FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
---------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: ____________ to ____________
Commission file number: 000-10957
NATIONAL PENN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2215075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Philadelphia and Reading Avenues, Boyertown, PA 19512
(Address of principal executive offices) (Zip Code)
(610) 367-6001
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 30, 1999
Common Stock (no stated par value) (No.) 16,994,298 Shares
<PAGE>
TABLE OF CONTENTS
Part I - Financial Information. Page
Item 1. Financial Statements................................3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation........8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk........................................15
Part II - Other Information.
Item 1. Legal Proceedings..................................16
Item 2. Changes in Securities..............................16
Item 3. Defaults Upon Senior Securities....................16
Item 4. Submission of Matters to a Vote of
Security Holders...................................16
Item 5. Other Information..................................16
Item 6. Exhibits and Reports on Form 8-K...................17
Signature....................................................................18
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET June 30 Dec. 31
(Dollars in thousands, except per share data) 1999 1998
(Unaudited) (Note)
-------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $66,270 $55,024
Interest bearing deposits in banks 6,179 10,777
Federal funds sold - -
-------------- --------------
Total cash and cash equivalents 72,449 65,801
Trading account securities - 21,589
Investment securities available for sale 515,642 523,041
Loans, less allowance for loan losses of $31,262 and
$30,835 in 1999 and 1998 respectively 1,467,934 1,404,972
Other assets 110,072 105,845
-------------- --------------
Total Assets 2,166,097 2,121,248
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $243,933 $222,816
Interest bearing deposits
(Includes certificates of deposit $100,000 or greater:
1999 - $145,348; 1998 - $145,047) 1,301,939 1,250,486
-------------- --------------
Total Deposits 1,545,872 1,473,302
Securities sold under repurchase agreements
and federal funds purchased 146,501 159,586
Short-term borrowings 9,985 19,132
Long-term obligations 248,086 248,627
Guaranteed preferred beneficial interests in
Company's subordinated debentures 40,250 40,250
Accrued interest and other liabilities 20,300 21,577
-------------- --------------
Total Liabilities 2,010,994 1,962,474
Commitments and contingent liabilities - -
Shareholders' equity
Preferred stock, no stated par value;
authorized 1,000,000 shares, none issued - -
Common stock, no stated par value;
authorized 62,500,000 shares; issued and outstanding
1999 - 16,994,073; 1998 - 16,989,622 115,006 114,294
Retained earnings 39,916 34,927
Accumulated other comprehensive income 181 9,553
-------------- --------------
Total Shareholders' Equity 155,103 158,774
-------------- --------------
Total Liabilities and Shareholders' Equity $2,166,097 $2,121,248
============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Note: The Balance Sheet at Dec. 31, 1998 has been derived from the audited
financial statements of the Company plus additions necessary to reflect the
Company's acquisition of Elverson National Bank which was accounted for
under the pooling of interest method of accounting.
3
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) June 30 June 30
------------------------------------------------
1999 1998 1999 1998
-------- -------- -------- --------
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans including fees $ 32,284 $ 31,083 $ 63,509 $ 61,654
Deposits in banks 64 158 107 234
Federal funds sold 114 77 160 164
Trading account securities -- 203 196 203
Investment securities 7,647 6,661 15,088 12,577
-------- -------- -------- --------
Total interest income 40,109 38,182 79,060 74,832
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 13,929 13,329 27,233 26,448
Federal funds purchased, borrowed funds and
securities sold under repurchase agreements 6,010 5,714 12,096 10,158
-------- -------- -------- --------
Total interest expense 19,939 19,043 39,329 36,606
-------- -------- -------- --------
Net interest income 20,170 19,139 39,731 38,226
Provision for loan losses 1,415 1,330 2,830 2,730
-------- -------- -------- --------
Net interest income after provision
for loan losses 18,755 17,809 36,901 35,496
-------- -------- -------- --------
OTHER INCOME
Trust income 1,007 832 1,893 1,592
Service charges on deposit accounts 1,326 1,267 2,690 2,482
Net gains on sale of investment securities 211 153 213 764
Mortgage banking income 364 188 430 327
Trading revenue -- 185 (48) 185
Other 2,781 1,694 5,022 3,112
-------- -------- -------- --------
Total other income 5,689 4,319 10,200 8,462
-------- -------- -------- --------
OTHER EXPENSES
Salaries, wages and employee benefits 9,265 8,056 18,551 16,105
Net premises and equipment 2,370 2,239 4,694 4,509
Other operating 4,803 4,586 8,525 8,320
-------- -------- -------- --------
Total other expenses 16,438 14,881 31,770 28,934
-------- -------- -------- --------
Income before income taxes 8,006 7,247 15,331 15,024
Applicable income tax expense 1,506 1,558 2,815 3,591
-------- -------- -------- --------
Net income $ 6,500 $ 5,689 $ 12,516 $ 11,433
======== ======== ======== ========
PER SHARE OF COMMON STOCK
Net income per share - basic $ 0.39 $ 0.33 $ 0.74 $ 0.67
Net income per share - diluted 0.38 0.33 0.73 0.66
Dividends paid in cash 0.20 0.14 0.39 0.28
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
(Dollars in thousands)
Accumulated
Additional other
Common Stock Paid-in conprehensive Retained Treasury Comprehensive
Shares Par Value Capital income earnings stock income
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 16,989,622 114,294 - 9,553 34,927 -
Net income - - - - 12,516 - 12,516
Cash dividends declared - - - - (7,527) -
Shares issued under stock-based
plans 4,451 712 - - - -
Other comprehensive income, net
of reclassification adjustment
and taxes - - - (9,372) - - (9,372)
--------------------------------------------------------------------------------------
Total comprehensive income - - - - - - $ 3,144
--------------------------------------------------------------------------------------
Balance at June 30, 1999 16,994,073 $ 115,006 $ - $ 181 $39,916 $ -
June 30, 1999
-----------------------------------
Before Tax Net of
tax (expense) tax
amount benefit amount
-----------------------------------
Unrealized gains on securities
Unrealized holding gains arising during period (14,631) 5,121 (9,510)
Less: reclassification adjustment for gains realized in net income 213 (75) 138
-----------------------------------
Other comprehensive income, net (14,418) 5,046 (9,372)
===================================
SIX MONTHS ENDED JUNE 30, 1998
(Dollars in thousands)
Accumulated
Additional other
Common Stock Paid-in conprehensive Retained Treasury Comprehensive
Shares Par Value Capital income earnings stock income
--------------------------------------------------------------------------------------
Balance at December 31, 1997 17,080,328 25,620 96,657 7,648 22,431 (3,428)
Net income - - - - 11,433 - 11,433
Cash dividends declared - - - - (5,119) -
Shares issued under stock-based
plans - - - - - -
Other comprehensive income, net
of reclassification adjustment
and taxes - - - 437 - - 437
--------------------------------------------------------------------------------------
Total comprehensive income - - - - - - $ 11,870
--------------------------------------------------------------------------------------
Conversion to no par value stock - 95,436 (95,436) - - -
Par value adjustments related to
pooling transaction - (10) 329 - - -
Effect of treasury stock
transactions (80,553) - (1,550) - - (3,534)
--------------------------------------------------------------------------------------
Balance at June 30, 1998 16,999,775 $ 121,046 $ - $ 8,085 $28,745 $ (6,962)
June 30, 1998
-----------------------------------
Before Tax Net of
tax (expense) tax
amount benefit amount
-----------------------------------
Unrealized gains on securities
Unrealized holding gains arising during period (92) 32 (60)
Less: reclassification adjustment for gains realized in net income 764 (267) 497
===================================
Other comprehensive income, net 672 (235) 437
===================================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
(Dollars in thousands)
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,516 $ 11,433
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Provision for loan losses 2,830 2,730
Depreciation and amortization 2,177 2,007
Net gains (losses) on sale of securities and mortgages (1) 615
Trading-related assets 21,589 (20,388)
Mortgage loans originated for resale (47,336) (31,864)
Sale of mortgage loans originated for resale 47,336 31,864
Other (355) (16,321)
--------- ---------
Net cash provided by (used in) operating activities 38,756 (19,924)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities - available for sale 15,303 49,498
Proceeds from maturities of investment securities - available for sale 34,316 2,951
Purchase of investment securities - available for sale (56,627) (157,227)
Proceeds from sales of loans -- --
Net increase in loans (65,792) (41,342)
Purchases of premises & equipment (2,295) (1,340)
--------- ---------
Net cash provided by (used in) investing activities (75,095) (147,460)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in:
Deposits 72,570 39,816
Repurchase agreements, fed funds & short-term borrowings (22,232) 57,095
Long-term borrowings (541) 94,625
Proceeds from issuance of preferred securities -- --
(Increase) decrease in treasury stock -- (3,534)
Issuance of common stock under dividend reinvestment plan 712 (1,231)
Cash dividends (7,522) (5,118)
--------- ---------
Net cash provided by (used in) financing activities 42,987 181,653
Net increase (decrease) in cash and cash equivalents 6,648 14,269
Cash and cash equivalents at January 1 65,801 63,408
--------- ---------
Cash and cash equivalents at June 30 $ 72,449 $ 77,677
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. The financial information included herein is
unaudited; however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods. The
financial statements include the balances of Elverson National Bank which was
acquired on January 4, 1999 in a transaction accounted for under the pooling of
interest method of accounting (see Note 3). For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
2. The results of operations for the six-month period ended June 30, 1999 are
not necessarily indicative of the results to be expected for the full year.
3. The Company's banking subsidiary, National Penn Bank, completed the
acquisition of Elverson National Bank on January 4, 1999 in a transaction
accounted for as a pooling of interests, which accordingly required restatement
of the financial statements. Under the terms of the merger, each share of
Elverson was converted into 1.46875 shares of the Company's common stock,
resulting in an issuance of 3,821,564 shares of the Company's common stock. In
addition, outstanding stock options to purchase Elverson common stock were
converted into stock options to purchase 58,141 shares of the Company's common
stock, with an exercise price of $12.98 to $15.74 per share. All financial
information presented for current and prior periods includes the results of
Elverson National Bank.
4. Per share data are based on the weighted average number of shares outstanding
of 16,983,691 and 17,006,150 for 1999 and 1998, respectively, and on the
weighted average number of diluted shares outstanding of 17,259,940 and
17,364,265 for 1999 and 1998, respectively, and are computed after giving
retroactive effect to a 5-for-4 stock split paid July 31, 1998.
5. On June 23, 1999, the Company's Board of Directors declared a cash dividend
of $.20 per share payable on August 17, 1999, to shareholders of record on July
31, 1999.
6. On July 28, 1999, the Company's Board of Directors authorized the repurchase,
from time to time, of up to 850,000 shares of its common stock in the open
market or in negotiated transactions, depending upon market conditions and other
factors. No timetable has been set for the repurchases. As of June 30, 1999, the
company had 16,994,073 shares of common stock outstanding. Repurchased shares
will be used for general corporate purposes, including the Company's dividend
reinvestment plan, stock option plans, employee stock purchase plan, and other
stock-based benefit plans.
7. The Company identifies a loan as impaired when it is probable that interest
and principal will not be collected according to the contractual terms of the
loan agreement. The balance of impaired loans was $11,727,000 at June 30, 1999,
all of which are non-accrual loans. The allowance for loan loss associated with
these impaired loans was $1,736,000 at June 30, 1999. The Company recognizes
income on impaired loans under the cash basis when the loans are both current
and the collateral on the loan is sufficient to cover the outstanding obligation
to the Company. If these factors do not exist, the Company will not recognize
income on such loans.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis is intended to assist in
understanding and evaluating the major changes in the financial condition and
earnings performance of the Company with a primary focus on an analysis of
operating results.
FINANCIAL CONDITION
Total assets increased to $2.167 billion, an increase of $44.8 million
or 2.1% over the $2.121 billion at December 31, 1998. This increase is reflected
primarily in the loan and cash and cash equivalent categories, which was
partially offset by decreases in the investment category, including trading
account securities.
Total cash and cash equivalents increased $6.6 million or 10.1% at June
30, 1999 when compared to December 31, 1998. The increase in cash and due from
banks of $11.2 million was partially offset by a decrease in interest bearing
deposits of $4.6 million.
Loans increased to $1.468 billion at June 30, 1999. The increase of
$63.0 million or 4.5% compared to December 31, 1998 was primarily the result of
the investment of deposits and long-term borrowings. Loans originated for
immediate resale during the first six months of 1999 amounted to $47.3 million.
The Company's credit quality is reflected by the annualized ratio of net
charge-offs to total loans of .3% through the second quarter of 1999 and for the
year 1998, and the ratio of non-performing assets to total loans of .90% at June
30, 1999 and 1.0% at December 31 1998. Non-performing assets, including
non-accruals, loans 90 days past due and still accruing and other real estate
owned, were $13.5 million at June 30, 1999 compared to $14.3 million at December
31, 1998. Of these amounts, non-accrual loans represented $11.7 million and
$11.6 million at June 30, 1999 and December 31, 1998, respectively. Loans 90
days past due and still accruing interest were $1.3 million and $1.8 million at
June 30, 1999 and December 31, 1998, respectively. Other real estate owned was
$496,000 and $922,000 at June 30, 1999 and December 31, 1998, respectively. The
Company had no restructured loans at June 30, 1999 or December 31, 1998. The
allowance for loan losses to non-performing assets was 231.8% and 215.0% at June
30, 1999 and December 31, 1998, respectively. As is evident from the above
amounts relative to non-performing assets, there have been no significant
changes between December 31, 1998 and June 30, 1999. The Company has no
significant exposure to energy and agricultural-related loans.
Investments, the Company's secondary use of funds, decreased $7.4
million or 1.4% to $515.6 million at June 30, 1999 when compared to December 31,
1998. The decrease is due to investment sales, calls and maturities and the
amortization of mortgage-backed securities.
Trading account securities decreased $21.6 million at June 30, 1999 due
to the sale of all these securities. The Company has assessed its involvement in
trading account activities and decided these activities do not meet with its
strategic goals.
As the primary source of funds, aggregate deposits of $1.546 billion at
June 30, 1999 increased $72.6 million or 4.9% compared to December 31, 1998. The
increase in deposits during the first six months of 1999 was primarily in
interest bearing deposits which increased $51.5 million while non-interest
bearing deposits increased $21.1 million. Certificates of deposit in excess of
$100,000 increased $.3 million. In addition to deposits, earning assets are
funded to some extent through purchased funds and borrowings. These include
securities sold under repurchase agreements, federal funds purchased, short-term
borrowings, long-term debt obligations, and subordinated debentures. In
aggregate, these funds totaled $444.8 million at June 30, 1999, and $467.6
million at December 31, 1998. The decrease of $22.8 million is primarily due to
the decrease in short-term borrowings and securities sold under repurchase
agreements and federal funds purchased, of $22.2 million due to the repayment of
short-term advances, and a decrease in long-term obligations of .6 million.
8
<PAGE>
Shareholders' equity decreased $3.7 million through June 30, 1999. This
decrease was due to a decrease in earnings retained due to a higher dividend
payout ratio and a decrease in accumulated other comprehensive income. Cash
dividends paid during the first six months of 1999 increased $1.8 million or
36.7% compared to the cash dividends paid during the first six months of 1998.
Earnings retained during the first six months of 1999 were 47.1% compared to
57.6% during the first six months of 1998.
RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 1999 was $6.5 million, 14.3%
more than the $5.7 million reported for the same period in 1998. For the first
six months, net income reached $12.5 million, or 9.5% more than the $11.4
million reported for the first six months of 1998. The Company's performance has
been and will continue to be in part influenced by the strength of the economy
and conditions in the real estate market.
Net interest income is the difference between interest income on assets
and interest expense on liabilities. Net interest income increased $1.0 million
or 5.4% to $20.2 million during the second quarter of 1999 from $19.1 million in
1998. For the comparative six month period, net interest income increased $1.5
million or 3.9% to $39.7 million from $38.2 million in 1998. The increase in
interest income for the first six months is a result of increased investment
income of $2.5 million and increased loan income of $1.9 million due to growth
in loan outstandings and higher rates on loans that was partially offset by
growth in deposits and higher rates on deposits and borrowings. Interest rate
risk is a major concern in forecasting earnings potential. On November 18, 1998,
the prime rate changed to 7.75%. Interest expense during the first six months of
1999 increased $2.7 million or 7.4% compared to the prior year's first six
months. Despite the current rate environment, the cost of attracting and holding
deposited funds is an ever-increasing expense in the banking industry. These
increases are the real costs of deposit accumulation and retention, including
FDIC insurance costs and branch overhead expenses. Such costs are necessary for
continued growth and to maintain and increase market share of available
deposits.
The provision for loan and lease losses is determined by periodic
reviews of loan quality, current economic conditions, loss experience and loan
growth. Based on these factors, the provision for loan and lease losses
increased $100,000 for the six month period ended June 30, 1999 compared to the
same period in 1998. The allowance for loan and lease losses of $31.3 million at
June 30, 1999 and $30.8 million at December 31, 1998 as a percentage of total
loans was 2.1% for both time periods. The Company's net charge-offs of
$2,403,000 and $379,000 during the first six months of 1999 and 1998,
respectively, continue to be comparable to those of the Company's peers, as
reported in the Bank Holding Company Performance Report.
Other income increased $1.4 million or 31.7% during the second quarter
of 1999, as a result of increased other income of $1,087,000, which includes the
investment in bank-owned life insurance, increased mortgage banking income of
$176,000, increased trust income of $175,000, increased service charges on
deposit accounts of $59,000 and an increase in net gains on sale of investment
securities of $58,000. This was partially offset by a decrease in trading
revenue of $185,000. Year to date, other income increased $1.7 million or 20.5%
as a result of increased other income of $1,910,000, increased trust income of
$301,000, increased service charges on deposit accounts of $208,000 and
increased mortgage banking income of $103,000. This was partially offset by
decreases in trading revenue of $233,000 and gains on sale of investment
securities of $551,000. Other expenses increased $1.6 million or 10.5% during
the quarter ended June 30, 1999 and increased $2.8 million or 9.8% for the six
month period. Of this year-to-date increase, salaries, wages and benefits
increased $2,446,000 or 15.2%, other operating expenses increased $205,000 or
2.5% and net premises and equipment increased $185,000 or 4.1%.
Income before income taxes increased $759,000 or 10.5% in the second
quarter of 1999 compared to the same time period in 1998. In comparing the first
9
<PAGE>
six months of 1999 to 1998, income before income taxes increased $307,000 or
2.0%. Income taxes decreased $52,000 for the quarter ended June 30, 1999 and
decreased $776,000 for the six month period.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary functions of asset/liability management are to assure
adequate liquidity and maintain an appropriate balance between interest-earning
assets and interest-bearing liabilities. Liquidity management involves the
ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. Funding affecting
short-term liquidity, including deposits, repurchase agreements, fed funds
purchased, and short-term borrowings, decreased $50.3 million from year end
1998. Long-term borrowings decreased $541,000 during the first six months of
1999.
The goal of interest rate sensitivity management is to avoid
fluctuating net interest margins, and to enhance consistent growth of net
interest income through periods of changing interest rates. Such sensitivity is
measured as the difference in the volume of assets and liabilities in the
existing portfolio that are subject to repricing in a future time period.
