FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-77519-LA
SARATOGA BANCORP
(Exact name of registrant as specified in its charter)
California 94-2817587
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
12000 Saratoga-Sunnyvale Road
Saratoga, California 95070
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408)973-1111
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
NONE NONE
Securities registered pursuant to Section 12 (g) of the Act:
NONE
(Title of class)
Saratoga Bancorp (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, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-
affiliates of Saratoga Bancorp on March 1, 1996 was $6,661,376
As of March 1, 1996, Saratoga Bancorp had 1,030,972 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement is incorporated herein by
reference in Part III, Items 10 through 13.
The Index to Exhibits appears on page 73
Page 1 of 179 pages
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PART 1
Item 1. Business
General
Saratoga Bancorp (the "Company") is a registered bank hold-
ing company whose principal asset (and only subsidiary) is the
common stock of Saratoga National Bank (the "Bank"). The
Company itself does not engage in any business activities other
than the ownership of the Bank and investment of its available
funds. As used herein, the term "Saratoga Bancorp" or the
"Company" includes the subsidiary of the Company unless the
context requires otherwise. The Company was incorporated in
California on December 8, 1981. The Bank commenced operations on
November 8, 1982. The Bank provides a variety of banking
services to businesses, governmental units and individuals. The
Bank conducts a commercial and retail banking business, which
includes accepting demand, savings and time deposits and making
commercial, real estate and consumer loans. It also offers
installment note collections, issues cashier's checks, sells
traveler's checks and provides other customary banking services.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation (the "FDIC") up to the legal limits thereupon. The
Bank does not offer trust services nor international banking
services and does not plan to do so in the near future. At
December 31, 1995, the Company had total assets of approximately
$100 million and total deposits of approximately $75 million.
At December 31, 1995, the Company and the Bank had 24 full-time
equivalent employees.
Most of the Bank's deposits are obtained from the Bank's
primary service area. A material portion of the Bank's deposits
has not been obtained from a single person or group of related
persons, the loss of any one or more of which would have a
materially adverse effect on the business of the Bank, nor is a
material portion of the Bank's loans concentrated within a
single industry or group of related industries, although real
estate construction loans represent approximately 21% of total
loans. Furthermore, the extent to which the business of the
Bank is seasonal is insignificant. The importance of, and risks
attendant to, foreign sources and application of the Bank's
funds is negligible.
For additional information concerning the Company and the
Bank, see Selected Financial Data in Item 6 at page 28.
PAGE
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Supervision and Regulation
The common stock of the Company is subject to the
registration requirements of the Securities Act of 1933, as
amended, and the qualification requirements of the California
Corporate Securities Law of 1968, as amended. The Bank's common
stock, however, is exempt from such requirements. The Company
is also subject to the periodic reporting requirements of
Section 15(d) of the Securities Exchange Act of 1934, as
amended, which include, but are not limited to, filing annual,
quarterly and other current reports with the Securities and
Exchange Commission.
The Bank is chartered under the national banking laws of
the United States of America, and its deposits are insured by
the FDIC. The Bank has no subsidiaries. Consequently, the Bank
is regularly examined by the Office of the Comptroller of the
Currency (the "OCC"), its primary regulator, and is subject to
the supervision of the OCC and the FDIC. Such supervision and
regulation include comprehensive reviews of all major aspects of
the Bank's business and condition, including its capital ratios,
allowance for possible loan losses and other factors. However,
no inference should be drawn that such authorities have approved
any such factors. The Company and the Bank are required to file
reports with the OCC, the FDIC and the Board of Governors of the
Federal Reserve System ("Board of Governors") and provide such
additional information as the OCC, FDIC and the Board of
Governors may require.
The Company is a bank holding company within the meaning of
the Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act"), and is registered as such with, and
subject to the supervision of, the Board of Governors. The
Company is required to obtain the approval of the Board of
Governors before it may acquire all or substantially all of the
assets of any bank, or ownership or control of the voting shares
of any bank if, after giving effect to such acquisition of
shares, the Company would own or control more than 5% of the
voting shares of such bank. The Bank Holding Company Act
prohibits the Company from acquiring any voting shares of, or
interest in, all or substantially all of the assets of, a bank
located outside the State of California unless such an
acquisition is specifically authorized by the laws of the state
in which such bank is located. Any such interstate acquisition
is also subject to the provisions of the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 discussed below.
The OCC regulates the number and locations of the branch offices
of a national bank and may only permit a national bank to
maintain branches in locations and under conditions imposed by
state law upon state banks.
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The Company, and any subsidiaries which it may acquire or
organize, are deemed to be "affiliates" of the Bank within the
meaning of that term as defined in the Federal Reserve Act.
This means, for example, that there are limitations (a) on loans
by the Bank to affiliates, and (b) on investments by the Bank in
affiliates' stock as collateral for loans to any borrower. The
Company and the Bank are also subject to certain restrictions
with respect to engaging in the underwriting, public sale and
distribution of securities.
In addition, regulations of the Board of Governors
promulgated under the Federal Reserve Act require that reserves
be maintained by the Bank in conjunction with any liability of
the Company under any obligation (promissory note,
acknowledgement of advance, banker's acceptance or similar
obligation) with a weighted average maturity of less than seven
(7) years to the extent that the proceeds of such obligations
are used for the purpose of supplying funds to the Bank for use
in its banking business, or to maintain the availability of such
funds.
The Company and the Bank are prohibited from engaging in
certain tie-in arrangements in connection with an extension of
credit, sale or lease of property or furnishing of services.
Section 106(b) of the Bank Holding Company Act Amendments of
1970 generally prohibits a bank from tying a product or service
to another product or service offered by the bank, or by any of
its affiliates. A prohibited tie-in arrangement would exist
where a bank varies the consideration for a product or service
on the condition that the customer obtain some additional
product or service from the bank or from any of its affiliates,
or where as a condition for providing a customer a product or
service, the bank requires the customer to purchase another
product or service from the bank or from any of its affiliates.
These anti-tying restrictions also apply to bank holding
companies and their non-bank subsidiaries as if they were banks.
Section 106 contains a "traditional bank product" exception
permitting a bank to tie a product to a traditional bank product
offered by the bank itself, but not by any affiliated bank or
non-bank. For example, a bank may offer a discount on a loan on
the condition that a customer maintain a deposit account at that
bank, however, the bank may not offer a discount on a loan on
the condition that a customer maintain a deposit account at an
affiliated bank. Effective September 2, 1994, the Board of
Governors adopted a rule permitting a bank or a bank holding
company to offer a discount on a traditional bank product, or on
securities brokerage services to a customer on condition that
the customer obtain a traditional bank product from an
affiliate. Effective January 23, 1995, the Board of Governors
adopted a rule permitting a bank holding company or its non-bank
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subsidiary to offer a discount on its product or service on
condition that a customer obtain any other product or service
from that holding company or from any of its non-bank
affiliates. The rule permits bank holding companies and their
non-bank subsidiaries to offer discounts on packaged products
when no affiliated bank is involved in the arrangement (both the
tying and tied products are offered by bank holding companies or
their non-bank subsidiaries only), and both the tying and tied
products are separately available for purchase at competitive
prices.
The Board of Governors, OCC and the FDIC have adopted risk-based capital
guidelines for evaluating the capital adequacy of bank holding companies
and banks. The guidelines are designed to make capital requirements
sensitive to differences in risk profiles among banking organizations, to
take into account off-balance sheet exposures and to aid in making the
definition of bank capital uniform internationally. Under the guidelines, the
Company and the Bank are required to maintain capital equal to
at least 8.0% of its assets and commitments to extend credit,
weighted by risk, of which at least 4.0% must consist primarily
of common equity (including retained earnings) and the remainder
may consist of subordinated debt, cumulative preferred stock, or
a limited amount of loan loss reserves.
Assets, commitments to extend credit, and off-balance sheet
items are categorized according to risk and certain assets
considered to present less risk than others permit maintenance
of capital at less than the 8% ratio. For example, most home
mortgage loans are placed in a 50% risk category and therefore
require maintenance of capital equal to 4% of such loans, while
commercial loans are placed in a 100% risk category and
therefore require maintenance of capital equal to 8% of such
loans.
The guidelines establish two categories of qualifying
capital: Tier 1 capital comprising core capital elements, and
Tier 2 comprising supplementary capital requirements. At least
one-half of the required capital must be maintained in the form
of Tier 1 capital. Tier 1 capital includes common shareholders'
equity and qualifying perpetual preferred stock. However, no
more than 25% of the Company's total Tier 1 capital may consist
of perpetual preferred stock. The definition of Tier 1 capital
for the Bank is the same, except that perpetual preferred stock
may be included only if it is noncumulative. Tier 2 capital
includes, among other items, limited life (and in the case of
banks, cumulative) preferred stock, mandatory convertible
securities, subordinated debt and a limited amount of reserve
for credit losses.
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The Board of Governors, OCC and the FDIC also adopted
minimum leverage ratios for banking organizations as a
supplement to the risk-weighted capital guidelines. The
leverage ratio is generally calculated using Tier 1 capital (as
defined under risk-based capital guidelines) divided by
quarterly average net total assets (excluding intangible assets
and certain other adjustments). The leverage ratio establishes
a limit on the ability of banking organizations, including the
Company and the Bank, to increase assets and liabilities without
increasing capital proportionately.
The Board of Governors and the OCC emphasized that the
leverage ratio constitutes a minimum requirement for well-run
banking organizations having diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and a composite rating of 1 under the
regulatory rating system for banks and 1 under the regulatory
rating system for bank holding companies. Banking organizations
experiencing or anticipating significant growth, as well as
those organizations which do not exhibit the characteristics of
a strong, well-run banking organization described above, will be
required to maintain minimum capital ranging generally from 100
to 200 basis points in excess of the leverage ratio. The FDIC
adopted a substantially similar leverage ratio for state non-member banks
which established (i) a 3 percent Tier 1 minimum
capital leverage ratio for highly-rated banks (those with a
composite regulatory rating of 1 and not experiencing or
anticipating significant growth); and (ii) a 4 percent Tier 1
minimum capital leverage ratio for all other banks, as a
supplement to the risk-based capital guidelines.
At December 31, 1995, the Bank and the Company are in
compliance with the risk-based capital and leverage ratios
described above. See Item 7 below for a listing of the
Company's risk-based capital ratios at December 31, 1995 and
1994.
During 1995, the Company's primary source of income was
interest income. In the future, the Company also expects to
receive dividends and management fees from the Bank. The Bank's
ability to make such payments is subject to restrictions estab-
lished by federal banking law, and subject to approval by the
OCC. Such approval is required if the total of all dividends
declared by the Bank's Board of Directors in any calendar year
will exceed the Bank's net profits for that year combined with
its retained net profits for the preceding two years, less any
required transfers to surplus or to a fund for the retirement of
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preferred stock. The OCC generally prohibits national banks
from, among other matters, adding the allowance for loan and
lease losses to undivided profits then on hand when calculating
the amount of dividends which may be paid. Additionally, while
the Board of Governors has no general restriction with respect
to the payment of cash dividends by an adequately capitalized
bank to its parent holding company, the Board of Governors, OCC
and/or the FDIC, might, under certain circumstances, place
restrictions on the ability of a particular bank to pay
dividends based upon peer group averages and the performance and
maturity of the particular bank, or object to management fees on
the basis that such fees cannot be supported by the value of the
services rendered or are not the result of an arms length
transaction. The FDIC may also restrict the payment of
dividends if such payment would be deemed unsafe or unsound or
if after the payment of such dividends, the Bank would be
included in one of the "undercapitalized" categories for capital
adequacy purposes pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 See the discussion of
dividends in Item 5 below for additional information regarding
dividends. Under the formulas discussed in Item 5, at
December 31, 1995, approximately $1,681,000 of the Bank's net
profits were available for distribution as dividends without the
necessity of any prior governmental approvals. These net
profits constitute part of the capital of the Bank and sound
banking practices require the maintenance of adequate levels of
capital.
COMPETITION
The banking business in Santa Clara County, as it is
elsewhere in California, is highly competitive, and each of the
major branch banking institutions has one or more offices in the
Bank's service area. The Bank competes in the marketplace for
deposits and loans, principally against these banks, independent
community banks, savings and loan associations, thrift and loan
companies, credit unions, mortgage banking companies, and other
miscellaneous institutions that claim a portion of the market.
Larger banks may have a competitive advantage because of
higher lending limits and major advertising and marketing
campaigns. They also perform services, such as trust services,
international banking, discount brokerage and insurance services
which the Bank is not authorized or prepared to offer currently.
The Bank has made arrangements with its correspondent banks and
with others to provide such services for its customers. For
borrowers requiring loans in excess of the Bank's legal lending
limits, the Bank has offered, and intends to offer in the
future, such loans on a participating basis with its
correspondent banks and with other independent banks, retaining
the portion of such loans which is within its lending limits.
