible in the
Participant's gross income by reason of the application of Code Sections
125, 402(e)(3), 402(h)(1)(B), or 403(b), plus Elective Contributions
attributable to Deferred Compensation recharacterized as voluntary Employee
contributions pursuant to 11.5(a).
1.27 "415 Compensation" means compensation as defined in Section 4.4(f)(2).
lxiii
<PAGE> 29
1.28 "Highly Compensated Employee" means an Employee described in Code Section
414(q) and the Regulations thereunder and generally means an Employee who
performed services for the Employer during the "determination year" and is
in 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" as defined in Section
1.37(c).
(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 of 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".
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. However, if the Plan Year is a calendar
year, or if another Plan of the Employer so provides, then 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").
With respect to this election, it shall be applied on a uniform and
consistent basis to all plans, entities, and arrangements of the
Employer.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts that would otherwise be excluded
from a Participant's gross income by reason of the application of Code
Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer
contributions made pursuant to a salary
lxiv
<PAGE> 30
reduction agreement, 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.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the
meaning of Code Section 911 (d)) from the Employer constituting United
States source income within the meaning of Code Section 861(a)(3)
shall not be treated as Employees. Additionally, 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. The exclusion of Leased
Employees for this purpose shall be applied on a uniform and
consistent basis for all of the Employer's retirement plans. In
addition, Highly Compensated Former Employees shall be treated as
Highly Compensated Employees without regard to whether they performed
services during the "determination year."
1.29 "Highly Compensated Former Employee" means 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,
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
age 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 1.29. Highly Compensated Former Employees shall be
treated as Highly Compensated Employees. The method set forth in this
Section for determining who is a "Highly Compensated Former Employee" shall
be applied on a uniform and consistent basis for all purposes for which the
Code Section 414(q) definition is applicable.
1.30 "Highly Compensated Participant" means any Highly Compensated Employee who
is eligible to participate in the Plan.
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<PAGE> 31
1.31 "Hour of Service" means (1) each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by the Employer for the
performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or
entitled to compensation by the Employer (irrespective of whether the
employment relationship has terminated) for reasons other than performance
of duties (such as vacation, holidays, sickness, jury duty, disability,
lay-off, military duty or leave of absence) during the applicable
computation period; (3) each hour for which back pay is awarded or agreed
to by the Employer without regard to mitigation of damages. The same Hours
of Service shall not be credited both under (1) or (2), as the case may be,
and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited 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); (ii) 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 worker's
compensation, or unemployment compensation or disability insurance laws;
and (iii) 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 Section, a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due
from the Employer directly, or indirectly through, among others, a trust
fund, or insurer, to which the Employer 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.
An Hour of Service must be counted for the purpose of determining a Year of
Service, a year of participation for purposes of accrued benefits, a 1-Year
Break in Service, and employment commencement date (or reemployment
commencement date). The provisions of Department of Labor regulations
2530.200b-2(b) and (c) are incorporated herein by reference.
Hours of Service will be credited for employment with all Affiliated
Employers and for any individual considered to be a Leased Employee
pursuant to Code Sections 414(n) or 414(o) and the Regulations thereunder.
Hours of Service will be determined on the basis of the method selected in
the Adoption Agreement.
1.32 "Insurer" means any legal reserve insurance company which shall issue one
or more policies under the Plan.
lxvi
<PAGE> 32
1.33 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm,
or corporation registered as an investment adviser under the Investment
Advisers Act of 1940, a bank, or an insurance company.
1.34 "Investment Option" means each investment option made available from time
to time, by the Employer to Participants, in which a Participant may elect
to have either all or a portion of his accounts invested as permitted by
the Employer and the Trustee.
1.35 "Joint and Survivor Annuity" means an annuity for the life of a Participant
with a survivor annuity for the life of the Participant's spouse which is
not less than 1/2, nor greater than the amount of the annuity payable
during the joint lives of the Participant and the Participant's spouse. The
Joint and Survivor Annuity will be the amount of benefit which can be
purchased with the Participant's Vested interest in the Plan.
1.36 "Key Employee" means an Employee as defined in Code Section 416(i) and the
Regulations thereunder. Generally, any Employee or former Employee (as well
as each of his beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of
the preceding four (4) Plan Years, has been included in one of the
following categories:
(a) an officer of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) having annual
"415 Compensation" greater than 50 percent of the amount in
effect under Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation" from
the Employer for a Plan Year greater than the dollar limitation
in effect under Code Section 415(c)(1)(A) for the calendar year
in which such Plan Year ends and owning (or considered as owning
within the meaning of Code Section 318) both more than one-half
percent interest and the largest interests in the Employer.
(c) a "five percent owner" 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 (5%) of the
outstanding stock of the Employer or stock possessing more than
five percent (5%) 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 (5%) 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.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $ 150,000. "One
percent
lxvii
<PAGE> 33
owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than one percent (1
%) of the outstanding stock of the Employer or stock possessing
more than one percent (1%) 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 one percent (1 %) 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. However, in determining whether an
individual has "415 Compensation" of more than $150,000, "415
Compensation" from each employer required to be aggregated under
Code Sections 414(b), (c), (m) and (o) shall be taken into
account.
For purposes of this Section, the determination of "415 Compensation" shall
be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections
125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer contributions
made pursuant to a salary reduction agreement, Code Section 403(b).
1.37 "Late Retirement Date" means the date of, or the first day of the month or
the Anniversary Date coinciding with or next following, whichever
corresponds to the election made for the Normal Retirement Date, a
Participant's actual retirement after having reached his Normal Retirement
Date.
1.38 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient
(or for the recipient and related persons determined in accordance with
Code Section 414(n)(6)) on a substantially full time basis for a period of
at least one year, and such services are of a type historically performed
by employees in the business field of the recipient employer. Contributions
or benefits provided a leased employee by the leasing organization which
are attributable to services performed for the recipient employer shall be
treated as provided by the recipient employer.
A leased employee shall not be considered an Employee of the recipient if:
(i) such employee is covered by a money purchase pension plan providing:
(1) a nonintegrated employer contribution rate of at least 10 percent of
compensation, as defined in Code Section 415(c)(3), but including amounts
contributed pursuant to a salary reduction agreement which are excludable
from the employee's gross income under Code Sections 125, 402(e)(3),
402(h), or 403(b), (2) immediate participation, and (3) full and immediate
vesting; and (ii) leased employees do not constitute more than 20 percent
of the recipient's nonhighly compensated workforce.
1.39 "Net Profit" means with respect to any Fiscal Year the Employer's net
income or profit for such Fiscal Year determined upon the basis of the
Employer's books of account in accordance with generally accepted
accounting principles, without any reduction for
lxviii
<PAGE> 34
taxes based upon income, or for contributions made by the Employer to this
Plan and any other qualified plan.
1.40 "Non-Elective Contribution" means the Employer's contributions to the Plan
other than those made pursuant to the Participant's deferral election made
pursuant to Section 11.2 and any Qualified Non-Elective Contribution. In
addition, if selected in E3 of the Adoption Agreement, the Employer's
Matching Contribution made pursuant to Section 4.3(b) shall be considered a
Non-Elective Contribution for purposes of the Plan.
1.41 "Non-Highly Compensated Participant" means any Participant who is neither a
Highly Compensated Employee nor a Family Member.
1.42 "Non-Key Employee" means any Employee or former Employee (and his
beneficiaries) who is not a Key Employee.
1.43 "Normal Retirement Age" means the age specified in the Adoption Agreement
at which time a Participant shall become fully Vested in his Participant's
Account.
1.44 "Normal Retirement Date" means the date specified in the Adoption Agreement
on which a Participant shall become eligible to have his benefits
distributed to him.
1.45 "1-Year Break in Service" means (a) if the 1,000 Hour Method is selected
in the Adoption Agreement, the applicable computation period during which
an Employee has not completed more than 500 Hours of Service with the
Employer; or (b) if the Elapsed Time Method is selected in the Adoption
Agreement, a Period of Severance of at least twelve (12) consecutive
months. Period of Severance means the period commencing with the earlier
of:
(a) the date an Employee separates from service by reason of
quitting, retirement, death or discharge; or
(b) the first anniversary of the first day of the period in which an
employee remains absent from service (with or without pay) for
any reason other than quitting, retirement, death or discharge;
or
lxix
<PAGE> 35
(c) the second anniversary of the first day of the period in which an
Employee remains absent from service (with or without pay)
because of a "maternity or paternity leave of absence," and
ending with the date such Employee resumes service. A Break in
Service shall not include (i) any period during which the
Employee is absent in the service of the armed forces of the
United States, including any period during which his reemployment
rights as a veteran are protected by law; (ii) any period during
which the Employee is on a leave of absence authorized by the
Employer not to exceed two years (which leaves shall be granted
on a nondiscriminatory basis to all Employees similarly
situated), provided, however, that if the Employee fails to
return to service prior to the expiration of such authorized
leave, his Period of Severance shall be deemed to commence on the
date such authorized leave commenced.
Further, solely for the purpose of determining whether a Participant has
incurred a 1-Year Break in Service, Hours of Service shall be recognized
for "authorized leaves of absence" and "maternity and paternity leaves of
absence."
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service,
or any other reason.
A "maternity or paternity leave of absence" means, 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. For this purpose, Hours of
Service shall be credited for the computation period in which the absence
from work begins, only if credit therefore is necessary to prevent the
Employee from incurring a 1-Year Break in Service, or, in any other case,
in the immediately following computation period. The Hours of Service
credited for a "maternity or paternity leave of absence" shall be those
which would normally have been credited but for such absence, or, in any
case in which the Administrator is unable to determine such hours normally
credited, eight (8) Hours of Service per day. The total Hours of Service
required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.46 "Owner-Employee" means a sole proprietor who owns the entire interest in
the Employer or a partner who owns more than 10% of either the capital
interest or the profits interest in the Employer and who receives income
for personal services from the Employer.
1.47 "Participant" means any Eligible Employee who participates in the Plan as
provided in Section 3.2 and has not for any reason become ineligible to
participate further m the Plan.
lxx
<PAGE> 36
1.48 "Participant's Account" means the account established and maintained by the
Administrator for each Participant with respect to his total interest under
the Plan resulting from (a) the Employer's contributions in the case of a
Profit Sharing Plan or Money Purchase Plan, and (b) the Employer's
Non-Elective Contributions in the case of a 401 (k) Profit Sharing Plan.
1.49 "Participant's Combined Account" means the account established and
maintained by the Administrator for each Participant with respect to his
total interest under the Plan resulting from the Employer's contributions.
1.50 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his
total interest in the Plan and Trust resulting from the Employer's Elective
Contributions and Qualified Non-Elective Contributions. A separate
accounting shall be maintained with respect to that portion of the
Participant's Elective Account attributable to Elective Contributions made
pursuant to Section 11.2, Employer matching contributions if they are
deemed to be Elective Contributions, and any Qualified Non-Elective
Contributions.
1.51 "Participant Recordkeeper" means Union Bank of California pursuant to a
separate agency agreement between Union Bank of California and the
Administrator.
1.52 "Participant's Rollover Account" means the account established and
maintained by the Administrator for each Participant with respect to his
total interest in the Plan resulting from amounts transferred from another
qualified plan or "conduit" Individual Retirement Account in accordance
with Section 4.6.
1.53 "Plan" means this instrument (hereinafter referred to as Union Bank of
California SelectBENEFIT Defined Contribution Plan and Trust Basic Plan
Document #04) including all amendments thereto, and the Adoption Agreement
as adopted by the Employer.
1.54 "Plan Year" means the Plan's accounting year as specified in C2 of the
Adoption Agreement.
1.55 "Pre-Retirement Survivor Annuity" means an immediate annuity for the life
of the Participant's spouse, the payments under which must be equal to the
actuarial equivalent of 50% of the Participant's Vested interest in the
Plan as of the date of death.
1.56 "Qualified Non-Elective Account" means the account established hereunder to
which Qualified Non-Elective Contributions are allocated.
lxxi
<PAGE> 37
1.57 "Qualified Non-Elective Contribution" means the Employer's contributions to
the Plan that are made pursuant to E5 of the Adoption Agreement and Section
11. l (d) which are used to satisfy the "Actual Deferral Percentage" tests.
Qualified Non-Elective Contributions are nonforfeitable when made and are
distributable only as specified in Sections 11.2(c) and 11.8. In addition,
the Employer's contributions to the Plan that are made pursuant to Section
11.7(h) and which are used to satisfy the "Actual Contribution Percentage"
tests shall be considered Qualified Non-Elective Contributions.
1.58 "Qualified Voluntary Employee Contribution Account" means the account
established and maintained by the Administrator for each Participant with
respect to his total interest under the Plan resulting from the
Participant's tax deductible qualified voluntary employee contributions
made pursuant to Section 4.9.
1.59 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to
time.
1.60 "Retired Participant" means a person who has been a Participant, but who
has become entitled to retirement benefits under the Plan.
1.61 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement
Date (see Section 6.1).
1.62 "Self-Employed Individual" means an 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.
1.63 "Shareholder-Employee" means a Participant who owns more than five percent
(5%) of the Employer's outstanding capital stock during any year in which
the Employer elected to be taxed as a Small Business Corporation under the
applicable Code Section.
1.64 "Short Plan Year" means, if specified in the Adoption Agreement, that the
Plan Year shall be less than a 12-month period. If chosen, the following
rules shall apply in the administration of this Plan. In determining
whether an Employee has completed a Year of Service for benefit accrual
purposes in the Short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the number of days in
the Short Plan Year. The determination of whether an Employee has completed
a Year of Service for vesting and eligibility purposes shall be made in
accordance with Department of Labor Regulation 2530.203-2(c). In addition,
if this Plan is integrated with Social Security, the integration level
shall also be proportionately reduced based on the number of days in the
Short Plan Year.
lxxii
<PAGE> 38
1.65 "Sponsor" means Union Bank of California as the sponsoring organization or
any successor acting in its capacity as Sponsor of the Plan.
1.66 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.67 "Taxable Wage Base" means, with respect to any year, the maximum amount of
earnings which may be considered wages for such year under Code Section
3121 (a)(1).
1.68 "Terminated Participant" means a person who has been a Participant, but
whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
1.69 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.70 "Top Heavy Plan Year" means a Plan Year commencing after December 31, 1983
during which the Plan is a Top Heavy Plan.
1.71 "Top Paid Group" shall be determined pursuant to Code Section 414(q) and
the Regulations thereunder and generally 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" (as determined
pursuant to Section 1.29) received from the Employer during such year. All
Affiliated Employers shall be taken into account as a single employer, and
Leased Employees shall be treated as Employees pursuant to Code Section
414(n) or (o). Employees who are non-resident aliens 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) shall not be treated as Employees. Additionally, for the purpose
of determining the number of active Employees in any year, the following
additional Employees shall also 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; and
(d) Employees who have not yet attained age 21.
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
lxxiii
<PAGE> 39
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.
The foregoing exclusions set forth in this Section shall be applied on a
uniform and consistent basis for all purposes for which the Code Section
414(q) definition is applicable.
1.72 "Total and Permanent Disability" means the 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 last for a continuous period of not
less than 12 months. The disability of a Participant shall be determined by
a licensed physician chosen by the Administrator. However, if the condition
constitutes total disability under the federal Social Security Acts, the
Administrator may rely upon such determination that the Participant is
Totally and Permanently Disabled for the purposes of this Plan. The
determination shall be applied uniformly to all Participants.
1.73 "Trustee" means Union Bank of California and any successors or assigns.
1.74 "Trust Fund" means the assets of the Plan and Trust as the same shall exist
from time to time.
1.75 "Valuation Date" means each business day that both the Trustee and the New
York Stock Exchange are open for business.
1.76 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
1.77 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his
total interest in the Plan resulting from the Participant's nondeductible
voluntary contributions made pursuant to Section 4.7.
1.78 "Year of Service" means (a) if the 1,000 Hour Method is selected in the
Adoption Agreement, the computation period of twelve (12) consecutive
months, herein set forth, and during which an Employee has completed at
least 1000 Hours of Service or (b) if the Elapsed Time Method is selected,
twelve (12) Months of Service.
lxxiv
<PAGE> 40
If the 1,000 Hour Method is selected in the Adoption Agreement, then for
purposes of eligibility for participation, the initial computation period
shall begin with the date on which the Employee first performs an Hour of
Service (employment commencement date). The computation period beginning
after a 1-Year Break in Service shall be measured from the date on which an
Employee again performs an Hour of Service. The succeeding computation
periods shall begin with the first anniversary of the Employee's employment
commencement date. However, if one (1 ) Year of Service or less is required
as a condition of eligibility, then after the initial eligibility
computation period, the eligibility computation period shall shift to the
current Plan Year which includes the anniversary of the date on which the
Employee first performed an Hour of Service. An Employee who is credited
with 1,000 Hours of Service in both the initial eligibility computation
period and the first Plan Year which commences prior to the first
anniversary of the Employee's initial eligibility computation period will
be credited with two Years of Service for purposes of eligibility to
participate.
If the Elapsed Time Method is selected in the Adoption Agreement, then for
purposes of determining an Employee's initial or continued eligibility to
participate and vesting, an Employee will receive credit for the aggregate
of all time periods commencing with the Employee's first day of employment
or reemployment and ending on the date a Break in Service begins. The first
day of employment is the first day the Employee performs an Hour of
Service. An Employee will also receive credit for any period of severance
of less than 12 consecutive months. Fractional periods of a year will be
expressed in terms of days.
Years of Service and breaks in service will be measured on the same
computation period.
Years of Service with any predecessor Employer which maintained this Plan
shall be recognized. Years of Service with any other predecessor Employer
shall be recognized as specified in the Adoption Agreement.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 41 6(b) pursuant to Section 6.4 of the Plan
and the special minimum allocation requirements of Code Section 41 6(c)
pursuant to Section 4.3(i) of the Plan.
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2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year beginning after
December 31, 1983, in which, as of the Determination Date, (1) the
Present Value of Accrued benefits of Key Employees and (2) the sum of
the Aggregate Accounts of Key Employees under this Plan and all plans
of an Aggregation Group, exceeds sixty percent (60%) of the Present
Value of Accrued benefits and the Aggregate Accounts of all Key and
Non-Key Employees under this Plan and all plans of an Aggregation
Group.
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 Aggregate
Account balance shall not be taken into account for purposes of
determining whether this Plan is a Top Heavy or Super Top Heavy Plan
(or whether any Aggregation Group which includes this Plan is a Top
Heavy Group). In addition, if a Participant or Former Participant has
not performed any services for any Employer maintaining the Plan at
any time during the five year period ending on the Determination Date,
any accrued benefit for such Participant or Former Participant shall
not be taken into account for the purposes of determining whether this
Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year beginning
after December 31, 1983, in which, as of the Determination Date, (1)
the Present Value of Accrued benefits of Key Employees and (2) the sum
of the Aggregate Accounts of Key Employees under this Plan and all
plans of an Aggregation Group, exceeds ninety percent (90%) of the
Present Value of Accrued benefits and the Aggregate Accounts of all
Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the most recent
valuation occurring within a twelve (12) month period ending on
the Determination Date;
(2) for a Profit Sharing Plan, an adjustment for any contributions
due as of the Determination Date. 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;
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<PAGE> 42
(3) for a Money Purchase Plan, contributions that would be allocated
as of a date not later than the Determination Date, even though
those amounts are not yet made or required to be made.
(4) any Plan distributions made within the Plan Year that includes
the Determination Date or within the four (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 Aggregate Account balance as of the
Valuation Date. In the case of a distribution of an annuity
Contract, the amount of such distribution is deemed to be the
current actuarial value of the Contract, determined on the date
of the distribution. 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 purpose of this
paragraph.
(5) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified
voluntary employee contributions shall not be considered to be a
part of the Participant's Aggregate Account balance.
(6) 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 the rollovers or plan-to-plan
transfers, it shall always consider such rollovers or
plan-to-plan transfers 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 Aggregate Account balance. However,
rollovers or plan-to-plan transfers accepted prior to January 1,
1984 shall be considered as part of the Participant's Aggregate
Account balance.
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<PAGE> 43
(7) 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 Aggregate Account balance, irrespective of the date
on which such rollover or plan-to-plan transfer is accepted.
(8) For the purposes of determining whether two employers are to be
treated as the same employer in 2.2(c)(6) and 2.2(c)(7) above,
all employers aggregated under Code Section 414(b), (c), (m) and
(o) are treated as the same employer.
(d) "Aggregation Group" means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required Aggregation
Group hereunder, each qualified plan of the Employer, including
any Simplified Employee Pension Plan, in which a Key Employee is
a participant in the Plan Year containing the Determination Date
or any of the four preceding Plan Years, and each other qualified
plan of the Employer which enables any qualified plan in which a
Key Employee participates to meet the requirements of 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
Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include any
other plan of the Employer, including any Simplified Employee
Pension 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 Code Sections
401(a)(4) and 410. Such group shall be known as a Permissive
Aggregation Group.
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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. No plan in the Permissive Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation Group
is not a Top Heavy Group.
(3) 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.
(4) An Aggregation Group shall include any terminated plan of the
Employer if it was maintained within the last five (5) years
ending on the Determination Date.
(e) Determination Date" means (a) the last day of the preceding Plan Year,
or (b) in the case of the first Plan Year, the last day of such Plan
Year.
(f) Present Value of Accrued benefit: In the case of a defined benefit
plan, the Present Value of Accrued Benefit for a Participant other
than a Key Employee shall be as determined using the single accrual
method used for all 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 Code Section 41 l(b)(l)(C). The determination of the
Present Value of Accrued Benefit shall 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 Code
Section 416 and the Regulations thereunder for the first and second
plan years of a defined benefit plan.
However, any such determination must include present value of accrued
benefit attributable to any Plan distributions referred to in Section
2.2(c)(4) above, any Employee contributions referred to in Section
2.2(c)(5) above or any related or unrelated rollovers referred to in
Sections 2.2(c)(6) and 2.2(c)(7) above.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued benefits of Key Employees under all
defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group, exceeds sixty percent
(60%) of a similar sum determined for all Participants.