The following table shows separately the interest rate sensitivity of
each category of interest-earning assets and interest-bearing liabilities at
June 30, 1999:
<TABLE>
<CAPTION>
Repricing Periods (1)
Three Months One Year
Within Three Through One Through Five Over
Months Year Years Five Years
(In Thousands)
<S> <C> <C> <C> <C>
Assets
Interest-bearing deposits
at banks $ 6,179 $ - - $ - - $ - -
Investment securities 44,035 70,023 176,357 225,227
Trading account securities - - - - - - - -
Loans and leases 420,909 221,375 486,795 338,855
Other assets 17,616 - - - - 158,726
----------- ----------- ---------- --------
488,739 291,398 663,152 722,808
----------- ----------- ---------- --------
Liabilities and equity
Noninterest-bearing deposits 243,933 - - - - - -
Interest-bearing deposits 374,281 340,694 210,389 376,575
Borrowed funds 135,787 55,000 167,500 46,285
Preferred securities - - - - - - 40,250
Other liabilities - - - - - - 20,300
Hedging instruments 100,000 (20,000) (80,000) - -
Shareholders' equity - - - - - - 155,103
----------- ----------- ---------- --------
854,001 375,694 297,889 638,513
----------- ----------- ---------- --------
Interest sensitivity gap (365,262) (84,296) 365,263 84,295
----------- ----------- ---------- --------
Cumulative interest rate
sensitivity gap ($365,262) ($449,558) $ (84,295) $ - -
=========== =========== ========== =========
</TABLE>
(1) Adjustable rate loans are included in the period in which interest rates are
next scheduled to adjust rather than in the period in which they are due. Fixed
rate loans are included in the period in which they are scheduled to be repaid
and are adjusted to take into account estimated prepayments based upon
assumptions estimating prepayments in the interest rate environment prevailing
during the first calendar quarter of 1999. The table assumes prepayments and
scheduled principal amortization of fixed-rate loans and mortgage-backed
10
<PAGE>
securities and assumes that adjustable rate mortgages will reprice at
contractual repricing intervals. There has been no adjustment for the impact of
future commitments and loans in process.
(2) Savings and NOW deposits are scheduled for repricing based on historical
deposit decay rate analyses, as well as historical moving averages of run-off
for the Company's deposits in these categories. While generally subject to
immediate withdrawal, management considers a portion of these accounts to be
core deposits having significantly longer effective maturities based upon the
Company's historical retention of such deposits in changing interest rate
environments. Specifically, 31.7% of these deposits are considered repriceable
within three months and 68.3% are considered repriceable in the over five years
category.
Interest rate sensitivity is a function of the repricing
characteristics of the Company's assets and liabilities. These characteristics
include the volume of assets and liabilities repricing, the timing of the
repricing, and the relative levels of repricing. Attempting to minimize the
interest rate sensitivity gaps is a continual challenge in a changing rate
environment. Based on the Company's gap position as reflected in the above
table, current accepted theory would indicate that net interest income would
increase in a falling rate environment and would decrease in a rising rate
environment. An interest rate gap table does not, however, present a complete
picture of the impact of interest rate changes on net interest income. First,
changes in the general level of interest rates do not affect all categories of
assets and liabilities equally or simultaneously. Second, assets and liabilities
which can contractually reprice within the same period may not, in fact, reprice
at the same time or to the same extent. Third, the table represents a one-day
position; variations occur daily as the Company adjusts its interest sensitivity
throughout the year. Fourth, assumptions must be made to construct such a table.
For example, non-interest bearing deposits are assigned a repricing interval
within one year, although history indicates a significant amount of these
deposits will not move into interest bearing categories regardless of the
general level of interest rates. Finally, the repricing distribution of interest
sensitive assets may not be indicative of the liquidity of those assets.
The Company anticipates interest rates will move within a narrow range
for the remainder of 1999, with no clear indication of sustainable rising or
falling rates. Given this assumption, the Company's asset/liability strategy for
1999 is to maintain a negative gap (interest-bearing liabilities subject to
repricing exceed interest-earning assets subject to repricing) for periods up to
a year. The impact of a sustained interest rate environment on net interest
income is not expected to be significant to the Company's results of operations.
Effective monitoring of these interest sensitivity gaps is the priority of the
Company's asset/liability management committee.
CAPITAL ADEQUACY
The following table sets forth certain capital performance ratios:
June 30, Dec. 31,
1999 1998
CAPITAL PERFORMANCE
Return on average assets (annualized) 1.19% 1.17%
Return on average equity (annualized) 16.40 15.00
Earnings retained 47.10 55.70
Internal capital growth (annualized) 7.42 8.04
11
<PAGE>
CAPITAL LEVELS
<TABLE>
<CAPTION>
Tier 1 Capital to Tier 1 Capital to Risk- Total Capital to Risk-
Average Assets Ratio Weighted Assets Ratio Weighted Assets Ratio
Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31,
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Company 8.88% 8.77% 11.75% 12.21% 13.15% 13.51%
National Penn Bank 6.83% 6.80% 9.08% 9.52% 10.34% 10.78%
"Well Capitalized" institution 5.00% 5.00% 6.00% 6.00% 10.00% 10.00%
(under banking regulations)
</TABLE>
The Company's capital ratios above compare favorably to the minimum
required amounts of Tier 1 and total capital to "risk-weighted" assets and the
minimum Tier 1 leverage ratio, as defined by banking regulators. At June 30,
1999, the Company was required to have minimum Tier 1 and total capital ratios
of 4.0% and 8.0%, respectively, and a minimum Tier 1 leverage ratio of 3.0%. In
order for the Company to be considered "well capitalized", as defined by banking
regulators, the Company must have Tier 1 and total capital ratios of 6.0% and
10.0%, respectively, and a minimum Tier 1 leverage ratio of 5.0%. The Company
currently meets the criteria for a well capitalized institution, and management
believes that, under current regulations, the Company will continue to meet its
minimum capital requirements in the foreseeable future. At present, the Company
has no commitments for significant capital expenditures.
The Company is not under any agreement with regulatory authorities nor
is the Company aware of any current recommendations by the regulatory
authorities which, if such recommendations were implemented, would have a
material effect on liquidity, capital resources or operations of the Company.
FUTURE OUTLOOK
The following is a Year 2000 readiness statement.
The Company's Year 2000 initiative began in 1996 with the creation of
a "Year 2000 Compliance Project team" comprised of various Company employees,
including senior management. The Year 2000 Project was divided into five phases
- -- Awareness, Assessment, Renovation, Validation, and Implementation. The
initial Awareness and Assessment Phases have been completed. Non-information
technology systems have been assessed and do not present a Year 2000 concern.
The Company has completed the Renovation Phase of mission critical systems. The
Validation and Implementation Phases of renovated mission critical systems has
been completed. Validation and Implementation Phases of non-mission critical
systems will continue through the third quarter of 1999. All active ATM machines
have been renovated and are now compliant. The company has been actively
involved in the joint testing of electronic payment and transfer systems. Actual
costs for 1998 were within the budgeted amount of $300,000, which represented
approximately 9% of the total information technology budget for 1998. The amount
budgeted for 1999 is $200,000, which is approximately 12% of the total
information technology budget for 1999. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that may cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties. A business impact analysis has been completed for the
systems which support critical functions. The Company believes the most likely
worst-case scenario to be a total or partial failure to perform of one or more
of the Company's material third-party business partners or providers of service,
commodity, or data, which failure could have a material adverse impact on the
Company's operations. In an attempt to mitigate this risk, the Company has
included the assessment of these partners and providers in its Year 2000
project. The assessment of the Year 2000 readiness of third parties upon which
the Company depends for various services has been substantially completed. The
Company will continue to monitor critical third parties throughout the remainder
of 1999. However, there can be no guarantee that the systems of other companies
12
<PAGE>
on which Company's systems rely will be timely converted and would not have a
material adverse effect on the Company's systems and operations. No major
information technology projects have been delayed as a result of the Year 2000
Project. In addition, the Company's audit department contracted for an
independent consultant to verify and validate the Company's Year 2000 Project.
No major recommendations were suggested by the independent consultant to
mitigate exposures in the Company's Year 2000 Project plan.
The following is a more detailed discussion of the Year 2000 Project:
The Year 2000 Project has been in operation at the Company since 1996.
During this time the Company has been operating under a project plan reflected
in many individual documents such as the Microsoft Project charts, binders for
specific project areas, and the inventories which were created.
For the purposes of consistency with the guidance of the Company's
regulatory agencies, the Company has structured the project in the standard five
phases: Awareness, Assessment, Renovation, Validation, and Implementation. None
of these phases are purely consecutive chronologically. For example, Awareness,
the phase which was begun before the others, will most likely continue well into
the first and second quarters of 2000.
It is important to note that the Year 2000 Project at the Company
includes both the progression from 1999 to 2000 and the identification of
February 29, 2000 as a leap year day.
The following is a more detailed description of each project phase.
Awareness
This phase began in 1996 with the assignment of project managers. The
first task was to review as much information as possible from user groups,
seminars, periodicals, and the written guidance available from regulatory
agencies. The project managers created a project plan to address Year 2000
issues.
To address individual areas of responsibility in the project plan, a
team was formed composed of various representatives of National Penn Bank,
Investors Trust Company, and, beginning in 1998, Penn Securities, Inc. The team
has been charged with guiding the Year 2000 efforts of the Company through all
project phases.
The next step in the Awareness phase was to educate the Company's
employees on Year 2000 issues. This was accomplished through periodic items in
Company memos and through e-mail. Year 2000 training was conducted for all bank
officers. In the Spring of 1998, seminars were offered for the Company's
business loan customers and lending staff.
The seminars were one component of the Company's effort to educate
customers. Another was a variety of statement stuffers concerning the Year 2000
issue and specifically providing information on the Company's project plan and
status. In September 1998, a Year 2000 update was added to the Company's
internet home page. In addition, the Company has participated in various
television programs and newspaper articles produced by the local media.
The Company intends to continue to use this variety of channels
(statement stuffers, letters, seminars, home page, and printed brochures) to
attempt to provide frequent updates on the status of the Year 2000 project at
the Company and all of its subsidiary organizations.
13
<PAGE>
Assessment
The purpose of the Assessment phase is to inventory all potentially
affected software, hardware, equipment (including faxes, ATMs, hand held
calculators, etc.), interfaces, environmental systems, and third parties. Once
this information was gathered, it was organized to provide efficient tracking.
Letters were sent and web sites visited to ascertain the compliance status of
the individual product or project at the particular organization.
The Assessment process went one step further with the investigation of
the Year 2000 compliance status of the Company's largest business depositors
(funds providers), large commercial loan customers (funds takers), and
correspondent banks (capital market counterparties). The depositor investigation
was done through a mailed survey to any business account holder with a balance
of $100,000 or greater. Commercial loan relationships with an aggregate balance
greater than $300,000 were individually assessed by the lender. The status of
correspondent banks has been tracked as part of the third-party portion of the
project.
Year 2000 issues were addressed as part of the acquisition planning
with Elverson in 1998. After the acquisition was announced, the teams began to
share information by the project leaders participating in the other
institution's team meetings, through data sharing, and through joint testing of
common applications.
In an effort to control the inventory of systems and applications after
the assessment was completed, control points were reviewed. A policy was drafted
requiring all new software purchases to be certified Year 2000 compliant. All
hardware and software purchases will be tested before they are placed into a
production environment. As all PC-based hardware and software are installed
through the Network Services group and all mainframe applications are supported
through Data Processing, two central control points are established. These
groups are responsible for the ongoing monitoring of new software and hardware
installation. As an additional control, the MIS department must approve all
requests for payment of hardware and software purchases.
Renovation
The Renovation phase involves upgrading or replacing hardware and
software as necessary. Core systems have the highest priority. Other mission
critical systems follow. Finally, non-mission critical systems are addressed. A
Remediation Contingency Plan has been written to address any potential
difficulties that may be encountered before December 31, 1999.
The Company has completed renovation efforts on mission critical
systems. The Company anticipates that the replacement of the two remaining
non-compliant, non-critical systems will be accomplished during the third
quarter of 1999. Both of these remaining systems are non-critical and the
Company has determined that no adverse effect would be encountered should these
systems be unavailable.
Highlights of the Company's efforts to date include the installation of
a new mainframe system in January 1998. In May 1998, a new core banking system
was installed. In October and November 1998, all ATM machines were upgraded to
compliant releases of software and the memory necessary to process them. In
December 1998, the core processing system of Investors Trust Company was
replaced, including new hardware, software, and operating system. All have been
thoroughly tested by the users' group, as discussed herein in the Validation
phase.
Validation
The Validation phase of the project is guided by a written test plan.
Testing of mission critical systems has been completed. Non-mission critical
systems will be tested in 1999 in descending order of priority.
The project leader and the end users are jointly responsible for the
individual tests. The project leader schedules the date and ensures that the
14
<PAGE>
testing environment is prepared. He then meets with the end user to develop the
testing scripts and scenarios. The project leader is responsible for ensuring
that the test adheres to the requirements of the Year 2000 testing plan. The end
user is responsible for the data entry and system operation during the test and
for reviewing the results to verify that the test was successful. When the test
is completed and documented, both the end user and the project leader sign to
indicate its completion.
When a system is tested, all interfaces and file transmissions will be
tested at the same time whenever possible. As appropriate and feasible, testing
with third parties will also be completed.
Initiatives to complete the Validation phase include the creation of an
isolated PC network testing lab, the use of a secondary logical partition for
validating mainframe applications and interfaces, user group testing for the
core trust applications, and proxy testing by the network vendor for ATMs.
Implementation
Hardware and software certified to be compliant by the vendor will be
thoroughly tested as addressed in the Validation phase. Any product not
currently in production must be tested and accepted by the end user before being
placed into a production environment. After a system is certified to be
compliant, no future releases or updates will be installed unless first tested
and confirmed to be compliant through the procedures discussed in the Validation
phase. The control points for ensuring the future installation of releases will
continue to be the Network Services and Data Processing departments.
Additional Project Efforts
Throughout the remainder of 1999, a database is being maintained to
track the compliance status of third parties with which the Company conducts its
affairs. This information will be reported to the project team and forwarded to
executive management as necessary.
A separate budget for Year 2000 expenses is being maintained for 1999.
The status of the budget will be reported periodically to executive management.
Contingency plans have been written for all mission critical and high
priority non-mission critical systems. As the plans are completed, they are
being reviewed and edited. Additionally, the initial testing of these plans has
been substantially completed.
Although the Company believes that the program outlined above should be
adequate to address the Year 2000 issue, there can be no assurance to that
effect.
This report contains forward-looking statements concerning earnings,
asset quality, Year 2000 compliance and other future events. Actual results
could differ materially due to, among other things, the risks and uncertainties
discussed herein and in Exhibit 99 to the Company's Report on Form 10-K for
1998, which is incorporated herein by reference. Readers are cautioned not to
place undue reliance on these statements. The Company undertakes no obligation
to publicly release or update any of these statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has been no material change in the Company's assessment of its
sensitivity to market risk since its presentation in the 1998 annual report on
Form 10-K filed with the SEC.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1999 annual meeting (the "Meeting") of the shareholders of National
Penn Bancshares, Inc. (the "Registrant") was held on April 27, 1999. Notice of
the Meeting was mailed to shareholders of record on or about March 24, 1999,
together with proxy solicitation materials prepared in accordance with Section
14(a) of the Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder.
The Meeting was held to elect three Class III directors to hold office
for three years from the date of election and until their successors are elected
and qualified.
There was no solicitation in opposition to the nominees of the Board of
Directors for election to the Board of Directors and all such nominees were
elected. The number of votes cast for or withheld, as well as the number of
abstentions and broker non-votes, for each of the nominees for election to the
Board of Directors were as follows:
Abstentions and
Nominee For Withheld Broker Non-votes
Patricia L. Langiotti 13,341,212 233,504 -0-
Harold C. Wegman 13,350,957 223,759 -0-
Wayne R. Weidner 13,345,903 228,813 -0-
Item 5. Other Information.
During second quarter 1999, the Registrant's banking subsidiary,
National Penn Bank (the "Bank"), opened a branch at 600 Washington Avenue,
Philadelphia, PA. This branch is part of the Bank's National Asian Bank
Division. Also during the quarter, the Bank opened two remote automated teller
machines ("ATMs"), one at a supermarket location and one at a convenience store
location, and closed two other remote ATMs.
On June 23, 1999, the Registrant's Board of Directors declared a cash
dividend of $.20 per share to be paid on August 17, 1999 to shareholders of
record on July 31, 1999.
On July 28, 1999, the Registrant's Board of Directors authorized the
repurchase, from time to time, of up to 850,000 shares of its common stock in
the open market or in negotiated transactions, depending upon market conditions
and other factors. No timetable has been set for the repurchases. As of June 30,
1999, the Company had 16,994,073 shares of common stock outstanding. Repurchased
shares will be used for general corporate purposes, including the Company's
dividend reinvestment plan and various employee benefit plans.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 10.1 - The Elverson National Bank 401(k) Profit
Sharing Plan - Merger Amendment.
Exhibit 10.2 - The Elverson National Bank Employee Stock
Ownership Plan - Termination and Merger
Amendment.
Exhibit 10.3 - The National Penn Bancshares, Inc. Amended
and Restated Capital Accumulation Plan.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. The Registrant did not file any Reports on
Form 8-K during the quarterly period ended June 30, 1999.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NATIONAL PENN BANCSHARES, INC.
(Registrant)
Dated: August 2, 1999 By /s/ Wayne R. Weidner
---------------------------------
Wayne R. Weidner, President
Dated: August 2, 1999 By /s/ Gary L. Rhoads
---------------------------------
Gary L. Rhoads, Principal
Financial Officer
18
THE ELVERSON NATIONAL BANK
401(k) PROFIT SHARING PLAN
Merger Amendment
The Elverson National Bank ("ENB") established The Elverson National Bank
401(k) Profit Sharing Plan ("Plan") effective December 31, 1971 for its
employees. The Plan was amended or amended and restated from time to time.
National Penn Bancshares, Inc. ("NPB") acquired ENB on January 4, 1999
pursuant to an Agreement and Plan of Merger dated as of July 21, 1998
("Agreement") which provided for ENB to merge with and into National Penn Bank,
a wholly-owned subsidiary of NPB.
The Agreement requires the Plan account of each former ENB employee to
become 100% nonforfeitable, without regard to length of service, as of the
merger effective date, and for the Plan to be merged with and into the NPB
Capital Accumulation Plan ("NPB Plan").
In accordance with the Agreement, National Penn Bank, as successor by
merger to ENB, hereby amends the Plan as hereinafter set forth, effective
January 4, 1999.
1. Vesting. Each Participant who had not forfeited the non-vested
portion of his Account in the Plan as of January 4, 1999, shall have a 100%
nonforfeitable interest therein without regard to length of service or age, as
of January 4, 1999.
2. Merger. The Plan shall be merged with and into the NPB Capital
Accumulation Plan. Each Participant's Account in this Plan shall be held as a
100% nonforfeitable account in the NPB Capital Accumulation Plan, which Plan
shall accord the transferred accounts all of the benefits, rights and features
of this Plan which are protected by Code Section 411(d)(6). Further, in
accordance with the requirements of Code Section 414(l), no Participant's
benefit shall be less immediately after the merger than it was immediately
before the merger as determined on a termination basis.
