April 3, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D. C. 20549
RE: CHITTENDEN CORPORATION - REGISTRATION NO. 0-7974
ANNUAL REPORT AMENDMENT (FORM 10-K/A)
To Whom It May Concern:
Pursuant to the requirements of Section 13 of the Securities and Exchange Act of
1934, there is, appended to this transmittal, an electronic file of the amended
Annual Report (on Form 10-K/A) previously filed on March 31, 1995 (on Form 10-k)
of Chittenden Corporation, Two Burlington Square, Burlington, Vermont (the
"Corporation"), for the year ended December 31, 1994.
The Corporation has mailed under separate cover additoinal copies of the
Corporation's 1994 Annual Report.
The Corporation wired the filing fee of $250.00 via Fedwire on March 31, 1995.
If there are any questions concerning this filing, please telephone the under-
signed at (802) 660-1410.
Kindly acknowledge receipt of this filing via Compuserve E-MAIL.
Thank you.
Very truly yours,
/S/ F. SHELDON PRENTICE
Secretary
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1994
or
_____Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
for the transition period from _______to_______
Commission File Number 0-7974
CHITTENDEN CORPORATION
(Exact name of Registrant as specified in its charter)
Vermont 03-0228404
(State of Incorporation) (IRS Employer Identification
No.)
Two Burlington Square
Burlington, Vermont 05401
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: 802-658-4000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
$1.00 Par Value Common Stock
(Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant, based on the average of the high and low
prices of such stock on March 3, 1995, as reported on NASDAQ, was
$134,728,639.50.
At March 3, 1995, there were 5,922,138 shares of the Registrant's common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, in whole or in part, are specifically incorporated by
reference in the indicated Part of this Annual Report on Form 10-K:
1. Proxy Statement for 1995 Annual Meeting of Registrant's Stockholders: Part
III, Items 10, 11, 12, 13.
2. Annual Report to Stockholders for fiscal year ended December 31, 1994: Part
I, Items l, 2, 3; Part II, Items 5, 6, 7, 8, 9; and Part IV, Item 14.
3. The Company's Registration Statement No. 33-56835 on Form S-4 under the
Securities Act of 1933, filed in connection with the Company's acquisition
of The Bank of Western Massachusetts, Springfield, Massachusetts: Part I,
Items 1, 2; Part II, Items 6, 7, 8.
PART I
ITEM l
BUSINESS
Chittenden Corporation (the "Company"), a Vermont corporation organized in 1971,
is a registered bank holding company under the Bank Holding Company Act of 1956,
as amended. Assets of the Company were $1,213,908,000 at December 31, 1994.
The Company is the holding company parent of Chittenden Trust Company, and as of
December 31, 1994, owned 100% of the outstanding common stock of that bank. The
Company expects to become the holding company parent of The Bank of Western
Massachusetts by the end of the first quarter in 1995 and will own 100% of the
outstanding common stock of that bank. Reference is made to the Company's
Registration Statement No. 33-56835 on Form S-4 under the Securities Act of
1933, filed in connection with the Company's acquisition of The Bank of Western
Massachusetts, Springfield, Massachusetts by the Company.
The Company's principal executive offices are located at Two Burlington Square,
Burlington, Vermont 05401; telephone number: 802-658-4000.
CHITTENDEN TRUST COMPANY
Chittenden Trust Company ("Chittenden Trust") was chartered by the Vermont
Legislature as a commercial bank in 1904. It is the largest bank in Vermont,
based on total assets of $1,216,425,000 and total deposits of $1,086,002,000 at
December 31, 1994. All financial information on Chittenden Trust is based on
the December 31, 1994 Call Report.
Chittenden Trust has its principal offices in Burlington, Vermont and has 39
additional locations in Vermont, of which three are free standing automated
teller machines ("ATM's"). (See Item 2, "Properties"). All offices of
Chittenden Trust use the trade name "Chittenden Bank".
Chittenden Trust offers a wide range of banking services, including the
acceptance of demand, savings, and time deposits. As of December 31, 1994,
total time and savings deposits amounted to $895,950,000 or 82% of total
deposits.
Chittenden Trust offers a variety of lending services. The largest loan
category is real estate mortgage loans, which amounted to 69% of total loans
outstanding at December 31, 1994. The largest classification of real estate
mortgage loans is loans secured by residential properties including close-ended
home equity loans, which amounted to 37% of total loans outstanding at December
31, 1994. Revolving home equity loans as a separate group amounted to 8% of
loans at December 31, 1994. The remaining real estate mortgage loans are
commercial related and primarily owner occupied or investment properties.
Consumer loans outstanding at December 31, 1994 were 15% of total loans. These
include direct and indirect installment loans, student loans and revolving
credit.
All other loans outstanding at December 31, 1994 amounted to 16% of total loans.
These loans are made to a variety of businesses, including retail concerns,
small manufacturing businesses, and larger corporations, as well as to other
commercial banks, and to political subdivisions in the U.S.
In making commercial loans, Chittenden Trust occasionally solicits the
participation of other Vermont banks or correspondent banks and other financial
investors outside the State. Chittenden Trust also occasionally participates in
loans originated by other banks. Certain of Chittenden Trust's commercial loans
are made under programs administered by the Vermont Industrial Development
Authority, the U.S. Small Business Administration, or the U.S. Farmers Home
Administration. These loans contain repayment guarantees by the agency involved
in varying amounts up to 90% of the original loan.
Chittenden Trust's lending activities are conducted primarily in Vermont and
surrounding counties in adjoining states. Lending is particularly active in
Chittenden County, Vermont, where the main office of Chittenden Trust and 11 of
its 37 branch offices are located. Chittenden County also has the highest
concentration of business and population in Vermont, with approximately 139,000
persons, or 23.7% of the State's residents.
Chittenden Trust provides personal trust services, including services as
executor, trustee, administrator, custodian and guardian, and corporate trust
services, including services as trustee for pension and profit sharing plans.
Chittenden Trust offers data processing services consisting primarily of payroll
and automated clearing house for several outside clients. All of Chittenden
Trust's data processing services are performed by Alltel Systematics, a data
processing facilities management firm based in Little Rock, Arkansas, and
Chittenden Trust.
Chittenden Trust provides financial and investment counseling to municipalities
and school districts within its service area and also provides central
depository, lending, payroll, and other banking services for such customers.
Chittenden Trust also provides safe deposit facilities, MasterCard, and VISA
credit card services.
Chittenden also offers certain non-bank, investment products through a
dual-employee contractual relationship with Link Investment Services, Inc.
COMPETITION
There is vigorous competition in Vermont for all aspects of the banking and
related financial services presently engaged in by the Company and its
subsidiary.
Chittenden Trust competes with Vermont banks and metropolitan banks based in
southern New England and New York City to provide commercial banking services to
businesses. Many of these out-of-state banks have greater financial resources
than those of Vermont banks and are actively seeking financial relationships
with promising Vermont enterprises. Two out-of-state banks own in-state banks;
Key Bank recently acquired Bank of Vermont from Bank of Boston, and Arrow
Financial acquired United Vermont Bancorp in 1990. Regulatory changes in the
banking industry have permitted thrift institutions to engage in commercial
lending activities. As a result, local bank competition has intensified.
In the retail market for financial services, competitors include other banks,
credit unions, finance companies, thrift institutions and, increasingly,
brokerage firms, insurance companies, and mortgage loan companies. Interest
rate competition for the investments of individuals has accelerated with the
enactment of the Garn-St. Germain Depository Institutions Act, which phased-out
interest rate ceilings applicable to certain deposit accounts. Money market
deposit accounts and short term flexible-maturity certificates of deposit
offered by Chittenden Trust compete with investment account offerings of
brokerage firms and, more recently, with new products offered by insurance
companies.
Chittenden Trust also competes for personal and commercial trust business with
investment advisory firms, mutual funds, and insurance companies.
SUPERVISION AND REGULATION
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (the "Act") and is registered as such with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). As a
bank holding company, the Company is required to file with the Federal Reserve
Board an annual report and such other information as may be required. The
Federal Reserve Board may also make examinations of the Company.
The Act requires every bank holding company to obtain prior approval of the
Federal Reserve Board before acquiring substantially all the assets or direct or
indirect ownership or control of more than 5% of the voting shares of any bank
which is not already majority-owned. The Act also prohibits a bank holding
company, with certain exceptions, from itself engaging in or acquiring direct or
indirect control of more than 5% of the voting shares of any company engaged in
non-banking activities. One of the principal exceptions to these prohibitions
is for engaging in or acquiring shares of a company engaged in activities found
by the Federal Reserve Board by order or regulation to be so closely related to
banking or managing banks as to be a proper incident thereto. The Act prohibits
the acquisition by a bank holding company of more than 5% of the outstanding
voting shares of a bank located outside the state in which the operations of its
banking subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by statute of the state in which the bank to be acquired
is located.
Beginning September 29, 1995, pursuant to the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, adequately capitalized bank holding companies
may acquire control of banks in any state, although states may limit the
eligibility of banks to be acquired to those in existence for a period of time
but no longer then five years. Beginning June 1, 1997, banks may merge across
state lines and may establish new branches in other states. The date relating
to mergers may be accelerated by any state, and mergers may be prohibited by any
state. The provision relating to new branches requires a state's specific
approval. The Company is unable to predict the ultimate impact of this new
interstate banking legislation on it or its competitors.
Under Section 106 of the 1970 amendments to the Act and regulations of the
Federal Reserve Board, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit or provision of any property or services.
Chittenden Trust is a federally insured bank organized under the Banking Law of
the State of Vermont. Accordingly, its operations are subject to State laws
applicable to commercial banks with trust powers and to regulation by the
Department of Banking, Insurance and Securities of the State of Vermont and the
Federal Deposit Insurance Corporation.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
made extensive changes to the federal banking laws. Among other changes, FDICIA
requires federal bank regulatory agencies to take prompt corrective action to
address the problems of undercapitalized banks. Through the issuance of
appropriate prompt corrective action directives to certain undercapitalized
institutions, federal bank regulatory agencies may require recapitalization,
apply broader restrictions on transactions with affiliates, limit interest rates
paid on deposits, limit asset growth and other activities, require possible
replacement of directors and officers, and restrict capital distributions by any
bank holding company controlling the institution.
With certain exceptions, FDICIA prohibits state banks from engaging, as
principals, in activities that are not permissible for national banks. In
addition, FDICIA amends federal statutes governing extensions of credit to
directors, executive officers and principal shareholders of banks, savings
associations and their holding companies, limits the aggregate amount of a
depository institution's loans to insiders, restricts depository institutions
that are not well capitalized from accepting brokered deposits without an
express waiver from the FDIC and imposes certain advance notice requirements
before closing a branch. FDICIA also requires the FDIC to institute a system of
risk-based deposit insurance assessments and requires depository institutions to
make additional disclosures to depositors with respect to the rate of interest
and terms of consumer deposit accounts.
EMPLOYEES
The Company and its subsidiary on December 31, 1994 employed 707 persons, with a
full-time equivalency of 673 employees. The Company enjoys good relations with
its employees. A variety of employee benefits, including health, group life and
disability income replacement insurance, a funded, non-contributory pension
plan, and an incentive savings and profit sharing plan, are available to
officers and employees.
SELECTED STATISTICAL INFORMATION
Certain consolidated financial data about the business of the Company and its
subsidiary, Chittenden Trust, is contained on pages 13 to 51 of the Company's
1994 Annual Report to Stockholders, which is specifically incorporated herein by
reference.
ITEM 2
PROPERTIES
The Company's principal banking subsidiary, Chittenden Trust, operates banking
facilities in 40 locations in Vermont.
The offices of the Company are located in the main office of the Chittenden
Trust, which occupied all of the five-floor Chittenden Building at Two
Burlington Square in Burlington as of December 31, 1994. The Chittenden
Building is owned by Chittenden Trust.
The offices of Chittenden Trust are in good physical condition with modern
equipment and facilities considered adequate to meet the banking needs of
customers in the communities serviced.
The Company expects to conduct business out of properties owned or leased by The
Bank of Western Massachusetts in the area of Western Massachusetts,
particularly, Springfield, Massachusetts. Reference is made to The Company's
Registration Statement No. 33-56835 on Form S-4 under the Securities Act of
1933, filed in connection with the Company's acquisition of The Bank of Western
Massachusetts, Springfield, Massachusetts by the Company.
ITEM 3
LEGAL PROCEEDINGS
A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 1994. Management, after reviewing
these claims with legal counsel, is of the opinion that these matters, when
resolved, will not have a material effect on the consolidated financial
statements.
Note 12 of the Consolidated Financial Statements appearing on page 31 of the
Company's 1994 Annual Report to Stockholders contains a discussion of one legal
claim, Walsh v. Chittenden Corp., et.al., which was a class action, and is
specifically incorporated herein by reference.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters.
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding the market in which the Company's common stock is traded,
and the quarterly high and low bid quotations for the Company's common stock
during the past five years are included in the Company's 1994 Annual Report to
Stockholders on page 56, and is specifically incorporated herein by reference.
The approximate number of stockholders at March 3, 1995 was 2,962. Note 8 of
the Consolidated Financial Statements appearing on page 26 of the Company's 1994
Annual Report to Stockholders contains a discussion of restrictions on
dividends, which is specifically incorporated herein by reference.
ITEM 6
SELECTED FINANCIAL DATA
A five-year summary of selected consolidated financial data for the Company and
its subsidiaries is included on page 39 of the Company's 1994 Annual Report to
Stockholders, and is specifically incorporated herein by reference.
The Company expects to consummate an acquisition of The Bank of Western
Massachusetts by the end of the first quarter of 1995. Reference is made to The
Company's Registration Statement No. 33-56835 on Form S-4 under the Securities
Act of 1933, filed in connection with the Company's acquisition of The Bank of
Western Massachusetts, Springfield, Massachusetts.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is included on pages 40 to 53 of the Company's 1994 Annual Report to
Stockholders specifically incorporated herein by reference.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiary appear in the Company's 1994 Annual Report to Stockholders at the
pages indicated and are incorporated herein by reference:
Reports of Independent Public Accountants Pages 37-38
Consolidated Balance Sheets at
December 31, 1994 and 1993 Page 13
Consolidated Statements of Income for the
Years Ended December 31, 1994, 1993, and 1992 Page 14
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1994, 1993, and 1992 Page 15
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1993, 1992, and 1991 Page 16
Notes to Consolidated Financial Statements Pages 17-36
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors and director-nominees of the Registrant is
included in the Company's definitive Proxy Statement for the 1995 Annual Meeting
of Stockholders at pages 5-10, and is specifically incorporated herein by
reference.
At December 31, 1994, the principal officers of the Company and its principal
subsidiary, Chittenden Trust, with their ages, positions, and years of
appointment, were as follows:
YEAR
NAME AND AGE APPOINTED POSITIONS
- --------------------------------------------------------------------------------
Barbara W. Snelling, 67 1990 Chair of the Company
Paul A. Perrault, 43 1990 President and Chief Executive
Officer of the Company and
Chittenden Trust
Lawrence W. DeShaw, 48 1990 Executive Vice President of the
Company and Chittenden Trust
William R. Heaslip, 50 1988 Executive Vice President of the
Company and Chittenden Trust
John W. Kelly, 45 1990 Executive Vice President of the
Company and Chittenden Trust
Nancy Rowden Brock, 38 1984 Treasurer of the Company and
Senior Vice President, CFO, and
Treasurer of Chittenden Trust
F. Sheldon Prentice, 44 1985 Secretary of the Company and
Senior Vice President, General
Counsel, and Secretary of
Chittenden Trust
John P. Barnes, 39 1990 Senior Vice President of
Chittenden Trust
Danny H. O'Brien, 44 1990 Senior Vice President of
Chittenden Trust
- --------------------------------------------------------------------------------
All of the current officers, with the exceptions of Messrs. Perrault and Kelly,
have been principally employed in executive positions with Chittenden Trust for
more than five years. Mr. Perrault was President of Bank of New England - Old
Colony Bank located in Providence, Rhode Island. Mr. Kelly was Executive Vice
President and the head of commercial lending division of Bank of New England -
Old Colony in Providence, Rhode Island.
In accordance with the provisions of the Company's By-Laws, the officers, with
the exception of the Secretary, hold office at the pleasure of the Board of
Directors. The Secretary is elected annually by the Board of Directors.
ITEM 11
EXECUTIVE COMPENSATION
Information regarding remuneration of the directors and officers of the Company
is included in the Company's definitive Proxy Statement for the 1995 Annual
Meeting of Stockholders at pages 4-10 and is specifically incorporated herein by
reference.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of directors and director-nominees
of the Company, all directors and officers of the Company as a group, and
certain beneficial owners of the Company's common stock, as of February 1, 1995,
is included in the Company's definitive Proxy Statement for its 1995 Annual
Meeting of Stockholders, at pages 4-10, and is specifically incorporated herein
by reference.
There are no arrangements known to the registrant which may, at a subsequent
date, result in a change of control of the registrant.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between the Company
and its Directors, Director-Nominees, Executive Officers, and family members of
these individuals, is included in the Company's definitive Proxy Statement for
its 1995 Annual Meeting of Stockholders at page 10, and is specifically
incorporated herein by reference.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(l) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries appear in the Company's 1994 Annual Report to Stockholders:
Reports of Independent Public Accountants Pages 37-38
Consolidated Balance Sheets at
December 31, 1994 and 1993 Page 13
Consolidated Statements of Income for the
Years Ended December 31, 1994, 1993, and 1992 Page 14
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1994, 1993, and 1992 Page 15
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1993, 1992, and 1991 Page 16
Notes to Consolidated Financial Statements Pages 17-36
(2) FINANCIAL STATEMENT SCHEDULES
There are no financial statement schedules required to be included in this
report.
(3) REPORTS ON FORM 8-K
A report was filed by the Company on Form 8-K December 13, 1994 in connection
with the Company's acquisition of The Bank of Western Massachusetts so as to
file with the Securities and Exchange Commission certain paper reports that
would be incorporated by reference into its Registration Statement on Form S-4.
(4) EXHIBITS
The following are included as exhibits to this report:
3. By-Laws of the Company, as amended, incorporated herein by reference to
Exhibit 3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1985.
3.01 Amendment to the By-Laws of the Company, dated February 16, 1988,
incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1987.
3.02 Amendment to the By-Laws of the Company, dated January 17, 1990,
incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1989.
3.03 Amendment to the By-Laws of the Company, dated June 19, 1991, incorporated
herein by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991.
3.1 Articles of Association of the Company, as amended, incorporated herein by
reference to the Proxy Statement for the 1994 Annual Meeting of
Stockholders.
4. Statement of the Company regarding its Dividend Reinvestment Plan is
incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1993.
10.1 Directors' Deferred Compensation Plan, dated April 1972, as amended
January 1, 1992, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.2 Pension Plan of Chittenden Trust, attached to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.3 Incentive Savings and Profit Sharing Plan, attached to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.4 The Company's Stock Option Plan, incorporated herein by reference to the
Company's Proxy Statement in connection with the 1986 Annual Meeting of
Stockholders.
10.5 The Company's Stock Option Plan, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1987.
10.6 The Company's Restricted Stock Plan, incorporated herein by reference to
the Company's Proxy Statement in connection with the 1986 Annual Meeting
of Stockholders.
10.7 Executive Management Incentive Compensation Plan, attached to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
10.8 The Company's Stock Incentive Plan, dated January 1, 1993, incorporated
herein by reference to the Company's Proxy Statement for the 1993 Annual
Meeting of Stockholders.
13. The Company's 1994 Annual Report to Stockholders.
21. List of subsidiaries of the Registrant.
EXHIBIT 13
CHITTENDEN'S 1994 ANNUAL REPORT HAS BEEN FILED AS AN EXHIBIT
AND MAILED TO STOCKHOLDERS ON MARCH 17, 1995.
EXHIBIT 21
LIST OF SUBSIDIARIES OF CHITTENDEN CORPORATION
Chittenden Trust Company, Vermont, d/b/a Chittenden Bank
Chittenden Acquisition Bank, Massachusetts d/b/a The Bank of Western
Massachusetts, is a Bank in formation to effectuate the acquisition of The Bank
of Western Massachusetts.
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.
Date: March 15, 1995 CHITTENDEN CORPORATION
By: /S/ PAUL A. PERRAULT
SIGNATURES
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 and on the dates indicated.
NAME TITLE DATE
Barbara W. Snelling Chair of the Board
of Directors 03-15-95
Paul A. Perrault President, Chief Executive
Officer and Director 03-15-95
Nancy Rowden Brock Treasurer 03-15-95
Frederic H. Bertrand Director 03-15-95
David M. Boardman Director 03-15-95
Paul J. Carrara Director 03-15-95
Eugene P. Cenci Director 03-15-95
Robert E. Cummings, Jr. Director 03-15-95
Marvin B. Gameroff Director 03-15-95
Philip A. Kolvoord Director 03-15-95
James C. Pizzagalli Director 03-15-95
Pall D. Spera Director 03-15-95
Martel D. Wilson, Jr. Director 03-15-95
10.2 PENSION PLAN FOR EMPLOYEES OF
THE CHITTENDEN CORPORATION
As Amended and Restated Effective January 1, 1989
TABLE OF CONTENTS
Section
ARTICLE I PURPOSE
ARTICLE II DEFINITIONS
"Accrued Benefit" 2.1
"Actuarial Equivalent" 2.2
"Actuary" 2.3
"Affiliated Company" 2.4
"Annuity Starting Date" 2.5
"Authorized Leave of Absence" 2.6
"Average Monthly Compensation" 2.7
"Benefit Service" 2.8
"Beneficiary" 2.9
"Board" 2.10
"Code" 2.11
"Compensation" 2.12
"Disability" 2.13
"Early Retirement Date" 2.14
"Effective Date" 2.15
"Eligibility Service" 2.16
"Eligible Spouse" 2.17
"Employee" 2.18
"Employer" 2.19
"ERISA" 2.20
"Fiduciaries" 2.21
"Hour of Service" 2.22
"Member" 2.23
"Military Service" 2.24
"Normal Form" 2.25
"Normal Retirement Age" 2.26
"Normal Retirement Date" 2.27
"Pension" 2.28
"PBGC" 2.29
"Plan" 2.30
"Plan Administrator" 2.31
"Plan Year" 2.32
"Postponed Retirement Date" 2.33
"Principal Employer" 2.34
"Retirement" 2.35
"Social Security Benefit" 2.36
"Trust" or "Trust Fund" 2.37
"Trust Agreement" 2.38
"Trustee" 2.39
ARTICLE III MEMBERSHIP AND SERVICE
Membership 3.1
Participation Service 3.2
Eligibility Service 3.3
Benefit Service 3.4
Break in Service 3.5
ARTICLE IV REQUIREMENTS FOR RETIREMENT BENEFITS
Normal Retirement Date 4.1
Postponed Retirement Date 4.2
Early Retirement Date 4.3
Disability Retirement Date 4.4
Deferred Vested Pension 4.5
General Conditions 4.6
ARTICLE V AMOUNT OF RETIREMENT BENEFIT
Normal Retirement Pension 5.1
Postponed Retirement Pension 5.2
Early Retirement Pension 5.3
Disability Retirement Pension 5.4
Deferred Vested Pension 5.5
Maximum Benefit 5.6
Postponed Retirement or Reemployment After
Benefits Commence 5.7
Suspension of Benefits 5.8
Limitation on Benefits 5.9
ARTICLE VI DEATH AND DISABILITY BENEFITS
Pre-Retirement Surviving Spouse Benefit
For Death Occurring On or After Age 55 6.1
Pre-Retirement Surviving Spouse Benefit
For Death Occurring Before Age 55 6.2
Death Benefits After Pension Benefits Commence 6.3
Lump Sum Death Benefit 6.4
ARTICLE VII PAYMENT OF PENSION BENEFITS
Automatic Payment Forms 7.1
Election of Optional Forms 7.2
Joint and Survivor Option 7.3
Life Annuity Option 7.4
Life Annuity With Guaranteed
Payment Period Option 7.5
General Provisions 7.6
Involuntary Cash-Out Provision 7.7
Missing Persons 7.8
Restrictions on Distributions 7.9
Direct Rollovers 7.10
ARTICLE VIII ADMINISTRATION
Allocation of Responsibility Among Fiduciaries
for Plan and Trust Administration 8.1
Records and Reports 8.2
Delegation to Individuals 8.3
Benefit Claims Procedures 8.4
Other Plan Administrator Powers and Duties 8.5
Rules and Decisions 8.6
Authorization of Benefit Payments 8.7
Application and Forms for Pension 8.8
Indemnification 8.9
ARTICLE IX FUNDING
AND CONTRIBUTIONS
Establishment of Trust Fund 9.1
Contribution to the Fund; Plan Expenses 9.2
Contributions Conditional 9.3
Employee Contributions 9.4
ARTICLE X AMENDMENT AND TERMINATION
Right to Amend or Terminate 10.1
Partial Termination 10.2
Vesting and Distribution of Funds Upon
Termination 10.3
Determination of Funds Upon Termination 10.4
Restriction on Benefits 10.5
Right to Accrued Benefits 10.6
ARTICLE XI FIDUCIARY RESPONSIBILITIES
Basic Responsibilities 11.1
Actions of Fiduciaries 11.2
Fiduciary Liability 11.3
ARTICLE XII TOP HEAVY PROVISIONS
General Rule 12.1
Vesting Provisions 12.2
Minimum Benefit Provisions 12.3
Limitation on Benefits 12.4
Top-heavy Plan Definition 12.5
Key Employee 12.6
Non-Key Employee 12.7
ARTICLE XIII GENERAL PROVISIONS
Plan Voluntary 13.1
Payments to Minors and Incompetents 13.2
Non-Alienation of Benefits 13.3
Use of Masculine and Feminine;
Singular and Plural 13.4
Merger, Consolidation or Transfer 13.5
Leased Employees 13.6
Governing Law 13.7
Severability 13.8
Captions 13.9
ARTICLE XIV SPECIAL BENEFIT PROVISIONS FOR EMPLOYEES
OF AN ACQUIRED COMPANY AND/OR PARTICIPANTS
IN A PRIOR PLAN
Provisions Relating to Service and Benefits
for Employment With an Acquired Company 14.1
Transitional Provisions Relating to
Participants Under the Plan as
Amended on January 1, 1981 14.2
APPENDICES
EXHIBIT A
ARTICLE I
PURPOSE
Effective December 1, 1946, Chittenden Corporation (the "Principal
Employer") established a defined benefit retirement plan referred
to as the Pension Plan for Employees of Chittenden Corporation.
The Plan has been previously amended from time to time. Effective
January 1, 1989, the Plan is amended and restated in its entirety.
The Plan is intended to provide eligible Employees with periodic
income after retirement in addition to benefits under the Social
Security Act. A Trust Agreement (the "Trust") has been adopted by
the Principal Employer and forms a part of this Plan.
It is intended that the Plan, as amended and restated herein, will
continue to meet the requirements for qualification under Section
401(a) of the Internal Revenue Code of 1986 (the "Code") as amended
from time to time and that the Trust shall continue to be exempt
from taxation as provided under Code Section 501(a). As such, the
Plan contains provisions required by the Tax Reform Act of 1986,
other laws and governmental regulations.
Except as otherwise specifically and expressly provided herein:
(a) the provisions of this Plan shall apply only to individuals who
are eligible Employees after December 31, 1988;
(b) a former Employee's eligibility for and amount of benefits, if
any, payable to or on behalf of such former Employee, shall be
determined in accordance with the provisions of the Plan in
effect when his employment terminated. The benefit payable to
or on behalf of a Member included under the Plan in accordance
with the following provisions shall not be affected by the
terms of any amendment to the Plan adopted after such Member's
employment terminates, unless the amendment expressly provides
otherwise.
ARTICLE II
DEFINITIONS
The following words and phrases when used herein, unless their
context clearly indicates otherwise, shall have the following
respective meanings:
2.1 "ACCRUED BENEFIT" shall mean the amount of Pension determined
under the applicable section of Article V payable in the Normal
Form beginning at a Member's Normal Retirement Date or, if applic-
able, beginning on his Postponed Retirement Date.
Notwithstanding anything herein to the contrary, in no event shall
an Employee's Accrued Benefit be less than the benefit to which he
was entitled as of December 31, 1982, under the provisions of the
Rutland Savings Bank Retirement Plan as in effect as of December
31, 1982.
Notwithstanding anything herein to the contrary, in no event shall
an Employee's Accrued Benefit be less than the benefit to which he
was entitled as of June 30, 1993, under the provisions of the
Bellows Falls Trust Company Pension Plan as in effect as of June
30, 1993.
2.2 "ACTUARIAL EQUIVALENT" shall mean a benefit of equivalent
value to another benefit, determined on the following bases:
(a) for lump sum payments made pursuant to Section 7.7 prior to
January 1, 1995, mortality as shown in (c) below and the interest
rate, either immediate or deferred, which would be used by the
PBGC for purposes of determining the present value of a benefit on
plan termination and which is in effect on the first day of the
Plan Year in which the distribution takes place;
(b) for lump sum payments made pursuant to Section 7.7 on or after
January 1, 1995, the applicable mortality table and interest rate
specified in Section 417(e)(3) of the Code and any regulations
thereunder.
(c) for all other purposes
(i) Interest: 7.5% per annum
(ii) Mortality: Unisex Pension 1984 Table with mortality rates
set back 3 years.
In the event this Section is amended, the Actuarial Equivalent of
a Member's Accrued Benefit on or after the date of change shall be
determined as the greater of: (1) the Actuarial Equivalent of the
Accrued Benefit as of the date of change computed on the old
basis, or (2) the Actuarial Equivalent of the total Accrued
Benefit computed on the new basis.
2.3 "ACTUARY" shall mean a member of the Society of Actuaries who
is enrolled by the Joint Board for the Enrollment of Actuaries
under ERISA, or an actuarial firm that employs such individuals,
as selected by the Principal Employer to provide actuarial
services for the Plan.
2.4 "AFFILIATED COMPANY" shall mean any corporation which is a
member of a controlled group of corporations (as defined in
Section 414(b) of the Code) which includes the Employer; any trade
or business (whether or not incorporated) which is under common
control (as defined in Section 414(c) of the Code) with the
Employer; any organization (whether or not incorporated) which is
a member of an affiliated service group (as defined in Section
414(m) of the Code) which includes the Employer; and any other
entity required to be aggregated with the Employer pursuant to
regulations under Section 414(o) of the Code.
2.5 "ANNUITY STARTING DATE" shall mean:
(a) the first day of the first period for which a benefit is
payable to the Member under the Plan as an annuity, (or to the
Eligible Spouse in the case of death before payment of a Pension
commences), or
(b) in the case of a Pension not payable in the form of an
annuity, the first day on which all events have occurred which
entitle the Member (or Eligible Spouse) to such Pension.
2.6 "AUTHORIZED LEAVE OF ABSENCE" shall mean any absence
authorized in writing by an Employer under the Employer's standard
personnel practices, provided that all Employees under similar
circumstances must be treated alike in the granting of such
Authorized Leaves of Absence, and provided further that the
Employee returns or retires within the period specified in the
Authorized Leave of Absence. Periods of Military Service as to
which employment rights are protected by federal law shall be
deemed Authorized Leaves of Absence.
2.7 "AVERAGE MONTHLY COMPENSATION" shall mean the result obtained
by dividing the total Compensation paid to an Employee during the
60 consecutive calendar months of Benefit Service during the last
120 consecutive calendar months of Benefit Service preceding his
termination of employment, which provide the highest such average,
or for all calendar months of Benefit Service if less than 60
months.
2.8 "BENEFIT SERVICE" shall mean the period of a Member's
employment considered in accordance with Section 3.4 in the
determination of the amount of benefits payable to or on behalf of
the Member.
2.9 "BENEFICIARY" shall mean any individual entitled to receive
benefits upon the death of a Member or former Member of this Plan
under the period certain and life income option of Section 7.5.
Death benefits which become payable under Article VI before
Pension commences may only be paid to a Member's Eligible Spouse.
2.10 "BOARD" shall mean the Board of Directors of the Chittenden
Corporation.
2.11 "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any regulations issued thereunder.
Reference to any Section of the Code shall include any successor
provision thereto.
2.12 "COMPENSATION" shall mean the entire amount of all salaries,
wages, overtime pay, commissions, bonuses and similar payments for
services rendered to the Employer as reported on the Employee's
federal Income Tax Withholding Statement (Form W-2), excluding any
amounts contributed by the Employer under this Plan or under any
other employee benefit plan of the Employer but including any pre-
tax contributions made at the Member's election to a qualified
cash or deferred arrangement as defined in Section 401(k) of the
Code or to a plan which meets the requirements of Section 125 of
the Code, sponsored by the Employer. However, the Compensation of
an Employee for any Plan Year in which he receives a pro rata year
of Benefit Service shall be the amount of Compensation he would
have been paid at his rate of pay if he worked on a full-time
basis of 2,000 hours per year.
Effective for Plan Years beginning after December 31, 1988,
Compensation shall not exceed such amount as permitted under
Section 401(a)(17) of the Code ($150,000 for Plan Years beginning
after December 31, 1993) and regulations thereunder.
2.13 "DISABILITY" shall mean a total and permanent disability
which qualifies the Member to receive full Social Security
disability benefits.
Notwithstanding any other provisions of this Section, no Member
shall qualify for a disability retirement Pension if the Principal
Employer determines that his disability results from self-
inflicted injuries or illness, an injury suffered while engaged in
a felonious or criminal act or enterprise, or service in the Armed
Forces of the United States which entitled the Member to a
veteran's disability pension; but this provision shall not prevent
the Member from qualifying for a Pension under another provision
of the Plan.
2.14 "EARLY RETIREMENT DATE" shall mean the date on which a Member
becomes eligible to retire with an early retirement Pension under
the Plan, as determined in accordance with Section 4.3.
2.15 "EFFECTIVE DATE" shall mean January 1, 1989, the date on
which the provisions of this amended and restated Plan become
effective.
2.16 "ELIGIBILITY SERVICE" shall mean the period of a Member's
employment considered in accordance with Section 3.3 in
determination of his eligibility for benefits under the Plan.
2.17 "ELIGIBLE SPOUSE" shall mean a person to whom a Member or
former Member is legally married for at least one year prior to
the earlier of the Member's Annuity Starting Date or the Member's
date of death.
2.18 "EMPLOYEE" shall mean any person who is receiving
remuneration for personal services rendered to the Employer (or
would be receiving such remuneration except for an Authorized
Leave of Absence).
2.19 "EMPLOYER" shall mean the Chittenden Corporation, the
Chittenden Trust Company, or any other Affiliated Company that
adopts the Plan with the consent of the Principal Employer.
Employer refers to all Employers collectively, or to each one
individually, as the context may require.
2.20 "ERISA" shall mean Public Law No. 93-406, the Employee
Retirement Income Security Act of 1974, as amended from time to
time.
2.21 "FIDUCIARIES" shall mean the Employer, the Pension Plan
Administrator, and the Trustee, but only with respect to the
specific responsibilities of each for Plan and Trust
administration, all as described in Article VIII.
2.22 "HOUR OF SERVICE" shall mean:
(a) Each hour for which an Employee is directly or indirectly
paid or entitled to payment by the Employer and any Affiliated
Company for the performance of duties;
(b) Each hour for which an individual is directly or indirectly
paid or entitled to payment by the Employer and any Affiliated
Company (including payments made or due from a trust fund or
insurer to which the Employer or Affiliated Company contributes or
pays premiums) on account of a period of time during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to periods of vacation, holidays,
illness, incapacity, disability, layoff, jury duty, military duty,
or leave of absence, provided that:
(i) No more than 501 Hours of Service shall be credited under
this paragraph (b) to an Employee on account of any single
continuous period during which the Employee performs no duties;
and
(ii) Hours of Service shall not be credited under this paragraph
(b) to an Employee for a payment which solely reimburses the
Employee for medically related expenses incurred by the Employee
or which is made or due under a plan maintained solely for the
purpose of complying with applicable workers' compensation,
unemployment compensation or disability insurance laws; and
(c) Each hour not already included under paragraph (a) or (b)
above for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer or by an Affiliated
Company, provided that crediting of Hours of Service under this
paragraph with respect to periods described in paragraph (b) above
shall be subject to the limitation therein set forth.
The number of Hours of Service to be credited under paragraph (b)
or (c) above on account of a period during which an Employee
performs no duties, and the Plan Years to which Hours of Service
shall be credited under paragraphs (a), (b), or (c) above shall be
determined by the Plan Administrator in accordance with Sections
2530.200b-2(b) and (c) of the Regulations of the U.S. Department
of Labor.
To the extent not credited above, Hours of Service shall also be
credited based on the customary work week of the Employee for
periods of military duty (as required by applicable law) and
Authorized Leave of Absence.
In the case of Employees whose Compensation is not determined on
the basis of Compensation for each hour worked during a given
period, Hours of Service shall be determined on the basis of 190
Hours of Service per month if under (a), (b), or (c) above, such
Employee would be credited with at least one Hour of Service
during the month.
2.23 "MEMBER" shall mean an Employee participating in the Plan in
accordance with the provisions of Article III.
2.24 "MILITARY SERVICE" shall mean service, voluntary or
involuntary, in the Armed Forces of the United States, provided
the Employee is legally entitled to reemployment pursuant to the
provisions of any Federal law applicable to veterans' reemployment
rights, and any amendments thereto, and further that said Employee
shall apply for reemployment within the time provided by law and
in the manner and under the conditions prescribed by law. During
such period of Military Service, an Employee shall be deemed to be
in receipt of Compensation at a rate equal to that which he
received during the calendar year immediately preceding such
period of Military Service.
2.25 "NORMAL FORM" shall mean a monthly annuity payable to a
Member commencing on his designated Annuity Starting Date and
ending with the payment due for the month in which his death
occurs.
2.26 "NORMAL RETIREMENT AGE" shall mean the Member's 65th
birthday.
2.27 "NORMAL RETIREMENT DATE" shall mean the date on which a
Member becomes eligible to retire in accordance with Section 4.1
with a normal retirement Pension under the Plan.
2.28 "PENSION" shall mean either:
(a) an annual retirement benefit paid in a series of monthly
installments; or
(b) a lump sum payment made pursuant to Section 7.7.
2.29 "PBGC" shall mean the Pension Benefit Guaranty Corporation, a
body corporate within the Department of Labor established under
the provisions of Title IV of ERISA.
2.30 "PLAN" shall mean the Pension Plan for Employees of the
Chittenden Corporation, as set forth herein and as amended from
time to time.
2.31 "PLAN ADMINISTRATOR" shall mean, as that term is defined by
ERISA, the Principal Employer.
2.32 "PLAN YEAR" shall mean the 12-month period commencing on
December 1 and ending on the following November 30. Effective
January 1, 1993, the Plan Year shall be the 12-month period
commencing on the January 1 and ending on the following December
31, with a short Plan Year for the period beginning December 1,
1992, and ending December 31, 1992.
2.33 "POSTPONED RETIREMENT DATE" shall mean the date after his
Normal Retirement Date on which a Member retires under the Plan,
as determined in accordance with Section 4.2.
2.34 "PRINCIPAL EMPLOYER" shall mean the Chittenden Corporation
and any firm or corporation which may succeed to the business of
the Chittenden Corporation by merger, consolidation or otherwise
and by appropriate action shall adopt the Plan.
2.35 "RETIREMENT" shall mean termination of employment for reason
other than death after a Member has fulfilled all requirements for
a normal, early, postponed or disability retirement pension
pursuant to Article IV.
2.36 "SOCIAL SECURITY BENEFIT" shall mean the estimated amount of
monthly primary insurance benefit under Title II of the Federal
Social Security Act as determined under reasonable rules uniformly
applied in accordance with the terms of this Plan, on the basis of
such Act as in effect at the time of Retirement (or other termina-
tion) to which a Member or former Member is or would upon applica-
tion be entitled, even though the Member does not receive such
benefit because of his failure to apply therefor or he is
ineligible therefor by reason of earnings he may be receiving in
excess of any limit on earnings for full entitlement to such
benefit.
Where past earnings records are not available, the Principal
Employer may estimate the Primary Social Security benefit of a
Member using reasonable assumptions applied in a non-
discriminatory manner. This estimated Primary Social Security
Benefit shall take into account the Member's annual Compensation
amounts, with any actual earnings history that is not available to
be estimated using national average wages as used by the Social
Security Administration for indexing wages. However, to the
extent that a Member furnishes or causes to be furnished a
complete or more complete record of past earnings for purposes of
calculating his Primary Social Security Benefit, the Principal Em-
ployer shall recalculate his Accrued Benefit and make whatever
adjustments are necessary to his retirement benefit payments.
For purposes of determining the Member's Social Security Benefit
in the event of Early Retirement under Section 5.3 or for
Disability Retirement under Section 5.4, it shall be computed
assuming the Member has no further covered earnings after his
termination of employment. For purposes of determining the
Member's Social Security Benefit in the event his employment is
terminated before being eligible for Early or Disability
Retirement but after becoming eligible for a deferred vested
Pension under Section 5.5, it shall be calculated as of the date
of termination of employment on the assumption that the Member
continued in service to his Normal Retirement Date at his rate of
annual Compensation for the calendar year immediately preceding
his date of termination.
2.37 "TRUST" or "TRUST FUND" shall mean the fund established to
accumulate assets out of which benefits under the Plan are paid,
maintained in accordance with the terms of the Trust Agreement, as
from time to time amended, which constitutes a part of this Plan.
2.38 "TRUST AGREEMENT" shall mean the agreement or agreement(s)
governing the investment of Plan assets as amended from time to
time, entered into between the Principal Employer and the Trustee
to carry out the purpose of the Plan.
2.39 "TRUSTEE" shall mean the trustee or trustees duly appointed
by the Board.
ARTICLE III
MEMBERSHIP AND SERVICE
3.1 MEMBERSHIP.
(a) Each Employee hired prior to December 1, 1988, and on or
after his 65th birthday shall become a Member on the later of
December 1, 1988, and the first day of the month coincident with
or next following the date he has completed one year of
Participation Service (as defined below).
(b) Each Employee who was a Member of the Plan on December 31,
1988, shall continue to be a Member hereunder on January 1, 1989.
(c) Each other Employee shall become a Member of the Plan on the
first day of the month coincident with or next following the date
on which he has both:
(i) attained age 21; and
(ii) completed one year of Participation Service.
Notwithstanding the foregoing, an Employee who is a "leased
employee" as defined in Section 414(n)(2) of the Code shall not be
eligible for membership hereunder.
3.2 PARTICIPATION SERVICE. Participation Service shall determine
an Employee's eligibility to participate in the Plan under Section
3.1. An Employee shall earn a year of Participation Service if he
is credited with at least 1,000 Hours of Service in the 12-month
period commencing on his date of employment. If an Employee fails
to earn a year of Participation Service in this initial 12-month
period, he shall earn a year of Participation Service in the first
calendar year commencing on or after his date of employment during
which he is credited with at least 1,000 Hours of Service.
Date of employment shall mean the date on which the Employee is
first credited with an Hour of Service.
The rights of any former Member whose employment terminated prior
to the effective Date shall, unless the former Member is later
reemployed by the Employer or unless otherwise specifically
provided in this Plan, be determined in accordance with the
provisions of the Plan in effect at the date of such former
Member's termination of employment.
3.3 ELIGIBILITY SERVICE.
(a) Eligibility Service shall determine a Member's nonforfeitable
right to benefits accrued under the Plan. Subject to the Break in
Service provisions of Section 3.5, an Employee shall receive a
year of Eligibility Service for each calendar year in which he is
credited with at least 1,000 Hours of Service subject to the
provisions of Appendix II and Exhibit A to this Plan.
(b) An Employee of Mountain Trust Company who becomes a Member of
this Plan shall receive credit for purposes of this Section 3.3
for any service with Mountain Trust Company before it became an
Affiliated Company if such service would have been considered
Eligibility Service in accordance with paragraph (a) of this
Section 3.3.