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(h) The Administrator shall determine whether this Plan is a Top Heavy
Plan on the Anniversary Date specified in the Adoption Agreement. Such
determination of the top heavy ratio shall be in accordance with Code
Section 4 l 6 and the Regulations thereunder.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the Trustee and
the Administrator from time to time as it deems necessary for the
proper administration of the Plan to assure that the Plan is being
operated for the exclusive benefit of the Participants and their
beneficiaries in accordance with the terms of the Plan, the Code, and
the Act.
(b) The Employer shall establish a "funding policy and method", i.e., it
shall determine whether the Plan has a short run need for liquidity
(e.g., to pay benefits) or whether liquidity is a long run goal and
investment growth (and stability of same) is a more current need, or
shall appoint a qualified person to do so. The Employer or its
delegate shall communicate such needs and goals to the Trustee, who
shall coordinate such Plan needs with its investment policy. The
communication of such a "funding policy and method" shall not,
however, constitute a directive to the Trustee as to investment of the
Trust Funds. Such "funding policy and method" shall be consistent with
the objectives of this Plan and with the requirements of Title I of
the Act.
(c) The Employer shall select the Investment Options to be offered
pursuant to the provisions of the Trust Agreement. The Employer may,
in its discretion, appoint an Investment Manager to manage all or a
designated portion of the assets of the Plan. In such event, the
Trustee shall follow the directive of the Investment Manager in
investing the assets of the Plan managed by the Investment Manager.
(d) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied by
formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct
and evaluation, or through other appropriate ways.
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<PAGE> 46
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Plan Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be
eligible to serve as an Administrator. Any person so appointed shall
signify his acceptance by filing written acceptance with the Employer. An
Administrator may resign by delivering his written resignation to the
Employer or be removed by the Employer by delivery of written notice of
removal, to take effect at a date specified therein, or upon delivery to
the Administrator if no date is specified.
The Employer, upon the resignation or removal of an Administrator, shall
promptly designate in writing a successor to this position. If the Employer
does not appoint an Administrator, the Employer will function as the
Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the responsibilities
of each Administrator may be specified by the Employer and accepted in
writing by each Administrator. In the event that no such delegation is made
by the Employer, the Administrators may allocate the responsibilities among
themselves, in which event the Administrators shall notify the Employer and
the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation
of such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the Plan
for the exclusive benefit of the Participants and their beneficiaries,
subject to the specific terms of the Plan. The Administrator shall
administer the Plan in accordance with its terms and shall have the power
and discretion to construe the terms of the Plan and determine all
questions arising in connection with the administration, interpretation,
and application of the Plan. Any such determination by the Administrator
shall be conclusive and binding upon all persons. The Administrator may
establish procedures, correct any defect, supply any information, or
reconcile any inconsistency in such manner and to such extent as shall be
deemed necessary or advisable to carry out the purpose of the Plan;
provided, however, that any procedure, discretionary act, interpretation or
construction shall be done in a nondiscriminatory manner based upon uniform
principles consistently applied and shall be consistent with the intent
that the Plan shall continue to be deemed a qualified plan under the terms
of Code Section 401 (a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all
powers necessary or appropriate to accomplish his duties under this Plan.
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<PAGE> 47
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant
hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the
amount and the kind of benefits to which any Participant shall be
entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the
Trust Fund;
(d) to maintain all necessary records for the administration of the
Plan;
(e) to interpret the provisions of the Plan and to make and publish
such rules for regulation of the Plan as are consistent with the
terms hereof;
(f) to determine the size and type of any Contract to be purchased
from any Insurer, and to designate the Insurer from which such
Contract shall be purchased;
(g) to compute and certify to the Employer and to the Trustee from
time to time the sums of money necessary or desirable to be
contributed to the Trust Fund;
(h) to prepare and distribute to Employees a procedure for notifying
Participants and beneficiaries of their rights to elect Joint and
Survivor Annuities and Pre-Retirement Survivor Annuities if
required by the Code and Regulations thereunder;
(i) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep
all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for
supplying all information and reports to the Internal Revenue Service,
Department of Labor, Participants, beneficiaries and others as required by
law.
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2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator,
may appoint counsel, specialists, advisers, and other persons as the
Administrator or the Trustee deems necessary or desirable in connection
with the administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer shall
supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service,
their Years of Service, their retirement, death, disability, or
termination of employment, and such other pertinent facts as the
Administrator may require; and the Administrator shall advise the Trustee
of such of the foregoing facts as may be pertinent to the Trustee's duties
under the Plan. The Administrator may rely upon such information as is
supplied by the Employer and shall have no duty or responsibility to
verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to
the functioning of the Administrator, including, but not limited to, fees
of accountants, counsel, and other specialists and their agents, and other
costs of administering the Plan. Until paid, the expenses shall constitute
a liability of the Trust Fund. However, the Employer may reimburse the
Trust Fund for any administration expense incurred. Any administration
expense paid to the Trust Fund as a reimbursement shall not be considered
an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of administrative
authority pursuant to Section 2.5, if there shall be more than one
Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be
furnished to the claimant within 90 days after the application is filed.
In the event the claim is denied, the reasons for the denial shall be
specifically set forth in the notice in language calculated to be
understood by the claimant, pertinent provisions of the Plan shall be
cited, and, where appropriate, an explanation as to how the claimant can
perfect the claim will be provided. In addition, the claimant shall be
furnished with an explanation of the Plan's claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
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<PAGE> 49
Any Employee, former Employee, or beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section
2.12 shall be entitled to request the Administrator to give further
consideration to his claim by filing with the Administrator a written
request for a hearing. Such request, together with a written statement of
the reasons why the claimant believes his claim should be allowed, shall
be filed with the Administrator no later than 60 days after receipt of the
written notification provided for in Section 2.12. The Administrator shall
then conduct a hearing within the next 60 days, at which the claimant may
be represented by an attorney or any other representative of his choosing
and expense and at which the claimant shall have an opportunity to submit
written and oral evidence and arguments in support of his claim. At the
hearing (or prior thereto upon 5 business days written notice to the
Administrator) the claimant or his representative shall have an
opportunity to review all documents in the possession of the Administrator
which are pertinent to the claim at issue and its disallowance. Either the
claimant or the Administrator may cause a court reporter to attend the
hearing and record the proceedings. In such event, a complete written
transcript of the proceedings shall be furnished to both parties by the
court reporter. The full expense of any such court reporter and such
transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim
shall be made by the Administrator within 60 days of receipt of the appeal
(unless there has been an extension of 60 days due to special
circumstances, provided the delay and the special circumstances
occasioning it are communicated to the claimant within the 60 day period).
Such communication shall be written in a manner calculated to be
understood by the claimant and shall include specific reasons for the
decision and specific references to the pertinent Plan provisions on which
the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee shall be eligible to participate hereunder on the
date he has satisfied the requirements specified in the Adoption
Agreement.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee who has become eligible to be a Participant shall
become a Participant effective as of the day specified in the Adoption
Agreement.
In the event an Employee who has satisfied the Plan's eligibility
requirements and would otherwise have become a Participant shall go from a
classification of a noneligible Employee to an Eligible Employee, such
Employee shall become a Participant as of the date he becomes an Eligible
Employee.
In the event an Employee who has satisfied the Plan's eligibility
requirements and would otherwise become a Participant shall go from a
classification of an Eligible Employee to a noneligible Employee and
becomes ineligible to participate and has not incurred a
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1-Year Break in Service, such Employee shall participate in the Plan as of
the date he returns to an eligible class of Employees. If such Employee
does incur a 1-Year Break in Service, eligibility will be determined under
the Break in Service rules of the Plan.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the
Employer. Such determination shall be conclusive and binding upon all
persons, as long as the same is made pursuant to the Plan and the Act.
Such determination shall be subject to review per Section 2.13.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an Eligible
Employee to an ineligible Employee, such Former Participant shall continue
to vest in his interest in the Plan for each Year of Service completed
while a noneligible Employee, until such time as his Participant's Account
shall be forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in the
earnings of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant
in the Plan is erroneously omitted and discovery of such omission is not
made until after a contribution by his Employer for the year has been
made, the Employer shall make a subsequent contribution, if necessary
after the application of Section 4.3(e), so that the omitted Employee
receives a total amount which the said Employee would have received had he
not been omitted. Such contribution shall be made regardless of whether or
not it is deductible in whole or in part in any taxable year under
applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year
has been made, the Employer shall not be entitled to recover the
contribution made with respect to the ineligible person regardless of
whether or not a deduction is allowable with respect to such contribution.
In such event, the amount contributed with respect to the ineligible
person shall constitute a Forfeiture for the Plan Year in which the
discovery is made.
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3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to
participate must be communicated to the Employer, in writing, at least
thirty (30) days before the beginning of a Plan Year. For Standardized
Plans, a Participant or an Eligible Employee may not elect not to
participate. Furthermore, the foregoing election not to participate shall
not be available with respect to partners in a partnership.
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE
(a) If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other entities, this Plan and the plan
established for other trades or businesses must, when looked at as a
single Plan, satisfy Code Sections 401 (a) and (d) for the Employees
of this and all other entities.
(b) If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses,
the employees of the other trades or businesses must be included in
a plan which satisfies Code Sections 401(a) and (d) and which
provides contributions and benefits not less favorable than provided
for Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the benefits or
contributions of the employees under the plan of the trades or
businesses which are controlled must be as favorable as those
provided for him under the most favorable plan of the trade or
business which is not controlled.
(d) For purposes of the preceding paragraphs, an Owner-Employee, or two
or more Owner-Employees, will be considered to control an entity if
the Owner-Employee, or two or more Owner-Employees together:
(l) own the entire interest in an unincorporated entity, or
(2) in the case of a partnership, own more than 50 percent of
either the capital interest or the profits interest in the
partnership.
(e) For purposes of the preceding sentence, an Owner-Employee, or two or
more Owner-Employees shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such Owner-Employee, or such two or more Owner-Employees, are
considered to control within the meaning of the preceding sentence.
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ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) For a Money Purchase Plan -
(l) The Employer shall make contributions over such period of
years as the Employer may determine on the following basis. On
behalf of each Participant eligible to share in allocations,
for each year of his participation in this Plan, the Employer
shall contribute the amount specified in the Adoption
Agreement. All contributions by the Employer shall be made in
cash or in such property as is acceptable to the Trustee. The
Employer shall be required to obtain a waiver from the
Internal Revenue Service for any Plan Year in which it is
unable to make the full required contribution to the Plan. In
the event a waiver is obtained, this Plan shall be deemed to
be an individually designed plan.
(2) For any Plan Year beginning prior to January 1, 1990, and
if elected in the non-standardized Adoption Agreement for
any Plan Year beginning on or after January 1, 1990, the
Employer shall not contribute on behalf of a Participant
who performs less than a Year of Service during any Plan
Year, unless there is a Short Plan Year or a contribution
is required pursuant to 4.3(h).
(3) Notwithstanding the foregoing, the Employer's contribution
for any Fiscal Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the
provisions of Code Section 404. However, to the extent
necessary to provide the top heavy minimum allocations, the
Employer shall make a contribution even if it exceeds the
amount which is deductible under Code Section 404.
(b) For a Profit Sharing Plan -
(1) For each Plan Year, the Employer shall contribute to the
Plan such amount as specified by the Employer in the
Adoption Agreement. Notwithstanding the foregoing, however,
the Employer's contribution for any Fiscal Year shall not
exceed the maximum amount allowable as a deduction to the
Employer under the provisions of Code Section 404. All
contributions by the Employer shall be made in cash or in
such property as is acceptable to the Trustee.
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(2) Except, however, to the extent necessary to provide the top
heavy minimum allocations, the Employer shall make a
contribution even if it exceeds current or accumulated Net
Profit or the amount which is deductible under Code Section
404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the
Plan for each Plan Year within the time prescribed by law, including
extensions of time, for the filing of the Employer's federal income tax
return for the Fiscal Year.
4.3 ALLOCATION OF CONTRIBUTIONS AND FORFEITURES
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit as
of each Anniversary Date, or other Valuation Date, all amounts
allocated to each such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the
Employer's contributions for each Plan Year. Within a reasonable
period of time after the date of receipt by the Administrator of
such information, the Administrator shall allocate such contribution
as follows:
(1) For a Money Purchase Plan:
(i) The Employer's Contribution shall be allocated to each
Participant's Combined Account in the manner set forth
in Section 4.1 herein and as specified in Section E2 of
the Adoption Agreement.
(2) For an Integrated Profit Sharing Plan:
(i) The Employer's contribution shall be allocated to each
Participant's Account, except as provided in Section
4.3(f), in a dollar amount equal to 5.7% of the sum of
each Participant's total Compensation plus Excess
Compensation. If the Employer does not contribute such
amount for all Participants, each Participant will be
allocated a share of the contribution in the same
proportion that his total Compensation plus his total
Excess Compensation for the Plan Year bears to the total
Compensation plus the total Excess Compensation of all
Participants for that year.
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<PAGE> 54
Regardless of the preceding, 4.3% shall be substituted for 5.7%
above if Excess Compensation is based on more than 20% and less than
or equal to 80% of the Taxable Wage Base. If Excess Compensation is
based on less than 100% and more than 80% of the Taxable Wage Base,
then 5.4% shall be substituted for 5.7% above.
(ii) The balance of the Employer's contribution over the
amount allocated above, if any, shall be allocated to
each Participant's Combined Account in the same
proportion that his total Compensation for the Year
bears to the total Compensation of all Participants for
such year.
(iii) Except, however, for any Plan Year beginning prior to
January 1, 1990, and if elected in the non-standardized
Adoption Agreement for any Plan Year beginning on or
after January 1, 1990, a Participant who performs less
than a Year of Service during any Plan Year shall not
share in the Employer's contribution for that year,
unless there is a Short Plan Year or a contribution is
required pursuant to Section 4.3(h).
(3) For a Non-Integrated Profit Sharing Plan:
(i) The Employer's contribution shall be allocated to each
Participant's Account in the same proportion that each
such Participant's Compensation for the year bears to
the total Compensation of all Participants for such
year.
(ii) Except, however, for any Plan Year beginning prior to
January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year
beginning on or after January 1, 1990, a Participant
who performs less than a Year of Service during any
Plan Year shall not share in the Employer's
contribution for that year, unless there is a Short
Plan Year or a contribution is required pursuant to
Section 4.3(h).
(c) (1) Each Valuation Date all accounts of each Participant 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 of each
Investment Option using publicly listed fair market values
when appropriate. Trustee shall update the values of the
Investment Options of each account based on the units held
by the account in the Investment Option.
lxxxix
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(2) To the extent that there are Trust assets, the value of which
is not readily determinable on an established market, any
earnings, gains or losses shall be allocated in a manner
consistent with Section 5.2. In the event such assets are
accounted for as pooled assets, the allocation of earnings,
gains and losses shall consider each Participant's entire
account balance and shall be based upon the earnings, gains
and losses of the entire pool of such assets. In the event
such assets are accounted for as part of a Participant's
segregated account, the allocation of earnings, gains and
losses from such assets shall be made on a separate and
distinct basis.
(3) If, with respect to any Plan Year, any account of a
Participant is credited with an incorrect amount of
Contributions or earnings to which such Participant is
entitled under the Plan, or if an error is made with
respect to the investment of the assets of the account,
which error results in an incorrect amount being credited
to the account of the Participant, remedial action may be
taken in accordance with this paragraph. In such event, the
Plan may adjust such account balances to the extent
necessary to reflect the account balances which would have
existed had no such error been made. Further, the Employer
may make additional contributions to the account of any
affected Participant to place the affected account in the
position that would have existed if the error had not been
made. Any account adjustments or additional contributions
made under this section of the Plan shall be made on a
uniform and non-discriminatory basis.
(d) Participants' Accounts shall be debited for any insurance or annuity
premiums paid, if any, and credited with any dividends or interest
received on insurance contracts.
(e) As of each Anniversary Date any amounts which became Forfeitures
since the last Anniversary Date shall first be made available to
reinstate previously forfeited account balances of Former
Participants, if any, in accordance with Section 6.4(g)(2) or be
used to satisfy any contribution that may be required pursuant to
Section 3.5. The remaining Forfeitures, if any, shall be treated
in accordance with the Adoption Agreement. Provided, however,
that in the event the allocation of Forfeitures provided herein
shall cause the "annual addition" (as defined in Section 4.4) to
any Participant's Account to exceed the amount allowable by the
Code, the excess shall be reallocated in accordance with Section
4.5. Except, however, for any Plan Year beginning prior to
January 1, 1990, and if elected in the non-standardized Adoption
Agreement for any Plan Year beginning on or after January 1,
1990, a Participant who performs less than a Year of Service
during any Plan Year shall not share in the Plan Forfeitures for
that year, unless there is a Short Plan Year or a contribution
required pursuant to Section 4.3(h).
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<PAGE> 56
(f) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum
of the Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee shall be
equal to at least three percent (3%) of such Non-Key Employee's "415
Compensation" (reduced by contributions and forfeitures, if any,
allocated to each Non-Key Employee in any defined contribution plan
included with this plan in a Required Aggregation Group). However,
if (i) the sum of the Employer's contributions and Forfeitures
allocated to the Participant's Combined Account of each Key Employee
for such Top Heavy Plan Year is less than three percent (3%) of each
Key Employee's "415 Compensation" and (ii) this Plan is not required
to be included in an Aggregation Group to enable a defined benefit
plan to meet the requirements of Code Section 401(a)(4) or 410, the
sum of the Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee shall be
equal to the largest percentage allocated to the Participant's
Combined Account of any Key Employee.
However, for each Non-Key Employee who is a Participant in a paired
Profit Sharing Plan or 401(k) Profit Sharing Plan and a paired
Money Purchase Plan, the minimum 3% allocation specified above shall
be provided in the Money Purchase Plan.
If this is an integrated Plan, then for any Top Heavy Plan Year the
Employer's contribution shall be allocated as follows:
(1) An amount equal to 3% multiplied by each Participant's
Compensation for the Plan Year shall be allocated to each
Participant's Account. If the Employer does not contribute
such amount for all Participants, the amount shall be
allocated to each Participant's Account in the same
proportion that his total Compensation for the Plan Year
bears to the total Compensation of all Participants for
such year.
(2) The balance of the Employer's contribution over the amount
allocated under subparagraph ( 1 ) hereof shall be
allocated to each Participant's Account in a dollar amount
equal to 3% multiplied by a Participant's Excess
Compensation. If the Employer does not contribute such
amount for all Participants, each Participant will be
allocated a share of the contribution in the same
proportion that his Excess Compensation bears to the total
Excess Compensation of all Participants for that year.
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<PAGE> 57
(3) The balance of the Employer's contribution over the amount
allocated under subparagraph (2) hereof shall be allocated
to each Participant's Account in a dollar amount equal to
2.7% multiplied by the sum of each Participant's total
Compensation plus Excess Compensation. If the Employer does
not contribute such amount for all Participants, each
Participant will be allocated a share of the contribution
in the same proportion that his total Compensation plus his
total Excess Compensation for the Plan Year bears to the
total Compensation plus the total Excess Compensation of
all Participants for that year.
Regardless of the preceding, 1.3% shall be substituted for
2.7% above if Excess Compensation is based on more than 20%
and less than or equal to 80% of the Taxable Wage Base. If
Excess Compensation is based on less than 100% and more than
80% of the Taxable Wage Base, then 2.4% shall be substituted
for 2.7% above.
(4) The balance of the Employer's contributions over the amount
allocated above, if any, shall be allocated to each
Participant's Account in the same proportion that his total
Compensation for the Plan Year bears to the total Compensation
of all Participants for such year.
For each Non-Key Employee who is a Participant in this Plan
and another non-paired defined contribution plan maintained by
the Employer, the minimum 3% allocation specified above shall
be provided as specified in F3 of the Adoption Agreement.
(g) For purposes of the minimum allocations set forth above, the
percentage allocated to the Participant's Combined Account of any
Key Employee shall be equal to the ratio of the sum of the
Employer's contributions and Forfeitures allocated on behalf of such
Key Employee divided by the "415 Compensation" for such Key
Employee.
(h) For any Top Heavy Plan Year, the minimum allocations set forth in
this Section shall be allocated to the Participant's Combined
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; or (2) declined to make mandatory contributions
(if required) or, in the case of a cash or deferred arrangement,
elective contributions to the Plan.
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(i) Notwithstanding anything herein to the contrary, in any Plan Year
in which the Employer maintains both this Plan and a defined
benefit pension plan included in a Required Aggregation Group
which is top heavy, the Employer shall not be required to provide
a Non-Key Employee with both the full separate minimum defined
benefit plan benefit and the full separate defined contribution
plan allocations. Therefore, if the Employer maintains both a
Defined Benefit and a Defined Contribution Plan that are a Top
Heavy Group, the top heavy minimum benefits shall be provided as
follows:
(1) Applies if F I b of the Adoption Agreement is Selected -
(i) The requirements of Section 2.1 shall apply except that
each Non-Key Employee who is a Participant in the Profit
Sharing Plan or Money Purchase Plan and who is also a
Participant in the Defined Benefit Plan shall receive a
minimum allocation of five percent (5%) of such
Participant's "415 Compensation" from the applicable
Defined Contribution Plan(s).
(ii) For each Non-Key Employee who is a Participant only in
the Defined Benefit Plan the Employer will provide a
minimum non-integrated benefit equal to 2% of his
highest five consecutive year average "415 Compensation"
for each Year of Service while a Participant in the
Plan, in which the Plan is top heavy, not to exceed ten.
(iii) For each Non-Key Employee who is a Participant only in
this Defined Contribution Plan, the Employer shall
provide a contribution equal to 3% of his "415
Compensation."
(2) Applies if FIc of the Adoption Agreement is Selected -
(i) The minimum allocation specified in Section 4.3(i)(1)(i)
shall be 7 1/2% if the Employer elects in the Adoption
Agreement for years in which the Plan is Top Heavy, but
not Super Top Heavy.
(ii) The minimum benefit specified in Section 4.3(i)(1)(ii)
shall be 3% if the Employer elects in the Adoption
Agreement for years in which the Plan is Top Heavy, but
not Super Top Heavy.
(iii) The minimum allocation specified in Section
4.3(i)(1)(iii) shall be 4% if the Employer elects in the
Adoption Agreement for years in which the Plan is Top
Heavy, but not Super Top Heavy.