3. Physical Merger. The actual merger of the Plan's assets with
and into the trust fund under the NPB Capital Accumulation Plan shall occur at
such time as the Plan's sponsor determines is appropriate.
<PAGE>
4. Sponsor. National Penn Bank shall succeed ENB as the
"Company", within the meaning of the Plan, as of January 4, 1999.
EXECUTED this 26th day of June, 1999.
NATIONAL PENN BANK
By:/s/ Sandra L. Spayd
-----------------------------
Sandra L. Spayd
Senior Vice President
THE ELVERSON NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Termination and Merger Amendment
The Elverson National Bank ("ENB") established The Elverson National Bank
Employee Stock Ownership Plan ("Plan") effective July 1, 1997 for its employees
to participate in ENB's ownership.
National Penn Bancshares, Inc. ("NPB") acquired ENB on January 4, 1999
pursuant to an Agreement and Plan of Merger dated as of July 21, 1998
("Agreement") which provided for ENB to merge with and into National Penn Bank,
a wholly-owned subsidiary of NPB. In the merger, each ENB shareholder, including
the Plan, received a formula number of NPB shares.
The Agreement requires the Plan account of each former ENB employee to
become 100% nonforfeitable, without regard to length of service, as of the
merger effective date, and for the Plan to be terminated and merged with and
into the NPB Capital Accumulation Plan ("NPB Plan").
In accordance with the Agreement, National Penn Bank, as successor by
merger to ENB, hereby amends the Plan as hereinafter set forth, effective
January 4, 1999.
1. Vesting. Each Participant who had not forfeited the non-vested
portion of his Account in the Plan as of January 4, 1999, shall have a 100%
nonforfeitable interest therein without regard to length of service or age, as
of January 4, 1999.
2. Termination. The Plan is terminated effective as of January 4,
1999.
3. Merger. The Plan shall be merged with and into the NPB Capital
Accumulation Plan. Each Participant's Account in this Plan shall be held as a
100% nonforfeitable account in the NPB Capital Accumulation Plan, which Plan
shall accord the transferred accounts all of the benefits, rights and features
of this Plan which are protected by Code Section 411(d)(6). Further, in
accordance with the requirements of Code Section 414(l), no Participant's
benefit shall be less immediately after the merger than it was immediately
before the merger as determined on a termination basis.
4. Physical Merger. The actual merger of the Plan's assets with
and into the trust fund under the NPB Capital Accumulation Plan shall occur at
such time as the Plan's sponsor determines is appropriate.
<PAGE>
5. Sponsor. National Penn Bank shall succeed ENB as the "Company",
within the meaning of section 2.8 of the Plan, as of January 4, 1999.
EXECUTED this 26th day of June, 1999.
NATIONAL PENN BANK
By:/s/ Sandra L. Spayd
----------------------------
Sandra L. Spayd
Senior Vice President
NATIONAL PENN BANCSHARES, INC.
CAPITAL ACCUMULATION PLAN
(Amended and Restated Effective January 1, 1997)
<PAGE>
NATIONAL PENN BANCSHARES, INC. CAPITAL ACCUMULATION PLAN
(Amended and Restated Effective January 1, 1997)
National Penn Bancshares, Inc. (the "Company"), adopted the National Penn
Bancshares, Inc. Capital Accumulation Plan, which was amended or amended and
completely restated from time to time.
The Company hereby amends and completely restates the Plan effective
January 1, 1997, except as expressly stated to the contrary herein, subject to
the subsequent condition that the Internal Revenue Service issues a
determination that the Plan as amended and restated herein meets all applicable
requirements of section 401(a) of the Code (as defined in subsection 1(f)), that
employer contributions thereto remain deductible under section 404 of the Code
and that the trust fund maintained with respect thereto remains tax exempt under
section 501(a) of the Code. The Plan, as herein amended and restated, shall
apply only to an Employee who is credited with an Hour of Service (as defined in
subsection 1(p)) on or after January 1, 1997, except as expressly stated to the
contrary herein. The rights and benefits, if any, of a former employee shall be
determined in accordance with the provisions of the Plan as in effect on the
date he last was credited with an Hour of Service.
i
<PAGE>
NATIONAL PENN BANCSHARES, INC. CAPITAL ACCUMULATION PLAN
(Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
Section Page
1 DEFINITIONS......................................................... 1
(a) Accrued Benefit....................................... 1
(b) Administrator or Plan Administrator................... 1
(c) Annual Additions...................................... 1
(d) Board of Directors.................................... 1
(e) Break in Service...................................... 1
(f) Code.................................................. 1
(g) Committee............................................. 2
(h) Company............................................... 2
(i) Compensation.......................................... 2
(j) Disability............................................ 2
(k) Employee.............................................. 3
(l) Entry Date............................................ 3
(m) ERISA................................................. 3
(n) Fiduciary............................................. 3
(o) Fund.................................................. 3
(p) Hour of Service....................................... 4
(q) Investment Category................................... 5
(r) Investment Manager.................................... 5
(s) Limitation Year....................................... 5
(t) Matching Account...................................... 6
(u) Member................................................ 6
(v) Normal Retirement Date................................ 6
(w) NPB Stock............................................. 6
(x) Participating Company................................. 6
(y) Period of Service..................................... 6
(z) Period of Severance................................... 6
(aa) Plan.................................................. 7
(ab) Plan Year............................................. 7
(ac) Prior Plan Account A.................................. 7
(ad) Prior Plan Account B.................................. 7
(ae) Prior Plan Account C.................................. 7
(af) Related Entity........................................ 7
(ag) Restatement Effective Date............................ 8
(ah) Rollover Account...................................... 8
(ai) Salary Reduction Account.............................. 8
(aj) Service............................................... 9
(ak) Severance Date........................................ 9
(al) Transferred Account................................... 10
(am) Trust Agreement....................................... 10
(an) Trustee............................................... 10
(ao) Valuation Date........................................ 10
ii
<PAGE>
NATIONAL PENN BANCSHARES, INC. CAPITAL ACCUMULATION PLAN
(Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
Section Page
2 ADMINISTRATION OF THE PLAN........................................ 10
(a) Allocation of Responsibility......................... 10
(b) Plan Administrator................................... 11
(c) Committee............................................ 11
(d) Powers of Board of Directors......................... 12
(e) Powers of Trustee.................................... 12
(f) Claims............................................... 12
(g) Fiduciary Compensation............................... 13
(h) Plan Expenses........................................ 14
(i) Fiduciary Insurance.................................. 14
(j) Indemnification...................................... 14
3 PARTICIPATION IN THE PLAN......................................... 14
(a) Initial Eligibility.................................. 14
(b) Measuring Service.................................... 15
(c) Termination and Requalification...................... 15
(d) Commencement of Participation........................ 16
(e) Special Rule for Rollovers........................... 16
(f) Termination of Membership............................ 16
4 MEMBER AND PARTICIPATING COMPANY CONTRIBUTIONS.................... 16
(a) Salary Reduction Contributions....................... 16
(b) Salary Reduction Contribution Limitations............ 17
(c) Salary Reduction Account............................. 19
(d) Participating Company Matching Contributions......... 19
(e) Matching Account..................................... 20
(f) Compliance with Salary Reduction Contributions
Discrimination Tests................................. 20
(g) Compliance with Participating Company Matching
Contributions Discrimination Tests................... 24
(h) Payroll Taxes........................................ 28
(i) Rollovers............................................ 29
(j) Other Member Contributions........................... 29
(k) Prior Plan Accounts.................................. 29
(l) Deductibility........................................ 30
5 MAXIMUM CONTRIBUTIONS AND BENEFITS................................ 30
(a) Defined Contribution Limitation...................... 30
(b) Combined Limitation.................................. 31
(c) Combined Limitation Computation...................... 31
(d) Definition of "Compensation" for Code Limitations.... 32
(e) Transition Provision................................. 34
iii
<PAGE>
NATIONAL PENN BANCSHARES,INC. CAPITAL ACCUMULATION PLAN
(Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
Section Page
6 ADMINISTRATION OF FUNDS........................................... 34
(a) Investment Control................................... 34
(b) NPB Stock............................................ 34
(c) Member Elections..................................... 35
(d) No Member Election................................... 36
(e) Facilitation......................................... 36
(f) Valuations........................................... 36
(g) Allocation of Gain or Loss........................... 36
(h) Bookkeeping.......................................... 37
7 BENEFICIARIES AND DEATH BENEFITS.................................. 37
(a) Designation of Beneficiary........................... 37
(b) Beneficiary Priority List............................ 38
(c) Proof of Death....................................... 38
(d) Divorce.............................................. 38
8 BENEFITS FOR MEMBERS.............................................. 38
(a) Retirement Benefit................................... 38
(b) Death Benefit........................................ 39
(c) Disability Benefit................................... 39
(d) Termination of Employment Benefit.................... 39
(e) Time of Forfeiture................................... 41
9 DISTRIBUTION OF BENEFITS.......................................... 42
(a) Commencement......................................... 42
(b) Benefit Forms........................................ 43
(c) Benefit Election..................................... 43
(d) Distributions in Kind................................ 44
(e) Deferred Payments and Installments................... 44
(f) Withholding.......................................... 44
(g) Compliance with Code Requirements.................... 44
(h) Distribution Limitations ............................ 44
(i) Rollover Election ................................... 45
10 IN-SERVICE DISTRIBUTIONS.......................................... 47
(a) General Rule......................................... 47
(b) Elective Distributions............................... 47
(c) Age 59-1/2........................................... 47
(d) Hardship............................................. 47
iv
<PAGE>
NATIONAL PENN BANCSHARES,INC. CAPITAL ACCUMULATION PLAN
(Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
Section Page
11 LOANS............................................................. 50
(a) Availability......................................... 50
(b) Minimum Requirements................................. 50
(c) Accounting........................................... 52
12 TITLE TO ASSETS................................................... 52
13 AMENDMENT AND TERMINATION......................................... 53
(a) Amendment............................................ 53
(b) Termination.......................................... 53
(c) Conduct on Termination............................... 53
14 LIMITATION OF RIGHTS.............................................. 54
(a) Alienation........................................... 54
(b) Qualified Domestic Relations Order Exception......... 54
(c) Employment........................................... 55
15 MERGERS, CONSOLIDATIONS OR TRANSFERS OF PLAN ASSETS............... 55
(a) General Rule......................................... 55
(b) Protected Benefits................................... 55
(c) Special Provisions Applicable to Transferred
Accounts from The Elverson National Bank 401(k)
Profit Sharing Plan ("Elverson 410(k) Plan")........ 56
(d) Special Rules Applicable to Transferred Accounts
from The Elverson National Bank Employee Stock
Ownership Plan ("Elverson ESOP").................... 59
(e) Code Requirements.................................... 60
16 PARTICIPATION BY RELATED ENTITIES................................. 60
(a) Commencement......................................... 60
(b) Termination.......................................... 60
(c) Single Plan.......................................... 61
(d) Delegation of Authority.............................. 61
17 TOP-HEAVY REQUIREMENTS............................................ 61
(a) General Rule......................................... 61
(b) Calculation of Top-Heavy Status...................... 61
(c) Definitions.......................................... 61
(d) Combined Benefit Limitation.......................... 64
(e) Vesting.............................................. 64
(f) Minimum Contribution................................. 64
v
<PAGE>
NATIONAL PENN BANCSHARES,INC. CAPITAL ACCUMULATION PLAN
(Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
Section Page
18 MISCELLANEOUS..................................................... 65
(a) Incapacity........................................... 65
(b) Reversions........................................... 65
(c) Employee Data........................................ 66
(d) In Writing Requirement............................... 66
(e) Doubt as to Right to Payment......................... 67
(f) Inability to Locate Distributee...................... 67
(g) Estoppel of Members and Their Beneficiaries.......... 67
(h) Law Governing........................................ 68
(i) Pronouns............................................. 68
(j) Interpretation....................................... 68
Schedule A............................................................. A-1
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1. DEFINITIONS
(a) "Accrued Benefit" shall mean on any date of determination the value of
a Member's share of the Fund.
(b) "Administrator" or "Plan Administrator" shall mean a plan administrator
within the meaning of the Code and ERISA. The Company shall be the
Administrator.
(c) "Annual Additions" shall mean the sum for any Limitation Year of (i)
employer contributions, (ii) employee contributions, (iii) forfeitures and (iv)
amounts described in sections 415(l) and 419A(d) of the Code, which are (A)
allocated to an account which provides medical benefits under section 401(h) or
419(e) of the Code and (B) treated as "Annual Additions" to the account of a
Member under such provisions of the Code. "Annual Additions" shall include
excess contributions as defined in section 401(k)(8)(B) of the Code, excess
aggregate contributions as defined in section 401(m)(6)(B) of the Code and
excess deferrals as described in section 402(g) of the Code, regardless of
whether such amounts are distributed or forfeited. "Annual Additions" shall not
include (i) rollover contributions (as defined in sections 402(c), 403(a)(4),
403(b)(8) and 408(d)(3) of the Code), (ii) employee contributions to a
simplified employee pension plan which are excludable from gross income under
section 408(k)(6) of the Code or (iii) "buy-back" contributions made under
subsection 8(d)(iv) of the Plan.
(d) "Board of Directors" shall mean the Board of Directors of the Company
or any committee or delegee thereof designated in accordance with subsection
2(d).
(e) "Break in Service" shall mean a Period of Severance of at least five
years.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the same as may be further amended from time to time.
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(g) "Committee" shall mean the individual or group of individuals
designated to control and manage the operation and administration of the Plan to
the extent set forth herein.
(h) "Company" shall mean National Penn Bancshares, Inc., a
Pennsylvania corporation.
(i) "Compensation" shall mean the base salary, hourly wages (including
overtime wages), commissions and other incentives paid to an Employee for
services by a Participating Company. "Compensation" shall also include amounts
of base salary, hourly wages, commissions and other incentives which an Employee
elects to have withheld from his remuneration for services under this Plan or a
plan which meets the requirements of section 125 of the Code and cash paid under
the Company's Flexible Benefits Plan. "Compensation" shall not include (i)
income from exercise of stock options, receipt or vesting of restricted stock
grants, exercise of stock appreciation rights or similar equity-based
compensation arrangements, (ii) bonuses, (iii) deferred compensation, (iv)
expense reimbursements or allowances of any kind, including, but not limited to,
tuition reimbursement and car allowances, (v) moving expenses, and (vi) the
value of welfare benefits or perquisites or similar items except for cash paid
under the Company's Flexible Benefits Plan (whether or not includable in gross
income). "Compensation" with respect to any Member for any Plan Year shall be
limited to $150,000 (or an increased amount permitted in accordance with a cost
of living adjustment under section 415(d) of the Code).
(j) "Disability" shall mean a medically determinable physical or mental
impairment which lasts for at least one year and is of a potentially permanent
character which prevents a Member from continuing his usual and customary
employment with a Participating Company. Disability shall be determined by the
Committee in its
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absolute discretion on the basis of such medical evidence as the Committee deems
necessary or desirable.
(k) "Employee" shall mean each and every person who is an employee of a
Participating Company or a Related Entity. The term "Employee" shall also
include a person who is a "leased employee" (within the meaning of section
414(n)(2) of the Code) with respect to a Participating Company or a Related
Entity. Notwithstanding the foregoing, no person who is a "leased employee" or
who a Participating Company determines is not its employee for purposes of wage
withholding required under section 3401, et. seq. of the Code (regardless of
whether an administrative agency or court rules that such person is a
Participating Company's employee for any purpose) shall be eligible to
participate in this Plan or be deemed an "Employee" for purposes of eligibility
to participate in this Plan.
(l) "Entry Date" shall mean the first day of each January, April, July and
October of each Plan Year.
(m) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the same as may be further amended from time to time.
(n) "Fiduciary" shall mean a person who, with respect to the Plan, (i)
exercises any discretionary authority or discretionary control respecting
management of the Plan or exercises any authority or control with respect to
management or disposition of the Plan's assets, (ii) renders investment advice
for a fee or other compensation, direct or indirect, with respect to any monies
or other property of the Plan, or has any authority or responsibility to do so,
or (iii) has any discretionary authority or discretionary responsibility in the
administration of the Plan.
(o) "Fund" shall mean the assets of the Plan. All Investment Categories
shall be part of the Fund.
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(p) "Hour of Service"
(i) General Rule. "Hour of Service" shall mean each hour (A) for
which an Employee is directly or indirectly paid, or entitled to payment, by a
Participating Company or a Related Entity for the performance of duties or (B)
for which back pay, irrespective of mitigation of damages, has been either
awarded or agreed to by a Participating Company or a Related Entity. These hours
shall be credited to the Employee for the period or periods in which the duties
were performed or to which the award or agreement pertains irrespective of when
payment is made. The same hours shall not be credited under both (A) and (B)
above.
(ii) Paid Absences. An Employee shall also be credited with one
"Hour of Service" for each hour for which the Employee is directly or indirectly
paid, or entitled to payment, by a Participating Company or a Related Entity for
reasons other than the performance of duties or absence due to vacation,
holiday, illness, incapacity, disability, layoff, jury duty or authorized leave
of absence for a period not exceeding one year for any reason in accordance with
a uniform policy established by the Committee; provided, however, not more than
501 "Hours of Service" shall be credited to an Employee under this subsection
1(p)(ii) on account of any single, continuous period during which the Employee
performs no duties and provided, further, that no credit shall be given if
payment (A) is made or due under a plan maintained solely for the purpose of
complying with applicable worker's compensation, unemployment compensation or
disability insurance laws or (B) is made solely to reimburse an Employee for
medical or medically related expenses incurred by the Employee.
(iii) Military. An Employee shall also be credited with one "Hour
of Service" for each hour during which the Employee is absent on active duty in
the military service of the United States under leave of absence granted by a
Participating
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Company or a Related Entity provided he returns to employment with a
Participating Company or a Related Entity within 90 days after his release from
active duty. Notwithstanding the foregoing or any provision of this Plan to the
contrary, Hours of Service credit with respect to qualified military service
will be provided in accordance with section 414(u) of the Code if that provides
greater credit.
(iv) Miscellaneous. For purposes of this subsection 1(p), the
regulations issued by the Secretary of Labor at 29 CFR ss.2530.200b-2(b) and (c)
are incorporated by reference. Nothing herein shall be construed as denying an
Employee credit for an "Hour of Service" if credit is required by separate
federal law.
(q) "Investment Category" shall mean any separate investment fund which is
made available under the terms of the Plan.
(r) "Investment Manager" shall mean any Fiduciary (other than a Trustee)
who:
(i) has the power to manage, acquire, or dispose of any asset of
the Plan;
(ii) is:
(A) registered as an investment advisor under the Investment
Advisers Act of 1940;
(B) a bank, as defined in that Act; or
(C) an insurance company qualified to perform services
described in subsection 1(r)(i) above under the laws of more than one state; and
(iii) has acknowledged in writing that he is a Fiduciary with
respect to the Plan.
(s) "Limitation Year" shall mean the consecutive twelve-month period
commencing on January 1st and ending on December 31st.
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(t) "Matching Account" shall mean the portion of the Member's Accrued
Benefit derived from Participating Company contributions under subsection 4(d)
hereof and the corresponding provisions of the Plan as heretofore effective,
adjusted as provided in subsection 4(e).
(u) "Member" shall mean each Employee of a Participating Company who
satisfies the requirements for participation under Section 3 hereof and each
other person who has an Accrued Benefit held under the Plan.