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As of December 31, 1995, the Bank's legal lending limits to a
single borrower and such borrower's related parties were
$1,749,000 based on regulatory capital of $11,658,000.
The Bank's business is concentrated in its service area,
which primarily encompasses Santa Clara County, and also
includes, to a lesser extent, the contiguous areas of Alameda,
San Mateo and Santa Cruz Counties.
In order to compete with the major financial institutions
in its primary service area, the Bank uses to the fullest extent
possible the flexibility which is accorded by its independent
status. This includes an emphasis on specialized services,
local promotional activity, and personal contacts by the Bank's
officers, directors and employees. The Bank also seeks to
provide special services and programs for individuals in its
primary service area who are employed in the agricultural,
professional and business fields, such as loans for equipment,
furniture, tools of the trade or expansion of practices or
businesses. In the event there are customers whose loan demands
exceed the Bank's lending limits, the Bank seeks to arrange for
such loans on a participation basis with other financial
institutions. The Bank also assists those customers requiring
services not offered by the Bank to obtain such services from
correspondent banks.
Banking is a business which depends on interest rate
differentials. In general, the difference between the interest
rate paid by the Bank to obtain its deposits and its other
borrowings and the interest rate received by the Bank on loans
extended to its customers and on securities held in the Bank's
portfolio comprise the major portion of the Bank's earnings.
Commercial banks compete with savings and loan
associations, credit unions, other financial institutions and
other entities for funds. For instance, yields on corporate and
government debt securities and other commercial paper affect the
ability of commercial banks to attract and hold deposits.
Commercial banks also compete for loans with savings and loan
associations, credit unions, consumer finance companies,
mortgage companies and other lending institutions.
The interest rate differentials of the Bank, and therefore
its earnings, are affected not only by general economic
conditions, both domestic and foreign, but also by the monetary
and fiscal policies of the United States as set by statutes and
as implemented by federal agencies, particularly the Federal
Reserve Board. This agency can and does implement national
monetary policy, such as seeking to curb inflation and combat
recession, by its open market operations in United States
<PAGE>
government securities, adjustments in the amount of interest
free reserves that banks and other financial institutions are
required to maintain, and adjustments to the discount rates
applicable to borrowing by banks from the Federal Reserve Board.
These activities influence the growth of bank loans, investments
and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and timing of any future changes
in monetary policies and their impact on the Bank can't be
predicted.
California law and regulations of the California State
Superintendent of Banks ("the Superintendent") authorize
California licensed banks, subject to applicable limitations and
approvals of the Superintendent to (1) provide real estate
appraisal services, management consulting and advice services,
and electronic data processing services; (2) engage directly in
real property investment or acquire and hold voting stock of one
or more corporations, the primary activities of which are
engaging in real property investment; (3) organize, sponsor,
operate or render investment advice to an investment company or
to underwrite, distribute or sell securities in California; and
(4) invest in the capital stock, obligations or other securities
of corporations not acting as insurance companies, insurance
agents or insurance brokers. In November 1988, Proposition 103
was adopted by California voters. The Superintendent has
established certain procedures to be followed by banks desiring
to engage in insurance activities which include filing a report
describing (1) a proposed business plan and information
regarding the types of insurance products intended to be
offered; (2) insurance companies with which the banks intend to
conduct business; (3) organization plans; (4) locations at
which activities will be conducted; and (5) proposed operational
and compliance procedures and policies. The California
Department of Insurance regulates application processing,
licensing and supervision of insurance activities. National
banks (whether a holding company subsidiary or not) are limited
under applicable provisions of the National Bank Act to acting
as an agent for fire, life or other insurance only in locations
with a population of 5,000 or less. In recent years, banks and
bank holding companies have increasingly sought authorization to
expand their product base to include insurance activities. The
Federal Deposit Insurance Corporation Improvement Act of 1991
discussed below, generally restricts an insured state bank from
engaging as a principal in any activity that is impermissible
for a national bank. On January 18, 1995, the United States
Supreme Court unanimously upheld a ruling by the OCC that
permitted sale of fixed and variable annuities by a national
bank and confirmed the authority of the OCC to interpret the
powers of national banks under the National Bank Act. The OCC
determined that annuities are not insurance products, but rather
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a type of investment instrument and that the sale of annuities
is incidental to the business of banking. It is not certain
what impact the decision will have upon the continuing effort of
banks and bank holding companies to engage in insurance related
activities.
The Caldera, Weggeland and Killea California Interstate
Banking and Branching Act of 1995, effective October 2, 1995,
amends the California Financial Code to, among other matters,
regulate the operations of state banks to eliminate conflicts
with and to implement the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 discussed below. The Caldera
Act includes (1) an election to permit early interstate merger
transactions; (2) a prohibition against interstate branching
through the acquisition of a branch business unit located in
California without acquisition of the whole business unit of the
California bank; and (3) a prohibition against interstate
branching through de novo establishment of California branch
offices. The Caldera Act mandates that initial entry into
California by an out-of-state institution be accomplished by
acquisition of or merger with an existing whole bank which has
been in existence for at least five years.
The State Bank Parity Act, effective January 1, 1996,
eliminates certain existing disparities between California state
chartered banks and federally chartered national banks by
authorizing the Superintendent to address such disparities
through a streamlined rulemaking process. The Superintendent
has taken action pursuant to the Parity Act to, among other
matters, authorize previously impermissible share repurchases by
state banks, subject to the prior approval of the
Superintendent.
The Competitive Equality Banking Act of 1987 (the "1987
Banking Act") also has affected the balance of competition among
banks and other non-bank financial institutions. Among other
things, the 1987 Banking Act has restricted the growth and
formation of so-called "limited service" or "non-bank" banks
(institutions which accept deposits or make commercial loans,
but do not do both). Other key provisions of the 1987 Banking
Act included: (1) the expansion of the FDIC's authority in
arranging supervisory interstate acquisitions and acquisitions
of failing banks; (2) the renewal of emergency acquisition
authorities; (3) the exemption of assessment income of federal
banking agencies from budget restrictions imposed by the Office
of Management and Budget and from the budget balancing
requirements of the Gramm-Rudman-Hollings Act; (4) a moratorium
(which ended on March 1, 1988), prohibiting commercial banks
from engaging in insurance or securities activities not approved
prior to March 5, 1987; (5) the application of the Glass-
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Steagall Act to state-chartered banks, prohibiting affiliations
with companies principally engaged in securities activities; and
(6) new check hold schedules which were implemented on September
1, 1990.
On August 9, 1989, President Bush signed into law the
Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"). The FIRREA contains provisions' which among
other things: (1) established two separate financial industry
insurance funds, both administered by the FDIC - the Bank
Insurance Fund and the Savings Association Insurance Fund; (2)
abolished the Federal Home Loan Bank Board and the Federal
Savings and Loan Insurance Corporation and established the
Office of Thrift Supervision as an office of the Treasury
Department, with responsibility for examination and supervision
of all savings and loan associations; (3) increased the premiums
paid by FDIC-insured institutions; (4) permitted bank holding
companies to acquire healthy savings and loan associations; (5)
enhanced federal banking agencies' enforcement authority over
the operations of all insured depository institutions and
increased the civil and criminal penalties that may be imposed
in connection with violations of laws and regulations; (6)
curtailed investments and certain other activities of state-chartered
savings and loan associations; and (7) increased the
capital requirements of savings and loan associations.
On December 19, 1991, President Bush signed the Federal
Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). The FDICIA substantially revises banking
regulations, certain aspects of the Federal Deposit Insurance
Act and establishes a framework for determination of capital
adequacy of financial institutions, among other matters. Under
the FDICIA, financial institutions are placed into five capital
adequacy categories as follows: (1) well capitalized, (2)
adequately capitalized, (3) undercapitalized, (4) significantly
undercapitalized, and (5) critically undercapitalized. The
FDICIA authorized the Board of Governors, the OCC and FDIC to
establish limits below which financial institutions will be
deemed critically undercapitalized, provided that such limits
can not be less than two percent (2%) of the ratio of tangible
equity to total assets or sixty-five percent (65%) of the
minimum leverage ratio established by regulation. Financial
institutions classified as undercapitalized or below are subject
to limitations including restrictions related to (i) growth of
assets, (ii) payment of interest on subordinated indebtedness,
(iii) capital distributions, and (iv) payment of management fees
to a parent holding company.
The FDICIA requires the Board of Governors, OCC and FDIC to
initiate corrective action regarding financial institutions
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which fail to meet minimum capital requirements. Such action
may result in orders to augment capital such as through sale of
voting stock, reduction in total assets, and restrictions
related to correspondent bank deposits. Critically
undercapitalized financial institutions may also be subject to
appointment of a receiver or conservator unless the financial
institution submits an adequate capitalization plan.
The FDIC adopted a regulation pursuant to Section 302(a) of
the FDICIA, effective on November 2, 1992, amending its
regulations on insurance assessments to, among other matters,
adopt a recapitalization schedule for the Bank Insurance Fund
and establish a transitional risk-based insurance assessment
system to replace the uniform assessment rate system previously
applicable to insured financial institution members of the Bank
Insurance Fund. The regulation required that each insured
institution be assigned to one of three capital groups and one
of three supervisory subgroups within each capital group, based
upon financial data reported by each institution in it's Report
of Income and Condition, as well as supervisory evaluations by
the institution's primary federal regulatory agency. The three
capital groups have the following characteristics: (1) "Well
capitalized" - consisting of institutions having a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based
capital ratio of 6% or greater, and a Tier 1 leverage ratio of
5% or greater; (2) "Adequately capitalized" - consisting of
institutions that are not "well capitalized," but have a total
risk-based capital ratio of 8% or greater, a Tier 1 risk-based
capital ratio of 4% or greater, and a Tier 1 leverage ratio of
4% or greater; and (3) "Undercapitalized" - consisting of
institutions that do not qualify as either "well capitalized" or
"adequately capitalized". The three supervisory subgroups have
the following characteristics: (A) Subgroup "A" - consisting of
financially sound institutions with only a few minor weaknesses;
(B) Subgroup "B" - consisting of institutions that demonstrate
deterioration of the institution and increased risk of loss to
the Bank Insurance Fund; and (C) Subgroup "C" - consisting of
institutions that pose a substantial probability of loss to the
Bank Insurance Fund unless effective corrective action is taken.
The annual assessment rate for each insured institution
continued at the rate of $0.23 per $100 of deposits through
year-end December 31, 1992. Commencing January 1, 1993, the
assessment rate was based upon a risk assessment schedule with
rates ranging from $0.23 to $0.31 per $100 of deposits utilizing
the capital group and supervisory subgroup analysis. On June
25, 1993, the FDIC adopted a permanent risk-based insurance
assessment system which retained the transitional system without
substantial modification. In late 1994 and early 1995, the FDIC
proposed two significant changes to the deposit insurance
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assessment system to (1) redefine the deposit assessment base
which has been defined to equal an institution's total domestic
deposits, plus or minus certain adjustments, but without
significantly impacting total industry-wide assessments
(although significant changes in assessments of individual
institutions may occur); and (2) establish a new assessment rate
schedule, using the present group and subgroup categories, but
with assessment rates varying from $0.04 to $0.31 per $100 of
deposits, resulting in a spread between the minimum and maximum
rates of $0.27 rather than $0.08. On August 8, 1995, the FDIC
voted to reduce the deposit insurance assessment rates to a
range from $0.04 to $0.31 per $100 of deposits and subsequently,
on November 14, 1995, the FDIC voted again to further reduce the
assessment rates to a range from $0 to $0.27 per $100 of
deposits, subject to a minimum $2,000 annual assessment for all
institutions regardless of classification within the capital
groups and supervisory subgroups as follows:
Supervisory Subgroup
A B C
Capital Group
1 $0.00 $0.03 $0.17
2 .03 .10 .24
3 .10 .24 .27
The above assessment rates are effective for the first
semiannual assessment period of 1996. Based upon the above
risk-based assessment rate schedule, the Company's and Bank's
current capital ratios, the Bank's current level of deposits,
and assuming no change in the assessment rate applicable to the
Bank during 1996, the Company estimates that its annual
noninterest expense attributed to assessments will decrease by
approximately $78,000 during 1996.