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<PAGE> 59
(j) For the purposes of this Section, "415 Compensation" shall be
limited to the same dollar limitations set forth in Section 1.9.
However, for Plan Years beginning prior to January 1, 1989, the
$200,000 limit shall apply only for Top Heavy Plan Years and shall
not be adjusted.
(k) Notwithstanding anything herein to the contrary, any Participant
who terminated employment during the Plan Year for reasons other
than death, Total and Permanent Disability, or retirement shall
or shall not share in the allocations of the Employer's
Contributions and Forfeitures as provided in the Adoption
Agreement. Notwithstanding the foregoing, for Plan Years
beginning after 1989, if this is a standardized Plan, any such
terminated Participant shall share in the allocations as provided
in this Section provided such Participant completed more than 500
Hours of Service.
(1) Notwithstanding anything herein to the contrary,
Participants terminating for reasons of death, Total and
Permanent Disability, or retirement shall or shall not
share in the allocations of the Employer's Contributions
and Forfeitures as provided in the Adoption Agreement.
Notwithstanding the foregoing, for Plan Years beginning
after 1989, if this is a standardized Plan, any
Participants terminating for reasons of death, Total and
Permanent Disability, or retirement shall share in the
allocations of the Employer's Contributions and Forfeitures
provided such Participant completed more than 500 Hours of
Service.
(m) If a Former Participant is reemployed after five (5) consecutive
1-Year Breaks in Service, then separate accounts shall be maintained
as follows:
(1) one account for nonforfeitable benefits attributable to
pre-break service; and
(2) one account representing his employer derived account balance
in the Plan attributable to post-break service.
(n) Notwithstanding any election in the Adoption Agreement to the
contrary, if this is a non-standardized Plan that would otherwise
fail to meet the requirements of Code Sections 401 (a)(26),
410(b)(1), or 410(b)(2)(A)(i) and the Regulations thereunder because
Employer Contributions have not been allocated to a sufficient
number or percentage of Participants for a Plan Year, then the
following rules shall apply:
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(1) The group of Participants eligible to share in the
Employer's contribution and Forfeitures for the Plan Year
shall be expanded to include the minimum number of
Participants who would not otherwise be eligible as are
necessary to satisfy the applicable test specified above.
The specific participants who shall become eligible under
the terms of this paragraph shall be those who are actively
employed on the last day of the Plan Year and, when
compared to similarly situated Participants, have completed
the greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1 ) above, the
applicable test is still not satisfied, then the group of
Participants eligible to share in the Employer's
contribution and Forfeitures for the Plan Year shall be
further expanded to include the minimum number of
Participants who are not actively employed on the last day
of the Plan Year as are necessary to satisfy the applicable
test. The specific Participants who shall become eligible
to share shall be those Participants, when compared to
similarly situated Participants, who have completed the
greatest number of Hours of Service in the Plan Year before
terminating employment.
Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts that have
previously been allocated to Participants may not be
reallocated to satisfy these requirements. In such event, the
Employer shall make an additional contribution equal to the
amount such affected Participants would have received had they
been included in the allocations, even if it exceeds the
amount which would be deductible under Code Section 404. Any
adjustment to the allocations pursuant to this paragraph shall
be considered a retroactive amendment adopted by the last day
of the Plan Year.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) (1) If the Participant does not participate in, and has never
participated in another qualified plan 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
Annual Additions, the amount of Annual Additions which may
be credited to the Participant's accounts for any
Limitation Year shall not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in
this Plan. If the Employer contribution that would
otherwise be contributed or allocated to the Participant's
accounts would cause the Annual Additions for the
Limitation Year to exceed the Maximum Permissible Amount,
the amount contributed or allocated will be reduced so that
the Annual Additions for the Limitation Year will equal the
Maximum Permissible Amount.
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(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer 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.
(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such
Limitation Year shall be determined on the basis of the
Participant's actual compensation for such Limitation
Year.
(4) If there is an excess amount pursuant to Section 4.4(a)(2) or
Section 4.5, the excess will be disposed of in one or more of
the following manners, as uniformly determined by the Plan
Administrator for all Participants similarly situated:
(i) Any Deferred Compensation or nondeductible Voluntary
Employee Contributions, to the extent they would reduce
the Excess Amount, will be returned to the Participant,
(ii) If, after the application of subparagraph (i), an Excess
Amount still exists, and the Participant is covered by
the Plan at the end of the Limitation Year, the Excess
Amount in the Participant's account will be used to
reduce Employer contributions (including any allocation
of Forfeitures) for such Participant in the next
Limitation Year, and each succeeding Limitation Year if
necessary;
(iii) If, after the application of subparagraph (i), an Excess
Amount still exists, and the Participant is not covered
by the Plan at the end of a Limitation Year, the Excess
Amount will be held unallocated in a suspense account.
The suspense account will be applied to reduce future
Employer contributions (including allocation of any
Forfeitures) for all remaining Participants in the next
Limitation Year, and each succeeding Limitation Year if
necessary;
(iv) If a suspense account is in existence at any time
during a Limitation Year pursuant to this Section, it
will not participate in the allocation of investment
gains and losses. If a suspense account is in
existence at any time during a particular limitation
year, all amounts in the suspense account must be
allocated and reallocated to participants' accounts
before any employer contributions or any employee
contributions may be made to the plan for that
limitation year. Excess amounts may not be
distributed to participants or former participants.
(b) (1) This subsection applies if, in addition to this Plan, the
Participant is covered under another qualified Prototype
defined contribution plan
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<PAGE> 62
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 Annual
Additions, during any Limitation Year. The Annual Additions
which may be credited to a Participant's accounts under this
Plan for any such Limitation Year shall not exceed the Maximum
Permissible Amount reduced by the Annual Additions credited to
a Participant's accounts under the other plans and welfare
benefit funds for the same Limitation Year. If the Annual
Additions with respect to the Participant under other defined
contribution plans and welfare benefit funds maintained by the
Employer are less than the Maximum Permissible Amount and the
Employer contribution that would otherwise be contributed or
allocated to the Participant's accounts under this Plan would
cause the Annual Additions for the Limitation Year to exceed
this limitation, the amount contributed or allocated will be
reduced so that the Annual Additions under all such plans and
welfare benefit funds for the Limitation Year will equal the
Maximum Permissible Amount. If the Annual Additions with
respect to the Participant under such other defined
contribution plans and welfare benefit funds in the aggregate
are equal to or greater than the Maximum Permissible Amount,
no amount will be contributed or allocated to the
Participant's account under this Plan for the Limitation Year.
(2) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described
in Section 4.4(a)(2).
(3) 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.
(4) If, pursuant to Section 4.4(b)(2) or as a result of the
allocation of Forfeitures, a Participant's Annual Additions
under this Plan and such other plans would result in an
Excess Amount for a Limitation Year, the Excess Amount will
be deemed to consist of the Annual Additions last
allocated, except that Annual Additions attributable to a
welfare benefit fund or individual medical account will be
deemed to have been allocated first regardless of the
actual allocation date.
(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an
allocation date of another plan, the Excess Amount attributed
to this Plan will be the product of:
(i) the total Excess Amount allocated as of such date, times
(ii) the ratio of (1) the Annual Additions allocated to the
Participant for the Limitation Year as of such date
under this Plan to (2) the
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<PAGE> 63
total Annual Additions allocated to the Participant for
the Limitation Year as of such date under this and all
the other qualified defined contribution plans.
(6) Any Excess Amount attributed to this Plan will be disposed in
the manner described in Section 4.4(a)(4).
(c) If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a
Prototype Plan, Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year will
be limited in accordance with Section 4.4(b), unless the Employer
provides other limitations in the Adoption Agreement.
(d) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan the
sum of the Participant's Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction will not exceed 1.0 in any
Limitation Year. The Annual Additions which may be credited to
the Participant's account under this Plan for any Limitation Year
will be limited in accordance with the Limitation on Allocations
Section of the Adoption Agreement.
Except, however, if the Plans are standardized paired plans, the
rate of accrual in the defined benefit plan will be reduced to the
extent necessary so that the sum of the Defined Contribution
Fraction and Defined Benefit Fraction will equal 1.0.
(e) For purposes of applying the limitations of Code Section 415, the
transfer of funds from one qualified plan to another is not an
"annual addition." In addition, the following are not Employee
contributions for the purposes of Section 4.4(f)(1)(2): (1)
rollover contributions (as defined in Code Sections 402(a)(5),
403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made
to a Participant from the Plan; (3) repayments of distributions
received by an Employee pursuant to Code Section 411 (a)(7)(B)
(cash-outs); (4) repayments of distributions received by an
Employee pursuant to Code Section 411(a)(3)(D) (mandatory
contributions); and (5) Employee contributions to a simplified
employee pension excludable from gross income under Code Section
408(k)(6)
(f) For purposes of this Section, the following terms shall be defined
as follows:
xcviii
<PAGE> 64
(1) Annual Additions means the sum credited to a Participant's
accounts for any Limitation Year of (1) Employer
contributions, (2) effective with respect to "limitation
years" beginning after December 31, 1986, Employee
contributions, (3) forfeitures, (4) amounts allocated,
after March 31, 1984, 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 and (5)
amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date,
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 (as defined in Code Section 419(e)) maintained by the
Employer. Except, however, the "415 Compensation"
percentage limitation referred to in paragraph (a)(2) above
shall not apply to: (1) any contribution for medical
benefits (within the meaning of Code Section 419A(f)(2))
after separation from service which is otherwise treated as
an "annual addition", or (2) any amount otherwise treated
as an "annual addition" under Code Section 415(1)(1).
Notwithstanding the foregoing, for "limitation years"
beginning prior to January 1, 1987, only that portion of
Employee contributions equal to the lesser of Employee
contributions in excess of six percent (6%) of "415
Compensation" or one-half of Employee contributions shall
be considered an "annual addition".
For this purpose, any Excess Amount applied under Sections
4.4(a)(4) and 4.4(b)(6) in the Limitation Year to reduce
Employer contributions shall be considered Annual Additions
for such Limitation Year.
(2) Compensation means a Participant's Compensation as elected
in the Adoption Agreement. However, regardless of any
selection made in the Adoption Agreement, "414(s)
Compensation" shall exclude compensation which is not
currently includible in the Participant's gross income by
reason of the application of Code Sections 125, 402(e)(3),
402(h)(1)(B), or 403(b).
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 made available during such limitation year.
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<PAGE> 65
Notwithstanding the preceding sentence, Compensation for a
Participant in a defined contribution plan who is totally and
permanently disabled (as defined in Code Section 22(e)(3)) 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 totally and
permanently disabled; such imputed compensation for the
disabled Participant may be taken into account only if the
Participant is not a Highly Compensated Employee and
contributions made on behalf of such Participant are
nonforfeitable when made.
(3) Defined Benefit Fraction means a fraction, the numerator of
which is the sum of the Participant's Projected Annual
benefits under all the defined benefit plans (whether or
not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the
dollar limitation determined for the Limitation Year under
Code Sections 415(b) and (d) or 140 percent of his Highest
Average Compensation including any adjustments under Code
Section 415(b).
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 end 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 the aggregate satisfied the requirements
of Code Section 415 for all Limitation Years beginning before
January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year,
100 shall be substituted for 125 unless the extra minimum
allocation is being made pursuant to the Employer's election
in F1 of the Adoption Agreement. However, for any Plan Year in
which this Plan is a Super Top Heavy Plan, 100 shall be
substituted for 125 in any event.
(4) Defined Contribution Dollar Limitation means $30,000, or, if
greater, one-fourth of the defined benefit dollar limitation
set forth in Code Section 415(b)(1) as in effect for the
Limitation Year.
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<PAGE> 66
(5) Defined Contribution Fraction means a fraction, the
numerator of which is the sum of the Annual Additions to
the Participant's account under all the defined
contribution plans (whether or not terminated) maintained
by the Employer for the current and all prior Limitation
Years, (including the Annual Additions attributable to the
Participant's nondeductible voluntary employee
contributions to any defined benefit plans, whether or not
terminated, maintained by the Employer and the annual
additions attributable to all welfare benefit funds, as
defined in Code Section 419(e), and individual medical
accounts, as defined in Code Section 415(1)(2), maintained
by the Employer), and the denominator of which is the sum
of the maximum aggregate amounts for the current and all
prior Limitation Years of Service with the Employer
(regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount
in any Limitation Year is the lesser of 125 percent of the
Defined Contribution Dollar Limitation or 35 percent of the
Participant's Compensation for such year. For Limitation
Years beginning prior to January 1, 1987, the "annual
addition" shall not be recomputed to treat all Employee
contributions as an Annual Addition.
If the Employee was a Participant as of the end of the first
day of the first Limitation Year beginning after December 31,
1986, in one or more defined contribution plans maintained by
the Employer which were in existence on May 5, 1986, the
numerator of this fraction will be adjusted if the sum of this
fraction and the Defined Benefit Fraction would otherwise
exceed 1.0 under the terms of this Plan. Under the adjustment,
an amount equal to the product of (1) the excess of the sum of
the fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the numerator of
this fraction. The adjustment is calculated using the
fractions as they would be computed as of the end of the last
Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the
plan made after May 5, 1986, but using the Code Section 415
limitation applicable to the first Limitation Year beginning
on or after January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year,
100 shall be substituted for 125 unless the extra minimum
allocation is being made pursuant to the Employer's election
in F 1 of the Adoption Agreement. However, for any Plan Year
in which this Plan is a Super Top Heavy Plan, 100 shall be
substituted for 125 in any event.
(6) Employer means the Employer that adopts this Plan and all
Affiliated Employers, except that for purposes of this
Section, Affiliated Employers shall be determined pursuant to
the modification made by Code Section 415(h).
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<PAGE> 67
(7) Excess Amount means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible
Amount.
(8) Highest Average Compensation means the average Compensation
for the three consecutive Years of Service with the Employer
that produces the highest average. A Year of Service with the
Employer is the 12 consecutive month period defined in Section
E1 of the Adoption Agreement which is used to determine
Compensation under the Plan.
(9) Limitation Year means the Compensation Year (a 12 consecutive
month period) as elected by the Employer in the Adoption
Agreement. All qualified plans maintained by the Employer must
use the same Limitation Year. If the Limitation Year is
amended to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation
Year in which the amendment is made.
(10) Master or Prototype Plan means a plan the form of which is the
subject of a favorable opinion letter from the Internal
Revenue Service.
(11) Maximum Permissible Amount means the maximum Annual Addition
that may be contributed or allocated to a Participant's
account under the plan for any Limitation Year, which shall
not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation for the
Limitation Year.
The Compensation Limitation referred to in (ii) shall
not apply to any contribution for medical benefits
(within the meaning of Code Sections 401(h) or
419A(f)(2)) which is otherwise treated as an annual
addition under Code Sections 415(1)(1) or 419A(d)(2).
If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different 12 consecutive
month period, the Maximum Permissible Amount will not exceed
the Defined Contribution Dollar Contribution multiplied by the
following fraction:
number of months in the short Limitation Year
12
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(12) Projected Annual Benefit means the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity
if such benefit is expressed in a form other than a straight
life annuity or qualified Joint and Survivor Annuity) to which
the Participant would be entitled under the terms of the plan
assuming:
(i) the Participant will continue employment until Normal
Retirement age (or current age, if later), and
(ii) the Participant's Compensation for the current
Limitation Year and all other relevant factors used to
determine benefits under the Plan will remain constant
for all future Limitation Years.
(g) Notwithstanding anything contained in this Section to the contrary,
the limitations, adjustments and other requirements prescribed in
this Section shall at all times comply with the provisions of Code
Section 415 and the Regulations thereunder, the terms of which are
specifically incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If as a result of the allocation of Forfeitures, a reasonable
error in estimating a Participant's annual Compensation, a
reasonable error in determining the amount of elective deferrals
(within the meaning of Code Section 402(g)(3)) that may be made
with respect to any Participant under the limits of Section 4.4,
or other facts and circumstances to which Regulation
1.415-6(b)(6) shall be applicable, the "annual additions" under
this Plan would cause the maximum provided in Section 4.4 to be
exceeded, the Administrator shall treat the excess in accordance
with Section 4.4(a)(4).
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) If specified in the Adoption Agreement and with the consent of
the Administrator, amounts may be transferred from other
qualified plans, provided that the trust from which such funds
are transferred permits the transfer to be made and the transfer
will not jeopardize the tax exempt status of the Plan or create
adverse tax consequences for the Employer. The amounts
transferred shall be set up in a separate account herein referred
to as a "Participant's Rollover Account." Such account shall be
fully Vested at all times and shall not be subject to forfeiture
for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be
withdrawn by, or distributed to the Participant, in whole or in
part, except as provided in Paragraphs (c) and (d) of this Section.
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(c) Amounts attributable to elective contributions (as defined in
Regulation 1.401(k)-l(g)(4)), including amounts treated as elective
contributions, which are transferred from another qualified plan in
a plan-to-plan transfer shall be subject to the distribution
limitations provided for in Regulation 1.401(k)-l(d).
(d) At Normal Retirement Date, or such other date when the Participant
or his beneficiary shall be entitled to receive benefits, the fair
market value of the Participant's Rollover Account shall be used to
provide additional benefits to the Participant or his beneficiary.
Any distributions of amounts held in a Participant's Rollover
Account shall be made in a manner which is consistent with and
satisfies the provisions of Section 6.5, including, but not limited
to, all notice and consent requirements of Code Sections 41 1
(a)(11) and 417 and the Regulations thereunder. Furthermore, such
amounts shall be considered as part of a Participant's benefit in
determining whether an involuntary cash-out of benefits without
Participant consent may be made.
(e) For purposes of this Section, the term "qualified plan" shall
mean any tax qualified plan under Code Section 401 (a). The term
"amounts transferred from other qualified plans" shall mean: (i)
amounts transferred to this Plan directly from another qualified
plan; (ii) lump-sum distributions received by an Employee from
another qualified plan which are eligible for tax free rollover
to a qualified plan and which are transferred by the Employee to
this Plan within sixty (60) days following his receipt thereof;
(iii) amounts transferred to this Plan from a conduit individual
retirement account provided that the conduit individual
retirement account has no assets other than assets which (A) were
previously distributed to the Employee by another qualified plan
as a lump-sum distribution (B) were eligible for tax-free
rollover to a qualified plan and (C) were deposited in such
conduit individual retirement account within sixty (60) days of
receipt thereof and other than earnings on said assets; and (iv)
amounts distributed to the Employee from a conduit individual
retirement account meeting the requirements of clause (iii)
above, and transferred by the Employee to this Plan within sixty
(60) days of his receipt thereof from such conduit individual
retirement account.
(f) Prior to accepting any transfers to which this Section applies, the
Administrator may require the Employee to establish that the amounts
to be transferred to this Plan meet the requirements of this Section
and may also require the Employee to provide an opinion of counsel
satisfactory to the Employer that the amounts to be transferred meet
the requirements of this Section.
(g) Notwithstanding anything herein to the contrary, a transfer directly
to this Plan from another qualified plan (or a transaction having
the effect of such a transfer) shall only be permitted if it will
not result in the elimination or reduction of any "Section 411
(d)(6) protected benefit" as described in Section 8.1.
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4.7 VOLUNTARY CONTRIBUTIONS
(a) If this is an amendment to a Plan that had previously allowed
voluntary Employee contributions, then, except as provided in 4.7(b)
below, this Plan will not accept voluntary Employee contributions
for Plan Years beginning after the Plan Year in which this Plan is
adopted by the Employer.
(b) For 401 (k) Plans, if elected in the Adoption Agreement, each
Participant may, at the discretion of the Administrator in a
nondiscriminatory manner, elect to voluntarily contribute a portion
of his compensation earned while a Participant under this Plan. Such
contributions shall be paid to the Trustee within a reasonable
period of time but in no event later than 90 days after the receipt
of the contribution.
(c) The balance in each Participant's Voluntary Contribution Account
shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(d) A Participant may elect to withdraw his voluntary contributions from
his Voluntary Contribution Account and the actual earnings thereon
in a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 41.1 (a)(11) and 417 and the
Regulations thereunder. If the Administrator maintains sub-accounts
with respect to voluntary contributions (and earnings thereon) which
were made on or before a specified date, a Participant shall be
permitted to designate which sub-account shall be the source for his
withdrawal. No Forfeitures shall occur solely as a result of an
Employee's withdrawal of Employee contributions.
In the event such a withdrawal is made, or in the event a
Participant has received a hardship distribution pursuant to
Regulation 1.401 (k)- 1 (d)(2)(iii)(B) from any plan maintained by
the Employer, then such Participant shall be barred from making any
voluntary contributions for a period of twelve (12) months after
receipt of the withdrawal or distribution.
(e) At Normal Retirement Date, or such other date when the Participant
or his beneficiary shall be entitled to receive benefits, the fair
market value of the Voluntary Contribution Account shall be used to
provide additional benefits to the Participant or his beneficiary.
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4.8 PARTICIPANT DIRECTED INVESTMENTS
(a) If elected in the Adoption Agreement, all Participants may direct
the Trustee as to the investment of all or a portion of any one
or more of their individual account balances. Participants may
direct the Trustee in writing to invest their account in specific
Investment Options as permitted by the Administrator provided
such investments are in accordance with the Department of Labor
regulations and are permitted by the Plan. That portion of the
account of any Participant so directing will thereupon be
considered a Directed Investment Account.
(b) The Administrator shall establish a procedure, to be applied in a
uniform and nondiscriminatory manner, setting forth the
permissible investment options under this Section, how often
changes between investments may be made, whether Participants may
communicate directly with the Participant Recordkeeper by
telephone, and any other limitations that the Administrator shall
impose on a Participant's right to direct investments. Union Bank
of California, as Trustee or Participant Recordkeeper, shall have
no liability for errors caused by Participants in utilizing a
telephone response system if written confirmations are sent to
Participants and no corrections are requested within 30 days of
mailing of such written confirmation.
4.9 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) If this is an amendment to a Plan that previously permitted
deductible voluntary contributions, then each Participant who
made a "Qualified Voluntary Employee Contribution" within the
meaning of Code Section 21 9(e)(2) as it existed prior to the
enactment of the Tax Reform Act of 1986, shall have his
contribution held in a separate Qualified Voluntary Employee
Contribution Account which shall be fully Vested at all times.