(v) "Normal Retirement Date" shall mean the date on which a Member attains
age 65.
(w) "NPB Stock" shall mean National Penn Bancshares, Inc. Common Stock.
(x) "Participating Company" shall mean each Related Entity with respect to
the Company which adopts or is deemed to adopt this Plan pursuant to Section 16.
The term shall also include the Company, unless the context otherwise requires.
(y) "Period of Service" shall mean the period of time commencing on the
date on which an Employee first is credited with an Hour of Service or, if
applicable, on the date following a Period of Severance of one year or more on
which an Employee first is credited with an Hour of Service provided he
requalifies for participation under subsection 3(c), and ending on the next
following Severance Date; provided, however, the period beginning on the
anniversary of the date of an Employee's absence due to maternity or paternity
and ending on the second anniversary thereof shall not be included in a Period
of Service. A Period of Severance of less than one year shall be included in a
Period of Service for all purposes.
(z) "Period of Severance" shall mean the period of time commencing on an
Employee's Severance Date and ending on the date on which the Employee first
again
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is credited with an Hour of Service, exclusive of periods during which an
Employee is on an unpaid leave pursuant to the Family and Medical Leave Act of
1993.
(aa) "Plan" shall mean the National Penn Bancshares, Inc. Capital
Accumulation Plan as amended and restated as set forth herein effective January
1, 1997, and the same as may be amended from time to time.
(ab) "Plan Year" shall mean the consecutive twelve-month period ommencing
on January 1st and ending on December 31st.
(ac) "Prior Plan Account A" shall mean the portion of the Member's Accrued
Benefit derived from Member contributions made to the Plan on an after-tax basis
prior to May 14, 1984, adjusted as provided in subsection 4(k).
(ad) "Prior Plan Account B" shall mean the portion of the Member's Accrued
Benefit derived from matching Participating Company contributions made prior to
May 14, 1984, adjusted as provided in subsection 4(k).
(ae) "Prior Plan Account C" shall mean the portion of the Member's Accrued
Benefit derived from discretionary Participating Company contributions made
prior to the 1980 amendment to the Plan, adjusted as provided in subsection
4(k).
(af) "Related Entity" shall mean (i) all corporations which are members
with a Participating Company in a controlled group of corporations within the
meaning of section 1563(a) of the Code, determined without regard to sections
1563(a)(4) and (e)(3)(C) of the Code, (ii) all trades or businesses (whether or
not incorporated) which are under common control with a Participating Company as
determined by regulations promulgated under section 414(c) of the Code, (iii)
all trades or businesses which are members of an affiliated service group with a
Participating Company within the meaning of section 414(m) of the Code and (iv)
any entity required to be aggregated with a Participating Company under
regulations prescribed under section 414(o) of the Code (to the extent provided
in such
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regulations); provided, however, for purposes of Section 5, the definition shall
be modified to substitute the phrase "more than 50%" for the phrase "at least
80%" each place it appears in section 1563(a)(1) of the Code. Furthermore, for
purposes of crediting Hours of Service for eligibility to participate and
Service for purposes of vesting, employment as a "leased employee," within the
meaning of section 414(n) of the Code, of a Participating Company or a Related
Entity shall be treated as employment for a Participating Company or a Related
Entity. For purposes of subsection 3(a) governing Service credited for purposes
of eligibility to participate and subsection 8(d) governing Service credited for
purposes of vesting, (i) an entity the stock or assets of which a Participating
Company acquired prior to April 1, 1999 shall be deemed a "Related Entity" for
periods prior to the acquisition date for persons who become Employees incident
to such acquisition and (ii) an entity the stock or assets of which a
Participating Company acquires on or after April 1, 1999 which is listed on
Column 1 of Schedule A (and entities included within a controlled group of
corporations within which any of them was included or a predecessor to any of
them) shall be deemed a "Related Entity" for periods prior to the date set forth
opposite its name in Column 2 of Schedule A for persons who become Employees
incident to such acquisition. In any other case, an entity is a "Related Entity"
only during those periods in which it is included in a category described in
this subsection.
(ag) "Restatement Effective Date" shall mean January 1, 1997.
(ah) "Rollover Account" shall mean the portion of the Member's Accrued
Benefit derived from contributions made under subsection 4(i)(i) hereof and the
corresponding provisions of the Plan as heretofore effective, adjusted as
provided in subsection 4(i)(ii).
(ai) "Salary Reduction Account" shall mean the portion of the Member's
Accrued Benefit derived from contributions made under subsection 4(a) hereof and
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the corresponding provisions of the Plan as heretofore effective, adjusted as
provided in subsection 4(c).
(aj) "Service" shall mean the sum of an Employee's Periods of Service.
Service is measured in completed years and days, where 365 days of Service equal
one completed year of Service.
(ak) "Severance Date" shall mean the earlier of (i) the date an Employee
quits, is discharged (or severed, if later), retires or dies or (ii) the first
anniversary of the date an Employee is absent from the employ of all
Participating Companies and all Related Entities for any reason other than an
approved leave of absence granted in writing by the Company according to a
uniform rule applied without discrimination or in accordance with applicable law
provided the Employee returns to the employ of a Participating Company or a
Related Entity upon completion of the leave. However, if the Employee was on any
period of unpaid leave taken pursuant to the Family and Medical Leave Act of
1993, he shall not incur a Severance Date for purposes of subsection 1(e) until
the leave expires or, if applicable, the date determined under the last sentence
of this subsection. Further, an Employee who terminates Service to enter the
military service of the United States shall not suffer a Severance Date as of
such date provided (i) such Employee's rights are protected by the Uniform
Services Employment and Reemployment Rights Act of 1994 or other federal law and
(ii) such Employee returns to employment with a Participating Company or a
Related Entity within the period required by law for preservation of his rights.
Under such circumstances, an Employee shall receive credit for Service for his
entire period of absence. If an Employee on an approved leave of absence or
qualified military service does not return to the employ of a Participating
Company or a Related Entity upon completion of his leave or expiration of the
period provided by law in the case of qualified military service, his Severance
Date generally shall be the last day for which he received his regular pay. In
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addition, for purposes of subsection 1(e), an Employee shall not suffer a
Severance Date until the second anniversary of the date on which such Employee
is absent from work (i) by reason of the Employee's pregnancy, (ii) by reason of
the birth of the Employee's child, (iii) by reason of the placement of a child
with such Employee in connection with an adoption of such child by the Employee
or (iv) for purposes of caring for a child for a period beginning immediately
following birth or placement.
(al) "Transferred Account" shall mean the portion of the Member's Accrued
Benefit transferred to this Plan by reason of a plan merger or direct transfer
from another plan without the Member's consent.
(am) "Trust Agreement" shall mean the agreement or agreements between the
Company and a Trustee under which all or a portion of the Fund is held.
(an) "Trustee" shall mean such person, persons or corporate fiduciary
designated to manage and control all or a portion of the Fund pursuant to the
terms of the Plan and a Trust Agreement.
(ao) "Valuation Date" shall mean the last business day of March, June,
September and December of each Plan Year.
2. ADMINISTRATION OF THE PLAN
(a) Allocation of Responsibility. The Board of Directors, the
Administrator, the Committee, each Trustee and each Investment Manager (if any)
possess certain specified powers, duties, responsibilities and obligations under
the Plan's governing instruments. It is intended under this Plan that each
Fiduciary be responsible solely for the proper exercise of its own functions and
that each not be responsible for any act or failure to act of another, unless
otherwise responsible as a breach of its fiduciary duty or for breach of duty by
another Fiduciary under ERISA's rules of co-fiduciary responsibility. Any person
may serve in more than one fiduciary capacity.
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(b) Plan Administrator. The Plan Administrator shall file all reports and
distribute to Members and beneficiaries reports and other information required
under ERISA or the Code and shall discharge all other duties of a plan
administrator under ERISA or the Code with respect to the Plan.
(c) Committee. The Committee shall be the Plan's named fiduciary (within
the meaning of ERISA) and shall have the power and duty to control and manage
the operation and administration of the Plan which shall include, but shall not
be limited to, the performance of the following acts:
(i) the filing of all reports required of the Plan, other than
those which are the responsibility of the Administrator;
(ii) the distribution to Members and beneficiaries of all reports
and other information required of the Plan, other than reports and information
required to be distributed by the Administrator;
(iii) the keeping of complete records of the administration of
the Plan;
(iv) the promulgation of rules and regulations for administration
of the Plan consistent with the terms and provisions of the Plan and the Trust
Agreement and the establishment of a procedure to determine the qualified status
of a domestic relations order;
(v) the establishment of a funding policy and method for the
Plan, including, but not limited to, selecting or establishing Investment
Categories for the Plan; and
(vi) the absolute discretion to interpret the Plan and its terms,
including the absolute discretion to determine any questions of fact arising
under the Plan and to make all decisions required by the Plan.
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The Committee's interpretation of the Plan and any actions and decisions taken
in good faith by the Committee based on its interpretation shall be final and
conclusive. The Committee may correct any defect, or supply any omission, or
reconcile any inconsistency in the Plan in such manner and to such extent as
shall be expedient to carry the Plan into effect and shall be the sole judge of
such expediency. The Committee may (i) delegate all or a portion of the
responsibilities of controlling and managing the operation and administration of
the Plan to one or more persons, and (ii) appoint agents, investment advisers,
counsel, physicians or other representatives to render advice with regard to any
of its responsibilities under the Plan.
(d) Powers of Board of Directors. The Board of Directors is responsible for
appointing and removing each Trustee, each Investment Manager (if any) and the
Committee and for amending the Plan, each Trust Agreement, and each asset
management agreement (if any). The Board of Directors may delegate any power or
duty it has under the Plan or a Trust Agreement, including, but not limited to,
amending the Plan or a Trust Agreement, to a committee of the Board of
Directors, to any officer(s) or Employee(s) of the Company or a Related Entity
or to any other person or entity, in which case such delegee and not the Board
of Directors, shall be responsible for exercise of the delegated functions.
(e) Powers of Trustee. Each Trustee and each Investment Manager (if any) is
responsible for the management and control of the portion of the Fund over which
it has control to the extent provided in its Trust Agreement or asset management
agreement, respectively.
(f) Claims. If, pursuant to the rules, regulations or other interpretations
of the Plan, the Committee denies the claim of a Member or beneficiary for
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benefits under the Plan, the Committee shall provide written notice, within 90
days after receipt of the claim, setting forth in a manner calculated to be
understood by the claimant:
(i) the specific reasons for such denial;
(ii) the specific reference to the Plan provisions on which the
denial is based;
(iii) a description of any additional material or information
necessary to perfect the claim and an explanation of why such material or
information is needed; and
(iv) an explanation of the Plan's claim review procedure and the
time limitations of this subsection applicable thereto.
A Member or beneficiary whose claim for benefits has been denied may request
review by the Committee of the denied claim by notifying the Committee in
writing within 60 days after receipt of the notification of claim denial. As
part of said review procedure, the claimant or his authorized representative may
review pertinent documents and submit issues and comments to the Committee in
writing. The Committee shall render its decision to the claimant in a manner
calculated to be understood by the claimant not later than 60 days after receipt
of the request for review, unless special circumstances require an extension of
time, in which case decision shall be rendered as soon after the sixty-day
period as possible, but not later than 120 days after receipt of the request for
review. The decision on review shall state the specific reasons therefor and the
specific Plan references on which it is based.
(g) Fiduciary Compensation. Each Fiduciary who already receives full-time
pay from a Participating Company or a Related Entity shall serve without
compensation from the Plan for his services as such, but he shall be reimbursed
pursuant to subsection 2(h) for any reasonable expenses incurred by him in the
administration of the
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Plan. A Fiduciary who is not already receiving full-time pay from a
Participating Company may be paid such reasonable compensation as shall be
agreed upon.
(h) Plan Expenses. All expenses of administration of the Plan shall be paid
out of the Fund unless paid by the Company or a Member. According to uniform
rules, the Committee may charge expenses to a particular Investment Category, a
particular Member's Accrued Benefit or a particular Member if the Committee
determines that such allocation of expense or charge is desirable for the
equitable administration of the Plan.
(i) Fiduciary Insurance. If the Committee so directs, the Plan shall
purchase insurance to cover the Plan from liability or loss occurring by reason
of the act or omission of a Fiduciary provided such insurance permits recourse
by the insurer against the Fiduciary in the case of a breach of a fiduciary
obligation by such Fiduciary.
(j) Indemnification. The Company shall indemnify and hold harmless to the
maximum extent permitted by its by-laws each Fiduciary who is an Employee or who
is an officer or director of a Participating Company or any Related Entity from
any claim, damage, loss or expense, including litigation expenses and attorneys'
fees, resulting from such person's service as a Fiduciary of the Plan provided
the claim, damage, loss or expense does not result from the Fiduciary's gross
negligence or intentional misconduct.
3. PARTICIPATION IN THE PLAN
(a) Initial Eligibility
(i) Service Requirement. Each and every Employee of a
Participating Company who is not excluded under subsection 3(a)(ii) shall be
eligible to make contributions under subsection 4(a) and be allocated matching
contributions for payroll periods commencing coincident with or next following
the first Entry Date which is at least six calendar months coincident with or
next following the date the Employee first is credited with an Hour of Service.
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(ii) Excluded Employees. Notwithstanding the foregoing provision
of this subsection,
(A) no Employee whose terms and conditions of employment are
determined by a collective bargaining agreement between employee representatives
and a Participating Company shall be eligible to participate unless such
collective bargaining agreement provides to the contrary, in which case such
Employee shall be eligible to participate upon compliance with such provisions
for eligibility and participation as such agreement shall provide; except that
no Employee who has selected, or in the future selects, a union shall become
ineligible during the period between his selection of the union and the
execution of the first collective bargaining agreement which covers him;
(B) no person who is an Employee by reason of the second
sentence of subsection 1(k) shall be eligible to participate;
(C) no person a Participating Company determines is not its
employee for purposes of federal income tax withholding shall be eligible to
participate, regardless of whether an administrative agency or court rules that
such person is a Participating Company's employee for any purpose; and
(D) no Employee who is a nonresident alien and who receives
no earned income (within the meaning of section 911(d)(2) of the Code) from a
Participating Company which constitutes income from sources within the United
States (within the meaning of section 861(a)(3) of the Code) shall be eligible
to participate.
(b) Measuring Service. For purposes of measuring Service to satisfy the
eligibility provisions, the computation period shall begin with the date on
which the Employee first is credited with an Hour of Service.
(c) Termination and Requalification. An Employee who has satisfied the
Service requirement of subsection 3(a) and who subsequently becomes ineligible
for any
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reason shall requalify for participation on the date on which he is next
credited with an Hour of Service in an eligible job classification under
subsection 3(a).
(d) Commencement of Participation. An Employee who satisfies all the
requirements for eligibility under subsection 3(a) shall become a Member on the
Entry Date following his timely election authorizing amounts be withheld from
his Compensation and be credited to his Salary Reduction Account under the Plan.
An Employee who satisfies all the requirements for eligibility under subsection
3(a) and who does not elect to have amounts withheld from his Compensation shall
be deemed a participant in the Plan to the extent required by ERISA on the first
Entry Date as of which his election to have amounts withheld could have become
effective.
(e) Special Rule for Rollovers. An Employee of a Participating Company who
will be eligible to participate in the Plan after satisfying the Service
requirement of subsection 3(a) may make a contribution to the Plan under
subsection 4(i). An individual who makes a contribution under subsection 4(i)
shall become a Member on the date of his contribution; however, such individual
shall not be considered to be a Member for purposes of the remainder of Section
4 until he satisfies the Service requirement of subsection 3(a).
(f) Termination of Membership. An Employee who becomes a Member shall
remain a Member as long as he has an Accrued Benefit held under the Plan.
4. MEMBER AND PARTICIPATING COMPANY CONTRIBUTIONS
(a) Salary Reduction Contributions. Each Employee who becomes eligible to
participate under subsection 3(a) may contribute any even multiple of 1.0%, not
to exceed 15%, of his Compensation for a payroll period, as he shall elect in a
manner prescribed by the Committee. The Committee may limit further the amount
of contribution for all Members or a class of Members as the Committee
determines is necessary or
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desirable to facilitate Plan administration or comply with applicable Code
provisions. The initial election to contribute may be effective as of any Entry
Date. Such contribution shall be accomplished through direct reduction of
Compensation in each payroll period that the election is in effect. For purposes
of the Code, such contribution shall be deemed to be made by the Member's
employer. A Member may elect to increase or reduce his contributions as of an
Entry Date or terminate his contributions as of any date. All such elections
shall be made in a manner and shall become effective on the date prescribed
therefor by the Committee. Contributions made by Participating Companies under
this subsection shall be made at such times as the Company determines and shall
be allocated to the Salary Reduction Accounts of the Members from whose
Compensation the contributions were withheld in an amount equal to the amount
withheld.
(b) Salary Reduction Contribution Limitations. Contributions under
subsection 4(a) shall be limited as provided below:
(i) Exclusion Limit. The maximum amount of contribution which any
Member may make in any calendar year under subsection 4(a) is $9,500 (or such
increased annual amount resulting from a cost of living adjustment pursuant to
sections 402(g)(5) and 415(d)(1) of the Code), reduced by the amount of elective
deferrals by such Member under all other plans, contracts or arrangements of any
Participating Company or Related Entity. If the contribution under subsection
4(a) for a Member for any calendar year exceeds $9,500 (or such increased annual
amount resulting from an adjustment described above), the Committee shall direct
the Trustee to distribute the excess amount (plus any income and minus any loss
allocable to such amount) to the Member not later than the April 15th following
the close of such calendar year. If (A) a Member participates in another plan
which includes a qualified cash or deferred arrangement or other program subject
to the limitations of section 402(g) of the Code, (B) such Member contributes in
the aggregate more
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than the exclusion limit under this Plan and the corresponding provisions of the
other plan and (C) the Member notifies the Committee not later than the March
1st following the close of such calendar year of the portion of the excess the
Member has allocated to this Plan, then the Committee may direct the Trustee to
distribute to the Member not later than April 15th following the close of such
calendar year the excess amount (plus any income and minus any loss allocable to
such amount) which the Member allocated to this Plan. A Member shall be deemed
to have given the notification described in (C) above if the excess results from
contributions solely to this Plan or plans sponsored by Related Entities.
(ii) Discrimination Test Limits. The Committee may limit the
maximum amount of contribution for Members who are "highly compensated
employees" (as defined below) to the extent it determines that such limitation
is necessary to keep the Plan in compliance with section 401(a)(4) or section
401(k)(3) of the Code. Any limitation shall be effective for all payroll periods
following the announcement of the limitation. For purposes of Section 4 of the
Plan, the term "highly compensated employee" shall mean an Employee who is
described in either or both of the following groups:
(A) an Employee who is a 5% owner, as defined in section
416(i)(1) of the Code, at any time during the current Plan Year or the last
preceding Plan Year;
(B) an Employee who receives "compensation" (as defined
below) in excess of $80,000 (or an increased amount resulting from a cost of
living adjustment) during the preceding Plan Year and was in the "top-paid"
group (as defined below) for the preceding Plan Year.