The Board of Governors, OCC and FDIC adopted regulations
effective December 19, 1992, implementing a system of prompt
corrective action pursuant to Section 38 of the Federal Deposit
Insurance Act and Section 131 of the FDICIA. The regulations
establish five capital categories with the following
characteristics: (1) "Well capitalized" - consisting of
institutions with a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater and
a leverage ratio of 5% or greater, and the institution is not
subject to an order, written agreement, capital directive or
prompt corrective action directive; (2) "Adequately capitalized"
- consisting of institutions with a total risk-based capital
ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4%
or greater and a leverage ratio of 4% or greater, and the
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institution does not meet the definition of a "well capitalized"
institution; (3) "Undercapitalized" - consisting of institutions
with a total risk-based capital ratio less than 8%, a Tier 1
risk-based capital ratio of less than 4%, or a leverage ratio of
less than 4%; (4) "Significantly undercapitalized" - consisting
of institutions with a total risk-based capital ratio of less
than 6%, a Tier 1 risk-based capital ratio of less than 3%, or
a leverage ratio of less than 3%; (5) "Critically
undercapitalized" - consisting of an institution with a ratio of
tangible equity to total assets that is equal to or less than
2%.
The regulations established procedures for classification
of financial institutions within the capital categories, filing
and reviewing capital restoration plans required under the
regulations and procedures for issuance of directives by the
appropriate regulatory agency, among other matters. The
regulations impose restrictions upon all institutions to refrain
from certain actions which would cause an institution to be
classified within any one of the three "undercapitalized"
categories, such as declaration of dividends or other capital
distributions or payment of management fees, if following the
distribution or payment the institution would be classified
within one of the "undercapitalized" categories. In addition,
institutions which are classified in one of the three
"undercapitalized" categories are subject to certain mandatory
and discretionary supervisory actions. Mandatory supervisory
actions include (1) increased monitoring and review by the
appropriate federal banking agency; (2) implementation of a
capital restoration plan; (3) total asset growth restrictions;
and (4) limitation upon acquisitions, branch expansion, and new
business activities without prior approval of the appropriate
federal banking agency. Discretionary supervisory actions may
include (1) requirements to augment capital; (2) restrictions
upon affiliate transactions; (3) restrictions upon deposit
gathering activities and interest rates paid; (4) replacement of
senior executive officers and directors; (5) restrictions upon
activities of the institution and its affiliates; (6) requiring
divestiture or sale of the institution; and (7) any other
supervisory action that the appropriate federal banking agency
determines is necessary to further the purposes of the
regulations. Further, the federal banking agencies may not
accept a capital restoration plan without determining, among
other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository
institution's capital. In addition, for a capital restoration
plan to be acceptable, the depository institution's parent
holding company must guarantee that the institution will comply
with such capital restoration plan. The aggregate liability of
the parent holding company under the guaranty is limited to the
<PAGE>
lesser of (i) an amount equal to 5 percent of the depository
institution's total assets at the time it became
undercapitalized, and (ii) the amount that is necessary (or
would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to
such institution as of the time it fails to comply with the
plan. If a depository institution fails to submit an acceptable
plan, it is treated as if it were "significantly
undercapitalized." The FDICIA also restricts the solicitation
and acceptance of and interest rates payable on brokered
deposits by insured depository institutions that are not "well
capitalized." An "undercapitalized" institution is not allowed
to solicit deposits by offering rates of interest that are
significantly higher than the prevailing rates of interest on
insured deposits in the particular institution's normal market
areas or in the market areas in which such deposits would
otherwise be accepted.
Any financial institution which is classified as
"critically undercapitalized" must be placed in conservatorship
or receivership within 90 days of such determination unless it
is also determined that some other course of action would better
serve the purposes of the regulations. Critically
undercapitalized institutions are also prohibited from making
(but not accruing) any payment of principal or interest on
subordinated debt without the prior approval of the FDIC and the
FDIC must prohibit a critically undercapitalized institution
from taking certain other actions without its prior approval,
including (1) entering into any material transaction other than
in the usual course of business, including investment expansion,
acquisition, sale of assets or other similar actions; (2)
extending credit for any highly leveraged transaction; (3)
amending articles or bylaws unless required to do so to comply
with any law, regulation or order; (4) making any material
change in accounting methods; (5) engaging in certain affiliate
transactions; (6) paying excessive compensation or bonuses; and
(7) paying interest on new or renewed liabilities at rates which
would increase the weighted average costs of funds beyond
prevailing rates in the institution's normal market areas.
The capital ratio requirements for the "adequately
capitalized" category generally are the same as the existing
minimum risk-based capital ratios applicable to the Company and
the Bank. It is not possible to predict what effect the prompt
corrective action regulation will have upon the Company and the
Bank or the banking industry taken as a whole in the foreseeable
future.
Under the FDICIA, the federal financial institution
agencies have adopted regulations which require institutions to
<PAGE>
establish and maintain comprehensive written real estate
policies which address certain lending considerations, including
loan-to-value limits, loan administrative policies, portfolio
diversification standards, and documentation, approval and
reporting requirements. The FDICIA further generally prohibits
an insured state bank from engaging as a principal in any
activity that is impermissible for a national bank, absent FDIC
determination that the activity would not pose a significant
risk to the Bank Insurance Fund, and that the bank is, and will
continue to be, within applicable capital standards. Similar
restrictions apply to subsidiaries of insured state banks. The
Company does not currently intend to engage in any activities
which would be restricted or prohibited under the FDICIA.
As required by the FDICIA, the federal financial
institution agencies solicited comments in September 1993 on a
method of incorporating an interest rate risk component into the
current risk-based capital guidelines, with the goal of ensuring
that institutions with high levels of interest rate risk have
sufficient capital to cover their exposures. Interest rate risk
is the risk that changes in market interest rates might
adversely affect a bank's financial condition. Under the
proposal, interest rate risk exposures would be quantified by
weighing assets, liabilities and off-balance sheet items by risk
factors which approximate sensitivity to interest rate
fluctuations. As proposed, institutions identified as having an
interest rate risk exposure greater than a defined threshold
would be required to allocate additional capital to support this
higher risk. Higher individual capital allocations could be
required by the bank regulators based on supervisory concerns.
The agencies adopted a final rule effective September 1, 1995
which is substantially similar to the proposed rule, except that
the final rule does not establish (1) a measurement framework
for assessing the level of a bank's interest rate exposure; nor
(2) a minimum level of exposure above which a bank will be
required to hold additional capital for interest rate risk if it
has a significant exposure or a weak interest rate risk
management process. The agencies also solicited comments on and
are continuing their analysis of a proposed policy statement
which would establish a framework to measure and monitor
interest rate exposure.
The federal financial institution agencies published a
final rule on July 10, 1995 to be effective on August 9, 1995,
implementing safety and soundness standards. The FDICIA added
a new Section 39 to the Federal Deposit Insurance Act which
required the agencies to establish safety and soundness
standards for insured financial institutions covering (1)
internal controls, information systems and internal audit
systems; (2) loan documentation; (3) credit underwriting; (4)
<PAGE>
interest rate exposure; (5) asset growth; (6) compensation, fees
and benefits; (7) asset quality, earnings and stock valuation;
and (8) excessive compensation for executive officers, directors
or principal shareholders which could lead to material financial
loss. The agencies issued the final rule in the form of
guidelines only for operational, managerial and compensation
standards and reissued for comment proposed standards related to
asset quality and earnings which are less restrictive than the
earlier proposal in November 1993. Unlike the earlier proposal,
the guidelines under the final rule do not apply to depository
institution holding companies and the stock valuation standard
was eliminated. If an agency determines that an institution
fails to meet any standard established by the guidelines, the
agency may require the financial institution to submit to the
agency an acceptable plan to achieve compliance with the
standard. If the agency requires submission of a compliance
plan and the institution fails to timely submit an acceptable
plan or to implement an accepted plan, the agency must require
the institution to correct the deficiency. Under the final
rule, an institution must file a compliance plan within 30 days
of a request to do so from the institution's primary federal
regulatory agency. The agencies may elect to initiate
enforcement action in certain cases rather than rely on an
existing plan particularly where failure to meet one or more of
the standards could threaten the safe and sound operation of the
institution.
The Board of Governors issued final amendments to its risk-based capital
guidelines to be effective December 31, 1994,
requiring that net unrealized holding gains and losses on
securities available for sale determined in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," are not to be included in the Tier 1 capital
component consisting of common stockholders' equity. Net
unrealized losses on marketable equity securities (equity
securities with a readily determinable fair value), however,
will continue to be deducted from Tier 1 capital. This rule has
the general effect of valuing available for sale securities at
amortized cost (based on historical cost) rather than at fair
value (generally at market value) for purposes of calculating
the risk-based and leverage capital ratios.
On December 13, 1994, the Board of Governors issued
amendments to its risk-based capital guidelines regarding
concentration of credit risk and risks of non-traditional
activities, which were effective January 17, 1995. As amended,
the risk-based capital guidelines identify concentrations of
credit risk and evaluate an institution's ability to manage such
risks and the risk posed by non-traditional activities as
important factors in assessing an institution's overall capital
adequacy.
<PAGE>
Since 1986, California has permitted California banks and
bank holding companies to be acquired by banking organizations
based in other states on a "reciprocal" basis (i.e., provided
the other state's laws permit California banking organizations
to acquire banking organizations in that state on substantially
the same terms and conditions applicable to local banking
organizations). Some increase in merger and acquisition
activity among California and out-of-state banking organizations
has occurred as a result of this law, as well as increased
competition for loans and deposits.
President Clinton signed the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Interstate Banking
Act") on September 29, 1994. The Interstate Banking Act
authorizes the Board of Governors to approve interstate
acquisitions of banks or bank branch offices, generally without
regard to conflicting requirements of state law, by adequately
capitalized and managed bank holding companies, after September
29, 1995, and authorizes the other federal banking agencies to
approve similar acquisitions by banks after June 1, 1997, unless
prior to that date states enact laws prohibiting such
acquisitions. Such so-called "opt out" measures are pending or
have been passed in a number of states. States also may "opt
in" to this authority at an earlier date if they enact laws
specifically permitting such acquisitions. After March 29,
1996, the Interstate Banking Act authorizes the appropriate
federal agency to approve the consolidation of banks located in
different states but operated by the same bank holding company.
The Interstate Banking Act imposes several limitations on
the Board of Governors' general authority to approve such
acquisitions including (1) preservation of state laws requiring
acquisition target banks to have been chartered for minimum time
periods not in excess of five years; (2) precluding acquisitions
which would result in a concentration of deposits greater than
10% of total United States deposits, or 30% of total deposits in
the state in which the acquired bank or branch office is
located, subject to a state's right to either increase or
decrease the 30% threshold and, in the absence of legislation,
the right of a state banking regulatory agency to approve a
transaction under certain circumstances; (3) Board of Governors'
assessment of compliance with antitrust and community
reinvestment laws, including a separate community reinvestment
act analysis for each state in which a multi-state banking
operation approved under the Interstate Banking Act exists; and
(4) maintenance of state contingency laws requiring a bank
acquisition target to maintain assets available for call by
state-sponsored housing entities established under state law,
<PAGE>
provided (i) the state law does not discriminate against out-of-state
banks, holding companies or their subsidiaries, (ii) the
state law was in effect at the enactment date of the Interstate
Banking Act, (iii) the FDIC has not determined that compliance
with the state law would result in an unacceptable risk to the
deposit insurance fund, and (iv) compliance with the state law
would not place the bank in an unsafe or unsound condition.
The federal banking agencies are required to adopt
regulations effective June 1, 1997 which prohibit any out-of-state bank
from using the interstate branching authority
primarily for the purpose of deposit production. Such
regulations will require the appropriate federal agency of an
out-of-state bank or bank holding company to review such bank's
operations in the host state in order to determine whether it is
meeting the credit needs of the host state communities in which
it operates, whenever it determines that such bank's ratio of
loans to deposits in the host state is less than one-half the
average of the total loans to total deposits for banks domiciled
in the host state. If the agency reaches a negative conclusion,
it is authorized to restrict the opening of new branch offices
and to order the closure of the host state branch offices of the
out-of-state bank. Before an agency may exercise authority to
close such a branch office or offices, the Interstate Banking
Act requires that it notify the bank and schedule a hearing.
Banks which determine to close branches located in low or
moderate income areas acquired under the Interstate Banking Act
must notify their customers how to contact the appropriate
federal agency to complain about the closing. If the agency
determines that any such complaint is not frivolous, it must
convene a meeting of concerned organizations and individuals to
explore the feasibility of adequate alternative sources of
banking services for the affected communities.
In October 1994, the federal financial institution
regulatory agencies jointly proposed a comprehensive revision of
their regulations implementing the Community Reinvestment Act
("CRA"), enacted in 1977 to promote lending by financial
institutions to individuals and businesses located in low and
moderate income areas. In May 1995, the proposed CRA
regulations were published in final form effective as of July 1,
1995. The revised regulations included transitional phase-in
provisions which generally reguire mandatory compliance not
later than July 1, 1997, although earlier voluntary compliance
is permissible.