Such contributions, however, shall not be permitted if they are
attributable to taxable years beginning after December 31, 1986.
(b) A Participant may, upon written request delivered to the
Administrator, make withdrawals from his Qualified Voluntary
Employee Contribution Account. Any distribution shall be made in a
manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 41 1 (a)(11) and 417 and the
Regulations thereunder.
(c) At Normal Retirement Date, or such other date when the Participant
or his beneficiary shall be entitled to receive benefits, the fair
market value of the Qualified Voluntary Employee Contribution
Account shall be used to provide additional benefits to the
Participant or his beneficiary.
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4.10 ACTUAL CONTRIBUTION PERCENTAGE TESTS
In the event this Plan previously provided for voluntary or mandatory
Employee contributions, then, with respect to Plan Years beginning after
December 31, 1986, such contributions must satisfy the provisions of Code
Section 401 (m) and the Regulations thereunder.
4.11 INTEGRATION IN MORE THAN ONE PLAN
If the Employer and/or an Affiliated Employer maintain qualified
retirement plans integrated with Social Security such that any Participant
in this Plan is covered under more than one of such plans, then such plans
will be considered to be one plan and will be considered to be integrated
if the extent of the integration of all such plans does not exceed 100%.
For purposes of the preceding sentence, the extent of integration of a
plan is the ratio, expressed as a percentage, which the actual benefits,
benefit rate, offset rate, or employer contribution rate, whatever is
applicable, under the Plan bears to the limitation applicable to such
Plan. If the Employer maintains two or more standardized paired plans,
only one plan may be integrated with Social Security.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Trustee, as of each Valuation Date, shall determine the net worth of
the assets comprising the Trust Fund as it exists on the Valuation Date.
In determining such net worth, the Trustee shall value the assets
comprising the Trust Fund at their fair market value as of the Valuation
Date and shall deduct all expenses for which the Trustee has not yet
obtained reimbursement from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund
which are listed on a registered stock exchange, the Trustee shall value
the same at the prices they were last traded on such exchange preceding
the close of business on the Valuation Date. If such securities were not
traded on the Valuation Date, or if the exchange on which they are traded
was not open for business on the Valuation Date, then the securities shall
be valued at the prices at which they were last traded prior to the
Valuation Date. Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the
Valuation Date, which bid price shall be obtained from a registered broker
or an investment banker.
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Notwithstanding anything herein to the contrary, in the event there are
Trust assets, the value of which is not readily determinable, the Employer
shall have sole responsibility for the valuation of such assets and the
Trustee shall incur no liability for inaccurate valuations based on the
Trustee's good faith reliance on valuation information provided by
Employer or Employer's agent. The Employer shall provide the Trustee with
an annual updated valuation as of each Anniversary Date of all such Trust
assets, the value of which is not readily determinable on an established
market and neither the Employer nor any Participant or beneficiary shall
have any right to demand a more current valuation of such assets,
regardless of whether such assets are held in a segregated account or a
pooled account.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on or after his Normal Retirement Date or
Early Retirement Date. Upon such Normal Retirement Date or Early
Retirement Date, all amounts credited to such Participant's Combined
Account shall become distributable. However, a Participant may postpone
the termination of his employment with the Employer to a later date, in
which event the participation of such Participant in the Plan, including
the right to receive allocations pursuant to Section 4.3, shall continue
until his Late Retirement Date. Upon a Participant's Retirement Date, or
as soon thereafter as is practicable, the Administrator shall direct the
distribution of all amounts credited to such Participant's Combined
Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other
termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct, in accordance with the provisions of
Sections 6.6 and 6.7, the distribution of the deceased Participant's
accounts to the Participant's beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall
direct, in accordance with the provisions of Sections 6.6 and 6.7,
the distribution of any remaining amounts credited to the accounts
of such deceased Former Participant to such Former Participant's
beneficiary.
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(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive payment of the value
of the account of a deceased Participant or Former Participant as
the Administrator may deem desirable. The Administrator's
determination of death and of the right of any person to receive
payment shall be conclusive.
(d) Unless otherwise elected in the manner prescribed in Section 6.6,
the beneficiary of the Pre-Retirement Survivor Annuity shall be the
Participant's spouse. Except, however, the Participant may designate
a beneficiary other than his spouse for the Pre-Retirement Survivor
Annuity if:
(1) the Participant and his spouse have validly waived the
Pre-Retirement Survivor Annuity in the manner prescribed in
Section 6.6, and the spouse has waived his or her right to be
the Participant's beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a
court order to such effect (and there is no "qualified
domestic relations order" as defined in Code Section 414(p)
which provides otherwise), or
(3) Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a beneficiary shall be made on a
form satisfactory to the Administrator. A Participant may at any
time revoke his designation of a beneficiary or change his
beneficiary by filing written notice of such revocation or change
with the Administrator. However, the Participant's spouse must again
consent in writing to any change in beneficiary unless the original
consent acknowledged that the spouse had the right to limit consent
only to a specific beneficiary and that the spouse voluntarily
elected to relinquish such right. The Participant may, at any time,
designate a Beneficiary for death benefits payable under the Plan
that are in excess of the Pre-Retirement Survivor Annuity. In the
event no valid designation of beneficiary exists at the time of the
Participant's death, the death benefit shall be payable to his
estate.
(e) If the Plan provides an insured death benefit and a Participant dies
before any insurance coverage to which he is entitled under the Plan
is effected, his death benefit from such insurance coverage shall be
limited to the standard rated premium which was or should have been
used for such purpose.
(f) In the event of any conflict between the terms of this Plan and the
terms of any Contract issued hereunder, the Plan provisions shall
control.
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6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to
his Retirement Date or other termination of his employment, all amounts
credited to such Participant's Combined Account shall become fully Vested.
In the event of a Participant's Total and Permanent Disability, the
Administrator, in accordance with the provisions of Sections 6.5 and 6.7,
shall direct the distribution to such Participant of all amounts credited
to such Participant's Combined Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date, or other Valuation Date,
coinciding with or subsequent to the termination of a
Participant's employment for any reason other than retirement,
death, or Total and Permanent Disability, the Administrator may
direct that the amount of the Vested portion of such Terminated
Participant's Combined Account be segregated and invested
separately. In the event the Vested portion of a Participant's
Combined Account is not segregated, the amount shall remain in a
separate account for the Terminated Participant and share in
allocations pursuant to Section 4.3 until such time as a
distribution is made to the Terminated Participant. The amount of
the portion of the Participant's Combined Account which is not
Vested may be credited to a separate account (which will always
share in gains and losses of the Trust Fund) and at such time as
the amount becomes a Forfeiture shall be treated in accordance
with the provisions of the Plan regarding Forfeitures.
Distribution of the funds due to a Terminated Participant shall be
made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ
of the Employer (upon the Participant's death, Total and Permanent
Disability, Early or Normal Retirement). However, at the election of
the Participant, the Administrator shall direct that the entire
Vested portion of the Terminated Participant's Combined Account to
be payable to such Terminated Participant provided the conditions,
if any, set forth in the Adoption Agreement have been satisfied. Any
distribution under this paragraph shall be made in a manner which is
consistent with and satisfies the provisions of Section 6.5,
including but not limited to, all notice and consent requirements of
Code Sections 411(a)(11) and 417 and the Regulations thereunder.
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Notwithstanding the above, if the value of a Terminated
Participant's Vested benefit derived from Employer and Employee
contributions does not exceed, and at the time of any prior
distribution, has never exceeded $3,500, the Administrator shall
direct that the entire Vested benefit be paid to such Participant in
a single lump-sum without regard to the consent of the Participant
or the Participant's spouse. A Participant's Vested benefit shall
not include Qualified Voluntary Employee Contributions within the
meaning of Code Section 72(o)(5)(B) for Plan Years beginning prior
to January 1, 1989.
(b) The Vested portion of any Participant's Account shall be a
percentage of such Participant's Account determined on the basis of
the Participant's number of Years of Service according to the
vesting schedule specified in the Adoption Agreement.
(c) For any Top Heavy Plan Year, one of the minimum top heavy vesting
schedules as elected by the Employer in the Adoption Agreement
will automatically apply to the Plan. The minimum top heavy
vesting schedule applies to all benefits within the meaning of
Code Section 41 1 (a)(7) except those attributable to Employee
contributions, including benefits accrued before the effective
date of Code Section 416 and benefits accrued before the Plan
became top heavy. Further, no decrease in a Participant's Vested
percentage may occur in the event the Plan's status as top heavy
changes for any Plan Year. However, this Section does not apply
to the account balances of any Employee who does not have an Hour
of Service after the Plan has initially become top heavy and the
Vested percentage of such Employee's Participant's Account shall
be determined without regard to this Section 6.4(c).
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy
Plan, the Administrator shall continue to use the vesting schedule
in effect while the Plan was a Top Heavy Plan for each Employee who
had an Hour of Service during a Plan Year when the Plan was Top
Heavy.
(d) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon
any full or partial termination of the Plan, all amounts credited to
the account of any affected Participant shall become 100% Vested and
shall not thereafter be subject to Forfeiture.
(e) If this is an amended or restated Plan, then notwithstanding the
vesting schedule specified in the Adoption Agreement, 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. 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, or due to changes
in the Plan's status as a Top Heavy Plan.
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(f) If the Plan's vesting schedule is amended, or if the Plan is
amended in any way that directly or indirectly affects the
computation of the Participant's nonforfeitable percentage or if
the Plan is deemed amended by an automatic change to a top heavy
vesting schedule, then each Participant with at least 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 amendment or change. Notwithstanding
the foregoing, for Plan Years beginning before January 1, 1989,
or with respect to Employees who fail to complete at least one
(1) Hour of Service in a Plan Year beginning after December 31,
1988, five (5) shall be substituted for three (3) in the
preceding sentence. If a Participant fails to make such election,
then such Participant shall 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 amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(g) (l) If any Former Participant shall be reemployed by the Employer
before a 1-Year Break in Service occurs, he shall continue to
participate in the Plan in the same manner as if such
termination had not occurred.
(2) If any Former Participant shall be reemployed by the
Employer before five (5) consecutive l-Year Breaks in
Service, and such Former Participant had received a
distribution of his entire Vested interest prior to his
reemployment, his forfeited account shall be reinstated
only if he repays the full amount distributed to him before
the earlier of five (5) years after the first date on which
the Participant is subsequently reemployed by the Employer
or the close of the first period of 5 consecutive l-Year
Breaks in Service commencing after the distribution. If a
distribution occurs for any reason other than a separation
from service, the time for repayment may not end earlier
than five (5) years after the date of separation. In the
event the Former Participant does repay the full amount
distributed to him, the undistributed portion of the
Participant's Account must be restored in full,
unadjusted by any gains or losses occurring subsequent to
the Anniversary Date or other Valuation Date preceding his
termination. 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 l-year breaks in
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service following the date of the distribution. If a 50
non-Vested Former Participant was deemed to have received a
distribution and such Former Participant is reemployed by the
Employer before five (5) consecutive l-Year Breaks in Service,
then such Participant will be deemed to have repaid the deemed
distribution as of the date of reemployment.
(3) If any Former Participant is reemployed after a l-Year Break
in Service has occurred, Years of Service shall include Years
of Service prior to his l-Year Break in Service subject to the
following rules:
(i) Any Former Participant who under the Plan does not have
a nonforfeitable right to any interest in the Plan
resulting from Employer contributions shall lose credits
if his consecutive l-Year Breaks in Service equal or
exceed the greater of (A) five (5) or (B) the aggregate
number of his pre-break Years of Service;
(ii) After five (5) consecutive 1-Year Breaks in Service, a
Former Participant's Vested Account balance attributable
to pre-break service shall not be increased as a result
of post-break service;
(iii) A Former Participant who is reemployed and who has not
had his Years of Service before a l-Year Break in
Service disregarded pursuant to (i) above, shall
participate in the Plan as of his date of reemployment;
(iv) If a Former Participant completes a Year of Service (a
1-Year Break in Service previously occurred, but
employment had not terminated), he shall participate in
the Plan retroactively from the first day of the Plan
Year during which he completes one (1) Year of Service.
(h) In determining Years of Service for purposes of vesting under the
Plan, Years of Service shall be excluded as specified in the
Adoption Agreement.
(i) Effective December 12, 1994, notwithstanding any provision of this
Plan to the contrary, contributions, benefits and service credit
with respect to qualified military service will be provided in
accordance with Code Section 414(u). Loan repayments will be
suspended under this Plan as permitted under Code Section 414(u)(4).
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6.5 DISTRIBUTION OF BENEFITS
(a) (l) Unless otherwise elected as provided below, a Participant who
is married on the "annuity starting date" and who does not die
before the "annuity starting date" shall receive the value of
all of his benefits in the form of a Joint and Survivor
Annuity. The Joint and Survivor Annuity is an annuity that
commences immediately and shall be equal in value to a single
life annuity. Such joint and survivor benefits following the
Participant's death shall continue to the spouse during the
spouse's lifetime at a rate equal 51 to 50% of the rate at
which such benefits were payable to the Participant. This
Joint and Survivor Annuity shall be considered the designated
qualified Joint and Survivor Annuity and automatic form of
payment for the purposes of this Plan. However, the
Participant may elect to receive a smaller annuity benefit
with continuation of payments to the spouse at a rate of
seventy-five percent (75%) or one hundred percent (100%) of
the rate payable to a Participant during his lifetime which
alternative Joint and Survivor Annuity shall be equal in value
to the automatic Joint and 50% Survivor Annuity. An unmarried
Participant shall receive the value of his benefit in the form
of a life annuity. Such unmarried Participant, however, may
elect in writing to waive the life annuity. The election must
comply with the provisions of this Section as if it were an
election to waive the Joint and Survivor Annuity by a married
Participant, but without the spousal consent requirement. The
Participant may elect to have any annuity provided for in this
Section distributed upon the attainment of the "earliest
retirement age" under the Plan. The "earliest retirement age"
is the earliest date on which, under the Plan, the Participant
could elect to receive retirement benefits.
(2) 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 and consented to by his spouse may be revoked
by the Participant in writing without the consent of the
spouse at any time during the election period.
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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.
(3) The election period to waive the Joint and Survivor Annuity
shall be the 90 day period ending on the "annuity starting
date."
(4) For purposes of this Section and Section 6.6, 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 entitles the
Participant to such benefit.
(5) With regard to the election, the Administrator shall provide
to the Participant no less than 30 days and no more than 90
days before the "annuity starting date" a written explanation
of:
(i) the terms and conditions of the Joint and Survivor
Annuity, and
(ii) the Participant's right to make and the effect of an
election to waive the Joint and Survivor Annuity, and
(iii) the right of the Participant's spouse to consent to any
election to waive the Joint and Survivor Annuity, and
(iv) the right of the Participant to revoke such election,
and the effect of such revocation.
(b) In the event a married Participant duly elects pursuant to
paragraph (a)(2) above not to receive his benefit in the form of
a Joint and Survivor Annuity, or if such Participant is not
married, in the form of a life annuity, the Administrator,
pursuant to the election of the Participant, shall direct the
distribution to a Participant or his beneficiary any amount to
which he is entitled under the Plan in one or more of the
following methods which are permitted pursuant to the Adoption
Agreement:
(1) One lump-sum payment in cash or in property;
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<PAGE> 81
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments. In order to provide
such installment payments, the Administrator may direct that
the Participant's interest in the Plan be segregated and
invested separately, and that the funds in the segregated
account be used for the payment of the installments. The
period over which such payment is to be made shall not extend
beyond the Participant's life expectancy (or the life
expectancy of the Participant and his designated beneficiary);
(3) Purchase of or providing an annuity. However, such annuity
may not be in any form that will provide for payments over
a period extending beyond either the life of the
Participant (or the lives of the Participant and his
designated beneficiary) or the life expectancy of the
Participant (or the life expectancy of the Participant and
his designated beneficiary).
(c) The present value of a Participant's Joint and Survivor Annuity
derived from Employer and Employee contributions may not be paid
without his written consent if the value exceeds, or has ever
exceeded at the time of any prior distribution, $3,500. Further, the
spouse of a Participant must consent in writing to any immediate
distribution. If the value of the Participant's benefit derived from
Employer and Employee contributions does not exceed $3,500 and has
never exceeded $3,500 at the time of any prior distribution, the
Administrator may immediately distribute such benefit without-such
Participant's consent. No distribution may be made under the
preceding sentence after the "annuity starting date" unless the
Participant and his spouse consent in writing to such distribution.
Any written consent required under this paragraph must be obtained
not more than 90 days before commencement of the distribution and
shall be made in a manner consistent with Section 6.5(a)(2).
(d) Any distribution to a Participant who has a benefit which exceeds,
or has ever exceeded at the time of any prior distribution, $3,500
shall require such Participant's consent if such distribution
commences prior to the later of his Normal Retirement Age or age 62.
With regard to this required consent:
(1) No consent shall be valid unless the Participant has received
a general description of the material features and an
explanation of the relative values of the optional forms of
benefit available under the Plan that would satisfy the notice
requirements of Code Section 417.
(2) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to
consent, it shall be deemed an election to defer the
commencement of payment of any benefit. However, any
election to defer the receipt of benefits shall not apply
with respect to distributions which are required under
Section 6.5(e).
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<PAGE> 82
(3) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before
the "annuity starting date."
(4) Written consent of the Participant to the distribution must
not be made before the Participant receives the notice and
must not be made more than 90 days before the "annuity
starting date."
(5) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent
to the distribution.
(e) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits, made on or after January
1, 1985, whether under the Plan or through the purchase of an
annuity Contract, shall be made in accordance with the following
requirements and shall otherwise comply with Code Section 401(a)(9)
and the Regulations thereunder (including Regulation Section 1.401
(a)(9)-2), the provisions of which are incorporated herein by
reference:
(1) A Participant's benefits shall be distributed to him not
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, if benefits are paid in the form of a Joint and
Survivor Annuity, the life expectancy of the Participant
(or the life expectancies of the Participant and his
designated beneficiary) in accordance with Regulations. For
Plan Years beginning after December 31, 1988, 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.
(2) Distributions to a Participant and his beneficiaries shall
only be made in accordance with the incidental death benefit
requirements of Code Section 401 (a)(9)(G) and the Regulations
thereunder.
Additionally, for calendar years beginning before 1989,
distributions may also be made under an alternative method
which provides that the then
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<PAGE> 83
present value of the payments to be made over the period of
the Participant's life expectancy exceeds fifty percent (50%)
of the then present value of the total payments to be made to
the Participant and his beneficiaries.
(f) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse (other than in the case of
a life annuity) shall be redetermined annually in accordance with
Regulations if permitted pursuant to the Adoption Agreement. If
the Participant or the Participant's spouse may elect whether
recalculations will be made, then the election, once made, shall
be irrevocable. If no election is made by the time distributions
must commence, then the life expectancy of the Participant and
the Participant's spouse shall not be subject to recalculation.
Life expectancy and joint and last survivor expectancy shall be
computed using the return multiples in Tables V and VI of
Regulation 1.72-9.
(g) All annuity Contracts under this Plan shall be non-transferable when
distributed. Furthermore, the terms of any annuity Contract
purchased and distributed to a Participant or spouse shall comply
with all of the requirements of this Plan.
(h) 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 l, l984, made a written
designation to have his retirement benefit paid in an alternative
method acceptable under Code Section 40 l (a) as in effect prior to
the enactment of the Tax Equity and Fiscal Responsibility Act of
1982.
(i) If a distribution is made at a time when a Participant who has not
terminated employment is not fully Vested in his Participant's
Account and the Participant may increase the Vested percentage in
such account:
(l) A separate account shall be established for the Participant's
interest in the Plan as of the time of the distribution, and
(2) At any relevant time the Participant's Vested portion of the
separate account shall be equal to an amount ("X") determined
by the formula:
X equals P(AB plus (RxD)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance at
the relevant time, D is the amount of distribution, and R is
the ratio of the account balance at the relevant time to the
account balance after distribution.
(j) Notwithstanding any provision of this Plan to the contrary,
effective on the first day of the first Plan Year beginning on or
after December 12, 1994, or, if later, March 12, 1995, to the
extent that any optional form of benefit under this Plan permits
a distribution prior to the Employee's retirement, death,
disability, or severance from employment, and prior to plan
termination, the optional form of benefits is not available with
respect to benefits attributable to assets (including
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<PAGE> 84
the post-transfer earnings thereon) and liabilities that are
transferred, within the meaning of Code Section 414(1), to this Plan
from a money purchase pension plan qualified under Code Section 401
(a) (other than any portion of those assets and liabilities
attributable to voluntary Employee contributions).
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested Participant
who dies before the annuity starting date and who has a surviving
spouse shall have the Pre-Retirement Survivor Annuity paid to his
surviving spouse. 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 6.6(h).
(b) Any election to waive the Pre-Retirement Survivor Annuity before
the Participant's death must be made by the Participant in
writing during the election period and shall require the spouse's
irrevocable consent in the same manner provided for in Section
6.5(a)(2). Further, the spouse's consent must acknowledge the
specific nonspouse beneficiary. Notwithstanding the foregoing,
the nonspouse beneficiary need not be acknowledged, provided the
consent of the spouse acknowledges that the spouse has the right
to limit consent only to a specific beneficiary and that the
spouse voluntarily elects to relinquish such right.
(c) The election period to waive the Pre-Retirement Survivor Annuity
shall begin on the first day of the Plan Year in which the
Participant attains age 35 and end on the date of the
Participant's death. An earlier waiver (with spousal consent) may
be made provided a written explanation of the Pre-Retirement
Survivor Annuity is given to the Participant and such waiver
becomes invalid at the beginning of the Plan Year in which the
Participant turns age 35. In the event a Vested Participant
separates from service prior to the beginning of the election
period, the election period shall begin on the date of such
separation from service.