(c) Notwithstanding anything herein to the contrary, an Employee
of the Employer who was an Employee of the Rutland Savings Bank
before it was acquired by the Principal Employer shall receive
credit for purposes of this Section 3.3 for any service with the
former Rutland Savings Bank through December 31, 1982, which would
have been credited under the Rutland Savings Bank Retirement Plan
in the determination of the nonforfeitable portion of his accrued
benefit under the provisions of that former plan.
(d) Employees of Electronic Data Systems Corporation who became
Employees of the Corporation on February 1, 1982 shall be credited
with Eligibility Service for their period of employment with
Electronic Data Systems Corporation if such service would have
been considered Eligibility Service determined in accordance with
paragraph (a) of this Section 3.3.
(e) Notwithstanding anything herein to the contrary, an Employee
of the Principal Employer who was an Employee of Bellows Falls
Trust Company before it was acquired by the Principal Employer
shall receive credit for purposes of this Section 3.3 for any
service which would have been considered Eligibility Service in
accordance with paragraph (a) of this Section 3.3.
3.4 BENEFIT SERVICE.
(a) The amount of benefit payable to or on behalf of a Member
shall be determined on the basis of his Benefit Service. Subject
to the Break in Service provisions of Section 3.5, a Member shall
receive one year of Benefit Service for each calendar year in
which he is credited with 2,000 or more Hours of Service subject
to the provisions of Appendix II and Exhibit A to this Plan. For
calendar years in which an Employee is credited with 1,000 or more
but less than 2,000 Hours of Service, a Member shall receive a
fractional portion of a year of Benefit Service. No Benefit
Service shall be granted for any calendar year in which Hours of
Service are less than 1,000 except for the calendar year of the
Member's initial employment (or return to employment after a Break
in Service) and the calendar year of the Member's Normal or
Postponed Retirement Date (or earlier termination of employment).
Benefit Service for a fractional portion of a calendar year shall
be equal to the ratio of actual Hours of Service credited in such
year over 2,000 hours.
(b) An Employee of the Employer who was an employee of the
Rutland Savings Bank before it was acquired by the Principal
Employer who becomes a Member of this Plan shall receive credit
for purposes of this Section 3.4 for all of his service with the
former Rutland Savings Bank through December 31, 1982, which would
have been credited under the Rutland Savings Bank Retirement Plan
in the determination of the amount of his accrued benefit under
the provisions of that former plan.
(c) An Employee of Mountain Trust Company who becomes a Member of
this Plan shall receive credit for Benefit Service in accordance
with paragraph (a) of this Section 3.4, provided that service
prior to March 20, 1981, the date that Mountain Trust Company
became an Affiliated Company, shall be disregarded.
(d) Former employees of Electronic Data Systems Corporation who
became Employees of the Corporation on February 1, 1982 shall
receive credit for Benefit Service for employment commencing on
February 1, 1982, in accordance with paragraph (a) of this Section
3.4.
(e) An Employee of Bellows Falls Trust Company who becomes a
Member of this Plan shall receive credit for purposes of this
Section 3.4 for all service with the former Bellows Falls Trust
Company through June 30, 1993, which would have been considered
Benefit Service in accordance with paragraph (a) of this Section
3.4.
(f) Effective on and after January 1, 1988, Benefit Service shall
include periods of employment on and after a Member's Normal
Retirement Date, provided that years of Benefit Service shall not
be credited for any period prior to January 1, 1988, for an
Employee hired prior to such date and after his 65th birthday.
3.5 BREAK IN SERVICE. A calendar year during which a Member is
credited with less than 501 Hours of Service shall constitute a
Break in Service. A Member who incurs a Break in Service and who
again is credited with at least 1,000 Hours of Service during a
12-month period, shall have his pre-break Eligibility Service and
Benefit Service restored in determining his rights and benefits
under the Plan.
Solely for determining whether a Break in Service for membership
and eligibility purposes has occurred in a Plan Year, an Employee
who is absent from work for maternity or paternity reasons shall
receive credit for the Hours of Service which would otherwise have
been credited to such Employee but for such absence, of, in any
case in which such hours cannot be determined, 8 Hours of Service
per day of such absence. For purposes of this paragraph, an
absence from work for maternity or paternity reasons means an
absence (1) by reason of the pregnancy of the Employee, (2) by
reason of a birth of a child of the Employee, (3) by reason of the
placement of a child with the Employee in connection with the
adoption of such child by the Employee, or (4) for purposes of
caring for such child beginning immediately following such birth
or placement. The Hours of Service credited under this paragraph
shall be credited in the Plan Year in which the absence begins if
the crediting is necessary to prevent a Break in Service in that
year, or in all other cases, in the following Plan Year.
ARTICLE IV
REQUIREMENTS FOR RETIREMENT BENEFITS
4.1 NORMAL RETIREMENT DATE. A Member's Normal Retirement Date
shall be the first day of the calendar month immediately following
his Normal Retirement Age.
4.2 POSTPONED RETIREMENT DATE. Subject to the provisions of
Section 5.2, the Postponed Retirement Date of a Member who
continues in active employment beyond his Normal Retirement Date
shall be first day of the month coincident with or next following
the Member's actual date of Retirement.
4.3 EARLY RETIREMENT DATE. A Member's Early Retirement Date shall
be the first day of any month on or after his 55th birthday and
after he has completed 10 or more years of Eligibility Service.
4.4 DISABILITY RETIREMENT DATE. A Member shall be eligible for a
disability retirement Pension if his employment is terminated by
reason of Disability.
Payment of a disability retirement Pension shall commence as of
the Member's Normal Retirement Date.
Disability shall be considered to have ended and entitlement to a
disability retirement Pension shall cease if, prior to his Normal
Retirement Date, the Member (a) is employed by the Employer or an
Affiliated Company, (b) engages in any substantially gainful
activity, except for such employment as is found by the Plan
Administrator to be for the primary purpose of rehabilitation or
not incompatible with a finding of total and permanent disability,
(c) has sufficiently recovered, in the opinion of the Plan
Administrator based on a medical examination by a doctor or clinic
appointed by the Plan Administrator, to be able to engage in
regular employment, or refuses an offer of employment by the
Employer, or (d) refuses to undergo any medical examination
requested by the Plan Administrator provided that a medical
examination shall not be required more frequently than twice in
any calendar year. If entitlement to a disability retirement
Pension ceases in accordance with the provisions of this paragraph
for a reason other than reemployment by the Employer or an
Affiliated Company, such a Member shall not be prevented from
qualifying for a Pension under another provision of the Plan based
on his Benefit Service and Average Monthly Compensation prior to
disability Retirement. If a Member recovers from Disability and
returns to employment with the Employer, subsequent entitlement to
a Pension shall be determined in accordance with the provisions of
the Plan assuming he had been an active Member through his period
of Disability.
4.5 DEFERRED VESTED PENSION. A Member shall be eligible for a
deferred vested Pension if his employment is terminated before
death or Retirement but after he has completed at least 5 years of
Eligibility Service. Payment of a deferred vested Pension shall
commence as of the Member's Normal Retirement Date.
A Member who has completed at least 10 years of Eligibility
Service prior to Retirement and who is no longer an Employee may
request, in writing, to have the Principal Employer authorize
commencement of his Pension as of the beginning of any calendar
month within the 10-year period preceding his Normal Retirement
Date. His Pension shall commence as of the date requested, but
the amount thereof shall be reduced as provided in Section 5.5.
4.6 GENERAL CONDITIONS. A Member shall not be entitled to receive
a Pension under more than one of the foregoing Sections of this
Article.
ARTICLE V
AMOUNT OF RETIREMENT BENEFIT
5.1 NORMAL RETIREMENT PENSION. Subject to the provisions of
Appendix II and Section 5.6, the monthly amount of Pension payable
to a member in the Normal Form beginning at his Normal Retirement
Date shall be equal to (a) minus (b) as follows:
(a) 2.2% of the Member's Average Monthly Compensation for each
year of Benefit Service not in excess of 25 years;
(b) 1.6% of the Member's monthly Social Security Benefit for each
year of Benefit Service not in excess of 25 years.
Unless otherwise provided under the Plan, each Section 401(a)(17)
Employee's Accrued Benefit under this Plan will be the greater of
the Accrued Benefit determined for the Employee under (c) or (d)
below:
(c) the Employee's Accrued Benefit determined with respect to the
benefit formula applicable for the Plan Year beginning on or after
January 1, 1994, as applied to the Employee's total years of
Benefit Service, or
(d) the sum of:
(i) the Employee's Accrued Benefit as of the last day of the
last Plan Year beginning before January 1, 1994, frozen in
accordance with Treasury Regulations Section 1.401(a)(4)-13, and
(ii) the Employee's Accrued Benefit determined under the benefit
formula applicable for the Plan Year beginning on or after January
1, 1994 as applied to the Employee's years of Benefit Service
credited to the Employee for Plan Years beginning on or after
January 1, 1994.
A Section 401(a)(17) Employee means an Employee whose current Ac-
crued Benefit as of a date on or after the first day of the first
Plan year beginning on or after January 1, 1994 is based on
Compensation for a year beginning prior to the first day of the
first Plan Year beginning on or after January 1, 1994, that
exceeded $150,000.
5.2 POSTPONED RETIREMENT PENSION.
(a) Subject to the provisions of Appendix II and Sections 5.6 and
5.7, the monthly amount of Pension payable to a Member beginning
at his Postponed Retirement shall be computed in accordance with
Section 5.1 as of his Postponed Retirement Date.
(b) If a Member's Postponed Retirement Date has not occurred by
the end of the calendar year in which he attains age 70 1/2 and
Pension benefits must commence pursuant to Section 7.7, then his
Pension benefit shall be his Accrued Benefit calculated pursuant
to Section 5.2(a) as of the close of the calendar year in which he
attains age 70 1/2, adjusted, if applicable, under Section 5.7 for
previous benefit payments. For subsequent required distributions,
his Accrued Benefit shall be recalculated at the end of each
calendar year thereafter until his actual Postponed Retirement
Date or his date of death. Recalculation of the Accrued Benefit
is described in the following subparagraph (c).
Once Pension benefits commence under this Section 5.2, a Member
may not elect a different form of payment or Beneficiary for any
additional Accrued Benefit which is calculated hereunder. If
there is a net increase in the Accrued Benefit hereunder and the
Member dies before such increase has been added to the benefit in
pay status, such increase will be added to the benefit in pay
status once payments, if any, begin to the Eligible Spouse or
Beneficiary under that form of payment. No Pre-Retirement
Survivor's benefit under Article VI shall be payable with respect
to such net increase.
(c) The recalculation of the Member's Accrued Benefit under
Section 5.2(b) shall be performed as follows:
(i) a new Accrued Benefit shall be calculated using the Member's
Average Monthly Compensation and years of Benefit Service at the
close of the calendar year;
(ii) the new Accrued Benefit as determined under (i) above shall
be adjusted, as applicable under Section 5.7, for any benefits
received prior to the first required distribution under this
Section 5.2. Following such adjustment, if any, the Accrued
Benefit for the calendar year shall be reduced by the Actuarial
Equivalent value of the sum of Pension benefits received by the
Member between age 65 and the close of such calendar year during
months in which Pension benefits could otherwise have been
suspended pursuant to Section 5.7(b), provided that the resulting
benefit shall not be less than the Actuarial Equivalent value of
the Accrued Benefit before it is recalculated under (i) above;
(iii) if there is a net increase in the Member's Accrued Benefit,
as determined under (ii) above, it shall be converted to the form
of payment in which the current Pension benefit is being paid
considering the age of the Member and, if applicable, his Eligible
Spouse or Beneficiary as of the date benefits are first required
to commence pursuant to Section 5.2(b). This amount, if any,
shall be added to the Pension Benefit already in pay status; no
change of payment form is permitted.
(d) Notwithstanding the foregoing, any adjustment to the Member's
postponed Pension benefits due to the mandatory commencement of
benefits required under Code Section 401(a)(9) shall be made in
accordance with regulations prescribed by the Secretary of the
Treasury.
(e) Postponed Pension benefits hereunder shall commence to the
Member upon the earlier of
(i) his Postponed Retirement Date, or
(ii) if required pursuant to Section 7.7, the April 1 following
the calendar year in which he has attained age 70 1/2.
The Member's postponed retirement Pension shall be paid pursuant
to Article VII.
(f) If a Member dies after his Normal Retirement Date, but prior
to retiring on his Postponed Retirement Date, his Eligible Spouse
or Beneficiary shall be entitled to benefits under the Plan in
accordance with the applicable provisions of Sections 6.1 and 6.3.
Pursuant to such provisions, there may be separate and distinct
death benefits payable with respect to Pension benefits which have
already commenced and to those which have accrued, but have not
yet started to be paid.
5.3 EARLY RETIREMENT PENSION.
(a) Subject to the provisions of Appendix II and Section 5.6, the
monthly amount of the Pension payable to a Member in the Normal
Form beginning at the Member's Normal Retirement Date shall be
equal to his Accrued Benefit determined as of the date of his
Early Retirement Date. Such Accrued Benefit shall be based on the
Member's Average Monthly Compensation as of his Early Retirement
Date and the total Benefit Service he would have accumulated if he
continued employment until his Normal Retirement Date, not
exceeding 25 years of such Service, multiplied by a fraction, the
numerator of which is the Member's actual Benefit Service at his
Early Retirement Date and the denominator of which is the total
Benefit Service he would have accumulated if he continued employ-
ment until his Normal Retirement Date.
(b) If payment of an early retirement Pension commences prior to
the Member's Normal Retirement Date, the amount of the Pension
shall be reduced by 4/10 of 1% for each month his Annuity Starting
Date precedes his Normal Retirement Date.
(c) Anything in this Section 5.3 to the contrary notwithstanding,
a Member who has completed at least 30 years of Eligibility
Service as of his Early Retirement Date shall be entitled to
receive a special early retirement Pension determined on the basis
of the following:
(i) the Member's Accrued Benefit shall be based on the Member's
Average Monthly Compensation as of his Early Retirement Date and
the total Benefit Service he would have accumulated if he
continued employment until the first of the month immediately
following his attainment of age 62, not to exceed 25 years of such
service, multiplied by a fraction, the numerator of which is the
Member's actual Benefit Service at his Early Retirement Date and
the denominator of which is the total Benefit Service he would
have accumulated if he continued employment until the first of the
month immediately following his attainment of age 62.
(ii) if the Member has attained age 62 as of his Early Retirement
Date, his Pension shall not be reduced as described in paragraph
(b) above for commencement prior to his Normal Retirement Date;
(iii) if the Member has not attained age 62 as of his Early
Retirement Date, the amount of his Pension shall be reduced by
4/10 of 1% for each month his Annuity Starting Date precedes the
first of the month immediately following his attainment of age 62.
5.4 DISABILITY RETIREMENT PENSION. Subject to the provisions of
Appendix II and Section 5.6, the monthly amount of the disability
retirement Pension commencing at the Member's Normal Retirement
Date shall be determined in the same manner as a normal retirement
Pension under Section 5.1, based on his Average Monthly
Compensation prior to his date of Disability and substituting for
his years of Benefit Service the years of Benefit Service which
would have been used had he continued to be an Employee until his
Normal Retirement Date.
5.5 DEFERRED VESTED PENSION. Subject to the provisions of Section
5.6, the monthly amount of a Member's deferred vested Pension
payable in the Normal Form beginning at his Normal Retirement
Date, shall be equal to his Accrued Benefit determined as of his
termination of employment. The determination of such Accrued
Benefit shall be based on the Member's Average Monthly Compen-
sation as of his termination of employment and the total Benefit
Service he would have accumulated if he continued employment until
his Normal Retirement Date, not exceeding 25 years of such
Service, multiplied by a fraction, the numerator of which is the
Member's actual Benefit Service at his date of termination and the
denominator of which is the total Benefit Service he would have
accumulated if he continued employment until his Normal Retirement
Date.
If payment of a deferred vested Pension commences prior to the
Member's Normal Retirement Date, the amount of the Pension shall
be reduced by 4/10 of 1% for each month that his Annuity Starting
Date precedes the Member's Normal Retirement Date.
5.6 MAXIMUM BENEFIT. Effective January 1, 1987, notwithstanding
any other provision of the Plan to the contrary, a Member's annual
retirement benefit under the Plan and any other defined benefit
pension plan of the Employer or an Affiliated Company may not
exceed the lesser of (a) or (b) below, except as provided in (c)
below:
(a) The lesser of (i) or (ii) below, but subject to subparagraphs
(iii) through (x) below:
(i) 100% of his average compensation in the three consecutive
highest paid calendar years while a Member in the Plan.
(ii) $90,000 (as adjusted for increases in the cost of living as
provided in rules and regulations adopted by the Secretary of the
Treasury).
(iii) In the case where a benefit is payable prior to the Member's
Social Security Retirement Age (defined below), the dollar
limitation in subsection (ii) above shall be adjusted so that it
is the actuarial equivalent of an annual benefit of $90,000 (as
adjusted pursuant to (a)(ii) above), beginning at the Social
Security Retirement Age, multiplied by an adjustment factor, as
prescribed by the Secretary of the Treasury. The adjustment
provided for in the preceding sentence shall be made in such
manner as the Secretary of the Treasury may prescribe which is
consistent with the reduction for old-age insurance benefits
commencing before the Social Security Retirement Age under the
Social Security Act. For purposes of determining actuarial
equivalence hereunder, the interest assumption shall not be less
than the greater of 5% per year or the underlying rate used to
determine the reduction of benefits for early payment under the
Early Retirement provisions of Section 5.3. Effective January 1,
1995, however, in the event a benefit under this subparagraph is a
lump sum, the interest rate assumption shall be the interest rate
specified in Section 417(e)(3) of the Code and any regulations
thereunder.
(iv) In the case where a benefit commences after a Member has at-
tained Social Security Retirement Age, the dollar limitation in
subsection (ii) above shall be adjusted so that it is the
actuarial equivalent of an annual benefit of $90,000 (as adjusted
pursuant to (a)(ii) above) beginning at the Social Security
Retirement Age, multiplied by an adjustment factor as prescribed
by the Secretary of the Treasury. For purposes of determining
actuarial equivalence hereunder, the interest assumption shall not
be greater than the lesser of 5% per year or the rate specified in
Section 2.2.
(v) If a Member has completed less than ten years of partic-
ipation in the Plan, the Member's Accrued Benefit shall not exceed
the dollar limit in subsection (ii) above as adjusted by
multiplying such amount by a fraction, the numerator of which is
the Member's number of years (or part thereof) of participation in
the Plan, and the denominator of which is ten.
(vi) If a Member has completed less than ten years of Eligibility
Service (as defined in Section 3.3), the limitations described in
Sections 415(b)(1)(B) and 415(b)(4) of the Code shall be adjusted
by multiplying such amounts by a fraction, the numerator of which
is the Member's number of years of Eligibility Service (or part
thereof), and the denominator of which is ten.
(vii) In no event shall subsections (v) and (vi) above reduce the
limitations provided under Sections 415(b)(1) and (4) of the Code
to an amount less than one-tenth of the applicable limitation (as
determined without regard to this section).
(viii) Unless subsection (vi) applies to a Member, the limits of
subsections (i) and (ii) above shall be deemed met if:
(A) the annual benefit payable to the Member from this Plan and all
other qualified defined benefit plans of the Employer does not exceed
$10,000; and
(B) the individual has never participated in a qualified defined
contribution plan sponsored by the Employer or an Affiliated Company.
(ix) Except in the case where a benefit is payable pursuant to Section
7.1(b) or 7.3, if a benefit is payable in a benefit form other than a
life annuity, the amount otherwise determined under this subparagraph
(a) shall be the actuarial equivalent of the amount payable as a
life annuity. For this purpose, the interest rate assumption shall
not be less than the greater of 5% or the rate specified in Section
2.2 and effective January 1, 1995, the mortality table shall be
the applicable table specified under Section 417(e)(3) of the Code
and any regulations thereunder.
(x) For purposes of this Section 5.6, Social Security Retirement
Age shall mean such age as defined in Section 415(b)(8) of the
Code.
(b) In the case of a Member who has participated in a defined
contribution plan maintained by the Employer or an Affiliated
Company, the amount determined pursuant to subparagraph (a) above
shall be multiplied by 1.40 in the event (a)(i) applies or by 1.25
in the event (a)(ii) applies and shall further be multiplied by a
fraction equal to one minus a fraction with a numerator equal to
(i) below and a denominator equal to (ii) below:
(i) The sum of the annual additions made to the Member's account
under all defined contribution plans maintained by the Employer
and its Affiliated Companies, where the annual additions are equal
to the sum of (A) Employer contributions allocated to the
Employee's account, (B) any forfeitures allocated to the Employ-
ee's account, (C) the portion of the Employee's after-tax
contributions made prior to January 1, 1987, that represented the
lesser of one-half of such contributions or the amount of such
contributions in excess of 6% of his compensation, (D) all
Employee after-tax contributions made after December 31, 1986, (E)
amounts described in Sections 415(l)(1) and 419(A)(d)(2) of the
Code, and (F) any other amounts that are considered annual
additions under Section 415(c)(2) of the Code.
(ii) The sum for each calendar year of the Member's employment
with the Employer or Affiliated Companies of the lesser of (A) 1.4
multiplied by 25% of the Member's compensation for the calendar
year, or (B) 1.25 multiplied by $30,000, as adjusted for increases
in the cost of living as provided under rules and regulations
adopted by the Secretary of the Treasury.
(c) The provisions of subsection (a) above shall not reduce a
Member's benefit under the Plan to an amount which is less than
either
(i) the Member's Accrued Benefit on December 31, 1982; or
(ii) the Member's Accrued Benefit on December 31, 1986.
For purposes of this subsection (c), the Member's Accrued Benefit
on either of the foregoing dates shall be the Accrued Benefit as
restricted by the Code Section 415 limitations in effect on each
such respective date.
Similarly, the combined plan limits of subsection (b) above shall
be modified to protect the combined plan limits in effect on
December 31, 1982 and December 31, 1986 respectively,
for those Members whose combined plan benefits were within the
Code Section 415 limits on each such respective date.
(d) If, in any limitation year, the benefit under this Plan
exceeds the lesser of (a) or (b) above, then appropriate
reductions shall first be applied to the Member's Accrued Benefit
under this Plan in order to reduce such benefit to the lesser of
(a) or (b).
For the purpose of this Section 5.6, Affiliated Companies shall be
determined by assuming the phrase "more than 50%" is substituted
for the phrase "at least 80%" wherever it appears in Section 1563
of the Code, as it may be amended from time to time and limitation
year shall mean Plan Year.
5.7 POSTPONED RETIREMENT OR REEMPLOYMENT AFTER BENEFITS
COMMENCE. If an Employee works beyond his Normal Retirement Date
or if a retired Member returns to work with the Employer after his
Pension had become payable to him, the following rules shall
apply:
(a) If he is a retired Member returning to work and he is again
eligible to participate in the Plan, he shall become an active
Member on his reemployment date; if he is an active Member
continuing to work he shall remain an active Member as long as he
continues to satisfy the eligibility requirements set forth in
Section 3.1;
(b)(i) if he has attained Normal Retirement Age and his Pension
was being paid, or had not yet commenced because of continued
employment, such benefit shall be suspended upon proper notifica-
tion, during any calendar month in which he is scheduled to com-
plete 40 or more Hours of Service.
Pension payments shall resume (or commence) as hereinafter pro-
vided if the Employee is thereafter scheduled to complete less
than 40 Hours of Service in any calendar month;
(ii) if he has not attained Normal Retirement Age at the time of
his reemployment with the Employer, all Pension payments shall
automatically cease upon such reemployment;
(c) He shall be eligible for additional years of Benefit Service
as a result of his reemployment in accordance with the provisions
of the Plan;
(d) If Pension benefits have been paid in a lump sum in
accordance with Section 7.7 of the Plan, the Member shall not
accrue benefits with respect to service prior to his date of
reemployment unless such lump sum is repaid to the Trust Fund with
interest at the rate of 5% per annum.
(e) Any Pension benefit subsequently paid shall be reduced to
reflect the Actuarial Equivalent of the benefits previously
received before Normal Retirement Age, but in the event that
Section 5.7(b)(i) applies, the reduction in any month shall not
exceed 25% of the Pension benefits payable to the Member without
regard to the reduction, except as provided in Section 2530.203-3
of the Code of Federal Regulations;
(f) If he shall die during the period of subsequent or continuing
employment, death benefits, if any, shall be payable only in
accordance with the provisions of Article VI and shall be reduced
to reflect the Actuarial Equivalent of the Pension benefits
previously received but in no event shall the reduction exceed 25%
of the Pension benefits payable to the Member without regard to
the reduction, except as provided in Section 2530.203-3 of the
Code of Federal Regulations.
5.8 SUSPENSION OF BENEFITS.
(a) During the first calendar month in which an Employee's
benefits are suspended pursuant to Section 5.7(b)(i), the Plan
Administrator shall deliver to the Employee, by personal delivery
or first class mail, a notice setting forth a description of the
specific reasons why benefit payments are being suspended, a
general description of the Plan provisions relating to the
suspension of benefits, a copy of the Plan provisions relating to
the suspension of benefits, the statement that applicable
Department of Labor Regulations may be found in Section 2530.203-3
of the Code of Federal Regulations, a description of the
procedures set forth in the Plan for obtaining a review of the
suspension of benefits, and a description of any notice procedure
(including any forms which must be filed by the Employee) as a
prerequisite for the Employee's obtaining the resumption or
commencement of benefit payments.
The notice shall also set forth the periods of employment which
gave rise to the offset, the suspendable amounts which are subject
to offset, and the manner in which the Plan Administrator intends
to offset the suspendable amounts. In no event shall the amount
of benefits offset by the Plan Administrator in any month exceed
25% of the benefits to which an Employee would have been entitled
but for the offset.
(b)(i) If, during a calendar month, an Employee's Pension benefits
are no longer suspendable pursuant to Section 5.7(b)(i), such
payments shall resume to the Employee no later than the first day
of the third calendar month after such calendar month. The
initial payment upon resumption shall include the payment
scheduled to occur in the calendar month when payments resume,
less any offset for payments when benefits should have been
suspended.
(ii) If a Member's Pension benefits were suspended prior to
Normal Retirement Age, pursuant to Section 5.7(b)(ii), Pension
benefits to the Member shall resume after the Member's subsequent
retirement, except as required under Section 7.7.
(c) In the event an Employee submits a written request to the
Plan Administrator for a review of the suspension of his benefits,
such request shall be deemed to be a request for a review of the
denial of a claim for benefits for purposes of the benefit claims
procedure set forth in Article VIII.
In the event an Employee submits a written request to the Plan
Administrator for a determination whether specific contemplated
employment will result in the suspension of benefits, the Plan
Administrator shall, within 30 days of the receipt of such
request, notify the Employee in writing whether said employment
will result in suspension of benefits.
5.9 LIMITATION ON BENEFITS. No benefits shall be paid under this
Plan except in the event of retirement, death, disability,
termination of employment, or termination of the Plan, and such
benefits will be paid as expressly provided herein.
ARTICLE VI
DEATH AND DISABILITY BENEFITS
6.1 PRE-RETIREMENT SURVIVING SPOUSE BENEFIT FOR DEATH OCCURRING ON
OR AFTER ELIGIBILITY FOR EARLY RETIREMENT. If a member who has
satisfied the requirements for early retirement set forth in
Section 4.3 (including a Member who has completed at least 10
years of Eligibility Service, has attained age 55 and has
terminated due to Disability) dies before his Annuity Starting
Date, a monthly Pension benefit shall be payable to his surviving
Eligible Spouse. The amount of the benefit is 50% of the Member's
Accrued Benefit as of the date of his death.
Unless Section 7.7 applies, such Eligible Spouse's benefit shall
commence on the first day of the month next following the Member's
date of death and continue for the surviving Eligible Spouse's
lifetime.
If the involuntary cash-out provisions of Section 7.7 are
operative, a monthly death benefit which becomes due hereunder but
which has not yet commenced shall be paid in one lump sum amount
to the Eligible Spouse in lieu of all other benefits under the
Plan.
If the Member had no Eligible Spouse on the date of his death, no
benefits are payable hereunder.
6.2 PRE-RETIREMENT SURVIVING SPOUSE BENEFIT FOR DEATH OCCURRING
BEFORE ELIGIBILITY FOR EARLY RETIREMENT. If a Member who has
completed at least five years of Eligibility Service dies before
he has satisfied the requirements for early retirement set forth
in Section 4.3, a monthly Pension benefit shall be payable to his
surviving Eligible Spouse. The amount of such benefit is the
amount that would have been payable to the Eligible Spouse as the
survivor annuitant had:
(a) the Member terminated employment with the Employer and all
Affiliated Companies on the day before his death (or actual
termination date if earlier) and elected Pension benefits to begin
his earliest retirement date under the Plan, and
(b) his Accrued Benefit had been payable in the 50% Joint and
Survivor annuity form described in Article VII with his Eligible
Spouse as the survivor annuitant, entitled to receive 50% of the
amount of the Member's Pension benefit subject to the early
payment reductions in Article V.
Unless Section 7.7 applies, such Eligible Spouse's monthly benefit
shall be payable commencing on the first day of the month next
following the Member's date of death and continue for the
surviving Eligible Spouse's lifetime and shall be the Actuarial
Equivalent of the amount the Eligible Spouse would have received
under the conditions of (a) and (b) above.
If the involuntary cash-out provisions of Section 7.7 are
operative, a monthly death benefit which becomes due hereunder but
which has not yet commenced shall be paid in one lump sum amount
to the Eligible Spouse in lieu of all other benefits.
If the Member had no Eligible Spouse on the date of his death, no
benefits are payable hereunder.
6.3 DEATH BENEFITS AFTER PENSION BENEFITS HAVE COMMENCED.
(a) If a Member dies after he has retired in accordance with the
provisions of Section 4.1, 4.2, 4.3 or 4.4 and such Member has an
Eligible Spouse, such Eligible Spouse shall be eligible for an
Eligible Spouse's benefit commencing as of the first day of the
month next following the Member's death.
The amount of the benefit payable to the Eligible Spouse under
this paragraph (a) shall be equal to 50% of the Member's Pension
as provided under Sections 5.1, 5.2, 5.3 or 5.4, whichever is
applicable. The last payment of the benefit under this paragraph
(a) shall be made as of the beginning of the month in which the
Eligible Spouse's death occurs.
(b) If any Member who is not described in paragraph (a) above
dies at any time after Pension benefits have begun, death
benefits, if any, shall be payable as follows:
(i) if Pension benefits were being paid to the Member imme-
diately before his death, no death benefit shall be payable to
anyone unless the form in which the Pension benefit was being paid
provided for a continuing payment. If the Pension benefit form of
payment provided for a continuing payment, the death benefit shall
be the amount payable under such form of payment. The preretir-
ement death benefit provisions of Section 6.2 shall not be
effective.
(ii) if Pension benefits had commenced, but were suspended
pursuant to Section 5.7(b), Section 6.2 shall apply with respect
to the Member's Accrued Benefit, as adjusted under Section 5.7.
6.4 LUMP SUM DEATH BENEFIT. Upon the death of a retired Member, a
lump sum death benefit in the amount of $3,000 shall be payable to
the retired Member's Beneficiary. The lump sum death benefit
shall be payable only on behalf of a Member who retied under the
Plan with entitlement to an Early, Normal or Postponed retirement
Pension and shall be payable in addition to any other benefit
payable upon the death of a retired Member under the terms of this
Plan.
ARTICLE VII
PAYMENT OF PENSION BENEFITS
7.1 AUTOMATIC PAYMENT FORMS.
(a) Unless the involuntary cash-out provisions of Section 7.7
apply, the automatic form of Pension benefit payable to a Member
who does not have an Eligible Spouse on the Annuity Starting Date
shall be a single life annuity under which Pension benefits are
payable monthly commencing on the first day of the month
coincident with or next following the date his Retirement or other
termination occurs and ending with the payment due for the month
in which his death occurs.
(b) Unless the involuntary cash-out provisions of Section 7.7
apply, the automatic form of Pension for a Member who has an
Eligible Spouse on the Annuity Starting Date shall be as described
in accordance with the following:
(i) In the event the Member's Annuity Starting Date is a result
of his Retirement in accordance with Section 4.1, 4.2, 4.3, or
4.4, such Member shall receive a Pension benefit payable to the
Member as a single life annuity described under paragraph (a) of
this Section 7.1.
(ii) In the event the Member's Annuity Starting Date is a result
of his eligibility for a deferred vested Pension pursuant to
Section 4.5, such Member shall receive a reduced retirement income
which shall be the Actuarial Equivalent of the Pension benefit to
which he would have been entitled under paragraph (a) of this
Section 7.1 if he had no Eligible Spouse, payable monthly
commencing on the first day of the month coincident with or next
following the date his retirement occurs, and if he shall die
prior to such Eligible Spouse, continuing to the Eligible Spouse
at 50% of the reduced amount and ending with the payment due for
the month in which the death of the Eligible Spouse occurs.
7.2 ELECTION OF OPTIONAL FORMS. A Member may elect an optional
form of payment for his Pension benefit as may be available under
Section 7.3, 7.4, or 7.5. Such election will not take effect
unless the Member's Eligible Spouse consents to the election if
required under Section 7.6(c). The Plan Administrator shall make
an election form available to each such eligible Member at least
30 days, but no later than 90 days prior to an Annuity Starting
Date. Such form shall describe in plain language the terms and
conditions of the normal form of payment described in Section 7.1
and the optional forms of benefit and shall provide for election
of optional forms of benefit and a benefit commencement date. The
completed election form must be returned to the Plan Administrator
within the 90 day period ending on the designated Annuity Starting
Date. In addition, the form will provide a description of the
Member's right to reinstate coverage under the normal form of
benefit described in Section 7.1 prior to his Annuity Starting
Date by revoking an election of an optional form of benefit. If a
Member files a subsequent election form prior to the date benefits
commence, the prior form shall be of no effect. If no election
has been made at the expiration of the election period, Pension
benefits will be payable in accordance with Section 7.1. Election
of optional forms of benefits under the following Sections 7.3,
7.4, and 7.5 shall be subject to the restrictions of Section 7.6.
After an Annuity Starting Date, no other option may be elected,
changed or revoked.
The Plan Administrator may, on a uniform and nondiscriminatory
basis, provide for such other election periods as comply with
regulations issued under Code Sections 401(a)(11) and 417.
Subject to the provisions of Section 7.6, the Plan Administrator
may defer a Member's Annuity Starting Date for a period of up to
90 days if the Plan Administrator determines that the deferral is
desirable in order to provide for an orderly election procedure.
7.3 JOINT AND SURVIVOR OPTION.
(a) A Member who has an Eligible Spouse may elect, by submitting
an election form to the Plan Administrator, to have his Pension
benefit, which is inclusive of the Death Benefits After Pension
Benefits Have Commenced described in Section 6.3, reduced and
converted to an Actuarial Equivalent benefit to be paid monthly
during his life with the provision that after his death, 75% or
100% of such reduced Pension benefit will be payable to his
Eligible Spouse during the remaining life of such Eligible Spouse.
(b) If a Member elects the Joint and Survivor Option and his
Eligible Spouse dies before such Member's benefit actually
commences and the Member does not change his election in
accordance with Section 7.2, his Pension benefit shall be paid
under the normal form under Section 7.1.
(c) If a Member elects the Joint and Survivor Option and dies
before benefits commence to be paid to him, his Eligible Spouse
will not be entitled to any rights or benefits under the Plan,
except as may be provided under Article VI.
(d) If a Member elects the Joint and Survivor Option and his
Eligible Spouse dies before the Member, but after the retirement
of such Member, such Member will continue to receive the reduced
Pension benefit payable to him in accordance with such option.
7.4 LIFE ANNUITY OPTION. Subject to Section 7.6(c), a Member
whose Annuity Starting Date is a result of his eligibility for a
deferred vested Pension pursuant to Section 4.5 and who has an
Eligible Spouse may elect, by submitting an election form to the
Plan Administrator, to receive a single life form of Pension in
lieu of the standard 50% joint and survivor form. The single life
form of Pension provides for monthly payments during the Member's
life, ending with the payment due for the month in which his death
occurs.
7.5 LIFE ANNUITY WITH GUARANTEED PAYMENT PERIOD OPTION. A Member
who does not have an Eligible Spouse may elect, by submitting an
election form to the Plan Administrator, to have his Pension
benefit paid as a life annuity as described in Section 7.4, but
guaranteed for a period of 120 months, with the provision that if
the Member dies before payment of the guaranteed 120 installments,
payment of any remaining installments shall be paid to his
Beneficiary. Such form of payment shall be the Actuarial
Equivalent of the normal form of payment under Section 7.1(a).
7.6 GENERAL PROVISIONS.
(a) Effective January 1, 1985, anything in the foregoing to the
contrary notwithstanding, no method of distribution of Pension
benefit may be made under this Article which would violate the
requirements of Code Section 401(a)(9)-2 and related regulations
thereunder, including the incidental death benefit requirements of
Treasury Regulation 1.401(a)(9)2. The provisions of this Code
Section override any distribution options under the Plan if
inconsistent with the requirements of Code Section 401(a)(9).
(b) Distribution to Members who attain age 70 1/2 in 1988 or 1989
must commence by April 1, 1990. Distribution to Members who
attain age 70 1/2 in 1990 and calendar years thereafter must commence
by the April 1 following the year in which age 70 1/2 is attained.
Distribution to Members who attained age 70 1/2 prior to January 1,
1988 may be deferred until the April 1 of the year next following
the close of the calendar year in which the Member retires;
provided, however, that distribution of benefits to an Employee
who owns 5% or more of the outstanding stock of the Employer may
not be deferred beyond the April 1 following the calendar year in
which he attains age 70 1/2. Upon the death of a Member any
remaining interest he may have in the Plan shall be distributed
within the later of five years after his death or after the death
of his Beneficiary, unless another form of payment was already in
effect at the time of his death, in which case benefits may be
made in accordance with such form of payment. Benefits may not be
immediately distributed prior to the Member's Normal Retirement
Date unless the Member consents in writing, except as provided in
Section 7.7.
(c) If a married Member elects to receive his Pension benefit in
any form other than the normal form for married individuals as
described in Section 7.1(b) or under the Joint and Survivor
annuity form described in Section 7.3 with his Eligible Spouse as
the Beneficiary, then such election shall not take effect unless
either:
(i) the Member's Eligible Spouse consents in writing to such
election and the Eligible Spouse's consent acknowledges the effect
of such election and is witnessed by a notary public or Plan
representative, or
(ii) it is established to the satisfaction of the Plan
Administrator that the Member has no Eligible Spouse, or that the
Eligible Spouse's consent cannot be obtained because the Eligible
Spouse cannot be located, or because of such other circumstances
as may be prescribed in regulations issued pursuant to Code
Section 417.
(d) It is the intent of the Plan that all benefits be paid
promptly when due. In the absence of any inability to determine
the amount of benefit payable or the eligibility for a benefit due
to the lack of adequate information on date of birth of Member or
Eligible Spouse, the first benefit shall be paid no later than the
60th day after the close of the latest Plan Year in which:
(i) the Member attains age 65;
(ii) the Member reaches the 10th anniversary of his date of
commencement of participation in the Plan, or
(iii) the Member's date of termination occurs.
(e) If a Member has made, prior to January 1, 1984, a written
designation to have his benefit paid in an alternative method
acceptable under Code Section 401(a) as in effect prior to the
enactment of the Tax Equity and Fiscal Responsibility Act of 1982,
then the restrictions of this Section shall not apply.
7.7 INVOLUNTARY CASH-OUT PROVISION. In the event that the
retirement benefit payable to any Member shall have an Actuarial
Equivalent present value of $3,500 or less and the benefit has not
yet commenced, payment of such Actuarial Equivalent present value
shall automatically be made to the appropriate individual in a
lump sum as soon as practicable following the Member's termination
of employment, in lieu of all other benefits hereunder.
7.8 MISSING PERSONS. If the Plan Administrator shall be unable,
within five years after any amount becomes due and payable from
the Plan to a Member, Retired Member, Eligible Spouse or
Beneficiary, to make payment because the identity or whereabouts
of such person cannot be ascertained, the Plan Administrator may
mail a notice by registered mail to the last known address of such
person outlining the action to be taken unless such person makes
written reply to the Plan Administrator within 60 days from the
mailing of such notice. The Plan Administrator may direct that
such amount and all further benefits with respect to such person
shall be forfeited and all liability for the payment thereof shall
terminate. However, in the event of the subsequent reappearance
of the Member, retired Member, Eligible Spouse or Beneficiary
prior to termination of the Plan, the benefit which was forfeited
(but not any earnings attributable to such forfeiture) shall be
reinstated in full.
7.9 RESTRICTIONS ON DISTRIBUTIONS. This Section 7.9 shall apply
to the amount of Benefits under this Plan for any Member who is
considered a Restricted Member as defined hereunder. For any Plan
Year, such Benefits shall be limited to an amount equal to the
payments that would have been made on behalf of the Restricted
Member under the life annuity form of payment described in Section
7.4 that is the Actuarial Equivalent of the Restricted Member's
Accrued Benefit under the Plan. Furthermore, in the event the
Plan terminates, Benefits payable to a Restricted Member shall be
limited to a Benefit that is nondiscriminatory in accordance with
Code Section 401(a)(4).
For purposes of this Section 7.9, the term Restricted Member shall
mean each highly compensated employee as defined in Code Section
414(q) and highly compensated former employee. In any one Plan
Year, the total number of Members whose benefits are subject to
restriction under this Section 7.9 shall be limited by the Plan to
a group of not less than 25 highly compensated employees and
highly compensated former employees with the greatest
Compensation.
For purposes of this Section 7.9, the term Benefit shall include
retirement Pension provided by the Plan plus loans in excess of
the amounts set forth in Code Section 72(p)(2)(A), any periodic
income, any withdrawal values payable to a living Member and any
death benefits not provided for by insurance on the Member's life.
The limitations set forth in this Section 7.9 shall not restrict
the current payment of the full amount of retirement Pension
provided by the Plan if:
(a) after payment to a Restricted Member of all of the Benefits
described above, the value of Plan assets equals or exceeds 110%
of the value of current liabilities, as defined in Code Section
412(l)(7), or
(b) the value of the Benefits described above for a Restricted
Member is less than 1% of the value of current liabilities, as
defined in Code Section 412(l)(7) and determined before payment of
such Benefits; or
(c) the value of the Benefits described above for a Restricted
Member does not exceed $3,500.
7.10 DIRECT ROLLOVERS.
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under
this Section, a distributee may elect, at the time and in the
manner prescribed by the Plan Administrator, to have any portion
of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
(b) DEFINITIONS.
(i) 'ELIGIBLE ROLLOVER DISTRIBUTION': An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary,
or for a specified period of ten years or more; any distribution
to the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution that is
not includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to employer
securities).
(ii) 'ELIGIBLE RETIREMENT PLAN': An eligible retirement plan is
an individual retirement account described in Section 408(a) of
the Code, an individual retirement annuity described in Section
408(b) of the Code, an annuity plan described in Section 403(a) of
the Code, or a qualified trust described in Section 401(a) of the
Code, that accepts the distributee's eligible rollover
distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(iii) 'DISTRIBUTEE': A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse or
former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the spouse
or former spouse.
(iv) 'DIRECT ROLLOVER': A direct rollover is a payment by the
plan to the eligible retirement plan specified by the distributee.
ARTICLE VIII
ADMINISTRATION
8.1 ALLOCATION OF RESPONSIBILITY AMONG FIDUCIARIES FOR PLAN AND
TRUST ADMINISTRATION. The Fiduciaries shall have only those
specific powers, duties, responsibilities and obligations as are
specifically given them under this Plan or the Trust.
The Employers shall have the sole responsibility for making the
contributions necessary to provide benefits under the Plan as
specified in Article IX. The Principal Employer shall have the
sole authority to appoint and remove the Trustee and any
investment manager which may be provided for under the Trust, and
to amend or terminate, in whole or in part, this Plan or the
Trust. The Principal Employer shall also have the sole
responsibility for the administration of this Plan, which
responsibility is specifically described in this Plan and the
Trust.