For purposes hereof, the following rules and definitions shall
apply:
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(C) The "top-paid" group consists of the top 20% of
Employees ranked on the basis of "compensation" received during the year. For
purposes of determining the number of Employees in the "top-paid" group,
Employees described in section 414(q)(5) of the Code and Q&A 9(b) of section
1.414(q)-1T of the regulations thereunder are excluded.
(D) "Compensation" is compensation within the meaning of
section 415(c)(3) of the Code, and for the 1997 Plan Year also includes elective
or salary reduction contributions to a cafeteria plan, cash or deferred
arrangement or tax-sheltered annuity under sections 125, 402(e)(3), 402(h)(3),
and 403(b) of the Code.
(E) Employers aggregated under section 414(b), (c), (m), or
(o) of the Code are treated as a single employer, subject to application of the
"separate line of business rules" exception under section 410(b)(5) of the Code.
(c) Salary Reduction Account. Each Member's salary reduction contributions,
as adjusted for investment gain or loss and income or expense, constitute such
Member's Salary Reduction Account. A Member shall at all times have a
nonforfeitable interest in the portion of his Accrued Benefit derived from his
Salary Reduction Account.
(d) Participating Company Matching Contributions
(i) Amount. Each Participating Company shall contribute with
respect to each Member employed by it who is eligible under subsection 3(a) an
amount equal to 50% of the Member's salary reduction contribution for each
payroll period, subject to a limitation of 3.5% of the Member's Compensation for
a payroll period.
(ii) Forfeitures. Amounts in the Matching Accounts of Members
which have been forfeited pursuant to the provisions of subsections 8(d) and
8(e) hereof during a Plan Year shall be applied to reduce Participating Company
contributions required under subsection 4(d)(i).
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<PAGE>
(iii) NPB Stock. The Participating Companies may satisfy the
obligation to make matching contributions by the direct issuance to the Trustee
of NPB Stock with a value equal to the required matching contribution determined
by valuing the contributed NPB Stock at the average of the daily mean high and
low market prices of such NPB Stock as reported on the Composite Tape of
transactions on all major exchanges and non-exchange markets in the United
States for the payroll period to which the matching contribution relates.
(iv) Payment Date. The Participating Companies shall pay over to
the Fund all contributions required under this subsection no later than the due
date, including extensions, for filing the Participating Companies' federal
income tax returns for the taxable year ended coincident with or immediately
following the end of the Plan Year with respect to which such contributions are
to be made.
(e) Matching Account. The Participating Company contributions allocated to
a Member under subsection 4(d) and the corresponding provisions of the Plan as
heretofore effective, all as adjusted for the investment gain or loss and income
or expense, constitute the Member's Matching Account. A Member shall have a
nonforfeitable interest in the portion of his Accrued Benefit derived from his
Matching Account to the extent provided under Section 8.
(f) Compliance with Salary Reduction Contributions Discrimination Tests
(i) Rule. In no event shall the "actual deferral percentage" (as
defined below) for Members who are "highly compensated employees" in a testing
group for any Plan Year bear a relationship to the "actual deferral percentage"
for Members who are not "highly compensated employees" in such testing group
which does not satisfy either subsection 4(f)(i)(A) or (B) below. The test shall
be separately performed for each testing
20
<PAGE>
group. Each group of Members who participate in the Plan pursuant to a
collective bargaining agreement shall be a separate testing group and all other
Members shall be a separate testing group.
(A) The requirement shall be satisfied for a Plan Year if
the "actual deferral percentage" for the Plan Year for the group of Members who
are "highly compensated employees" for the Plan Year is not more than the
"actual deferral percentage" for the preceding Plan Year of all other Members
multiplied by 1.25.
(B) The requirement shall be satisfied for a Plan Year if
(1) the excess of the "actual deferral percentage" for the Plan Year for the
Members who are "highly compensated employees" for the Plan Year over the
"actual deferral percentage" for the preceding Plan Year of all Members who are
not "highly compensated employees" for the preceding Plan Year is not more than
two percentage points (or such lower amount as may be required by applicable
regulations under the Code) and (2) the "actual deferral percentage" for Members
who are "highly compensated employees" for the Plan Year is not more than the
"actual deferral percentage" of all Members who are not "highly compensated
employees" for the preceding Plan Year multiplied by two (or such lower multiple
as may be required by applicable regulations under the Code).
(C) The Plan may test using the "actual deferral percentage"
for non-highly compensated employees for the current Plan Year rather than the
preceding Plan Year if the Administrator so elects in accordance with applicable
rules promulgated pursuant to the Code. The Administrator may only revoke such
an election in accordance with applicable rules promulgated pursuant to the
Code. For the 1997 Plan Year, the Plan shall use the preceding Plan Year for the
test.
(D) If the Company elects to apply section 410(b)(4)(B) of
the Code in determining whether the Plan satisfies the requirements of
subsection 4(f) for
21
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Plan Years beginning after December 31, 1998, the Company may exclude from
consideration all non-highly compensated employees who would not have been
eligible to participate if the Plan contained the greatest age and service
requirements permitted under section 410(a)(1)(A) of the Code.
(ii) QNEC or Refund. If the relationship of the "actual deferral
percentages" does not satisfy subsection 4(f)(i) for any Plan Year, the
Participating Companies may make "qualified nonelective contributions" (within
the meaning of the regulations promulgated under section 401(k) of the Code) in
an equal dollar amount for all or a class of eligible "nonhighly compensated
employees". Such contributions shall be treated for all purposes of the Plan as
contributions made by a Member under subsection 4(a) for the Plan Year for which
they are made and shall be a subaccount of the Member's Salary Reduction
Account. If the Participating Companies do not make such contributions or such
contributions do not result in satisfaction of subsection 4(f)(i), then the
Committee shall direct the Trustee to distribute the "excess contribution" (as
defined below) for such Plan Year (plus any income and minus any loss allocable
thereto for the Plan Year in which the contributions were made as determined
under the Plan's method for allocating income and loss) within twelve months
after the close of the Plan Year to the "highly compensated employees" on the
basis of the amount of contributions attributable to each until the "excess
contribution" is eliminated. The portion of the "excess contribution"
attributable to a "highly compensated employee" is determined by reducing the
dollar amount of contributions paid over to the Fund on behalf of the "highly
compensated employees", starting with the highest dollar amount of such
contributions, until the "excess contribution" is eliminated. The amount of
"excess contributions" to be distributed shall be reduced by excess deferrals
previously distributed for the taxable year ending in the same Plan Year and
excess deferrals to be distributed for a taxable year shall be reduced by excess
contributions previously
22
<PAGE>
distributed for the Plan Year beginning in such taxable year. Any refund made to
a Member in accordance with this subsection shall be drawn from his Salary
Reduction Account.
(iii) Additional Definitions. For purposes of this subsection
4(f), the term "Member" shall mean each Employee eligible to make contributions
under subsection 4(a) at any time during a Plan Year. The "actual deferral
percentage" for a specific group of Members for a Plan Year shall be the average
of the "actual deferral ratio" for each Member in the group for such Plan Year.
The "actual deferral ratio" for a particular Member for a Plan Year shall be the
ratio of the amount of contributions made under subsection 4(a) no later than
twelve months after the close of the Plan Year for such Member out of amounts
that would have been received by him in the Plan Year but for his election under
subsection 4(a) and which are allocated to the Member on or before the last day
of the Plan Year without regard to participation or performance of services
thereafter to the Member's "compensation" for such Plan Year. For this purpose,
"compensation" means compensation for service performed for a Participating
Company which is currently includable in gross income or which is excludable
from gross income pursuant to an election under a qualified cash or deferred
arrangement under section 401(k) of the Code or a cafeteria plan under section
125 of the Code; provided, however, the Committee may elect to limit
compensation for all Members to amounts paid during the portion of the Plan Year
during which the Member was eligible to participate in the Plan or use any
definition of compensation permissible under section 414) of the Code and the
regulations thereunder. The "excess contribution" for any Plan Year is the
excess of the aggregate amount of contributions paid over to the Fund pursuant
to subsection 4(a) on behalf of "highly compensated employees" for such Plan
Year over the maximum amount of such contributions permitted for "highly
compensated employees" under subsection 4(f)(i).
23
<PAGE>
(iv) Aggregation of Contributions. The "actual deferral ratio"
for any Member who is a "highly compensated employee" for the Plan Year and who
is eligible to make elective contributions excludable from income under sections
401(k) and 402(a)(8) of the Code to any plan maintained by a Participating
Company or a Related Entity shall be determined as if all such contributions
were made under this Plan.
(v) Aggregation of Plans. In the event that this Plan satisfies
the requirements of section 401(a)(4) or 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other plans satisfy the
requirements of section 401(a)(4) or 410(b) of the Code only if aggregated with
this Plan, then subsection 4(f)(i) shall be applied by determining the "actual
deferral ratios" of Members as if all such plans were a single plan.
(vi) Testing Alternatives. To the extent permitted by the Code,
the Plan may treat contributions made under subsection 4(a) as contributions
made under subsection 4(d), and vice versa, to facilitate satisfaction of any
applicable nondiscrimination requirement.
(g) Compliance with Participating Company Matching Contributions
Discrimination Tests
(i) Rule. In no event shall the "actual contribution percentage"
(as defined below) for Members who are "highly compensated employees" for any
Plan Year bear a relationship to the "actual contribution percentage" for
Members who are not "highly compensated employees" which does not satisfy either
subsection 4(g)(i)(A) or (B) below. The requirement of this subsection shall not
apply to Members who participate in this Plan pursuant to a collective
bargaining agreement, and any such Members shall be excluded from the testing
group.
24
<PAGE>
(A) The requirement shall be satisfied for a Plan Year if
the "actual contribution percentage" for the Plan Year for the group of Members
who are "highly compensated employees" for the Plan Year is not more than the
"actual contribution percentage" for the preceding Plan Year of all Members who
are not "highly compensated employees" for the preceding Plan Year multiplied by
1.25.
(B) The requirement shall be satisfied for a Plan Year if
(1) the excess of the "actual contribution percentage" for the Plan Year for the
Members who are "highly compensated employees" for the Plan Year over the
"actual contribution percentage" of all Members who are not "highly compensated
employees" for the preceding Plan Year is not more than two percentage points
(or such lower amount as may be required by applicable regulations under the
Code) and (2) the "actual contribution percentage" for the Plan Year for Members
who are "highly compensated employees" for the Plan Year is not more than the
"actual contribution percentage" for the preceding Plan Year of all Members who
are not "highly compensated employees" for the preceding Plan Year multiplied by
two (or such lower multiple as may be required by applicable regulations under
the Code).
(C) The Plan may test using the "actual contribution
percentage" for non-highly compensated employees for the current Plan Year
rather than the preceding Plan Year if the Administrator so elects in accordance
with applicable rules promulgated pursuant to the Code. The Administrator may
only revoke such an election in accordance with applicable rules promulgated
pursuant to the Code. For the 1997 Plan Year, the Plan shall use the preceding
Plan Year for the test.
(D) If the Company elects to apply section 410(b)(4)(B) of
the Code in determining whether the Plan satisfies the requirements of
subsection 4(g) for Plan Years beginning after December 31, 1998, the Company
may exclude from consideration all non-highly compensated employees who would
not have been eligible to
25
<PAGE>
participate if the Plan contained the greatest age and service requirements
permitted under section 410(a)(1)(A) of the Code.
(ii) Refund. If the relationship of the "actual contribution
percentages" does not satisfy subsection 4(g)(i) for any Plan Year, then the
Administrator shall direct the Trustee to distribute the "excess aggregate
contribution" (as defined below) for such Plan Year (plus any income and minus
any loss allocable thereto for the Plan Year in which the contributions were
made as determined under the Plan's method for allocating income and loss)
within twelve months after the close of the Plan Year to the "highly compensated
employees" on the basis of the amount of contributions attributable to each
until the "excess aggregate contribution" is eliminated. The portion of the
"excess aggregate contribution" attributable to a "highly compensated employee"
is determined by reducing the dollar amount of contributions paid over to the
Fund on behalf of the "highly compensated employees", starting with the highest
dollar amount of such contributions, until the "excess aggregate contribution"
is eliminated. Any refund made to a Member in accordance with this subsection
shall be drawn from his Matching Account. Notwithstanding the foregoing, if a
Member does not have a 100% nonforfeitable right to his Matching Account under
subsection 8(d)(ii), the forfeitable portion of any amount withdrawn from his
Matching Account shall be forfeited and the vested portion shall be distributed
to the Member.
(iii) Allocation of Forfeitures. Any amounts forfeited by "highly
compensated employees" under this subsection shall be applied to reduce
Participating Company contributions made pursuant to subsection 4(d).
Notwithstanding the foregoing, no forfeiture arising under this subsection shall
be allocated to the account of any "highly compensated employee."
(iv) Additional Definitions. For purposes of this subsection
4(g), the term "Member" shall mean each Employee not covered by a collective
bargaining
26
<PAGE>
agreement eligible to receive a matching contribution under subsection 4(d) at
any time during a Plan Year. The "actual contribution percentage" for a specific
group of Members for a Plan Year shall be the average of the "actual
contribution ratio" for each Member in the group for such Plan Year. The "actual
contribution ratio" for a particular Member for a Plan Year shall be the ratio
of the sum of (A) the amount of contributions made under subsection 4(d) no
later than twelve months after the close of the Plan Year for such Member which
are allocated to the Member on or before the last day of the Plan Year without
regard to participation or performance of services thereafter plus (B) elective
contributions of a non- highly compensated employee which are permitted to be
treated as matching contributions under regulations promulgated under section
401(m) of the Code and (C) after tax employee contributions which are Annual
Additions, to the Member's "compensation" for such Plan Year. For this purpose,
"compensation" means compensation for service performed for a Participating
Company which is currently includable in gross income or which is excludable
from gross income pursuant to an election under a qualified cash or deferred
arrangement under section 401(k) of the Code or a cafeteria plan under section
125 of the Code; provided, however, the Administrator may elect to limit
compensation for all Members to amounts paid during the portion of the Plan Year
during which the Member was eligible to participate in the Plan or use any
definition of compensation permissible under section 414(s) of the Code and the
regulations thereunder. The "excess aggregate contribution" for any Plan Year is
the excess of the aggregate amount of matching contributions paid over to the
Fund pursuant to subsection 4(d) on behalf of "highly compensated employees" for
such Plan Year over the maximum amount of such matching contributions permitted
for "highly compensated employees" under subsection 4(g)(i).
(v) Aggregation of Contributions. The "actual contribution ratio"
for any Member who is a "highly compensated employee" for the Plan Year and who
27
<PAGE>
is eligible to make after-tax contributions to any plan subject to section 415
of the Code maintained by a Participating Company or a Related Entity or to have
employer matching contributions within the meaning of section 401(m)(4)(A) of
the Code allocated to his account under two or more plans described in section
401(a) of the Code that are maintained by a Participating Company or a Related
Entity shall be determined as if all such contributions were made under this
Plan and each other plan.
(vi) Aggregation of Plans. In the event that this Plan satisfies
the requirements of section 401(a)(4) or 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other plans satisfy the
requirements of section 401(a)(4) or 410(b) of the Code only if aggregated with
this Plan, then subsection 4(g)(i) shall be applied by determining the "actual
contribution ratios" of Members as if all such plans were a single plan.
(viii) Aggregate Limit -- Multiple Use of Alternative Limitation.
The provisions of section 1.401(m)-2(b) of the regulations under section 401(m)
of the Code are hereby incorporated by reference. If the limitation thereof is
exceeded, it shall be corrected through reduction of the "actual contribution
percentage" in the manner specified in subsection 4(g)(ii) with respect to
"highly compensated employees" eligible under both subsection 4(a) and
subsection 4(d) of the Plan.
(viii) Testing Alternatives. To the extent permitted by the Code,
the Plan may treat contributions made under subsection 4(a) as contributions
made under subsection 4(d), and vice versa, to facilitate satisfaction of any
applicable nondiscrimination requirement.
(h) Payroll Taxes. The Participating Companies shall withhold from the
Compensation of the Members and remit to the appropriate government agencies
such
28
<PAGE>
payroll taxes and income withholding as the Company determines is or may be
necessary under applicable statutes or ordinances and the regulations and
rulings thereunder.
(i) Rollovers
(i) Contributions. Each Employee eligible under subsection 3(e)
and each Member actively employed by a Participating Company may contribute to
the Fund an amount constituting an "eligible rollover distribution" from a
"qualified trust," both within the meaning of section 402(c)(4) of the Code,
from a previous employer's retirement plan (or an individual retirement account
consisting solely of an "eligible rollover distribution" from a "qualified
trust").
(ii) Rollover Account. Each Member's contributions under
subsection 4(i)(i), as adjusted for investment gain or loss and income or
expense, constitute such Member's Rollover Account. A Member shall at all times
have a nonforfeitable interest in the portion of his Accrued Benefit derived
from his Rollover Account.
(iii) Refunds. If an Employee makes a contribution under this
subsection 4(i) which the Committee subsequently determines is not eligible for
contribution under section 402 of the Code, then the Committee shall take such
corrective action as it determines is necessary or appropriate under applicable
law.
(j) Other Member Contributions. A Member shall not be permitted to make
contributions to the Plan other than as permitted under subsection 4(a), 4(i) or
8(d)(iv).
(k) Prior Plan Accounts. A Member's Prior Plan Account A, B and/or C, if
any, shall not be allocated any additional contributions but shall be adjusted
for investment gain or loss and income or expense. A Member shall at all times
have a nonforfeitable interest in the portion of his Accrued Benefit derived
from his Prior Plan Accounts A-C.
29
<PAGE>
(l) Deductibility. All Participating Company contributions are expressly
conditioned upon their deductibility for federal income tax purposes.
Nondeductible contributions shall be abated and to the extent permitted by
applicable law, refunded, starting with contributions made under subsection
4(d).
5. MAXIMUM CONTRIBUTIONS AND BENEFITS
(a) Defined Contribution Limitation. In the event that the amount allocable
to a Member from contributions to the Fund with respect to any Plan Year would
cause the Annual Additions allocated to any Member under this Plan plus the
Annual Additions allocated to such Member under any other plan maintained by a
Participating Company or a Related Entity to exceed for any Limitation Year the
lesser of (i) $30,000 (or, if greater, one-fourth of the dollar limitation in
effect under subsection 415(b)(1)(A) of the Code for such Limitation Year) or
(ii) 25% of such Member's compensation (as defined in subsection 5(d)) for such
Limitation Year, then such amount allocable to such Member shall be reduced by
the amount of such excess to determine the actual amount of the contribution
allocable to such Member with respect to such Plan Year. If the excess amount
results from a reasonable error in determining the amount of contribution that
may be made under subsection 4(a) without violating the limitation of this
subsection, then the excess amount with earnings attributable thereto shall be
refunded to the Member. If, (i) as a result of allocation of forfeitures, (ii) a
reasonable error in estimating a Member's annual compensation (as defined in
subsection 5(d)), or (iii) under other limited facts and circumstances that the
Commissioner of Internal Revenue finds justify the availability of the remedy
next following, the excess amount with earnings attributable thereto allocable
to a Member's Accrued Benefit shall be held in a suspense account and shall be
used to reduce contributions allocable to the Member for the next Limitation
Year (and succeeding Limitation Years as necessary) provided the Member is
covered by the Plan as of the end of
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the Limitation Year. However, if the Member is not covered by the Plan as of the
end of the Limitation Year, then the excess amount shall be held unallocated in
a suspense account and shall be allocated, after adjustment for investment gains
or losses, among all Employees eligible to make contributions under subsection
4(a) for such Limitation Year as an equal percentage of their Compensation for
such Limitation Year. No excess amount may be distributed to a Member or former
Member.