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<PAGE> 85
(d) With regard to the election, the Administrator shall provide each
Participant within the applicable period, with respect to such
Participant (and consistent with Regulations), a written explanation
of the Pre-Retirement Survivor Annuity containing comparable
information to that required pursuant to Section 6.5(a)(5). For the
purposes of this paragraph, the term "applicable period" means, with
respect to a Participant, whichever of the following periods ends
last:
(1) 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;
(2) A reasonable period after the individual becomes a
Participant. For this purpose, in the case of an individual
who becomes a Participant after age 32, the explanation must
be provided by the end of the three-year period beginning with
the first day of the first Plan Year for which the individual
is a Participant;
(3) A reasonable period ending after the Plan no longer fully
subsidizes the cost of the Pre-Retirement Survivor Annuity
with respect to the Participant;
(4) A reasonable period ending after Code Section 401(a)(11)
applies to the Participant; or
(5) A reasonable period after separation from service in the case
of a Participant who separates before attaining age 35. For
this purpose, the Administrator must provide the explanation
beginning one year before the separation from service and
ending one year after separation.
(e) The Pre-Retirement Survivor Annuity provided for in this Section
shall apply only to Participants who are credited with an Hour of
Service on or after August 23, 1984. Former Participants who are not
credited with an Hour of Service on or after August 23, 1984 shall
be provided with rights to the Pre-Retirement Survivor Annuity in
accordance with Section 303(e)(2) of the Retirement Equity Act of
1984.
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<PAGE> 86
(f) If the value of the Pre-Retirement Survivor Annuity derived from
Employer and Employee contributions does not exceed $3,500 and
has never exceeded $3,500 at the time of any prior distribution,
the Administrator shall direct the immediate distribution of such
amount to the Participant's spouse. No distribution may be made
under the preceding sentence after the annuity starting date
unless the spouse consents in writing. If the value exceeds, or
has ever exceeded at the time of any prior distribution, $3,500,
an immediate distribution of the entire amount may be made to the
surviving spouse, provided such surviving spouse consents in
writing to such distribution. Any written consent required under
this paragraph must be obtained not more than 90 days before
commencement of the distribution and shall be made in a manner
consistent with Section 6.5(a)(2).
(g) (l) In the event there is an election to waive the Pre-Retirement
Survivor Annuity, and for death benefits in excess of the
Pre-Retirement Survivor Annuity, such death benefits shall be
paid to the Participant's beneficiary by either of the
following 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
6.6(h) and the selections made in the Adoption Agreement:
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or annual
cash installments over a period to be determined by
the Participant or his beneficiary. After periodic
installments commence, the beneficiary shall have the
right to reduce the period over which such periodic
installments shall be made, and the cash amount of
such periodic installments shall be adjusted
accordingly.
(iii) If death benefits in excess of the Pre-Retirement
Survivor Annuity are to be paid to the surviving spouse,
such benefits may be paid pursuant to (i) or (ii) above,
or used to purchase an annuity so as to increase the
payments made pursuant to the Pre-Retirement Survivor
Annuity;
(2) In the event the death benefit payable pursuant to Section 6.2
is payable in installments, then, upon the death of the
Participant, the Administrator may direct that the death
benefit be segregated and invested separately, and that the
funds accumulated in the segregated account be used for the
payment of the installments.
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<PAGE> 87
(h) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant made on or after
January 1, 1985, shall be made in accordance with the following
requirements and shall otherwise comply with Code Section 401(a)(9)
and the Regulations thereunder.
(1) 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 6.5 as
of his date of death.
(2) If a Participant dies before he has begun to receive any
distributions of his interest in the Plan or before
distributions are deemed to have begun pursuant to
Regulations, then his death benefit shall be distributed to
his beneficiaries in accordance with the following rules
subject to the selections made in the Adoption Agreement
and Subsections 6.6(h)(3) and 6.6(i) below:
(i) The entire death benefit shall be distributed to the
Participant's beneficiaries by December 31st of the
calendar year in which the fifth anniversary of the
Participant's death occurs;
(ii) The 5-year distribution requirement of (i) above
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 shall be distributed over 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;
(iii) However, in the event the Participant's spouse
(determined as of the date of the Participant's death)
is his designated beneficiary, the provisions of (ii)
above shall apply except that the requirement that
distributions commence within one year of the
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.
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<PAGE> 88
(3) Notwithstanding subparagraph (2) above, or any selections made
in the Adoption Agreement, if a Participant's death benefits
are to be 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:
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.
(i) For purposes of Section 6.6(h)(2), the election by a
designated beneficiary to be excepted from the 5-year
distribution requirement (if permitted in the Adoption
Agreement) 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.
(j) For purposes of this Section, the life expectancy of a Participant
and a Participant's spouse (other than in the case of a life
annuity) shall or shall not be redetermined annually as provided in
the Adoption Agreement and in accordance with Regulations. If the
Participant or the Participant's spouse may elect, pursuant to the
Adoption Agreement, to have life expectancies recalculated, then the
election, once made shall be irrevocable. If no election is made by
the time distributions must commence, then the life expectancy of
the Participant and the Participant's spouse shall not be subject to
recalculation. Life expectancy and joint and last survivor
expectancy shall be computed using the return multiples in Tables V
and VI of Regulation Section 1.72-9.
(k) In the event that less than 100% of a Participant's interest in the
Plan is distributed to such Participant's spouse, the portion of the
distribution attributable to the Participant's Voluntary
Contribution Account shall be in the same proportion that the
Participant's Voluntary Contribution Account bears to the
Participant's total interest in the Plan.
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<PAGE> 89
(l) 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.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever a distribution is to
be made, or a series of payments are to commence, on or as of an
Anniversary Date, the distribution or series of payments may be made or
begun on such date or as soon thereafter as is practicable, but in no
event later than 180 days after the Anniversary Date. However, unless a
Former Participant elects in writing to defer the receipt of benefits
(such election may not result in a death benefit that is more than
incidental), the payment of benefits shall begin not later than the 60th
day after the close of the Plan Year in which the latest of the following
events occurs: (a) the date on which the Participant attains the earlier
of age 65 or the Normal Retirement Age specified herein; (b) the 10th
anniversary of the year in which the Participant commenced participation
in the Plan; or (c) the date the Participant terminates his service with
the Employer.
Notwithstanding the foregoing, the failure of a Participant and, if
applicable, the Participant's spouse, to consent to a distribution
pursuant to Section 6.5(d), shall be deemed to be an election to defer the
commencement of payment of any benefit sufficient to satisfy this Section.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
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 minor beneficiary shall fully discharge the Trustee,
Employer, and Plan from further liability on account thereof.
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<PAGE> 90
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion of the distribution payable to a
Participant or his beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain
payable solely by reason of the inability of the Administrator, after
sending a registered letter, return receipt requested, to the last known
address, and after further diligent effort, to ascertain the whereabouts
of such Participant or his beneficiary, the amount so distributable shall
not be treated as a Forfeiture pursuant to the Plan, but shall be
distributed from the Trust Fund and placed in an interest-bearing savings
account in the name of the Participant or beneficiary. The Trustee, in the
Trustee's discretion, may elect to comply with the Unclaimed Property Law
of its state of domicile, provided such law provides for complete
reinstatement if a claim is later made by the Participant or beneficiary.
6.10 PRE-RETIREMENT DISTRIBUTION
For Profit Sharing Plans and 401 (k) Profit Sharing Plans, if elected in
the Adoption Agreement, at such time as a Participant shall have attained
the age specified in the Adoption Agreement, the Administrator, at the
election of the Participant, shall direct the distribution of up to the
entire amount then credited to the accounts maintained on behalf of the
Participant. However, no such distribution from the Participant's Account
shall occur prior to 100% Vesting. In the event that the Administrator
makes such a distribution, the Participant shall continue to be eligible
to participate in the Plan on the same basis as any other Employee. Any
distribution made pursuant to this Section shall be made in a manner
consistent with Section 6.5, including, but not limited to, all notice and
consent requirements of Code Sections 411(a)(11) and 417 and the
Regulations thereunder.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) For Profit Sharing Plans, if elected in the Adoption Agreement,
the Administrator, at the election of the Participant, shall
direct the distribution to any Participant in any one Plan Year
up to the lesser of 100% of his Participant's Combined Account
valued as of the last Anniversary Date or other Valuation Date or
the amount necessary to satisfy the immediate and heavy financial
need of the Participant. Any distribution made pursuant to this
Section shall be deemed to be made as of the first day of the
Plan Year or, if later, the Valuation Date immediately preceding
the date of distribution, and the account from which the
distribution is made shall be reduced accordingly. Withdrawal
under this Section shall be authorized only if the distribution
is on account of:
(1) Medical expenses described in Code Section 213(d) incurred by,
or necessary to obtain medical care for, the Participant, his
spouse, or any of his dependents (as defined in Code Section
152);
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<PAGE> 91
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Funeral expenses for a member of the Participant's family;
(4) Payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant, his
spouse, children, or dependents; or
(5) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No such distribution shall be made from the Participant's Account
until such Account has become fully Vested.
(c) Any distribution made pursuant to this Section shall be made in a
manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 41 1 (a)(ii) and 417 and the
Regulations thereunder.
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant in
this Plan shall be subject to the rights afforded to any "alternate payee"
under a "qualified domestic relations order." Furthermore, a distribution
to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not reached the "earliest retirement age" under the Plan.
For the purposes of this Section, "alternate payee," "qualified domestic
relations order" and "earliest retirement age" shall have the meaning set
forth under Code Section 414(p).
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS
If elected in the Adoption Agreement, the following shall apply to a
Participant in a Profit Sharing Plan or 401 (k) Profit Sharing Plan and to
any distribution, made on or after the first day of the first plan year
beginning after December 31, 1988, from or under a separate account
attributable solely to accumulated deductible employee contributions, as
defined in Code Section 72(o)(5)(B), and maintained on behalf of a
participant in a money purchase pension plan, (including a target benefit
plan):
(a) The Participant shall be prohibited from electing benefits in the
form of a life annuity;
(b) Upon the death of the Participant, the Participant's entire Vested
account balances will be paid to his or her surviving spouse, or, if
there is no surviving spouse or
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the surviving spouse has already consented to waive his or her
benefit, in accordance with Section 6.6, to his designated
beneficiary; and
(c) If a distribution is one to which Code Sections 401(a)(11) and 417
of the Internal Revenue Code do not apply, such distribution may
commence less than 30 days after the notice required under
Regulation Section 1.411 (a)-11 (c) of the Income Tax Regulations
is given, provided that:
(1) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of whether
or not to elect a distribution (and, if applicable, a
particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
(d) Except to the extent otherwise provided in this Section and Section
6.5(h), the other provisions of Sections 6.2, 6.5 and 6.6 regarding
spousal consent and the forms of distributions shall be inoperative
with respect to this Plan.
This Section shall not apply to any Participant if it is determined
that this Plan is a direct or indirect transferee of a defined
benefit plan or money purchase plan, or a target benefit plan, stock
bonus or profit sharing plan which would otherwise provide for a
life annuity form of payment to the Participant.
6.14 LIFE INSURANCE
(a) The Trustee, at the direction of the Administrator and pursuant to
instructions from the individual designated in the Adoption
Agreement for such purpose shall ratably apply for, own, and pay all
premiums on Contracts on the lives of the Participants. Any initial
or additional Contract purchased on behalf of a Participant shall
have a face amount of not less than $1,000 or the limitation of the
Insurer, whichever is greater. If a life insurance Contract is to be
purchased for a Participant, the aggregate premium for ordinary life
insurance for each Participant must be less than 50% of the
aggregate contributions and Forfeitures allocated to a Participant's
Combined Account. For purposes of this limitation, ordinary life
insurance Contracts are Contract with both nondecreasing death
benefits and non-increasing premiums. If term insurance or universal
life insurance is purchased with such contributions, the aggregate
premium must be 25% or less of the aggregate contributions and
Forfeitures allocated to a Participant's Combined Account. If both
term insurance and ordinary life insurance are purchased with such
contributions, the amount expended for term insurance plus one-half
of the premium for ordinary life insurance may not in the aggregate
exceed 25% of the aggregate Employer contributions and Forfeitures
allocated to a Participant's Combined Account. The Trustee must
distribute the Contract to the Participant or convert the entire
value of the Contract at or before retirement into cash or provide
for a periodic
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<PAGE> 93
income so that no portion of such value may be used to continue life
insurance protection beyond retirement. Notwithstanding the above,
the limitations imposed herein with respect to the purchase of life
insurance shall not apply, in the case of a Profit Sharing Plan, to
the portion of a Participant's Account that has accumulated for at
least two (2) years.
Notwithstanding anything hereinabove to the contrary, amounts
credited to a Participant's Qualified Voluntary Employee
Contribution Account pursuant to Section 4.9, shall not be applied
to the purchase of life insurance Contracts.
(b) The Trustee will be the owner of any life insurance Contract
purchased under the terms of this Plan. The Contract must provide
that the proceeds will be payable to the Trustee; however, the
Trustee shall be required to pay over all proceeds of the
Contract to the Participant's designated beneficiary in
accordance with the distribution provisions of Article VI. A
Participant's spouse will be a designated beneficiary pursuant to
Section 6.2, unless a qualified election has been made in
accordance wit-in Sections 6.5 and 6.6 of the Plan, if
applicable. Under no circumstances shall the Trust retain any
part of the proceeds. However, the Trustee shall not pay the
proceeds in a method which would violate the requirements of the
retirement Equity Act, as stated in Article VI of the Plan, or
Code Section 401 (a)(9) and the Regulations thereunder.
6.15 DIRECT ROLLOVERS
(a) Notwithstanding any provisions of the Plan to the contrary, with
respect to distributions made after December 31, 1992, a
Participant shall be permitted to elect to have any "eligible
rollover distribution" transferred directly to an "eligible
retirement plan" specified by the Participant. The Plan
provisions otherwise applicable to distributions continue to
apply to the direct transfer option. The Participant shall, in
the time and manner prescribed by the Administrator, specify the
amount to be directly transferred and the "eligible retirement
plan" to receive the transfer. Any portion of a distribution
which is not transferred shall be distributed to the Participant.
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(b) For purposes of this Section, the term "eligible rollover
distribution" means any distribution other than a distribution of
substantially equal periodic payments over the life or life
expectancy of the Participant (or joint life or joint life
expectancies of the Participant and the designated beneficiary) or a
distribution over a period certain of ten years or more. Amounts
required to be distributed under Code Section 401 (a)(9) are not
eligible rollover distributions. The direct transfer option applies
only to eligible rollover distributions which would otherwise be
includible in gross income if not transferred.
(c) For purposes of this Section, the term "eligible retirement plan"
means an individual retirement account as described in Code Section
408(a), an individual retirement annuity as described in Code
Section 408(b), an annuity plan as described in Code Section 403(a).
or a defined contribution plan as described in Code Section 401(a)
which is exempt under Code Section 501(a) and which accepts rollover
distributions.
(d) The election described in subsection (a) also applies to the
surviving spouse after the Participant's death; however,
distributions to the surviving spouse may only be transferred to
an individual retirement account or individual retirement
annuity. For purposes of subsection (a), a spouse or former
spouse who is the alternate payee under a qualified domestic
relations order as defined in Code Section 414(p) will be treated
as the Participant.
For purposes of this Section, the term "eligible retirement plan"
has the meaning given such term by Code Section 402(c)(8)(B), except
that a qualified trust shall be considered an eligible retirement
plan only if it is a defined contribution plan, the terms of which
permit the acceptance of rollover distributions.
ARTICLE VII
PLAN LOANS
7.1 LOANS TO PARTICIPANTS
(a) If specified in the Adoption Agreement, the Administrator or its
appointed loan fiduciary may, in its sole discretion, make loans
to Participants or beneficiaries under the following
circumstances: (1) loans shall be made available to all
Participants and beneficiaries on a reasonably equivalent basis;
(2) loans shall not be made available to Highly Compensated
Employees in an amount greater than the amount made available to
other Participants; (3) loans shall bear a reasonable rate of
interest; (4) loans shall be adequately secured; and (5) shall
provide for periodic repayment over a reasonable period of time.
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(b) Loans shall not be made to any Shareholder-Employee or
Owner-Employee unless an exemption for such loan is obtained
pursuant to Act Section 408 and further provided that such loan
would not be subject to tax pursuant to Code Section 4975.
(c) Loans shall not be granted to any Participant that provide for a
repayment period extending beyond such Participant's Normal
Retirement Date.
(d) Loans made pursuant to this Section (when added to the outstanding
balance of all other loans made by the Plan to the Participant)
shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the Participant
during the one year period ending on the day before the date
on which such loan is made, over the outstanding balance of
loans from the Plan to the Participant on the date on which
such loan was made, or
(2) the greater of (A) one-half (1/2) of the present value of the
non-forfeitable accrued benefit of the Employee under the
Plan, or (B), if permitted pursuant to the Adoption Agreement,
$10,000.
For purposes of this limit, all plans of the Employer shall be
considered one plan. Additionally, with respect to any loan
made prior to January 1, 1987, the $50,000 limit specified in
(1) above shall be unreduced.
(e) No Participant loan shall take into account the present value of
such Participant's Qualified Voluntary Employee Contribution
Account.
(f) Loans shall provide for level amortization with payments to be
made not less frequently than quarterly over a period not to
exceed five (5) years. However, loans used to acquire any
dwelling unit which, within a reasonable time, is to be used
(determined at the time the loan is made) as a principal
residence of the Participant shall provide for periodic repayment
over a reasonable period of time that may exceed five (5) years.
Notwithstanding the foregoing, loans made prior to January 1,
1987 which are used to acquire, construct, reconstruct or
substantially rehabilitate any dwelling unit which, within a
reasonable period of time is to be used (determined at the time
the loan is made) as a principal residence of the Participant or
a member of his family (within the meaning of Code Section
267(c)(4)) may provide for periodic repayment over a reasonable
period of time that may exceed five (5) years. Additionally,
loans made prior to January 1, 1987, may provide for periodic
payments which are made less frequently than quarterly and which
do not necessarily result in level amortization.
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(g) An assignment or pledge of any portion of a Participant's interest
in the Plan and a loan, pledge, or assignment with respect to any
insurance Contract purchased under the Plan, shall be treated as a
loan under this Section.
(h) Any loan made pursuant to this Section after August 18, 1985
where the Vested interest of the Participant is used to secure
such loan shall require the written consent of the Participant's
spouse in a manner consistent with Section 6.5(a) provided the
spousal consent requirements of such Section apply to the Plan.
Such written consent must be obtained within the 90-day period
prior to the date the loan is made. Any security interest held by
the Plan by reason of an outstanding loan to the Participant
shall be taken into account in determining the amount of the
death benefit or Pre-Retirement Survivor Annuity. However, no
spousal consent shall be required under this paragraph if the
total accrued benefit subject to the security is not in excess of
$3,500.
(i) With regard to any loans granted or renewed on or after the last day
of the first Plan Year beginning after December 31, 1988, a
Participant loan program shall be established which must include,
but need not be limited to, the following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans
offered, including what constitutes a hardship or financial
need if selected in the Adoption Agreement;
(5) the procedure under the program for determining a
reasonable rate of interest;
(6) the types of collateral which may secure a Participant loan;
and
(7) the events constituting default and the steps that will be
taken to preserve plan assets.
Such Participant loan program shall be contained in a separate
written document which, when properly executed, is hereby
incorporated by reference and made a part of this plan.
Furthermore, such Participant loan program may be modified or
amended in writing from time to time without the necessity of
amending this Section of the Plan.
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
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8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend this Plan
subject to the limitations of this Section. However, any
amendment which affects the rights, duties or responsibilities of
the Trustee, Sponsor, or Administrator may only be made with the
Trustee's, Sponsor's, or Administrator's written consent. Any
such amendment shall become effective as provided therein upon
its execution. The Trustee shall not be required to execute any
such amendment unless the amendment affects the duties of the
Trustee hereunder.
(b) The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement
when such language is necessary to satisfy Code Sections 415 or
416 because of the required aggregation of multiple plans, and
(3) add certain model amendments published by the Internal
Revenue Service which specifically provide that their adoption
will not cause the Plan to be treated as an individually designed
plan. An Employer that amends the Plan for any other reason,
including a waiver of the minimum funding requirement under Code
Section 412(d), will no longer participate in this Prototype Plan
and will be considered to have an individually designed plan.
(c) The Employer expressly delegates authority to the sponsoring
organization of this Plan, the right to amend this Plan by
submitting a copy of the amendment to each Employer who has adopted
this Plan after first having received a ruling or favorable
determination from the Internal Revenue Service that the Plan as
amended qualifies under Code Section 401(a) and the Act. For
purposes of this Section, the mass submitter shall be recognized as
the agent of the sponsoring organization. If the sponsoring
organization does not adopt the amendments made by the mass
submitter, it will no longer be identical to or a minor modifier of
the mass submitter plan.
(d) No amendment to the Plan shall be effective if it authorizes or
permits any part of the Trust Fund (other than such part as is
required to pay taxes and administration expenses) to be used for
or diverted to any purpose other than for the exclusive benefit
of the Participants or their beneficiaries or estates; or causes
any reduction in the amount credited to the account of any
Participant; or causes or permits any portion of the Trust Fund
to revert to or become property of the Employer.
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(e) Except as permitted by Regulations (including Regulation
1.411(d)-4), no Plan amendment or transaction having the effect of
a Plan amendment (such as a merger, plan transfer or similar
transaction) shall be effective if it eliminates or reduces any
"Section 411(d)(6) protected benefit" or adds or modifies
conditions relating to "Section 411(d)(6) protected benefits"
the result of which is a further restriction on such benefit
unless such protected benefits are preserved with respect to
benefits accrued as of the later of the adoption date or
effective date of the amendment. "Section 411(d)(6) protected
benefits" are benefits described in Code Section 41l(d)(6)(A),
early retirement benefits and retirement-type subsidies, and
optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the
Plan by delivering to the Trustee and Administrator written
notice of such termination. Upon any full or partial termination
all amounts credited to the affected Participants' Combined
Accounts shall become 100% Vested and shall not thereafter be
subject to forfeiture, and all unallocated amounts shall be
allocated to the accounts of all Participants in accordance with
the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct
the distribution of the assets to Participants in a manner which
is consistent with and satisfies the provisions of Section 6.5.
Distributions to a Participant shall be made in cash (or in
property if permitted in the Adoption Agreement) or through the
purchase of irrevocable nontransferable deferred commitments from
the Insurer. Except as permitted by Regulations, the termination
of the Plan shall not result in the reduction of "Section 411
(d)(6) protected benefits" as described in Section 8.1.