The Trustee shall have the sole responsibility for the
administration of the Trust and the management of the assets held
under the Trust, all as specifically provided in the Trust.
Each Fiduciary warrants that any directions given, information
furnished, or action taken by it shall be in accordance with the
provisions of the Plan or the Trust, as the case may be,
authorizing or providing for such direction, information or
action. Furthermore, each Fiduciary may relay upon any such
direction, information or action of another Fiduciary as being
proper under this Plan or the Trust, and is not required under
this Plan or the Trust to inquire into the propriety of any such
direction, information or action. It is intended under this Plan
and the Trust that each Fiduciary shall be responsible for the
proper exercise of its own powers, duties, responsibilities and
obligations under this Plan and the Trust and shall not be
responsible for any act or failure to act of another Fiduciary.
No Fiduciary guarantees the Trust Fund in any manner against
investment loss or depreciation in asset value.
8.2 RECORDS AND REPORTS. The Principal Employer shall exercise
such authority and responsibility as it deems appropriate in order
to comply with ERISA and governmental regulations issued
thereunder relating to records of Member's Eligibility Service,
Benefit Service, Accrued Benefits and whether benefits are
nonforfeitable under the Plan; notifications to Members; annual
registration with the Internal Revenue Service; annual reports to
the Department of Labor; and reports to the Pension Benefit
Guaranty Corporation.
8.3 DELEGATION TO INDIVIDUALS. The Plan Administrator may name an
individual or a committee to oversee the day to day operations of
the Plan with discretionary authority over the operation of the
Plan and such individual or the committee shall be Fiduciaries for
purposes of plan administration.
8.4 BENEFIT CLAIMS PROCEDURES. All claims for benefits under the
Plan shall be in writing and shall be submitted to the Plan
Administrator. If any application for payment of a benefit under
the Plan shall be denied, the Plan Administrator shall notify the
claimant within 90 days of such application setting forth the
specific reasons therefor and shall afford such claimant a
reasonable opportunity for a full and fair review of the decision
denying his claim. If special circumstances require an extension
of time for processing the claim, the claimant will be furnished
with a written notice of the extension prior to the termination of
the initial 90-day period. In no event shall such extension
exceed a period of 90 days from the end of such initial period.
The extension notice shall indicate the special circumstances
requiring an extension of time and the date by which the Plan
Administrator expects to render its decision.
Notice of such denial shall set forth, in addition to the specific
reasons for the denial, the following:
(a) reference to pertinent provisions of the Plan;
(b) such additional information as may be relevant to the denial
of the claim;
(c) an explanation of the claims review procedure; and
(d) notice that such claimant may request the opportunity to
review pertinent Plan documents and submit a statement of issues
and comments.
Within 60 days following notice of denial of his claim, upon
written request made by any claimant for a review of such denial
to the Plan Administrator, the Plan Administrator shall take
appropriate steps to review its decision in light of any further
information or comments submitted by such claimant.
8.5 OTHER POWERS AND DUTIES OF THE PRINCIPAL EMPLOYER. The
Principal Employer shall have such duties and powers as may be
necessary to discharge its duties hereunder, including, but not by
way of limitation, the following:
(a) construe and interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment
of any benefits hereunder;
(b) prescribe procedures to be followed by Members or
Beneficiaries filing applications for benefits;
(c) prepare and distribute, in such manner as the Principal
Employer determines to be appropriate, information explaining the
Plan;
(d) receive from the Employers and from Members such information
as shall be necessary for the proper administration of the Plan;
(e) prepare annual reports with respect to the administration of
the Plan as are reasonable and appropriate;
(f) receive and review a copy of the periodic valuation of the
Plan made by the Actuary;
(g) receive, review and keep on file (as it deems convenient and
proper) reports of benefit payments by the Trustee and reports of
disbursements for expenses;
(h) to the extent not provided by the Principal Employer, appoint
or employ individuals to assist in the administration of the Plan
and any other agents it deems advisable, including legal and
actuarial counsel.
8.6 RULES AND DECISIONS. The Principal Employer may adopt such
rules and actuarial tables as it deems necessary, desirable or
appropriate. Except as otherwise herein expressly provided, the
Plan Administrator shall have the exclusive right and
discretionary authority, to the fullest extent provided by law, to
interpret the Plan and decide any matters arising hereunder in the
administration and operation of the Plan, and any interpretations
or decisions so made will be conclusive and binding on all persons
having an interest in the Plan; provided, however, that all such
interpretations and decisions will be applied in a uniform and
nondiscriminatory manner to all Employees. When making a
determination or calculation, the Principal Employer shall be
entitled to rely upon information furnished by a Member or
Beneficiary, the Actuary, or the Trustee.
8.7 AUTHORIZATION OF BENEFIT PAYMENTS. The Principal Employer
shall issue directions to the Trustee concerning all benefits
which are to be paid from the Trust Fund pursuant to the
provisions of the Plan, and warrants that all such directions are
in accordance with this Plan.
8.8 APPLICATION AND FORMS FOR PENSION. The Principal Employer may
require a Member to complete and file with the Principal Employer
an application for Pension and all other forms approved by the
Principal Employer, and to furnish all pertinent information
requested by the Principal Employer. The Principal Employer may
rely upon all such information so furnished it, including the
Member's current mailing address.
8.9 INDEMNIFICATION. Any individual Employee who is assigned
administrative responsibilities in accordance with this Article
shall be indemnified by the Principal Employer against any and all
liabilities arising by reason of any act or failure to act made in
good faith pursuant to the provisions of the Plan, including
expenses reasonably incurred in the defense of any claim relating
thereto.
ARTICLE IX
FUNDING AND CONTRIBUTIONS
9.1 ESTABIISHMENT OF TRUST FUND. The Trust Fund shall be held and
administered by the Trustee in accordance with the terms of the
Trust Agreement. The Trust Fund shall hold all contributions made
by the Employer and earnings and other income attributable there-
to. All benefits payable under the Plan shall be disbursed from
the Trust Fund.
9.2 CONTRIBUTIONS TO THE FUND; PLAN EXPENSES. The Employer will
contribute to the Trust Fund such sums and at such times as may be
determined by the Board of Directors of the Employer in accordance
with the funding method and policy to be established by the Board
which are consistent with Plan objectives. The Board of Directors
of the Employer, in consultation with the Actuary and the Plan
Administrator, shall have the right to change the method of
funding, subject only to any contractual restrictions of the
existing method of funding. Forfeitures arising from termination
of service will be used to reduce Employer contributions and will
not be applied to increase any benefits under the Plan. Except as
provided in Section 9.3 and Article X, all contributions when made
to the Trust Fund and all property and assets of the Trust Fund,
including income from investments and from all other sources, will
be retained for the exclusive benefit of Members, Eligible Spouses
and Beneficiaries included in the Plan and will be used to pay
benefits provided hereunder or to pay expenses of administration
of the Plan and the Trust Fund to the extent not paid by the
Employer.
9.3 CONTRIBUTIONS CONDITIONAL. Each Employer contribution to the
Plan is expressly conditioned on its deductibility. If any
Employer contribution is deemed to be nondeductible or made by the<PAGE>
Employer by a mistake of fact, such contribution shall be returned
to the Employer within one year of the date of the disallowance of
such deduction or the date the contribution was made to the Trust
Fund, respectively.
9.4 EMPLOYEE CONTRIBUTIONS. No Employee will be required or
permitted to make any contributions under this Plan.
ARTICLE X
AMENDMENT AND TERMINATION
10.1 RIGHT TO AMEND OR TERMINATE. The Principal Employer reserves
the right to amend, modify, suspend, or terminate the Plan in
whole or in part at any time by means of a resolution of its Board
of Directors. No amendment will be effective unless the Plan, as
so amended, is for the exclusive benefit of Members, Eligible
Spouses, and Beneficiaries,and no amendment will deprive any Member
without his consent of any benefit to which he was previously
entitled, provided that any and all amendments may be made which
are necessary to maintain the qualification of the Plan under the
Code and provided further that such amendments may be
retroactively effective. The Plan shall not be automatically
terminated by any Employer's acquisition by or merger or consoli-
dation into any other corporation. In the event of a reorganiza-
tion, consolidation, dissolution or merger of an Employer, the
Plan can be continued by the successor, and in such event the
successor shall be substituted for such Employer and shall assume
all of the Plan liabilities and all of the powers, duties and
responsibilities of such Employer under the Plan.
10.2 PARTIAL TERMINATION. Upon a partial termination of the Plan
with respect to a group of Members, as determined by a ruling of
the Internal Revenue Service as to which all rights to appeal have
expired, the Principal Employer shall direct the Actuary to
determine the proportionate share of the assets for Members
affected by such partial termination. After such proportionate
share has been determined, the Trustees shall segregate the assets
of the Fund allocable to such group of Members for payment of
benefits in accordance with the provisions of Section 10.3.
10.3 VESTING AND DISTRIBUTION OF FUNDS UPON TERMINATION. Upon
termination of the Plan by the Principal Employer, in whole or in
part, all affected Members will become fully vested and entitled
to their Accrued Benefits under the Plan. In such event, the
assets in the Fund (or the portion of the Fund determined in
accordance with Section 10.2) will be allocated as follows:
(a) There shall first be credited to each Member who was receiv-
ing Pension benefits or who was eligible to receive Pension
benefits at least three years prior to the date of Plan
termination and to each Eligible Spouse and Beneficiary who was
receiving Pension benefits or who was eligible to receive Pension
benefits at least three years prior to the date of Plan termina-
tion an amount which will provide for him the amount of Pension
benefits then accrued to him under the Plan, but not in excess of
the benefit insured by the Pension Benefit Guaranty Corporation.
(b) There shall next be credited to each Member who was receiving
Pension benefits or who was eligible to receive Pension benefits
on the date of Plan termination and to each Eligible Spouse and
Beneficiary who was receiving Pension benefits or who was eligible
to receive Pension benefits on the date of Plan termination an
amount which will provide for him the amount of Pension benefits
then accrued to him under the Plan, but not in excess of the
benefit insured by the Pension Benefit Guaranty Corporation.
(c) There shall next be credited to each other Member who, on the
date on which the Plan shall terminate, is eligible for Pension
benefits in accordance with Section 5.5 an amount which will pro-
vide for him the amount of the Pension benefits then accrued to
him under the Plan, but not in excess of the benefit insured by
the Pension Benefit Guaranty Corporation.
(d) There shall next be credited to each other Member who would
be entitled to additional Pension benefits in accordance with (a),
(b), and (c) above, were such additional income not in excess of
the amount insured by the Pension Benefit Guaranty Corporation, an
amount which will provide for him the amount of retirement income
then accrued to him under the Plan.
(e) There shall next be credited to each other Member an amount
which will provide for him the amount of Pension benefits then
accrued to him under the Plan.
Allocation in any of the above classes shall be adjusted for any
allocation made to the same Member under a prior class.
10.4 DETERMINATION OF FUNDS UPON TERMINATION.
(a) The application of the Trust Fund on the foregoing basis
shall be calculated as of the date on which the Plan shall
terminate. When the calculation shall be completed, the
respective interest in the Trust Fund will be distributed to or on
behalf of the respective Members, Eligible Spouses, and
Beneficiaries under the Plan in the order stated in Section 10.3
only after the Principal Employer has sent written notice to the
Trustee, that all of the applicable requirements governing the
termination of qualified retirement plans have been, or are being
complied with or that appropriate authorizations, waivers,
exemptions or variances have been, or are being, obtained.
(b) If the assets in the Trust Fund on the date the Plan is
terminated are not sufficient to provide in full the amounts
required within classes (a), (b), (c), and (d) of Section 10.3,
any benefit in excess of $10,000 paid within a 12-month period
during the 36- month period immediately preceding the date of
termination of the Plan to a Member, Eligible Spouse, or Benefi-
ciary who owns 10% or more of the outstanding voting stock of any
Employer may be deemed a part of the Trust Fund for purposes of
allocation.
(c) If the assets are not sufficient to provide in full for the
amounts required for a class in the order listed in Section 10.3,
the balance of the assets shall be allocated to each member of a
class in the proportion which his amount bears to the total amount
in such class.
(d) Distribution upon termination of the Plan may be in the form
of an annuity contract, cash, or securities or other assets in
kind as determined by the Principal Employer in a uniform,
nondiscriminatory manner and applicable to all Members.
(e) Any funds remaining after the satisfaction of all liabilities
to Members, Eligible Spouses, and Beneficiaries under the Plan
shall be returned to the Principal Employer.
10.5 RESTRICTION ON BENEFITS. In the event of plan termination,
the benefit of any highly compensated employee as defined in Code
Section 414(q) and highly compensated former employee is limited
to a benefit that is nondiscriminatory under Code Section
401(a)(4).
10.6 RIGHT TO ACCRUED BENEFITS. Any other provision of the Plan
notwithstanding, upon termination or partial termination of the
Plan, the right of each Member to benefits accrued to the date of
such termination or partial termination to the extent then funded
or to the extent guaranteed by the Pension Benefit Guaranty
Corporation shall be nonforfeitable.
ARTICLE XI
FIDUCIARY RESPONSIBILITIES
11.1 BASIC RESPONSIBITITIES. Any Fiduciary under the Plan,
whether specifically designated or not, shall:
(a) discharge all duties solely in the interest of Members,
Spouses, and Beneficiaries and for the exclusive purpose of pro-
viding benefits and defraying reasonable administrative expenses
under the Plan;
(b) discharge his responsibilities with the care, skill,
prudence, and diligence a prudent man would use in similar
circumstances; and
(c) conform with the provisions of the Plan.
No person who is ineligible by law will be permitted to serve as
Fiduciary.
11.2 ACTIONS OF FIDUCIARIES. Any Fiduciary:
(a) may serve in more than one fiduciary capacity with respect to
the Plan;
(b) may employ one or more persons to render advice with regard
to or to carry out any responsibility that such Fiduciary has
under the Plan; and
(c) may rely upon any discretion, information, or action of any
other Fiduciary, acting within the scope of its responsibilities
under the Plan, as being proper under the Plan.
11.3 FIDUCIARY LIABILITY. No Fiduciary shall be personally liable
for any losses resulting from his action except as provided by
federal law. Each Fiduciary shall have only the authority and
duties which are specifically allocated to him, shall be
responsible for the proper exercise of his own authority and
duties, and shall not be responsible for any act or failure to act
of any other Fiduciary.
ARTICLE XII
TOP-HEAVY PLAN PROVISIONS
12.1 GENERAL RULE. For any Plan Year for which this Plan is a
"top-heavy plan" as defined in Section 12.5, any other provisions
of the Plan to the contrary notwithstanding, the Plan shall be
subject to the following provisions:
(a) The vesting provisions of Section 12.2.
(b) The minimum benefit provisions of Section 12.3.
(c) The limitation on benefits set by Section 12.4.
12.2 VESTING PROVISIONS. Each Member who (a) has completed at
least three years of Eligibility Service and (b) has completed an
Hour of Service during any Plan Year in which the plan is
"top-heavy", shall have a nonforfeitable right to his Accrued
Benefit.
If the Plan ceases to be "top-heavy", each Member with three or
more years of Eligibility Service, whether or not consecutive,
shall have the right to elect to remain under the vesting schedule
hereunder or to have the vesting provisions of Section 4.5 be
applicable. Each such Member shall have the right to elect the
applicable schedule within 60 days after the day the Member is
issued written notice by the Plan Administrator, or as otherwise
provided in accordance with regulations issued under the provision
of the Code, relating to changes in the vesting schedule.
For all other Members, the vesting provisions of Section 4.5 shall
be applicable once the Plan ceases to be "top-heavy". This
provision shall not cause a Member's vested percentage to be
reduced.
12.3 MINIMUM BENEFIT PROVISIONS. Each Member who (a) is a
"non-key employee" (as defined in Section 12.7) and (b) has
completed 1,000 Hours of Service in any Plan Year shall be
entitled to an annual retirement income equal to 2% of the
Member's average annual Compensation in the "testing period"
multiplied by his years of Eligibility Service during which the
Plan is top heavy, up to a maximum of 20%. For purposes of this
Section 12.3, "testing period" means the period of five consecu-
tive years of Eligibility Service during which the Member had the
highest aggregate Compensation, provided that Compensation for any
Plan Year after the close of the Plan Year in which the Plan was
last top-heavy shall be disregarded.
12.4 LIMITATION ON BENEFITS. In the event that the Employer also
maintains a defined contribution plan providing contributions on
behalf of Members in this Plan, one of the two following
provisions shall apply:
(a) If for the Plan Year this Plan would not be a "top-heavy
plan" (as defined in Section 12.5) if "90%" were substituted for
"60%", then the lesser of 3% of average annual Compensation in the
"testing period" multiplied by the Member's years of Eligibility
Service during which the Plan is "top heavy", up to a maximum of
30%.
(b) If for the Plan Year this Plan would continue to be a
"top-heavy plan" (as defined in Section 12.5) if "90%" were
substituted for "60%", then the denominator of both the defined
contribution plan fraction and the defined benefit plan fraction
shall be calculated as set forth in Section 5.6(b) for such Plan
Year by substituting "1.0" for "1.25" in each place such figure
appears, except with respect to any individual for whom there are
no Employer contributions, forfeitures or voluntary contributions
allocated or any accruals for such individual under the defined
benefit plan.
12.5 TOP-HEAVY PLAN DEFINITION. This Plan shall be a "top-heavy
plan" for any Plan Year if, as of the determination date, the
present value of the Accrued Benefits under the Plan for Members
(including former Members) who are "key employees" (as defined in
Section 12.6) exceeds 60% of the present value of Accrued Benefits
for all Members (excluding former "key employees"), or if this
Plan is required to be in an aggregation group which for such Plan
Year is a "top-heavy group." For purposes of this Article XII,
(a) "Determination date" means for any Plan Year the last day of
the immediately preceding Plan Year (except that for the first
Plan Year the determination date means the last day of such Plan
Year).
(b) "Present value of Accrued Benefits" shall be determined as of
the most recent valuation date that is within the 12-month period
ending on the determination date and as described under the Code.
(c) "Aggregate of the Accounts" means the sum of (i) the accounts
determined as of the most recent valuation date that is within the
12-month period ending on the determination date, and (ii) the
adjustment for contributions due as of the determination date, and
as described in the regulations under the Code.
(d) "Aggregation group" means the group of plans, if any, that
includes both the group of plans that are required to be aggre-
gated and the group of plans that are permitted to be aggregated.
(i) The group of plans that are required to be aggregated (the
"required aggregation group") includes: each plan of the Employer
in which a key employee is a participant, including
collectively-bargained plans;and each other plan of the Employer
including collectively-bargained plans, which enables a plan in
which a key employee is a participant to meet the requirements of
the Code Sections 401(a)(4) and 410(b).
(ii) The group of plans that are permitted to be aggregated (the
"permissive aggregation group") includes the required aggregation
group plus one or more plans of the Employer that is not part of
the required aggregation group and that the Plan Administrator
certifies as constituting a plan within the permissive aggregation
group. Such plan or plans may be added to the permissive aggrega-
tion group only if, after the addition, the aggregation group as a
whole continues not to discriminate as to contributions or
benefits in favor of officers, shareholders or the
highly-compensated and to meet the minimum participation standards
under the Code.
(e) "Top-heavy group" means the aggregation group, if as of the
applicable determination date, the sum of the present value of the
cumulative accrued benefits for "key employees" under all defined
benefit plans included in the aggregation group plus the aggregate
of the accounts of "key employees" under all defined contribution
plans included in the aggregation group exceeds 60% of the sum of
the present value of the cumulative accrued benefits for all
employees, excluding former "key employees," under all such
defined benefit plans plus the aggregate accounts for all employ-
ees, under such defined contribution plans. If the aggregation
group that is a top-heavy group is a required aggregation group,
each plan in the group will be top-heavy. If the aggregation
group that is a top-heavy group is a permissive aggregation group,
only those plans that are part of the required aggregation group
will be treated as top-heavy. If the aggregation group is not a
top-heavy group, no plan within such group will be top-heavy.
(f) In determining whether this Plan constitutes a "top-heavy
plan", the Plan Administrator shall make the following adjustments
in connection therewith:
(i) When more than one plan is aggregated, the Plan
Administrator shall determine separately for each plan as of each
plan's determination date the present value of the accrued
benefits or account balance. The results shall then be aggregated
by adding the results of each plan as of the determination dates
for such plans that fall within the same calendar year.
(ii) In determining the present value of the Accrued Benefit or
the amount of the account of any Employee, such present value or
account shall include the dollar value of the aggregate distribu-
tions made to such Employee under the applicable plan during the
five-year period ending on the determination date, unless
reflected in the value of the accrued benefit or account balance
as of the most recent valuation date. Such amounts shall include
distributions to Employees which represented the entire amount
credited to their accounts under the applicable plan.
(iii) Further, in making such determination, such present value or
such account shall include any rollover contribution (or similar
transfer), as follows:
(A) If the rollover contribution (or similar transfer) is
initiated by the Employee and made to or from a plan maintained by
another employer the plan providing the distribution shall include
such distribution in the value of such account; the plan accepting
the distribution shall not include such distribution in the value
of such accountunless the plan accepted itbefore December 31, 1983.
(B) If the rollover contribution (or similar transfer) is not
initiated by the Employee or made from a plan maintained by
another employer the plan accepting the distribution shall include
such distribution in the value or such account, whether the plan
accepted the distribution before or after December 31, 1983; the
plan making the distribution shall not include such distribution
in the value of such account.
(iv) Further, in making such determination, in any case where an
individual is a "non-key employee" (as defined in Section 12.7)
with respect to an applicable plan, but was a "key employee" with
respect to such plan for any prior plan year, any Accrued Benefit
and any account of such Employee shall be altogether disregarded.
For this purpose, to the extent that a key employee is deemed to
be a "key employee" if he met the definition thereof within any of
the four preceding plan years, this provision shall apply
following the end of such period of time.
(v) Further, in making such determination, the accrued benefit
of an Employee other than a Key Employee shall be determined under
(A) the method, if any, that uniformly applies for accrual
purposes under all plans maintained by the Employer and its
Affiliated Companies, or (B) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual
rate permitted under the fractional accrual rule of Code Section
411(b)(1)(C).
12.6 KEY EMPLOYEE. The term "key employee" means any Employee or
former Employee who would be considered a key employee under Code
Section 416(i)(1) excluding any individual who has not performed
services for the Employer or any of its Affiliated Companies
during the five-year period ending on a particular "determination
date".
12.7 NON-KEY EMPLOYEE. The term "non-key employee" means any
Employee (and any beneficiary of an Employee) who is not a "key
employee". An individual who has not performed services for the
Employer or any of its Affiliated Companies during the five-year
period ending on a particular "determination date", however, shall
not be considered a "non-key employee".
ARTICLE XIII
GENERAL PROVISIONS
13.1 PLAN VOLUNTARY. Although it is intended that the Plan shall
be continued and that contributions shall be made as herein
provided, this Plan is entirely voluntary on the part of each
Employer and the continuance of this Plan and the payment of
contributions hereunder are not to be regarded as contractual
obligations of any Employer, and no Employer guarantees or
promises to pay or to cause to be paid any of the benefits
provided by this Plan. Each person who shall claim the right to
any payment or benefit under this Plan shall be entitled to look
only to the Trust Fund for any such payment or benefit and shall
not have any right, claim, or demand therefore against any
Employer, except as provided by federal law. The Plan shall not
be deemed to constitute a contract between any Employer and any
Employee or to be a consideration for, or an inducement for, the
employment of any Employee by any Employer. Nothing contained in
the Plan shall be deemed to give any Employee the right to be
retained in the service of any Employer or to interfere with the
right of any Employer to discharge or to terminate the service of
any Employee at any time without regard to the effect such
discharge or termination may have on any rights under the Plan.
13.2 PAYMENTS TO MINOR AND INCOMPETENTS. If any Member, Eligible
Spouse, or Beneficiary entitled to receive any benefits hereunder
is a minor or is deemed by the Plan Administrator or is adjudged
to be legally incapable of giving valid receipt and discharge for
such benefits, they will be paid to such person or institution as
the Plan Administrator may designate or to the duly appointed
guardian. Such payment shall, to the extent made, be deemed a
complete discharge of any liability for such payment under the
Plan.
13.3 NON-ALIENATION OF BENEFITS.
(a) No amount payable to, or held under the Plan for the account
of, any Member shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to so anticipate, alienate, sell, trans-
fer, assign, pledge, encumber, or charge the same shall be void;
nor shall any amount payable to, or held under the Plan for the
account of, any Member be in any manner liable for his debts,
contracts, liabilities, engagements, or torts, or be subject to
any legal process to levy upon or attach, except as may be pro-
vided under a qualified domestic relations order as defined in
Code Section 414(p).
The Plan Administrator shall establish a procedure to determine
the status of a judgement, decree or order as a qualified domestic
relations order and to administer Plan distributions in accordance
with qualified domestic relations orders. Such procedure shall be
in writing, shall include a provision specifying the notification
requirements enumerated Code Section 414(p), shall permit an
alternate payee to designate a representative for receipt of com-
munications from the Plan Administrator and shall include such
other provisions as the Plan Administrator shall determine,
including provisions describing the interest rate to be used in
making present value determinations as well as provisions required
under regulations promulgated by the Secretary of the Treasury.
In any event this procedure shall be established pursuant to the
provisions of Code Section 414(p) and regulations and rulings
issued thereunder.
13.4 USE OF MASCULINE AND FEMININE; SINGULAR AND PLURAL. Wherever
used in this Plan, the masculine gender will include the feminine
gender and the singular will include the plural, unless the
context indicates otherwise.
13.5 MERGER, CONSOLIDATION, OR TRANSFER. In the event that the
Plan is merged or consolidated with any other plan, or should the
assets or liabilities of the Plan be transferred to any other
plan, each Member shall be entitled to a benefit immediately after
such merger, consolidation, or transfer if the Plan should then
terminate equal to or greater than the benefit he would have been
entitled to receive immediately before such merger, consolidation,
or transfer if the Plan had then terminated.
13.6 LEASED EMPLOYEES. Any individual who performs services for
the Employer and who, by application of Code Section 414(n)(2) and
regulations issued pursuant thereto, would be considered a "leased
employee", shall, for purposes of the requirements enumerated in
Code Section 414(n)(3), be considered an Employee of the Employer
with regard to services performed after December 31, 1986.
When the total of all leased employees constitutes less than 20%
of the Employer's non-highly compensated work force within the
meaning of Code Section 414(n)(5)(c)(ii), however, a "leased
employee" shall not be considered an Employee of the Employer if
the organization from which the individual is leased maintains a
qualified safe harbor plan (as defined in Code Section 414(n)(5))
in which such individual participates.
"Leased employees" who are deemed to be Employees of the Employer
for purposes of this Section 13.6 shall not be eligible to
participate in the Plan unless specifically provided for in
Article III.
13.7 GOVERNING LAW. The provisions of the Plan will be construed,
administered, and enforced in accordance with the Code and the
Employee Retirement Income Security Act of 1974, as amended from
time to time, and, to the extent applicable, the laws of the state
of Vermont.
13.8 SEVERABILITY. If any provision of the Plan is held invalid
or unenforceable, its invalidity or unenforceability will not
affect any other provision of the Plan, and the Plan will be
construed and enforced as if such provision had not been included.
13.9 CAPTIONS. The captions contained in the Plan are inserted
only as a matter of convenience and for reference and in no way
define, limit, enlarge, or describe the scope or intent of the
Plan nor in any way affect the construction of any provision of
the Plan.
IN WITNESS WHEREOF, Chittenden Corporation has caused this
instrument to be executed by its officers thereunto duly
authorized and its corporate seal to be hereunto affixed, as of
the 28th day of December, 1994.
CHITTENDEN CORPORATION ATTEST:
/S/ F. SHELDON PRENTICE /S/ HOLLY R. THWEATT
APPENDIX I
COST-OF-LIVING INCREASES
COST-OF-LIVING INCREASES. Any Member or Beneficiary whose Pension
entered pay status not later than December 31, 1985 shall have
such Pension increased by a cost of living increase percentage
determined in accordance with the following schedule:
Date on Which Pension Cost of Living
First Entered Pay Status Increase Percentage
--------------------------------------------------------------
Prior to January 1, 1982 10%
January 1, 1982 through December 31, 1982 8
January 1, 1983 through December 31, 1983 6
January 1, 1984 through December 31, 1984 4
January 1, 1985 through December 31, 1985 2
Such percentage increase shall, however, be applied to the amount
of Pension in pay status as of December 31, 1986 to such Members
or Beneficiaries, and shall commence with the payment due on
January 1, 1987.
APPENDIX II
SPECIAL BENEFIT PROVISIONS FOR EMPLOYEES OF
AN ACQUIRED COMPANY AND/OR PARTICIPANTS IN A PRIOR PLAN
A.1 PROVISIONS RELATING TO SERVICE AND BENEFITS FOR EMPLOYMENT
WITH AN ACQUIRED COMPANY. The following provisions shall apply to
Members who became Employees as the result of the acquisition of
their former company by the Employer, through a merger or
otherwise.
(a) SERVICE: The earliest possible commencement date of
Eligibility Service and Benefit Service shall be determined in
accordance with the schedule in Part I of Exhibit A attached
hereto.
(b) BENEFITS: A Member who becomes eligible under the Plan for a
Pension calculated under Sections 5.1, 5.2, 5.3, 5.4 or 5.5, and
who is listed in Part II of Exhibit A, shall have such Pension
reduced (but not below zero) by the Actuarial Equivalent of his
prior plan Pension.
A.2 TRANSITIONAL PROVISIONS RELATING TO PARTICIPANTS UNDER THE
PLAN AS AMENDED ON JANUARY 1, 1981. The following transitional
provisions shall apply to Members on January 1, 1981 who were
Members in the Plan in effect on December 31, 1980.
No provision in the Plan as it may be amended from time to time
shall operate to cause any person receiving benefits under the
Plan or eligible to receive benefits under the Plan to suffer any
reduction in such benefits or operate to provide any person with
benefits of less value than the value of all rights accrued to
such person immediately prior to such amendments.
Each Member age 55 or greater and eligible for Early Retirement,
Normal Retirement, Postponed Retirement or Disability Retirement
on December 31, 1980 shall, upon Retirement, be entitled to
receive a Normal Retirement Pension in an amount equal to the
greater of (i) the benefit calculated under Sections 5.1,5.2, 5.3
or 5.4 as in effect January 1, 1989 or (ii) the benefit calculated
under Sections 5.1, 5.2, 5.3 or 5.4 which was in effect on
December 31, 1980. All other Members, as of January 1, 1981, upon
their Retirement, shall be entitled to a benefit in an amount
equal to the greater of (i) their Accrued Benefit as of the date
the January 1, 1981 amendment was adopted or (ii) the benefit
calculated under Sections 5.1, 5.2, 5.3, 5.4 or 5.5 as amended
effective January 1, 1981.
APPENDIX III
SPECIAL BENEFIT PROVISIONS FOR EMPLOYEES OF
WHO WERE ENTITLED TO BENEFITS UNDER
THE BELLOWS FALLS TRUST COMPANY PENSION PLAN
AS OF JUNE 30, 1993
Subject to the applicable provisions of this Plan, a Member who
was a member of the Bellows Falls Trust Company Pension Plan (the
"Bellows Plan") as in effect on June 30, 1993, shall be entitled
to an Accrued Benefit hereunder which is no less than the benefit
to which he was entitled to under the Bellows Plan as of June 30,
1993.
All optional benefits, rights, and features attributable to such
benefit under the Bellows Plan shall be recognized and preserved
hereunder.
PENSION PLAN FOR EMPLOYEES OF THE CHITTENDEN CORPORATION
EXHIBIT A SERVICE AND BENEFITS FOR
EMPLOYEES OF ACQUIRED COMPANIES
PART I Service Commencement Date
Earliest Possible Service Date
Former Company Eligibility Service Benefit Service
-------------------------------------------------------------
Swanton Savings Bank
& Trust Company July 1, 1947 July 1, 1947
Orleans Trust October 11, 1954 October 11, 1954
Company
Valley Savings Bank
& Trust Company November 1, 1954 November 1, 1954
National Bank of November 1, 1955 November 1, 1995
Newport
Addison County Trust Last hire date Last hire date
Company prior to March 26, prior to March 26,
1960 1960
National Bank of Last hire date Last hire date
Vergennes prior to June 30, prior to June 30,
1962 1962
Capital Savings Bank Last hire date Last hire date
& Trust Company prior to October 1, prior to October
1962 1, 1962
First National Bank Last hire date Last hire date
of Montpelier prior to February prior to February
21, 1963 21, 1963
County National Bank Last hire date Last hire date
of Bennington prior to September prior to September
1, 1973 1, 1973
Mountain Trust Last hire date March 20, 1981
Company prior to January 1,
1983
Rutland Savings Bank See Section 3.3 See Section 3.4
Electronic Data
Systems Corporation See Section 3.3 See Section 3.4
Bellows Falls Trust See Section 3.3 See Section 3.4
Company
PENSION PLAN FOR EMPLOYEES OF THE CHITTENDEN CORPORATION
EXHIBIT A SERVICE AND BENEFITS FOR
EMPLOYEES OF ACQUIRED COMPANIES
PART II Active Members with Prior Plan Benefits as of January 1, 1981
------------------------------------------------------------------------
Social Normal Annual
Security Retirement Pension
Name Number Date at NRD
Blow, Ella A. ###-##-#### 04/01/84 $ 342.36
Frost, Marion E. ###-##-#### 11/01/88 359.23
Jepson, George H. ###-##-#### 01/01/94 793.78
Murphy, Arthur B. ###-##-#### 07/01/87 2,601.87
Niegoda, Eva M. ###-##-#### 06/01/04 499.52
Walsh, Jeanne Z. ###-##-#### 06/01/93 188.59
10.3 CHITTENDEN CORPORATION
INCENTIVE SAVINGS AND PROFIT SHARING PLAN
(As Amended and Restated Effective January 1, 1989)
June 1994
TABLE OF CONTENTS
Section
PREAMBLE
ARTICLE I-DEFINITIONS
Account 1.1
Affiliated Employer 1.2
Basic Employee Contribution 1.3
Basic Employee Contribution Account 1.4
Beneficiary 1.5
Code 1.6
Computation Period 1.7
Disability 1.8
Earnings 1.9
Effective Date 1.10
Eligible Employee 1.11
Employee 1.12
Employer 1.13
Employment Date 1.14
Entry Date 1.15
ERISA 1.16
Fiduciary 1.17
Former Participant 1.18
Highly Compensated Employee 1.19
Highly Compensated Group 1.20
Hour of Service 1.21
Matching Contribution 1.22
Matching Contribution Account 1.23
Nonparticipating Employer 1.24
One Year Break in Service 1.25
Participant 1.26
Participating Employer 1.27
Plan 1.28
Plan Administrator 1.29
Plan Year 1.30
Reemployment Date 1.31
Rollover Contribution 1.32
Rollover Contribution Account 1.33
Service 1.34
Service Termination Date 1.35
Spouse 1.36
Supplementary Employee Contribution 1.37
Supplementary Employee Contribution Account 1.38
Trust or Trust Fund 1.39
Trust Agreement 1.40
Trustee 1.41
Valuation Date 1.42
Year of Eligibility Service 1.43
ARTICLE II-PARTICIPATION
Eligibility to Participate 2.1
Commencement of Participation 2.2
Transfers 2.3
Reemployment of Terminated Employee or Resumption of
Employment Following Leave of Absence 2.4
ARTICLE III-PARTICIPANT CONTRIBUTIONS
AND MAXIMUM AMOUNTS
Basic Employee Contributions 3.1
Supplementary Employee Contributions 3.2
Rollover Contributions 3.3
Change in Level of Contributions 3.4
Suspension and Resumption of Contributions 3.5
Change in Earnings 3.6
Remittance of Participant Contributions 3.7
Limitation on Amount and Return of Basic and Supplementary
Employee Contributions In Certain Instances 3.8
ARTICLE IV-MATCHING CONTRIBUTIONS AND OVERALL
CONTRIBUTION LIMITS
Matching Contributions 4.1
Remittance of Matching Contributions 4.2
Limitation on Amount of Matching Contributions
In Certain Instances 4.3
Aggregate Limit Test 4.4
Maximum Total Allocations 4.5
Annual Additions 4.6
Contributions Conditioned on Tax Deductibility 4.7
Return of Contributions 4.8
Payment of Expenses 4.9
ARTICLE V-INVESTMENT OF CONTRIBUTIONS
Plan Administrator to Establish Accounts 5.1
Investment Options 5.2
Change in Investment Options 5.3
Investment Rules 5.4
ARTICLE VI-TRUST FUND
The Trust Fund 6.1
Valuation of Funds 6.2
Allocation of Income, Profits, Losses and Expenses 6.3
ARTICLE VII-DEATH AND DISABILITY
Pre-Retirement Death Benefit 7.1
Payment of Death Benefit 7.2
Designation of Beneficiary 7.3
Payment Other Than to Beneficiary 7.4
Post-Retirement Death Benefit 7.5
Definition of Disability 7.6
Disability Benefit 7.7
Recovery from Disability 7.8
ARTICLE VIII-VESTING AND TERMINATION OF EMPLOYMENT
Vesting of Contributions 8.1
Vesting of Matching Contributions 8.2
Method of Payment 8.3
Forfeitures 8.4
Reemployment 8.5
Determination of Vested Interest in the Case of
Certain Distributions 8.6
ARTICLE IX-LOANS AND WITHDRAWALS
Participant Loans 9.1
Rules Relating to Loans 9.2
Withdrawals from Rollover Contribution Accounts 9.3
Withdrawals After Age 59-1/2 9.4
Hardship Withdrawals 9.5
Rules for Withdrawals 9.6
Debiting of Withdrawals 9.7
ARTICLE X-PAYMENT OF BENEFITS
Entitlement to Distribution 10.1
Form of Payment 10.2
Time of Payment 10.3
Amount of Distribution 10.4
Death Benefits After Termination of Employment 10.5
Limitation on Distributions 10.6
Segregated Accounts 10.7
Missing Persons 10.8
Direct Rollover Provisions 10.9
ARTICLE XI-RETIREMENT PLAN COMMITTEE
Responsibility for Plan and Trust Administration 11.1
Retirement Plan Administrator 11.2
Agents of the Plan Administrator 11.3
Plan Administrator Procedures 11.4
Powers of the Plan Administrator 11.5
Benefit Claims Procedures 11.6
Reliance on Reports and Certificates 11.7
Other Powers and Duties of the Plan Administrator 11.8
Compensation of Plan Administrator 11.9
Liability of Plan Administrator 11.10
Indemnification 11.11
ARTICLE XII-FIDUCIARY RESPONSIBILITIES
Basic Responsibilities 12.1
Actions of Fiduciaries 12.2
Fiduciary Liability 12.3
ARTICLE XIII-AMENDMENT AND TERMINATION
Internal Revenue Service Qualification 13.1
Employer's Right to Amend or Terminate 13.2
Participating Employer's Right to Terminate 13.3
Valuation of Assets 13.4
Distribution of Assets 13.5
ARTICLE XIV-TOP-HEAVY PLAN REQUIREMENTS
General Rule 14.1
Minimum Contribution Provisions 14.2
Impact on Maximum Benefits 14.3
Top-Heavy Plan Definitions 14.4
Key Employee 14.5
Non-Key Employee 14.6
Change from Top-Heavy Status 14.7
ARTICLE XV-GENERAL PROVISIONS
Plan Voluntary 15.1
Payments to Minors and Incompetents 15.2
Non-Alienation of Benefits 15.3
Use of Masculine and Feminine; Singular and Plural 15.4
Merger, Consolidation or Transfer 15.5
Leased Employees 15.6
Governing Law 15.7
Severability 15.8
Captions 15.9
PREAMBLE
Effective January 1, 1985, Chittenden Corporation (the "Employer")
established a retirement plan referred to as the Chittenden
Corporation Incentive Savings and Profit Sharing Plan (the "Plan")
as provided herein. A Trust Agreement has been adopted by the
Employer and is intended to form a part of this Plan. The purpose
of this Plan is to encourage employee savings for retirement and
to provide a tax qualified facility for accumulation of funds to
be used to provide benefits payable to an Employee upon his
retirement, death, disability, termination of employment, or on
certain other occasions.
This Plan constitutes an amendment to, restatement of, and
continuation of the Plan as it was originally effective January 1,
1985, and as amended from time to time thereafter. This amendment
and restatement is effective January 1, 1989, except to the extent
otherwise specifically provided herein.
It is intended that this Plan be qualified under Section 401(a) of
the Internal Revenue Code of 1986 (the "Code"), as amended from
time to time, and meet the requirements of Code Section 401(k) as
a qualified cash or deferred arrangement. It is also intended
that the Trust be exempt from taxation as provided under Code
Section 501(a).
ARTICLE I
DEFINITIONS
The following words and phrases when used in the Plan shall have
the following meanings, unless a different meaning is plainly
required by the context:
1.1 "ACCOUNT" shall mean the credit balance of a Participant or
Former Participant in the Trust Fund represented by his Pre-Tax
Contribution Account, Matching Contribution Account and his
Rollover Contribution Account, if any.
1.2 "AFFILIATED EMPLOYER" shall mean any corporation which is
included with the Employer in a controlled group of corporations,
as determined in accordance with Code Section 414(b), any
unincorporated trade or business which, as determined under
regulations of the Secretary of the Treasury, is under common
control of the Employer under Code Section 414(c), any
organization that includes the Employer, which is a member of an
affiliated service group, as defined in Code Section 414(m), and
any other entity required to be aggregated with the Employer
pursuant to regulations under Code Section 414(o). For the
purposes of Sections 4.5 and 4.6, Code Sections 414(b) and (c)
shall be applied as modified by Code Section 415(h).
1.3 "BASIC EMPLOYEE CONTRIBUTION" shall mean a salary reduction
contribution made to the Plan on behalf of a Participant pursuant
to Article III with respect to which Matching Contributions are
made.
1.4 "BASIC EMPLOYEE CONTRIBUTION ACCOUNT" shall mean a
Participant's interest in the Trust Fund attributable to Basic
Employee Contributions made to the Plan including investment
earnings thereon.
1.5 "BENEFICIARY" shall mean the person or persons designated by
the Participant or Former Participant to receive benefits under
the Plan in the event of the Participant's death. If the
Participant is married and designates someone other than his legal
Spouse, his Beneficiary designation must include the written
consent of his legal Spouse at the time the designation is made in
order to be valid. A former Spouse's consent shall not be binding
on a subsequent Spouse.
Such written consent must approve the specific beneficiary
designated, acknowledge the effect of such designation and be
witnessed by a notary public or a Plan representative. If it is
established to the satisfaction of the Plan Administrator that the
Participant has no Spouse, or that the Spouse's consent cannot be
obtained because the Spouse cannot be located, or because of such
other circumstances as may be prescribed in regulations issued
pursuant to Code Section 417, such written consent shall not be
required. If no valid Beneficiary designation is in effect at the
time of the Participant's death, Section 7.4 shall apply.
1.6 "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any regulations issued thereunder.
Reference to any Code Section shall include any successor
provision thereto.
1.7 "COMPUTATION PERIOD" shall mean the 12-month period commencing
on an Employee's Employment Date and on each anniversary thereof.
If an Employee fails to complete 1,000 Hours of Service during the
first Computation Period following his Employment Date,
Computation Period with respect to such Employee shall mean the
calendar year commencing in the first Computation Period and each
subsequent calendar year.
1.8 "DISABILITY" shall mean a total and permanent disability as
defined pursuant to Article VII.
1.9 "EARNINGS" shall mean the base compensation plus commissions
paid by a Participating Employer to an Employee during a Plan
Year, including any amounts contributed on behalf of a Participant
on a pre-tax basis under this Plan pursuant to Article III or to a
cafeteria plan as defined in Code Section 125 sponsored by a
Participating Employer. For Plan Years beginning on or after
January 1, 1994, earnings hereunder shall include bonuses,
overtime payments or any other additional compensation paid on
behalf of the Employee during a Plan Year.