(b) Combined Limitation. In addition to the limitation of subsection 5(a),
if a Participating Company or a Related Entity maintains or maintained a defined
benefit plan and the amount required to be contributed to the Fund with respect
to any Plan Year would cause the aggregate amount allocated to any Member under
all defined contribution plans maintained by any Participating Company or
Related Entity to exceed the maximum allocation as determined in subsection
5(c), then such amount required to be contributed with respect to such Member
shall be reduced by the amount of such excess to determine the actual amount of
the contribution with respect to such Member for such Plan Year. Notwithstanding
the foregoing, if an excess amount is contributed with respect to any Member,
then the excess allocation shall be reallocated or held in a suspense account in
accordance with subsection 5(a). The limitation of this subsection shall be
applied to the Member's benefit from the defined benefit plan prior to reduction
of the Member's Annual Additions under this Plan.
(c) Combined Limitation Computation. The maximum allocation is the amount
of Annual Additions which may be allocated to a Member's benefit without
permitting the sum of the defined benefit plan fraction (as hereinafter defined)
and the defined contribution plan fraction (as hereinafter defined) from
exceeding 1.0 for any Limitation Year. The defined benefit plan fraction
applicable to a Member for any Limitation Year is a fraction, the numerator of
which is the projected annual benefit of the
31
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Member under the plan determined as of the close of the Limitation Year and the
denominator of which is the lesser of (i) the product of 1.25 multiplied by the
maximum then permitted dollar amount of straight life annuity payable under the
defined benefit plan maximum benefit provisions of the Code and (ii) the product
of 1.4 multiplied by the maximum permitted amount of straight life annuity,
based on the Member's compensation, payable under the defined benefit plan
maximum benefit provisions of the Code. For purposes of this subsection 5(c), a
Member's projected annual benefit is equal to the annual benefit, expressed in
the form of a straight life annuity, to which the Member would be entitled under
the terms of the defined benefit plan based on the assumptions that (i) the
Member will continue employment until reaching his normal retirement age under
the plan (or current age, if later) at a rate of compensation equal to that for
the Limitation Year under consideration and (ii) all other relevant factors used
to determine benefits under the plan for the Limitation Year under consideration
will remain constant for future Limitation Years. The defined contribution plan
fraction applicable to a Member for any Limitation Year is a fraction, the
numerator of which is the sum of the Annual Additions for all Limitation Years
allocated to the Member as of the close of the Limitation Year and the
denominator of which is the sum of the lesser, separately determined for each
Limitation Year of the Member's employment with a Participating Company or
Related Entity, of (i) the product of 1.25 multiplied by the maximum dollar
amount of Annual Additions which could have been allocated to the Member under
the Code for such Limitation Year and (ii) the product of 1.4 multiplied by the
maximum amount, based on the Member's compensation, of Annual Additions which
could have been allocated to the Member for such Limitation Year.
(d) Definition of "Compensation" for Code Limitations. For purposes of the
limitations on the allocation of Annual Additions to a Member and maximum
benefits under a defined benefit plan as provided for in this Section 5,
"compensation" for a
32
<PAGE>
Limitation Year shall mean the sum of amounts paid by a Participating Company or
a Related Entity to the Member with respect to personal services rendered by the
Member during the Limitation Year plus (i) amounts received by the Member (A)
through accident or health insurance or under an accident or health plan
maintained or contributed to by a Participating Company or a Related Entity and
which are includable in the gross income of the Member, (B) through a plan
contributed to by a Participating Company or a Related Entity providing payments
in lieu of wages on account of a Member's permanent and total disability, or (C)
as a moving expense allowance paid by a Participating Company or a Related
Entity and which are not deductible by the Member for federal income tax
purposes; (ii) the value of a non-statutory stock option granted by a
Participating Company or a Related Entity to the Member to the extent included
in the Member's gross income for the taxable year in which it was granted; and
(iii) the value of property transferred by a Participating Company or a Related
Entity to the Member which is includable in the Member's gross income due to an
election by the Member under section 83(b) of the Code. For Plan Years beginning
after December 31, 1997, (i) elective deferrals as defined in section 402(g)(3)
of the Code, and (ii) any amount which is contributed or deferred by a
Participating Company or Related Entity at the election of an Employee and which
is not included in gross income of the Employee by reason of section 125 or 457
of the Code shall be included in "Compensation". "Compensation" shall not
include (i) contributions made by a Participating Company or a Related Entity to
a deferred compensation plan to the extent that, before application of the
limitations of section 415 of the Code to the plan, such contributions are not
includable in the Member's gross income for the taxable year in which
contributed, except as provided in the preceding provision; (ii) Participating
Company or Related Entity contributions made on behalf of a Member to a
simplified employee pension plan to the extent they are deductible by the Member
under section 219(b) of the Code, (iii) distributions
33
<PAGE>
from a deferred compensation plan (except from an unfunded nonqualified plan
when includable in gross income), (iv) amounts realized from the exercise of a
nonqualified stock option, or when restricted stock (or property) held by a
Member either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture, (v) amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified or incentive stock option,
and (vi) other amounts which receive special tax benefits such as premiums for
group term life insurance (to the extent excludable from gross income), except
that for periods after December 31, 1997, elective deferrals under sections
402(g)(3), 125 or 457 of the Code shall not be excluded.
(e) Transition Provision. Notwithstanding the foregoing provisions of this
Section 5, the benefit of a Member on January 1, 1987 under a defined benefit
pension plan shall not be less than it was on December 31, 1986 by reason of the
reduction in the dollar limit of section 415(b) of the Code which then became
effective. However, amounts in excess of the limitation by reason of changes in
the terms and conditions of a defined benefit pension plan made after May 5,
1986 shall not be preserved.
6. ADMINISTRATION OF FUNDS
(a) Investment Control. The management and control of the assets of the
Plan shall be vested in the Trustee designated from time to time by the Company
through its Board of Directors; provided, however, the Company through its Board
of Directors may appoint one or more Investment Managers to manage, acquire or
dispose of any assets of the Plan. The Committee shall instruct the Trustee or
an Investment Manager to establish Investment Categories for selection by the
Members and may at any time add to or delete from the Investment Categories.
(b) NPB Stock. The Committee shall establish an Investment Category
consisting primarily of NPB Stock. All dividends or other distributions with
respect thereto
34
<PAGE>
shall be applied to purchase additional NPB Stock. Each Member's Matching
Account and Prior Plan Account B shall be invested in the NPB Stock Investment
Category; provided, however, a Member who has attained age 55 may elect to
invest all or a portion of his Matching Account and Prior Plan Account B in
accordance with subsection 6(c). All Participating Company contributions
allocated under subsection 4(d) shall be applied to purchase NPB Stock for the
benefit of Members to whom such contributions are allocated. The Trustee may
acquire NPB Stock from any source, including the public market, in private
transactions, from the Company's treasury shares or from authorized but unissued
shares and shall acquire or liquidate NPB Stock in accordance with procedures
adopted under the Trust Agreement from time to time.
(c) Member Elections. In accordance with rules established by the Committee
and subject to subsection 6(b), each Member shall have the right to designate
the Investment Category or Categories in which new contributions and prior
balances in the Member's Salary Reduction Account, Rollover Account, Prior Plan
Accounts A and C and Transfer Accounts are invested. Any designation or change
in designation of Investment Category shall be made in 1% increments in such
manner and subject to such limitations as the Committee shall from time to time
specify. The designation or change shall become effective as of the Entry Date
specified by the Committee on or after which it is received. Any election of
Investment Category by any Member shall, on its effective date, cancel any prior
election. The right to elect Investment Categories as set forth herein shall be
the sole and exclusive investment power granted to Members. The Committee may
limit the right of a Member (i) to increase or decrease his contributions to a
particular Investment Category, (ii) to transfer amounts to or from a particular
Investment Category or (iii) to transfer amounts between particular Investment
Categories, if such limitation is required by the rules establishing an
Investment Category. A Member may not elect that any portion of any
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Account (including a portion previously invested in the Investment Category
consisting of NPB Stock) be invested in the NPB Stock Investment Category. The
Committee may promulgate separate accounting and administrative rules to
facilitate the establishment or maintenance of an Investment Category.
(d) No Member Election. If a Member does not make a written election of
Investment Category, then, except as provided at subsection 6(b), the Committee
shall direct that all amounts allocated to such Member be invested in the
Investment Category which, in the opinion of the Committee, best protects
principal. Transferred Accounts under subsection 15(c) invested in NPB Stock in
accordance with the terms of the transferring plan shall be retained in NPB
Stock if the Member does not make an election for liquidation and reinvestment.
(e) Facilitation. Notwithstanding any instruction from any Member for
investment of funds in an Investment Category as provided for herein, the
Trustee shall have the right to hold uninvested or invested in a short-term
investment fund any amounts intended for investment or reinvestment until such
time as investment may be made in accordance with subsection 6(b) or 6(c) and
the Trust Agreement.
(f) Valuations. The Fund and each Investment Category shall be valued at
fair market value as of each Valuation Date.
(g) Allocation of Gain or Loss. Any increase or decrease in the market
value of each Investment Category of the Fund since the preceding Valuation Date
and all accrued income or expense and realized profit or loss shall be added to
or deducted from the account of each Member in the ratio that each Member's
account in such Investment Category at the prior Valuation Date adjusted on a
uniform basis to reflect contributions and withdrawals during the valuation
period bears to the total of all such adjusted accounts in such Investment
Category; provided, however, such allocation for the
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first period following the establishment of an Investment Category shall be made
based on the ratio that the amount allocated to each Member in such Investment
Category in the period bears to the total amount allocated to such Investment
Category in the period.
(h) Bookkeeping. The Committee shall direct that separate bookkeeping
accounts be maintained to reflect each Member's Salary Reduction Account,
elective contributions under subsection 4(a), Matching Account, Rollover
Account, Prior Plan Accounts A, B and C and Transfer Accounts.
7. BENEFICIARIES AND DEATH BENEFITS
(a) Designation of Beneficiary. Each Member shall have the right to
designate one or more beneficiaries and contingent beneficiaries to receive any
benefit to which such Member may be entitled hereunder in the event of the death
of the Member prior to the complete distribution of such benefit by filing a
written designation with the Committee on the form prescribed by the Committee.
Such Member may thereafter designate a different beneficiary at any time by
filing a new written designation with the Committee. Notwithstanding the
foregoing, if a married Member designates a beneficiary other than his spouse,
such designation shall not be valid unless the spouse consents thereto in
writing witnessed by a notary public or authorized representative of the Plan. A
spouse's consent given in accordance with the Committee's rules shall be
irrevocable by the spouse with respect to the beneficiary then designated by the
Member unless the Member makes a new beneficiary designation. Any written
designation shall become effective only upon its receipt by the Committee or its
designee. If the beneficiary designated pursuant to this subsection dies on or
before the commencement of distribution of benefits and the Member fails to make
a new designation, then his beneficiary shall be determined pursuant to
subsection 7(b). Notwithstanding the above, to the extent provided in a
qualified domestic relations order (within the meaning of section 414(p) of the
Code) the former spouse of the
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Member may be treated as the spouse of the Member for purposes of this
subsection, and the current spouse will not be treated as the Member's spouse
for such purposes.
(b) Beneficiary Priority List. If (i) a Member omits or fails to designate
a beneficiary, (ii) no designated beneficiary survives the Member or (iii) the
Committee determines that the Member's beneficiary designation is invalid for
any reason, then the death benefits shall be paid to the Member's surviving
spouse, or if the Member is not survived by his spouse, then to the Member's
estate. If the Member's designated beneficiary dies after the Member but before
distribution of benefits, then the death benefits shall be paid to the
beneficiary's estate.
(c) Proof of Death. The Committee may, as a condition precedent to making
payment to any beneficiary, require that a death certificate, burial certificate
or other evidence of death acceptable to it be furnished.
(d) Divorce. If a Member designates his spouse as beneficiary and
subsequent to making the designation a decree of divorce is issued which
terminates the Member's marriage to such spouse, then the Member's prior
beneficiary designation shall be invalid and, unless the Member makes a new
designation, the Member shall be treated as having died without designating a
beneficiary.
8. BENEFITS FOR MEMBERS
The following are the only post-employment benefits provided by the Plan:
(a) Retirement Benefit
(i) Valuation. Each Member who retires on or after his Normal
Retirement Date shall be entitled to a retirement benefit equal to 100% of the
Member's Accrued Benefit on the Valuation Date as of which his Accrued Benefit
is liquidated for distribution. Distribution will be made at the time and in the
manner provided
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by Section 9. The Accrued Benefit of a Member who continues in Service after his
Normal Retirement Date shall become nonforfeitable upon his attaining his Normal
Retirement Date.
(ii) Late Retirement. A Member who continues employment beyond
his Normal Retirement Date shall continue to participate in the Plan.
(b) Death Benefit. In the event of the death of a Member, 100% of the
Member's Accrued Benefit on the Valuation Date after his death as of which his
Accrued Benefit is liquidated for distribution shall constitute his death
benefit and shall be distributed pursuant to Sections 7 and 9 (i) to his
designated beneficiary or (ii) if no designation of beneficiary is then in
effect, to the beneficiary determined pursuant to subsection 7(b).
(c) Disability Benefit. In the event a Member suffers a Disability before
actual retirement, 100% of the Member's Accrued Benefit on the Valuation Date
after his Disability occurs as of which his Accrued Benefit is liquidated for
distribution shall constitute his Disability benefit.
(d) Termination of Employment Benefit
(i) Valuation. In the event a Member terminates employment with
all Participating Companies and all Related Entities for reasons other than
those covered by subsections 8(a)-8(c) above, the Member shall be entitled to
receive a benefit equal to 100% of his Accrued Benefit derived from his Salary
Reduction, Rollover, Prior Plan and Transfer Accounts and the nonforfeitable
portion (as determined under the vesting schedule at subsection 8(d)(ii)) of the
Member's Matching Account, on the Valuation Date on which his Accrued Benefit is
liquidated for distribution.
(ii) Vesting Schedule. The nonforfeitable portion of a Member's
Accrued Benefit derived from his Matching Account is determined from the table
below.
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Nonforfeitable
Period of Service Percentage
Less than 1 year 0%
1 year but less than 2 years 25%
2 years but less than 3 years 50%
3 years or more 100%
(iii) Special Vesting Rule. Any Member who was a participant in
the Elverson National Bank 401(k) Profit Sharing Plan shall have a 100%
nonforfeitable right to his Matching Account upon attaining age 59-1/2 without
regard to his length of Service.
(iv) Crediting Service. For purposes of determining Service under
subsection 8(d)(ii), the following rules shall apply.
(A) If a Member has a Break in Service, then his Period of
Service thereafter shall not be taken into account for purposes of determining
the nonforfeitable percentage of the Member's Accrued Benefit derived from
Participating Company contributions which accrued prior to such Break in
Service.
(B) If a Member has a Break in Service and no nonforfeitable
interest, then his Periods of Service prior to such Break in Service shall not
be credited for any purpose.
(C) In all other cases, a Member shall receive credit for
all his Periods of Service.
(v) Cashouts. If a Member has no nonforfeitable interest in his
Matching Account upon termination of employment or if distribution of his
Matching Account is made to a Member on account of termination of employment
prior to the date on which the Member has a Break in Service and the Member
returns to employment covered by the Plan, the Member's Matching Account shall
subsequently be determined without regard to the portion thereof derived from
predistribution employment provided the Member
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(A) received distribution of the entire present value of the nonforfeitable
portion of his Matching Account at the time of distribution, (B) the amount of
the distribution was not more than $5,000 or the Member voluntarily elected to
receive the distribution, and (C) the Member upon return to employment covered
by the Plan does not repay the full amount of the distribution before the
earlier of suffering a Break in Service commencing after the withdrawal or five
years after the first date on which the Member is subsequently reemployed by a
Participating Company. If timely repayment is made, the Member's Matching
Account shall equal the sum of the repayment and the forfeitable portion of the
Member's Matching Account on the date of distribution, unadjusted by gains or
losses subsequent to the distribution. If a Member who had no nonforfeitable
interest in his Matching Account returns to employment, he shall be deemed to
have made repayment on the date he first again is credited with an Hour of
Service. Restoration shall be made first from forfeitures in the Plan Year of
repayment and second from Participating Company contributions.
(vi) Transition Rules. No Member's nonforfeitable percentage
shall be less on the Restatement Effective Date that it was on the day before
the Restatement Effective Date for any reason other than a forfeiture which
occurred on such date. For Plan Years prior to 1999, "$3,500" shall be
substituted for "$5,000" in subsection 8(d)(iv).
(e) Time of Forfeiture. The nonvested portion of the Matching Account of a
Member (i) who separates with no vested interest therein or (ii) who receives a
distribution prior to a Break in Service shall be forfeited on the date of (i)
separation or (ii) distribution, as the case may be, subject to the right to
restoration. The nonvested portion of the Matching Account of any other Member
shall be forfeited on the last day of the Plan Year in which the Member suffers
a Break in Service. Forfeitures shall be applied to offset
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the Participating Company matching contributions for the Plan Year in which the
forfeiture occurs.
9. DISTRIBUTION OF BENEFITS
(a) Commencement
(i) Vested and Retirement Benefits. Generally, vested and
retirement benefits shall begin to be paid as soon after the Member's
termination of employment as is administratively feasible, but not sooner than
30 days after the Member receives the notice required by section 1.411(a)-11(c)
of the regulations under section 411(a)(11) of the Code unless the Member
receives written notice that he has a right to a period of at least 30 days
after receipt of the notice to consider whether or not to elect a distribution
and affirmatively elects after receipt of the notice to accept a distribution
rather than the rollover provided for under subsection 9(i). In addition, if the
Member's nonforfeitable Accrued Benefit exceeds $3,500, distribution of benefits
shall not begin unless the Member consents to such distribution in writing. If
the Member does not consent to the distribution, his Accrued Benefit shall be
retained in the Fund. Distribution shall commence as soon as administratively
feasible after the Member's request for distribution or, if earlier, when a
required distribution date under subsection 9(a)(ii) occurs. For purposes of the
$3,500 threshold, if the present value of the Accrued Benefit at the time of any
distribution exceeds $3,500, the present value of the Accrued Benefit at any
subsequent time will be deemed to exceed $3,500. For periods after December 31,
1998, "$5,000" shall be substituted for "$3,500" in the preceding sentence.
(ii) Limitation and Required Commencement Date. In no event other
than with the written consent of the Member shall the payment of benefits
commence later than the 60th day after the close of the Plan Year in which the
latest of the following occurs:
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(A) The Member's Normal Retirement Date;
(B) The Member's termination of employment; or
(C) The tenth anniversary of the year in which the Member
first commenced participation in the Plan.
Furthermore, distribution of benefits must commence on or before the April 1st
of the calendar year following the calendar year in which the Member attains age
70-1/2 or has a Severance Date, whichever is later; provided, however, if a
Member was a 5% owner (as defined in section 416 of the Code) with respect to
the Plan at any time during the Plan Year ending in the calendar year in which
he attained age 70-1/2, then distribution of benefits must commence no later
than the April 1st of the calendar year following the calendar year in which the
Member attains age 70-1/2.