Under the former CRA regulations, compliance was evaluated
by an assessment of the institution's methods for determining,
and efforts to meet, the credit needs of such borrowers. This
system was highly criticized by depository institutions and
<PAGE>
their trade groups as subjective, inconsistent and burdensome,
and by consumer representatives for its alleged failure to
aggressively penalize poor CRA performance by financial
institutions. The revised CRA regulations emphasize an
assessment of actual performance rather than of the procedures
followed by a bank, to evaluate compliance with the CRA.
Overall CRA compliance continues to be rated across a four-point
scale from "outstanding" to "substantial noncompliance," and
continues to be a factor in review of applications to merge,
establish new branches or form bank holding companies. In
addition, any bank rated in "substantial noncompliance" with the
revised CRA regulations may be subject to enforcement
proceedings.
The regulations provide that "small banks," which are
defined to include any independent bank with total assets of
less than $250 million, are to be evaluated by means of a so-called
"streamlined assessment method" unless such a bank elects
to be evaluated by one of the other methods provided in the
regulations. The differences between the evaluation methods may
be summarized as follows:
(1) The "streamlined assessment method" presumptively
applicable to small banks requires that a bank's CRA compliance
be evaluated pursuant to five "assessment criteria," including
its (i) loan-to-deposit ratio (as adjusted for seasonal
variations and other lending-related activities, such as sales
to the secondary market or community development lending); (ii)
percentage of loans and other lending-related activities in the
bank's service area(s); (iii) distribution of loans and other
lending-related activities among borrowers of different income
levels, given the demographic characteristics of its service
area(s); (iv) geographic distribution of loans and other
lending-related activities within its service area(s); and (v)
record of response to written complaints, if any, about its CRA
performance.
(2) The "lending, investments and service tests
method" is applicable to all banks larger than $250 million
which are not wholesale or limited purpose banks and do not
elect to be evaluated by the "strategic plan assessment method."
Central to this method is the requirement that such banks
collect and report to their primary federal banking regulators
detailed information regarding home mortgage, small business and
farm and community development loans which is then used to
evaluate CRA compliance. At the bank's option, data regarding
consumer loans and any other loan distribution it may choose to
provide also may be collected and reported.
Using such data, a bank will be evaluated regarding its (I)
<PAGE>
lending performance according to the geographic distribution of
its loans, the characteristics of its borrowers, the number and
complexity of its community development loans, the
innovativeness or flexibility of its lending practices to meet
low and moderate income credit needs and, at the bank's
election, lending by affiliates or through consortia or third-parties
in which the bank has an investment interest; (ii)
investment performance by measure of the bank's "qualified
investments," that is, the extent to which the bank's
investments, deposits, membership shares in a credit union, or
grants primarily benefit low or moderate income individuals and
small businesses and farms, address affordable housing or other
needs not met by the private market, or assist any minority or
women-owned depository institution by donating, selling on
favorable terms or providing on a rent-free basis any branch of
the bank located in a predominantly minority neighborhood; and
(iii) service performance by evaluating the demographic
distribution of the bank's branches and ATMs, its record of
opening and closing them, the availability of alternative retail
delivery systems (such as telephone banking, banking by mail or
at work, and mobile facilities) in low and moderate income
geographies and to low and moderate income individuals, and
(given the characteristics of the bank's service areas and its
capacity and constraints) the extent to which the bank provides
"community development services" (services which primarily
benefit low and moderate income individuals or small farms and
businesses or address affordable housing needs not met by the
private market) and their innovativeness and responsiveness.
(3) Wholesale or limited purpose banks which do not
make home mortgage, small farm or business or consumer loans to
retail customers may elect, subject to agency approval of their
status, to be evaluated by the "community development test
method," which assesses the number and amount of the bank's
community development loans, qualified investments and community
development services and their innovativeness and complexity.
(4) Any bank may request to be evaluated by the
"strategic plan assessment method" by submitting a strategic
plan for review and approval. Such a plan must involve public
participation in its preparation, and contain measurable goals
for meeting low and moderate income credit needs through
lending, investments and provision of services. Such plans
generally will be evaluated by measuring strategic plan goals
against standards similar to those which will be applied in
evaluating a bank according to the "lending, investments and
service tests method."
The federal financial institution regulatory agencies
jointly issued a final rule effective as of January 1, 1996 to
<PAGE>
make certain technical corrections to the revised CRA
regulations. Among other matters, the rule clarifies the
transition from the former CRA regulations to the revised CRA
regulations by confirming that when an institution either
voluntarily or mandatorily becomes subject to the performance
tests and standards of the revised regulations, the institution
must comply with all of the requirements of the revised
regulations and is no longer subject to the provisions of the
former CRA regulations.
The Bank has a current rating of "satisfactory" CRA
compliance, and believes that it would not have received any
lower rating if the regulations had been in effect when the Bank
was last examined for CRA compliance on October 24, 1994.
The United States Congress has periodically considered
legislation which could result in further deregulation of banks
and other financial institutions. Such legislation could result
in further relaxation or elimination of geographic restrictions
on banks and bank holding companies and increase the level of
direct competition with other financial institutions, including
mutual funds, securities brokerage firms, investment banking
firms and other entities. The effect of such legislation on the
Company and the Bank cannot be determined at this time.
Accounting Pronouncements
In December, 1991, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial
Instruments." SFAS No. 107 requires entities such as the
Company to disclose, either in the body of its financial
statements or in accompanying notes, the "fair value" of
financial instruments for which it is "practicable to estimate
that value." Most deposit and loan instruments issued by
financial institutions, however, are subject to SFAS No. 107,
and its effect on the Company is to require financial statement
disclosure, in addition to their carrying value, of the fair
value of most of the assets and liabilities of the Company.
These disclosures apply to off-balance sheet financial
instruments as well as those recorded on the balance sheet.
Excluded from the disclosure requirement, among other types of
instruments, are most employee benefit plan obligations,
insurance contracts, leases, warranties, minority and equity
interests in consolidated subsidiaries, and other investments
accounted for under the equity method. The provisions of SFAS
107 are effective for the Company as of December 31, 1992.
In November, 1992, the FASB issued SFAS No. 112,
"Accounting for Postemployment Benefits", which requires the
<PAGE>
accrual of postemployment benefits, such as the continuation of
health care benefits and life insurance coverage. SFAS No. 112
is effective for fiscal years beginning after December 15, 1993.
Neither the Company nor the Bank currently offer postemployment
benefits to its employees and therefore the implementation of
SFAS No. 112 is not applicable to the Company and the Bank.
In May, 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." This standard was further
modified by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan----Income Recognition and Disclosures."
SFAS Nos. 114 and 118 are effective for the Company as of
January 1, 1995. They require the Company to measure impaired
loans based upon the present value of expected future cash flows
discounted at the loan's effective interest rate, except that as
a practical expedient, a creditor may measure impairment based
on a loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is
impaired when, based upon current information and events, it is
probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement.
Application of the provisions of these statements did not have
a significant effect on the Company's financial position or
results of operations.
Also in May, 1993, the FASB issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 requires the Company to classify debt
and equity securities, which include substantially all of the
Company's investment portfolio, into one of three categories:
held-to-maturity, trading, or available-for-sale. Investments
in debt securities shall be classified as held-to-maturity and
measured at amortized cost only if the Company has the positive
intent and ability to hold such securities to maturity. This
methodology is consistent with the Company's current accounting
practices for its investment securities. All other investments
may be classified as either trading securities, which are bought
and held principally for the purpose of selling them in the near
term and are carried at market value with a corresponding
recognition of the unrealized holding gain or loss in results of
operations, or as available-for-sale securities, which are all
other securities and are carried at market value with a
corresponding recognition of the unrealized holding gain or loss
as a net amount in a separate component of stockholders' equity
until realized. The provisions of SFAS No. 115 are effective as
of January 1, 1994. At December 31, 1995, neither the Company
nor the Bank held investments that meet the definition of
trading securities under SFAS No. 115.
In October, 1994, the FASB issued SFAS No. 119, "Disclosure
<PAGE>
about Derivative Financial Instruments and Fair Value of
Financial Instruments." The Company adopted SFAS No. 119 as of
December 31, 1994. SFAS No. 119 requires disclosures about
derivative financial instruments----futures, forward, swap, and
option contracts, and other financial instruments with similar
characteristics. It requires disclosures about amounts, nature,
and terms of derivative financial instruments that are not
subject to SFAS No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk", because they do
not result in off-balance-sheet risk of accounting loss. This
statement requires disaggregation of information about financial
instruments with off-balance-sheet risk of accounting loss by
class, business activity, risk, or other category that is
consistent with the management of those instruments. It also
requires that fair value information be presented without
combining, aggregating, or netting the fair value of derivative
financial instruments with the fair value of nonderivative
financial instruments. As of December 31, 1995, the Company has
no derivative financial instruments that would be subject to
such disclosures.
In October, 1995, the FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 establishes
accounting and disclosure requirements using a fair value method
of accounting for stock based employee compensation plans.
Under SFAS No. 123, the Company may either adopt the new fair
value based accounting method or continue the intrinsic value
based method and provide proforma disclosures of net income and
earnings per share as if the accounting provisions of SFAS No.
123 had been adopted. The provisions of SFAS No. 123 became
effective January 1, 1996. The Company adopted only the
disclosure requirements of SFAS No. 123 and such adoption will
have no effect on the Company's consolidated net earnings or
cash flows.
Item 2. Properties
As of December 31, 1995, the bank had three banking offices
located in Santa Clara County. The first banking office, which
is owned by the Bank, is also the principal executive office of
the Company, and is located at 12000 Saratoga-Sunnyvale Road,
Saratoga, California, comprising approximately 5,500 square
feet. The office was purchased by the Company in 1988 for
$1,800,000. The foregoing description of the office and
purchase of the office is qualified by reference to the
Agreement of Purchase and Sale dated July 27, 1988 attached as
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988, filed with the Securities and
Exchange Commission on March 27, 1989.
<PAGE>
The second banking facility, which is located at 15405 Los Gatos
Blvd., Suite 103, Los Gatos, California, was opened March 9,
1988. The 3,082 square foot facility is leased under a
noncancellable operating lease which expires in 1998. Current
lease payments are $5,931 per month for the building and ground
lease. Effective January, 1993, the lease was tied to the
Consumer Price Index with increases to range between 4 and 8
percent per year. The foregoing description of the lease is
qualified by reference to the lease agreement dated October 19,
1987 attached as Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1987, filed with the
Securities and Exchange Commission on March 31, 1988.
On October 3, 1989, the Company opened a third banking facility
located at 160 West Santa Clara Street, in San Jose, California.
The lease agreement for the 7,250 square foot location in the
downtown area of San Jose is under a noncancellable operating
lease which expires in 1999. Current lease payments are $10,974
per month for the ground floor and $4,036 for the second floor.
The lease payments for the ground floor will increase over the
lease term to $10,989 per month in 1999. The lease payments for
the second floor are tied to the Consumer Price Index with the
increase not to exceed 4% per year. The foregoing description
of the lease is qualified by reference to the lease agreement
dated January 17, 1989 attached as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989,
filed with the Securities and Exchange Commission on March 27,
1990.
Item 3. Legal Proceedings
Neither the Company nor the Bank is a party to, nor is any of
their property the subject of, any material pending legal
proceedings other than ordinary routine litigation incidental to
their respective businesses nor are any such proceedings known
to be contemplated by governmental authorities.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters.
There is limited trading in and no established public
trading market for the Company's Common Stock. The Company's
Common Stock is not listed on any exchange, nor is it listed by
The NASDAQ Stock Market. Hoefer and Arnett, Incorporated,
Burford Capital and Sutro and Company facilitate trades in the
Company's Common Stock.
<PAGE>
The following table summarizes those trades of which the
Company has knowledge based on information provided by Hoefer
and Arnett, Incorporated, Burford Capital and Sutro and Company,
setting forth the approximate high and low bid prices for the
periods indicated. The prices indicated below may not
necessarily represent actual transactions.
Bid Price of
Common Stock (1)
Quarter ended Low High
March 31, 1994............. $6.00 $6.50
June 30, 1994................ 6.25 7.00
September 30, 1994....... 6.13 8.00
December 31, 1994........ 7.00 8.00
March 31, 1995............. 6.00 7.00
June 30, 1995................ 6.125 6.50
September 30, 1995....... 6.75 7.50
December 31, 1995........ 7.125 7.375
(1) As estimated by the Company based upon trades of which it was
aware, and not including purchases of stock pursuant to the
exercise of employee stock options.
The Company had 345 shareholders of record as of March 1, 1996.