8.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or
liabilities may be transferred to any other plan only if the benefits
which would be received by a Participant of this Plan, in the event of a
termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would
have received if the Plan had terminated immediately before the transfer,
merger or consolidation and such merger or consolidation does not
otherwise result in the elimination or reduction of any "Section 411(d)(6)
protected benefits" as described in Section 8.1 (e).
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ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS
(a) Any organization may become the Employer hereunder by executing the
Adoption Agreement in form satisfactory to the Sponsor and Trustee,
and it shall provide such additional information as the Trustee may
require. The consent of the Trustee to act as such shall be
signified by its execution of the Adoption Agreement.
(b) Except as otherwise provided in this Plan, the affiliation of the
Employer and the participation of its Participants shall be separate
and apart from that of any other employer and its participants
hereunder.
(c) As a condition precedent to the effective adoption of the Plan by an
Employer or the effective amendment of an Adoption Agreement, the
Sponsor must approve the Employer's Adoption Agreement or amendment
thereto.
9.2 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for
the employment of any Participant or Employee. Nothing contained in this
Plan shall be deemed to give any Participant or Employee the right to be
retained in the service of the Employer or to interfere with the right of
the Employer to discharge any Participant or Employee at any time
regardless of the effect which such discharge shall have upon him as a
Participant of this Plan.
9.3 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall
be payable to any person (including a Participant or his
beneficiary) shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be void; and
no such benefit shall in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of any
such person, nor shall it be subject to attachment or legal
process for or against such person, and the same shall not be
recognized except to such extent as may be required by law.
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(b) This provision shall not apply to the extent a Participant or
beneficiary is indebted to the Plan, for any reason, under any
provision of this Plan. At the time a distribution is to be made
to or for a Participant's or beneficiary's benefit, such
proportion of the amount to be distributed as shall equal such
indebtedness shall be paid to the Plan, to apply against or
discharge such indebtedness. Prior to making a payment, however,
the Participant or beneficiary must be given written notice by
the Administrator that such indebtedness is to be so paid in
whole or part from his Participant's Combined Account. If the
Participant or beneficiary does not agree that the indebtedness
is a valid claim against his Vested Participant's Combined
Account, he shall be entitled to a review of the validity of the
claim in accordance with procedures provided in Sections 2.12 and
2.13.
(c) This provision shall not apply to a "qualified domestic relations
order" defined in Code Section 414(p), and those other domestic
relations orders permitted to be so treated by the Administrator
under the provisions of the Retirement Equity Act of 1984. The
Administrator shall establish a written procedure to determine
the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to
the extent provided under a "qualified domestic relations order,"
a former spouse of a Participant shall be treated as the spouse
or surviving spouse for all purposes under the Plan.
9.4 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Act
and the laws of California to the extent not pre-empted by the Act.
9.5 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another
gender in all cases where they would so apply, and whenever any words are
used herein in the singular or plural form, they shall be construed as
though they were also used in the other form in all cases where they would
so apply.
9.6 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust
and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is
resolved in favor of the Trustee or Administrator, they shall be entitled
to be reimbursed from the Trust Fund for any and all costs, attorney's
fees, and other expenses pertaining thereto incurred by them for which
they shall have become liable.
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9.7 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by
law, it shall be impossible by operation of the Plan or of the
Trust, by termination of either, by power of revocation or
amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any Trust Fund maintained pursuant to the Plan or any
funds contributed thereto to be used for, or diverted to, purposes
other than the exclusive benefit of Participants, Retired
Participants, or their beneficiaries.
(b) In the event the Employer shall make a contribution under a
mistake of fact pursuant to Section 403(c)(2)(A) of the Act, the
Employer may demand repayment of such contribution at any time
within one (1) year following the time of payment and the
Trustees shall return such amount to the Employer within the one
(1) year period. Earnings of the Plan attributable to the
contributions may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
9.8 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by
the Act and regulations thereunder, shall be bonded in an amount not less
than 10% of the amount of the funds such Fiduciary handles; provided,
however, that the minimum bond shall be $1,000 and the maximum bond,
$500,000. The amount of funds handled shall be determined at the beginning
of each Plan Year by the amount of funds handled by such person, group, or
class to be covered and their predecessors, if any, during the preceding
Plan Year, or if there is no preceding Plan Year, then by the amount of
the funds to be handled during the then current year. The bond shall
provide protection to the Plan against any loss by reason of acts of fraud
or dishonesty by the Fiduciary alone or in connivance with others. The
surety shall be a corporate surety company (as such term is used in Act
Section 412(a)(2)), and the bond shall be in a form approved by the
Secretary of Labor. Notwithstanding anything in the Plan to the contrary,
the cost of such bonds shall be an expense of and may, at the election of
the Administrator, be paid from the Trust Fund or by the Employer.
9.9 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the
failure on the part of the Insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or
render a Contract null and void or unenforceable in whole or in part.
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9.10 INSURER'S PROTECTIVE CLAUSE
The Insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal
aspects of this Plan. The Insurer shall be protected and held harmless in
acting in accordance with any written direction of the Trustee, and shall
have no duty to see to the application of any funds paid to the Trustee,
nor be required to question any actions directed by the Trustee.
Regardless of any provision of this Plan, the Insurer shall not be
required to take or permit any action or allow any benefit or privilege
contrary to the terms of any Contract which it issues hereunder, or the
rules of the Insurer.
9.11 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, beneficiary, or
to any guardian or committee appointed for such Participant or beneficiary
in accordance with the provisions of this Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the
Trustee and the Employer.
9.12 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required
to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted
authority.
9.13 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, and (3) any Investment Manager appointed hereunder. The
named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under the
Plan. In general, the Employer shall have the sole responsibility for
making the contributions provided for under Section 4.1; and shall have
the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to
amend the elective provisions of the Adoption Agreement or terminate, in
whole or in part, the Plan. The Administrator shall have the sole
responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for
such direction, information or action. Furthermore, each named Fiduciary
may rely upon any such direction, information or action of another named
Fiduciary as being proper under the Plan, and is not required under the
Plan to inquire into the propriety of any such direction, information or
action. It is intended under the Plan that each named Fiduciary shall be
responsible for the proper exercise of its own powers, duties,
responsibilities and obligations under the Plan. No named Fiduciary shall
guarantee the Trust Fund in any manner against investment loss or
depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity.
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9.14 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
9.15 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, if, pursuant to
a timely application filed by or in behalf of the Plan, the
Commissioner of Internal Revenue Service or his delegate should
determine that the Plan does not initially qualify as a
tax-exempt plan under Code Sections 401 and 501, and such
determination is not contested, or if contested, is finally
upheld, then if the Plan is a new plan, it shall be void ab
initio and all amounts contributed to the Plan, by the Employer,
less expenses paid, shall be returned within one year and the
Plan shall terminate, and the Trustee shall be discharged from
all further obligations. If the disqualification relates to an
amended plan, then the Plan shall operate as if it had not been
amended and restated.
(b) Except as specifically stated in the Plan, any contribution by
the Employer to the Trust Fund is conditioned upon the
deductibility of the contribution by the Employer under the Code
and, to the extent any such deduction is disallowed, the Employer
may within one ( 1 ) year following a final determination of the
disallowance, whether by agreement with the Internal Revenue
Service or by final decision of a court of competent
jurisdiction, demand repayment of such disallowed contribution
and the Trustee shall return such contribution within one (1)
year following the disallowance. Earnings of the Plan
attributable to the excess contribution may not be returned to
the Employer, but any losses attributable thereto must reduce the
amount so returned.
9.16 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform,
nondiscriminatory manner.
9.17 PAYMENT OF BENEFITS
Benefits under this Plan shall be paid, subject to Section 6.10 and
Section 6.11 only upon death, Total and Permanent Disability, normal or
early retirement, termination of employment, or upon Plan Termination.
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9.18 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee at
the direction of the Administrator shall transfer the Vested interest, if
any, of such Participant in his account to another trust forming part of a
pension, profit sharing, or stock bonus plan maintained by such
Participant's new employer and represented by said employer in writing as
meeting the requirements of Code Section 401 (a), provided that the trust
to which such transfers are made permits the transfer to be made.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER
Notwithstanding anything herein to the contrary, with the consent of the
Employer, Sponsor and Trustee, any Affiliated Employer may adopt this Plan
and all of the provisions hereof, and participate herein and be known as a
Participating Employer, by a properly executed document evidencing said
intent and will of such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each Participating Employer shall be required to select the same
Adoption Agreement provisions as those selected by the Employer
other than the Plan Year, the Fiscal Year, and such other items that
must, by necessity, vary among employers.
(b) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan.
(c) The Trustee may, but shall not be required to, commingle, hold and
invest as one Trust Fund all contributions made by Participating
Employers, as well as all increments thereof.
(d) The transfer of any Participant from or to an Employer participating
in this Plan, whether he be an Employee of the Employer or a
Participating Employer, shall not affect such Participant's rights
under the Plan, and all amounts credited to such Participant's
Combined Account as well as his accumulated service time with the
transferor or predecessor, and his length of participation in the
Plan, shall continue to his credit.
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(e) Any expenses of the Plan which are to be paid by the Employer or
borne by the Trust Fund shall be paid by each Participating Employer
in the same proportion that the total amount standing to the credit
of all Participants employed by such Employer bears to the total
standing to the credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan;
provided, however, that with respect to all of its relations with the
Trustee and Administrator for the purpose of this Plan, each Participating
Employer shall be deemed to have designated irrevocably the Employer as
its agent. Unless the context of the Plan clearly indicates the contrary,
the word "Employer" shall be deemed to include each Participating Employer
as related to its adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the
Employee involved shall carry with him his accumulated service and
eligibility. No such transfer shall effect a termination of employment
hereunder, and the Participating Employer to which the Employee is
transferred shall thereupon become obligated hereunder with respect to
such Employee in the same manner as was the Participating Employer from
whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES
Any contribution or Forfeiture subject to allocation during each Plan Year
shall be allocated among all Participants of all Participating Employers
in accordance with the provisions of this Plan. However, if elected in the
Non-Standardized Adoption Agreement, any contribution or Forfeiture
subject to allocation during each Plan Year shall be determined separately
by each Participating Employer, and shall be allocated only among the
Participants eligible to share in the contributions of the Employer or
Participating Employer making the contribution, or with respect to
Forfeitures, shall inure only to the benefit of the Participants of the
Employer or Participating Employer by which the forfeiting Participant was
employed. On the basis of the information furnished by the Administrator,
the Trustee shall keep separate books and records concerning the affairs
of each Participating Employer hereunder and as to the accounts and
credits of the Employees of each Participating Employer. The Trustee may,
but need not, register Contracts so as to evidence that a particular
Participating Employer is the interested Employer hereunder, but in the
event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
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10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of
each and every Participating Employer and with the consent of the Trustee
where such consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Except in the case of a Standardized Plan, any Participating Employer
shall be permitted to discontinue or revoke its participation in the Plan
at any time. At the time of any such discontinuance or revocation,
satisfactory evidence thereof and of any applicable conditions imposed
shall be delivered to the Trustee. The Trustee shall thereafter transfer,
deliver and assign Contracts and other Trust Fund assets allocable to the
Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it
has established a separate pension plan for its Employees provided,
however, that no such transfer shall be made if the result is the
elimination or reduction of any "Section 41 l(d)(6) protected benefits" in
accordance with Section 8.1(e). If no successor is designated, the Trustee
shall retain such assets for the Employees of said Participating Employer
pursuant to the provisions of Article VII hereof. In no such event shall
any part of the corpus or income of the Trust Fund as it relates to such
Participating Employer be used for or diverted for purposes other than for
the exclusive benefit of the Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary rules
or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part from making
a contribution which it would otherwise have made under the Plan by reason
of having no current or accumulated earnings or profits, or because such
earnings or profits are less than the contribution which it would
otherwise have made, then, pursuant to Code Section 404(a)(3)(B)7 so much
of the contribution which such Participating Employer was so prevented
from making may be made, for the benefit of the participating employees of
such Participating Employer, by other Participating Employers who are
members of the same affiliated group within the meaning of Code Section
1504 to the extent of their current or accumulated earnings or profits,
except that such contribution by each such other Participating Employer
shall be limited to the proportion of its total current and accumulated
earnings or profits remaining after adjustment for its contribution to the
Plan made without regard to this paragraph which the total prevented
contribution bears to the
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total current and accumulated earnings or profits of all the Participating
Employers remaining after adjustment for all contributions made to the
Plan without regard to this paragraph.
A Participating Employer on behalf of whose employees a contribution is
made under this paragraph shall not be required to reimburse the
contributing Participating Employers.
ARTICLE XI
CASH OR DEFERRED PROVISIONS
Notwithstanding any provisions in the Plan to the contrary, the provisions
of this Article shall apply with respect to any 401(k) Profit Sharing
Plan.
11.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all
Participants made pursuant to Section 11.2(a), which amount shall be
deemed an Employer's Elective Contribution, plus
(b) If specified in E3 of the Adoption Agreement, a matching
contribution equal to the percentage specified in the Adoption
Agreement of the Deferred Compensation of each Participant eligible
to share in the allocations of the matching contribution, which
amount shall be deemed an Employer's Non-Elective or Elective
Contribution as selected in the Adoption Agreement, plus
(c) If specified in E4 of the Adoption Agreement, a discretionary
amount, if any, which shall be deemed an Employer's Non-Elective
Contribution, plus
(d) If specified in ES of the Adoption Agreement, a Qualified
Non-Elective Contribution.
(e) Notwithstanding the foregoing, however, the Employer's contributions
for any Fiscal Year shall not exceed the maximum amount allowable as
a deduction to the Employer under the provisions of Code Section
404. All contributions by the Employer shall be made in cash or in
such property as is acceptable to the Trustee.
(f) Except, however, to the extent necessary to provide the top heavy
minimum allocations, the Employer shall make a contribution even if
it exceeds current or accumulated Net Profit or the amount which is
deductible under Code Section 404.
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(g) Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date
on which such contributions can reasonably be segregated from the
Employer's general assets, but in any event within ninety (90)
days from the date on which such amounts would otherwise have
been payable to the Participant in cash. The provisions of
Department of Labor regulations 2510.3-102 are incorporated
herein by reference. Furthermore, any additional Employer
contributions which are allocable to the Participant's Elective
Account for a Plan Year shall be paid to the Plan no later than
the twelve-month period immediately following the close of such
Plan Year.
11.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) If selected in the Adoption Agreement, each Participant may elect
to defer his Compensation which would have been received in the
Plan Year, but for the deferral election, subject to the
limitations of this Section and the Adoption Agreement. A
deferral election (or modification of an earlier election) may
not be made with respect to Compensation which is currently
available on or before the date the Participant executed such
election, or if later, the latest of the date the Employer adopts
this cash or deferred arrangement, or the date such arrangement
first became effective. Any elections made pursuant to this
Section shall become effective as soon as is administratively
feasible.
Additionally, if elected in the Adoption Agreement, each Participant
may elect to defer and have allocated for a Plan Year all or a
portion of any cash bonus attributable to services performed by the
Participant for the Employer during such Plan Year and which would
have been received by the Participant on or before two and one-half
months following the end of the Plan Year but for the deferral. A
deferral election may not be made with respect to cash bonuses which
are currently available on or before the date the Participant
executed such election. Notwithstanding the foregoing, cash bonuses
attributable to services performed by the Participant during a Plan
Year but which are to be paid to the Participant later than two and
one-half months after the close of such Plan Year will be subjected
to whatever deferral election is in effect at the time such cash
bonus would have otherwise been received.
The amount by which Compensation and/or cash bonuses are reduced
shall be that Participant's Deferred Compensation and be treated as
an Employer Elective Contribution ad allocated to that Participant's
Elective Account.
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<PAGE> 109
Once made, a Participant's election to reduce Compensation shall
remain in effect until modified or terminated. Modifications may be
made as specified in the Adoption Agreement, and terminations may be
made at any time. Any modification or termination of an election
will become effective as soon as is administratively feasible.
(b) The balance in each Participant's Elective Account shall be fully
Vested at all times and shall not be subject to Forfeiture for any
reason.
(c) Amounts held in the Participant's Elective Account and Qualified
Non-Elective Account may be distributable as permitted under the
Plan, but in no event prior to the earlier of:
(1) a Participant's termination of employment, Total and
Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the proven financial hardship of a Participant, subject to the
limitations of Section 11.8;
(4) the termination of the Plan without the existence at the
time of Plan termination of another defined contribution
plan (other than an employee stock ownership plan as
defined in Code Section 4975(e)(7)) or the establishment of
a successor defined contribution plan (other than an
employee stock ownership plan as defined in Code Section
4975(e)(7)) by the Employer or an Affiliated Employer
within the period ending twelve months after distribution
of all assets from the Plan maintained by the Employer;
(5) the date of the sale by the Employer to an entity that is not
an Affiliated Employer of substantially all of the assets
(within the meaning of Code Section 409(d)(2)) with respect to
a Participant who continues employment with the corporation
acquiring such assets; or
(6) the date of the sale by the Employer or an Affiliated Employer
of its interest in a subsidiary (within the meaning of Code
Section 409(d)(3)) to an entity that is not an Affiliated
Employer with respect to a Participant who continues
employment with such subsidiary.
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<PAGE> 110
(d) In any Plan Year beginning after December 31, 1986, a
Participant's Deferred Compensation made under this Plan and all
other plans, contracts or arrangements of the Employer
maintaining this Plan shall not exceed the limitation imposed by
Code Section 402(g), as in effect for the calendar year in which
such Plan Year began. If such dollar limitation is exceeded
solely from elective deferrals made under this Plan or any other
plan maintained by the Employer, a Participant will be deemed to
have notified the Administrator of such excess amount which shall
be distributed in a manner consistent with Section 11.2(f). This
dollar limitation shall be adjusted annually pursuant to the
method provided in Code Section 415(d) in accordance with
Regulations.
(e) In the event a Participant has received a hardship distribution
pursuant to Regulation 1.401(k)-l(d)(2)(iii)(B) from any other
plan maintained by the Employer or from his Participant's
Elective Account pursuant to Section 11.8, then such Participant
shall not be permitted to elect to have Deferred Compensation
contributed to the Plan on his behalf for a period of twelve (12)
months following the receipt of the distribution. Furthermore,
the dollar limitation under Code Section 402(g) shall be reduced,
with respect to the Participant's taxable year following the
taxable year in which the hardship distribution was made, by the
amount of such Participant's Deferred Compensation, if any, made
pursuant to this Plan (and any other plan maintained by the
Employer) for the taxable year of the hardship distribution.
(f) If a Participant's Deferred Compensation under this Plan together
with any elective deferrals (as defined in Regulation 1.402(g)-l(b))
under another qualified cash or deferred arrangement (as defined in
Code Section 401(k)), a simplified employee pension (as defined in
Code Section 408(k)), a salary reduction arrangement (within the
meaning of Code Section 3121 (a)(S)(D)), a deferred compensation
plan under Code Section 457, or a trust described in Code Section
SOl(c)(18) cumulatively exceed the limitation imposed by Code
Section 402(g) (as adjusted annually in accordance with the method
provided in Code Section 415(d) pursuant to Regulations) for such
Participant's taxable year, the Participant may, not later than
March 1st following the close of his taxable year, notify the
Administrator in writing of such excess and request that his
Deferred Compensation under this Plan be reduced by an amount
specified by the Participant. In such event, the Administrator shall
direct the Trustee to distribute such excess amount (and any Income
allocable to such excess amount) to the Participant not later than
the first April l5th following the close of the Participant's
taxable year. Distributions in accordance with this paragraph may be
made for any taxable year of the Participant which begins after
December 3l, l986. Any distribution of less than the entire amount
of Excess Deferred Compensation and Income shall be treated as a pro
rata distribution of Excess Deferred Compensation and Income. The
amount distributed shall not exceed the Participant's Deferred
Compensation under the Plan for the taxable year. Any distribution
on or before the last day of the Participant's taxable year must
satisfy each of the following conditions:
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<PAGE> 111
(l) the Participant shall designate the distribution as Excess
Deferred Compensation;
(2) the distribution must be made after the date on which the
Plan received the Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a distribution
of Excess Deferred Compensation.
Any distribution under this Section shall be made first from
unmatched Deferred Compensation and, thereafter, simultaneously from
Deferred Compensation which is matched and matching contributions
which relate to such Deferred Compensation. However, any such
matching contributions which are not Vested shall be forfeited in
lieu of being distributed.
For the purpose of this Section, "Income" means the amount of income
or loss allocable to a Participant's Excess Deferred Compensation
and shall be equal to the sum of the allocable gain or loss for the
taxable year of the Participant and the allocable gain or loss for
the period between the end of the taxable year of the Participant
and the date of distribution ("gap period"). The income or loss
allocable to each such period is calculated separately and is
determined by multiplying the income or loss allocable to the
Participant's Deferred Compensation for the respective period by a
fraction. The numerator of the fraction is the Participant's Excess
Deferred Compensation for the taxable year of the Participant. The
denominator is the balance, as of the last day of the respective
period, of the Participant's Elective Account that is attributable
to the Participant's Deferred Compensation reduced by the gain
allocable to such total amount for the respective period and
increased by the loss allocable to such total amount for the
respective period.
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable income or loss for
the "gap period." Under such "safe harbor method", allocable income
or loss for the "gap period" shall be deemed to equal ten percent
(10%) of the income or loss allocable to a Participant's Excess
Deferred Compensation for the taxable year of the Participant
multiplied by the number of calendar months in the "gap period". For
purposes of determining the number of calendar months in the "gap
period", a distribution occurring on or before the fifteenth day of
the month shall be treated as having been made on the last day of
the preceding month and a distribution occurring after such
fifteenth day shall be treated as having been made on the first day
of the next subsequent month.
Income or loss allocable to any distribution of Excess Deferred
Compensation on or before the last day of the taxable year of the
Participant shall be calculated from the first day of the taxable
year of the Participant to the date on which the distribution is
made pursuant to either the "fractional method" or the "safe harbor
method".
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<PAGE> 112
Notwithstanding the above, for the 1987 calendar year, Income during
the "gap period" shall not be taken into account.