(iii) Death Benefits. The payment of death benefits under the
Plan shall be made at such time as the Member's beneficiary shall request but
not later than the December 31st of the fifth calendar year following the
calendar year of the Member's date of death.
(b) Benefit Forms
(i) Vested Benefits. A Member entitled to benefit distribution
under subsection 8(d) who has not attained his Normal Retirement Date or
suffered a Disability may elect a lump sum distribution or a partial
distribution.
(ii) Disability and Retirement Benefits. Disability and
retirement benefits shall be distributed in one lump sum.
(iii) Death Benefits. Death benefits shall be distributed in one
lump sum.
(c) Benefit Election. The election or change of election of a time or
method of distribution of benefits shall be in writing on forms prescribed by
the Committee.
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(d) Distributions in Kind. A Member may direct that the portion of his
Accrued Benefit held in NPB Stock be distributed to him in kind, except that the
value of a fractional share shall be distributed in cash.
(e) Deferred Payments and Installments. If benefits are to be paid directly
by the Trustee in installments or if the payment of benefits is to be deferred,
the undistributed value of the benefit shall be retained in the Fund subject to
the administrative provisions of the Plan and the Trust Agreement.
(f) Withholding. All distributions under the Plan are subject to federal,
state and local tax withholding as required by applicable law as in effect from
time to time.
(g) Compliance with Code Requirements. All forms of benefit distributions
and required benefit commencement dates shall be subject to and in compliance
with section 401(a)(9) of the Code and the regulations thereunder, including the
minimum distribution incidental benefit requirement. Unless the Member
irrevocably elects to the contrary at the time required distributions under
section 401(a)(9) of the Code begin, required minimum distributions shall be
based on the life expectancy of the Member, as determined under the Code,
without recalculation. The provisions of section 401(a)(9) of the Code and the
regulations thereunder, including proposed regulation sections 1.401(a)(9)-1 and
2, shall override any provision of the Plan inconsistent therewith.
(h) Distribution Limitations. Amounts contributed pursuant to subsection
4(a) of the Plan shall not be distributed earlier than upon occurrence of one of
the following events:
(i) The Member's retirement, death, disability or separation from
service (within the meaning of sections 401(a) and (k) of the Code);
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(ii) The termination of the Plan without establishment or
maintenance of another defined contribution plan (other than an ESOP or SEP);
(iii) The Member's attainment of age 59-1/2 or suffering
hardship;
(iv) The sale or other disposition by a Participating Company to
an unrelated corporation of substantially all of the assets used in a trade or
business, but only with respect to employees who continue employment with the
acquiring corporation and provided the acquiring corporation does not maintain
the Plan after the disposition; and
(v) The sale or other disposition by a Participating Company of
its interest in a subsidiary to an unrelated entity but only with respect to
employees who continue employment with the subsidiary and provided the acquiring
entity does not maintain the Plan after the disposition. Subsections 9(h)(ii),
(iv) and (v), above, apply only if the distribution is in the form of a lump
sum. Subsections 9(h)(iv) and (v), above, apply if the transferor corporation
continues to maintain the Plan. This subsection 9(h) shall not be construed as
giving a Member a right to a distribution not otherwise expressly provided for
by another subsection of the Plan.
(i) Rollover Election. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a "distributee's" election under this
subsection, a "distributee" may elect, at the time and in the manner prescribed
by the Committee, to have any portion of an "eligible rollover distribution"
paid directly to an "eligible retirement plan" specified by the "distributee" in
a "direct rollover". For purposes of this subsection, the definitions specified
below shall apply:
(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
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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; any hardship distribution described in section
401(k)(2)(B)(i)(IV) of the Code made after December 31, 1999; 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 an 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 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.
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10. IN-SERVICE DISTRIBUTIONS
(a) General Rule. Except as provided in subsections 10(b)-10(d) below or in
Section 15, a Member shall not be permitted to receive any distribution from the
Plan prior to his Severance Date.
(b) Elective Distributions. A Member may elect that all or a portion of his
Rollover Account or his Prior Plan Accounts A-C be distributed to him as of the
Valuation Date following timely delivery of a written request to the Committee
on the form the Committee prescribes for that purpose.
(c) Age 59-1/2. A Member who has attained age 59-1/2 and completed three
years of Service may receive an in-service distribution from the nonforfeitable
portion of his Accrued Benefit without regard to hardship. For Plan Years prior
to January 1, 1999, age 60 shall be substituted for age 59-1/2 in the preceding
sentence.
(d) Hardship. A Member shall have the right to receive an in-service
distribution from his Salary Reduction Account and the nonforfeitable portion of
his Matching Account on account of hardship. A distribution is on account of
hardship only if the distribution both (i) is made on account of an immediate
and heavy financial need of the Member and (ii) is necessary to satisfy such
financial need.
(i) Need. A distribution shall be deemed to be made on account of
an immediate and heavy financial need of the Member if the distribution is on
account of (A) medical expenses described in section 213(d) of the Code incurred
or to be incurred by the Member, the Member's spouse or any dependent of the
Member (as defined in section 152 of the Code); (B) purchase (excluding mortgage
payments) of a principal residence for the Member; (C) payment of tuition and
related educational fees, including room and board expenses, for the next twelve
months of post-secondary education for the
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Member, the Member's spouse, child or any dependent of the Member (as defined in
section 152 of the Code); (D) the need to prevent the eviction of the Member
from his principal residence or foreclosure on the mortgage of the Member's
principal residence; or (E) such other reason as the Commissioner of Internal
Revenue specifies as a deemed immediate and heavy financial need through the
publication of regulations, revenue rulings, notices or other documents of
general applicability.
(ii) Satisfaction of Need. A distribution shall be deemed to be
necessary to satisfy an immediate and heavy financial need of a Member only if
all of the requirements or conditions set forth below are satisfied or agreed to
by the Member, as appropriate.
(A) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Member, which amount shall be deemed
to include anticipated federal, state and local income taxes and penalties.
(B) The Member has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently available under all
plans subject to section 415 of the Code maintained by any Participating Company
or any Related Entity.
(C) The Member's elective contributions under this Plan and
each other deferred compensation plan (within the meaning of regulations under
section 401(k) of the Code) maintained by a Participating Company or a Related
Entity in which the Member participates shall be suspended for twelve full
calendar months after receipt of the distribution.
(D) The Member does not (and is not permitted to) make
elective contributions under this Plan or any other plan maintained by a
Participating Company or a Related Entity for the year immediately following the
taxable year of the
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hardship distribution in excess of the applicable limit under section 402(g) of
the Code for such next taxable year reduced by the amount of the Member's
elective contributions for the taxable year of the hardship distribution.
(iii) Limitations. Distributions on account of hardship shall be
limited to the sum of (A) the Member's elective contributions under subsection
4(a), (B) income credited to the Member's Salary Reduction Account as of
December 31, 1988 and (C) the nonforfeitable portion of the Member's Matching
Account. A distribution under subsection 10(d) shall be charged first against
the Member's Salary Reduction Account and then against the nonforfeitable
portion of the Member's Matching Account. The Committee may prescribe rules with
respect to the order of Investment Category from which the distribution shall be
paid.
(iv) Prior Withdrawal. A Member shall not be permitted to receive
a distribution under this subsection 10(d) until he has withdrawn all amounts
which are withdrawable under subsections 10(b) and (c).
(v) Special Vested Balance Calculation Rule. If a distribution is
made to a Member under this subsection from a Member's Matching Account at a
time when his interest therein is not 100% nonforfeitable, then a separate
bookkeeping account and calculation shall be established for such Member and be
retained until the earlier of the date on which the Member's Matching Account
becomes 100% nonforfeitable or the Member forfeits the forfeitable portion of
his Matching Account to reflect the Member's nonforfeitable interest in the
remainder of his Matching Account. Under such separate accounting, the Member's
nonforfeitable interest at any relevant time shall be determined according to
the formula X = P [AB + (RxD)] - (RxD) where:
P = the Member's nonforfeitable percentage under
subsection 8(d) at the relevant time;
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AB = the Member's Accrued Benefit derived from his
Matching Account at the relevant time;
D = the amount of the distribution from the Member's
Accrued Benefit deriving from his Matching Account; and
R = the ratio of the Member's Accrued Benefit derived
from his Matching Account at the relevant time to such
Accrued Benefit after the distribution.
(vi) Fees. The Committee may adopt a rule pursuant to subsection
2(h) imposing a reasonable fee on a Member who elects a distribution under
subsection 10(d) for processing his distribution.
11. LOANS
(a) Availability. The Committee shall direct that a bona fide loan be made
from the Fund to any Member who requests the same, provided the Member (i) pays
any application or processing fee which the Committee uniformly charges with
respect to loan requests and (ii) on the date the loan would be disbursed is
employed by a Participating Company or Related Entity. All such loans shall be
subject to the requirements of this Section which shall be deemed to include
written rules prescribed by the Committee from time to time with respect to
loans. Eligibility for and the rules with respect to loans shall be uniformly
applied.
(b) Minimum Requirements. Loans shall be subject to the following rules:
(i) Principal Amount. The principal amount of the loan to a
Member may not be less than $1,000 and may not exceed, when added to the
outstanding balance of all other loans to the Member from the Plan, the lesser
of (A) $50,000, reduced by the excess of the highest outstanding balance of
loans to the Member from the Plan during the one-year period ending on the day
before the date on which such loan was made over the outstanding balance of
loans to the Member from the Plan on the date on which such loan is
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made or (B) 50% of the Member's nonforfeitable Accrued Benefit on the date on
which the loan is made. Notwithstanding the foregoing limitation, the principal
amount of any loan shall not include any amount in the Member's Matching Account
or Predecessor Plan B Account.
(ii) Maximum Term. The term of the loan may not exceed five
years; however, if the Member uses the loan proceeds to acquire his principal
residence, the Committee may permit a longer term, not to exceed 30 years. If a
Member's employment with all Participating Companies and Related Entities
terminates for any reason, the loan shall be due and payable on the last day of
the calendar quarter following the calendar quarter in which employment
terminated.
(iii) Interest Rate. The interest rate shall be a rate charged by
commercial lenders for comparable loans on the date the loan request is
approved, as determined by the Committee.
(iv) Repayment. The loan shall be repaid over its term in level
installment payments corresponding to the Member's payroll period. As a
condition precedent to approval of the loan, the Member shall be required to
authorize payroll withholding in the amount of each installment for all periods
he is employed by a Participating Company. Notwithstanding the foregoing, the
loan repayment of a Member who is in qualified military service within the
meaning of section 414(u) of the Code shall be suspended to the extent permitted
by section 414(u) of the Code.
(v) Collateral. The loan shall be secured by 50% of the Member's
nonforfeitable Accrued Benefit.
(vi) Distribution of Accrued Benefit. If the nonforfeitable
portion of a Member's Accrued Benefit is to be distributed prior to the Member's
payment of all principal and accrued interest due on any loan to such Member,
the distribution shall
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include as an offset the amount of unpaid principal and interest due on the loan
and the note shall be distributed.
(vii) Notes. All loans shall be evidenced by a note containing
such terms and conditions as the Committee shall require.
(viii) Multiple Loans. A Member shall be permitted only one
outstanding loan at any time and may apply for only one loan during any
twelve-month period.
(ix) Fees. The Committee may adopt a rule pursuant to subsections
2(h) and 11(a) of the Plan imposing a reasonable fee on a Member who borrows
under this Section 11 for processing his loan application, preparing his loan
documentation or administering his loan.
(c) Accounting. The Committee may prescribe rules with respect to the order
of the Accounts and Investment Categories from which the principal amount of any
loan shall be drawn. The loan shall be treated as a separate Investment Category
of the borrowing Member. All payments of principal and interest with respect to
such loan shall be credited to the borrowing Member, with repayment of principal
credited to the Member's Accounts from which it was withdrawn in the order the
Committee prescribes. The repayment shall be invested in accordance with the
Member's current election for new contributions.
12. TITLE TO ASSETS
No person or entity shall have any legal or equitable right or interest in
the contributions made by any Participating Company, or otherwise received into
the Fund, or in any assets of the Fund, except as expressly provided in the
Plan.
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13. AMENDMENT AND TERMINATION
(a) Amendment. The provisions of this Plan may be amended by the Board of
Directors (or its delegee as authorized by subsection 2(d)) from time to time
and at any time in whole or in part, provided that no amendment shall be
effective unless the Plan as so amended shall be for the exclusive benefit of
the Members and their beneficiaries, and that no amendment shall operate to
deprive any Member of any rights or benefits accrued to him under the Plan prior
to such amendment. Further, no amendment to the Plan's vesting schedule shall
reduce the nonforfeitable percentage of any Member to an amount less than it was
on the later of the amendment's effective date or adoption date as determined
without regard to such amendment. Further, each Member who has completed three
years of Service on the later of the date an amendment to the Plan's vesting
schedule is adopted or effective shall have his nonforfeitable percentage
determined without regard to the amendment if such disregard provides a greater
nonforfeitable percentage.
(b) Termination. While it is the Company's intention to continue the Plan
in operation indefinitely, the Company nevertheless expressly reserves the right
by action of the Board of Directors to terminate the Plan in whole or in part or
discontinue contributions. Any such termination, partial termination or
discontinuance of contributions shall be effected only upon condition that such
action is taken as shall render it impossible for any part of the corpus of the
Fund or the income therefrom to be used for, or diverted to, purposes other than
the exclusive benefit of the Members and their beneficiaries.
(c) Conduct on Termination. If the Plan is to be terminated at any time,
the Company shall give written notice to the Trustee which shall thereupon
revalue the assets of the Fund and the accounts of the Members as of the date of
termination, partial termination or discontinuance of contributions and, after
discharging and satisfying any obligations of the Plan, shall allocate all
unallocated assets to the Accrued Benefits of the
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Members at the date of termination, partial termination or discontinuance of
contributions in accordance with subsection 6(g). Upon termination, partial
termination or discontinuance of contributions, the Accrued Benefits of Members
affected thereby shall become fully vested and shall not thereafter be subject
to forfeiture in whole or in part. The Committee shall instruct the Trustee to
continue to control and manage the Fund for the benefit of Members to whom
distributions will be made at the time and in the manner provided in Section 9.
Notwithstanding the foregoing, incident to a termination or a discontinuance of
contributions, the Company may amend the Plan and the Trust Agreement to provide
for distribution of Accrued Benefits to each affected Member provided such
distribution does not violate any applicable provision of subsection 9(h) of the
Plan or section 401(a) or 401(k) of the Code.
14. LIMITATION OF RIGHTS
(a) Alienation. None of the payments, benefits or rights of any Member
shall be subject to any claim of any creditor of such Member and, in particular,
to the fullest extent permitted by law, shall be free from attachment,
garnishment, trustee's process, or any other legal or equitable process
available to any creditor of such Member. No Member shall have the right to
alienate, anticipate, commute, pledge, encumber or assign any of the benefits or
payments which he may expect to receive, contingently or otherwise, under this
Plan, except the right to designate a beneficiary or beneficiaries in accordance
with the Plan. This subsection shall not apply to the enforcement of a federal
tax levy made pursuant to the Code, the collection by the United States on a
judgment resulting from an unpaid tax assessment, the pledging of a Member's
Accrued Benefit as security for a loan made to such Member under Section 11 or
any other exception set forth in the regulations under section 401(a)(13) of the
Code.
(b) Qualified Domestic Relations Order Exception. Subsection 14(a) shall
not apply to the creation, assignment or recognition of a right to any benefit
payable
54
<PAGE>
with respect to a Member under a qualified domestic relations order within the
meaning of section 414(p) of the Code. Notwithstanding Sections 8-10,
distribution to an alternate payee pursuant to a qualified domestic relations
order shall be made (i) at the time specified in such order or (ii) if the order
permits, as soon after the Committee approves the order as is administratively
feasible provided such distribution is permitted under applicable provisions of
the Code.
(c) Employment. Neither the establishment of the Plan, nor any modification
thereof, nor the creation of any fund, trust or account, nor the payment of any
benefit shall be construed as giving any Member or Employee, or any person
whomsoever, any legal or equitable right against any Participating Company, the
Trustee or the Committee, unless such right shall be specifically provided for
in the Trust Agreement or the Plan or conferred by affirmative action of the
Company, the Trustee or the Committee in accordance with the terms and
provisions of the Plan or as giving any Member or Employee the right to be
retained in the employ of any Participating Company. All Members and other
Employees shall remain subject to discharge to the same extent as if the Plan
had never been adopted.
15. MERGERS, CONSOLIDATIONS OR TRANSFERS OF PLAN ASSETS
(a) General Rule. In the case of any Plan merger or Plan consolidation
with, or transfer of assets or liabilities of the Plan to, any other plan, each
Member in the Plan must be entitled to receive a benefit immediately after the
merger, consolidation, or transfer (if the Plan were then to terminate) which is
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan had been
terminated).
(b) Protected Benefits. A Member shall have all of the benefits, rights or
features provided by the transferor plan which are protected under section
411(d)(6) of the
55
<PAGE>
Code with respect to a Transferred Account. The Committee shall provide for
separate recordkeeping for a Member's Transferred Account and such additional
subaccounts as may be necessary to comply with the requirements of this
subsection. Except to the extent necessary to comply with the requirements of
this subsection or an express provision of the Plan, all Transferred Accounts
shall be subject to the general provisions of the Plan applicable to the type of
account to which they would have been credited had the amounts initially been
contributed to this Plan.
(c) Special Provisions Applicable to Transferred Accounts from The Elverson
National Bank 401(k) Profit Sharing Plan ("Elverson 401(k) Plan").
(i) Vesting. All Transferred Accounts from the Elverson 401(k)
Plan shall be 100% nonforfeitable, subject to valuation adjustment.
(ii) Distribution Options. The following additional distribution
options shall apply to Transferred Accounts from the Elverson 401(k) Plan:
(A) a straight life annuity for the Member's life;
(B) a joint and survivor annuity with the Member's spouse as
contingent annuitant for an amount at least equal to 50% but not more than 100%
of the monthly amount which is payable to the Member during his lifetime;
(C) a life annuity for the Member's life, with a minimum of
60, 120 or 180 monthly payments guaranteed;
(D) approximately equal monthly or quarterly payments over a
period certain;
(E) a joint and survivor annuity with any contingent
annuitant for an amount at least equal to 50% but not more than 100% of the
amount which is payable to the Member during his lifetime;
(F) a lump sum payment; or
56
<PAGE>
(G) any combination of the foregoing. Notwithstanding the
foregoing, payments may not extend beyond the Member's life expectancy on the
date of the Member's election, or, if the Member has a designated beneficiary,
the joint life expectancy of the Member and the Member's designated beneficiary.
For purposes of this subsection, unless the Member irrevocably elects to the
contrary at the time benefit payments commence, life expectancy shall be
determined based on the life expectancy of the Member, without recalculation, as
determined under section 401(a)(9) of the Code and the regulations thereunder.