The Company's shareholders are entitled to receive dividends when
and as declared by its Board of Directors, out of funds legally
available therefore, subject to the restrictions set forth in the
California General Corporation Law (the "Corporation Law"). The
Corporation Law provides that a corporation may make a distribution
to its shareholders if the corporation's retained earnings equal at
least the amount of the proposed distribution. The Corporation Law
further provides that, in the event that sufficient retained
earnings are not available for the proposed distribution, a
corporation may nevertheless make a distribution to its
shareholders if it meets two conditions, which generally stated are
as follows: (i) the corporation's assets equal at least 1-1/4
times its liabilities; and (ii) the corporation's current assets
equal at least its current liabilities or, if the average of the
corporation's earnings before taxes on income and before interest
expenses for the two preceding fiscal years was less than the
average of the corporation's interest expenses for such fiscal
years, then the corporation's current assets must equal at least 1-1/4
times its current liabilities. Funds for payment of any cash
dividends by the Company would be obtained from its investments as
well as dividends and/or management fees from the Bank. The
payment of cash dividends by the Bank may be subject to the
approval of the OCC, as well as restrictions established by federal
banking law, the Board of Governors and the FDIC.
<PAGE>
Approval of the OCC is required if the total of all dividends
declared by the Bank's Board of Directors in any calendar year will
exceed the Bank's net profits for that year combined with its
retained net profits for the preceding two years, less any required
transfers to surplus or to a fund for the retirement of preferred
stock.
Additionally, the Board of Governors, OCC and/or FDIC, might,
under certain circumstances, place restrictions on the ability of
a particular bank to pay dividends based upon peer group averages
and the performance and maturity of the particular bank, or object
to management fees on the basis that such fees cannot be supported
by the value of the services rendered or are not the result of an
arms length transaction.
It is the intention of the Company to pay cash and stock
dividends, subject to the restrictions on the payment of cash
dividends as described above, depending upon the level of earnings,
management's assessment of future capital needs and other factors
considered by the Board of Directors.
<PAGE<PAGE>
Item 6. Selected Financial Data
The following table presents certain consolidated financial
information concerning the business of the Company and the Bank.
This information should be read in conjunction with the
Consolidated Financial Statements and the notes thereto, and
Management's Discussion and Analysis of Financial Condition and
Results of Operations contained elsewhere herein.
<TABLE>
<CAPTION>
Operations Year ended December 31,
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Interest income $6,572 $5,446 $4,949 $6,236 $7,107
Interest expense (2,861) (1,929) (1,685) (2,055) (2,477)
Net interest income 3,711 3,517 3,264 4,181 4,630
(Provision)benefit for
credit losses - 636 (560) (731) (643)
Net interest income
after (provision)benefit
for credit losses 3,711 4,153 2,704 3,450 3,987
Other income 577 405 581 644 720
Other expenses (2,868) (3,523) (2,912) (3,234) (3,404)
Income before income
taxes 1,420 1,035 373 860 1,303
Provision for income
taxes (539) (377) (128) (326) (491)
Net income $ 881 $ 658 $ 245 $ 534 $ 812
====== ====== ====== ====== ======
Net income per
common and
equivalent share(1) $ .82 $ .59 $ .21 $ .46 $ .70
====== ====== ====== ====== ======
Cash dividends declared
per common share $ .10 $ - $ - $ - $ -
====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Balances at year end December 31,
(in thousands,except per share data)
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Total assets $100,497 $87,536 $79,209 $70,097 $70,208
Net loans 36,759 32,803 33,685 38,888 53,665
Total deposits 74,949 73,872 65,714 59,085 59,391
Shareholders'
equity 11,057 9,627 10,721 10,472 9,760
Book value
per share 10.72 9.34 9.17 8.99 8.76
</TABLE>
<PAGE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS'
EQUITY, INTEREST RATES, AND INTEREST DIFFERENTIAL. The following
are the Company's daily average balance sheets for 1995 and 1994.
<TABLE>
<CAPTION>
1995
(in thousands except for percentages)
YIELDS INTEREST
AVERAGE OR INCOME/
BALANCE RATES EXPENSE
<S> <C> <C> <C>
ASSETS
Interest earning assets:
Federal funds sold $ 7,429 5.7% $ 421
Investment securities (1) 37,229 6.3 2,363
Loans (2) 34,057 11.1 3,788
Total interest earning assets 78,715 8.3 6,572
Noninterest-earning assets:
Cash and due from banks 3,618
Premises and equipment 2,093
Other assets (3) 3,000
TOTAL $87,426
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Demand $14,579 3.4 501
Savings 13,836 2.6 366
Time 27,054 5.9 1,603
Total 55,469 4.5 2,470
Federal home loan bank borrowings 5,213 7.2 377
Other interest bearing liabilities 233 6.0 14
Total interest bearing liabilities 60,915 4.7 2,861
Noninterest-bearing liabilities:
Demand deposits 15,280
Accrued expenses and other
liabilities 1,001
Shareholders' equity 10,230
TOTAL $87,426
=======
Net interest income $3,711
=====
Net yield on interest earning assets 4.7%
====
(1) Interest income is reflected on an actual basis, not a fully
taxable equivalent basis.
(2) Including average non-accrual loans of $59,000.
(3) Net of average deferred loan fees of $238,000 and average
allowance for credit losses of $769,000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1994
(in thousands except for percentages)
YIELDS INTEREST
AVERAGE OR INCOME/
BALANCE RATES EXPENSE
<S> <C> <C> <C>
ASSETS
Interest earning assets:
Federal funds sold $ 5,845 4.0% $ 235
Short-term interest bearing
deposits in other banks 683 3.8 26
Investment securities (1) 31,546 5.8 1,824
Loans (2) 32,572 10.3 3,361
Total interest earning assets 70,646 7.7 5,446
Noninterest-earning assets:
Cash and due from banks 4,564
Premises and equipment 2,300
Other assets (3) 1,981
TOTAL $79,491
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Demand $13,350 3.0 395
Savings 15,251 2.8 421
Time 23,263 4.7 1,103
Total 51,864 3.7 1,919
Other interest bearing liabilities 380 2.6 10
Total interest bearing liabilities 52,244 3.7 1,929
Noninterest-bearing liabilities:
Demand deposits 16,440
Accrued expenses and other
liabilities 735
Shareholders' equity 10,072
TOTAL $79,491
=======
Net interest income $3,517
======
Net yield on interest earning assets 5.0%
=====
</TABLE>
(1) Interest income is reflected on an actual basis, not a fully
taxable equivalent basis.
(2) Including average non-accrual loans of $854,000.
(3) Net of average deferred loan fees of $223,000 and average
allowance for credit losses of $1,014,000.
<PAGE>
Interest Differential - Rate/Volume Changes
Interest differential is affected by changes in volume, changes in
rates and a combination of changes in volume and rates. Volume
changes are caused by changes in the levels of average earning
assets and average interest bearing deposits and borrowings. Rate
changes result from changes in yields earned on assets and rates
paid on liabilities. Changes not solely attributable to volume or
rates have been allocated to the rate component. The following
table shows the effect on the interest differential of volume and
rate changes for the years 1995 and 1994.
<TABLE>
<CAPTION>
1995 over 1994 1994 over 1993
Increase (Decrease) Due Increase (Decrease) Due
to Changes in: to Changes in:
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Net
Volume Rate Change Volume Rate Change
Interest earning
assets:
Federal funds sold $ 63 $ 123 $ 186 $ (117) $ 70 $ (47)
Interest bearing
deposits in other
banks (26) - (26) (48) (1) (49)
Securities* 329 210 539 827 50 877
Loans 153 274 427 (373) 89 (284)
Total 519 607 1,126 289 208 497
Interest bearing
liabilities:
Demand deposits 36 70 106 (12) 36 24
Savings deposits (40) (15) (55) 77 (6) 71
Time deposits 179 321 500 163 (19) 144
Borrowings 377 - 377 - - -
Other liabilities 4 - 4 24 (19) 5
Total 556 376 932 252 (8) 244
Interest
Differential $ (37) $ 231 $ 194 $ 37 $ 216 $ 253
===== ====== ====== ====== ====== ======
</TABLE>
*Interest income is reflected on an actual basis, not a fully
taxable equivalent basis.
<PAGE>
INVESTMENT PORTFOLIO
The amortized cost and estimated market values of investments at
December 31 are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
(in thousands)
Investments Available for Sale
<S> <C> <C> <C> <C>
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
U.S. Treasury and agency securities $10,290 $10,287 $10,278 $10,012
Governmental mutual fund 3,128 3,041 5,339 4,798
Federal Home Loan Bank stock 1,958 1,958 319 319
Total $15,376 $15,286 $15,936 $15,129
======= ======= ======= =======
Investments Held to Maturity
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
U.S. Treasury and agency securities $ 5,564 $ 5,632 $11,640 $11,298
Mortgage-backed securities 11,145 11,152 8,824 8,223
Obligations of states and political
subdivisions 3,549 3,589 3,090 3,000
Federal Reserve Bank stock 90 90 90 90
$20,348 $20,463 $23,644 $22,611
======= ======= ======= =======
</TABLE>
As investment securities mature, to the extent that the proceeds are
reinvested in investment securities, management expects that the
categories of taxable investment securities purchased will be in
approximately the same proportion as existed at December 31, 1995.
The maturities and yields of the investment portfolio at December
31, 1995 are shown below.
MATURITY AND YIELDS OF INVESTMENT SECURITIES
At December 31, 1995
(Dollars in thousands)
Investments Available for Sale
Total After 1 Year,
Carrying Within 1 Year Within 5 Years After 5 Years
Value Amount Yield(1) Amount Yield(1) Amount Yield(1)
U.S. Treasury
and agency
securities $10,287 $7,681 4.94% $2,606 6.92% - -
Governmental
mutual funds 3,041 3,041 6.72% - - - -
Federal Home
Loan Bank
stock 1,958 - - - - $1,958 3.90%
$15,286 $10,722 5.58% $2,606 6.92% $1,958 3.90%
======= ======= ====== ======
<PAGE>
Investments Held to Maturity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total After 1 Year, After 5 Years After 10
Carrying Within 1 Year Within 5 Years Within 10 Years Years
Amount Amount Yield(1)Amount Yield(1)Amount Yield(1 )Amount Yield(1)
U.S. Treasury
and agency
securities $ 5,564 - - $ 1,993 5.76% $ 3,571 6.24% - -
Mortgage-
backed
securities 11,145 - - 4,894 6.14% 3,897 7.87% $2,354 6.17%
Obligations of
states and
political
subdivisions 3,549 $165 7.10% 2,613 4.62% 771 5.27% - -
Federal Reserve
Bank stock 90 90 6.00%
Total $20,348 $165 7.10% $9,500 5.64% $ 8,239 6.92% $2,444 6.16%
======= ==== ====== ======= ======
</TABLE>
(1) Yields are actual, not fully taxable equivalent
LOAN PORTFOLIO
The composition of the loan portfolio at December 31, 1995 and 1994
is summarized in the following table.
December 31,
1995 1994
(in thousands)
Real estate:
Construction $ 7,837 $ 5,278
Other 17,507 14,654
Commercial 11,585 12,082
Installment 77 543
Lease financing 837 1,214
$37,843 $33,771
======= =======
<PAGE>
At December 31, 1995, loans were due as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Lease
Com'l R/E Const R/E Other Install Financing Total
====== ========= ========= ======= ========= =======
(in thousands)
Due in one year
or less $6,877 $ 7,837 $ 2,720 $ 2 273 $17,709
Due after one year 4,708 - 14,787 75 $ 564 20,134
TOTAL $11,585 $ 7,837 $17,507 $ 77 $ 837 $37,843
====== ======= ======= ====== ====== =======
</TABLE>
Of the loans due after one year, $12,712,000 have fixed rates and
$7,422,000 have variable interest rates.
RISK ELEMENTS
There were no nonaccrual loans at December 31, 1995 ($707,000 at
December 31, 1994). The reduction in interest income associated
with these loans in 1994 was $59,000. Interest income recognized
on such loans in 1994 was $28,000.
At December 31, 1995 and 1994, there were no loans past due 90
days or more as to principal or interest and still accruing
interest. There was one loan at December 31, 1995 in the amount of
$196,000 which was a troubled debt restructuring as defined in
Statement of Financial Accounting Standards No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructuring."
There were five potential problem loans at December 31, 1995
having a combined principal balance of $1,161,000 ($1,030,000 in
1994). Potential problem loans are loans which are generally
current as to principal and interest but have been identified by
the Company as potential problem loans due either to a decrease in
the underlying value of the property securing the credit or some
other deterioration in the creditworthiness of the borrower. All
of the five loans identified as potential problem loans are
secured by real estate and personal property. The Company does not
believe there to be any concentration of loans in excess of 10% of
total loans which is not disclosed above which would cause them to
be similarly impacted by economic or other conditions. See
Management's Discussion and Analysis of Financial Condition and
Results of Operations-Provision for Credit Losses, regarding
discussion of California economic conditions.