In determining the Earnings of an Employee, the family aggregation
rules of Section 414(q)(6) of the Code shall apply, except that in
applying such rules, the term "family" shall only include the
Spouse of the Employee and any lineal descendants of the Employee
who have not attained age 19 before the close of the Plan Year.
A Participant's Earnings taken into account under the Plan for any
Plan Year shall not exceed $200,000 ($150,000 for 1994) or such
amount as indexed pursuant to Code Sections 401(a)(17) and 415(d)
and the applicable regulations thereunder.
1.10 "EFFECTIVE DATE" of this Amendment and Restatement shall mean
January 1, 1989.
1.11 "ELIGIBLE EMPLOYEE" shall mean an Employee who is included in
the eligible class described in Section 2.1.
1.12 "EMPLOYEE" shall mean any common-law employee, including
officers, of the Employer or an Affiliated Employer.
A leased employee as described in Code Section 414(n)(2) shall be
considered an Employee only to the extent required by Section
15.6.
1.13 "EMPLOYER" shall mean the Chittenden Corporation.
1.14 "EMPLOYMENT DATE" shall mean the first day for which an
Employee receives credit for an Hour of Service.
1.15 "ENTRY DATE" shall mean any January 1, April 1, July 1, or
October 1.
1.16 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time. References to any
section of ERISA shall include any successor provision thereto.
1.17 "FIDUCIARY" shall mean any person who exercises any
discretionary authority or discretionary control respecting the
management of the Plan, assets held under the Plan, or disposition
of Plan assets; who renders investment advice for a fee or other
compensation, direct or indirect, with respect to assets held
under the Plan or has any authority or responsibility to do so; or
who has any discretionary authority or discretionary
responsibility in the administration of the Plan. Any person who
exercises authority or has responsibility of a fiduciary nature as
described above shall be considered a Fiduciary under the Plan.
1.18 "FORMER PARTICIPANT" shall mean an individual who was a
Participant, has terminated employment with the Employer and all
Affiliated Employers, and has not received a total distribution of
his vested Account under the Plan.
1.19 "HIGHLY COMPENSATED EMPLOYEE" shall mean each Employee who at
any time during the current or preceding Plan Year:
(a) was a 5% owner (as defined in Code Section 416(i)(l)) of the
Employer or an Affiliated Employer;
(b) received compensation from the Employer or an Affiliated
Employer in excess of $75,000 (as indexed pursuant to applicable
regulations under the Code);
(c) received compensation from the Employer or an Affiliated
Employer in excess of $50,000 (as indexed pursuant to applicable
regulations under the Code) and was in the group consisting of the
top 20% of all Employees when ranked on the basis of compensation
received during such Plan Year; or
(d) was at any time an officer of the Employer or Affiliated
Employer who received compensation in excess of 50% of the amount
in effect under Code Section 415(b)(1)(A) for such Plan Year.
Notwithstanding the foregoing, an Employee not described in
paragraph (b), (c), or (d) above for the preceding Plan Year shall
only be a Highly Compensated Employee for the current Plan Year if
he is described in paragraph (b), (c) or (d) for the current Plan
Year and is one of the top 100 Employees when ranked by
compensation for such Plan Year. For purposes of this Section,
"compensation" shall mean compensation as defined in Code Section
414(q)(7).
In any event, the determination of a Highly Compensated Employee
shall be made pursuant to Code Section 414(q) and regulations
issued thereunder. Accordingly, the Plan Administrator reserves
the right to elect to use the calendar year election to determine
Highly Compensated Employees as provided in Treasury Regulation
1.414(q)-1T Q&A 14(b)1 or the simplified method as described in
Revenue Procedure 93-42, Section 4.
Notwithstanding the above, a "Highly Compensated Employee" is also
any Eligible Employee who is a Family Member of a 5% owner or a
Highly Compensated Employee who is one of the top ten highest paid
employees. A Family Member is an Employee who is:
(a) a spouse;
(b) a lineal ascendant or descendant; or
(c) a spouse of a lineal ascendant or descendant.
Pursuant to Section 414(q) of the code, such Family Member shall
not be considered a separate Employee and any compensation paid to
such individual (and any applicable contribution or benefit on
behalf of such individual) shall be treated as if it were paid to
(or on behalf of) the 5% owner or Highly Compensated Employee.
1.20 "HIGHLY COMPENSATED GROUP" shall mean the group of Highly
Compensated Employees who are also Eligible Employees as defined
herein.
1.21 "HOUR OF SERVICE" shall mean:
(a) Each hour for which an Employee is directly or indirectly
paid or entitled to payment by the Employer or any Affiliated
Employer for the performance of duties;
(b) Each hour for which an individual is directly or indirectly
paid or entitled to payment by the Employer or any Affiliated
Employer (including payments made or due from a trust fund or
insurer to which the Employer or Affiliated Employer contributes
or pays premiums) on account of a period of time during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to periods of vacation, holidays,
illness, incapacity, disability, layoff, jury duty, military duty,
or leave of absence, provided that:
(i) No more than 501 Hours of Service shall be credited under
this paragraph (b) to an individual on account of any single
continuous period during which the individual performs no duties;
and
(ii) Hours of Service shall not be credited under this paragraph
(b) to an individual for a payment which solely reimburses the
individual for medically related expenses incurred by the
individual or which is made or due under a plan maintained solely
for the purpose of complying with applicable workers'
compensation, unemployment compensation or disability insurance
laws.
(c) Each hour not already included under paragraph (a) or (b)
above for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer or by an Affiliated
Employer, provided that crediting of Hours of Service under this
paragraph (c) with respect to periods described in paragraph (b)
above shall be subject to the limitation therein set forth.
The number of Hours of Service to be credited under paragraph (b)
or (c) above on account of a period during which an Employee
performs no duties, and the Plan Years to which Hours of Service
shall be credited under paragraph (a), (b) or (c) above shall be
determined by the Plan Administrator in accordance with Sections
2530.200b-2(b) and (c) of the regulations of the U.S. Department
of Labor.
For purposes of determining the number of Hours of Service
completed in any applicable 12-month period, subsequent to January
1, 1985, the Employer shall maintain accurate records of actual
hours completed for all hourly-paid Employees, and for all
salaried Employees not exempt from the provisions of the Fair
Labor Standards Act, for whom records of actual working time are
required by federal law to be maintained, and for all Employees
who are regularly scheduled by the terms and conditions of their
employment to complete less than 1,000 Hours of Service in any
applicable 12-month period.
The Employer shall credit all salaried Employees exempt from the
provisions of the Fair Labor Standards Act who are regularly
scheduled by the terms and conditions of their employment to
complete 1,000 more Hours of Service in any applicable 12-month
period, with 45 Hours of Service per week for each week subsequent
to January 1, 1985 in which the Employee is employed by the
Employer.
Solely for purposes of eligibility and vesting, an Eligible
Employee who is absent from work for maternity or paternity
reasons shall be credited with 501 Hours of Service during the
first Plan Year in which he would have otherwise been credited
with less than 501 Hours of Service. For purposes of this
paragraph, an absence from work for maternity or paternity reasons
means an absence (1) by reason of the pregnancy of the Employee,
(2) by reason of a birth of a child of the Employee, (3) by reason
of the placement of a child with the individual in connection with
the adoption of such child by such Employee, or (4) for purposes
of caring for such child for a period beginning immediately
following such birth or placement.
To the extent not credited above, Hours of Service will also be
credited based on the customary work week of the Employee for
periods of military duty (as required by applicable law), layoff,
and approved leave of absence.
1.22 "MATCHING CONTRIBUTION" shall mean a contribution by a
Participating Employer made to the Plan on behalf of a Participant
pursuant to Article IV.
1.23 "MATCHING CONTRIBUTION ACCOUNT" shall mean a Participant's
interest in the Trust Fund attributable to Matching Contributions
made to the Plan including investment earnings thereon.
1.24 "NONPARTICIPATING EMPLOYER" shall mean any Affiliated
Employer which is not a Participating Employer.
1.25 "ONE YEAR BREAK IN SERVICE" shall mean a consecutive 12-month
period commencing on an Employee's Service Termination Date (or
anniversary thereof) in which such individual does not complete
more than 500 Hours of Service.
1.26 "PARTICIPANT" shall mean an Employee who is either currently
participating in the Plan or who has an Account under the Plan.
1.27 "PARTICIPATING EMPLOYER" shall mean the Employer and any
other Affiliated Employer which participates in the Plan with the
permission of the Employer.
1.28 "PLAN" shall mean the Chittenden Corporation Incentive
Savings and Profit Sharing Plan as set forth in this document and
as amended from time to time.
1.29 "PLAN ADMINISTRATOR" shall mean the Chittenden Corporation.
1.30 "PLAN YEAR" shall mean the 12-month period commencing on
January 1 and ending on the next following December 31.
1.31 "REEMPLOYMENT DATE" shall mean the day an Employee first
completes an Hour of Service following a Service Termination Date
or in the case of an Employee on an approved leave of absence the
first day he returns to work with the Employer or an Affiliated
Employer.
1.32 "ROLLOVER CONTRIBUTION" shall mean a contribution made to the
Plan by a Participant pursuant to Article III.
1.33 "ROLLOVER CONTRIBUTION ACCOUNT" shall mean a Participant's
interest in the Trust Fund attributable to Rollover Contributions
made to the Plan including investment earnings thereon.
1.34 "SERVICE" shall mean all periods of employment with the
Employer and Affiliated Employers used to determine an Employee's
vested percentage in accordance with Article VIII. An Employee
shall be credited with a Year of Service for each Plan Year he is
credited with 1,000 or more Hours of Service.
(a) In the case of an Employee who was not vested in his Matching
Contribution Account pursuant to Article VIII prior to incurring a
Service Termination Date, all Service earned before and after a
One Year Break in Service shall be credited if the total period of
the break in Service does not equal or exceed five One Year Breaks
in Service.
(b) In the case of an Employee who was not partially or fully
vested in his Matching Contribution Account pursuant to Article
VIII prior to incurring a Service Termination Date, the Service
earned prior to a One Year Break in Service shall not be credited
if the total period of the break in Service equals or exceeds five
One Year Breaks in Service.
(c) If an Employee leaves active Service to enter the Armed
Forces of the United States (i) through the operation of a
compulsory military service law, or (ii) during a period of
declared national emergency, or (iii) pursuant to a military leave
of absence granted by the Employer, the period of his absence
shall be counted as active Service, provided the Employee returns
to Service with the Employer within 90 days (or such longer period
as may be provided by law for the protection of reemployment
rights) after his discharge or release from active duty in the
Armed Forces of the United States or within the period for which
such military leave of absence was granted by the Employer, as the
case may be.
1.35 "SERVICE TERMINATION DATE" shall mean the earliest of the
date on which the Employee resigns, is discharged, dies, or
retires from Service with the Employer and all Affiliated
Employers.
1.36 "SPOUSE" shall mean the legal spouse to whom a Participant is
married under applicable state law on the date benefits commence.
However, if the Participant should die before the date benefits
are to commence, then the Spouse shall be the legal spouse to whom
the Participant was married on the Participant's date of death. A
former spouse will be treated as the Spouse or surviving Spouse to
the extent required under a qualified domestic relations order as
defined in Code Section 414(p).
1.37 "SUPPLEMENTARY EMPLOYEE CONTRIBUTION" shall mean a salary
reduction contribution made to the Plan on behalf of a Participant
pursuant to Article III with respect to which Matching
Contributions are not made.
1.38 "SUPPLEMENTARY EMPLOYEE CONTRIBUTION ACCOUNT" shall mean a
Participant's interest in the Trust Fund attributable to
Supplementary Employee Contributions made to the Plan including
investment earnings thereon.
1.39 "TRUST" or "TRUST FUND" shall mean all assets held by the
Trustee in accordance with the Trust Agreement.
1.40 "TRUST AGREEMENT" shall mean the trust agreement between the
Employer and a Trustee as provided for in Article XI.
1.41 "TRUSTEE" shall mean the individual, individuals or
institution appointed by the Board of Directors of the Employer to
act in accordance with the Trust Agreement.
1.42 "VALUATION DATE" shall mean March 31, June 30, September 30,
and December 31, and any other date designated as a Valuation Date
by the Plan Administrator.
1.43 "YEAR OF ELIGIBILITY SERVICE" shall mean a Computation Period
during which an Employee completes 1,000 or more Hours of Service.
All Eligibility Service, whether or not consecutive, shall be
recognized for purposes of the Plan, except that if an Employee
who is not yet a Participant incurs five or more consecutive One
Year Breaks in Service, his Eligibility Service before such One
Year Breaks in Service shall be forfeited.
ARTICLE II
PARTICIPATION
2.1 ELIGIBILITY TO PARTICIPATE. Each Employee shall be an
Eligible Employee upon satisfying the following requirements:
(a) he is employed by a Participating Employer;
(b) he has completed one year of Eligibility Service;
(c) he is regularly scheduled to work at least 20 hours per week;
(d) he is not covered by a collective bargaining agreement unless
such agreement provides for his participation herein; and
(e) he is not a "leased employee" as defined under Code Section
414(n)(2).
Notwithstanding the foregoing, an Employee who has terminated
employment with the Employer is not considered an Eligible
Employee for purposes of making Basic or Supplementary Employee
Contributions or receiving Matching Contributions in the Plan even
though such Employee may have salary continuance earnings after
his Service Termination Date.
2.2 COMMENCEMENT OF PARTICIPATION. Except as provided in Section
2.4, each Eligible Employee shall become a Participant (or if his
participation has terminated, shall again become a Participant) on
the Entry Date coinciding with or next following the date on which
he:
(a) meets the requirements of Section 2.1; and
(b) enrolls in the Plan by completing an election form to
initiate contributions pursuant to Article III. However, if an
Eligible Employee fails to enroll when first eligible to do so,
such Employee shall be eligible to enroll on any following Entry
Date providing he is then an Eligible Employee.
2.3 TRANSFERS. The following provisions shall govern in the case
of an Employee who changes employment status:
(a) In the event that an Eligible Employee directly transfers to
an ineligible class of Employees, he shall be deemed to continue
as a Participant for all purposes of the Plan except that he shall
not be permitted to direct any further Basic or Supplementary
Employee Contributions on his behalf under the Plan nor shall he
receive any further Matching Contributions unless he again becomes
an Eligible Employee. Such an Employee shall continue to accrue
Years of Service pursuant to Section 1.34.
(b) In the event that an Employee in an ineligible class
transfers to an employment classification as an Eligible Employee,
his Years of Service earned during his employment with all
Participating and Nonparticipating Employers shall be credited
under this Plan. Such Employee shall be eligible to become a
Participant when he meets the requirements of Section 2.2.
2.4 REEMPLOYMENT OF TERMINATED EMPLOYEE OR RESUMPTION OF
EMPLOYMENT FOLLOWING LEAVE OF ABSENCE. A terminated Employee or
an employee on an approved leave of absence who resumes active
employment with a Participating Employer as an Eligible Employee
may elect to become a Participant on the first day of the pay
period coinciding with or next following his Reemployment Date,
provided he meets the requirements of Section 2.2 on such
Reemployment Date, or if later, the Entry Date coinciding with or
next following the date on which he meets such requirements.
ARTICLE III
PARTICIPANT CONTRIBUTIONS AND MAXIMUM AMOUNTS
3.1 BASIC EMPLOYEE CONTRIBUTIONS. Each Eligible Employee may
elect, in writing, to authorize a Participating Employer to reduce
his Earnings and make a corresponding Basic Employee Contribution
on his behalf commencing on any Entry Date. This reduction in
Earnings must be in any whole percentage from 2% to 6% of such
Earnings. Authorization to reduce Earnings shall be in writing
and shall be delivered to the Plan Administrator no later than 10
days prior to the Entry Date as of which the Basic Employee
Contribution becomes effective, unless the Plan Administrator
agrees to accept a later authorization according to such uniform
and nondiscriminatory rules as it may adopt. Such Earnings
reduction shall continue unchanged until the Participant
terminates employment, changes or suspends the Basic Employee
Contribution in accordance with Section 3.4 or 3.5 or transfers to
the employment of a Nonparticipating Employer or an ineligible
class of Employees.
Basic Employee Contributions made under this Section 3.1 shall be
subject to the limitations of Sections 3.8, 4.4, and 4.5.
3.2 SUPPLEMENTARY EMPLOYEE CONTRIBUTIONS. Each Eligible Employee
may elect, in writing, to authorize a Participating Employer to
reduce his Earnings and make a corresponding Supplementary
Employee Contribution on his behalf commencing on any Entry Date.
The contribution rate must be in any whole percentage from 1% to
10% of such Earnings, provided that such Supplementary Contribu-
tion percentage shall not exceed the difference between 16% and
the contribution percentage such Eligible Employee has currently
authorized for Basic Employee Contributions. Authorization to
make Supplementary Employee Contributions shall be in writing and
shall be delivered to the Plan Administrator no later than 10 days
prior to the Entry Date as of which the Supplementary Employee
Contribution becomes effective, unless the Plan Administrator
agrees to accept a later authorization according to such uniform
and nondiscriminatory rules it may adopt. Such Earnings reduction
shall continue unchanged until the Participant terminates employ-
ment, changes or suspends his Supplementary Employee Contribution
election in accordance with Section 3.4 or 3.5 or transfers to the
employment of a Nonparticipating Employer or an ineligible class
of Employees.
Supplementary Employee Contributions made under this Section 3.2
shall be subject to the limitations of Sections 3.8, 4.4, and 4.5.
Matching Contributions shall not be made with respect to a
Participant's Supplementary Employee Contributions.
3.3 ROLLOVER CONTRIBUTIONS. An Employee who is or who would be an
Eligible Employee except for the year of Eligibility Service
requirement under Section 2.1 may elect, subject to the written
consent of the Plan Administrator, to make a Rollover Contribution
to the Trust Fund to the extent permitted under Code Sections
402(a)(5) and (6) and other applicable Code sections and related
rulings and regulations. A Rollover Contribution shall be subject
to the following rules:
(a) A Rollover Contribution shall consist of (i) all or a portion
of an eligible distribution (as defined in Code Section 402(g))
from a qualified trust under Code Section 401(a), which trust is
exempt from tax under Code Section 501(a) (or from an annuity plan
qualified under Code Section 403(a)) or (ii) all or a portion of
an eligible distribution from an individual retirement account, an
individual retirement annuity, or a retirement bond (in each case
within the meaning of Code Section 408), all of the assets of
which arose from a distribution described in (i) which was
transferred to such account, annuity, or bond within 60 days from
the date of the distribution; provided that the Rollover
Contribution shall not include any after-tax employee
contributions;
(b) A Rollover Contribution shall not exceed the fair market
value of the amount described in (a) above;
(c) A Rollover Contribution shall be made in cash; and
(d) In the event a Rollover Contribution consists of an amount
which has been paid directly to the individual, such Rollover
Contribution shall be made no later than 60 days following the
date the Participant receives the amount distributed.
In addition to meeting the above requirements, any Rollover
Contribution election must be submitted with the following:
(e) A written statement to the Plan Administrator from the
Employee's former employer or by the other qualified plan's
trustee stating that the amount of and type of Rollover
Contribution, to the best of his knowledge, meets all of the
requirements contained herein for such Rollover Contribution. The
Plan Administrator may, in its discretion, accept any other
evidence of the amount and nature of the Rollover Contribution;
and
(f) A written statement by the Employee that he understands the
provisions of this Section 3.3 which govern the investment and
eventual distribution of such Rollover Contribution under this
Plan.
An Employee who makes a Rollover Contribution shall be considered
a Participant under the Plan solely with respect to such Rollover
Contribution until he otherwise becomes a Participant pursuant to
Sections 2.1 and 2.2.
3.4 CHANGE IN LEVEL OF CONTRIBUTIONS. The Basic and Supplementary
Contribution percentages as designated by the Participant shall
continue in effect, notwithstanding any change in his Earnings,
until he elects to change such percentage. Subject to the
requirements of Sections 3.1 and 3.2, a Participant may change the
rate of such contributions as of any Entry Date by providing 10
days' prior written notice to the Plan Administrator or such
lesser notice as the Plan Administrator may approve according to
such uniform and nondiscriminatory rules as it may adopt. Notice
of any such change shall be given on a form to be provided by the
Plan Administrator for this purpose and shall be signed by the
Participant and delivered to the Plan Administrator.
3.5 SUSPENSION AND RESUMPTION OF CONTRIBUTIONS. A Participant may
suspend the making of Basic Contributions and/or Supplementary
Employee Contributions as of any pay period by providing at least
30 days' prior written notice to the Plan Administrator or such
lesser notice as the Plan Administrator may approve according to
such uniform and nondiscriminatory rules as it may adopt. No one
such suspension shall be for a period of less than six months.
Providing he is still an Eligible Employee, a Participant who
suspends his contributions pursuant to the above rules may resume
such contributions effective as of any Entry Date following a six-
month period of suspension, with 10 days' prior written notice to
the Plan Administrator or such lesser notice as the Plan
Administrator may approve according to uniform and non-
discriminatory rules it may adopt.
3.6 CHANGE IN EARNINGS. In the event of a change in the Earnings
of a Participant, the percentage of his Earnings that he has
authorized as his Basic Employee Contribution and Supplementary
Employee Contribution shall be applied as soon as practicable with
respect to such changed Earnings without action by the
Participant.
3.7 REMITTANCE OF PARTICIPANT CONTRIBUTIONS. Basic Employee and
Supplementary Employee Contributions will be remitted to the
Trustee by the Participating Employers as soon as practicable
following the end of the calendar month in which such
contributions are made but in no event later than 30 days follow-
ing the end of the Plan Year in which such contributions are made.
Rollover Contributions shall be remitted to the Trustee as soon as
practicable after they are delivered to a Participating Employer.
All Basic Employee, Supplementary Employee, and Rollover
Contributions shall be invested in accordance with the
Participant's investment direction pursuant to Article V.
3.8 LIMITATION ON AMOUNT AND RETURN OF BASIC AND SUPPLEMENTARY
EMPLOYEE CONTRIBUTIONS IN CERTAIN INSTANCES.
(a) In no event shall a Participant's Basic and Supplementary
Employee Contributions for a taxable year under this Plan and any
other cash or deferred arrangements maintained by the Employer
exceed the dollar limit on excludable salary deferrals under Code
Section 402(g)(1) ($9,240 for 1994) as adjusted for increases in
the cost of living pursuant to Code Section 402(g)(5). In the
event a Participant's Basic and Supplementary Employee
Contributions should exceed such dollar limit for a taxable year,
the excess, together with any investment earnings attributable
thereto, shall be returned to the Participant no later than April
15 following the close of the taxable year for which the excess
contribution was made. For the purposes of this Section, the Plan
Administrator shall assume that the Participant's taxable year is
the calendar year unless the Participant notifies the Plan Admin-
istrator to the contrary.
(b) In the event a Participant's Basic and Supplementary Employee
Contributions for a taxable year under this Plan, together with
his salary reduction amounts under another plan which meets the
requirements of Code Section 401(k), exceed the limits set forth
in (a) above, the Participant may treat a portion of such excess
as having been contributed to this Plan and request a return of
such excess together with any investment earnings attributable
thereto. Any such request shall be made no later than March 1
following the close of the taxable year for which the excess
contribution was made, and the return of such excess shall be made
no later than the immediately following April 15.
(c) Effective January 1, 1987, for each Plan Year, the "average
deferral percentage" authorized by the Highly Compensated Group as
Basic and Supplementary Employee Contributions must meet one of
the following tests:
(i) The "average deferral percentage" of the Highly Compensated
Group may not exceed 1.25 multiplied by the "average deferral
percentage" of all other Eligible Employees who are not in such
group, or
(ii) The "average deferral percentage" of the Highly Compensated
Group may not exceed 2.0 multiplied by the "average deferral
percentage" of all other Eligible Employees, who are not in such
group, subject to a maximum differential of two percentage points.
(d) The "average deferral percentage" for a specified group for a
Plan Year shall mean the average of the ratios (calculated
separately for each Employee in such group) of (i) over (ii)
where:
(i) equals the sum of the Basic and Supplementary Employee
Contributions made on behalf of each Eligible Employee for the
Plan Year pursuant to Section 3.1; and
(ii) equals the Eligible Employee's compensation for such Plan
Year as provided under Code Section 414(s), including any
alternative definitions thereunder.
For the purpose of the foregoing, the average deferral percentage
of any Highly Compensated Employee shall include any excess Basic
and Supplementary Employee Contributions that have been returned
to such Employee pursuant to paragraph (a) and/or (b) of this
Section 3.8. The average deferral percentage of any non-Highly
Compensated Employee shall include any excess Basic and
Supplementary Employee Contributions that have been returned to
such Employee pursuant to paragraph (b) only of this Section 3.8.
For purposes of the foregoing, only Basic and Supplementary
Employee Contributions allocated to the Participant's Account on a
date within a Plan Year and paid to the Trust Fund within 12
months following the close of such Plan Year shall be considered
in determining his "deferral percentage" for such Plan Year. In
addition, only Basic and Supplementary Employee Contributions
which are attributable to the Earnings an Employee receives from
the Employer during a Plan Year or within two and one-half months
following the close of such Plan Year shall be considered in
determining the Employee's "deferral percentage" for such Plan
Year.
If the Participating Employer sponsors two or more plans which
include a cash or deferred arrangement but are considered one plan
for purposes of Code Section 401(a)(4) or 410(b), the cash or
deferred arrangements included in such plans shall be treated as
one plan for purposes of determining the "average deferral
percentage".
If any Eligible Employee who is a member of the Highly Compensated
Group is participating in two or more cash or deferred arrange-
ments sponsored by the Employer or an Affiliated Employer, such
cash or deferred arrangements shall be treated as one arrangement
for purposes of determining the "deferral percentage" for such
Eligible Employee.
For purposes of determining the "deferral percentage" of an
Eligible Employee who is a 5% owner or one of the ten most highly-
paid Highly Compensated Employees, the Basic and Supplementary
Employee Contributions and compensation of such Eligible Employee
shall include the Basic and Supplementary Employee Contributions
and compensation for the Plan Year of "family members" (as defined
in Code Section 414(q)(6)) as may be required pursuant to the
family aggregation rules of Code Section 401(k) and pertinent
regulations issued thereunder. To such extent as required by
regulations, family members, with respect to such Highly
Compensated Employees, shall be disregarded as separate Employees
in determining the "average deferral percentage" both for Eligible
Employees who are nonhighly compensated Employees and for Eligible
Employees who are Highly Compensated Employees.
(e) From time to time, the Plan Administrator shall review the
Basic and Supplementary Employee Contributions authorized by
Eligible Employees. If, upon such review, the Plan Administrator
determines that the average percentage of such contributions
applicable to the Highly Compensated Group exceeds or is likely to
exceed the maximum average percentage necessary to comply with the
above rules, the Plan Administrator may reduce the Basic and
Supplementary Employee Contributions of the Highly Compensated
Group, to the extent necessary to comply with such rules. Such
reduction shall be effected by successive reductions of the
highest Contribution percentage authorized by one or more members
of the Highly Compensated Group until the average percentage
applicable to the Highly Compensated Group does not exceed the
maximum average percentage referred to above. Notwithstanding the
foregoing sentence, the Plan Administrator may impose a maximum
dollar limitation which is less than the amount specified in Code
Section 402(g) or a maximum percentage which is less than the
percentage in Section 3.1 to all Basic and Supplementary Employee
Contributions made by the Highly Compensated Group.
(f) If, after the end of the Plan Year, the Plan Administrator
determines that the Basic and Supplementary Employee Contributions
made on behalf of Highly Compensated Employees are in excess of
the amounts allowed under (c)(i) and (c)(ii) above, the Plan
Administrator shall return any Basic and Supplementary Employee
Contributions in excess of the amount permitted above, plus
earnings thereon to the affected Participants until the rules in
either (c)(i) or (c)(ii) above are met. The return of such
"excess contributions" shall be made in the same manner as
described in paragraph (e) above. Such "excess contributions"
shall be distributed within 2-1/2 months, if at all possible,
following the end of the Plan Year in which such Basic and Supple-
mentary Employee Contributions were made and in no event later
than the close of the following Plan Year. The return of any
excess Basic and Supplementary Employee Contributions shall be
made on a pro rata basis from the funds in which such contribu-
tions are then invested, unless the Plan Administrator shall
permit the Participant to elect such other method of return based
on such uniform and nondiscriminatory rules as it may adopt.
In the case of an Eligible Employee who is subject to the family
aggregation rules of Code Section 414(q)(6) because he is a member
of a family of a 5% owner of the Employer or of one of the ten
most highly paid Highly Compensated Employees, the determination
of and return of excess Basic and Supplementary Employee Contri-
butions under this Section shall be made in accordance with the
family aggregation rules of Code Section 401(k) and pertinent
regulations issued thereunder.
(g) For purposes of determining the investment earnings or loss
to be distributed pursuant to paragraphs (a) and (f) hereunder,
the following rules shall apply:
The earnings or loss allocable to the Basic and Supplementary
Employee Contributions is the product of the earnings or loss
allocable to the Participant's Basic and Supplementary Employee
Contribution Accounts for the Plan Year multiplied by a fraction,
the numerator of which is the contributions to be distributed to
the Participant for the year and the denominator is the
Participant's Account balance attributable to such contributions
without regard to any earnings or loss occurring during such Plan
Year.
(h) In the event that the Participating Employer made a Matching
Contribution with respect to any Basic and Supplementary Employee
Contributions returned pursuant to this Section, such Matching
Contribution shall be distributed to or forfeited by the affected
members of the Highly Compensated Group, as determined by the Plan
Administrator according to such uniform and nondiscriminatory
rules as it may adopt.
ARTICLE IV
MATCHING CONTRIBUTIONS AND OVERALL CONTRIBUTION LIMITS
4.1 MATCHING CONTRIBUTIONS.
(a) Each Participating Employer shall make a Matching
Contribution on behalf of each of its Participants in an amount
equal to 35% of Earnings with respect to which such Participant
makes Basic Employee Contributions.
(b) The Employer may make an additional discretionary Matching
Contribution (also referred to as the "Profit Sharing
Contribution") based on the Employer's increase in net income
applicable to Chittenden Corporation common stock for the current
Plan Year over the previous Plan Year. Such additional Matching
Contribution shall be allocated to each Participant in the Plan,
including Participants who suspended contributions during the Plan
Year but who remained as active Employees as of December 31 of
such Plan Year. The additional Matching Contribution will be
equal to a percentage of the Participant's total Basic Employee
Contributions (unreduced by any withdrawals made during the Plan
Year) made for the Plan Year. The percentage allocated to a
Participant's Basic Employee Contribution Account shall be the
same for each Participant.
Effective January 1, 1994, the additional discretionary Matching
Contribution made pursuant to this paragraph (b) shall be made
either in cash or in shares of Chittenden Corporation Common
Stock, as determined by the board of directors of the Employer.
Matching Contributions made under this Section 4.1 shall be
subject to the limitations of Sections 4.3, 4.4, and 4.5.
4.2 REMITTANCE OF MATCHING CONTRIBUTIONS. Matching Contributions
will be paid by the Participating Employers to the Trustee no
later than the Participating Employer's tax filing deadline for
its fiscal year in which such Plan Year ends. Matching
Contributions shall be invested in accordance with the
Participant's investment direction for Basic Employee
Contributions.
4.3 LIMITATION ON AMOUNT OF MATCHING CONTRIBUTIONS IN CERTAIN
INSTANCES. Effective January 1, 1987, for each Plan Year, the
"average contribution percentage" of the Highly Compensated Group
must meet one of the following tests:
(a) The "average contribution percentage" of the Highly
Compensated Group may not exceed 1.25 multiplied by the "average
contribution percentage" of all other Eligible Employees who are
not in such group.
(b) The "average contribution percentage" of the Highly
Compensated Group may not exceed 2.0 multiplied by the "average
contribution percentage" of all other Eligible Employees who are
not in such group, subject to a maximum differential of two
percentage points.
The "average contribution percentage" for a specified group for a
Plan Year shall mean the average of the ratios (calculated sepa-
rately for each Employee in such group) of (i) over (ii) where:
(i) equals the sum of the Matching Contribution made on behalf
of the Eligible Employee for the Plan Year pursuant to Section
4.1; and
(ii) equals the Eligible Employee's compensation for such Plan
Year as provided in Code Section 414(s), including any alternative
definitions thereunder.
For purposes of determining the "contribution percentage" of an
Eligible Employee who is a 5% owner or one of the ten most highly-
paid Highly Compensated Employees, the Matching Contributions and
compensation of such Eligible Employee shall include the Matching
Contributions and compensation for the Plan Year of "family
members" (as defined in Code Section 414(q)(6)) as may be required
pursuant to the family aggregation rules of Code Section 401(m)
and pertinent regulations issued thereunder. To such extent as
required by regulations, family members with respect to Highly
Compensated Employees shall be disregarded as separate Employees
in determining the "contribution percentage" both for Eligible
Employees who are non-highly compensated Employees and for
Eligible Employees who are Highly Compensated Employees.
If the Participating Employer sponsors two or more plans to which
matching Employer Contributions are made and which are subject to
Code Section 401(m), but are considered one plan for purposes of
Code Section 401(a)(4) or 410(b), such plans shall be treated as
one plan for purposes of determining the "average contribution
percentage".
If any Eligible Employee who is a member of the Highly Compensated
Group is participating in two or more plans sponsored by the
Employer or an Affiliated Employer that include matching Employer
Contributions subject to Code Section 401(m), all such
contributions will be treated as made under one plan for purposes
of this paragraph (b).
(c) If for any Plan Year the "average contribution percentage"
for the Highly Compensated Group exceeds the limits set forth in
(a) and (b) above, the "excess aggregate contributions" (as
defined in Code Section 401(m)(6)(B)) shall be distributed to the
Highly Compensated Group within 2-1/2 months, if at all possible,
following the end of the Plan Year in which such contributions
were made and in no event later than the close of the following
Plan Year. The distribution of such "excess aggregate
contributions" shall be effected by successive reductions of the
Matching Contribution percentage(s) of one or more members of the
Highly Compensated Group with the highest "average contribution
percentage" until the "average contribution percentage" applicable
to the Highly Compensated Group does not exceed the maximum
"average contribution percentage" referred to above.
The Matching Contributions made during the Plan Year to the Highly
Compensated Employee shall be distributed to such Highly
Compensated Employee or forfeited at the Plan Administrator's
discretion until he has no remaining "excess aggregate
contributions" or until all of his Matching Contributions for the
Plan Year have been distributed/forfeited. In the event that any
"excess aggregate contributions" are forfeited, such amounts shall
be used to reduce future Matching Contributions to the Plan.
The return of any "excess aggregate contributions" shall be made
on a pro rata basis from the funds in which the "excess aggregate
contributions" are then invested, unless the Plan Administrator
shall permit the Participant to elect such other method of return
based on such uniform and nondiscriminatory rules as it may adopt.
In the case of an Eligible Employee who is subject to the family
aggregation rules of Code Section 414(q)(6) because he is a member
of a family of a 5% owner of the Employer or of one of the ten
most highly paid Highly Compensated Employees, the determination
of and return of "excess aggregate contributions" under this
Section shall be made in accordance with the family aggregation
rules of Code Section 401(m) and pertinent regulations issued
thereunder.
(d) The "excess aggregate contributions" to be distributed to a
Participant shall be adjusted for investment earnings or losses
applicable thereto.
(e) For purposes of determining the investment earnings or losses
to be distributed pursuant to the foregoing paragraphs, the
following rules shall apply:
The earnings or loss is the product of the earnings or loss allo-
cable to the Participant's Matching Contribution Account for the
Plan Year multiplied by a fraction, the numerator of which is
Matching Contributions to be returned to the Eligible Employee for
the year and the denominator is the Eligible Employee's Account
balance attributable to Matching Contributions without regard to
any earnings or loss occurring during such Plan Year.
4.4 AGGREGATE LIMIT TEST.
(a) For any Plan Year commencing on or after January 1, 1989, in
which the "average deferral percentage" (as defined in Section
3.8) and the "average contribution percentage" (as defined in
Section 4.3) of the Highly Compensated Group can only satisfy the
limitations set forth in Sections 3.8(c)(ii) and 4.3(b)
respectively, but neither can satisfy the limitations set forth in
Sections 3.8(c)(i) and 4.3(a), respectively, and all corrective
measures have been taken under Sections 3.8 and 4.3 to ensure
compliance with the provisions of Code Sections 401(k) and 401(m),
the "aggregate limit test" prescribed under proposed Treasury
Regulation 1.401 (m)-2(b)(3), or pertinent final regulations shall
be applicable. The "aggregate limit test" shall be deemed met if
(i) below is greater than or equal to (ii) below where:
(i) equals the sum of (A) and (B) below where:
(A) equals 1.25 multiplied by the greater of (1) and (2) where:
(1) equals the "average deferral percentage" of the non-highly
compensated group of Eligible Employees; and
(2) equals the "average contribution percentage" of the
non-highly compensated group of Eligible Employees;
(B) equals the lesser of (1) and (2) above plus two percentage
points. In no event, however, shall this amount exceed 2.0
multiplied by the lesser of (1) and (2) above.
(ii) equals the sum of (C) and (D) below where:
(C) equals the "average deferral percentage" of the Highly
Compensated Group; and
(D) equals the "average contribution percentage" of the Highly
Compensated Group.
(b) An "alternative aggregate limit test" may be used in place of
the "aggregate limit test" set forth in (a) above for any Plan
Years commencing on or after January 1, 1989, as long as such test
is permitted by the Internal Revenue Service. This "alternative
aggregate limit test" shall be deemed met if (i) below is greater
than or equal to (ii) below where:
(i) equals the sum of (A) and (B) below where:
(A) equals 1.25 multiplied by the lesser of (1) and (2) where:
(1) equals the "average deferral percentage" of the non-highly
compensated group of Eligible Employees; and
(2) equals the "average contribution percentage" of the
non-highly compensated group of Eligible Employees;
(B) equals the greater of (1) and (2) above plus two percentage
points. In no event, however, shall this amount exceed 2.0
multiplied by the greater of (1) and (2) above.
(ii) equals the sum of (C) and (D) below where:
(C) equals the "average deferral percentage" of the Highly
Compensated Group; and
(D) equals the "average contribution percentage" of the Highly
Compensated Group.
(c) The Plan Administrator shall determine each Plan Year the
appropriate reductions, distributions, forfeitures, or such other
adjustments as are permitted under Treasury Regulations pursuant
to Code Sections 401(k) and 401(m) to be made in order to satisfy
the applicable limits set forth in this Section 4.4 and in
Sections 3.8 and 4.3. Any such reductions, distributions or for-
feitures shall be made in accordance with the applicable provi-
sions of Sections 3.8 and 4.3 and the nondiscrimination require-
ments of Code Section 401(a)(4).
(d) In the event that the "average deferral percentage", the
"average contribution percentage" and the "aggregate limit" of the
Highly Compensated Group does not satisfy the requirements set
forth in Sections 3.8, 4.3, and this 4.4, respectively, the
Employer may for any Plan Year commencing prior to January 1,
1992, perform such testing by restructuring the Plan into com-
ponent plans as may be permitted in regulations under Code Section
401(a)(4), provided such component plans meet the coverage
requirements of Code Section 410(b).
4.5 MAXIMUM TOTAL ALLOCATIONS.
(a) Effective January 1, 1987, anything to the contrary herein
notwithstanding, in no event shall the Annual Additions, as
defined in Section 4.6, for any Employee for any Plan Year exceed
the lesser of:
(i) $30,000 or, if greater, 1/4 of the dollar limitation in
effect under Code Section 415(b)(1)(A) (which amount shall be
subject to adjustments as provided by Treasury regulations under
Code Section 415), or
(ii) 25% of the Employee's compensation (as defined by Treasury
regulations under Code Section 415(c)) from the Participating
Employer.
For purposes of this Section 4.5(a), the Plan Year shall be the
limitation year.
In the event an Annual Addition in excess of the lesser of (i) or
(ii) above is allocated to an Employee for a Plan Year, such
excess shall be corrected in the following order to the extent
required to eliminate the excess:
(iii) Matching Contributions shall be reduced. Any reduction in
Matching Contributions shall be credited to a suspense account and
treated as the first allocation of Matching Contributions on
behalf of such Employee for the following Plan Year and for
subsequent Plan Years until fully utilized. If such Employee is
not covered by the Plan during such subsequent Plan Years, the
remaining excess amounts shall be held in a suspense account and
used to reduce the Employer's actual Matching Contribution for
such subsequent Plan Year(s).
(iv) Pre-Tax Contributions shall be reduced. Any reduction of
Pre-Tax Contributions shall be credited to a suspense account and
treated as the first allocation of Pre-Tax Contributions on behalf
of such Employee for the following Plan Year (and succeeding Plan
Years as necessary). In the event that any Pre-Tax Contributions
in the suspense account have not been allocated as Pre-Tax
Contributions to the Employee as of his Service Termination Date,
the Employer shall directly reimburse the Employee for such
remaining amounts, including any investment earnings thereon as
may be required under pertinent regulations.
No contributions shall be made to the Plan on behalf of an
Employee for any period during which a suspense account is in
existence for such Employee.
(b) In the case of an Employee who has participated in a defined
benefit plan maintained by the Employer or an Affiliated Employer,
the sum of the "defined benefit plan fraction" and the "defined
contribution plan fraction," determined as of the close of any
Plan Year, shall not exceed one. An Employee's defined benefit
plan fraction and defined contribution plan fraction shall be
determined as follows:
(i) The "defined benefit plan fraction" is a fraction with a
numerator equal to the Employee's projected annual retirement
benefit determined (other than any benefit attributable to
Employee contributions) under the defined benefit plan and a
denominator equal to the lesser of (A) 1.25 multiplied by the
dollar limitation in effect under Code Section 415(b)(1)(A) for
such Plan Year, or (B) 1.4 multiplied by 100% of the Employee's
compensation which may be taken into account for such Plan Year.
(ii) The "defined contribution plan fraction" is a fraction with
a numerator equal to the sum of the Annual Additions to the
Employee's Account and a denominator equal to the sum for each
calendar year of the Employee's employment with the Employer, any
predecessor of the Employer, or an Affiliated Employer of the
lesser of (A) 1.25 multiplied by the amount determined in
accordance with Code Section 415(e)(3)(B)(i) for each such Plan
Year, or (B) 1.4 multiplied by 25% of the Employee's compensation
(as defined by Treasury Regulations under Code Section 415) which
may be taken into account for each such Plan Year.
For the purpose of applying this Section 4.5(b), all defined
benefit plans and all defined contribution plans maintained by the
Employer and all Affiliated Employers shall be aggregated.
It is intended that this Section 4.5 shall be applied in a manner
which will be in the best interest of an Employee, as determined
by the Plan Administrator. Accordingly, the Plan Administrator
shall reduce an Employee's Annual Additions under this Plan so
that such fraction equals one only if the terms of the defined
benefit plan in which the Employee is participating does not allow
for a reduction of the Employee's benefit so that such fraction
equals one.
4.6 ANNUAL ADDITIONS. Effective January 1, 1987, the Annual
Addition with respect to an Employee for any Plan Year shall be
the sum of the following amounts allocated to his Account for the
Plan Year:
(a) All Employee Contributions, plus
(b) Matching Contributions plus any other Employer contributions
allocated to a qualified plan, plus
(c) Any forfeitures allocated to the Employee's Account, plus
(d) Any amount applied from the suspense account (pursuant to
Section 4.5), plus
(e) Excess contributions and excess aggregate contributions as
defined in Code Sections 401(k)(8)(B) and 401(m)(6)(B), respec-
tively, plus
(f) Excess deferrals, as defined in Code Section 402(g), to the
extent such excess deferrals have not been returned to the
affected Participant by the April 15 following the taxable year in
which such excess deferral was made.