Death benefits shall be distributed as the Member's beneficiary shall elect (A)
in one lump sum or (B) in installments over a period not extending beyond five
years of the Member's date of death unless payment of benefit commenced before
the Member's date of death in which case continuing payments to the Member's
beneficiary shall be made at least as rapidly as under the method of
distribution in effect on the Member's date of death; provided, however, if any
portion of the Member's Accrued Benefit is payable to or for the benefit of a
designated beneficiary, such portion may be distributed over a period of time
not exceeding the life expectancy of such designated beneficiary, provided
distribution begins not later than one year after the date of the Member's death
or such later date as applicable regulations under the Code may permit; or if
the designated beneficiary referred to above is the Member's surviving spouse,
the benefit amount will be used to purchase a straight life annuity for the
spouse's life commencing as soon after the Member's date of death as is
administratively feasible unless the spouse elects another form of settlement
permitted under the Plan.
(iii) Married Member's Annuity. If a Member is married to his
then spouse for at least one year on the date on which benefit payments are to
commence and his Transferred Account exceeds $5,000, the Member may not elect
that benefits be distributed in any form of settlement other than the form of
annuity described in subsection
57
<PAGE>
15(c)(ii)(B) unless the Member receives the written consent of his spouse for
such election witnessed by a notary public or authorized representative of the
Plan on forms prescribed by the Committee. A Member may change his election at
any time during the election period set forth herein. No less than 30 days and
no more than 90 days before the payment of benefits begins, the Committee shall
furnish to the Member a written notification of the availability of the benefit
election hereunder, including the joint and survivor annuity and the effect of
electing not to take such annuity. A Member may at any time after receipt of the
written notification and prior to his actual retirement elect in writing the
form of benefit he desires. A Member may change his election at any time prior
to the expiration of the election period described above. If a Member requests
additional information within 60 days after receipt of the notification of
election, the minimum election period shall be extended an additional 60 days
following his receipt of such additional information.
(iv) Single Member's Annuity. If, on the date benefits are to
commence, a Member is single or has not been married to his then spouse for at
least one year and his Transferred Account exceeds $5,000, benefits will be
distributed in the form described in subsection 15(c)(ii)(A) unless the Member
elects an alternate form of settlement.
(v) Annuity Purchases. If benefits are to be paid in a form of an
annuity, the Committee shall direct the Trustee to apply the Member's
Transferred Account to purchase an appropriate nontransferable annuity contract
and to deliver it to the Member.
(vi) In-Service Distributions and Loans. If a Member is married
to his then spouse for at least one year on the date on which benefit payments
are to commence and his Transferred Account exceeds $5,000, the Member may not
receive a distribution or a loan from his Transferred Account without the prior
written consent of his
58
<PAGE>
spouse given in accordance with subsection 15(c)(iii) no more than 90 days
before the distribution or loan is made.
(vii) Explanation of Death Benefit. The Committee shall provide
to the Member within the "applicable period" a written explanation of the terms
and conditions of the spouse's right to death benefits with respect to the
Transferred Account. For purposes of this subsection "applicable period" shall
mean whichever of the following periods ends last:
(A) the period beginning with the first day of the Plan Year
in which the Member attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Member attains age 35;
(B) a reasonable period after the Member commences
participation in the Plan; or
(C) in the case of a Member who separates from service
before attaining age 35, a reasonable period after such separation from service.
(viii) Investment Categories. A Member may elect, in accordance
with the rules of subsection 6(c), that the portion of his Transferred Account
reflecting his elective contributions which is invested in NPB Stock be
reinvested in other Investment Categories. A Member may not invest any
additional amount in such Transferred Account in NPB Stock or reinvest a
liquidated amount in NPB Stock.
(d) Special Rules Applicable to Transferred Accounts from The Elverson
National Bank Employee Stock Ownership Plan ("Elverson ESOP").
(i) Vesting. All Transferred Accounts from the Elverson ESOP
shall be 100% nonforfeitable, subject to valuation adjustment.
59
<PAGE>
(ii) Distribution Form. Distributions shall be made in one lump
sum in NPB Stock except that the value of a fractional share shall be paid in
cash; provided, however, a Member may elect that the entire distribution be made
in cash.
(iii) Investment Category. All Transferred Accounts shall be
invested in NPB Stock; provided, however, when a Member attains age 55 he may
elect to invest his Transferred Account in accordance with subsection 6(c).
(e) Code Requirements. The Plan shall be deemed an amendment to each plan
which merges into this Plan or transfers all accounts to this Plan as of the
Effective Date to the extent necessary for such plan to satisfy applicable
provisions of section 401(a) of the Code which became effective with respect to
such plan on or after January 1, 1997.
16. PARTICIPATION BY RELATED ENTITIES
(a) Commencement. Any entity which is a Related Entity with respect to the
Company may, with the permission of the Board of Directors, elect to adopt this
Plan and the accompanying Trust Agreement. If the Board of Directors designates
a Related Entity as a Participating Company, then it shall be deemed a
Participating Company without the necessity for action by its separate board of
directors.
(b) Termination. The Company may, by action of the Board of Directors,
determine at any time that any such Participating Company shall withdraw and
establish a separate plan and fund. The withdrawal shall be effected by a duly
executed instrument delivered to the Trustee instructing the Trustee to
segregate the assets of the Fund allocable to the Employees of such
Participating Company and pay them over to the separate fund. On the date a
Participating Company ceases to be a Related Entity, its participation in the
Plan shall terminate and Members in its employ shall be treated as having a
Severance Date; however, no affected Member shall be eligible for distribution
of his Accrued Benefit unless the Committee determines that distribution will
not adversely affect the Plan's
60
<PAGE>
qualified status under the Code. Alternatively, the Board of Directors may, but
is not required to, provide for a transfer in accordance with Section 15 of the
Accrued Benefits of affected Members to a separate plan which the former Related
Entity adopts.
(c) Single Plan. The Plan shall at all times be administered and
interpreted as a single plan for the benefit of the Employees of all
Participating Companies.
(d) Delegation of Authority. Each Participating Company, by adopting (or
being deemed to have adopted) the Plan, acknowledges that the Company has all
the rights and duties thereof under the Plan and the Trust Agreement, including
the right to amend the same.
17. TOP-HEAVY REQUIREMENTS
(a) General Rule. For any Plan Year in which the Plan is a top-heavy plan
or included in a top-heavy group, as determined under subsection 17(b), the
special requirements of this Section shall apply.
(b) Calculation of Top-Heavy Status. The Plan shall be a top-heavy plan (if
it is not included in an "aggregation group") or a plan included in a top-heavy
group (if it is included in an "aggregation group") with respect to any Plan
Year if the sum as of the "determination date" of the "cumulative accounts" of
"key employees" for the Plan Year exceeds 60% of a similar sum determined for
all "employees," excluding "employees" who were "key employees" in prior Plan
Years only.
(c) Definitions. For purposes of this Section 17, the following definitions
shall apply to be interpreted in accordance with the provisions of section 416
of the Code and the regulations thereunder.
(i) "Aggregation Group" shall mean the plans of a Participating
Company or a Related Entity included below within the following categories:
61
<PAGE>
(A) each such plan in which a "key employee" is a
participant including a terminated plan in which a "key employee" was a
participant within the five-years ending on the "determination date";
(B) each other such plan which enables any plan in
subsection (A) above to meet the requirements of section 401(a)(4) or 410 of the
Code; and
(C) each other plan not required to be included in the
"aggregation group" which the Company elects to include in the "aggregation
group" in accordance with the "permissive aggregation group" rules of the Code
if such group would continue to meet the requirements of sections 401(a) and 410
of the Code with such plan being taken into account.
(ii) "Cumulative Account" for any "employee" shall mean the sum
of the amount of his accounts under this Plan plus all defined contribution
plans included in the "aggregation group" (if any) as of the most recent
valuation date for each such plan within a twelve-month period ending on the
"determination date," increased by any contributions due after such valuation
date and before the "determination date" plus the present value of his accrued
benefit under all defined benefit pension plans included in the "aggregation
group" (if any) as of the "determination date." For a defined benefit plan, the
present value of the accrued benefit as of any particular "determination date"
shall be the amount determined under (A) the method, if any, that uniformly
applies for accrual purposes under all plans maintained by the Participating
Companies and all Related Entities, or (B) if there is no such method, as if
such benefit accrued not more rapidly than under the slowest accrual rate
permitted under the fractional accrual rule of section 411(b)(1)(C) of the Code,
as of the most recent valuation date for the defined benefit plan, under
actuarial equivalent factors specified therein, which is within a twelve-month
period ending on the "determination date." For this purpose, the valuation date
shall be the date for computing plan costs for
62
<PAGE>
purposes of determining the minimum funding requirement under section 412 of the
Code. "Cumulative accounts" of "employees" who have not performed services for
any Participating Company or a Related Entity for the five-year period ending on
the "determination date" shall be disregarded. An "employee's" "cumulative
account" shall be increased by the aggregate distributions during the five-year
period ending on the "determination date" made with respect to him under any
plan in the aggregation group. Rollovers and direct plan-to-plan transfers to
this Plan or to a plan in the "aggregation group" shall be included in an
"employee's" "cumulative account" unless the transfer is initiated by the
"employee" and made from a plan maintained by an employer which is not a
Participating Company or a Related Entity.
(iii) "Determination Date" shall mean with respect to any Plan
Year the last day of the preceding Plan Year.
(iv) "Employee" shall mean any person (including a beneficiary
thereof) who has or had an accrued benefit held under this Plan or a plan in the
"aggregation group" including this Plan at any time during the current or any
one of the four preceding Plan Years. Any "employee" other than a "key employee"
described in subsection 17(c)(v) shall be considered a "non-key employee" for
purposes of this Section 17.
(v) "Key Employee" shall mean any "employee" or former "employee"
(including a beneficiary thereof) who is, at any time during the Plan Year, or
was, during any one of the four preceding Plan Years any one or more of the
following:
(A) an officer of a Participating Company or a Related
Entity whose compensation (as defined in subsection 5(d)) exceeds 50% of the
dollar limitation in effect under section 415(b)(1)(A) of the Code, unless 50
other such officers (or, if lesser, a number of such officers equal to the
greater of three or 10% of the "employees") have higher annual compensation;
63
<PAGE>
(B) one of the ten persons employed by a Participating
Company or a Related Entity both having annual compensation (as defined in
subsection 5(d)) greater than the limitation in effect under section
415(c)(1)(A) of the Code, and owning (or considered as owning within the meaning
of section 318 of the Code) the largest interests (but at least more than a 0.5%
interest) in the Participating Companies and all Related Entities. For purposes
of this subsection (B), if two "employees" have the same interest, the one with
the greater compensation shall be treated as owning the larger interest;
(C) any person owning (or considered as owning within the
meaning of section 318 of the Code) more than 5% of the outstanding stock of all
Participating Companies or Related Entities or stock possessing more than 5% of
the total combined voting power of such stock;
(D) a person who would be described in subsection (C) above
if 1% were substituted for 5% each place the same appears in subsection (C)
above, and who has annual compensation of more than $150,000. For purposes of
determining ownership under this subsection, section 318(a)(2)(C) of the Code
shall be applied by substituting 5% for 50%.
(d) Combined Benefit Limitation. For purposes of the calculation of the
combined limitation of subsection 5(c), "1.0" shall be substituted for "1.25"
each place the same appears in that subsection.
(e) Vesting. The nonforfeitable portion of a Member's Accrued Benefit
derived from his Matching Account shall continue to vest according to the
schedule set forth in subsection 8(d)(ii).
(f) Minimum Contribution. Minimum Participating Company contributions for a
Member who is not a "key employee" shall be required in an amount equal to the
lesser of 3% of compensation (as defined in subsection 5(d)) or the highest
64
<PAGE>
percentage of such compensation limited to $150,000 (or an increased amount
resulting from a cost of living adjustment under section 415(d) of the Code)
contributed for any "key employee" under subsections 4(a) and 4(d). For purposes
of meeting the minimum contribution requirement, employer social security
contributions and elective contributions on behalf of "employees" other than
"key employees" shall be disregarded. Each "non-key employee" of a Participating
Company who has not separated from service at the end of the Plan Year and who
has satisfied the eligibility requirements of subsection 3(a) shall receive any
minimum contribution provided under this Section 17 without regard to (i)
whether he is credited with 1,000 Hours of Service in the Plan Year, (ii)
earnings level for the Plan Year or (iii) whether he elects to make
contributions under subsection 4(a). If an "employee" participates in both this
Plan and another defined contribution plan maintained by a Participating Company
or a Related Entity, the minimum benefit shall be provided under the other plan.
Furthermore, if an "employee" participates in both this Plan and a defined
benefit plan maintained by a Participating Company or a Related Entity, the
minimum benefit shall be provided under the defined benefit plan.
18. MISCELLANEOUS
(a) Incapacity. If the Committee receives a copy of a certified court
order, or other binding legal certification, that a person entitled to receive
any benefit payment is under a legal disability or is incapacitated in any way
so as to be unable to manage his financial affairs, the Committee shall direct
that payments be made to such person's legally appointed guardian or other
representative. Any payment of a benefit in accordance with the provisions of
this subsection shall be a complete discharge of any liability to make such
payment.
(b) Reversions. In no event, except as provided herein, shall the Trustee
return to a Participating Company any amount contributed by it to the Plan.
65
<PAGE>
(i) Mistake of Fact. In the case of a contribution made by a good
faith mistake of fact, the Trustee shall return the erroneous portion of the
contribution, without increase for investment earnings, but with decrease for
investment losses, if any, within one year after payment of the contribution to
the Fund.
(ii) Deductibility. To the extent deduction of any contribution
determined by the Company to be deductible is disallowed, the Trustee shall
return that portion of the contribution, without increase for investment
earnings but with decrease for investment losses, if any, for which deduction
has been disallowed within one year after the disallowance of the deduction.
(iii) Limitation. No return of contribution shall be made under
this subsection which adversely affects the Plan's qualified status under
regulations, rulings or other published positions of the Internal Revenue
Service or reduces a Member's Accrued Benefit below the amount it would have
been had such contributions not been made.
(iv) Compliance Refunds. This subsection shall not preclude
refunds made in accordance with subsection 4(b)(i), 4(f)(ii), 4(g)(ii) or
4(i)(iii).
(c) Employee Data. The Committee or the Trustee may require that each
Employee provide such data as it deems necessary upon his becoming a Member in
the Plan. Each Employee, upon becoming a Member, shall be deemed to have
approved of and to have acquiesced in each and every provision of the Plan for
himself, his personal representatives, distributees, legatees, assigns, and
beneficiaries.
(d) In Writing Requirement. Unless otherwise required by law, a requirement
that a transaction or consent under the Plan be "in writing" may, at the
discretion of the Committee, be effected through an interactive telephone system
or by other types of electronic communication.
66
<PAGE>
(e) Doubt as to Right to Payment. If at any time any doubt exists as to the
right of any person to any payment under the Plan or the amount or time of such
payment (including, without limitation, any case of doubt as to identity, or any
case in which any notice has been received from any other person claiming any
interest in amounts payable hereunder, or any case in which a claim from other
persons may exist by reason of community property or similar laws), the
Committee may direct the Trustee to hold such sum as a segregated amount in
trust until such right or amount or time is determined or until order of a court
of competent jurisdiction, or to pay such sum into court in accordance with
appropriate rules of law or to make payment only upon receipt of a bond or
similar indemnification (in such amount and in such form as is satisfactory to
the Committee).
(f) Inability to Locate Distributee. Notwithstanding any other provision of
the Plan, if the Committee cannot locate any person to whom a payment is due
under this Plan, the benefit in respect of which such payment is to be made
shall be forfeited at such time as the Committee shall determine in its sole
discretion (but in all events prior to the time such benefit would otherwise
escheat under any applicable state law); provided, that such benefit shall be
reinstated if such person subsequently makes a valid claim for such benefit.
(g) Estoppel of Members and Their Beneficiaries. The Participating
Companies, Committee and Trustee may rely upon any certificate, statement or
other representation made to them by an Employee, Member or beneficiary with
respect to age, length of service, leave of absence, date of cessation of
employment, marital status, or other fact required to be determined under any
other provisions of this Plan, and shall not be liable on account of the payment
of any moneys or the doing of any act in reliance upon any such certificate,
statement or other representation. Any such certificate, statement or other
representation made by an Employee or Member shall be conclusively binding upon
such
67
<PAGE>
Employee or Member and his beneficiary, and such Employee, Member or beneficiary
shall thereafter and forever be estopped from disputing the truth and
correctness of such certificate, statement or other representation. Any such
certificate, statement or other representation made by a Member's beneficiary
shall be conclusively binding upon such beneficiary and such beneficiary shall
thereafter and forever be estopped from disputing the truth and correctness of
such certificate, statement or other representation.
(h) Law Governing. This Plan shall be construed, administered and applied
in a manner consistent with the laws of the Commonwealth of Pennsylvania where
those laws are not superseded by federal law.
(i) Pronouns. The use of the masculine pronoun shall be extended to include
the feminine gender wherever appropriate.
(j) Interpretation. The Plan is a profit sharing plan including a
qualified, tax exempt trust under sections 401(a) and 501(a) of the Code and a
qualified cash or deferred arrangement under section 401(k)(2) of the Code. The
Plan shall be interpreted in a manner consistent with its satisfaction of all
requirements of the Code applicable to such a plan.
IN WITNESS WHEREOF, and as evidence of the adoption of this Plan by the
Company, it has caused the same to be signed by its officers thereunto duly
authorized, and its corporate seal to be affixed hereto, this 23rd day of June,
1999.
NATIONAL PENN BANCSHARES, INC.
Attest:
/s/ Sandra L. Spayd By:/s/ Wayne R. Weidner
- ------------------------ ------------------------
Secretary
(Corporate Seal)
68
<PAGE>
NATIONAL PENN BANCSHARES, INC. CAPITAL ACCUMULATION PLAN
(Amended and Restated Effective January 1, 1997)
Schedule A
(April 1, 1999)
[Intentionally Left Blank]
A-1
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000700733
<NAME> NATIONAL PENN BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 66,270
<INT-BEARING-DEPOSITS> 6,179
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 515,642
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 515,642
<LOANS> 1,499,196
<ALLOWANCE> 31,262
<TOTAL-ASSETS> 2,166,097
<DEPOSITS> 1,545,872
<SHORT-TERM> 156,486
<LIABILITIES-OTHER> 20,300
<LONG-TERM> 288,336
0
0
<COMMON> 115,006
<OTHER-SE> 40,097
<TOTAL-LIABILITIES-AND-EQUITY> 2,166,097
<INTEREST-LOAN> 63,509
<INTEREST-INVEST> 15,088
<INTEREST-OTHER> 463
<INTEREST-TOTAL> 79,060
<INTEREST-DEPOSIT> 27,233
<INTEREST-EXPENSE> 39,329
<INTEREST-INCOME-NET> 39,731
<LOAN-LOSSES> 2,830
<SECURITIES-GAINS> 213
<EXPENSE-OTHER> 31,770
<INCOME-PRETAX> 15,331
<INCOME-PRE-EXTRAORDINARY> 12,516
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,516
<EPS-BASIC> 0.74
<EPS-DILUTED> 0.73
<YIELD-ACTUAL> 4.08
<LOANS-NON> 11,727
<LOANS-PAST> 1,266
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 27,346
<CHARGE-OFFS> 2,776
<RECOVERIES> 373
<ALLOWANCE-CLOSE> 31,262
<ALLOWANCE-DOMESTIC> 29,113
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,149
</TABLE>