<PAGE>
SUMMARY OF CREDIT EXPERIENCE
Analysis of the Allowance for Credit Losses
Year Ended December 31,
1995 1994
Beginning balance $738,000 $1,339,000
Charge-offs - Commercial (45,000) (73,000)
Recoveries - Commercial 83,000 108,000
Additions (reductions)
charged to operations - (636,000)
Ending balance $ 776,000 $ 738,000
========== ==========
Ratio of net charge-offs
during the period to average
loans outstanding during the
year. (.11)% (.11)%
====== ======
Ratio of allowance for credit
losses to loans outstanding
at end of year 2.05% 2.19%
====== ======
Allocation of the Allowance for Credit Losses
December 31, 1995 December 31, 1994
Percent Percent
of loans in of loans in
each category each category
Amount to total loans Amount to total loans
Commercial $228,000 31% $286,000 36%
Real estate-
construction 124,000 21 89,000 16
Real estate-
other 424,000 46 352,000 43
Installment - - 11,000 2
Lease financing - 2 - 3
$776,000 100% $738,000 100%
========== ==== ======== ====
<PAGE>
DEPOSITS
The average balance sheets for 1995 and 1994 set forth the average
amount and average interest rate paid for deposits.
At December 31, 1995, time deposits of $100,000 or more have a
remaining maturity as follows:
(in thousands)
3 months or less $4,403
Over 3 months to 6 months 1,350
Over 6 months to 12 months 1,654
Over 1 year to 5 years 3,375
TOTAL $10,782
=======
RETURN ON EQUITY AND ASSETS
The following table sets forth certain ratios of profita-
bility, liquidity and capital.
1995 1994
Return on average assets 1.0% .8%
Return on average equity 8.6% 6.5%
Cash dividends declared per share
to earnings per share 12.2% -
Average equity to average assets 11.7% 12.7%
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
Net income in 1995 was $881,000 ($.82 per share) compared to
$658,000 ($.59 per share) in 1994 and $245,000 ($.21 per share) in
1993. The increase in net income in 1995 resulted primarily from
an increase in the volume and yield on earning assets and a
decrease in expense related to Other Real Estate Owned (OREO),
offset, in part, by an increase in the volume and yield on
interest-bearing liabilities and a reduced benefit for credit
losses. The increase in net income in 1994 resulted primarily from
an increase in the volume of earning assets and a credit provision
for loan losses, offset, in part by an increase in interest expense
due to the increased volume of interest-bearing liabilities and a
charge related to the write-down of Other Real Estate Owned (OREO)
included in Other Expenses. The table below highlights the changes
in the nature and sources of income and expense from 1994 to 1995
and from 1993 to 1994.
<TABLE>
<CAPTION>
Net Net
Income Income
Increase Increase
1995 1994 (Decrease) 1993 (Decrease)
(in thousands)
<S> <C> <C> <C> <C> <C>
Net interest income $3,711 $3,517 $ 194 $3,264 $ 253
Provision (benefit)
for credit losses - 636 (636) (560) 1,196
Noninterest income 577 405 172 581 (176)
Noninterest expense (2,868) (3,523) 655 (2,912) (611)
Income before
income taxes 1,420 1,035 385 373 662
Provision for
income taxes (539) (377) (162) (128) (249)
Net income $ 881 $ 658 $ 223 $ 245 $ 413
====== ====== ===== ====== =====
<PAGE>
Net Interest Income
Net interest income is affected by changes in the nature and volume of
earning assets held during the year, the rates earned on such assets
and the rates paid on interest-bearing liabilities. The table below
details the average balances, interest income and expense and the
effective yields/rates for earning assets and interest bearing
liabilities.
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning
assets:
Loans $34,057 $3,788 11.1% $32,572 $3,361 10.3% $36,265 $3,645 10.1%
Other 44,658 2,784 6.2% 38,074 2,085 5.5% 28,589 1,304 4.6%
Total
earning
assets $78,715 $70,646 $64,854
======= ======= =======
Interest
bearing
liabilities:
Deposits $55,649 2,470 4.5% $51,864 1,919 3.7% $45,552 1,680 3.7%
Other
interest
bearing
funds 5,446 391 7.2% 380 10 2.6% 67 5 7.5%
Total
interest
bearing
liabili-
ties $60,915 $52,244 $45,619
======= ======= =======
Net interest
income and
margin $3,711 4.7% $3,517 5.0% $3,264 5.0%
====== ==== ====== ==== ====== ====
</TABLE>
Average earning assets increased $8.1 million or 11%, to $78.7
million during 1995 compared to $70.6 million in 1994. The
increase in loans was primarily in the longer term real estate
loan portfolio. These loans are generally made for a term of
between five and fifteen years and are matched against specific
blocks of deposits or borrowings in order to alleviate interest
rate risk. The increase in the investment portfolio is primarily
the result of increased average deposits and the reinvestment of
matured loan balances that are not currently being utilized to
fund loans. During 1994, average earning assets increased $5.8
<PAGE>
million,or 9% to $70.6 million, compared to $64.9 million for
1993. This increase reflects a decrease of $3.7 million or 10%,
in the loan portfolio and subsequent reinvestment of matured loan
balances in the investment portfolio which increased $9.5 million
during 1994. The decrease in loans was primarily a result of an
overall slowdown in the real estate construction industry and a
general reduction in loan demand precipitated by the continued
weakness in the California economy. Average interest-bearing
liabilities increased $8.7 million, or 17%, during 1995 to $60.9
million from $52.2 million in 1994 primarily due to an increase
in Federal Home Loan Bank borrowings which were matched against
specific longer term real estate loans. Average interest-bearing
liabilities increased $6.6 million, or 14%, to $52.2 million, in
1994 from $45.6 million in 1993. This increase was primarily due
to an increase in passbook savings and certificates of deposit.
Earning Assets-Loans
The loan portfolio increased $4.1 million, or 12%, from $33.7
million in 1994 to $37.8 million in 1995. The increase was
primarily in the longer term real estate loan portfolio as a
result of marketing efforts in that area. Average loans
increased $1.5 million from $32.6 million in 1994 to $34.1
million in 1995. During 1994, average loans decreased $3.7
million, or 10% as compared to 1993. The average loan to average
deposit ratio for 1995 was 49% compared to 47% and 59% in 1994
and 1993, respectively. The average yield on loans increased
from 10.1% in 1993 to 10.3% in 1994 and then increased to 11.1%
in 1995. The increase in yield in 1995 primarily reflects an
increase in interest rates on loans originated during the year as
compared to 1994. The increase in yield in 1994 reflects a
increase in the interest rates for the year as compared to 1993.
Other Earning Assets
Average other earning assets, consisting of Federal funds sold,
interest bearing deposits in other banks, investment securities
and other short-term investments, increased $6.6 million or 17%
during 1995 from $38.1 million to $44.7 million. During 1994,
average other earning assets increased $9.5 million from $28.6
million in 1993. The increases in the securities portfolio in
1995 and 1994 were primarily due to the reinvestment of matured
loan balances into the securities portfolio that were not
currently being utilized to fund loans. The yield earned on
average other earning assets increased from 4.6% in 1993 to 5.5%
in 1994 and then increased to 6.2% in 1995. In 1995, the
increase in the volume and yield on other earning assets resulted
in an increase in net interest income of $699,000. In 1994, the
increase in the volume and yields resulted an increase in net
interest income of $781,000 on these investments.
<PAGE>
Interest Bearing Liabilities
Average interest bearing liabilities increased $8.7 million from
$52.2 million in 1994 to $60.9 million in 1995 and increased $6.6
million from $45.6 million in 1993 to $52.2 million in 1994. The
increase in 1995 was primarily a result of increased Federal Home
Loan Bank borrowings which were matched against certain longer
term real estate loans to alleviate the impact of interest rate
risk. Average non-interest bearing deposits decreased $1.2
million in 1995 to $15.2 million and increased $527,000 to $16.4
million in 1994 from an average of $15.9 million in 1993.
Overall rates on interest bearing deposits increased from 3.7% in
1993 and 1994 to 4.5% in 1995. The net result of the changes in
average balances and rates was an increase in interest expense of
$932,000 in 1995 from 1994 and an increase of $244,000 in 1994
from 1993.
Net Interest Margin
The net interest margin decreased from 5.0% in 1993 and 1994 to
4.7% in 1995. The changes in the net interest margin are
primarily attributable to fluctuations in the loan, deposit and
borrowing mix and the relationship between rates charged and
rates paid.
Provision for Credit Losses
The Bank maintains an allowance for possible credit losses which
is based, in part, on the Bank's historical loss experience, the
impact of forecasted economic conditions within the Bank's market
area, and, as applicable, the State of California, the value of
underlying collateral, loan performance and inherent risks in the
loan portfolio. The allowance is reduced by charge-offs and
increased by provisions for credit losses charged to operating
expense and recoveries of previously charged-off loans. During
1995, the Bank did not provide any additional provision for
credit losses. In 1994, $636,000 was reversed from the allowance
for credit losses compared to a provision of $560,000 in 1993.
The allowance for credit losses was $776,000 in 1995, compared to
$738,000 in 1994 and $1,339,000 in 1993. At December 31, 1995,
the allowance was approximately 2.1% of total loans, compared to
approximately 2.2% at December 31, 1994. There were no
nonaccrual loans at December 31, 1995 ($707,000 at December 31,
1994). There was no interest income foregone on nonaccrual loans
during 1995($59,000 in 1994 and $163,000 in 1993).
At December 31, 1995 and 1994, there were no loans past due 90
days or more as to principal or interest and still accruing
interest.
Other Real Estate Owned totalled $1,745,000 at December 31, 1995
<PAGE>
($1,717,000 at December 31, 1994). Other real estate owned
consisted of a single family residence and a 12 lot subdivision
each with appraised values in excess of the Bank's book values.
The Company does not intend to hold the properties and is
actively marketing the properties.
Nonperforming loans and other real estate owned are summarized
below:
December 31, 1995 December 31, 1994
Nonperforming loans:
Past due 90 days or more
and still accruing $ - $ -
Nonaccrual - 707,000
Total - 707,000
Other real estate owned 1,745,000 1,717,000
Total nonperforming loans and
other real estate owned $1,745,000 $2,424,000
========== ==========
Management is of the opinion that the allowance for credit losses
is maintained at an adequate level for known and currently
anticipated future risks inherent in the loan portfolio.
However, the California economy has continued to demonstrate
signs of weakness since the third quarter of 1990, and through
the period covered by this report, and the Bank's loan portfolio,
which includes approximately $25,000,000 in real estate loans,
representing approximately 67% of the portfolio, has been and
could continue to be adversely affected if California economic
conditions and the real estate market in the Bank's market area
continue to weaken. The effect of such events, although
uncertain at this time, has resulted, and could continue to
result, in an increase in the level of nonperforming loans and
OREO and the level of the allowance for loan losses, which could
adversely affect the Company's and the Bank's future growth and
profitability.
Noninterest Income
Noninterest income increased $172,000, or 42%, to $577,000 during
1995 compared to $405,000 during 1994. During 1994, noninterest
income decreased $176,000, or 30%, from $581,000 in 1993. The
increase in 1995 is primarily attributable to rental income from
OREO of $119,000, net gain on sale of securities of $72,000 and
gain on sale of OREO of $55,000. The decrease in 1994 is
primarily attributable to a gain on sale of leases of $64,000 and
a gain on sale of OREO of $136,000 realized in 1993.
<PAGE>
Noninterest Expense
Noninterest expense decreased $655,000 or 19% to $2.9 million in
1995, compared to $3.5 million in 1994 and increased $611,000 or
21% in 1994 compared to 1993. The decrease in 1995 is primarily
attributable to the loss on sale of securities of $196,000 which
was realized in 1994 and decreased OREO reserve expense. The
increase in 1994 is primarily attributable to a $196,000 loss on
sale of securities and OREO reserve expense of $481,000.
Generally, excluding the securities losses and OREO expense noted
above, expenses have grown commensurate with the growth in assets
and increases in the volume of transactions. As a percentage of
average earning assets, noninterest expense decreased to 3.6% in
1995 from 5.0% in 1994. In 1994, noninterest expense as a
percentage of earning assets increased to 5.0% from 4.5% in 1993.
As pressure continues on net interest margins and net asset
growth, management of operating expenses will continue to be a
priority.
Income Taxes
The Company's effective tax rate was 38.0% for 1995, 36.4% for
1994 and 34.3% for 1993. See Note 8 to the consolidated
financial statements for additional information on income taxes.
Beginning in 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes,("SFAS
109"). There was no cumulative or current period effect of
adopting SFAS 109 on the Company's financial position or results
of operations.