(g) Amounts described in Code Sections 415(l)(1) and 419A(d)(2).
For purposes of applying this Section 4.6, all defined
contribution plans maintained by the Employer and all Affiliated
Employers shall be aggregated.
The term Annual Additions shall not include any Rollover
Contributions.
4.7 CONTRIBUTIONS CONDITIONED ON TAX DEDUCTIBILITY. All Pre-Tax
Contributions and Matching Contributions shall be conditioned upon
their deductibility by the Participating Employer for federal
income tax purposes; provided, however, that no contributions
shall be returned to a Participating Employer, except as provided
in Section 4.8.
4.8 RETURN OF CONTRIBUTIONS. Notwithstanding any other provision
of this Plan, a Basic Employee and/or Supplemental Employee
Contribution, or Matching Contribution upon request by the
Participating Employer may be returned to the Participating
Employer who made the contribution if:
(a) the contribution was made by reason of a mistake of fact; or
(b) the contribution was conditioned upon its deductibility for
income tax purposes and the deduction was disallowed; and
Such contribution shall be returned to the Participating Employer
within one year of the mistaken payment of the contribution or the
disallowance of such deduction, as the case may be.
The amount which may be returned to the Participating Employer is
the excess of the amount contributed over the amount that would
have been contributed had there not occurred the circumstances
causing the excess. Earnings attributable to the excess
contribution may not be returned to the Participating Employer,
but losses thereto shall reduce the amount to be returned.
Furthermore, if the withdrawal of the amount attributable to the
excess contribution would cause the balance of the Account of any
Participant to be reduced to less than the balance which would
have been in the Account had the excess amount not been contrib-
uted, then the amount to be returned to the Participating Employer
shall be limited to avoid such reduction. In the event any Basic
or Supplementary Employee Contributions are returned to a
Participating Employer pursuant to this Section 4.8, the
Participating Employer shall directly reimburse affected Partici-
pants for the amounts so returned.
4.9 PAYMENT OF EXPENSES. In addition to its contributions, the
Employer (or Participating Employer, if applicable) may elect to
pay the administrative expenses of the Plan and fees and retainers
of the Plan's Trustees, consultants, administrators, record-
keepers, auditors, counsel, and other advisors or service
providers so long as the Plan or Trust Fund remains in effect. If
the Employer does not elect to pay all or part of such expenses,
the Trustee may pay these expenses and charge the payment thereof
against the Trust Fund for the Plan Year in which the expenses
were incurred.
ARTICLE V
INVESTMENT OF CONTRIBUTIONS
5.1 PLAN ADMINISTRATOR TO ESTABLISH ACCOUNTS. The Plan
Administrator shall establish and maintain a separate accounting
in the name of each Participant or Former Participant which shall
reflect all contributions by the Participant or Former
Participant, all amounts contributed by the Participating Employer
under the Plan on his behalf, earnings on all such contributions,
any distributions, withdrawals, and any expenses charged against
such contributions. The separate accounting in the name of each
Participant and Former Participant shall include a separate
accounting for Basic Employee Contributions, Supplementary Em-
ployeeContributions,RolloverContributions,andMatchingContributions.
5.2 INVESTMENT OPTIONS. Subject to the provisions of Sections 5.3
and 5.4, a Participant, (including any Employee who is a
Participant solely with respect to Rollover Contributions) and any
Former Participant shall direct the Plan Administrator to invest
his Basic Employee Contributions, Supplementary Employee
Contributions, Rollover Contributions, if any, and Matching
Contributions, in the following funds:
(a) Chittenden Bank Money Market Fund;
(b) Fixed Income Fund;
(c) Equity Fund; and
(d) Chittenden Corporation Common Stock Fund.
The Plan Administrator may, in its sole discretion, eliminate one
or more investment funds, offer additional investment funds, or
alter the underlying investments of one or more funds from time to
time. Participants shall be notified of any changes in investment
funds prior to the effective date of such changes.
It is intended that the Plan constitute an ERISA Section 404(c)
plan and that as such the Plan Fiduciaries may be relieved of
liability for losses which are the result of a Participant's or
Former Participant's investment instructions. As such, the Plan
Administrator shall furnish Participants and Former Participants
with the pertinent investment information outlined in ERISA
Section 404(c).
5.3 CHANGE IN INVESTMENT OPTIONS. Subject to Section 5.4, a
Participant may change the investment allocation of his future
Basic and Supplementary Employee Contributions and Rollover
Contributions, if any, effective as of any Entry Date, by
providing the Plan Administrator with 10 days' prior written
notice or such lesser notice as the Plan Administrator may approve
according to uniform and nondiscriminatory rules it may adopt.
Subject to Section 5.4, a Participant or Former Participant may
also change the investment allocation of his existing Account
effective as of any Entry Date by providing the Plan Administrator
with 10 days' prior written notice or such lesser notice as the
Plan Administrator may approve according to uniform and
nondiscriminatory rules it may adopt.
5.4 INVESTMENT RULES. The following rules shall govern all
aspects of this Article V:
(a) A Participant shall direct the Plan Administrator to invest
his current Basic Employee Contributions, Supplementary Employee
Contributions, and Rollover Contributions, if any, in multiples of
25%, in any of the available funds. Matching Contributions shall
automatically be invested in accordance with the Participant's
investment direction for his Basic Employee Contributions.
Reallocation of the Participant's or Former Participant's existing
Account pursuant to Section 5.3 shall also be made to any of the
available funds in multiples of 25%.
(b) Any investment direction given by a Participant or Former
Participant shall continue in effect until changed by such
Participant or Former Participant as provided hereunder.
(c) In the absence of any written designation of investment
preference by the Participant or Former Participant, Basic
Employee Contributions, Supplementary Employee Contributions,
Rollover Contributions, if any, and Matching Contributions, shall
be invested 100% in the Chittenden Bank Money Market Fund.
(d) Notwithstanding any instruction from any Participant or
Former Participant for investment of funds as provided in this
Article V, the Trustee shall have the right to hold uninvested, or
invested in short-term fixed income investments, any funds
intended for investment or reinvestment as otherwise provided in
this Article for such time as the Trustee, in its sole discretion,
deems advisable.
(e) The Plan Administrator may limit changes otherwise permitted
hereunder in the investment allocation of a Participant's or
Former Participant's Account to the extent a change is precluded
as a result of a temporary period of adverse liquidity with
respect to an investment fund or to the extent a change would
adversely affect the investment return of Accounts of other
Participants or Former Participants.
(f) Each Participant or Former Participant shall have the right
to direct the Trustee as to the manner in which shares of Employer
stock allocated to his Account are to be voted. The Employer
shall furnish the Trustee and the Participant with notices and
information statements when voting rights are to be exercised, in
such time and manner as may be required by applicable law and the
Certificate of Incorporation and By-Laws of the Chittenden
Corporation. Such statement shall be substantially the same for
Participants as for holders of Employer stock in general. The
Participant, in his discretion, may grant proxies for the exercise
of his voting rights under this Section 5.4 in accordance with
proxy provisions of general application. The Trustee shall vote
such stock in accordance with the direction of the Participant.
Fractional shares of Employer stock allocated to a Participant's
accounts shall be combined to the largest number of whole shares
and voted by the Trustee to the extent possible to reflect the
voting direction of the Participants holding fractional shares.
The Trustee shall vote any Employer stock with respect to which a
Participant has voting rights under this Section 5.4, who has not
exercised such voting rights, in accordance with the vote of a
majority of the Participants exercising such voting rights under
this Section 5.4, except in accordance with valid directions or
proxies given under this Section 5.4 or as otherwise provided
under applicable law.
ARTICLE VI
TRUST FUND
6.1 TRUST FUND. All Accounts shall be held in the Trust Fund and
each Participant's and Former Participant's interest in the
investment funds shall be valued in accordance with Sections 6.2
and 6.3.
6.2 VALUATION OF FUNDS. Each investment fund shall be valued by
the Trustee as of each Valuation Date on the basis of the fund's
fair market value.
6.3 ALLOCATION OF INCOME, PROFITS, LOSSES AND EXPENSES. The
Accounts of all Participants and Former Participants shall be
adjusted as of each Valuation Date to reflect the effects of
income, realized and unrealized gains and losses, and expenses
applicable to the fund or funds where such Accounts are invested.
As provided by written procedures established by the Plan
Administrator, such adjustments shall be based upon the proportion
that each Participant's and Former Participant's Account invested
in a fund as of the last preceding Valuation Date, after any
reductions for distributions and additions for contributions
subsequent to such date, bears to the total of all Accounts of all
Participants and Former Participants invested in the same fund as
of the last preceding Valuation Date, after reductions for any
distributions and additions for contributions subsequent to such
date.
ARTICLE VII
DEATH AND DISABILITY
7.1 PRE-RETIREMENT DEATH BENEFIT. Upon the death of a Participant
prior to actual retirement or termination of employment with a
Participating Employer, his Beneficiary, shall be entitled to 100%
of the Participant's Account.
7.2 PAYMENT OF DEATH BENEFIT. After receipt by the Plan
Administrator of due notice of the death of the Participant, the
benefit payable under this Article shall be paid in one lump sum
in accordance with the provisions of Article X.
7.3 DESIGNATION OF BENEFICIARY. Each Participant shall have the
right, by written notice to the Plan Administrator, to designate
or to change the Beneficiary to receive any benefit payable in the
event of his death, subject to the spousal consent requirements of
Section 1.5, if he is then married.
7.4 PAYMENT OTHER THAN TO BENEFICIARY. If a Participant has not
designated a Beneficiary, or the Participant's designated
Beneficiary dies before the Participant, or if the Beneficiary
dies after the death of the Participant, but prior to receiving
the full death benefit hereunder, any remaining benefit shall be
paid to the Beneficiary's designated beneficiary. In the absence
of such designation, any remaining benefit will be paid to the
Beneficiary's estate, unless specified otherwise by the
Participant.
7.5 POST-RETIREMENT DEATH BENEFIT. Upon the death of a
Participant after actual retirement or termination of employment,
benefits will be payable to his Beneficiary only in accordance
with Article X.
7.6 DEFINITION OF DISABILITY. A Participant will be deemed to
have suffered a total and permanent disability for purposes of the
Plan if he is eligible to receive a disability benefit under a
long-term disability plan sponsored by the Employer or an
Affiliated Employer or is eligible for total and permanent
disability benefits under the Social Security Act in effect at the
date of disability.
7.7 DISABILITY BENEFIT. A Participant who has suffered a
Disability shall be entitled to distribution of 100% of the value
of his Account pursuant to the provisions of Article X.
7.8 RECOVERY FROM DISABILITY.
(a) If it is subsequently determined that a Participant who had
become permanently disabled is no longer disabled, and if he
should return to employment with a Participating Employer
immediately upon recovery from Disability, he shall resume
membership in the Plan pursuant to Article II. In the event his
Account has not been distributed prior to his recovery from
Disability, he shall not be entitled to a distribution of his
Account prior to his Service Termination Date except as may be
permitted under Article IX. A Participant who immediately returns
to employment with a Participating Employer upon recovery from a
Disability shall have all of his prior Years of Service restored.
Such Participant shall always remain fully vested in the value of
his Matching Contribution Account determined prior to the date on
which such Participant returns to the employment of a
Participating Employer following a Disability including all
subsequent earnings on such amounts held in his Matching
Contribution Account. However, any Matching Contributions made
subsequent to his return to employment following a Disability
shall be subject to the vesting provisions of Section 8.2 based on
all of the Participant's Years of Service.
(b) If it is subsequently determined that a Participant who had
become permanently disabled is no longer disabled, and if he
should fail to return to employment with a Participating Employer
or an Affiliate immediately upon recovery from Disability, he
shall be considered to have a Service Termination Date upon such
recovery. In the event his Account has not been fully distributed
upon his recovery from Disability, the remaining balance of his
Account shall be distributed pursuant to the provisions of Article
X.
ARTICLE VIII
VESTING AND TERMINATION OF EMPLOYMENT
8.1 VESTING OF CONTRIBUTIONS. A Participant shall at all times be
100% vested in his Basic Employee Contribution Account, his
Supplementary Employee Contribution Account, and his Rollover
Contribution Account, if any.
8.2 VESTING OF MATCHING CONTRIBUTIONS.
(a) A Participant shall be fully vested and have a nonforfeitable
interest in his Matching Contribution Account upon the occurrence
of the earliest of the following:
(i) his attainment of age 65;
(ii) his Disability;
(iii) his death while an Employee;
(iv) the partial or complete termination of the Plan with respect
to such Participant pursuant to Article XIII.
(b) Prior to becoming fully vested in accordance with Section
8.2(a) above, a Participant shall be vested in his Matching
Contribution Account in accordance with the following schedule:
Completed Years of Service Vested Percentage
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
8.3 METHOD OF PAYMENT. When a Participant incurs a Service
Termination Date, his vested Account, as determined under Sections
8.1 and 8.2 above, shall be distributed pursuant to the provisions
of Article X.
8.4 FORFEITURES. If a Participant who is less than 100% vested in
his Matching Contribution Account terminates employment and incurs
a Service Termination Date, the nonvested portion of such Account
shall be immediately forfeited. The amount so forfeited shall be
used by the Participating Employer from whom the Participant
terminated employment to reduce its future Matching Contributions
to the Plan.
8.5 REEMPLOYMENT. If an Employee has a Service Termination Date
and is later reemployed by a Participating Employer or an
Affiliated Employer:
(a) before he has incurred a number of consecutive One Year
Breaks in Service equal to the greater of five and his Years of
Service as of his Service Termination Date, or, if he was at least
partially vested on his Service Termination Date, he shall be
reinstated in the portion of his Matching Contribution Account
forfeited pursuant to Section 8.4. Any amounts reinstated in
accordance with this paragraph shall be paid by the applicable
Participating Employer with an additional contribution to the
Plan. Upon reemployment, the Employee's vested interest in his
Matching Contribution Account shall be determined in accordance
with Section 8.2 based on his Years of Service both before and
after such One Year Breaks in Service.
(b) after he has incurred a number of consecutive One Year Breaks
in Service equal to the greater of five and his Years of Service
as of his Service Termination Date, and he was not partially or
fully vested on his Service Termination Date, he shall have no
further right to the portion of his Matching Contribution Account
forfeited pursuant to Section 8.4. The Employee's vested interest
in his Matching Contribution Account attributable to contributions
made subsequent to his return to employment shall be based only on
his Years of Service after such One Year Breaks in Service.
8.6 DETERMINATION OF VESTED INTEREST IN THE CASE OF CERTAIN
DISTRIBUTIONS. Notwithstanding Section 8.2 above, if a
Participant receives a distribution of the vested portion of his
Matching Contribution Account on account of termination of
employment and later has a Reemployment Date, the Participant's
vested interest in either the portion of his Matching Contribution
Account remaining in the Plan prior to its forfeiture under
Section 8.4, or the portion of his Matching Contribution Account
restored upon reemployment pursuant to Section 8.5(a), shall be
determined in accordance with the following rules unless the
Participant becomes 100% vested in such remaining Account under
Section 8.2(a), at an earlier date:
(a) At the time of the distribution, a separate accounting shall
be maintained for the balance of the Participant's Matching
Contribution Account so as to distinguish it from that portion of
the Account attributable to future Matching Contributions, if any.
(b) The Participant's vested interest in that portion of his
Matching Contribution Account for which a separate accounting is
maintained pursuant to paragraph (a) above shall be equal to P (AB
+ D) - D where P is the Participant's vested percentage at the
time the Participant's vested interest is being determined; AB is
the balance of the separate accounting of the Matching
Contribution Account at the time the Participant's vested interest
is being determined; and D is the amount of the distribution.
ARTICLE IX
LOANS AND WITHDRAWALS
9.1 PARTICIPANT LOANS. An Employee who has been an Eligible
Employee for at least one year will be eligible for a loan from
his Account in an amount not in excess of the lesser of (a)
$50,000 reduced by the Participant's highest outstanding loan
balance from the Plan during the preceding 12-month period; and
(b) 50% of the value of his vested Account as of the date on which
the loan is approved. Notwithstanding the foregoing,the one year
of eligibility requirement shall be waived in the event the loan
is made exclusively from a Participant's Rollover Contribution
Account.
9.2 RULES RELATING TO LOANS. All loans shall comply with the
following terms and conditions:
(a) The minimum amount that may be borrowed under the Plan is
$1,000.
(b) Loans may be applied for as of any date with prior written
notice as the Plan Administrator may approve according to uniform
and nondiscriminatory rules it may adopt. No more than one loan
may be made to a Participant in any Plan Year and no more than two
loans may be outstanding to a Participant at any time (the
limitations set forth in Section 9.1 above shall apply to the
total amount of an Employee's loans).
(c) An application for a loan by a Participant shall be made in
writing to the Plan Administrator, or its delegate, whose action
thereon shall be final.
(d) Repayment of a loan shall be made based on level amortization
of the loan amount and shall be made no less frequently than
quarterly over the term of the loan. The Participant shall
authorize the Participating Employer to deduct from his pay the
level amount sufficient to accomplish the repayment.
(e) The period of repayment for any loan shall be arrived at by
mutual agreement between the Plan Administrator, or its delegate,
and the Participant, but subject to a maximum repayment period of
five years (up to 10 years for loans used to purchase the
principal residence of the Participant). Loans may be prepaid in
full at any time without penalty.
(f) Each loan shall be made against the collateral assignment of
the Participant's right, title and interest in the portion of his
Account against which the loan is taken, evidenced by such
Participant's collateral promissory note for the amount of the
loan, including interest, payable to the order of the Plan.
(g) Each loan shall bear a reasonable rate of interest, which
shall be the prime rate of interest, as published in the "money
rate" section of the Wall Street Journal as of the date of
application of the loan, plus two percent. The Plan Administrator
shall review the rate of interest to determine if it is consistent
with commercial rates for similar loans, and if not, the Plan
Administrator shall have the authority to modify such rate of
interest for new loans to be consistent with such commercial
rates.
(h) In the event a loan repayment is not made or is not paid at
maturity, or in the event of a Participant's bankruptcy or
impending bankruptcy, insolvency or impending insolvency, the loan
shall be deemed to be in default and the Plan Administrator, or
its delegate, shall give written notice of such default to such
Participant to his last known address. If the default is not
cured within a reasonable period of time from the date of such
notice as determined by the Plan Administrator, according to
uniform and nondiscriminatory rules it may adopt and set forth in
the notice, the Participant's Account shall be reduced by the
amount of the unpaid balance of the loan, together with the
interest thereon, and the Participant's indebtedness shall
thereupon be discharged. This reduction shall occur as soon as
the Participant could have received a distribution of the portion
of the Account balance so reduced under applicable law,
disregarding the provisions of (i) below.
(i) Upon termination or retirement, no distribution shall be made
to any Participant or Former Participant or to a Beneficiary of
any such Participant or Former Participant unless and until all
unpaid loans, including accrued interest thereon, have been
liquidated; provided, however, if any unpaid balance is due on a
loan of such Participant or Former Participant at the time of such
distribution which has not been satisfied through collection or
liquidation of his Account, the Plan shall distribute to such
Participant or Former Participant or Beneficiary the collateral
promissory note evidencing the loan, and his Account, reduced by
the unpaid balance of the loan, including accrued interest
thereon, shall be distributed.
(j) All loans shall be debited to a Participant's Account first
from his Matching Contribution Account attributable to
discretionary Matching Contributions made pursuant to Section
4.1(b), next from his Matching Contribution Account attributable
to Matching Contributions made pursuant to Section 4.1(a), next
from his Basic Employee Contribution Account, next from his
Supplementary Employee Contribution Account and last from his
Rollover Contribution Account.
(k) Subject to the provisions of paragraph (j) above, all loans
shall be debited to the investment of a Participant's Account as
such Account is invested in the funds under the Plan in the
amount(s) authorized by the Participant. A loan shall be debited
on a pro rata basis from the funds in which his Account is then
invested.
(l) Upon receipt of a loan repayment and associated interest, the
Trustee shall deposit such repayment in accordance with the
Participant's investment designation at the time of the repayment.
The Trustee shall also credit such repayment to the Participant's
Accounts in the same proportion as they were charged with the
loan.
(m) The Plan Administrator shall make loans available hereunder
on a reasonably equivalent basis. The Plan Administrator shall
apply objective criteria in a uniform and nondiscriminatory manner
to determine whether a loan application should be approved.
(n) The Plan Administrator may adopt such other rules and
regulations relating to loans as it may deem appropriate.
9.3 WITHDRAWALS FROM ROLLOVER CONTRIBUTION ACCOUNTS. Subject to
the provisions of Sections 9.6 and 9.7, a Participant shall have
the right to withdraw any portion of his Account attributable to
Rollover Contributions at any time.
9.4 WITHDRAWALS AFTER AGE 59-1/2. Subject to the provisions of
Sections 9.6 and 9.7, a Participant who has attained age 59-1/2
may withdraw any portion of his Account attributable to his Basic
Employee Contributions, Supplementary Employee Contributions,
vested Matching Contributions, and Rollover Contributions.
9.5 HARDSHIP WITHDRAWALS. Subject to the provisions of Sections
9.6 and 9.7, a Participant who has not attained age 59-1/2 shall
have the right to withdraw the portion of his Basic Employee and
Supplementary Contribution Accounts or his Rollover Contribution
Account needed to meet a "financial hardship", as defined herein.
(a) For the purpose of this Section 9.5, a "financial hardship"
shall mean an immediate and heavy financial need which cannot be
met from any other available resource and which is due to:
(i) unreimbursed medical expenses described in Code Section
213(d) for which payment is necessary in advance in order to
obtain medical services for the Participant, his Spouse or
dependents or for such medical expenses already incurred by the
Participant, his Spouse or dependents;
(ii) the purchase of the Participant's principal residence (other
than mortgage payments);
(iii) tuition payments and related educational fees (excluding
room, board and books) for the next 12 months, semester or quarter
of post-secondary education for the Participant, his Spouse or
dependents; or
(iv) the need to prevent eviction from, or foreclosure on the
Participant's principal residence.
Additional hardship requirements may be adopted by the Plan
Administrator on a uniform and nondiscriminatory basis.
The Plan Administrator shall determine in its sole discretion
whether a financial hardship exists to warrant a withdrawal, and
if such hardship exists, the amount of the withdrawal necessary to
meet the hardship.
(b) A Participant shall be deemed to lack other resources to
satisfy the "financial hardship" if the following conditions are
satisfied:
(i) the Participant has withdrawn all amounts available to him
under all of the Employer's (or Affiliated Employer's) qualified
plans;
(ii) the Participant has borrowed all nontaxable amounts
available to him under this Plan pursuant to Sections 9.1 and 9.2
and from any other qualified plans of the Employer and Affiliated
Employers, unless the repayment of the amount borrowed would
constitute a "financial hardship" to the Participant;
(iii) if the Participant has made a withdrawal from his Basic
and/or Supplementary Employee Contribution Account, the
Participant's Basic and/or Supplementary Employee Contributions to
the Plan and elective contributions made to any other qualified or
nonqualified plan maintained by an Affiliated Employer (including
stock option, stock purchase, or similar plan, or a cash or
deferred arrangement under a cafeteria plan, but not including a
health or welfare benefit plan) are suspended for the 12-month
period immediately following the date of the hardship withdrawal;
(iv) if the Participant has made a withdrawal from his Basic
and/or Supplementary Employee Contribution Account, the
Participant's maximum elective contributions permitted to have
been made on his behalf under Code Section 402(g) to all of the
Employer's (or Affiliated Employer's) plans for the Plan Year
following the Plan Year in which the hardship withdrawal was made
is reduced by the amount of such Basic and/or Supplementary
Employee Contributions made during the Plan Year in which the
hardship withdrawal occurred; and
(v) the amount of the withdrawal does not exceed the amount
necessary to meet the Participant's "financial hardship".
9.6 RULES FOR WITHDRAWALS. The following rules shall apply to
withdrawals made pursuant to this Article IX:
(a) The minimum amount of any non-hardship withdrawal from the
Plan shall be $500 or, if less, 100% of the amount in the
Participant's Account that is available as a withdrawal under the
provisions of this Article. There shall be no minimum withdrawal
amount imposed for hardship withdrawals made pursuant to this
Article IX.
(b) A Participant who has not attained age 59-1/2 may not
withdraw that portion of his Basic or Supplementary Employee
Contribution Account which is attributable to investment earnings
which are credited to such Accounts after December 31, 1988.
(d) A Participant shall request a withdrawal hereunder by
providing the Plan Administrator with at least 30 days' advance
written request of the withdrawal, except that the Plan
Administrator may agree to accept a later request in the case of a
withdrawal for "financial hardship". The Participant will receive
such payment as soon as practicable after the Plan Administrator
receives the request.
(e) The amount otherwise available as a withdrawal from the Plan
under this Article shall be reduced by the amount of any loan
outstanding at the time a withdrawal request is made and no
withdrawal shall be permitted under this Article to the extent
that such withdrawal would cause the aggregate of the loans
outstanding to exceed the limits expressed in Sections 9.1 and
9.2.
(f) To the extent that amounts are available in the Participant's
vested Account, the amount of any hardship withdrawal made
pursuant to this Article IX may be increased by the reasonably
anticipated amount of federal, state, and local taxes, and any
penalty taxes (including the 10% excise tax on early
distributions) resulting from the withdrawal.
(g) Withdrawals shall be effective as of the date the Plan
Administrator approves the withdrawal.
(h) Any withdrawal made prior to the Participant's attainment of
age 59-1/2 shall be paid in cash. All other withdrawals may be
paid in cash or cash and shares of Chittenden Corporation Common
Stock.
9.7 DEBITING OF WITHDRAWALS. To the extent otherwise permitted by
this Article IX, all withdrawals shall be debited to a
Participant's Account first from his Rollover Contribution
Account, next from his Supplementary Employee Contribution
Account, next from his Basic Employee Contribution Account, next
from his vested Matching Contribution Account attributable to
contributions made pursuant to Section 4.1(a) and then from his
vested Matching Contribution Account attributable to contributions
made pursuant to Section 4.1(b).
In the event that the provisions of this Article IX prohibit a
withdrawal from a Participant's Account in the sequence described
in the preceding sentence, the amounts withdrawn shall follow such
sequence only to the extent otherwise permitted by the provisions
of this Article IX. All withdrawals shall be debited against the
investment funds in the same proportion as such Account is then
invested.
ARTICLE X
PAYMENT OF BENEFITS
10.1 ENTITLEMENT TO DISTRIBUTION. If a Participant either: (a)
terminates employment and incurs a Service Termination Date, or
(b) incurs a Disability, he may elect to receive the vested
portion of his Account as provided herein.
10.2 FORM OF PAYMENT.
(a) Subject to the provisions of Section 10.3, and Account whose
value is $3,500 or less shall automatically be distributed in one
lump sum payment.
(b) Subject to the provisions of Section 10.3, the normal form of
payment for an Account whose value is more than $3,500 shall also
be one lump sum payment. The distribution of any Account, the
value of which exceeds $3,500, shall require the written consent
of the Participant if the distribution is scheduled to occur prior
to the date the Participant attains age 65.
Payment of a Participant's Account shall be made in cash unless
the Participant (or his Beneficiary) elects to have all or a
portion of his Account that is invested in the Chittenden
Corporation Common Stock Fund distributed in whole shares of such
stock.
10.3 TIME OF PAYMENT.
(a) To the extent practicable, and unless otherwise elected by
the Participant or Former Participant pursuant to Section 10.3(c)
(or, if applicable, his Beneficiary pursuant to Section 10.5) any
distributions shall be made as soon as practicable after the
Valuation Date which coincides with or next follows the event
which gave rise to the distribution. The value of the
Participant's or Former Participant's Account for this purpose
shall be determined as of the Valuation Date immediately preceding
the date of distribution. Notwithstanding the foregoing,
distributions shall not commence prior to the applicable date
described in Section 10.3(b), unless otherwise required under
Section 10.6, until the Participant, Former Participant or
Beneficiary returns a completed form to the Plan Administrator
with 30 days prior written notice or such lesser notice as the
Plan Administrator shall approve according to uniform and
nondiscriminatory rules it may adopt. However, if the
Participant, Former Participant or Beneficiary fails to return the
completed election form to the Plan Administrator, benefits will
automatically commence within the period described in Section
10.3(b), unless prior commencement is required under Section
10.6.
(b) Unless a Participant or Former Participant elects a deferred
payment in accordance with Section 10.3(c), distribution shall
commence no later than 60 days after the close of the Plan Year in
which: (i) the Participant or Former Participant attains age 65,
or (ii) the 10th anniversary of the Participant's or Former
Participant's commencement of participation occurs, or (iii) the
Participant or Former Participant terminates employment, whichever
is latest.
(i) A Participant or Former Participant, or his Beneficiary,
applicable, who has an Account balance which is $3,500 or less may
elect, in writing, to defer the commencement of a distribution
under this Article X for a period of up to 12 months following the
date on which the distribution would otherwise have been payable.
(ii) A Participant or Former Participant, or his Beneficiary, if
applicable, who has an Account balance which exceeds $3,500, may
elect to defer the commencement of a distribution subject to the
provisions of this Article X to a date no later than his 65th
birthday.
In the event a Participant or Former Participant, or, if
applicable, his Beneficiary, elects to defer receipt of his
Account pursuant to this paragraph, his Account shall continue to
be valued in accordance with Article VI and shall be invested in
accordance with the Former Participant's election under Article V.
(c) If a Participant or Former Participant has elected a deferred
payment under Section 10.3(b), he may at any time thereafter elect
to change the time or manner of payment of the unpaid portion of
his Account in accordance with the further provisions of this
Article X, provided that 60 days advance written notice is given
to the Plan Administrator.
10.4 AMOUNT OF DISTRIBUTION. The amount of any distribution shall
be determined by the vested amount in the Participant's or Former
Participant's Account as of the Valuation Date coinciding with or
otherwise immediately preceding the distribution.
10.5 DEATH BENEFITS AFTER TERMINATION OF EMPLOYMENT. In the event
of the death of a Participant after termination of employment but
prior to the date his Account has been distributed or commenced to
be distributed pursuant to Section 10.3, his Account shall be paid
to his Beneficiary in one lump sum. His Beneficiary may elect,
subject to the provisions of Sections 10.3 and 10.6, to defer
receipt of the Participant's Account.
10.6 LIMITATION ON DISTRIBUTIONS. Notwithstanding any other
provision of this Article X, distribution of benefits shall not be
deferred beyond the April 1 following the calendar year in which
the Participant attains age 70-1/2. Upon the death of a
Participant, distribution of his remaining Account shall be made
to his Beneficiary no later than five years following the
Participant's death. In any event, distributions hereunder shall
be made in accordance with Code Section 401(a)(9), including the
incidental death benefit requirements of such Code Section, and
regulations thereunder, including Treasury Regulation 1.401(a)(9)-
2. Such regulations and applicable rulings or announcements,
including any grandfather provisions or provisions delaying the
effective date of Code Section 401(a)(9), are hereby incorporated
by reference. The provisions of Code Section 401(a)(9) override
any distribution options under the Plan if inconsistent with the
requirements of such Code section.
10.7 SEGREGATED ACCOUNTS. If a Participant or Beneficiary has
elected to have his Account distribution deferred to a later date
pursuant to Section 10.3(b) or Section 10.5, the Account of the
Participant will continue to be invested in accordance with the
most recent investment direction on file with the Plan
Administrator. If there is no investment direction on file, the
Plan Administrator shall direct the Trustee to segregate the
Participant's or Beneficiary's interest in the Plan and invest
such interest in the Chittenden Bank Money Market Fund as
described in Section 5.2. Amounts invested in this manner shall
share the earnings, on a pro rata basis, attributable to such
fund.
10.8 MISSING PERSONS. If the Plan Administrator shall be unable,
within five years after any amount becomes due and payable from
the Plan to a Participant, Former Participant or Beneficiary, to
make payment because the identity or whereabouts of such person
cannot be ascertained, the Plan Administrator may mail a notice by
registered mail to the last known address of such person outlining
the action to be taken unless such person makes written reply to
the Plan Administrator within 60 days from the mailing of such
notice. The Plan Administrator may direct that such amount and
all further benefits with respect to such person shall be
forfeited and all liability for the payment thereof shall
terminate. However, in the event of the subsequent reappearance
of the Participant, Former Participant or Beneficiary prior to
termination of the Plan, the benefit which was forfeited (but not
any earnings attributable to such forfeiture) shall be reinstated
in full. Any benefits forfeited shall be applied to reduce future
Matching Contributions to the Plan.
Reinstatement of any benefit forfeited under this Section 10.8
shall be made by the applicable Participating Employer with an
additional contribution to the Plan.
10.9 DIRECT ROLLOVER PROVISIONS. Effective January 1, 1993, if
any Plan distribution is an "eligible rollover distribution" as
defined in Code Section 402, a Participant (or surviving Spouse)
may elect at the time and in the manner prescribed by the Plan
Administrator, to directly rollover such distribution to one or
more of the following: a retirement plan qualified under Code
Section 401(a), an individual retirement annuity described in Code
Section 408(b), or an individual retirement account described
under Code Section 408(a), or any other program deemed to be an
eligible retirement plan under Code Section 402.
For purposes of this Section, the direct rollover rights of the
Participant shall also apply to the Spouse or former Spouse of the
Participant if such person is an "alternate payee" of the
Participant as defined in Code Section 414(p).
The Plan Administrator shall prescribe the procedures by which an
eligible rollover distribution can be made. In any event, such
procedures shall be adopted in accordance with Code Sections
401(a)(3) and 402(c) (as amended by the Unemployment Compensation
Amendments of 1992) and the applicable regulations prescribed
thereunder.
ARTICLE XI
RETIREMENT PLAN ADMINISTRATION
11.1 RESPONSIBILITY FOR PLAN AND TRUST ADMINISTRATION. The
Employer shall have the sole authority to appoint and remove the
Trustee, and any investment manager which may be provided for
under the Trust, and to amend or terminate, in whole or in part
this Plan or the Trust. The Plan Administrator shall have the
responsibility for the administration of this Plan, which is
specifically described in this Plan and the related Trust
Agreement. The Plan Administrator shall be the "named fiduciary"
for purposes of the Code and ERISA.
11.2 RETIREMENT PLAN ADMINISTRATOR. The Plan shall be
administered by the Plan Administrator who shall be the "Plan
Administrator" within the meaning of Section 3(16)A of ERISA.
11.3 AGENTS OF THE PLAN ADMINISTRATOR. The Plan Administrator may
delegate specific responsibilities to other persons or entities as
the Plan Administrator shall determine. The Plan Administrator
may authorize one or more of its number, or any agent, to execute
or deliver any instrument or to make any payment in its behalf.
The Plan Administrator may employ and rely on the advice of
counsel, accountants, and such other persons as may be necessary
in administering the Plan.
11.4 PLAN ADMINISTRATOR PROCEDURES. The Plan Administrator may
adopt such rules as it deems necessary, desirable, or appropriate.
All rules and decisions of the Plan Administrator shall be
uniformly and consistently applied to all Participants in similar
circumstances. When making a determination or calculation, the
Plan Administrator shall be entitled to rely upon information fur-
nished by a Participant, Former Participant or Beneficiary, the
Employer, the legal counsel of the Employer or the Trustee.
The Plan Administrator may act at a meeting or in writing without
a meeting. The Plan Administrator may adopt such bylaws and
regulations as it deems desirable for the conduct of its affairs.
11.5 POWERS OF THE PLAN ADMINISTRATOR. The Plan Administrator may
from time to time establish rules for the administration of the
Plan. Except as otherwise herein expressly provided, the Plan
Administrator will have the exclusive right and discretionary
authority, to the fullest extent provided by law, to interpret the
Plan and decide any matters arising hereunder in the
administration and operation of the Plan, and any interpretations
or decisions so made will be conclusive and binding on all persons
having an interest in the Plan; provided, however, that all such
interpretations and decisions will be applied in a uniform and
nondiscriminatory manner to all Employees. The Plan Administrator
shall have no right to modify any provisions of the Plan as herein
set forth.
11.6 BENEFIT CLAIMS PROCEDURES. All claims for benefits under the
Plan shall be in writing and shall be submitted to the Plan
Administrator. If any application for payment of a benefit under
the Plan shall be denied, the Plan Administrator shall notify the
claimant within 90 days of such application setting forth the
specific reasons therefor and shall afford such claimant a
reasonable opportunity for a full and fair review of the decision
denying his claim. If special circumstances require an extension
of time for processing the claim, the claimant will be furnished
with a written notice of the extension prior to the termination of
the initial 90-day period. In no event shall such extension
exceed a period of 90 days from the end of such initial period.
The extension notice shall indicate the special circumstances
requiring an extension of time and the date by which the Plan
Administrator expects to render its decision.
Notice of such denial shall set forth, in addition to the specific
reasons for the denial, the following:
(a) reference to pertinent provisions of the Plan;
(b) such additional information as may be relevant to the denial
of the claim;
(c) an explanation of the claims review procedure; and
(d) notice that such claimant may request the opportunity to
review pertinent Plan documents and submit a statement of issues
and comments.
Within 60 days following notice of denial of his claim, upon
written request made by any claimant for a review of such denial
to the Plan Administrator, the Plan Administrator shall take
appropriate steps to review its decision in light of any further
information or comments submitted by such claimant.
The Plan Administrator shall render a decision within 60 days
after the claimant's request for review and shall advise said
claimant in writing of its decision on such review, specifying its
reasons and identifying appropriate provisions of the Plan. If
special circumstances require an extension of time for processing,
a decision will be rendered as soon as possible, but not later
than 120 days after receipt of a request for the review. If the
extension of time for review is required because of special
circumstances, written notice of the extension shall be furnished
to the claimant prior to the commencement of the extension. If
the decision is not furnished within such time, the claim shall be
deemed denied on review. The decision on review shall be in
writing and shall include specific reasons for the decision, writ-
ten to the best of the Plan Administrator's ability in a manner
calculated to be understood by the claimant without legal counsel,
as well as specific references to the pertinent Plan provisions on
which the decision is based. In the event of continued
disagreement, the claimant may thereafter appeal to the Employer,
whose decision is final.
11.7 RELIANCE ON REPORTS AND CERTIFICATES. The Plan Administrator
will be entitled to rely conclusively upon all valuations,
certificates, opinions, and reports which may be furnished by the
recordkeeper, or any accountant, controller, counsel, or other
person who is employed or engaged for such purposes and shall
exercise the authority and responsibility as it deems appropriate
to comply with all of the legal and governmental regulations
affecting this Plan.
11.8 OTHER POWERS AND DUTIES OF THE PLAN ADMINISTRATOR. The Plan
Administrator shall have such duties and powers as may be
necessary to discharge its duties hereunder, including, but not by
way of limitation, the following:
(a) to prescribe written procedures to be followed by
Participants, Former Participants, or Beneficiaries filing
applications for benefits;
(b) to prepare and distribute, in such manner as the Plan
Administrator determines to be appropriate, information explaining
the Plan;
(c) to receive from the Employer, Participants and Former
Participants such information as shall be necessary for the proper
administration of the Plan;
(d) to furnish the Employer, upon request, such annual reports
with respect to the administration of the Plan as are reasonable
and appropriate;
(e) to receive and review the periodic valuations of the Plan
made by the recordkeeper; and
(f) to receive, review and keep on file (as it deems convenient
or proper) reports of benefit payments by the Trustee and reports
of disbursements for expenses directed by the Plan Administrator.
The Plan Administrator shall have no power to add to, subtract
from or modify any of the terms of the Plan, or to change or add
to any benefits provided by the Plan, or to waive or fail to apply
any requirements of eligibility for a benefit under the Plan.
11.9 COMPENSATION OF PLAN ADMINISTRATOR. The Plan Administrator
shall serve without any compensation for services as such, but
will be reimbursed for reasonable expenses incident to the
performance of such services. The reimbursement of expenses shall
be paid in whole or in part by the Employer, and any expenses not
paid by the Employer shall be paid by the Trustee out of the
principal or income of the Trust Fund.
11.10 LIABILITY OF PLAN ADMINISTRATOR. The Plan Administrator
will not be liable for any act of omission or commission except as
provided by federal law.
11.11 INDEMNIFICATION. The Board of Directors of the Employer,
the Plan Administrator and its delegates shall be indemnified by
the Employer and not the Trust Fund against any and all expenses,
costs, and liabilities arising by reason of any act or failure to
act, unless such act or failure to act is judicially determined to
be gross negligence or willful misconduct.
ARTICLE XII
FIDUCIARY RESPONSIBILITIES
12.1 BASIC RESPONSIBILITIES. Any Plan Fiduciary, whether
specifically designated or not, shall:
(a) discharge all duties solely in the interest of Participants,
Former Participants, and Beneficiaries and for the exclusive
purpose of providing benefits and defraying reasonable
administrative expenses under the Plan;
(b) discharge his responsibilities with the care, skill,
prudence, and diligence a prudent man would use in similar
circumstances; and
(c) conform with the provisions of the Plan.
No person who is ineligible by law will be permitted to serve as
Fiduciary.
12.2 ACTIONS OF FIDUCIARIES. Any Plan Fiduciary:
(a) may serve in more than one fiduciary capacity with respect to
the Plan;
(b) may employ one or more persons to render advice with regard
to or to carry out any responsibility that such Fiduciary has
under the Plan; and
(c) may rely upon any discretion, information, or action of any
other Plan Fiduciary, acting within the scope of its
responsibilities under the Plan, as being proper under the Plan.
12.3 FIDUCIARY LIABILITY. No Fiduciary shall be personally liable
for any losses resulting from his action except as provided by
federal law. Each Fiduciary shall have only the authority and
duties which are specifically allocated to him, shall be
responsible for the proper exercise of his own authority and
duties, and shall not be responsible for any act or failure to act
of any other Fiduciary.
ARTICLE XIII
AMENDMENT AND TERMINATION
13.1 INTERNAL REVENUE SERVICE QUALIFICATION. It is the intention
of the Employer that the Plan shall be and remain qualified and
exempt under Code Sections 401(a) and 501(a) and meet the
requirements of Code Sections 401(k) and 401(m). The Employer may
authorize any modification or amendment of this Plan, which is
deemed necessary or appropriate to qualify or maintain the
qualification and exemption of the Plan within the requirements of
Code Sections 401(a), 401(k), 401(m), and 501(a), or any other
applicable provisions of the Code as now in effect or hereafter
amended or adopted.
13.2 EMPLOYER'S RIGHT TO AMEND OR TERMINATE. The Employer
reserves the right to amend, modify, revoke or terminate the Plan
in whole or in part (including the provisions relating to
contributions) in whole or in part at any time. The authority to
make any such changes to the Plan rests with the board of
directors of the Employer. Any such amendment, modification,
revocation or termination of the Plan shall be made by a
resolution adopted by the Board of Directors.
The Employer shall not have the power to modify, suspend, amend or
terminate the Plan in such manner as will cause or permit any part
of the Trust Fund to be used for or diverted to purposes other
than the exclusive benefit of Participants, Former Participants or
their Beneficiaries, or for the payment of expenses pursuant to
the provisions of the Plan. Further, except as otherwise
specifically provided in Sections 4.5 and 4.8, no portion of the
Trust Fund may revert to or become the property of the Employer,
so as to divest a Participant or Former Participant from or
deprive him of any benefits which may have accrued to him. Upon
termination or partial termination of the Plan or "complete
discontinuance of contributions" as such term is defined in Code
Section 411, the amounts credited to the Accounts of Participants
affected by such termination or partial termination shall be
nonforfeitable.
Notwithstanding anything to the contrary contained herein, upon
such termination of the Plan, the Employer shall have no
obligation or liability whatsoever to make any further payments to
the Trustee.
13.3 PARTICIPATING EMPLOYER'S RIGHT TO TERMINATE. Each
Participating Employer by action of its Board of Directors or
other governing authority shall have the right to terminate, as to
itself, the Plan hereby created, by delivering written notice
authorizing the termination to the Board of Directors of the
Employer, the Plan Administrator, and the Trustee.