Notwithstanding the above, for any distribution under this Section
which is made after August 15, 1991, such distribution shall not
include any income for the "gap period". Further provided, for any
distribution under this Section which is made after August 15, 1991,
the amount of Income may be computed using a reasonable method that
is consistent with Section 4.3(c), provided such method is used
consistently for all Participants and for all such distributions for
the Plan Year.
(g) Notwithstanding the above, a Participant's Excess Deferred
Compensation shall be reduced, but not below zero, by any
distribution and/or recharacterization of Excess Contributions
pursuant to Section 11.5(a) for the Plan Year beginning with or
within the taxable year of the Participant.
(h) At Normal Retirement Date, or such other date when the Participant
shall be entitled to receive benefits, the fair market value of the
Participant's Elective Account shall be used to provide benefits to
the Participant or his beneficiary.
(i) Employer Elective Contributions made pursuant to this Section may be
segregated into a separate account for each Participant in a
federally insured savings account, certificate of deposit in a bank
or savings and loan association, money market certificate, or other
short-term debt security acceptable to the Trustee until such time
as the allocations pursuant to Section 11.3 have been made.
(j) The Employer and the Administrator shall adopt a procedure necessary
to implement the salary reduction elections provided for herein.
11.3 ALLOCATION OF CONTRIBUTIONS AND FORFEITURES
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit as
of each Anniversary Date, or other Valuation Date, all amounts
allocated to each such Participant as set forth herein.
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<PAGE> 113
(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the
Employer's contributions for each Plan Year. Within a reasonable
period of time after the date of receipt by the Administrator of
such information, the Administrator shall allocate such contribution
as follows:
(1) With respect to the Employer's Elective Contribution made
pursuant to Section 11.1(a), to each Participant's Elective
Account in an amount equal to each such Participant's Deferred
Compensation for the year.
(2) With respect to the Employer's Matching Contribution made
pursuant to Section 11.1(b), to each Participant's Account,
or Participant's Elective Account as selected in E3 of the
Adoption Agreement, in accordance with Section 11.1(b).
Except, however, a Participant who is not credited with a Year
of Service during any Plan Year shall or shall not share in
the Employer's Matching Contribution for that year as provided
in E3 of the Adoption Agreement. However, for Plan Years
beginning after 1989, if this is a standardized Plan, a
Participant shall share in the Employer's Matching
Contribution regardless of Hours of Service.
(3) With respect to the Employer's Non-Elective Contribution made
pursuant to Section 11.1(c), to each Participant's Account in
accordance with the provisions of Sections 4.3(b)(2) or
4.3(b)(3), whichever is applicable, 4.3(k) and 4.3(l).
(4) With respect to the Employer's Qualified Non-Elective
Contribution made pursuant to Section 11.1(d), to each
Participant's Qualified Non-Elective Contribution Account
in the same proportion that each such Participant's
Compensation for the year bears to the total Compensation
of all Participants for such year. However, for any Plan
Year beginning prior to January 1, 1990, and if elected in
the non-standardized Adoption Agreement for any Plan Year
beginning on or after January 1, 1990, a Participant who is
not credited with a Year of Service during any Plan Year
shall not share in the Employer's Qualified Non-Elective
Contribution for that year, unless required pursuant to
Section 4.3(h). In addition, the provisions of Sections
4.3(k) and 4.3(l) shall apply with respect to the
allocation of the Employer's Qualified Non-Elective
contribution.
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<PAGE> 114
(c) Notwithstanding anything in the Plan to the contrary, for Plan Years
beginning after December 31, 1988, in determining whether a Non-Key
Employee has received the required minimum allocation pursuant to
Section 4.3(f) such Non-Key Employee's Deferred Compensation and
matching contributions used to satisfy the "Actual Deferral
Percentage" test pursuant to Section 11.4(a) or the "Actual
Contribution Percentage" test of Section 11.6(a) shall not be taken
into account.
(d) Notwithstanding anything herein to the contrary, participants who
terminated employment during the Plan Year shall share in the salary
reduction contributions made by the Employer for the year of
termination without regard to the Hours of Service credited.
(e) Notwithstanding anything herein to the contrary (other than Sections
11.3(d) and 11.3(g)), any Participant who terminated employment
during the Plan Year for reasons other than death, Total and
Permanent Disability, or retirement shall or shall not share in the
allocations of the Employer's Matching Contribution made pursuant to
Section 11.1(b), the Employer's Non-Elective Contributions made
pursuant to Section 11.1(c), the Employer's Qualified Non-Elective
Contribution made pursuant to Section 11.1(d), and Forfeitures as
provided in the Adoption Agreement. Notwithstanding the foregoing,
for Plan Years beginning after 1989, if this is a standardized Plan,
any such terminated Participant shall share in such allocations
provided the terminated Participant completed more than 500 Hours of
Service.
(f) Notwithstanding anything herein to the contrary, Participants
terminating for reasons of death, Total and Permanent Disability, or
retirement shall share in the allocation of the Employer's Matching
Contribution made pursuant to Section 11.1(b), the Employer's
Non-Elective Contributions made pursuant to Section 11.1(c), the
Employer's Qualified Non-Elective Contribution made pursuant to
Section 11.1(d), and Forfeitures as provided in this Section
regardless of whether they completed a Year of Service during the
Plan Year.
(g) Notwithstanding any election in the Adoption Agreement to the
contrary, if this is a non-standardized Plan that would otherwise
fail to meet the requirements of Code Sections 401(a)(26),
410(b)(1), or 410(b)(2)(A)(i) and the Regulations thereunder because
Employer matching Contributions made pursuant to Section 11.1(b),
Employer Non-Elective Contributions made pursuant to Section 11.1(c)
or Employer Qualified Non-Elective Contributions made pursuant to
Section 11.1(d) have not been allocated to a sufficient number or
percentage of Participants for a Plan Year, then the following rules
shall apply:
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<PAGE> 115
(1) The group of Participants eligible to share in the
respective contributions for the Plan Year shall be
expanded to include the minimum number of Participants who
would not otherwise be eligible as are necessary to satisfy
the applicable test specified above. The specific
participants who shall become eligible under the terms of
this paragraph shall be those who are actively employed on
the last day of the Plan Year and, when compared to
similarly situated Participants, have completed the
greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants
eligible to share for the Plan Year shall be further expanded
to include the minimum number of Participants who are not
actively employed on the last day of the Plan Year as are
necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be those
Participants, when compared to similarly situated
Participants, who have completed the greatest number of Hours
of Service in the Plan Year before terminating employment.
11.4 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning after
December 31, 1986, the annual allocation derived from Employer
Elective Contributions and Qualified Non-Elective Contributions to a
Participant's Elective Account and Qualified Non-Elective 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.
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<PAGE> 116
However, for Plan Years beginning after December 31, 1988, to
prevent the multiple use of the alternative method described
in (2) above and Code Section 401(m)(9)(A), any Highly
Compensated Participant eligible to make elective deferrals
pursuant to Section 11.2 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
and Qualified Non-Elective Contributions allocated to each
Participant's Elective Account and Qualified Non-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,
for Plan Years beginning after December 31, 1988, shall be
calculated to the nearest one-hundredth of one percent of the
Participant's "414(s) Compensation". Employer Elective
Contributions allocated to each Non-Highly Compensated
Participant's Elective 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 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, 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 ratio determined by aggregating
Employer 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" for Plan Years
beginning after December 31, 1988, 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 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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<PAGE> 117
(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 this Section and Code Sections 401(a)(4),
410(b) and 401(k), if two or more plans 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
401(b)(2)(A)(ii) as in effect for Plan Years beginning after
December 31, 1988), the cash or deferred arrangements included in
such plans shall be treated as one arrangement. In addition, two
or more cash or deferred arrangements may be considered as a
single arrangement for purposes of determining whether or not
such arrangements satisfy Code Sections 401(a)(4), 410(b) and
401(k). In such a case, the cash or deferred arrangements
included in such plans and the plans including such arrangements
shall be treated as one arrangement and as one plan for purposes
of this Section and Code Sections 401(a)(4), 410(b) and 401(k).
For plan years beginning after December 31, 1989, plans may be
aggregated under this paragraph (e) only if they have the same
plan year.
Notwithstanding the above, for Plan Years beginning after December
31, 1988, an employee stock ownership plan described in Code Section
4975(e)(7) may not be combined with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and
401(k).
(e) 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) for Plan Years beginning after December
31, 1988) of the Employer or an Affiliated Employer, all such
cash or deferred arrangements shall be treated as one cash or
deferred arrangement for the purpose of determining the actual
deferral ratio with respect to such Highly Compensated
Participant. However, for Plan Years beginning after December 31,
1988, if the cash or deferred arrangements have different Plan
Years, this paragraph shall be applied by treating all cash or
deferred arrangements ending with or within the same calendar
year as a single arrangement.
11.5 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions and Qualified Non-Elective Contributions do not satisfy one
of the tests set forth in Section 11.4, for Plan Years beginning after
December 31, 1986, the Administrator shall adjust Excess Contributions
pursuant to the options set forth below:
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<PAGE> 118
(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 and/or at his election
recharacterized as a voluntary Employee contribution pursuant to
Section 4.7 until one of the tests set forth in Section 11.4 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 11.4 is satisfied.
For each Highly Compensated Participant, the amount of Excess
Contributions is equal to the Elective Contributions and
Qualified Non-Elective Contributions made on behalf of such
Highly Compensated Participant (determined prior to the
application of this paragraph) minus the amount determined by
multiplying the 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 and/or recharacterized
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. Any distribution and/or
recharacterization of Excess Contributions shall be made in
accordance with the following:
(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
Plan Year following the Plan Year to which they are
allocable;
(ii) shall be made first from unmatched Deferred Compensation
and, thereafter, simultaneously from Deferred
Compensation which is matched and matching contributions
which relate to such Deferred Compensation. However, any
such matching contributions which are not Vested shall
be forfeited in lieu of being distributed;
(iii) 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 and Employer
matching contributions.
(iv) shall be adjusted for Income; and
(v) 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:
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<PAGE> 119
(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) for Plan Years ending on or before August 8, 1988, may
be postponed but not later than October 24, 1988;
(iii) shall not exceed the amount of Deferred Compensation on
behalf of any Highly Compensated Participant for any
Plan Year;
(iv) shall be treated as voluntary Employee contributions
for purposes of Code Section 401(a)(4) and Regulation
1.401(k)-l(b). However, for purposes of Sections 2.2
and 4.3(f), recharacterized Excess Contributions
continue to be treated as Employer contributions that
are Deferred Compensation. For Plan Years beginning
after December 31, 1988, Excess Contributions
recharacterized as voluntary Employee contributions
shall continue to be nonforfeitable and subject to
the same distribution rules provided for in Section
11.2(c);
(v) which relate to Plan Years ending on or before October
24, 1988, may be treated as either Employer
contributions or voluntary Employee contributions and
therefore shall not be subject to the restrictions of
Section 11.2(c);
(vi) 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 11.6)
that such Highly Compensated Participant is permitted
to make under the Plan in the absence of
recharacterization;
(vii) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less than the
entire amount of Excess Contributions shall be treated as a
pro rata distribution and/or recharacterization of Excess
Contributions and Income.
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(4) 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 by reducing the actual deferral ratio
as required herein and the 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.
(b) Within twelve (12) months after the end of the Plan Year, the
Employer shall 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
11.4(a). Such contribution shall be allocated to the
Participant's Qualified Non-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.
(c) For purposes of this Section, "Income" means the income or loss
allocable to Excess Contributions which shall equal the sum of
the allocable gain or loss for the Plan Year and the allocable
gain or loss for the period between the end of the Plan Year and
the date of distribution ("gap period"). The income or loss
allocable to Excess Contributions for the Plan Year and the "gap
period" is calculated separately and is determined by multiplying
the income or loss for the Plan Year or the "gap period" by a
fraction. The numerator of the fraction is the Excess
Contributions for the Plan Year. The denominator of the fraction
is the total of the Participant's Elective Account attributable,
to Elective Contributions and the Participant's Qualified
Non-Elective Account as of the end of the Plan Year or the "gap
period", reduced by the gain allocable to such total amount for
the Plan Year or the "gap period" and increased by the loss
allocable to such total amount for the Plan Year or the "gap
period".
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable Income for the "gap
period." Under such "safe harbor method", allocable Income for the
"gap period" shall be deemed to equal ten percent (10%) of the
Income allocable to Excess Contributions for the Plan Year of the
Participant multiplied by the number of calendar months in the "gap
period". For purposes of determining the number of calendar months
in the "gap period", a distribution occurring on or before the
fifteenth day of the month shall be treated as having been made on
the last day of the preceding month and a distribution occurring
after such fifteenth day shall be treated as having been made on the
first day of the next subsequent month.
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<PAGE> 121
Notwithstanding the above, for any distribution under this Section
which is made after August 15, 1991, such distribution shall not
include any income for the "gap period." Further provided, for any
distribution under this Section which is made after August 15, 1991,
the amount of Income may be computed using a reasonable method that
is consistent with Section 4.3(c), provided such method is used
consistently for all Participants and for all such distributions for
the Plan Year.
Notwithstanding the above, for Plan Years which began on or after
1987, Income during the "gap period" shall not be taken into
account.
(d) Any amounts not distributed or recharacterized within 2 1/2 months
after the end of the Plan Year shall be subject to the 10% Employer
excise tax imposed by Code Section 4979.
11.6 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage," for Plan Years beginning after
the later of the Effective Date of this Plan or December 31, 1986,
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
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group, or such
percentage for the Non-Highly Compensated Participant group
plus 2 percentage points. However, for Plan Years beginning
after December 31, 1988, 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
11.2 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 any 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 11.7, "Actual
Contribution Percentage" for a Plan Year means, with respect to the
Highly Compensated Participant group and Non-Highly Compensated
Participant group, the average of the ratios (calculated separately
for each Participant in each group) of:
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<PAGE> 122
(1) the sum of Employer matching contributions made pursuant to
Section 11.1(b) (to the extent such matching contributions
are not used to satisfy the tests set forth in Section
11.4), voluntary Employee contributions made pursuant to
Section 4.7 and Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 11.5
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 11.7(d), only Employer matching contributions (excluding
matching contributions forfeited or distributed pursuant to
Section 11.2(f), 11.5(a), or 11.7(a)) contributed to the Plan
prior to the end of the succeeding Plan Year shall be considered.
In addition, the Administrator may elect to take into account,
with respect to Employees eligible to have Employer matching
contributions made pursuant to Section 11.1(b) or voluntary
Employee contributions made pursuant to Section 4.7 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)-l(b)(2) which is
incorporated herein by reference. However, for Plan Years
beginning after December 31, 1988, 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 ratio determined by aggregating
Employer matching contributions made pursuant to Section
11.1(b) (to the extent such matching contributions are not
used to satisfy the tests set forth in Section 11.4),
voluntary Employee contributions made pursuant to Section
4.7, Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 11.5 and "414(s)
Compensation" of all eligible Family Members (including
Highly Compensated Participants). However, in applying the
$200,000 limit to "414(s) Compensation" for Plan Years
beginning after December 31, 1988, Family Members shall
include only the affected Employee's
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<PAGE> 123
spouse and any lineal descendants who have not attained age 19
before the close of the Plan Year.
(2) The Employer matching contributions made pursuant to
Section 11.1(b) (to the extent such matching contributions
are not used to satisfy the tests set forth in Section
11.4), voluntary Employee contributions made pursuant to
Section 4.7, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 11.5
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.
(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.
(e) For purposes of this Section and Code Sections 401(a)(4), 410(b)
and 401(m), if two or more plans of the Employer 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) as in effect for Plan Years beginning
after December 31, 1988), such plans shall be treated as one
plan. In addition, two or more plans of the Employer to which
matching contributions, Employee contributions, or both, are made
may be considered as a single plan for purposes of determining
whether or not such plans satisfy Code Sections 401(a)(4), 410(b)
and 401(m). In such a case, the aggregated plans must satisfy
this Section and Code Sections 401(a)(4), 410(b) and 401(m) as
though such aggregated plans were a single plan. For plan years
beginning after December 31, 1989, plans may be aggregated under
this paragraph only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December
31, 1988, an employee stock ownership plan described in Code Section
4975(e)(7) may not be aggregated with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and
401(m).
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<PAGE> 124
(f) If a Highly Compensated Participant is a Participant under two or
more plans (other than an employee stock ownership plan as
defined in Code Section 4975(e)(7) for Plan Years beginning after
December 31, 1988) which are maintained by the Employer or an
Affiliated Employer to which matching contributions, Employee
contributions, or both, are made, all such contributions on
behalf of such Highly Compensated Participant shall be aggregated
for purposes of determining such Highly Compensated Participant's
actual contribution ratio. However, for Plan Years beginning
after December 31, 1988, if the plans have different plan years,
this paragraph shall be applied by treating all plans ending with
or within the same calendar year as a single plan.
(g) For purposes of Section 11.6(a) and 11.7, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall
include any Employee eligible to have matching contributions made
pursuant to Section 11.1(b) (whether or not a deferred election
was made or suspended pursuant to Section 11.2(e)) allocated to
his account for the Plan Year or to make salary deferrals
pursuant to Section 11.2 (if the Employer uses salary deferrals
to satisfy the provisions of this Section) or voluntary Employee
contributions pursuant to Section 4.7 (whether or not voluntary
Employee contributions are made) allocated to his account for the
Plan Year.
(h) For purposes of this Section, "Matching Contribution" shall mean an
Employer contribution made to the Plan, or to a contract described
in Code Section 403(b), on behalf of a Participant on account of an
Employee contribution made by such Participant, or on account of a
participant's deferred compensation, under a plan maintained by the
Employer.
11.7 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that for Plan Years beginning after December 31,
1986, 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 11.6(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) or, if forfeitable, forfeit such
non-Vested Excess Aggregate Contributions attributable to
Employer matching contributions (and Income allocable to such
Forfeitures) until either one of the tests set forth in Section
11.6(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
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<PAGE> 125
set forth in Section 11.6(a) is satisfied. The distribution and/or
Forfeiture of Excess Aggregate Contributions shall be made in the
following order:
(1) Employer matching contributions distributed and/or forfeited
pursuant to Section 11.5(a)(1);
(2) Voluntary Employee contributions including Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 11.5(a)(2);
(3) Remaining Employer matching contributions.
(b) Any distribution or Forfeiture 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). Forfeitures of Excess Aggregate
Contributions shall be treated in accordance with Section 4.3.
However, no such Forfeiture may be allocated to a Highly
Compensated Participant whose contributions are reduced pursuant
to this Section.
(c) Excess Aggregate Contributions attributable to amounts other than
voluntary Employee contributions, including forfeited matching
contributions, shall be treated as Employer contributions for
purposes of Code Sections 404 and 415 even if distributed from the
Plan.
(d) For the purposes of this Section and Section 11.6, "Excess Aggregate
Contributions" means, with respect to any Plan Year, the excess of:
(1) the aggregate amount of Employer matching contributions
made pursuant to Section 11.1(a) (to the extent such
contributions are taken into account pursuant to Section
11.6(a)), voluntary Employee contributions made pursuant to
Section 4.7, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 11.5
and any Qualified Non-Elective Contributions or elective
deferrals taken into account pursuant to Section 11.6(c)
actually made on behalf of the Highly Compensated
Participant group for such Plan Year, over
(2) the maximum amount of such contributions permitted under the
limitations of Section 11.6(a).
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<PAGE> 126
(e) For each Highly Compensated Participant, the amount of Excess
Aggregate Contributions is equal to the total Employer matching
contributions made pursuant to Section 11.1(b) (to the extent
taken into account pursuant to Section 11.6(a)), voluntary
Employee contributions made pursuant to Section 4.7, Excess
Contributions recharacterized as voluntary Employee contributions
pursuant to Section 11.5 and any Qualified Non-Elective
Contributions or elective deferrals taken into account pursuant
to Section 11.6(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 for Plan Years beginning
after December 31, 1988. 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 pursuant to Section 11.1(b) (to the extent taken into
account pursuant to Section 11.6(a)), voluntary Employee
contributions made pursuant to Section 4.7, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 11.5 and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 11.6(c)
on behalf of such Highly Compensated Participant for such Plan
Year.
(f) 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 11.5.
(g) 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 by reducing the actual contribution ratio shall and
allocating the Excess Aggregate Contributions for the family unit
among the Family Members in proportion to the sum of Employer
matching contributions made pursuant to Section 11.1(b) (to the
extent taken into account pursuant to Section 11.6(a)), voluntary
Employee contributions made pursuant to Section 4.7, Excess
Contributions recharacterized as voluntary Employee contributions
pursuant to Section 11.5 and any Qualified Non-Elective
Contributions or elective deferrals taken into account pursuant to
Section 11.6(c) of each Family Member that were combined to
determine the group actual contribution ratio.
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<PAGE> 127
(h) 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 11.6. Such contribution shall be allocated to the
Participant's Qualified Non-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 11.4.
(i) For purposes of this Section, "Income" means the income or loss
allocable to Excess Aggregate Contributions which shall equal the
sum of the allocable gain or loss for the Plan Year and the
allocable gain or loss for the period between the end of the Plan
Year and the date of distribution ("gap period"). The income or
loss allocable to Excess Aggregate Contributions for the Plan
Year and the "gap period" is calculated separately and is
determined by multiplying the income or loss for the Plan Year or
the "gap period" by a fraction. The numerator of the fraction is
the Excess Aggregate Contributions for the Plan Year. The
denominator of the fraction is the total Participant's Account
and Voluntary Contribution Account attributable to Employer
matching contributions subject to Section 11.6, voluntary
Employee contributions made pursuant to Section 4.7, and any
Qualified Non-Elective Contributions and elective deferrals taken
into account pursuant to Section 11.6(c) as of the end of the
Plan Year or the "gap period", reduced by the gain allocable to
such total amount for the Plan Year or the "gap period" and
increased by the loss allocable to such total amount for the Plan
Year or the "gap period".