Liquidity/Interest Rate Sensitivity
The Bank manages its liquidity to provide adequate funds at an
acceptable cost to support borrowing requirements and deposit
flows of its customers. At December 31, 1995 and 1994, liquid
assets as a percentage of deposits were 48% and 34%,
respectively. In addition to cash and due from banks, liquid
assets include short-term time deposits with other banks, Federal
funds sold, investment securities and other short term
investments. The Bank has $8.0 million in Federal funds lines of
credit available with correspondent banks to meet liquidity
needs.
Management regularly reviews general economic and financial
conditions, both external and internal, and determines whether
the positions taken with respect to liquidity and interest rate
sensitivity continue to be appropriate. The Bank also utilizes a
<PAGE>
monthly "Gap" report which identifies rate sensitivity over the
short- and long-term.
The following table sets forth the distribution of repricing
opportunities, based on contractual terms, of the Company's
earning assets and interest-bearing liabilities at December 31,
1995, the interest rate sensitivity gap (i.e. interest rate
sensitive assets less interest rate sensitive liabilities), the
cumulative interest rate sensitivity gap, the interest rate
sensitivity gap ratio (i.e. interest rate sensitive assets
divided by interest rate sensitive liabilities) and the
cumulative interest rate sensitivity gap ratio.
Based on the contractual terms of its assets and liabilities, the
Bank is currently liability sensitive in terms of its short-term
exposure to interest rates. In other words, the Bank's
liabilities reprice faster than its asets.
<PAGE>
DISTRIBUTION OF REPRICING OPPORTUNITIES
At December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
After Three After Six After One
Within Months But Months But Year But After
Three Within Six Within One Within Five
Months Months Year Five Years Years Total
<S> <C> <C> <C> <C> <C> <C>
Federal funds
sold $17,700 - - - - $17,700
Interest bearing
deposits in
other banks - - $ 200 - - 200
Municipal
securities - - 165 $ 2,613 $ 771 3,549
U.S. Treasury
and agency
securities 3,041 $4,699 2,982 9,493 9,822 30,037
FRB/FHLB stock 2,048 2,048
Loans 22,269 623 2,240 6,671 6,040 37,843
------- ------- ------- ------- ------- -------
Total earning
assets $43,010 $5,322 $5,587 $18,777 $18,681 91,377
------- ------- ------- ------- ------- -------
Interest bearing
demand accounts$14,218 - - - - $14,218
Savings accounts 13,113 - - - - 13,113
Time certificates
of deposit of
$100,000 or more 4,403 $1,350 $1,654 $3,375 - 10,782
Other time
deposits 2,030 2,014 5,943 6,439 - 16,426
Federal funds
purchased 1,500 - - - - 1,500
Other borrowings 2,000 1,570 - 262 $8,255 12,087
------- ------- ------- ------- ------- -------
Total interest-
bearing
liabilities $37,264 $4,934 $7,597 $10,076 $8,255 68,126
------- ------- ------- ------- ------- ------
Interest rate
sensitivity
gap $ 5,746 $ 388 $(2,010) $ 8,701 $10,426 $23,251
======= ======= ======= ======= ======= =======
Cumulative
interest rate
sensitivity
gap $ 5,746 $6,134 $4,124 $12,825 $23,251
======= ======= ======= ======= =======
Interest rate
sensitivity
gap ratio 1.15% 1.08% .74% 1.86% N/A
Cumulative interest
rate sensitivity
gap ratio 1.15% 1.15% 1.08% 1.21% 1.34%
</TABLE>
<PAGE>
Inflation
The impact of inflation on a financial institution differs
significantly from that exerted on manufacturing, or other
commercial concerns, primarily because its assets and liabilities
are largely monetary. In general, inflation primarily affects
the Company indirectly through its effect on the ability of its
customers to repay loans, or its impact on market rates of
interest, and thus the ability of the Bank to attract loan
customers. Inflation affects the growth of total assets by
increasing the level of loan demand, and potentially adversely
affects the Company's capital adequacy because loan growth in
inflationary periods may increase more rapidly than capital.
Interest rates in particular are significantly affected by
inflation, but neither the timing nor the magnitude of the
changes coincides with changes in the Consumer Price Index, which
is one of the indicators used to measure the rate of inflation.
Adjustments in interest rates may be delayed because of the
possible imposition of regulatory constraints. In addition to
its effects on interest rates, inflation directly affects the
Company by increasing the Company's operating expenses. The
effect of inflation during the three-year period ended
December 31, 1995 has not been significant to the Company's
financial position or results of operations.
Capital Resources
The Company's capital resources consist of shareholders' equity
and (for regulatory purposes) the allowance for credit losses.
During the year ended December 31, 1995, the Company's regulatory
capital increased $1,468,000. Tier 1 capital increased $1,430,000
due to the retention of earnings and decrease in the unrealized
loss on equity securities available for sale of $652,000. Tier 2
capital increased $38,000 due to a net increase in the allowable
portion of the allowance for credit losses.
The Company and the Bank are subject to capital adequacy
guidelines issued by the Board of Governors and the OCC. The
Company and the Bank are required to maintain total capital equal
to at least 8% of assets and commitments to extend credit,
weighted by risk, of which at least 4% must consist primarily of
common equity including retained earnings (Tier 1 capital) and
the remainder may consist of subordinated debt, cumulative
preferred stock or a limited amount of loan loss reserves.
Certain assets and commitments to extend credit present less risk
than others and will be assigned to lower risk-weighted
categories requiring less capital allocation than the 8% total
ratio. For example, cash and government securities are assigned
to a 0% risk-weighted category, most home mortgage loans are
assigned to a 50% risk-weighted category requiring a 4% capital
allocation and commercial loans are assigned to a 100% risk-weighted
category requiring an 8% capital allocation. As of
<PAGE>
December 31, 1995, the Company's total risk-based capital ratio
was approximately 22.0% (approximately 21.7% for the Bank)
compared to approximately 22.2% (approximately 21.6% for the
Bank) at December 31, 1994.
The Board of Governors adopted a 3% minimum leverage ratio for
banking organizations as a supplement to the risk-weighted
capital guidelines, effective September 7, 1990. The OCC adopted
the minimum leverage ratio for national banks effective December
31, 1990. The minimum leverage ratio is intended to limit the
ability of banking organizations to leverage their equity
capital base by increasing assets and liabilities without
increasing capital proportionately. The 3% minimum leverage
ratio constitutes a minimum ratio for well-run banking
organizations. Organizations experiencing or anticipating
significant growth or failing to meet certain Board of Governors
standards will be required to maintain a minimum leverage ratio
ranging from 100 to 200 basis points in excess of the 3% ratio.
The following table reflects the Company's Leverage, Tier 1 and
total risk-based capital ratios for the three year period ended
December 31, 1995.
1995 1994 1993
Leverage ratio 11.7% 12.3% 13.5%
Tier 1 capital ratio 20.8% 20.9% 23.0%
Total risk-based capital ratio 22.0% 22.2% 24.2%
On December 19, 1991, President Bush signed the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The
FDICIA, among other matters, substantially revises banking
regulations and established a framework for determination of
capital adequacy of financial institutions. Under the FDICIA,
financial institutions are placed into one of five capital
adequacy catagories as follows: (1) "Well capitalized" -
consisting of institutions with a total risk-based capital ratio
of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement,
capital directive or prompt corrective action directive; (2)
"Adequately capitalized" - consisting of institutions with a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater and a leverage ratio of 4%
or greater, and the institution does not meet the definition of a
"well capitalized" institution; (3) "Undercapitalized" -
consisting of institutions with a total risk-based capital ratio
less than 8%, a Tier 1 risk-based capital ratio of less than 4%,
or a leverage ratio of less than 4%; (4) "Significantly
undercapitalized" - consisting of institutions with a total risk-based
capital ratio of less than 6%, a Tier 1 risk-based capital
ratio of less than 3%, or a leverage ratio of less than 3%; (5)
"Critically undercapitalized" - consisting of an institution with
<PAGE>
a ratio of tangible equity to total assets that is equal to or
less than 2%.
Financial institutions classified as undercapitalized or below
are subject to various limitations including, among other
matters, certain supervisory actions by bank regulatory
authorities and restrictions related to (i) growth of assets,
(ii) payment of interest on subordinated indebtedness, (iii)
payment of dividends or other capital distributions, and (iv)
payment of management fees to a parent holding company. The
FDICIA requires the bank regulatory authorities to initiate
corrective action regarding financial institutions which fail to
meet minimum capital requirements. Such action may result in
orders to, among other matters, augment capital and reduce total
assets. Critically undercapitalized financial institutions may
also be subject to appointment of a receiver or implementation of
a capitalization plan.
PAGE
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report 49
Consolidated Balance Sheets, December 31, 1995 and 1994 50
Consolidated Income Statements for the years ended
December 31, 1995, 1994, and 1993 51
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1994 and 1993 52
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 53
Notes to Consolidated Financial Statements 54-67
All schedules have been omitted since the required information is
not present or not present in amounts sufficient to require
submission of the schedule or because the information required is
included in the Consolidated Financial Statements or notes
thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Saratoga Bancorp:
We have audited the accompanying consolidated balance sheets of
Saratoga Bancorp and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Saratoga Bancorp and subsidiary as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 2, 1996
<PAGE>
<TABLE>
<CAPTION>
SARATOGA BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<S> <C> <C>
ASSETS 1995 1994
CASH AND DUE FROM BANKS $ 5,239,000 $ 6,514,000
FEDERAL FUNDS SOLD 17,700,000 3,500,000
SHORT-TERM INTEREST-BEARING DEPOSITS
IN OTHER BANKS - 250,000
------------ -------------
Total cash and cash equivalents 22,939,000 10,264,000
INTEREST-BEARING DEPOSITS IN OTHER BANKS 200,000 -
SECURITIES AVAILABLE FOR SALE
(at market value, cost - 1995,
$15,376,000; 1994, $15,936,000) 15,286,000 15,129,000
SECURITIES HELD TO MATURITY (at cost,
market value - 1995 $20,463,000,
1994, $22,611,000) 20,348,000 23,644,000
LOANS 37,535,000 33,541,000
ALLOWANCE FOR CREDIT LOSSES (776,000) (738,000)
------------ -------------
Loans, net 36,759,000 32,803,000
------------ -------------
PREMISES AND EQUIPMENT, Net 1,988,000 2,195,000
OTHER REAL ESTATE OWNED 1,745,000 1,717,000
ACCRUED INTEREST RECEIVABLE AND
OTHER ASSETS 1,232,000 1,784,000
------------ -------------
TOTAL $ 100,497,000 $ 87,536,000
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Demand, noninterest-bearing $ 20,410,000 $ 19,555,000
Demand, interest-bearing 14,218,000 14,280,000
Savings 13,113,000 14,541,000
Time 27,208,000 25,496,000
--------------- -------------
Total deposits 74,949,000 73,872,000
FEDERAL FUNDS PURCHASED 1,500,000 1,500,000
OTHER BORROWINGS 12,087,000 2,000,000
ACCRUED EXPENSES AND OTHER LIABILITIES 904,000 537,000
--------------- -------------
Total liabilities 89,440,000 77,909,000
COMMITMENTS (Notes 5 and 10) --------------- -------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value;
authorized 1,000,000
shares; no shares issued
Common stock, no par value;
authorized 20,000,000 shares;
outstanding 1,030,972 shares 4,427,000 4,427,000
Retained earnings 6,797,000 6,019,000
Net unrealized loss on
securities available for sale (167,000) (819,000)
--------------- --------------
Total shareholders' equity 11,057,000 9,627,000
TOTAL $ 100,497,000 $ 87,536,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SARATOGA BANCORP AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<S> <C> <C> <C>
1995 1994 1993
INTEREST INCOME:
Loans, including fees $ 3,788,000 $ 3,361,000 $ 3,645,000
Federal funds sold 421,000 235,000 282,000
Securities:
Taxable 2,194,000 1,697,000 815,000
Non-taxable 169,000 127,000 132,000
Other - 26,000 75,000
----------- ----------- -----------
Total interest income 6,572,000 5,446,000 4,949,000
----------- ----------- -----------
INTEREST EXPENSE:
Deposits 2,470,000 1,919,000 1,680,000
Borrowings 377,000 - -
Other 14,000 10,000 5,000
----------- ----------- -----------
Total interest expense 2,861,000 1,929,000 1,685,000
----------- ----------- -----------
NET INTEREST INCOME 3,711,000 3,517,000 3,264,000
PROVISION (CREDIT) FOR
CREDIT LOSSES - (636,000) 560,000
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION (CREDIT)
FOR CREDIT LOSSES 3,711,000 4,153,000 2,704,000
----------- ----------- ------------
OTHER INCOME:
Service charges 194,000 194,000 191,000
Rental income from
leased assets 119,000 179,000 106,000
Rental income from
other real estate
owned 102,000 - -
Net gain on sale of
securities available
for sale 72,000 - 43,000
Gain on sale of
other real estate owned 55,000 - 136,000
Gain on sale leased assets - - 64,000
Other 35,000 32,000 41,000
----------- ------------ ------------