13.4 VALUATION OF ASSETS. In determining the value of the
Accounts of the Participants or Former Participants as of the date
of the termination of the Plan, the assets of the Trust Fund shall
be valued by the Trustee at fair market value as of the close of
business on the termination date. The Accounts of the
Participants and Former Participants shall be adjusted in the
manner provided in Article VI.
13.5 DISTRIBUTION OF ASSETS. If the Plan is terminated, the
Trustee, at the direction of the Employer shall continue to
maintain the Trust Fund, as permitted by applicable law, until all
assets remaining in the Trust Fund after payment of any expenses
properly chargeable to the Trust Fund are distributed to
Participants, Former Participants or their Beneficiaries. Such
distribution shall be equal to the value of the Accounts of the
Participants as of the date of the termination of the Plan
adjusted for any earnings and expenses of the Trust Fund and Plan
between such date and the date of distribution. Payment will be
made in cash or in kind, or partly in cash and partly in kind, in
such manner as the Plan Administrator shall determine and as may
be required by applicable law. The Plan Administrator's
determination shall be final and binding on all persons.
ARTICLE XIV
TOP-HEAVY PLAN REQUIREMENTS
14.1 GENERAL RULE. For any Plan Year for which this Plan is a
Top-Heavy Plan as defined in Section 14.4, any other provisions of
the Plan to the contrary notwithstanding, the Plan shall be
subject to the following provisions:
(a) The minimum contribution provisions of Section 14.2, and
(b) The limitation on contributions set by Section 14.3.
14.2 MINIMUM CONTRIBUTION PROVISIONS. Subject to the further
provisions of this Article XIV, each Eligible Employee who (a) is
a Non-Key Employee (as defined in Section 14.6) and (b) is
employed on the last day of the Plan Year shall be entitled to
have an Employer Contribution allocated to his Account of not less
than 5% (the "Minimum Contribution Percentage") of his
compensation (as defined for purposes of applying the limits of
Code Section 415) or such other amount, if any, as may be
necessary to comply with the rules established by the Internal
Revenue Service.
The Minimum Contribution Percentage set forth above shall be
reduced for any Plan Year to the percentage at which contributions
are made (or required to be made) under the Plan for the Plan Year
for the Key Employee (as defined in Section 14.5) for whom such
percentage is the highest for such Plan Year.
For this purpose, the percentage with respect to a Key Employee
shall be determined by dividing the contributions (not including
Matching Contributions) made for such Key Employee by his total
compensation for the Plan Year not to exceed $150,000 (adjusted in
the same manner as set forth in Section 1.9).
Contributions taken into account under the immediately preceding
sentence shall include contributions under this Plan and under all
other defined contribution plans required to be included in an
Aggregation Group (as defined in Section 14.5), but shall not
include any plan required to be included in such Aggregation Group
if such plan enables a defined benefit plan required to be
included in such Group to meet the requirements of the Code
prohibiting discrimination as to contributions or benefits in
favor of Employees who are officers, shareholders or the
highly-compensated or prescribing the minimum participation
standards.
Contributions taken into account under this Section 14.2 shall not
include any contributions under the Social Security Act or any
other federal or state law.
14.3 IMPACT ON MAXIMUM BENEFITS. For any Plan Year in which the
Plan is Top Heavy, Section 4.5 shall be reread by substituting the
number "1.00" for the number "1.25" wherever it appears therein
except that such substitution shall not have the effect of
reducing any benefit accrued under a benefit plan prior to the
first day of the Plan year in which this provision becomes
applicable.
14.4 TOP-HEAVY PLAN DEFINITIONS. This Plan shall be a Top-Heavy
Plan for any Plan Year if, as of the Determination Date, the
aggregate of the Accounts under the Plan for Participants and
Former Participants who are Key Employees exceeds 60% of the
present value of the aggregate of the Accounts for all
Participants, or if this Plan is required to be in an Aggregation
Group which for such Plan Year is a Top-Heavy Group. For purposes
of making this determination, the present value of the aggregate
of the Accounts for a Participant who is not a Key Employee, but
who was a Key Employee in a prior year, or who has not performed
any service for the Employer at any time during the five- year
period ending on the Determination Date, shall be disregarded.
(a) "Determination Date" shall mean for any Plan Year the last
day of the immediately preceding Plan Year (except that for the
first Plan Year the Determination Date means the last day of such
Plan Year).
(b) "Aggregate of the Accounts" shall mean the sum of (i) the
Accounts determined as of the most recent Valuation Date that is
within the 12-month period ending on the Determination Date, and
(ii) the adjustment for contributions due as of the Determination
Date, and as described in the regulations under the Code.
(c) "Aggregation Group" shall mean the group of plans, if any,
that includes both the group of plans that are required to be
aggregated and, if the Plan Administrator so elects, the group of
plans that are permitted to be aggregated.
(i) The group of plans that are required to be aggregated (the
"Required Aggregation Group") includes: (a) each plan of the
Employer in which a Key Employee is a Participant, including
collectively-bargained plans, and (b) each other plan of the
Employer or an Affiliated Employer including collectively-bargai-
ned plans, which enables a plan in which a Key Employee is a
Participant to meet the requirements of the Code prohibiting
discrimination as to contributions or benefits in favor of
Employees who are officers, shareholders or the highly-compensated
or prescribing the minimum participation standards.
(ii) The group of plans that are permitted to be aggregated (the
"Permissive Aggregation Group") includes the Required Aggregation
Group plus one or more plans of the Employer or an Affiliated
Employer that is not part of the Required Aggregation Group and
that the Plan Administrator certifies as constituting a plan
within the Permissive Aggregation Group. Such plan or plans may
be added to the Permissive Aggregation Group only if, after the
addition, the Aggregation Group as a whole continues not to
discriminate as to contributions or benefits in favor of Employees
who are officers, shareholders or the highly-compensated and to
meet the minimum participation standards under the Code.
(d) "Top-Heavy Group" shall mean the Aggregation Group, if as of
the applicable Determination Date, the sum of the present value of
the cumulative accrued benefits for Key Employees under all
defined benefit plans included in the Aggregation Group plus the
aggregate of the accounts of Key Employees under all defined
contribution plans included in the Aggregation Group exceeds 60%
of the sum of the present value of the cumulative accrued benefits
for all Employees under all such defined benefit plans plus the
aggregate accounts for all Employees under such defined contribu-
tion plans. For purposes of making this determination, the
present value of the accrued benefits for a Participant (i) who is
not a Key Employee, but who was a Key Employee in a prior year or
(ii) who has not performed services for the Employer at any time
during the five-year period ending on the Determination Date,
shall be disregarded. If the Aggregation Group that is a
Top-Heavy Group is a Required Aggregation Group, each plan in the
Group will be Top-Heavy. If the Aggregation Group that is a
Top-Heavy Group is a Permissive Aggregation Group, only those
plans that are part of the Required Aggregation Group will be
treated as Top-Heavy. If the Aggregation Group is not a Top-Heavy
Group, no plan within such Group will be Top-Heavy.
(e) In determining whether this Plan constitutes a Top-Heavy
Plan, the Plan Administrator shall make the following adjustments
in connection therewith:
(i) When more than one plan is aggregated, the Plan
Administrator shall determine separately for each plan as of each
plan's determination date the present value of the accrued
benefits or the sum of Account balances. Such accrued benefits
shall be determined by using the method which is used for accrual
purposes for all plans of the Employer, or, if there is no such
method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under Code Section 411(b)(1)(C).
(ii) In determining the present value of the cumulative accrued
benefit or the amount of the Account of any Employee, such present
value or Account shall include the dollar value of the aggregate
distributions made to such Employee under the applicable plan
during the five-year period ending on the determination date,
unless reflected in the value of the accrued benefit or account
balance as of the most recent valuation date. Such amounts shall
include distributions to Employees which represented the entire
amount credited to their Accounts under the applicable plan, and
distributions made on account of the death of a Participant to the
extent such death benefits do not exceed the present value of the
accrued benefit or Account.
(iii) Further, in making such determination, such present value or
such Account shall include any rollover contribution (or similar
transfer), as follows:
(A) If the rollover contribution (or similar transfer) is
initiated by the Employee and made to or from a plan maintained by
another employer, the plan providing the distribution shall
include such distribution in the value of such account; the plan
accepting the distribution shall not include such distribution in
the value of such account unless the plan accepted it before
December 31, 1983.
(B) If the rollover contribution (or similar transfer) is not
initiated by the Employee or made from a plan maintained by
another employer, the plan accepting the distribution shall
include such distribution in the present value of such account,
whether the plan accepted the distribution before or after
December 31, 1983; the plan making the distribution shall not
include the distribution in the present value of such account.
14.5 KEY EMPLOYEE. The term "Key Employee" shall mean any
Employee (and any Beneficiary of an Employee) under this Plan who
is a key employee as determined in accordance with Code Section
416(i)(1), excluding in any event individuals who have not
performed services for the Employer during the five-year period
ending on the date on which the Top-Heavy determination is made.
14.6 NON-KEY EMPLOYEE. The term "Non-Key Employee" shall mean any
Employee (and any Beneficiary of an Employee) who is not a Key
Employee, excluding in any event individuals who have not
performed services for the Employer during the five-year period
ending on the date on which the Top-Heavy determination is made.
14.7 CHANGE FROM TOP-HEAVY STATUS. In the event the Plan should
become a Top-Heavy Plan for a Plan Year and subsequently reverts
to a Plan which is not Top-Heavy, the change from a Top-Heavy Plan
to a Plan which is not Top-Heavy shall not reduce a Participant's
Account.
ARTICLE XV
GENERAL PROVISIONS
15.1 PLAN VOLUNTARY. Although it is intended that the Plan shall
be continued and that contributions shall be made as herein
provided, this Plan is entirely voluntary on the part of the
Employer and the continuance of this Plan and the payment of
contributions hereunder are not to be regarded as contractual
obligations of any Participating Employer, and no Participating
Employer guarantees or promises to pay or to cause to be paid any
of the benefits provided by this Plan. Each person who shall
claim the right to any payment or benefit under this Plan shall be
entitled to look only to the Fund for any such payment or benefit
and shall not have any right, claim, or demand therefore against
any Employer, except as provided by federal law. The Plan shall
not be deemed to constitute a contract between any Participating
Employer and any Employee or to be a consideration for, or an
inducement for, the employment of any Employee by any
Participating Employer. Nothing contained in the Plan shall be
deemed to give any Employee the right to be retained in the
service of any Employer or to interfere with the right of any
Employer to discharge or to terminate the service of any Employee
at any time without regard to the effect such discharge or
termination may have on any rights under the Plan.
15.2 PAYMENTS TO MINORS AND INCOMPETENTS. If any Participant,
Former Participant, or Beneficiary entitled to receive any
benefits hereunder is a minor or is deemed by the Plan
Administrator or is adjudged to be legally incapable of giving
valid receipt and discharge for such benefits, they will be paid
to such person or institution as the Plan Administrator may
designate or to the duly appointed guardian. Such payment shall,
to the extent made, be deemed a complete discharge of any
liability for such payment under the Plan.
15.3 NON-ALIENATION OF BENEFITS. No amount payable to, or held
under the Plan for the account of, any Participant or Former
Participant shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to so anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be
void; nor shall any amount payable to, or held under the Plan for
the account of, any Participant be in any manner liable for his
debts, contracts, liabilities, engagements, or torts, or be
subject to any legal process to levy upon or attach, except as may
be provided under a qualified domestic relations order as defined
in Code Section 414(p).
The Plan Administrator shall establish a procedure to determine
the status of a judgement, decree or order as a qualified domestic
relations order and to administer Plan distributions in accordance
with qualified domestic relations orders. Such procedure shall be
in writing, shall include a provision specifying the notification
requirements enumerated in the preceding paragraph, shall permit
an alternate payee to designate a representative for receipt of
communications from the Plan Administrator and shall include such
other provisions as the Plan Administrator shall determine,
including provisions describing the interest rate to be used in
making present value determinations as well as provisions required
under regulations promulgated by the Secretary of the Treasury.
15.4 USE OF MASCULINE AND FEMININE; SINGULAR AND PLURAL. Wherever
used in this Plan, the masculine gender will include the feminine
gender and the singular will include the plural, unless the
context indicates otherwise.
15.5 MERGER, CONSOLIDATION OR TRANSFER. In the event that the
Plan is merged or consolidated with any other plan, or should the
assets or liabilities of the Plan be transferred to any other
plan, each Participant shall be entitled to a benefit immediately
after such merger, consolidation, or transfer if the Plan should
then terminate equal to or greater than the benefit he would have
been entitled to receive immediately before such merger,
consolidation, or transfer if the Plan had then terminated.
15.6 LEASED EMPLOYEES. Any individual who performs services for
the Employer or an Affiliated Employer and who, by application of
Code Section 414(n)(2) and regulations issued pursuant thereto,
would be considered a "leased employee", shall, for purposes of
determining the number of Employees of the Employer and its
Affiliated Employers and for purposes of the requirements
enumerated in Code Section 414(n)(3), be considered an Employee
with regard to services performed after December 31, 1986.
When the total of all leased employees constitutes less than 20%
of the Employer's non-highly compensated work force within the
meaning of Code Section 414(n)(5)(c)(ii), however, a "leased
employee" shall not be considered an Employee if the organization
from which the individual is leased maintains a qualified safe
harbor plan (as defined in Code Section 414(n)(5)) in which such
individual participates.
"Leased employees" who are deemed to be Employees for purposes of
this Section 15.6 shall not be eligible to participate in the Plan
unless specifically provided for in Article II.
Notwithstanding the foregoing, in the event that a "leased
employee" should later become an Employee as described herein, all
employment with the Employer or an Affiliated Employer shall be
credited for purposes of determining eligibility for participation
in the Plan and for crediting Service hereunder.
15.7 GOVERNING LAW. The Plan shall be administered, construed,
and enforced according to the laws of the State of Vermont;
provided, however, wherever applicable, the provisions of ERISA
shall govern and in such event the laws of the United States of
America shall be applied and to the extent necessary, its courts
shall have competent jurisdiction.
15.8 SEVERABILITY. If any provision of the Plan is held invalid
or unenforceable, its invalidity or unenforceability will not
affect any other provision of the Plan, and the Plan will be
construed and enforced as if such provision had not been included.
15.9 CAPTIONS. The captions contained in the Plan are inserted
only as a matter of convenience and for reference and in no way
define, limit, enlarge, or describe the scope or intent of the
Plan nor in any way affect the construction of any provision of
the Plan.
IN WITNESS WHEREOF, Chittenden Corporation has caused this
instrument to be executed by its officers thereunto duly
authorized and its corporate seal to be hereunto affixed, as of
the 29th day of June, 1994.
CHITTENDEN CORPORATION
BY: /S/ F. SHELDON PRENTICE, SECRETARY
ATTEST:
BY: /S/ PENNY S. BARRON
10.7 CHITTENDEN CORPORATION
EXECUTIVE MANAGEMENT INCENTIVE COMPENSATION PLAN
Effective
January 1, 1988
CHITTENDEN CORPORATION
Executive Management Incentive Compensation Plan
I. PURPOSE
The purpose of the Plan is to further the growth in earnings of
the Company. The Plan provides annual cash Incentive Awards,
contingent upon meeting profitability goals as set forth by the
Executive Committee on an annual basis. The Company intends that
the Plan will facilitate securing, retaining, and motivating top
management employees of high caliber and good potential.
II. DEFINITIONS
When used in the Plan, the following words and phrases shall have
the meanings described below:
a. ADJUSTED EARNINGS means actual after tax profit of the Company
as published, recognizing amounts awarded under this Plan, but
excluding (i) gains or losses from sales of assets not in the
normal course of business and exceeding $50,000 per year in the
aggregate, and (ii) gains or losses as a result of securities
transactions.
b. BOARD means the Board of Directors of the Chittenden
Corporation.
c. COMPANY means the Chittenden Corporation and affiliated
corporations.
d. COMPENSATION means the base compensation received by an
Eligible Employee from the Company during the Plan Year including
any amounts contributed on behalf of the Eligible Employee by the
Company through salary reduction to the Company's Incentive
Savings and Profit Sharing Plan, any amounts contributed by the
Eligible Employee through salary reduction to the Company's
Flexible Benefits Plan, Dependent Care Assistance Plan and Health
Care Spending Account any amount of compensation deferred by the
Eligible Employee under the Company's Executive Deferred
Compensation Plan.
e. COMPENSATION COMMITTEE means the Executive Committee of the
Board of Directors of Chittenden Trust Company.
f. EFFECTIVE DATE means January 1, 1988.
g.ELIGIBLE EMPLOYEE shall mean such employees of the Company as
are annually designated by the President of the Company, with the
approval of the Board, for inclusion in this Plan.
h. INCENTIVE AWARD means bonuses ranging from 0% to 60% in such
percentages as shall be designated annually by the President of
the Company, with approval of the Board.
i. PLAN means the Chittenden Corporation Executive Management
Incentive Compensation Plan.
j. PLAN ADMINISTRATOR means the Executive Committee.
k. PLAN YEAR means any year commencing on January 1 and ending on
December 31 of such year.
l. PROFIT GOAL means the targeted level of net after-tax profit of
the Company established each year by the Board for the then
current Plan Year, computed according to generally accepted
accounting principles, consistently applied, recognizing amounts
awarded under this Plan but excluding (i) gains or losses from
sales of assets not in the normal course of business and exceeding
$50,000 per year in the aggregate, and (ii) gains of losses as a
result of securities transactions.
m. TOTAL DISABILITY means complete and permanent inability by
reason of illness or accident to perform the duties of the
position at which an Eligible Employee was employed by the Company
when such disability commenced, all as determined under the
Company's Long Term Disability plan.
III. CALCULATION OF INCENTIVE AWARD PAYMENT
The actual Incentive Award payments shall be determined by
Company's performance as described below:
The Board will establish a Profit Goal for each Plan Year starting
with the Plan Year beginning on January 1, 1988. In each Plan
Year if the Profit Goal is achieved, the Incentive Award shall be
accrued and paid over a four year period in the following manner:
First Year - 50% of Incentive Award
Second Year - 25 % of Incentive Award
Third Year - 15% of Incentive Award
Fourth Year - 10% of Incentive Award
The Chief Executive Officer, at his discretion, and subject to the
approval of the Board, may adjust the Incentive Award of each
Eligible Employee based upon individual performance.
Additionally, should future performance recommend, adjustments may
also be made to those portions of the Incentive Award which have
been accrued, but not paid.
The Adjusted Earnings must equal or exceed the Profit Goal each
Plan Year for any Incentive Award to be payable for that Plan
Year. For example, in the first year, if the Adjusted Earnings
equal the Profit Goal, a maximum Incentive Award payment of 50% of
the total award shall be made with 25%, 15% and 10% Incentive
Award amounts accrued, respectively, for the three subsequent
years. In the second year, for the second year Incentive Award
payment of 25% to be payable, the Adjusted Earning for that Plan
Year must equal or exceed the Profit Goal for that Plan Year. If
the Adjusted Earnings for any Plan Year do not equal or exceed the
Profit Goal for any such Plan Year, the first year Incentive Award
payment for that Plan Year will not be made and the previously
accrued Incentive Awards payable in such Plan Year will be
forfeited to the extent necessary to bring Adjusted Earnings up to
the established Profit Goal. However, if in the third year the
Profit Goal for that year is met, payment of 15% is payable in
addition to the applicable 50% Incentive Award for the current
Plan Year.
Each Plan Year, the Company will accrue an amount on its books
equal to the Incentive Award that could be payable for that Plan
Year and the three subsequent Plan Years. However, if the
Adjusted Earnings for any Plan Year do not meet the Profit Goal
for that Plan Year (i) awards under this Plan are subordinate to
other Company Incentive Award Programs and (ii) the accruals
attributable to that year, and if necessary, from previous year's
Incentive Awards, will flow back to the Company's earnings to the
extent necessary to reach the established Profit Goal for that
year.
If less than the Incentive Award payment is to be made, all
Incentive Awards shall be reduced in the proportion that each
Eligible Employee's Incentive Award bears to the total of all
Incentive Awards of all Eligible Employees; not withstanding
adjustments which have been agreed to based upon performance.
IV. PAYMENT OF THE AWARD
A. Actual Incentive Award payments will be calculated as soon as
practicable following the end of the Plan Year.
B. In the event of an Eligible Employee's termination of
employment with the Company for whatever reason after the last day
of any Plan Year, but before payment of an Incentive Award for
such Plan Year, such Eligible Employee shall be ineligible to
receive any payment under the Plan, except as hereinafter
provided.
In the event of termination for any reason, that portion of an
Eligible Employee's Incentive Award which has been accrued for
payment in subsequent years will not be paid.
C. In the event of an Eligible Employee's death, Total Disability
or retirement under the pension Plan for the Employees of
Chittenden Corporation, after the last day of any Plan Year but
before payment of an Incentive Award for such Plan Year, the
Eligible Employee of his/her designated beneficiary shall be
eligible for an Incentive Award for such Plan Year. If no
beneficiary has been designated or if a designated beneficiary has
predeceased the Eligible Employee, such Incentive Award shall be
paid to the Eligible Employee's estate.
D. In the event of an Eligible Employee's termination of
employment with the Company for whatever reason, including,
without limitation, death, Total Disability or retirement under
the Pension Plan for the Employees of Chittenden Corporation,
before December 31st of any Plan Year, the Eligible Employee or
his/her beneficiary shall not be entitled to an Incentive Award
for such Plan Year.
V. ADMINISTRATION OF THE PLAN
A. RESPONSIBILITY FOR PLAN ADMINISTRATION
The Plan Administrator shall construe, interpret and administrator
the Plan. All decisions, actions or interpretations of the Plan
Administrator shall be subject to the approval of the Board and
shall be final, conclusive and binding on all parties.
B. RIGHT TO AMEND, SUSPEND OR TERMINATE PLAN
The Board reserves the right at any time to amend, suspend, or
terminate the Plan in whole or in part and for any reason and
without the consent of any Eligible Employee or beneficiary. Any
amendment, modification, suspension, or termination of any
provisions of the Plan may be made retroactively. The foregoing
provisions of this paragraph notwithstanding, no amendment or
thereof the Plan shall adversely affect the amounts payable
hereunder on account of Incentive Awards accrued on behalf of the
Eligible Employees prior to the date of execution of such
amendment or termination.
D. PERIODIC REVIEW OF PLAN
In order to assure the continued realization of the purposes of
the Plan, the Plan Administrator shall review the Plan annually
and may suggest amendments to the Board of Directors of the
Company.
E. NO RIGHTS TO CONTINUED EMPLOYMENT OR AWARD
Nothing contained in the Plan shall give any employee the right to
be retained in the employment of the Company or affect the right
of the Company to dismiss any employee. The adoption of the Plan
shall not constitute a contract between the Company and any
employee. No Eligible Employee shall receive any right to be
granted an award hereunder nor shall any such award be considered
as Compensation under any employee benefit plan of the Company,
except as otherwise determined by the Company.
F. UNFUNDED PLAN; GOVERNING LAW
The Plan is intended to constitute an unfunded deferred
compensation arrangement for a select group of management and all
rights thereunder shall be governed by and construed in accordance
with the laws of the State of Vermont.
VI. SIGNATURE AND VERIFICATION
This Plan shall be effective as of January 1, 1988.
ATTEST:
CHITTENDEN CORPORATION
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
1994 1993
-----------------------
(dollars in thousands,
except per share amounts)
<S> <C> <C>
For the Year
Net interest income $53,905 $50,229
Provision for possible loan losses 4,300 6,600
Noninterest income 23,525 24,308
Noninterest expense 49,867 51,097
Net income 15,537 11,022
Cash dividends declared 2,838 1,243
------------------------
At Year End
Investment securities $206,698 $152,993
Net loans 853,861 831,579
Deposits 1,070,198 1,034,764
Stockholders' equity 98,310 97,711
Total assets 1,213,908 1,231,003
Number of stockholders 2,995 3,087
Number of employees 707 744
-----------------------
Per Share of Common Stock
Net income $2.46 $1.78
Cash dividends declared 0.46 0.20
Book value at end of year 16.63 15.73
Weighted average shares outstanding
during year 6,303,223 6,206,848
------------------------
</TABLE>
<TABLE>
CHITTENDEN CORPORATION
Consolidated Balance Sheets
<CAPTION>
December 31,
------------------------
1994 1993
(in thousands)
<S> <C> <C>
Cash and cash equivalents $100,973 $195,163
Securities available for sale (Note 3) 196,829 -
Securities held for sale (Market value
$152,205,000) (Note 3) - 150,743
Securities held for investment
(Market value $9,280,000 in 1994 and
$2,250,000 in 1993) (Note 3) 9,869 2,250
Loans 872,960 850,496
Allowance for possible loan losses (19,099) (18,917)
----------------------
Net loans 853,861 831,579
----------------------
Mortgage loans held for sale 2,870 11,646
Premises and equipment 17,864 16,333
Accrued interest receivable 9,906 6,341
Other real estate owned 1,288 2,619
Net deferred tax asset 11,969 9,179
Other assets 8,479 5,150
-----------------------
Total assets $1,213,908 $1,231,003
=======================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand $ 180,481 $ 159,323
Certificates of deposit $100,000 and over 69,885 62,640
Savings and other time 819,832 812,801
-----------------------
Total deposits 1,070,198 1,034,764
Short-term borrowings (Note 3) 22,650 79,078
Accrued expenses and other liabilities 22,750 19,450
-----------------------
Total liabilities 1,115,598 1,133,292
-----------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $100 par value authorized
- 200,000 shares issued and outstanding-none - -
Common stock - $1 par value authorized
- 30,000,000 shares issued
- 6,479,896 in 1994 and 6,460,584 in 1993 6,480 6,461
Surplus 51,483 51,228
Retained earnings 55,755 43,056
Treasury stock, at cost - 568,277 shares
in 1994 and 248,129 shares in 1993 (9,586) (2,982)
Valuation allowance for net unrealized loss
on marketable equity securities - (21)
Net unrealized loss on securities available
for sale, net of taxes of $3,077,000
(Notes 1 and 3) (5,718) -
Unearned portion of employee restricted stock (104) (31)
-----------------------
Total stockholders' equity 98,310 97,711
-----------------------
Total liabilities and
stockholders' equity $1,213,908 $1,231,003
=========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
CHITTENDEN CORPORATION
Consolidated Statements of Income
<CAPTION>
Years Ended December 31,
---------------------------------------
1994 1993 1992
---------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Interest income:
Interest on loans $71,055 $69,979 $75,086
Investment securities:
Mortgage-backed securities 2,379 2,101 3,956
Taxable 8,517 5,919 4,755
Tax-favored debt 1,568 1,313 1,419
Tax-favored equity 529 224 1,231
Short-term investments 882 267 537
-------------------------------------
Total interest income 84,930 79,803 86,984
-------------------------------------
Interest expense:
Deposits:
Savings 14,727 12,207 16,209
Time 14,498 15,663 22,702
-------------------------------------
Total interest on deposits 29,225 27,870 38,911
Short-term borrowings 1,800 1,704 2,167
Long-term debt - - 222
-------------------------------------
Total interest expense 31,025 29,574 41,300
-------------------------------------
Net interest income 53,905 50,229 45,684
Provision for possible loan losses 4,300 6,600 7,513
-------------------------------------
Net interest income after provision
for possible loan losses 49,605 43,629 38,171
-------------------------------------
Noninterest income:
Trust department income 4,038 4,007 4,067
Service charges on deposit accounts 4,622 4,484 4,129
Gains (losses) on sales of
securities, net (Note 3) (523) 130 (235)
Mortgage servicing income 2,052 997 486
Gains on sales of mortgage loans 1,086 5,760 4,812
Credit card income 8,238 5,654 4,372
Other 4,012 3,276 3,442
------------------------------------
Total noninterest income 23,525 24,308 21,073
------------------------------------
Noninterest expense
Salaries 17,180 17,049 16,729
Employee benefits 6,344 5,485 4,763
Net occupancy expense 5,635 5,932 5,823
FDIC deposit insurance 2,325 2,574 2,276
(Gains) losses on and write-downs
of other real estate owned (67) 1,542 2,736
Credit card expense 5,466 3,783 3,003
Other 12,984 14,732 14,252
---------------------------------
Total noninterest expense 49,867 51,097 49,582
---------------------------------
Income before income taxes and
cumulative effect of change in
accounting principle 23,263 16,840 9,662
Provision for income taxes 7,726 5,243 2,444
---------------------------------
Income before cumulative effect
of change in accounting principle 15,537 11,597 7,218
Cumulative effect of change in
accounting principle - (575) -
---------------------------------
Net income $15,537 $ 11,022 $ 7,218
=================================
Earnings per share:
Income before cumulative effect of
change in accounting principle $2.46 $1.87 $1.17
Cumulative effect of change in
accounting principle - (0.09) -
--------------------------------
Primary $2.46 $1.78 $1.17
================================
Fully diluted $2.46 $1.78 $1.17
Dividends declared per share $0.46 $0.20 $0.13
Weighted average shares
outstanding 6,303,223 6,206,848 6,193,944
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1994 1993 1992
----------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,537 $ 11,022 $ 7,218
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for possible loan losses 4,300 6,600 7,513
Depreciation and amortization 2,061 2,071 1,838
Amortization of excess of cost over
fair value of net assets acquired - 636 502
Amortization of premiums, fees, and
discounts, net 1,375 1,035 3,219
Investment securities (gains)losses 523 (130) 235
Deferred (prepaid) income taxes 160 (1,573) (1,953)
Changes in:
Mortgage loans held for sale 8,776 (3,675) 2,996
Accrued interest receivable (3,565) 963 236
Other assets (182) 11,156 8,581
Accrued expenses and other
liabilities 3,300 (4,389) 8,850
------------------------------
Net cash provided by operating
activities 32,285 23,716 39,235
-----------------------------
Cash flows from investing activities:
Proceeds from sales of securities
available for sale 32,818 - -
Proceeds from maturing securities
and principal payments on securities
available for sale 151,537 - -
Purchases of securities available
for sale (249,707) - -
Proceeds from principal payments on
securities held for investment 1,476 - -
Purchases of securities held for
investment (104) - -
Proceeds from sales of securities - 20,308 56,939
Proceeds from maturing securities and
principal payments on securities - 239,910 243,392
Purchases of securities - (265,532) (309,952)
Loans originated, net of principal
repayments (28,625) 18,337 (56,983)
Purchases of premises and equipment (3,592) (2,470) (2,207)
-----------------------------
Net cash provided by (used in)
investing activities (96,197) 10,553 (68,811)
-----------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 35,434 (9,175) 22,630
Net increase (decrease) in short-term
borrowings (56,428) 41,866 (49,807)
Principal repayments of long-term debt - (59) (2,414)
Proceeds from issuance of treasury and
common stock 239 172 103
Dividends on common stock (2,838) (1,243) (826)
Repurchase of common stock (6,685) - -
-----------------------------
Net cash provided by (used in)
financing activities (30,278) 31,561 (30,314)
----------------------------
Net increase (decrease) in cash and cash
equivalents (94,190) 65,830 (59,890)
Cash and cash equivalents at beginning
of year 195,163 129,333 189,223
----------------------------
Cash and cash equivalents at end of year $100,973 $195,163 $129,333
=============================
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 30,881 $ 29,854 $ 42,374
Income taxes 6,650 6,838 5,390
Noncash investing and financing
activities:
Loans transferred to other real
estate owned 1,688 3,916 2,955
Mortgage loans securitized 9,228 - -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CHITTENDEN CORPORATION
Notes to Consolidated Financial Statements
Note I
Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Chittenden Corporation (the OCompanyO) and its subsidiary, Chittenden Trust
Company (the OBankO). All material intercompany accounts and transactions
have been eliminated in consolidation. Certain amounts for 1993 and 1992
have been reclassified to conform with 1994 classifications.
Investments
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments
in Debt and Equity Securities (SFAS 115). Under this statement,
investments in debt securities may be classified as held for investment and
measured at amortized cost only if the Company has the positive intent and
ability to hold such securities to maturity. Investments in debt
securities that are not classified as held for investment and equity
securities that have readily determinable fair values are classified as
either trading securities or securities available for sale. Trading
securities are investments purchased and held principally for the purpose
of selling in the near term; securities available for sale are investments
not classified as trading or held for investment. Unrealized holding gains
and losses on trading securities are included in earnings; unrealized
holding gains and losses on securities available for sale are reported as a
separate component of stockholders' equity, net of applicable income taxes.
The Company adopted SFAS 115 on January 1, 1994. The majority of the
Bank's investment portfolio was classified as securities available for sale
and the cumulative net unrealized holding gain of $986,000, net of
applicable taxes, was recorded in stockholders' equity. All other debt
securities held are classified as held for investment as the Company has
the positive intent and ability to hold such securities to maturity.
Dividend and interest income, including amortization of premiums and
discounts, is included in earnings for all categories of investment
securities. Discounts and premiums related to debt securities are
amortized using a method which approximates the level-yield method,
adjusted for estimated prepayments in the case of mortgage-backed
securities.
Prior to January 1, 1994, debt securities were designated at the time
purchased as either held for sale or held for investment, based on
management's intentions in light of investment policy, liquidity needs, and
economic factors. Debt securities held for sale were stated at the lower
of amortized cost or market value with any unrealized loss included in
earnings. Debt securities held for investment, where management had the
intention and ability to hold such securities until maturity, were stated
at amortized cost. The gain or loss recognized on the sale of a debt
security was based on the amortized cost of the specific security.
Marketable equity securities were stated at the lower of aggregate cost or
market value. Net unrealized losses considered temporary in nature were
shown as a reduction of stockholders' equity.
Unrealized losses which are considered other than temporary in nature are
recognized in earnings.
Allowance for Possible Loan Losses
The allowance for possible loan losses is based on managementOs estimate of
the amount required to reflect the risks in the loan portfolio, based on
circumstances and conditions known or anticipated at each reporting date.
There are inherent uncertainties with respect to the final outcome of the
Bank's loans. Because of these inherent uncertainties, actual losses may
differ from the amounts reflected in these consolidated financial
statements. The inherent uncertainties in the assumptions relative to
projected sales prices or rental rates may result in the ultimate
realization of amounts on certain loans that are significantly different
from the amounts reflected in these consolidated financial statements.
Factors considered in evaluating the adequacy of the allowance for possible
loan losses include previous loss experience, current economic conditions
and their effect on borrowers, the performance of individual loans in
relation to contract terms, and estimated fair values of underlying
collateral. Losses are charged against the allowance for possible loan
losses when management believes that the collectability of principal is
doubtful.
Key elements of the above estimates, including assumptions used in
developing independent appraisals, are dependent on the economic conditions
prevailing at the time such estimates are made. Accordingly, uncertainty
exists as to the final outcome of certain valuation judgments as a result
of changes in economic conditions in the Bank's lending areas.
Loan Origination and Commitment Fees
Loan origination and commitment fees, and certain loan origination costs,
are deferred and amortized over the contractual terms of the related loans
as yield adjustments using primarily the level-yield method. When loans
are sold or paid off, the unamortized net fees and costs are recognized in
income. Net deferred loan fees amounted to $2,516,000 and $2,161,000 at
December 31, 1994 and 1993, respectively.
Purchased Mortgage Servicing Rights
Other assets include $628,000 of Purchased Mortgage Servicing Rights
(PMSRs). PMSRs are initially recorded at the lower of cost or the present
value of the estimated future net servicing income. Such amounts are
amortized in proportion to and over the period of the estimated net
servicing income. The Company regularly evaluates the carrying value of
PMSRs for individual servicing acquisitions, based on the present value of
estimated future net servicing income. Amortization is adjusted to reflect
changes in prepayment experience.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value. Gains and losses on sales of mortgage loans are recognized at
the time of the sale and are adjusted when the interest rate charged to the
borrower and the interest rate paid to the purchaser, after considering a
normal servicing fee, (and, in the case of mortgage-backed securities, a
guarantee fee) differ.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight line method over the estimated
useful lives of the premises and equipment. Leasehold improvements are
amortized over the shorter of the terms of the respective leases or the
estimated useful lives of the improvements. Expenditures for maintenance,
repairs, and renewals of minor items are charged to expense as incurred.
Other Real Estate Owned
Collateral acquired through foreclosure ("Other Real Estate Owned" or
"OREO") is recorded at the lower of the carrying amount of the loan or the
fair value of the property, less estimated costs to sell, at the time of
acquisition. A valuation allowance for the estimated costs to sell is
charged to expense. Subsequent changes in the fair value of OREO are
reflected in the valuation allowance and charged or credited to expense.
Such amounts and net operating income or expense related to OREO are
included in noninterest expense in the accompanying consolidated statements
of income.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), which
recognizes income taxes under the asset and liability method. Under this
method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of the
CompanyOs assets and liabilities at enacted tax rates expected to be in
effect when the amounts related to such temporary differences are realized
or settled. The cumulative effect of this change in accounting principle as
of January 1, 1993 was a charge of $575,000. This charge has been recorded
as a cumulative effect of change in accounting principle in the
accompanying 1993 consolidated statement of income.
Prior to January 1, 1993, the Company recognized income taxes under the
deferred method. Under this method, annual income tax expense was matched
with pretax accounting income by providing deferred taxes at current tax
rates for timing differences between income reported for accounting
purposes and income reported for tax purposes.
Earnings Per Share
The calculation of earnings per share is based on the weighted average
number of shares of common stock outstanding, adjusted for the incremental
shares attributed to outstanding common stock equivalents, using the
treasury stock method. Common stock equivalents include options granted
under the Company's stock plan and shares to be issued under the Company's
Directors' Deferred Compensation Plan. (See notes 9 and 10.)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, amounts due from banks,
interest-bearing deposits, certain money market mutual fund investments,
and investments with original maturities of less than three months.
Trust Department
Trust department assets of approximately $1.8 billion, $1.8 billion, and
$1.5 billion at December 31, 1994, 1993, and 1992, respectively, held by
the Bank in a fiduciary or agency capacity for its customers are not
included in the accompanying consolidated balance sheets as they are not
assets of the Bank. Trust department income is recorded on the cash basis
in accordance with customary bank practices. The amounts recognized under
this method are not significantly different from amounts that would be
recognized in accordance with generally accepted accounting principles.
Credit Card Income and Credit Card Expense
Credit card income includes annual fees and interchange income from credit
cards issued by the Company, and merchant discount income. Merchant
discount income consists of the fees charged on credit card receipts
submitted by the Company's business customers. Credit card expense
includes fees paid by the Company to credit card issuers and third-party
processors. Such amounts are recognized on the accrual basis.
Note 2
Acquisitions
On August 17, 1994, the Company and The Bank of Western Massachusetts
signed a definitive agreement whereby the Company would acquire The Bank of
Western Massachusetts, with assets of approximately $222 million at
December 31, 1994, for approximately $25.5 million in stock and cash. The
ultimate purchase price is dependent on the fair value of the 627,525
shares of the Company's stock at the date such shares are issued in
connection with this transaction. Consummation of the transaction is
subject to appropriate regulatory and stockholder approvals and is expected
to occur in the first quarter of 1995.
On April 27, 1993, the Company issued 460,845 shares of its common stock
for all the outstanding common stock of VerBanc Financial Corp. (VerBanc),
a holding company for Bellows Falls Trust Company. The acquisition was
accounted for as a pooling-of-interests and, accordingly, the CompanyOs
consolidated financial statements and per share data have been restated for
all periods prior to the acquisition to include the results of operations,
financial position, and cash flows of VerBanc. Costs related to the merger
of $961,000 were charged to expenses during 1993.
Note 3
Investment Securities
<TABLE>
Investment securities at December 31, 1994 and 1993 are as follows:
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------
1994 (in thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
US Treasury securities $ 61,076 $ 7 $(4,095) $ 56,988
US government agency obligations 33,138 - (889) 32,249
Obligations of states and political subdivisions 40,341 - - 40,341
Mortgage-backed securities 23,823 10 (1,182) 22,651
Corporate bonds and notes 36,397 2 (1,947) 34,452
Government bond mutual funds 10,605 - (818) 9,787
Marketable equity securities 244 123 (6) 361
------------------------------------------------------
Total securities available for sale $205,624 $142 $(8,937) $196,829
======================================================
Securities held for investment:
Obligations of states and political subdivisions $1,651 $ - $ - $1,651
Mortgage-backed securities 8,218 - (589) 7,629
------------------------------------------------------
Total securities held for investment $9,869 $ - $(589) $9,280
======================================================
Book Unrealized Unrealized Market
Value Gains Losses Value
------------------------------------------------------
1993 (in thousands)
US Treasury securities $ 54,310 $ 880 $(183) $ 55,007
US government agency obligations 20,211 280 - 20,491
Obligations of states and political subdivisions 25,368 - - 25,368
Mortgage-backed securities 23,996 468 (35) 24,429
Corporate bonds and notes 28,885 198 (146) 28,937
Marketable equity securities 244 - (21) 223
------------------------------------------------------
153,014 $1,826 $(385) $154,455
==================================
Valuation allowance on marketable equity
securities (21)
-------------
$152,993
=============
</TABLE>
Investment securities at December 31, 1993 are classified in the
accompanying balance sheet as held for sale, except for certain investments
totaling $2,250,000 which are classified as held for investment.
Proceeds from sales of debt securities amounted to $32,818,000,
$12,913,000, and $47,245,000 in 1994, 1993, and 1992, respectively.
Realized gains on sales of debt securities were $21,000, $84,000, and
$471,000 in 1994, 1993, and 1992, respectively. Realized losses on sales
of debt securities were $78,000, $71,000, and $49,000 in 1994, 1993, and
1992, respectively. In 1994, the Company sold government bond mutual funds
at a loss of $466,000. The Company sold marketable equity securities at a
gain of $117,000 in 1993, and at a loss of $557,000 in 1992. In addition,
the Company reduced the carrying value of marketable equity securities by
$100,000 in 1992 to recognize losses considered to be other than temporary
in nature.
Securities pledged to secure U.S. Treasury borrowings, public deposits,
securities sold under agreements to repurchase, and for other purposes
required by law, amounted to $30,483,000 and $95,140,000 at December 31,
1994 and 1993, respectively.
The following table shows the maturity distribution of the amortized cost of the
Company's investment securities at December 31, 1994, with a comparative total
for 1993:
<TABLE>
<CAPTION>
After After
One But Five But
Within Within Within After
One Five Ten Ten No Fixed
Year Years Years Years Maturity Total
--------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
US Treasury securities $ 3,027 $ 52,992 $5,057 $ -$ - $ 61,076
US government agency obligations 14,631 18,507 - - - 33,138
Obligations of states and political
subdivisions 39,687 543 111 - - 40,341
Mortgage-backed securities (1) 4,166 12,924 4,191 2,542 - 23,823
Corporate bonds and notes 8,776 27,621 - - - 36,397
Government bond mutual funds - - - - 10,605 10,605
Marketable equity securities - - - - 244 244
--------------------------------------------------------------------------
Total securities available for sale 70,287 112,587 9,359 2,542 10,849 205,624
--------------------------------------------------------------------------
Securities held for investment:
Obligations of states and political
subdivisions 111 484 439 617 - 1,651
Mortgage-backed securities (1) 567 1,965 1,900 3,786 - 8,218
--------------------------------------------------------------------------
Total securities held for investment 678 2,449 2,339 4,403 - 9,869
--------------------------------------------------------------------------
Total securities $70,965 $115,036 $11,698 $6,945 $10,849 $215,493
=========================================================================
Comparative amounts at December 31, 1993 $43,072 $92,440 $15,765 $1,493 $223 $152,993
</TABLE>
(1) Maturities of mortgage-backed securities are based on mortgage loan
prepayment assumptions.