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable Income for the "gap
period." Under such "safe harbor method", allocable Income for the
"gap period" shall be deemed to equal ten percent (10%) of the
Income allocable to Excess Aggregate Contributions for the Plan Year
of the Participant multiplied by the number of calendar months in
the "gap period". For purposes of determining the number of calendar
months in the "gap period", a distribution occurring on or before
the fifteenth day of the month shall be treated as having been made
on the last day of the preceding month and a distribution occurring
after such fifteenth day shall be treated as having been made on the
first day of the next subsequent month.
The Income allocable to Excess Aggregate Contributions resulting
from recharacterization of Elective Contributions shall be
determined and distributed as if such recharacterized Elective
Contributions had been distributed as Excess Contributions.
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<PAGE> 128
Notwithstanding the above, for any distribution under this Section
which is made after August 15, 1991, such distribution shall not
include any Income for the "gap period." Further provided, for any
distribution under this Section which is made after August 15, 1991,
the amount of Income may be computed using a reasonable method which
is consistent with Section 4.3(c), provided such method is used
consistently for all Participants and for all such distributions for
the Plan Year.
Notwithstanding the above, for Plan Years which began in or after
1987, Income during the "gap period" shall not be taken into
account.
11.8 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant, shall
direct the Trustee to distribute to any Participant in any one
Plan Year up to the lesser of (1) 100% of his accounts as
specified in the Adoption Agreement valued as of the last
Anniversary Date or other Valuation Date or (2) the amount
necessary to satisfy the immediate and heavy financial need of
the Participant. Any distribution made pursuant to this Section
shall be deemed to be made as of the first day of the Plan Year
or, if later, the Valuation Date immediately preceding the date
of distribution, and the account from which the distribution is
made shall be reduced accordingly. Withdrawal under this Section
shall be authorized only if the distribution is on account of one
of the following or any other items permitted by the Internal
Revenue Service:
(1) Medical expenses described in Code Section 213(d) incurred by,
or necessary to obtain medical care for, the Participant, his
spouse, or any of his dependents (as defined in Code Section
152);
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant, his
spouse, children, or dependents; or
(4) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No such distribution shall be made from the Participant's Account
until such Account has become fully Vested.
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<PAGE> 129
(c) No distribution shall be made pursuant to this Section unless the
Administrator, based upon the Participant's representation and such
other facts as are known to the Administrator, determines that all
of the following conditions are satisfied:
(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant. The
amount of the immediate and heavy financial need may include
any amounts necessary to pay any federal, state or local
income taxes or penalties reasonably anticipated to result
from the distribution.
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently
available under all plans maintained by the Employer;
(3) The Plan, and all other plans maintained by the Employer,
provide that the Participant's elective deferrals and
voluntary Employee contributions will be suspended for at
least twelve (12) months after receipt of the hardship
distribution; and
(4) The Plan, and all other plans maintained by the Employer,
provide that the Participant may not make elective
deferrals for the Participant's taxable year immediately
following the taxable year of the hardship distribution in
excess of the applicable limit under Code Section 402(g)
for such next taxable year less the amount of such
Participant's elective deferrals for the taxable year of
the hardship distribution.
(d) Notwithstanding the above, distributions from the Participant's
Elective Account and Qualified Non-Elective Account pursuant to this
Section shall be limited solely to the Participant's Deferred
Compensation and any income attributable thereto credited to the
Participant's Elective Account as of December 31,
1988.
(e) Any distribution made pursuant to this Section shall be made in a
manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 41 l(a)(11) and 417 and the
Regulations thereunder.
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<PAGE> 1
EXHIBIT 10.3
CITIZENS BANK DEFERRED COMPENSATION PLAN
HERSHNER, HUNTER, ANDREWS, NEILL & SMITH, LLP
LAW OFFICES
180 EAST 11TH AVENUE
P. O. BOX 1475
EUGENE, OREGON 97440
(541) 686-8511
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<PAGE> 2
CITIZENS BANK DEFERRED COMPENSATION PLAN
PARTY:
CITIZENS BANK (Employer)
RECITALS:
A. This Plan is maintained by Employer primarily for the purpose of
providing deferred compensation for Employee while Employee is a member of a
select group of management or highly compensated employees of Employer.
B. This Plan is a nonqualified deferred compensation plan. This Plan is
not eligible for tax benefits extended to qualified employee benefit plans under
Internal Revenue Code Section 401(a). It is the intention of Employer and
Employee that this Plan be unfunded for tax purposes and for purposes of Title I
of ERISA. This Plan constitutes a mere promise by Employer to make benefit
payments in the future. As to such benefits, Employee has the status of a
general unsecured creditor of Employer.
C. This Plan is effective for Compensation earned after 1997.
TERMS OF PLAN:
1. DEFINITIONS. The following apply for purposes of this Plan:
a. Plan name: CITIZENS BANK DEFERRED COMPENSATION PLAN.
b. Plan: The nonqualified deferred compensation plan embodied herein.
c. Employer: CITIZENS BANK.
d. Employee: Employee refers separately to each employee or Employer
whom Employer designates as eligible to defer Compensation under this Plan.
(1) Employer may designate as eligible only employees of Employer
who are members of a select group of management or highly compensated employees.
(2) The decisions whether an employee is a member of a select group
of management or highly compensated employees and whether to designate the
employee as eligible are in the Employer's sole discretion.
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<PAGE> 3
(3) Employer may at any time revoke its designation of an Employee
as eligible. The revocation will take effect with respect to Compensation earned
by Employee after the calendar year in which Employer revokes designation.
(4) Employer designates WILLIAM V. HUMPHREYS as eligible to defer
Compensation under this Plan.
e. Beneficiary: The person or persons designated as provided in
paragraph 4 to receive payment of Employee's Account Balance after Employee's
death.
f. Compensation: Employee's annual base salary, including any bonus.
g. Account Balance: The amount of Employee's deferred compensation
account as determined in paragraph 3.
h. Financial Hardship: Financial Hardship has the same meaning as in
Revenue Procedure 92-65, 1992-2 C.B. 428, and Treasury Regulation Section
1.457-2(h) and means severe financial hardship to Employee resulting from a
sudden and unexpected illness or accident of Employee or of a dependent [as
defined in Internal Revenue Code Section 153(a)] of Employee, loss of Employee's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of Employee.
Examples of what are not considered to be a Financial Hardship include the need
to send Employee's child to college or the desire to purchase a home. If
Beneficiary claims Financial Hardship, the preceding portions of this paragraph
1.h. shall be applied by substituting "Beneficiary" for "Employee" each place
"Employee" appears.
i. Termination Date: The date of Employee's permanent termination of
employment with the Employer.
j. A select group of management or highly compensated employees: A
select group of management and highly compensated employees within the meaning
of ERISA Sections 201(2), 301(a)(3), and 401(a)(1).
k. ERISA: Employee Retirement Income Security Act of 1974.
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<PAGE> 4
2. DEFERRAL. Employee may participate in this Plan with respect to
Employee's Compensation earned in any calendar year by filing with Employer an
income deferral election, on a form provided by Employer and signed by Employee,
no later than December 31 immediately before that calendar year. However,
Employee may participate in this Plan with respect to Employee's Compensation
earned in the calendar year in which the Employee is first designated as
eligible to defer Compensation under this Plan, by filing with Employer an
income deferral election, on a form provided by Employer and signed by Employee,
no later than the 30th day after Employee is first designated as eligible.
a. COMPENSATION TO WHICH DEFERRAL ELECTION APPLIES. An income deferral
election filed by Employee applies to Employee's Compensation earned in the
calendar year following the calendar year in which Employee files the election.
However, an income deferral election filed by Employee in a month other than
December and during the first 30 days after the Employee is first designated as
eligible to defer Compensation under this Plan applies to Employee's
Compensation earned in those calendar months in the calendar year in which the
election is filed that after Employee files the election.
(1) An income deferral election applies only to Compensation earned
during such periods as Employee is a member of a select group of management or
highly compensated employees of Employer, as determined in Employer's sole
discretion.
(2) An income deferral election may not be changed after the
beginning of any calendar year to which it applies, except as to Compensation
earned in a later calendar year, and except as provided in subparagraph 2.a.(3)
below.
(3) Employee may apply to Employer to modify an income deferral
election with respect to Compensation not yet earned, by submitting a claim to
Employer, showing Financial Hardship.
b. CONTINUATION OF DEFERRAL ELECTION. An income deferral election that
applies to Compensation earned in December of a calendar year also applies to
Compensation earned in the following calendar year unless Employee modifies or
cancels the election before that following calendar year begins.
3. ACCOUNT BALANCE. Employer will keep, as Employee's deferred
compensation account, a bookkeeping record to which will be credited the amount
of Employee's deferrals and the amount of interest thereon, and to which will be
debited all amounts paid under paragraph 5 to Employee or Beneficiary.
a. DATE OF CREDITING. As of the payday for a pay period for which an
amount of Employee's Compensation is deferred, Employer will credit that amount
to Employee's deferred compensation account.
b. INTEREST. As of the first day of each calendar quarter Employer will
credit to Employee's deferred compensation account interest equal to (1)
one-quarter of the
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<PAGE> 5
annual interest rate provided in this subparagraph 3.b. for the quarter in which
the credit is made, multiplied by (2) the average daily balance of Employee's
deferred compensation account during the prior calendar quarter, but only if
Employee's deferred compensation account has a positive balance (not including
the interest credit for the quarter) as of the first day of the quarter in which
the credit is made. The annual interest rate provided in this subparagraph 3.b.
for any calendar quarter is the annual percentage yield Employer offers to pay
on six month time certificates of deposit issued by Employer on the first
business day of the quarter.
c. VALUATION. Employer will value Employee's deferred compensation
account at least annually, and will provide written notice of the value of the
account to Employee following the valuation.
d. NO FUND. The right of Employee and Beneficiary with respect to
amounts deferred under this plan is limited to the contractual right, as a
general unsecured creditor of Employer, to receive payment of Employee's Account
Balance as provided in paragraph 5. The amounts deferred will be part of the
general fund of Employer, and will not be set aside from the claims of creditors
of Employer. Employee and Beneficiary have no preference to the amount shown in
the deferred compensation account over the general unsecured creditors of
Employer. All amounts deferred under this Plan, any property and rights
purchased with such amounts, and any income attributable to such amounts,
property, or rights will remain (until paid to Employee or Beneficiary) solely
the property and rights of Employer and will be subject to the claims of
Employer's general creditors.
4. BENEFICIARY. Employee may designate, a form provided by the Employer,
signed by the Employee, and filed with Employer, one or more persons (including
Employee's estate or a trust) to whom Employee's Account Balance is to be paid
after Employee's death as provided in paragraph 5.
a. CHANGING BENEFICIARY. Employee may change Employee's designation at
any time. The last designation filed with Employer before Employee's death will
control.
b. NO DESIGNATED BENEFICIARY. If at Employee's death there is no signed
designation on file or all designated person have died or ceased to exist, then
Employee's Beneficiary will be Employee's surviving spouse, or if there is no
such spouse, Employee's surviving children in equal shares or, if there is no
such spouse or child, Employee's estate.
c. DISCLAIMER BY BENEFICIARY. If at Employee's death there is no signed
designation on file or all designated persons have died or ceased to exist, then
Employee's Beneficiary will be Employee's surviving spouse or, if there is no
such spouse, Employee's surviving children in equal shares or, if there is no
such spouse or child, Employee's estate.
5. PAYMENT. Employee's Account Balance will be paid after Employee's
Termination Date as provided in this paragraph 5.
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a. SIXTY MONTHLY INSTALLMENTS. Employer will pay the amount of
Employee's Account Balance, including interest, in 60 substantially equal
monthly installments.
(1) The installments shall include interest on the unpaid Account
Balance from the date the first installment is due, determined as provided in
subparagraph 3.b.
(2) Employer may periodically redetermine the amount of the
installments, to account for any difference between the interest rate Employer
used to determine the installments and the interest rate Employer currently
would use to determine the installments.
b. WHEN INSTALLMENTS BEGIN. Employer will begin paying monthly
installments on the first day of the first calendar year after the Employee's
Termination Date, but not later than the first day of the third calendar month
beginning after Employee's death.
c. TO WHOM PAYABLE. Installments paid during Employee's life shall be
paid to Employee. Installments paid after Employee's death (even if due during
Employee's life) shall be paid to Beneficiary.
d. MODIFICATION BASED ON FINANCIAL HARDSHIP. Employee or Beneficiary
may apply to Employer to modify the above terms of payment by submitting a claim
to Employer, showing Financial Hardship.
e. TAX ON BENEFITS. Benefits paid under this Plan will be ordinary
income to Employee or Beneficiary, and will be subject to the tax laws in effect
at the time of payment, including the income tax, social security tax, and
income tax withholding laws then in effect.
6. ADMINISTRATION. This plan shall be administered by Employer.
a. INTERPRETATION. Employer has the authority to interpret this Plan
and adopt, alter, and revoke interpretations and requirements necessary or
helpful to administer this Plan. The interpretation of this Plan by Employer is
final and conclusive.
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b. MODIFICATION OF DEFERRAL ELECTION OR TERMS OF PAYMENT BASED ON
FINANCIAL HARDSHIP. Employer shall determine whether to grant any claim by
Employee or Beneficiary requesting Employer to modify Employee's income deferral
election or terms of payment under paragraph 5 based on Financial Hardship. A
modification will be granted only if Financial Hardship will result if not
granted and only to the extent required to alleviate the Financial Hardship. An
income deferral election or terms of payment will not be modified to the extent
of the Financial Hardship is or may be relieved (1) through reimbursement or
compensation by insurance or otherwise, (2) by liquidation of Employee's or
Beneficiary's assets, to the extent the liquidation would not itself cause
Financial Hardship, or (3) in the case of modification of terms of payment, by
cessation of deferrals under this Plan. Employer may rely on Employee's and
Beneficiary's representations regarding the existence of conditions constituting
Financial Hardship.
c. CLAIMS PROCEDURE. Upon the request of Employee or Beneficiary, or
upon Employer's own action, Employer will provide a claim form to Employee or
Beneficiary, to be used to claim benefits under this Plan or to request Employer
to modify an income deferral election or terms of payment under paragraph 5
based on Financial Hardship. The claim form must be completed and returned to
Employer no later than 30 days after it is received by Employee or Beneficiary.
Employer will review the completed form and determine if payment is appropriate.
(1) If Employer decides to allow the claim, it will so inform
Employee or Beneficiary in writing.
(2) If Employer determines that the claim should not be allowed in
whole or in part, it will so inform Employee or Beneficiary by written notice
within 30 days after the claim is received. The notice will state the specific
reasons for denial, including references to pertinent provisions of this Plan to
support the decision, describe any additional material or information necessary
to perfect the claim, and explain the review procedure.
(3) Employee or Beneficiary may request a review of Employer's
decision by making a written request for review no later than 60 days after the
notice of denial is received. Any such request for review shall state reasons
for believing Employer's decision is erroneous, and may provide additional
documentation in support of the claim.
(4) Employer will review the contents regarding the denial of the
claim and will, within 60 days after it receives the request for review, respond
to the request. However, if Employer determines, in its sole discretion, that
special circumstances warrant holding a hearing, one will promptly be held and a
decision will be rendered within 120 days after Employer receives the request
for review.
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<PAGE> 8
(5) Any decision on review will be in writing, will state the
specific reasons for the decision, and will make specific reference to the Plan
provisions upon which it is based.
7. MISCELLANEOUS.
a. PAYMENTS TO PERSONS UNDER DISABILITY. If Employee's Account Balance
is to be paid to any person with a legal disability, Employer is authorized to
pay Employee's Account Balance to the guardian or conservator for such payee or
to any other person for the benefit of such payee without responsibility of
Employer to see to the application of such payment. Payments made pursuant to
this paragraph 7.a. operate as a complete discharge of Employer for liability
under this Plan.
b. NONASSIGNMENT. Employee's and Beneficiary's rights to benefit
payments under this Plan are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of Employee or Beneficiary, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or garnish
Employee's or Beneficiary's benefits under this Plan shall be void. No amount
deferred, or benefit under this Plan, will in any manner be liable for or
subject to the debts, contracts, liabilities, or torts of Employee or
Beneficiary.
c. AMENDMENT OR TERMINATION. Employer may amend or terminate this Plan
at any time. No such amendment or termination shall affect the rights of
Employee or Beneficiary with respect to Employee's Account Balance at the time
of such amendment or termination. Employer will notify Employee in writing of
any Plan amendment or termination.
d. EMPLOYMENT STATUS. Neither this Plan nor the establishment of a
deferred compensation account under this Plan confers upon Employee any right to
continued employment with the Employer.
e. NOTICE. Unless otherwise specifically provided herein, any notices
required or permitted to be given under this Plan or by law must be in writing
and may be given by personal delivery, first-class mail, or certified mail
return receipt requested, directed to Employer, Employee, or Beneficiary at the
addresses shown on the Plan records, or such other address as Employer,
Employee, or Beneficiary designates in writing prior to the time of giving such
notice. Unless otherwise provided herein, any notice given will be effective
when actually received or, if given by mail, then seventy-two (72) hours after
the deposit of such notice in the United States mail with postage prepaid.
f. TAX CONSEQUENCES. Employer does not guarantee that any particular
federal, state, or local income, payroll, personal property, estate, gift, or
other tax consequence will result for the benefit of Employee or Beneficiary.
Employee should consult with Employee's tax advisor to determine the tax
consequences of participation in this Plan.
g. GOVERNING LAW. This Plan shall be governed by the laws of the State
of Oregon.
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h. PARTIAL INVALIDITY. If any provision of this Plan is held to be
invalid or unenforceable, all other provisions will nevertheless continue in
full force and effect.
i. TABLE OF CONTENTS AND CAPTIONS. The Table of Contents and captions
are inserted only for convenience and have no substantive effect.
DATED: December ____, 1997
CITIZENS BANK
By: _______________________________
Gene N. Thompson
Chairman of the Board
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EXHIBIT 10.3
INCOME DEFERRAL ELECTION
CITIZENS BANK DEFERRED COMPENSATION PLAN
I understand that I may make an income deferral election under the
Citizens Bank Deferred Compensation Plan (the Plan) for my Compensation earned
in the calendar year starting next January 1 (the Next Year) if I file this
election with Citizens Bank on or before December 31 of this year.
I elect to defer, under the terms of the Plan, the following amounts or
percentages of my Compensation earned in the Next Year:
1. From my annual base compensation:
$_______ per pay period or _______% per pay period (fill in only one
blank)
2. From any cash bonuses paid for my services in the Next Year, even if
paid after the Next Year:
The first $______ of my bonuses or _____% of each bonus payment to me
(fill in only one blank.)
I understand that this income deferral election will continue to apply to
Compensation earned by me in each calendar year after the Next Year unless I
modify or cancel this election before that Next Year begins.
I understand that Citizens Bank will withhold from my salary and bonuses
my share of Social Security tax on my Compensation deferred under the Plan.
I cancel any prior income deferral election made my be under the Plan.
Date: ___________________ ____________________________________
William V. Humphreys
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<PAGE> 11
DESIGNATION OF BENEFICIARY
CITIZENS BANK DEFERRED COMPENSATION PLAN
I designate the following persons to receive payment of my Account Balance
after my death as provided in the Citizens Bank Deferred Compensation Plan.
Pay my entire Account Balance to the following person who survive me or
are in existence at my death, in proportion to the percent stated below for
each:
Name Relationship to Me Address Percent
- -------------------------------------------------------------------------
If none of the above persons survives me or is in existence at my death,
pay my entire Account Balance to the following persons who survive me or are in
existence at my death, in proportion to the percent stated below for each:
Name Relationship to Me Address Percent
- -------------------------------------------------------------------------
If none of the above persons survives me or is in existence at my death,
pay my entire Account Balance to my surviving spouse or, if I do have a
surviving spouse, to my children who survive me in equal shares or, if I do not
have a surviving spouse or a surviving child, to my estate.
Citizens Bank may allow any beneficiary who survives me to designate a
person or persons to receive any portion of the beneficiary's share of my
Account Balance that is unpaid at the beneficiary's death. If the beneficiary
does not designate such a person, any portion of the beneficiary's share of my
Account Balance that is unpaid at the beneficiary's death shall be paid to the
beneficiary's estate. All such payments shall be made at the times provided in
the Citizens Bank Deferred Compensation Plan.
Apply the Uniform Disclaimer of Transfers under Nontestamentary
Instruments Act, Oregon Revised Statutes 105.625 to 105.640, to determine
whether a person survives me.
Date: ______________________ ____________________________________
William V. Humphreys
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29 CFR SECTION 2520.104-23(b) STATEMENT
Top Hat Plan Exemption
Pension and Welfare Benefits Administration
Room N-5644
U. S. Department of Labor
200 Constitution Avenue N. W.
Washington, D. C. 20210
Pursuant to 29 CFR Section 2520.104-23(b), the following statement is made:
The name and address of the Citizens Bank
Employer: 275 S. W. Third Street
P. O. Box 30
Corvallis, Oregon 97339
The employer identification number 93-0462799
Assigned by the Internal Revenue
Service:
Declaration: Citizens Bank, the employer, maintains a
plan or plans primarily for the purpose of
providing deferred compensation for a
select group of management or highly
compensated employees
The number of such plans: There are three such plans:
Citizen's Bank Deferred Compensation Plan
Deferred compensation plan for Ray L.
Stephenson
Deferred compensation plan for __________
The number of employees in each: There is one employee in each of the
plans. In the future there may be
additional employees in the Citizen's Bank
Deferred Compensation Plan
DATED: December ____, 1997
CITIZENS BANK
By: _______________________________
Bobbie Carter
Vice President/Human Resources
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EXHIBIT 16
LETTER RE: CHANGE IN CERTIFYING ACCOUNTANT
[David O. Christensen CPA & Consultants LOGO]
March 4, 1998
Securities and Exchange Commission
450-5th St., NW
Washington, DC 20549
Regarding: Citizens Bancorp 8-K(A) Amended
Dear Sirs:
We have been furnished with a copy of the response to Item 4 of Form 8-K for the
event that occurred on January 9, 1998, to be filed by our former client,
Citizens Bancorp. We agree with the statements made in response to that item
insofar as they relate to our firm.
This letter is attached to the 8-K(A) of Citizens Bancorp.
Sincerely,
/s/ David O. Christensen
- ------------------------------
David O. Christensen
Certified Public Accountants & Consultants
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