The following table shows the maturity distribution of the fair value of the
Company's investment securities at December 31, 1994, with a comparative total
for 1993:
<TABLE>
<CAPTION>
After After
One But Five But
Within Within Within After
One Five Ten Ten No Fixed
Year Years Years Years Maturity Total
-----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
US Treasury securities $ 3,029 $ 49,614 $4,345 $ - $ - $ 56,988
US government agency obligations 14,345 17,904 - - - 32,249
Obligations of states and political
subdivisions 39,687 543 111 - - 40,341
Mortgage-backed securities (1) 3,949 12,413 3,842 2,447 - 22,651
Corporate bonds and notes 8,696 25,756 - - - 34,452
Government bond mutual funds - - - - 9,787 9,787
Marketable equity securities - - - - 361 361
-------------------------------------------------------------------
Total securities available for sale 69,706 106,230 8,298 2,447 10,148 196,829
-------------------------------------------------------------------
Securities held for investment:
Obligations of states and political
subdivisions 111 484 439 617 - 1,651
Mortgage-backed securities (1) 520 1,803 1,749 3,557 - 7,629
-------------------------------------------------------------------
Total securities held for investment 631 2,287 2,188 4,174 - 9,280
-------------------------------------------------------------------
Total securities $70,337 $108,517 $10,486 $6,621 $10,148 $206,109
===================================================================
Comparative amounts at December 31, 1993 $43,266 $93,562 $15,895 $1,509 $223 $154,455
</TABLE>
(1) Maturities of mortgage-backed securities are based on mortgage loan
prepayment assumptions. The discount for fair value is applied to the maturity
distribution proportionately.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Note 4
Loans
Major classifications of loans, based on F.D.I.C. collateral definitions,
at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------------
(in thousands)
<S> <C> <C>
Commercial $105,281 $107,722
Real estate:
Residential 334,841 328,165
Commercial 214,103 206,601
Construction 7,281 13,747
-------------------------
Total real estate: 556,225 548,513
Home equity 70,777 69,849
Consumer 140,677 124,412
------------------------
Total gross loans 872,960 850,496
Allowance for possible loan losses (19,099) (18,917)
------------------------
Net loans $853,861 $831,579
========================
Mortgage loans held for sale $ 2,870 $ 11,646
========================
</TABLE>
The Bank's lending activities are conducted primarily in Vermont and
surrounding counties in adjoining states. The Bank makes single family and
multi-family residential loans, commercial real estate loans, commercial
loans, and a variety of consumer loans. In addition, the Bank makes loans
for the construction of residential homes, multi-family and commercial
properties, and for land development. The ability and willingness of the
Bank's borrowers to honor their repayment commitments are impacted by many
factors, including the level of overall economic activity within the
borrowers' geographic areas.
Changes in the allowance for possible loan losses are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $18,917 $16,372 $14,373
Provision for possible loan losses 4,300 6,600 7,513
Loan recoveries 1,111 1,117 737
Loans charged off (5,229) (5,172) (6,251)
------------------------------
Balance at end of year $19,099 $18,917 $16,372
==============================
</TABLE>
The Bank's policy is to discontinue the accrual of interest on loans when
scheduled payments become past due in excess of 90 days, and when, in the
judgment of management, the ultimate collectability of principal or
interest becomes doubtful. When a loan is placed on nonaccrual status, all
interest previously accrued but not collected is reversed against interest
income in the current period. The principal amount of loans in nonaccrual
status was $7,934,000 and $12,756,000 at December 31, 1994 and 1993,
respectively. Loans whose terms have been substantially modified in
troubled debt restructurings amounted to $185,000 and $367,000 at December
31, 1994 and 1993, respectively. There were no outstanding commitments to
lend to customers with existing loans whose terms have been substantially
modified.
The amount of interest which was not earned but which would have been
earned had the nonaccrual and restructured loans performed in accordance
with their original terms and conditions was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------
(in thousands)
<S> <C> <C> <C>
Interest income in accordance
with original loan terms $1,269 $1,418 $1,554
Interest income recognized 506 507 528
---------------------------
Reduction in interest income $763 $911 $1,026
===========================
</TABLE>
Directors and executive officers of the Company and their associates are
credit customers of the Company in the normal course of business. All loans
and commitments included in such transactions are made on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and do not involve
more than normal risk of collectability or present other unfavorable
features.
An analysis of loans to directors and executive officers of the Company and
their associates, for 1994, is as follows:
Balance at Balance at
December 31, 1993 Additions Reductions December 31, 1994
- ------------------------------------------------------------------
(in thousands)
$14,710 $7,781 $14,560 $7,931
- ------------------------------------------------------------------
The Company's portfolio of residential mortgage loans serviced for others,
which is not reflected in the consolidated balance sheets, totaled
approximately $709,873,000 and $634,689,000 at December 31, 1994 and 1993,
respectively. No formal recourse provisions exist in connection with such
servicing.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a
Loan, as amended by SFAS No. 118 (hereafter collectively referred to as
SFAS 114). SFAS 114 requires that impaired loans, as defined, be measured
based on the present value of the expected future cash flows discounted at
the loan's effective interest rate, or the fair value of the collateral if
the loan is collateral dependent. This statement is effective for fiscal
years beginning after December 15, 1994. Management believes that adoption
of this statement will not have a material effect on the financial
condition or results of operations of the Company.
Note 5
Premises and Equipment
Premises and equipment at December 31, 1994 and 1993 are summarized as
follows:
<TABLE>
<CAPTION>
Estimated
Original
1994 1993 Useful Lives
-----------------------------------------
(in thousands)
<S> <C> <C> <C>
Land $1,570 $ 1,626 --
Buildings and improvements 6,102 6,102 12 - 50 years
Leasehold improvements 11,918 11,567 1 - 33 years
Furniture and equipment 13,335 12,845 2 - 10 years
Construction in progress 2,869 264 --
-----------------------
35,794 32,404
Accumulated depreciation
and amortization (17,930) (16,071)
------------------------
$17,864 $16,333
========================
</TABLE>
The Company is obligated under various noncancelable operating leases for
premises and equipment expiring in various years through the year 2008.
Total lease expense, less income from subleases, amounted to approximately
$601,000, $600,000, and $514,000 in 1994, 1993, and 1992, respectively.
Future minimum rental commitments for noncancelable operating leases for
premises and equipment with initial or remaining terms of one year or more
at December 31, 1994 are as follows:
Year Amount
- ---------------------------------
(in thousands)
1995 $ 619
1996 468
1997 422
1998 318
1999 263
Thereafter 806
-------
$2,896
=======
Note 6
Short-term Borrowings
Short-term borrowings at December 31, 1994 and 1993 consist of the
following:
<TABLE>
<CAPTION>
1994 1993
-----------------------
(in thousands)
<S> <C> <C>
Securities sold under
agreements to repurchase:
Due through January 9, 1995,
weighted average rate of 9.20% $10,000 $ -
Due through January 10, 1994,
weighted average rate of 9.20% - 10,000
U.S. Treasury borrowings, 5.21%
in 1994 and 2.76% in 1993,
due on demand 12,650 69,078
------- -------
$22,650 $79,078
======= =======
</TABLE>
Short-term borrowings are collateralized by U.S. Treasury and agency
securities, mortgage-backed securities, and residential mortgage loans.
These assets had a carrying value and a market value of $23,909,000 and
$22,336,000, respectively, at December 31, 1994, and $84,077,000 and
$85,554,000, respectively, at December 31, 1993.
The following information relates to securities sold under agreements to
repurchase:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------
(in thousands)
<S> <C> <C> <C>
Average balance outstanding
during the year $11,806 $10,954 $25,240
Average rate during the year 8.46% 8.65% 5.18%
Maximum amount outstanding at any
month-end $20,237 $14,140 $43,974
The following information relates to U.S. Treasury borrowings:
1994 1993 1992
(in thousands)
Average balance outstanding
during the year $20,349 $25,758 $22,444
Average rate during the year 3.74% 2.82% 3.41%
Maximum amount outstanding at any
month-end $70,517 $72,325 $70,364
Note 7
Income Taxes
The provision for income taxes consists of the following:
1994 1993 1992
(in thousands)
Current $7,566 $6,816 $4,397
Deferred (prepaid) 160 (1,573) (1,953)
------------------------------------
Provision for income taxes $7,726 $5,243 $2,444
====================================
The following is a reconciliation of the provision for Federal income
taxes, calculated at the statutory rate, to the recorded provision for
income taxes:
1994 1993 1992
---------------------------
(in thousands)
Computed tax at statutory Federal rate $8,142 $5,894 $3,285
Increase (decrease) in taxes from:
Amortization of intangible assets - 255 98
Tax-exempt interest, net (645) (581) (628)
Dividend received deduction (134) (33) (81)
Capital loss (benefited through
carry forward) not available
for carryback - (35) (98)
Alternative minimum tax credit - - (290)
Other, net 363 (257) 158
--------------------------
Total $7,726 $5,243 $2,444
==========================
Effective income tax rate 33.21% 31.13% 25.30%
As discussed in Note 1, effective January 1, 1993, the Company adopted SFAS
109, Accounting for Income Taxes. Prior to adoption of SFAS 109, prepaid
and deferred income taxes arose due to timing differences in the
recognition of revenue and expense for tax and financial statement
purposes. For the year ended December 31, 1992, the sources of the
differences and the approximate tax effect of each is as follows:
1992
-------------
(in thousands)
Provision for possible loan losses $(413)
Other real estate owned (419)
Depreciation (160)
Deferred loan origination fees (233)
Amortization of excess servicing fees (396)
Pension and employee benefits (162)
Restructuring charges (357)
Allowance for uncollected interest 81
Other 106
-----------
$(1,953)
===========
The components of the net deferred tax asset at December 31, 1994 and 1993
are as follows:
1994 1993
-----------------------
(in thousands)
Allowance for possible loan losses $6,494 $6,356
Deferred compensation and pension 1,871 1,466
Other real estate owned writedowns 161 420
Deferred loan origination fees 113 735
Depreciation (798) (776)
Accrued liabilities 1,017 999
Unrealized loss on securities available for sale 3,077 -
Other 34 (21)
-----------------------
$11,969 $9,179
========================
</TABLE>
Current income taxes payable, included in accrued expenses and other
liabilities, was $266,000 and $78,000 at December 31, 1994 and 1993,
respectively.
The State of Vermont assesses a franchise tax for banks in lieu of a bank
income tax. The franchise tax, assessed based on deposits, amounted to
approximately $493,000, $468,000, and $459,000 in 1994, 1993, and 1992,
respectively. These amounts are included in other noninterest expense in
the accompanying consolidated statements of income.
Note 8
Stockholders' Equity
Treasury Stock
On October 26 and November 7, 1994, the Company purchased 226,875 and
100,000 shares, respectively, of its common stock for a total cost of $6.7
million.
Dividends
Dividends paid by the Bank are the primary source of funds available to the
Company for payment of dividends to its stockholders and for other
corporate needs. Applicable Federal and state statutes, regulations, and
guidelines impose restrictions on the amount of dividends that may be
declared by the Bank.
During 1994, the Company declared dividends of $2,838,000 or $0.46 per
share. In 1993, the Company declared dividends of $1,243,000 or $0.20 per
share.
Surplus
The Bank is required by Vermont statute to transfer a minimum of 10% of net
income from retained earnings to surplus on an annual basis. No transfer
is required if net worth as a percent of deposits and other liabilities
exceeds 10%.
Stock Split
On September 24, 1993, the Company distributed a five-for-four stock split.
Accordingly, all historical share information presented in the consolidated
financial statements was restated in 1993 to reflect this event.
Capital Ratios
The Bank is subject to various regulatory capital requirements administered
by the Federal Deposit Insurance Corporation (the "FDIC"). To be considered
adequately capitalized under the regulatory framework for prompt corrective
action, the Bank must maintain minimum Tier I leverage, Tier 1 risk-based,
and total risk-based ratios of 4%, 4%, and 8%, respectively. At December
31, 1994 and 1993, the Bank exceeded all regulatory requirements to be
considered adequately capitalized.
Note 9
Stock Plans
The Company has four stock option plans: a 1980 employee stock purchase
plan, a 1985 restricted stock plan, a 1988 employee stock option plan, and
a 1993 Stock Incentive Plan. The employee stock purchase plan, the
restricted stock plan and the employee stock option plan expired between
October 1990 and February 1993, except as to options then outstanding. Of
the 281,219 options outstanding at December 31, 1994, 239,969 were
exercisable.
Under the Stock Incentive Plan, certain key employees and directors are
eligible to receive various types of stock incentives: options to purchase
a specified number of shares of stock at a specified price (including
incentive stock options and non-qualified stock options); restricted stock
which vests after a specified period of time; non-employee directorsO stock
options to purchase stock at pre-determined prices over a five-year period;
and performance shares which are incorporated into the Company's Executive
Management Incentive Compensation Plan and which represent a portion of
each bonus awarded pursuant to that plan. A total of 468,750 shares are
allocated to the Stock Incentive Plan. At December 31, 1994 there were
257,000 shares reserved under the plan.
Information regarding the Company's stock option plans is summarized as
follows:
<TABLE>
<CAPTION>
Option Price
Per Share Options
------------------------
<S> <C> <C>
December 31, 1991 165,495
Granted $ 7.20 - 12.40 14,968
Exercised 6.20 - 10.97 (5,185)
Expired (24,265)
-------------------------
December 31, 1992 151,013
Granted $15.10 - 16.00 209,599
Exercised 6.20 - 17.10 (11,427)
Expired (26,875)
-------------------------
December 31, 1993 322,310
Granted $19.75 - 21.19 8,750
Exercised 6.20 18.49 (12,510)
Expired (37,331)
-------------------------
December 31, 1994 $ 5.00 - 21.19 281,219
=======
</TABLE>
Note 10
Employee Benefits
Pension Plan
The Company has a noncontributory pension plan covering substantially all
of its employees. Benefits are based on years of service and the level of
compensation during the final years of employment. The funding policy of
the Company for the plan is to contribute annually the amount necessary to
meet the minimum funding standards established by the Employee Retirement
Income Security Act (ERISA). This contribution is based on an actuarial
method that recognizes estimated future salary levels and service.
The funded status of the plan is as follows at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------------------------
(in thousands)
<S> <C> <C>
Vested benefits $10,222 $10,902
Nonvested benefits 1,069 1,111
------------------------
Accumulated benefit obligation 11,291 12,013
Additional benefits related
to future compensation levels 3,886 3,120
------------------------
Projected benefit obligation 15,177 15,133
Fair value of plan assets,
invested primarily in equity
securities and bonds 12,232 12,714
------------------------
Plan assets less than projected
benefit obligation $(2,945) $(2,419)
========================
Amounts resulting from changes in actuarial assumptions used to measure the
CompanyOs benefit obligations are not recognized as they occur, but are
amortized systematically over subsequent periods. Unrecognized amounts to
be amortized and the reconciliation of the plan assets less than the
projected benefit obligation to the amounts included in the consolidated
balance sheets at December 31, 1994 and 1993 are shown below:
1994 1993
------------------------
(in thousands)
Plan assets less than projected
benefit obligation $(2,945) $(2,419)
Unrecognized net transition asset being
amortized over participantsO
period of service (143) (172)
Prior service cost not yet recognized
in net periodic pension cost 414 445
Unrecognized net loss from past
experience different from that assumed 778 1,140
--------------------------
Accrued pension cost included in accrued
expenses and other liabilities $(1,896) $(1,006)
==========================
Net pension expense, included in employee benefits in the consolidated
statements of income, includes the following components:
1994 1993 1992
----------------------------
(in thousands)
Service cost - benefits attributable
to service during the period $868 $ 681 $666
Interest cost on projected benefit
obligation 1,136 1,043 898
Actual return on plan assets 72 (864) (598)
Net amortization and deferral (1,186) (338) (607)
-------------------------------
Net pension expense $890 $522 $359
===============================
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8.0% in 1994, 7.0% in
1993, and 8.0% in 1992. Future compensation levels were estimated using
average salary increases of 6.0% for 1994, 5.0% for 1993, and 6.0% for
1992. The expected long-term rate of return on plan assets was 9.0% in
1994 and 1993, and 9.5% in 1992.
The Bank has supplemental pension arrangements with certain retired
employees. The liability, included in accrued expenses and other
liabilities, related to such arrangements was $995,000 and $925,000 at
December 31, 1994 and 1993, respectively.
Postretirement Benefits
In addition to providing pension benefits, the Company provides or will
provide certain postretirement health care benefits to current retirees and
to current employees who meet certain age and length of service criteria.
Prior to January 1, 1993, the cost of retiree health care benefits was
recognized as expense and funded as claims were paid. Such costs totaled
$114,000 in 1992.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, EmployersO Accounting for Postretirement
Benefits Other Than Pensions (SFAS 106). This accounting standard requires
that the expected cost of postretirement benefits be charged to expense
during the years that the employees render service. The Company has elected
to amortize the unfunded obligation that was measured as of January 1, 1993
over a period of 20 years.
The following table reconciles the planOs funded status to the accrued
postretirement health care liability as reflected in the balance sheets at
December 31, 1994 and 1993:
1994 1993
------------------
(in thousands)
Accumulated postretirement
benefit obligation:
Retirees $725 $1,092
Other fully eligible participants 113 114
Other active participants 454 522
-------------------
1,292 1,728
Unrecognized actuarial gain (loss) 259 (92)
Unrecognized transition obligation (1,446) (1,527)
-------------------
Accrued postretirement health care
liability $105 $109
===================
Net postretirement health care expense includes the following components:
Service cost - benefits attributed
to service during the period $20 $ 20
Interest cost on accumulated
postretirement benefit obligation 99 125
Net amortization and deferral 76 80
-------------------
Net postretirement health care expense $195 $225
===================
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1994 and 1993 was 7.0%.
For measurement purposes, an 11.0% and 14.0% annual rate of increase in the
per capita cost of covered health care benefits was assumed for the
respective periods.
Other Benefit Plans
The Company has an incentive savings and profit sharing plan to provide
eligible employees with a means to save and invest a portion of their
earnings, supplemented by contributions from the Company. Investment in
the Company's common stock is one of four investment options available to
employees.
Eligible employees of the Company may contribute, by salary reductions, up
to 6% of their compensation as a basic employee contribution and may
contribute up to an additional 10% of their compensation as a supplemental
employee contribution. The Company makes an incentive savings contribution
in an amount equal to 35% of each employeeOs basic contribution. In 1994,
1993, and 1992, 14,589, 14,861, and 22,320 shares, respectively, of the
CompanyOs common stock were purchased through the incentive savings and
profit sharing plan; $214,000, $233,000, and $192,000, respectively, were
charged to expense for contributions and payments made or to be made under
the plan.
The Company may also make an additional matching contribution based on the
extent to which the annual corporate profitability goal established by the
Board of Directors is met. Expenses related to achievement of
profitability goals totaled $214,000, $225,000, and $151,000 in 1994, 1993,
and 1992, respectively.
The Company also has an Executive Management Incentive Compensation Plan.
Executives performing at defined levels of responsibility are eligible to
participate in the plan. Incentive award payments are determined on the
basis of corporate profitability and individual performance, with incentive
awards ranging from zero to 60% of annual compensation. These awards are
paid over a four-year period, contingent upon meeting profitability goals
in subsequent years. Beginning with payouts made in 1993, based on 1992
performance, a portion of each award is paid in cash and a portion is paid
in the Company's common stock. Expenses for this plan totaled $529,000,
$407,000, and $256,000 in 1994, 1993, and 1992, respectively.
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, EmployersO Accounting for
Postemployment Benefits (SFAS 112). SFAS 112 covers all postemployment
benefits not already covered by two prior accounting pronouncements. The
Company adopted SFAS 112 on January 1, 1994. Adoption of SFAS 112 did not
have a material impact on the accompanying consolidated financial
statements.
The Company has a DirectorsO Deferred Compensation Plan. Under the plan,
Directors may defer fees and retainers that would otherwise be payable
currently. Deferrals may be made to an uninsured interest account or an
account recorded in equivalents of the Company's common stock. Expenses for
this plan totaled $202,000, $289,000, and $207,000 for 1994, 1993, and
1992, respectively. Shares which will be issued under the plan totaled
103,087 at December 31, 1994.
Note 11
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates,
the Bank is a party to financial instruments with off-balance sheet risk,
held for purposes other than trading. The financial instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The BankOs exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument, for loan commitments and standby letters of credit,
is represented by the contractual amount of those instruments, assuming
that the amounts are fully advanced and that collateral or other security
is of no value. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. The Bank evaluates each customerOs creditworthiness on a case-
by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on managementOs credit
evaluation of the borrower. Collateral held varies, but may include
accounts receivable, inventory, property, plant and equipment, and income-
producing commercial properties.
Commitments to originate loans, unused lines of credit, and unadvanced
portions of construction loans are agreements to lend to a customer
provided there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Many of the
commitments are expected to expire without being drawn upon. Therefore, the
amounts presented below do not necessarily represent future cash
requirements.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance by a customer to a third party. These guarantees
are issued primarily to support public and private borrowing arrangements,
bond financing, and similar transactions. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan commitments to customers.
Financial instruments whose contractual amounts represent off-balance sheet
risk at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------
(in thousands)
<S> <C> <C>
Commitments to originate loans $ 13,671 $22,012
Unused lines of credit 122,784 136,736
Standby letters of credit 16,005 10,753
Unadvanced portions of construction loans 7,065 6,803
Equity commitments
to limited partnerships 597 912
</TABLE>
Note 12
Commitments and Contingencies
As a nonmember of the Federal Reserve System, the Company is required to
maintain certain reserve requirements of vault cash and/or deposits with
the Federal Reserve Bank of Boston. The amount of this reserve requirement,
included in cash and cash equivalents, was $20,409,000 and $19,466,000 at
December 31, 1994 and 1993, respectively.
The Bank has a contract for data processing services that extends to July
1998. Base fees required to be paid during the remaining term of the
contract are approximately $12,127,000. Total fees to be paid may be the
same as or exceed the base fees depending on additional services rendered
and consumer price index changes during the remaining term of the contract.
Various legal claims against the Company arising in the normal course of
business were outstanding at December 31, 1994. Management, after
reviewing these claims with legal counsel, is of the opinion that the
resolution of these claims will not have a material effect on the
consolidated financial statements.
One legal claim, Walsh vs. Chittenden Corp., et al, was a class action in
which the plaintiff represented himself and other persons who purchased
Chittenden common stock from March 29, 1989 through August 15, 1990. On
July 1, 1994, the Federal District Court of Vermont approved a settlement
agreement which provided, among other things, that a fund of $1.5 million
be established to resolve any claims of members of the class, including the
plaintiff's counsel fees. Taking into consideration certain payments
contributed by an insurance carrier, the Company's contribution to the
settlement fund had no material effect on the accompanying consolidated
financial statements.
Note 13
Other Noninterest Expense
The components of other noninterest expense for the years presented are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------
(in thousands)
<S> <C> <C> <C>
Data processing $3,275 $3,104 $2,846
Amortization of excess of cost over
fair value of net assets acquired - 636 502
Legal and professional 573 1,054 1,859
Other 9,136 9,938 9,045
-------------------------------
$12,984 $14,732 $14,252
===============================
</TABLE>
Note 14
Quarterly Financial Data (Unaudited)
A summary of quarterly financial data for 1994 and 1993 is presented below:
<TABLE>
<CAPTION>
1994 Three Months Ended
--------------------------------------------
March 31 June 30 Sept 30 Dec 31
--------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Total interest income $19,278 $20,672 $21,851 $23,129
Total interest expense 6,956 7,173 7,898 8,998
---------------------------------------------
Net interest income 12,322 13,499 13,953 14,131
Provision for possible loan losses 1,200 1,200 1,000 900
Noninterest income 5,620 5,775 5,640 6,490 (1)
Noninterest expense 11,690 12,314 12,539 13,324 (2)
---------------------------------------------
Income before income taxes 5,052 5,760 6,054 6,397
Provision for income taxes 1,667 1,917 2,031 2,111
----------------------------------------------
Net income $3,385 $3,843 $4,023 $4,286
==============================================
Earnings per share $0.53 $0.60 $0.63 $0.70
Dividends declared per share $0.10 $0.10 $0.13 $0.13
(1) Noninterest income for the fourth quarter of 1994 was $850,000 higher than
for the third quarter Increased credit card income, primarily from higher
merchant discount volumes, amounted to $363,000 A one-time gain of $444,000
resulted from the sale of branch real estate(2) Noninterest expense for the
fourth quarter of 1994 exceeded the third quarter level by $785,000 Employee
benefits expense was higher by $300,000, primarily due to accuals for
various performance-based incentive plans Credit card expense was up
$212,000 as higher volumes resulted in increased processing costs
1993 Three Months Ended
-------------------------------------------
March 31 June 30 Sept 30 Dec 31
-------------------------------------------
(in thousands, except per share amounts)
Total interest income $20,124 $19,789 $19,868 $20,022
Total interest expense 7,839 7,455 7,152 7,128
-------------------------------------------
Net interest income 12,285 12,334 12,716 12,894
Provision for possible loan losses 1,650 1,650 1,650 1,650
Noninterest income 5,571 6,143 6,519 6,075
Noninterest expense 12,181 13,209 13,252 12,455
-------------------------------------------
Income before income taxes
and cumulative effect of
change in accounting principle 4,025 3,618 4,333 4,864
Provision for income taxes 1,172 1,073 1,470 1,528
-------------------------------------------
Income before cumulative effect of
change in accounting principle 2,853 2,545 2,863 3,336
Cumulative effect of change
in accounting principle (575) - - -
-------------------------------------------
Net income $2,278 $2,545 $2,863 $3,336
===========================================
Earnings per share:
Income before cumulative
effect of change in
accounting principle $0.46 $0.41 $0.46 $0.54
Cumulative effect of change
in accounting principle (0.09) - - -
-------------------------------------------
Net income $0.37 $0.41 $0.46 $0.54
===========================================
Dividends declared per share $0.04 $0.05 $0.05 $0.06
</TABLE>
Note 15
Fair Value of Financial Instruments
Cash and Cash Equivalents
The carrying amounts for cash and cash equivalents approximate fair value
because they mature in 90 days or less and do not present unanticipated
valuation risk.
Investments
The fair value of investment securities, other than obligations of states
and political subdivisions, is based on quoted market prices. The fair
value of obligations of states and political subdivisions is estimated to
be equal to amortized cost since most of these notes mature within six
months and there is no active market for these instruments.
Loans
Fair values are estimated for portfolios of loans with similar financial
and credit characteristics. The loan portfolio was evaluated in the
following segments: commercial, residential real estate, commercial real
estate, construction, home equity, and other consumer loans. Other consumer
loans include installment, credit card, and student loans. Each of these
consumer portfolios also was evaluated separately.
The fair value of performing commercial and real estate loans is estimated
by discounting cash flows through the estimated maturity using discount
rates that reflect the expected maturity and the credit and interest rate
risk inherent in such loans. The fair value of nonperforming commercial and
real estate loans is estimated using historical net charge-off experience
applied to the nonperforming balances. For performing residential mortgage
loans, fair value is estimated by discounting contractual cash flows
adjusted for prepayment estimates using discount rates based on secondary
market sources. The fair value of home equity, credit card, and other
consumer loans is estimated based on secondary market prices for asset-
backed securities with similar characteristics.
Deposits
The fair value of deposits with no stated maturity, such as noninterest-
bearing demand deposits, savings and N.O.W. accounts, and money market and
checking accounts, is equal to the amount payable on demand, that is, the
carrying amount. The fair value of certificates of deposit and retirement
accounts is based on the discounted value of contractual cash flows. The
discount rate used is based on the estimated rates currently offered for
deposits of similar remaining maturities.
Short-term Borrowings
The carrying amounts for short-term borrowings approximate fair value
because they mature or are callable in ten days or less and do not present
unanticipated valuation risk.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit 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
counterparties. For fixed rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair value of financial standby letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
Assumptions
Fair value estimates are made at a specific point in time, based on
relevant market information and information about specific financial
instruments. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the BankOs entire holdings
of a particular financial instrument. Because no active observable market
exists for a significant portion of the BankOs financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
December 31,
-----------------------------------------------------
1994 1993
-----------------------------------------------------
<CAPTION>
Carrying Carrying
Amount Fair Value Amount Fair Value
-----------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 100,973 $ 100,973 $ 195,163 $ 195,163
Securities available for sale 196,829 196,829 - -
Securities held for sale - - 150,743 152,205
Securities held for investment 9,869 9,280 2,250 2,250
Loans, net 853,861 870,111 831,579 858,469
Mortgage loans held for sale 2,870 2,870 11,646 11,646
Financial liabilities:
Deposits:
Demand 180,481 180,481 159,323 159,323
Savings 519,512 519,512 496,692 496,692
Time:
Certificates of deposit $100,000 and over 69,885 69,594 62,640 62,930
Other time deposits 300,320 298,329 316,109 318,217
Short-term borrowings 22,650 22,650 79,078 79,078
Commitments 160 160 105 105
</TABLE>
Note 16
Parent Company Financial Statements
Chittenden Corporation (Parent Company Only)
<TABLE>
<CAPTION>
Balance Sheets December 31,
--------------------
1994 1993
--------------------
(in thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $5,011 $1,902
Investment securities 225 210
Investment in bank subsidiary at
equity in net assets 92,525 95,161
Other assets 749 593
--------------------
Total assets $98,510 $97,866
====================
Liabilities and stockholders' equity
Liabilities:
Accrued expenses and other liabilities $ 200 $ 155
--------------------
Total liabilities 200 155
--------------------
Stockholders' equity:
Preferred stock - -
Common stock 6,480 6,461
Surplus 51,483 51,228
Retained earnings 55,755 43,056
Treasury stock, at cost (9,586) (2,982)
Valuation allowance for net unrealized
loss on securities (5,718) (21)
Unearned portion of employee restricted stock (104) (31)
--------------------
Total stockholders' equity 98,310 97,711
--------------------
Total liabilities and stockholders' equity $98,510 $97,866
====================
Statements of Income Years Ended December 31,
------------------------------
1994 1993 1992
------------------------------
Operating income: (in thousands)
Dividends from bank subsidiary $13,275 $1,679 $2,049
Dividends from investment securities 19 - 40
Interest income 13 - 39
---------------------------------
Total operating income 13,307 1,679 2,128
---------------------------------
Operating expense:
Interest on borrowed funds - - 222
Losses on investment securities - 16 281
Other operating expense 1,268 769 759
---------------------------------
Total operating expense 1,268 785 1,262
---------------------------------
Income before income taxes and equity
in undistributed earnings of
subsidiaries 12,039 894 866
Income tax benefit 420 267 395
---------------------------------
Income before equity in undistributed
earnings of subsidiaries 12,459 1,161 1,261
Equity in undistributed earnings
(loss) of:
Bank subsidiary 3,078 9,861 5,958
Nonbank subsidiaries - - (1)
---------------------------------
Net income $15,537 $11,022 $7,218
=================================
Statements of Cash Flows Years Ended December 31,
---------------------------------
1994 1993 1992
---------------------------------
(in thousands)
Cash flows from operating activities:
Net income $15,537 $11,022 $7,218
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed earnings
of subsidiaries:
Bank subsidiary (3,078) (9,861) (5,958)
Nonbank subsidiaries - - 1
Amortization - 29 78
Investment securities losses - 16 281
(Increase) decrease in other assets (171) 361 (378)
Increase (decrease) in accrued
expenses and other liabilities 105 (36) 23
-------------------------------------
Net cash provided by
operating activities 12,393 1,531 1,265
-------------------------------------
Cash flows from investing activities:
Proceeds from sales of investment
securities - - 1,719
Proceeds from maturities of
investment securities - - 1,600
Purchase of investment securities - - (1,639)
-------------------------------------
Net cash provided by investing
activities - - 1,680
-------------------------------------
Cash flows from financing activities:
Principal repayments of long-term debt - (59) (2,414)
Proceeds from issuance of treasury
and common stock 239 172 103
Dividends on common stock (2,838) (1,243) (826)
Repurchase of common stock (6,685) - -
--------------------------------------
Net cash used in financing activities (9,284) (1,130) (3,137)
--------------------------------------
Net increase (decrease) in cash
and cash equivalents 3,109 401 (192)
Cash and cash equivalents at
beginning of year 1,902 1,501 1,693
--------------------------------------
Cash and cash equivalents at
end of year $5,011 $1,902 $1,501
======================================
Supplemental disclosure of
cash flow information:
Cash paid during the year
for interest $ - $ - $242
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders
Chittenden Corporation:
We have audited the accompanying consolidated balance sheets of Chittenden
Corporation and its subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of Chittenden Corporation
and its subsidiary as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1994, the Company adopted Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities. As
discussed in Note 1, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, as of January 1, 1993.
Arthur Andersen LLP
Boston, Massachusetts
January 17, 1995
<TABLE>
FIVE YEAR CONSOLIDATED FINANCIAL SUMMARY
Years Ended December 31,
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------------------------------
(in thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
Statements of income:
Interest income $ 84,930 $79,803 $86,984 $100,061 $106,182
Interest expense 31,025 29,574 41,300 57,972 63,410
------------------------------------------------------------------------------
Net interest income 53,905 50,229 45,684 42,089 42,772
Provision for possible loan losses 4,300 6,600 7,513 8,843 12,189
Net interest income after provision
for possible loan losses 49,605 43,629 38,171 33,246 30,583
Noninterest income 23,525 24,308 21,073 18,442 16,529
Noninterest expense 49,867 51,097 49,582 45,847 50,378
-------------------------------------------------------------------------------
Income (loss) before provision (benefit)
for income taxes 23,263 16,840 9,662 5,841 (3,266)
Provision (benefit) for income taxes 7,726 5,243 2,444 1,234 (2,219)
-------------------------------------------------------------------------------
Income (loss) before cumulative effect
of change in accounting principle 15,537 11,597 7,218 4,607 (1,047)
Cumulative effect of change in
accounting principle - (575) - - -
--------------------------------------------------------------------------------
Net income (loss) $15,537 $11,022 $7,218 $4,607 $(1,047)
================================================================================
Total assets at year-end $1,213,908 $1,231,003 $1,192,068 $1,204,949 $1,136,988
Long-term debt at year-end - - 59 2,473 2,473
Balance sheets - average daily balances:
Total assets $1,200,785 $1,172,809 $1,171,060 $1,115,744 $1,094,984
Loans, net of allowance 833,205 852,958 844,126 828,433 847,440
Investment securities and interest-bearing
cash equivalents 269,050 220,927 222,428 191,244 147,353
Total deposits 1,055,604 1,030,839 1,021,827 992,017 959,297
Long-term debt - 7 2,034 2,473 6,368
Total stockholders' equity 100,635 92,813 83,520 74,476 74,338
Per common share:
Net income (loss) $2.46 $1.78 $1.17 $0.74 $(0.17)
Cash dividends declared 0.46 0.20 0.13 - 0.29
Book value 16.63 15.73 14.04 12.79 11.59
Weighted average shares outstanding 6,303,223 6,206,848 6,193,944 6,186,600 6,192,416
Selected financial percentages:
Return on average total assets 1.29% 0.94% 0.62% 0.41% (0.10)%
Return on average stockholders' equity 15.44 11.88 8.64 6.19 (1.41)
Interest rate spread 4.33 4.21 3.79 3.41 3.53
Net yield on earning assets 4.92 4.69 4.35 4.22 4.44
Net charge-offs as a percent of
average loans 0.48 0.47 0.64 0.89 1.44
Nonperforming assets ratio (1) 1.08 1.85 2.79 3.75 3.42
Allowance for possible loan losses as a
percent of year-end loans 2.19 2.22 1.87 1.73 1.56
Year-end leverage capital ratio 8.41 8.13 7.30 6.86 NA
Year-end primary capital ratio NA NA NA NA 7.36
Risk-based capital ratios:
Tier 1 11.46 11.05 9.64 8.53 7.88
Total 12.82 12.41 10.95 10.04 9.36
Average stockholders' equity to
average assets 8.38 7.91 7.13 6.68 6.79
Common stock dividend payout ratio (2) 18.27 11.28 11.44 - NM
</TABLE>
(1) The sum of nonperforming assets (nonaccrual loans, restructured loans, and
other real estate owned) divided by the sum of total loans and other real estate
owned
(2) Common stock cash dividends declared divided by net income
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For the Years Ended December 31, 1994, 1993, and 1992
Overview
The following discussion and analysis of financial condition and results of
operations of Chittenden Corporation ("Chittenden" or the "Company") and
its subsidiary, Chittenden Trust Company (the "Bank"), should be read in
conjunction with the consolidated financial statements and notes thereto
and selected statistical information appearing in this annual report.
Chittenden reported net income of $15.5 million for 1994, up $4.5 million
or 41% from $11.0 million in earnings for 1993. In 1992, the Company
posted net income of $7.2 million. Total assets at December 31, 1994 were
$1.2 billion, unchanged from the level at year-end 1993. The return on
average assets was 1.29% for 1994, up from 0.94% in 1993 and 0.62% in 1992.
The return on average stockholders' equity was 15.44% for 1994, compared
with 11.88% for 1993 and 8.64% for 1992.
Although for the second consecutive year there was little change in total
assets of the Company at year-end, earnings continued their upward trend in
1994 due to several factors. Net interest income increased $3.7 million as
interest earned on assets increased more rapidly than did interest paid on
deposits and other borrowings. The provision for possible loan losses was
$4.3 million, down $2.3 million from the 1993 level reflecting continued
improvement and strength in asset quality. Noninterest expense declined by
$1.2 million, owing primarily to elimination of the expense related to
managing and disposing of foreclosed properties and one-time expenses
related to the Company's merger with VerBanc. The remaining noninterest
expenses increased less than 1% over the 1993 level. Revenues from
noninterest sources declined by $783,000, or 3%, as a $4.7 million
reduction in gains on sales of mortgage loans was almost offset by
increases in revenues from several other sources. The 1994 income tax
provision of $7.7 million exceeded the 1993 provision by $2.5 million, as
both the effective tax rate and the level of pre-tax income increased.
The $3.8 million increase in net income from 1992 to 1993 resulted from
improvement in several elements of earnings: net interest income increased
$4.5 million as interest earned on assets declined less than interest paid
on deposits; the provision for possible loan losses was down $913,000 from
1992; and revenues from noninterest sources improved by $3.2 million, led
by a $1.3 million increase in revenue related to credit card activities.
Noninterest expense increased $1.5 million, to $51.1 million, in 1993,
largely due to one-time expenses related to the Company's merger with
VerBanc. The increase was mitigated by a reduction of $1.2 million in
other real estate owned expenses. The 1993 income tax provision exceeded
the 1992 provision by $2.8 million. The cumulative effect of a change in
accounting principle related to providing for income taxes and adopted
effective January 1, 1993 amounted to a $575,000 additional charge against
earnings not included in the tax provision discussed above.
Financial Condition
Loans
Chittenden's loan portfolio increased by 3% during 1994, to end the year at
$873.0 million. The overall proportions of commercial-related and consumer
loans changed little from the mix at the end of 1993. The Company
continues to pursue its strategy of gradually shifting the loan mix through
continued focus on commercial and non-residential consumer lending
simultaneous with secondary market sales of originated fixed-rate
residential mortgage loans.
The classification of the Company's loan portfolio is based on underlying
collateral. At December 31, 1994, commercial loans secured by non-real
estate business assets totaled $105.3 million, down $2.4 million from the
$107.7 million posted at year-end 1993. The decrease in this category
reflects payoffs by a few large borrowers due to very competitive pricing
offered by out-of-market competition, almost offset by strong growth in the
small business market. Further, the Company's strategic focus on the small
business market has resulted in a higher proportion of commercial loans
advanced for business purposes being secured by equity in real estate
collateral. These loans are classified on the consolidated financial
statements as residential or commercial real estate loans, depending on the
real estate collateral pledged. Commercial real estate loans stood at
$214.1 million at year-end 1994, up 4 % from December 1993. The increase in
this category reflects increased loan demand in the Company's marketplace
and the focus, noted previously on developing small business relationships.
Approximately $67.6 million of commercial real estate loans are for
investment properties.
Construction loans amounted to $7.3 million at December 31, 1994, down from
$13.7 million the year before. Financing for custom-built residential
construction accounts for 43% of this total; the remainder is for various
types of commercial construction.
Residential real estate loans stood at $334.8 million at year-end 1994, up
$6.7 million from December 31, 1993. During the first quarter of 1994, the
Company created marketable securities using $9.2 million of Chittenden
Affordable Real Estate mortgage loans. These securities remained in the
Company's investment portfolio at December 31, 1994. The amounts and types
of residential mortgage loan originations changed during the year driven
primarily by rising interest rates. Early in the year, volume began to
slow as refinancing activity tapered off. Demand continued to be primarily
for fixed-rate loans which the Company sells in the secondary market. As
rates rose, origination volume declined further and what volume there was
shifted toward variable-rate loans which the Company generally holds in
portfolio. In total, $159.4 million in mortgages were originated during
1994, down from $373.8 million during 1993. Secondary market sales
were$127.9 million in 1994 (including the securitization described above),
down from $339.0million in 1993. The Company underwrites substantially all
of its residential mortgages to secondary market standards. During 1994
and 1993, the Company continued to follow its policy of selling
substantially all of its fixed-rate residential mortgage production on a
servicing-retained basis. From time to time, the Company also sells its
qualifying variable-rate production on a servicing-retained basis.
The portfolio of residential mortgages serviced for investors continued to
grow, totaling $709.9 million at December 31, 1994, up 12 % from the $635.0
million at year-end 1993. These assets are owned by investors other than
Chittenden and therefore are not included in the consolidated balance
sheets of the Company. Of the loans serviced, $652.8 million were
originated by the Company. During 1994, the Company purchased, for
$664,000, rights to service a portfolio of $59.0 million in residential
mortgages in the northern New England market area, of which $57.1 million
remained at the end of 1994.
The outstanding balances on home equity lines totaled $70.8 million at
December 31, 1994, up from $69.8 million the previous year. The unused
portion of these lines totaled $61.2 million at December 31, 1994, down
from $67.2 million at year-end 1993.
Consumer loans increased for the third consecutive year, reaching $140.7
million at year-end 1994, up from $124.4 million at December 31, 1993. The
increase reflects primarily higher levels of indirect installment lending
through auto dealers which was up 47.4% to $67.1 million of this portfolio.
The Company underwrites its indirect automobile loans, maintaining the same
credit standards as for car loans originated in its branch offices. Direct
installment and student loans of $45.7 million, and credit card balances of
$30.8 million, were down slightly from the end of 1993. Unused portions of
credit card lines totaled $61.6 million at the end of 1994, down $7.8
million from the end of 1993. Congressionally-mandated changes regarding
the government-guaranteed student loan program have resulted in the
Company's decision to discontinue its participation in this program.
Management expects the remaining student loans to be sold in the secondary
market by mid-1995.
The Company's lending activities are conducted in a market area focused in
Vermont with activity related to contiguous trading areas in Quebec, New
York, New Hampshire, and Massachusetts. In addition to the portfolio
diversification described above, the loans are widely diversified by
borrowers and industry groups.
The following table shows the composition of the loan portfolio for the
five years ended December 31, 1994:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $105,281 $107,722 $118,532 $94,336 $99,021
Real estate:
Residential 334,841 328,165 347,264 340,069 333,213
Commercial 214,103 206,601 190,907 160,824 154,335
Construction 7,281 13,747 18,008 32,471 39,384
Home equity 70,777 69,849 76,934 81,891 78,675
Consumer 140,677 124,412 123,484 120,284 131,454
----------------------------------------------------
Total gross loans 872,960 850,496 875,129 829,875 836,082
Allowance for possible
loan losses (19,099) (18,917) (16,372) (14,373) (13,030)
----------------------------------------------------
Net loans $853,861 $831,579 $858,757 $815,502 $823,052
====================================================
Mortgage loans held
for sale $2,870 $11,646 $7,971 $10,967 $8,254
</TABLE>
Nonperforming Assets
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Management classifies loans, except consumer and
residential loans, as nonaccrual loans when they become 90 days past due as
to principal or interest, unless they are adequately secured and are in the
process of collection. In addition, loans which have not met this
delinquency test may be placed on nonaccrual at management's discretion.
Consumer and residential loans are included when management considers it to
be appropriate. Generally, a loan remains on nonaccrual status until the
factors which indicated doubtful collectibility no longer exist or the loan
is determined to be uncollectible and is charged off against the allowance
for possible loan losses.
A loan is classified as a restructured loan when the interest rate is
reduced and/or other terms are modified because of the inability of the
borrower to service debt at current market rates and terms.
Other real estate owned ("OREO") is real estate that has been formally
acquired through foreclosure. Following clarification of regulatory
interpretation, the Company has classified in-substance foreclosures in
nonaccrual loans. Historical amounts have been restated to reflect the
1994 classifications.
The following table shows the composition of nonperforming assets and loans
past due 90 days or more and still accruing for the five years ended
December 31, 1994:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual $7,934 $12,756 $17,541 $19,740 $22,504
Loans not included above
which are troubled
debt restructurings 185 367 53 353 29
Other real estate owned 1,288 2,619 7,044 11,447 6,338
----------------------------------------------------
Total nonperforming assets $9,407 $15,742 $24,638 $31,540 $28,871
=====================================================
Loans past due 90 days
or more and still accruing $1,132 $1,453 $2,340 $4,146 $4,222
Percentage of nonperforming
assets to total loans and
other real estate owned 1.08% 1.85% 2.79% 3.75% 3.42%
Nonperforming assets to
total assets 0.77 1.28 2.07 2.62 2.54
Allowance for possible loan
losses to nonperforming
loans 235.24 144.15 93.05 71.53 57.83
</TABLE>
Total nonperforming assets stood at $9.4 million, or 0.77% of total assets,
at year-end 1994, down $6.3 million from $15.7 million, or 1.28% of total
assets at the previous year-end. Nonaccrual loans stood at $7.9 million at
December 31, 1994, down from $12.8 million the year before. These
reductions continue to reflect the strong trend of improving asset quality.
The nonaccrual loans consist of 164 loans, the largest of which amounted to
$1.3 million at year-end 1994. These loans were diversified across a range
of industries, sectors, and geography. At year-end 1994, 42% were current
as to principal and interest, compared with 48% at the previous year-end.
OREO totaled $1.3 million at year-end 1994, one-half the 1993 level.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a
Loan, as amended by SFAS No. 118 (hereafter collectively referred to as
SFAS 114). SFAS 114 requires that impaired loans, as defined, be measured
based on the present value of the expected future cash flows discounted at
the loan's effective interest rate, or the fair value of the collateral if
the loan is collateral dependent. This statement is effective for fiscal
years beginning after December 15, 1994. Management believes that adoption
of this statement will not have a material effect on the financial
condition or results of operations of the Company.
Allowance for Possible Loan Losses
The following table summarizes the activity in the Company's allowance for
possible loan losses for the five years ended December 31, 1994:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance for possible
loan losses at beginning of year $18,917 $16,372 $14,373 $13,030 $13,201
Provision charged to expense 4,300 6,600 7,513 8,843 12,189
---------------------------------------------------------------------------
Balance of allowance for possible
loan losses after provision 23,217 22,972 21,886 21,873 25,390
---------------------------------------------------------------------------
Loans charged off:
Commercial 893 2,001 1,725 788 962
Real estate:
Residential 461 927 738 432 669
Commercial 2,779 759 1,968 2,338 1,438
Construction - - 87 2,848 8,034
Home equity 51 209 272 115 60
Consumer 1,045 1,276 1,461 1,963 2,020
---------------------------------------------------------------------------
Total loans charged off 5,229 5,172 6,251 8,484 13,183
---------------------------------------------------------------------------
Recoveries of loans previously
charged off:
Commercial 512 232 327 435 260
Real estate:
Residential 80 201 74 111 11
Commercial 133 216 11 4 46
Consumer 386 468 325 434 506
---------------------------------------------------------------------------
Total recoveries 1,111 1,117 737 984 823
---------------------------------------------------------------------------
Net loans charged off 4,118 4,055 5,514 7,500 12,360
---------------------------------------------------------------------------
Balance of allowance for possible
loan losses at end of year $19,099 $18,917 $16,372 $14,373 $13,030
===========================================================================
Amount of loans outstanding
at end of year $872,960 $850,496 $875,129 $829,875 $836,082
Average amount of loans outstanding 852,528 870,603 859,654 842,583 857,247
Ratio of net charge-offs during
year to average loans outstanding 0.48% 0.47% 0.64% 0.89% 1.44%
Allowance as a percent of loans
outstanding at end of year 2.19 2.22 1.87 1.73 1.56
</TABLE>
At December 31, 1994, the allowance for possible loan losses was $19.1
million, or 2.19% of total loans. This is a slight change from the $18.9
million, or 2.22% of loans, posted one year ago. The coverage ratio, or
allowance for possible loan losses to nonperforming loans, has improved
from 144% at year-end 1993 to 235% at the end of 1994.
The provision for possible loan losses totaled $4.3 million in 1994, down
from $6.6 million in 1993, and $7.5 million in 1992. The provision was
reduced due to, among other things, the reduction in the level of losses
experienced in the loan portfolio and the decline in nonperforming loans.
The allowance for possible loan losses is based on management's estimate of
the amount required to reflect the risks in the loan portfolio, based on
circumstances and conditions known or anticipated at each reporting date.
In addition to evaluating the collectability of specific loans when
determining the adequacy of the allowance for possible loan losses,
management also takes into consideration other factors such as changes in
the mix and volume of the loan portfolio, historic loss experience, the
amount of delinquencies, and economic trends. The adequacy of the
allowance for possible loan losses is assessed by an allocation process
whereby specific loss allocations are made against adversely classified
loans, and general loss allocations are made against segments of the loan
portfolio which have similar attributes. As previously mentioned, the mix
of the Company's loan portfolio changed little during 1994. This and
uncertainties concerning how the rapid rise in interest rates will affect
the local and regional economy were among the factors considered by
management in determining the adequacy of the allowance for possible loan
losses.
The following table summarizes the allocation of the allowance for possible
loan losses for the five years ended December 31, 1994:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------
Amount Loan Amount Loan Amount Loan
Allocated Distribution Allocated Distribution Allocated Distribution
-----------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $2,001 12% $2,146 13% $2,588 13%
Real estate:
Residential 726 38 785 38 999 40
Commercial 5,143 25 5,681 24 5,053 22
Construction 626 1 419 2 620 2
Home equity 248 8 349 8 377 9
Consumer 1,865 16 2,126 15 1,886 14
Other 8,490 - 7,411 - 4,849 -
-----------------------------------------------------------------------
$19,099 100% $18,917 100% $16,372 100%
=======================================================================
December 31,
1991 1990
------------------------------------------------------------------------
Amount Loan Amount Loan
Allocated Distribution Allocated Distribution
-------------------------------------------------------------------------
Commercial $3,469 11% $2,431 12%
Real estate:
Residential 587 41 783 40
Commercial 4,035 19 3,224 18
Construction 3,007 4 4,529 5
Home equity 200 10 193 9
Consumer 1,928 15 1,764 16
Other 1,147 - 106 -
-------------------------------------------------------------------------
$14,373 100% $13,030 100%
==========================================================================
</TABLE>
Notwithstanding the foregoing analytical allocations, the entire allowance
for possible loan losses is available to absorb charge-offs in any category
of loans. (See "Provision for Possible Loan Losses".)
Investment Securities
The investment portfolio is used to meet liquidity demands, mitigate
interest rate sensitivity, and generate interest income.
The Company adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS
115), on January 1, 1994. At that time, substantially all of the
investment portfolio was classified as available for sale in recognition of
the possibility that accelerating loan growth could create liquidity
demands which could be met by the sale of investments. At December 31,
1994, the Company held investments totaling $196.8 million in the available
for sale category; $9.9 million was held for investment. This compares
with $150.7 million held for sale and $2.3 million held for investment at
December 31, 1993. Upon adoption of SFAS 115, the Company recorded a
cumulative net increase in stockholders' equity of $986,000 to reflect the
unrealized gain, net of estimated tax effect, in the portfolio of
securities classified as available for sale at the adoption date.
Subsequent changes in net unrealized gains and losses, net of estimated tax
effect, were applied to this valuation account. At December 31, 1994, net
unrealized losses of $5.7 million (net of taxes) resulted from marking to
fair value the available-for-sale portfolio. This amount is reflected as a
reduction of stockholders' equity. Prior to the adoption of SFAS 115, held-
for-sale investments were marked to the lower of cost or market value.
Since market values of the investment portfolio generally exceeded cost at
the end of 1993, unrealized losses reflected in the equity account amounted
to only $21,000.
The mix of securities held changed little during 1994, with continued
emphasis on U.S. Treasury securities. Obligations of U. S. government
agencies, municipalities, and corporations continued to represent
significant, balanced portions of the portfolio.
The following tables show the composition of the Company's investment
portfolio, at amortized cost, at December 31, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1994 1993 1992
---------------------------------------
Securities available for sale (in thousands)
<S> <C> <C> <C>
US Treasury securities $61,076 $54,310 $-
US government agency obligations 33,138 20,211 -
Obligations of states and
political subdivisions 40,341 23,701 -
Mortgage-backed securities 23,823 23,636 -
Corporate bonds and notes 36,397 28,885 -
Government bond mutual funds 10,605 - -
Marketable equity securities 244 - -
--------------------------------------
$205,624 $150,743(1) $-
======================================
Securities held for investment
US Treasury securities $- $- $27,338
US government agency obligations - - 19,059
Obligations of states and
political subdivisions 1,651 1,667 23,691
Mortgage-backed securities 8,218 360 50,127
Corporate bonds and notes - - 24,109
Marketable equity securities - 244 4,581
Other securities - - 285
Valuation allowance on marketable
equity securities - (21) (733)
--------------------------------------
$9,869 $2,250 $148,457
======================================
</TABLE>
(1)In 1993, these securities were classified as held for sale.
The following table shows the maturity distribution of the amortized cost
of the Company's investment securities and weighted average yields of such
securities on a fully taxable equivalent basis, at December 31, 1994, with
a comparative total for 1993:
<TABLE>
<CAPTION>
After One After Five
Within But Within But Within After No Fixed
One Year Five Years Ten Years Ten Years Maturity Total
--------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale
US Treasury securities $3,027 6.35% $52,992 5.53% $5,057 5.58% $- -% $- -% $61,076 5.57%
US government agency
obligations 14,631 5.58 18,507 6.18 - - - - - - 33,138 5.92
Obligations of states
and political
subdivisions 39,687 5.13 543 6.21 111 6.50 - - - - 40,341 5.15
Mortgage-backed
securities (1) 4,166 7.05 12,924 7.51 4,191 6.66 2,542 6.51 - - 23,823 7.17
Corporate bonds and notes 8,776 5.55 27,621 5.25 - - - - - - 36,397 5.32
Government bond
mutual funds - - - - - - - - 10,605 7.10 10,605 7.10
Marketable equity
securities - - - - - - - - 244 3.87 244 3.87
------- ------- ------ ----- ------- -------
Total available for sale 70,287 5.44 112,587 5.80 9,359 6.07 2,542 6.51 10,849 7.03 205,624 5.76
------- ------- ------ ----- ------- -------
Securities held for investment
Obligations of states
and political
subdivisions 111 8.73 484 8.73 439 8.73 617 8.73 0 - 1,651 8.73
Mortgage-backed
securities (1) 567 8.11 1,965 8.12 1,900 8.12 3,786 8.12 0 - 8,218 8.12
Total held for investment 678 8.21 2,449 8.24 2,339 8.23 4,403 8.21 0 - 9,869 8.22
------- -------- ------- ------ ------- --------
Total securities $70,965 5.47% $115,036 5.85% $11,698 6.51% $6,945 7.58% $10,849 7.03% $215,493 5.88%
------- -------- ------- ------- ------- --------
======= ======== ======= ======= ======= ========
Comparative amounts
at December 31, 1993 $43,072 5.26% $ 92,440 5.69% $15,765 6.43% $1,493 8.51% $ 223 2.77% $152,993 5.67%
</TABLE>
(1) Maturities of mortgage-backed securities are based on mortgage loan
prepayment assumptions.
Deposits
During 1994, total deposits averaged $1.1 billion, up from $1.0 billion in
1993. Noninterest-bearing demand deposits averaged $161.7 million, up
$20.0 million from $141.7 million in 1993. Reversing the trend from the
previous year, possibly due to the availability of higher-yielding insured
deposits and the adverse impact rising rates generally had on the valuation
of uninsured non-bank investments, savings and time deposits under $100,000
increased $9.8 million, to $831.7 million for 1994. Deposit products in
this group which saw growth were interest-bearing transaction accounts
(money market accounts and N.O.W. accounts), while regular savings accounts
and time accounts (retirement and certificates of deposit) declined. This
shift in product mix reflects customers' preference to hold investments
without specific maturities in a time of consistently rising interest
rates. The Company has a number of institutional customers whose
investment needs frequently are met by offering certificates of deposit
over $100,000. During 1994, the average balance in this category decreased
slightly to $62.2 million, from $67.2 million for 1993. Depositors in this
category tend to seek bids regularly, and the Company raises or lowers the
interest rates it offers depending on its liquidity needs and on its
investment opportunities.
The following table shows average daily balances of the Company's deposits
for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1994 1993 1992
------------------------------------
(in thousands)
<S> <C> <C> <C>
Demand deposits $161,657 $141,740 $131,282
Savings and time deposits
under $100,000 831,698 821,852 834,431
Certificates of deposit $100,000
and over 62,249 67,247 56,114
--------------------------------------
$1,055,604 $1,030,839 $1,021,827
======================================
The Company's outstanding certificates of deposit and other time deposits
in denominations of $100,000 and over had maturities as follows:
December 31,
-------------------------------------
1994 1993
-------------------------------------
(in thousands)
Three months or less $64,922 $71,118
Over three months to six months 21,548 11,673
Over six months to twelve months 8,717 6,011
Over twelve months 3,279 5,117
------------------------------------
$98,466 $93,919
====================================
</TABLE>
Short-Term Borrowings
During 1994, short-term borrowings averaged $32.8 million, down from the
$36.9 million posted in 1993. This funding consists of borrowings from the
U.S. Treasury, securities sold under agreements to repurchase, and Federal
funds purchased. Treasury borrowings averaged $20.3 million for 1994
compared with $25.8 million during 1993. Treasury funding is attractive to
the Company because the rate of interest paid on borrowings floats at 25
basis points below the Federal funds rate, there are no reserve
requirements, and there are no FDIC insurance costs. Repurchase agreements
averaged $11.8 million for 1994, up slightly from $11.0 million during
1993. These borrowings have neither reserve requirements nor FDIC
insurance costs. U.S. Treasury and agency securities, mortgage-backed
securities, and residential mortgage loans are pledged as collateral for
the Treasury borrowings and repurchase agreements. Federal funds purchased
averaged $644,000 for 1994 compared with $167,000 for 1993.
Capital Resources
The Company's capital forms the foundation for maintaining investor
confidence as well as for developing programs for growth and new
activities. The Company continued to maintain and build on its capital
position during 1994. At December 31, 1994, capital stood at $98.3
million, up $599,000 from $97.7 million at December 31, 1993. Earnings of
$15.5 million and $173,000 of common stock issued in connection with
benefit plans added to capital during the year. The purchase of 326,875
shares of the Company's common stock for $6.7 million during the fourth
quarter in two negotiated transactions, a $5.7 million increase in the
valuation allowance for unrealized losses on securities available for sale,
and dividend payments totaling $2.8 million combined to decrease the
capital position from the 1993 year-end level. The capital position had
increased during 1993 by $10.7 million due to earnings of $11.0 million, a
$712,000 improvement in the valuation allowance on marketable equity
securities, and $201,000 from stock issued. Dividends of $1.2 million were
paid during 1993.
Both the Board of Governors of the Federal Reserve System (the "FRB") and
the Federal Deposit Insurance Corporation (the "FDIC") have defined
leverage capital requirements. At December 31, 1994, the Company's
leverage capital ratio (which is calculated pursuant to the FRB's
regulations) was 8.41%, and the Bank's leverage capital ratio (which is
calculated pursuant to the FDIC's regulations) was 8.01%. The ratios in
1993 were 8.13% and 7.95%, respectively.
Additionally, the FRB and the FDIC have a risk-based capital standard.
Under this measure of capital, banks are required to hold more capital
against certain assets perceived as more risky, such as commercial loans,
than against other assets perceived as less risky, such as residential
mortgage loans and U.S. Treasury securities. Further, off-balance sheet
items such as unfunded loan commitments and standby letters of credit, are
included for the purposes of determining risk-weighted assets. Commercial
banking organizations are required to have total capital equal to 8% of
risk-weighted assets, and Tier 1 capital -- consisting of common stock and
certain types of preferred stock -- equal to at least 4% of risk-weighted
assets. Tier 2 capital, included in total capital, includes the allowance
for possible loan losses up to a maximum of 1.25% of risk-weighted assets.
At December 31, 1994, the Company's risk-based capital ratio was 12.82% and
its Tier 1 capital, consisting entirely of common stock, was 11.46%. This
compares with year-end 1993 ratios of 12.41% and 11.05%, respectively.
FDIC regulations pertaining to capital adequacy, which apply to the Bank,
require a minimum 3% leverage capital ratio for those institutions with the
most favorable composite regulatory examination rating. In addition, a 4%
Tier 1 risk-based capital ratio and an 8% total risk-based capital ratio
are required for a bank to be considered adequately capitalized. Leverage,
Tier 1 risk-based and total risk-based capital ratios exceeding 5%, 6%, and
10%, respectively, qualify a bank for the "well-capitalized" designation.
At December 31, 1994, the Bank's leverage capital ratio was 8.01%, its Tier
1 risk-based capital ratio was 10.86%, and its total risk-based capital
ratio was 12.22%, placing the Bank in this highest capital category.
Capital ratios in excess of minimum requirements indicate capacity to take
advantage of profitable and credit-worthy opportunities as they occur in
the future.
The following table presents capital components and ratios of the Company:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1994 1993 1992
----------------------------------
(in thousands)
<S> <C> <C> <C>
Leverage
Stockholders' equity $ 103,333 $ 97,711 $ 87,019
Total average assets (1) 1,228,105 1,202,575 1,192,092
Leverage capital ratio 8.41% 8.13% 7.30%
Risk-based
Capital components:
Tier 1 $103,333 $ 97,711 $ 87,019
Tier 2 11,273 11,049 11,277
----------------------------------------
Total $114,606 $108,760 $ 98,296
========================================
Risk-weighted assets:
On-balance sheet $840,484 $819,735 $844,179
Off-balance sheet 61,317 64,180 58,593
----------------------------------------
$901,801 $883,915 $902,772
========================================
Ratios:
Tier 1 11.46% 11.05% 9.64%
Total (including Tier 2) 12.82 12.41 10.95
_____________________
(1) Total average assets are for the most recent quarter.
</TABLE>
Liquidity and Rate Sensitivity
The Company's liquidity and rate sensitivity are monitored by the Bank's
asset and liability committee. This committee meets weekly to review and
direct the Bank's lending and investment activities, as well as its deposit-
gathering functions.
The measure of an institution's liquidity is its ability to meet its cash
commitments at all times with available cash or by conversion of other
assets to cash at a reasonable price. At December 31, 1994, the Company
maintained cash and cash equivalents of $101.0 million, compared with
$195.2 million at the end of 1993. During 1994, the Company continued to
be an average daily net seller of Federal funds.
Interest rate sensitivity is managed by the Bank's asset and liability
committee whose goals include achieving adequate and stable interest
income. One of the tools used to measure rate sensitivity is the funds
gap. The funds gap is defined as the amount by which a bank's rate
sensitive assets exceed its rate sensitive liabilities. A positive gap
exists when rate sensitive assets exceed rate sensitive liabilities. This
indicates that a greater volume of assets than liabilities will reprice
during a given period. This mismatch will improve earnings in a rising
rate environment and inhibit earnings when rates decline. Conversely, when
rate sensitive liabilities exceed rate sensitive assets, the gap is
referred to as negative and indicates that a greater volume of liabilities
than assets will reprice during the period. In this case, a rising rate
environment will inhibit earnings and declining rates will improve
earnings. Notwithstanding this general description of the effect on income
of the gap position, it may not be an accurate predictor of changes in net
income.
During 1994, interest rates increased significantly; the prime rate
increased from 6.00% in January to 8.50% at year-end, and the 1-year
Treasury constant maturity increased by approximately 360 basis points.
Both are indices used by banks to price certain loan products. 49% of the
Company's 1994 average earning assets were either indexed to prime or to
the 1-year Treasury constant maturity. The Company's liabilities are not
specifically indexed, but either bear a rate of interest to maturity or are
repriced at the discretion of management, taking into account loan demand,
other investment opportunities, liquidity, competition and other
considerations. The result of this asset/liability make-up was that more
of the Company's earning assets repriced to higher interest rates during
1994 than did its interest-bearing liabilities.
The following table shows the amounts of interest-earning assets and
interest-bearing liabilities at December 31, 1994 which reprice during the
periods indicated:
<TABLE>
<CAPTION>
Repricing Date
----------------------------------------------
Over
One Day Over Six One Year Over
To Six Months To To Five Five
Months One Year Years Years Total
------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans:
Commercial $77,622 $1,419 $15,139 $11,101 $105,281
Real estate:
Commercial and
construction 167,303 2,342 31,523 20,216 221,384
Residential 113,585 100,211 60,389 60,656 334,841
Home equity 70,777 - - - 70,777
Consumer 80,517 15,456 44,136 568 140,677
-----------------------------------------------
Total loans 509,804 119,428 151,187 92,541 872,960
Investment securities (1) 56,222 25,349 115,034 18,888 215,493
Interest-bearing cash
equivalents 40,300 - - - 40,300
-----------------------------------------------
Total interest-earning
assets 606,326 144,777 266,221 111,429 1,128,753
------------------------------------------------
Interest-bearing liabilities:
Certificates of deposit
$100,000 and over 57,889 8,717 3,279 - 69,885
Other time deposits (2) 384,878 96,730 64,550 500 546,658
Short-term borrowings 22,650 - - - 22,650
------------------------------------------------
Total interest-bearing
liabilities 465,417 105,447 67,829 500 639,193
------------------------------------------------
Net interest rate
sensitivity gap $140,909 $39,330 $198,392 $110,929 $489,560
=================================================
Cumulative gap at
December 31, 1994 $140,909 $180,239 $378,631 $489,560
Cumulative gap at
December 31, 1993 164,924 220,710 344,733 432,678
__________________
(1) Amounts are based on amortized cost balances.
(2) Regular savings deposits and N.O.W. accounts of $273.2 million at
December 31, 1994, and $294.1 million at December 31, 1993, are not
included because repricing of these liabilities is neither required nor
defined.
The following table shows scheduled maturites of selected loans at December
31, 1994:
Less One Year Over
Than One To Five Five
Year Years Years Total
---------------------------------------
(in thousands)
Predetermined rates:
Commercial $4,407 $15,233 $11,163 $30,803
Commercial real estate
and construction 7,938 31,724 20,348 60,010
--------------------------------------
$12,345 $46,957 $31,511 $90,813
======================================
Floating or adjustable rates:
Commercial $21,715 $31,605 $21,158 $74,478
Commercial real estate
and construction 41,501 72,761 47,112 161,374
--------------------------------------
$63,216 $104,366 $68,270 $235,852
======================================
</TABLE>
Results of Operations
Net Interest Income
For 1994, net interest income was $53.9 million, up $3.7 million from 1993.
On a fully taxable equivalent basis, net interest income increased $3.9
million from 1993, to $55.2 million in 1994. These improvements resulted
from higher yields on loans and investments and higher levels of interest-
earning assets, which more than offset the impact of higher deposit and
borrowing rates. The level of interest-bearing liabilities was essentially
unchanged from the 1993 average, thus the $30.0 million increase in
interest-earning assets was funded almost entirely by noninterest-bearing
sources, helping to improve net interest income.
For 1993, net interest income was up $4.5 million from the 1992 level, to
$50.2 million. On a fully taxable equivalent basis, net interest income
increased $4.1 million from 1992 to 1993. These increases were caused by
lower deposit rates, lower levels of interest-bearing liabilities, and
higher levels of interest-earning assets, which more than offset lower
yields on loans and investments.
The taxable equivalent net yield on earning assets was 4.92% in 1994, up 23
basis points from 4.69% in 1993. The 16-basis point increase in the cost
of interest-bearing liabilities was more than offset by the 28-basis point
increase in the yield on earning assets and the effect of the higher
proportion of non-interest bearing liabilities. The taxable equivalent net
yield on earning assets for 1993 was 4.69%, up 34 basis points from 4.35%
for 1992. The decline of 120 basis points in the cost of interest-bearing
liabilities, mitigated by the compression caused by an increase in the
portions of funding provided by non-interest bearing sources, more than
offset the decline of 77 basis points in the yield on earning assets.
The following table presents an analysis of average rates and yields on a
fully taxable equivalent basis for the years indicated:
<TABLE>
<CAPTION>
1994
-------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense (1) Rate (1)
--------------------------------------
(in thousands)
<S> <C> <C> <C>
Assets
Interest-earning assets:
Loans (2) $842,807 $70,416 8.35%
Industrial revenue bonds (3) 9,721 956 9.83
Investments (4):
Taxable 190,784 10,897 5.71
Tax-favored debt securities 41,494 2,301 5.55
Tax-favored equity securities 16,609 728 4.38
Interest-bearing deposits in banks 1,045 35 3.35
Federal funds sold 19,118 847 4.43
--------------------
Total interest-earning
assets 1,121,578 86,180 7.68
-------
Noninterest-earning assets 98,530
Allowance for possible loan losses (19,323)
-----------
Total assets $1,200,785
===========
Liabilities and stockholders' equity
Interest-bearing liabilities:
Savings and interest-bearing
transactional accounts $526,422 14,727 2.80
Certificates of deposit
$100,000 and over 62,249 2,502 4.02
Other time deposits 305,276 11,996 3.93
----------------------
Total interest-bearing
deposits 893,947 29,225 3.27
Short-term borrowings 32,799 1,800 5.49
Long-term debt - - -
----------------------
Total interest-bearing
liabilities 926,746 31,025 3.35
------
Noninterest-bearing liabilities:
Demand deposits 161,657
Other liabilities 11,747
------------
Total liabilities 1,100,150
------------
Stockholders' equity 100,635
------------
Total liabilities and
stockholders' equity $1,200,785
===========
Net interest income $55,155
========
Interest rate spread (5) 4.33%
Net yield on earning assets (6) 4.92
______________________
1993
---------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense (1) Rate (1)
---------------------------------------
(in thousands)
Assets
Interest-earning assets:
Loans (2) $859,195 $69,310 8.07%
Industrial revenue bonds (3) 11,408 970 8.50
Investments (4):
Taxable 170,975 8,020 4.69
Tax-favored debt securities 35,872 1,927 5.37
Tax-favored equity securities 4,952 309 6.24
Interest-bearing deposits in banks 2,319 74 3.19
Federal funds sold 6,809 193 2.83
-----------------------
Total interest-earning
assets 1,091,530 80,803 7.40
--------
Noninterest-earning assets 98,924
Allowance for possible loan losses (17,645)
------------
Total assets $1,172,809
============
Liabilities and stockholders' equity
Interest-bearing liabilities:
Savings and interest-bearing
transactional accounts $495,595 12,207 2.46
Certificates of deposit
$100,000 and over 67,247 2,452 3.65
Other time deposits 326,257 13,211 4.05
--------------------
Total interest-bearing
deposits 889,099 27,870 3.13
Short-term borrowings 36,879 1,704 4.62
Long-term debt 7 - 8.00
--------------------
Total interest-bearing
liabilities 925,985 29,574 3.19
-------
Noninterest-bearing liabilities:
Demand deposits 141,740
Other liabilities 12,271
---------
Total liabilities 1,079,996
---------
Stockholders' equity 92,813
---------
Total liabilities and
stockholders' equity $1,172,809
==========
Net interest income $51,229
=======
Interest rate spread (5) 4.21%
Net yield on earning assets (6) 4.69
______________________
1992
--------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense (1) Rate (1)
--------------------------------------
(in thousands)
Assets
Interest-earning assets:
Loans (2) $846,697 $74,261 8.77%
Industrial revenue bonds (3) 12,957 1,153 8.90
Investments (4):
Taxable 151,974 8,711 5.73
Tax-favored debt securities 28,195 2,064 7.32
Tax-favored equity securities 29,592 1,695 5.73
Interest-bearing deposits in banks 8,938 356 3.98
Federal funds sold 3,729 181 4.85
---------------------
Total interest-earning assets 1,082,082 88,421 8.17
-------
Noninterest-earning assets 104,506
Allowance for possible loan losses (15,528)
------------
Total assets $1,171,060
============
Liabilities and stockholders' equity
Interest-bearing liabilities:
Savings and interest-bearing
transactional accounts $464,900 16,209 3.49
Certificates of deposit
$100,000 and over 56,114 2,708 4.83
Other time deposits 369,531 19,994 5.41
--------------------
Total interest-bearing
deposits 890,545 38,911 4.37
Short-term borrowings 49,056 2,167 4.42
Long-term debt 2,034 222 10.91
--------------------
Total interest-bearing
liabilities 941,635 41,300 4.39
-------
Noninterest-bearing liabilities:
Demand deposits 131,282
Other liabilities 14,623
-----------
Total liabilities 1,087,540
-----------
Stockholders' equity 83,520
-----------
Total liabilities and
stockholders' equity $1,171,060
============
Net interest income $47,121
=======
Interest rate spread (5) 3.79%
Net yield on earning assets (6) 4.35
</TABLE>
______________________
(1) On a fully taxable equivalent basis. Calculated using a Federal income
tax rate of 35%.
(2) Includes nonperforming loans
(3) Industrial revenue bonds are included in loans in the financial
statements.
(4) Average balances are based on historical amortized cost balances.
(5) Interest rate spread is the average rate earned on total interest-
earning assets less the average rate paid on interest-bearing liabilities.
(6) Net yield on earning assets is net interest income divided by total
interest-earning assets.
The following table attributes changes in the Company's net interest
income (on a fully taxable equivalent basis) to changes in either average
daily balances or average rates. Changes due to both interest rate and
volume have been allocated to change due to volume and change due to rate
in proportion to the relationship of the absolute dollar amounts of the
change in each.
<TABLE>
<CAPTION>
1994 Compared with 1993
---------------------------------
Increase (Decrease)
Due to Change in Total
Average Average Increase
Rate Balance (Decrease)
------------------------------------
(in thousands)
<S> <C> <C> <C>
Interest income:
Loans, including fees $1,132 $ (26) $1,106
Industrial revenue bonds 140 (154) (14)
Investments:
Taxable 1,878 999 2,877
Tax-favored debt securities 64 310 374
Tax-favored equity securities (116) 535 419
Interest-bearing deposits
in banks 4 (43) (39)
Federal funds sold 155 499 654
--------------------------------------
Total interest income 3,257 2,120 5,377
--------------------------------------
Interest expense:
Savings and interest-bearing
transactional accounts 1,728 792 2,520
Certificates of deposit $100,000
and over 240 (190) 50
Other time deposits (383) (832) (1,215)
-------------------------------------
Total deposits 1,585 (230) 1,355
Short-term borrowings 298 (202) 96
Long-term debt - - -
-------------------------------------
Total interest expense 1,883 (432) 1,451
-------------------------------------
Change in net interest income $1,374 $2,552 $3,926
=====================================
1993 Compared with 1992
--------------------------------------
Increase (Decrease)
Due to Change in Total
Average Average Increase
Rate Balance (Decrease)
---------------------------------------
(in thousands)
Interest income:
Loans, including fees $(6,033) $1,082 $(4,951)
Industrial revenue bonds (50) (133) (183)
Investments:
Taxable (1,699) 1,008 (691)
Tax-favored debt securities (623) 486 (137)
Tax-favored equity securities 139 (1,525) (1,386)
Interest-bearing deposits
in banks (60) (222) (282)
Federal funds sold (96) 108 12
------------------------------------
Total interest income (8,422) 804 (7,618)
------------------------------------
Interest expense:
Savings and interest-bearing
transactional accounts (5,015) 1,013 (4,002)
Certificates of deposit $100,000
and over (734) 478 (256)
Other time deposits (4,629) (2,154) (6,783)
-------------------------------------
Total deposits (10,378) (663) (11,041)
Short-term borrowings 96 (559) (463)
Long-term debt (111) (111) (222)
-------------------------------------
Total interest expense (10,393) (1,333) (11,726)
-------------------------------------
Change in net interest income $ 1,971 $2,137 $4,108
=====================================
</TABLE>
Provision for Possible Loan Losses
The Company provides for possible loan losses using the allowance method.
The allowance for possible loan losses is increased by provisions charged
against current earnings. Loan losses are charged against the allowance
when management believes that the collectibility of the loan principal is
unlikely. Recoveries on loans previously charged off are credited to the
allowance.
The allowance is the amount management believes is necessary to absorb
possible loan losses based on evaluations of collectibility and prior loan
loss experience, changes in the nature and volume of the loan portfolio,
overall portfolio quality, specific problem loans, and current and
anticipated economic conditions that may affect the borrowers' ability to
pay.
Management believes that the allowance for possible loan losses is
adequate. While management uses available information to assess possible
losses on loans, future additions to the allowance may be necessary. In
addition, various regulatory agencies periodically review the Company's
allowance for possible loan losses as an integral part of their examination
process. Such agencies may require the Company to recognize additions to
the allowance based on judgements different from those of management.
The provision for possible loan losses totaled $4.3 million in 1994, $6.6
million in 1993, and $7.5 million in 1992. (See "Allowance for Possible
Loan Losses".)
Noninterest Income and Noninterest Expense
Noninterest income was $23.5 million in 1994, down $783,000 from the $24.3
million reported in 1993. Trust department income was unchanged from the
1993 level, at $4.0 million. Income from higher levels of administered
assets was offset by the impact of the declines in the bond market during
the year. Service charges on deposit accounts increased again in 1994,
rising 3% to $4.6 million, primarily due to higher levels of cash
management fees.
During 1994, a net loss of $523,000 was realized on the sale of $41.9
million of securities, compared with a net gain of $130,000 posted in 1993.
The Company provides mortgage banking services through two channels: a
traditional retail origination approach which operates through the branch
office network and the Company's mortgage originators; and a wholesale
origination function (part of the VerBanc acquisition) which originates
residential mortgage loans through correspondents, brokers and agents.
This multi-faceted approach allows the Company to enhance its penetration
of the overall residential market. Regardless of the origination method,
the Company sells substantially all of its fixed-rate production and may
sell qualifying variable-rate production. The Company has retained the
servicing on the mortgage loans it has sold.
Mortgage banking activity changed significantly during 1994, as rapidly
rising interest rates impacted the business. Mortgage servicing income
rose by over 100% for the second consecutive year, to $2.1 million. The
increase was due in part to the nonrecurrence of write-downs of excess
servicing assets totaling $1.0 million which had occurred in the previous
year when refinancing activity was strong. The decline in refinancing
activity and a narrowing of spreads on sold loans in 1994 resulted in a
sharp decline in gains on sales of mortgage loans. For 1994, gains totaled
$1.1 million, down $4.7 million from the 1993 level.
Income related to credit card activities includes fees related to the
issuance of credit cards and interchange revenue generated when credit card
transactions are processed through the Company's merchant customers. These
activities generated income of $8.2 million in 1994, up from $5.7 million
in the prior year. The additional emphasis placed on expanding this
activity and the general improvement in the economy and in consumer
confidence contributed in the revenue increase. The Company posted a total
of $4.0 million in other noninterest income, up $736,000 from the 1993
level. This category represents over thirty categories of fee income. The
increase includes a gain of $444,000 resulting from the sale of a branch
property, as well as increases in revenues from payroll services, ATM fees,
and foreign exchange transactions.
Noninterest income was $24.3 million in 1993, up from $21.1 million
reported for 1992. Trust department income, at $4.0 million, declined
slightly from the 1992 level. Trust was largely successful during 1993 in
rebuilding approximately 9% of its revenue base which had been diminished
due in large part to the successful disposition of a large bankruptcy trust
during 1992. Service charges on deposit accounts rose on a year to year
basis; in 1993, $4.5 million of income was recorded compared with $4.1
million in 1992. The improvement reflects higher levels of activity in
deposit accounts, a larger proportion of accounts for which fee-based
services were provided, and the effect of lower interest rates generating
lower levels of credit on deposit balances used to offset service charges.
The Company sold $20.3 million in securities during 1993, reporting a net
gain of $130,000. During 1992, a net loss of $235,000 was reported,
including a $100,000 reduction in the carrying value of certain marketable
equity securities.
The Company's mortgage banking activities continued to grow in 1993. Total
servicing revenue was $1.0 million in 1993, up 105% from the level posted
in 1992. These amounts are net of significant accelerated write-downs of
excess deferred servicing premiums amounting to $1.0 million in 1993 and
$1.1 million in 1992. At December 31, 1993, the entire amount of the
deferred excess servicing asset had been amortized as a result of an
accelerated level of prepayments. Market demand for mortgage financing due
to declining interest rates resulted in brisk origination and sales of
mortgage loans. Gains on sales of mortgage loans totaled $5.8 million, up
from $4.8 million in 1992.
Income related to credit card activities amounted to $5.7 million in 1993,
up from $4.4 million in 1992. Other noninterest income decreased $166,000,
to $3.3 million in 1993.
Noninterest expense totaled $49.9 million in 1994, down $1.2 million from
the 1993 level. Salaries increased less than 1% to $17.2 million as the
Company continued to reduce staff, primarily though attrition. Employee
benefits rose by $859,000 to $6.3 million in 1994. This category includes
accruals for performance-based incentive compensation amounting to $1.5
million, up from $1.1 million in 1993. In 1994, the Company implemented
Statement of Financial Accounting Standards No. 112, Employers' Accounting
for Postemployment Benefits. Adoption of SFAS 112 did not have a material
impact on the financial statement.
Occupancy expense declined $297,000, to $5.6 million in 1994, primarily due
to efficiencies resulting from the VerBanc acquisition and other actions
taken to improve the branch network.
FDIC insurance premiums totaled $2.3 million, down $249,000 from the 1993
level. A reduction in the insurance premium rate accounted for the
decline.
In 1994, expenses associated with OREO were slightly more than offset by
recoveries on OREO properties and resulted in a net gain of $67,000. OREO
expenses were $1.5 million in 1993.
Expenses, excluding salaries and benefits, occupancy, and overhead
allocations, directly related to the processing of credit card transactions
totaled $5.5 million in 1994, up from $3.8 million in the previous year.
This increase was related to the significantly higher volumes processed in
1994 as compared with 1993.
Total other noninterest expense for 1994 totaled $13.0 million, down $1.7
million from 1993. Absence of goodwill amortization in 1994, which was
$636,000 in 1993, and nonrecurrence of one-time costs associated with the
1993 acquisition of VerBanc, accounted for most of the improvement.
Noninterest expense for 1993 totaled $51.1 million, up 3% from the $49.6
million recorded in 1992. Salaries of $17.0 million were up $320,000, or
2%, from the $16.7 million reported in 1992. The increase of 15% in
employee benefits reflects primarily higher medical insurance expenses and
incentive compensation accruals related to performance.
In 1993 the Company adopted, prospectively, Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. This accounting standard requires that the
expected cost of postretirement benefits be charged to expense during the
years that the employees render services. The Company has elected to
amortize the unfunded benefit obligation of $1.7 million that was measured
at January 1, 1993 over a period of 20 years. The effect of this change
was to increase the expense related to postretirement benefits by
approximately $100,000 in 1993.
Occupancy expense increased less than 2%, to $5.9 million in 1993.
Increases in employee and occupancy expenses were mitigated by efficiencies
realized from the in-market acquisition of VerBanc.
FDIC insurance premiums increased $298,000 from the 1992 level to $2.6
million in 1993. This increase was due to higher deposit levels during the
year.
Expenses associated with OREO decreased substantially from 1992. During
1993, $1.5 million was recorded in this area, of which $1.3 million
represented provisions to the OREO reserve to reflect estimated declines in
the market values of properties held. In 1992, OREO expenses amounted to
$2.7 million.
Direct credit card processing expenses were $3.8 million in 1993, up from
$3.0 million in 1992. This increase was primarily volume related.
Total other noninterest expense of $14.7 million was $480,000 higher than
the 1992 level. This increase was more than accounted for by one-time
costs related to the acquisition of VerBanc.
Income Taxes
For 1994, the Federal income tax provision amounted to $7.7 million. This
compares with an income tax provision of $5.2 million for 1993 and $2.4
million for 1992. Effective January 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes,
which recognizes income taxes under the asset and liability method. The
cumulative effect of adopting this change in accounting principle was a one-
time charge of $575,000 to 1993 earnings. Prior to 1993, the Company
recognized income taxes under the deferred method, whereby annual income
tax expense was matched with pretax accounting income by providing deferred
taxes at current rates for timing differences between income reported for
accounting purposes and income reported for tax purposes. Under the asset
and liability method, deferred tax assets and liabilities are established
for temporary differences between the accounting basis and the tax basis of
the Company's assets and liabilities at enacted tax rates expected to be in
effect when the amounts related to such temporary differences are realized
or settled. The Company's deferred tax asset is reviewed quarterly and
adjustments, based on management's judgments as to the realizability of
this asset, are recognized in the provision for income taxes.
The effective tax rates for 1994, 1993, and 1992 were 33.2%, 31.1%
(excluding the cumulative effect charge), and 25.3%, respectively. During
1994 and 1993, the Company's statutory Federal corporate tax rate was 35%.
During 1992, the statutory Federal tax rate was 34%. The Company's
effective tax rates differed from the statutory rates primarily because of
the proportion of interest income from state and municipal securities and
corporate dividend income which are wholly or partially exempt from Federal
taxation.
The following table sets forth the range of the high and low prices for the
Corporation's common stock for the last five years:
1994 1993 1992 1991 1990
Quarter High Low High Low High Low High Low High Low
First 19.25 17.50 16.80 11.80 12.00 6.60 7.60 3.20 10.00 7.80
Second 21.75 17.00 17.60 15.20 13.20 10.20 7.40 5.20 8.20 5.80
Third 22.00 20.00 18.25 15.20 12.80 10.60 10.80 5.80 7.20 3.60
Fourth 21.50 20.00 19.00 17.00 13.00 11.20 9.00 5.40 6.00 3.80
Stockholder Information
Form 10-K
A copy of the Chittenden Corporation's Annual Report for 1994 (on Form 10-
K), as filed with the Securities and Exchange Commission pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, will be
furnished free of charge to beneficial owners of the Corporation's stock
upon request.
Chittenden Corporation Stock
The $1 par value common stock of Chittenden Corporation has been publicly
traded on the over-the-counter market wince November 14, 1974. As of
December 31, 1994, there were 2,995 record holders of the Corporation's
common stock.
The Corporation's stock is listed on NASDAQ, with the symbol CNDN, is
included in additional over-the-counter securities lists, and is listed
daily in the major newspapers.
For stockholder services and information, contact:
Stockholder Relations
Chittenden Corporation
P.O. Box 820
Burlington, VT 05402-0820
(802) 660-1412
Chittenden Corporation is currently a one-bank holding company registered
as a Vermont corporation. By the end of the first quarter of 1995,
Chittenden Corporation expects to consummate an Agreement and Plan of
Reorganization by which The Bank of Western Massachusetts will becom a
wholly-owned subsidiary of Chittenden Corporation. Organized in 1971 and
activated in 1974, Chittenden Coropration is the parent company of
Chittenden Trust Company. Chittenden Bank is the trade name for Chittenden
Trust Company.
Annual Meeting
The Annual Meeting of the Stockholders of Chittenden Corporation will be
held on Wednesday, April 19, 1995 at 4:00 p.m. in Salon I of the Emerald
Ballroom in the Sheraton Burlington Hotel and Conference Center, located at
the intersection of Routes 2 (Williston Road) and I-89 in South Burlington.
To find out about the wide range of products offered by Chittenden Bank,
call our Customer Information Center at 1-800-545-2236.