Total other income 577,000 405,000 581,000
OTHER EXPENSES:
Salaries and employee
benefits 1,188,000 1,106,000 958,000
Occupancy 376,000 388,000 354,000
Insurance 161,000 176,000 253,000
Professional fees 156,000 186,000 236,000
Furniture and equipment 126,000 128,000 139,000
Depreciation on leased
assets 110,000 147,000 73,000
Net cost of other
real estate owned 115,000 514,000 262,000
Data Processing 5,000 118,000 172,000
Loss on sale of
securities available
for sale - 196,000 -
Other 591,000 564,000 465,000
----------- ----------- -----------
Total other expenses 2,868,000 3,523,000 2,912,000
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,420,000 1,035,000 373,000
PROVISION FOR INCOME TAXES 539,000 377,000 128,000
----------- ----------- -----------
NET INCOME $ 881,000 $ 658,000 $ 245,000
=========== =========== ===========
NET INCOME PER COMMON
AND EQUIVALENT SHARE $ 0.82 $ 0.59 $ 0.21
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SARATOGA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<S> <C> <C> <C> <C> <C>
Net
Unrealized
Loss on
Investments Total
Common Stock Retained Available Shareholders'
Shares Amount Earnings for Sale Equity
BALANCES,
JANUARY 1, 1993 1,164,686 $5,006,000 $5,466,000 $ - $10,472,000
Exercise of stock
options, Net of
shares exchanged 4,578 9,000 - - 9,000
Tax benefit of
stock option
exercises - 6,000 - - 6,000
Net unrealized
loss on securities
available for sale - - - (11,000) (11,000)
Net income - - 245,000 - 245,000
------------ ---------- ---------- -------- -----------
BALANCES,
DECEMBER 31, 1993 1,169,264 5,021,000 5,711,000 (11,000) 10,721,000
Shares repurchased 138,292) (594,000) (350,000) - (944,000)
Net unrealized
loss on securities
available for sale - - - (808,000) (808,000)
Net income - - 658,000 - 658,000
---------- ---------- ---------- --------- -----------
BALANCES,
DECEMBER 31, 1994 1,030,972 4,427,000 6,019,000 (819,000) 9,627,000
Cash dividend
($.10 per share) - - (103,000) - (103,000)
Net unrealized
gain on securities
available for sale - - - 652,000 652,000
Net income - - 881,000 - 881,000
----------- ---------- ---------- ---------- ----------
BALANCES,
DECEMBER 31, 1995 1,030,972 $4,427,000 $6,797,000 $ (167,000) $11,057,000
</TABLE>
[CAPTION]
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SARATOGA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<S> <C> <C> <C>
1995 1994 1993
CASH FLOWS FROM OPERATIONS:
Net income $ 881,000 $ 658,000 $ 245,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Provision (credit)
for credit losses - (636,000) 560,000
Depreciation and
amortization 233,000 296,000 279,000
Deferred income taxes 392,000 131,000 (427,000)
Valuation allowance -
other real estate owned 35,000 481,000 202,000
Accrued interest
receivable and other assets 514,000 (485,000) 157,000
Accrued expenses and
other liabilities 367,000 (237,000) 281,000
Deferred loan fees 78,000 31,000 (81,000)
(Gain) loss on sale of
investments (72,000) 196,000 (43,000)
Gain on sale of other
real estate owned (55,000) - (121,000)
(Gain) loss on sale of
leased assets - - (64,000)
----------- ----------- -----------
Net cash provided by
operating activitie 2,373,000 435,000 988,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of securities
available for sale (2,590,000) (3,018,000) (24,276,000)
Purchase of securities
held to maturity (4,885,000) (12,597,000) (7,039,000)
Proceeds from maturities of
securities available
for sale - 100,000 4,406,000
Proceeds from maturities of
securities held to maturit y 8,417,000 1,155,000 1,578,000
Proceeds from sale of
securities available
for sale 2,625,000 3,965,000 5,043,000
Net (increase) decrease
in loans (4,797,000) (902,000) 4,615,000
Purchases of premises and
equipment (40,000) (34,000) (89,000)
Proceeds from sale of
premises and equipment 14,000 - -
Proceeds from sale of
leased assets - - 300,000
Proceeds from sale of
other real estate owned 735,000 1,154,000 481,000
Other (238,000) - -
------------ ----------- ------------
Net cash used in
investing activities (759,000) (10,177,000) (14,981,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 1,077,000 8,158,000 6,629,000
Net increase (decrease) in
federal funds purchased - (500,000) 2,000,000
Net increase (decrease)
in other borrowings 10,087,000 2,000,000 (47,000)
Payment of cash dividend (103,000) - -
Sale of common stock - - 9,000
Repurchase of common stock - (944,000) -
----------- ----------- -------------
Net cash provided by
financing activitie 11,061,000 8,714,000 8,591,000
------------ ----------- -------------
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS 12,675,000 (1,028,000) (5,402,000)
CASH AND EQUIVALENTS,
BEGINNING OF YEAR 10,264,000 11,292,000 16,694,000
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF YEAR $22,939,000 $10,264,000 $11,292,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during
the year for:
Interest $ 2,703,000 $ 1,940,000 $ 1,701,000
Income taxes $ 75,000 $ 861,000 $ 163,000
NON-CASH INVESTING AND FINANCING
ACTIVITIES -
Additions to other real
estate owned $ 670,000 $ 1,984,000 $ 108,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SARATOGA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Bank is a full service bank, and as such, its
principal activities include the receiving and lending of money.
Additionally, the Bank provides bank card services and safe deposit
facilities. The accounting and reporting policies of the Bank conform
with generally accepted accounting principles and the prevailing practices
within the banking industry.
Consolidation - The consolidated financial statements include Saratoga
Bancorp (the Company) and its wholly-owned subsidiary, Saratoga National
Bank (the Bank). All material intercompany accounts and transactions have
been eliminated.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets,
liabilities, revenues and expenses as of the dates and for the periods
presented. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Bank considers all highly liquid debt
instruments purchased with an original maturity of three months or less to
be cash equivalents.
Securities - The Bank adopted Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on December 31, 1993. In accordance with SFAS No.115, the
Company has classified its securities into two categories, securities
available for sale and held to maturity. Securities available for sale
are measured at market value with a corresponding recognition of the net
unrealized holding gain or loss as a separate component of shareholders'
equity, net of income taxes, until realized. Securities held to
maturity are measured at amortized cost based on the Company's positive
intent and ability to hold the securities to maturity.
Any gains and losses on sales of securities are computed on a specific
identification basis.
Loans - Loans are stated at the principal amount outstanding. Interest on
loans is credited to income as earned. The accrual of interest is
discontinued and any accrued and unpaid interest is reversed when the
payment of principal or interest is 90 days past due unless the amount is
well secured and in the process of collection. Income on non-accrual loans
is recognized only to the extent that cash is received and where the future
collection of principal is probable.
Loan origination fees and costs are deferred and amortized to income by a
method approximating the effective interest method over the lives of the
underlying loans.
<PAGE>
Allowance for Credit Losses - The allowance for credit losses is
established through a provision charged to expense. Loans are charged
against the allowance when management believes that the collection of
principal is unlikely. The allowance is an amount that management
believes will be adequate to absorb losses inherent in existing loans
and commitments to extend credit, based on evaluations of collectibility
and prior loss experience. The evaluations take into consideration such
factors as changes in the composition of the portfolio, overall portfolio
quality, loan concentrations, specific problem loans, and current and
anticipated economic conditions that may affect the borrowers' ability to
repay. In evaluating the probability of collection, management is required
to make estimates and assumptions.
Accounting by Creditors for Impairment of a Loan - On January 1, 1995 the
Company adopted SFAS No. 114 "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures". A loan is considered impaired when
it is probable that interest and principal will not be collected according
to the contractual terms of the loan agreement. Under SFAS 114 and 118
impaired loans are required to be measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market price
or the fair value of the collateral if the loan is collateral dependant.
Income recognition on impaired loans is consistant with the policy for
income recognition on nonaccrual loans described above. The Bank has
determined that there were no impaired loans as of December 31, 1995.
Premises and Equipment - Premises and equip ment are stated at cost less
accumulated depreciation andamortization. Depreciation and amortization
are computed on a straight-line basis over the shorter of the lease term
or the estimated useful lives of the assets, which are generally three to
fifteen years for furniture, equipment and leasehold improvements and 35
years for a building.
Leased Equipment - Leased equipment is st ated at cost net of accumulated
depreciation. Depreciation is computed on a straight-line basis over the
ease term to an estimated residual value. Such leases are accounted
for as operating leases. Revenue is recognized when earned and
depreciation expense is recorded as other expense. The Company adopted
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" effective January 1, 1995. The
adoption of this statement had no effect on the Company's financial
condition or results of operations.
Other Real Estate Owned - Other real estate owned is carried at the lower
of cost or fair value less estimated costs to sell. When the property is
acquired through foreclosure any excess of the related loan balance over
its estimated fair value less estimated costs to sell is charged to the
allowance for credit losses. Costs of maintaining other real estate owned
and any subsequent declines in the estimated fair value are charged to other
expenses.
Income Taxes - Deferred income taxes are provided for temporary differences
between financial statement and income tax reporting.
Net Income per Common and Equivalent Share - Net income per common and
equivalent share is calculated using the weighted average shares
outstanding plus the dilutive effect of stock options. The number of
shares used to compute net income per common and equivalent share was
1,066,772 shares in 1995, 1,117,076 shares in 1994 and 1,183,860 shares
in 1993. The difference between primary and fully diluted net income per
share is not significant in any year.
<PAGE>
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123, "Accounting for Stock-Based Compensation" The new
standard defines a fair value method of accounting for stock options and
other equity instruments, such as stock purchase plans. The new standard
permits companies to continue to account for equity transactions with
employees under existing accounting rules, but requires disclosure in a
note to the financial statement of the pro forma net income
Reclassifications - Certain 1994 and 1993 amounts have been reclassified
to conform to the 1995 presentation. The reclassifications had no effect
on results of operations or shareholders' equity.
2. CASH AND DUE FROM BANKS
At December 31, 1995, aggregate reserves (in the form of deposits with the
Federal Reserve Bank) of $424,000 were maintained, which satisfied federal
regulatory requirements to maintain certain average reserve balances.
<PAGE>
3. SECURITIES
The amortized cost and estimated market values of securities at
December 31 are as follows:
<TABLE>
<CAPTION>
Securities available for sale
<S> <C> <C> <C> <C>
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U. S Treasury and
agency securities $10,290,000 $ 29,000 $ (32,000) $10,287,000
Governmental mutual
fund 3,128,000 - (87,000) 3,041,000
Federal home loan
bank stock 1,958,000 - - 1,958,000
----------- ----------- ----------- -----------
Total $15,376,000 $ 29,000 $ (119,000) $15,286,000
=========== =========== =========== ===========
Securities Held to Maturity
U. S Treasury and
agency securities $ 5,564,000 $ 75,000 $ (7,000) $ 5,632,000
Mortgage-backed
securities 11,145,000 79,000 (72,000) 11,152,000
Obligations of
states and political
subdivisions 3,549,000 45,000 (5,000) 3,589,000
Federal reserve
bank stock 90,000 - - 90,000
----------- ----------- ----------- -----------
Total $20,348,000 $ 199,000 $ (84,000) $20,643,000
=========== =========== =========== ===========
1994
Securities Available for Sale
U. S Treasury and
agency securities $10,278,000 $ 22,000 $ (288,000) $10,012,000
Governmental mutual
fund 5,339,000 - (541,000) 4,798,000
Federal home loan
bank stock 319,000 - - 319,000
----------- ----------- ---------- -----------
Total $15,936,000 $ 22,000 $ (829,000) $15,129,000
=========== =========== ========== ===========
Securities Held to Maturity
U. S Treasury and
agency securities $11,640,000 $ 35,000 $ (377,000) $11 298,000
Mortgage-backed
securities 8,824,000 - (601,000) 8,223,000
Obligations of states
and political
subdivisions 3,090,000 17,000 (107,000) 3,000,000
Federal reserve
bank stock 90,000 - - 90,000
----------- ----------- ---------- -----------
Total $23,644,000 $ 52,000 $(1,085,000) $22,611,000
=========== =========== =========== ===========
</TABLE>
<PAGE>
The amortized cost and estimated market value of debt securities at
December 31, 1995, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year
or less $ 7,705,000 $ 7,681,000 $ 165,000 $ 168,000
Due after one year
through five years 2,585,000 2,606,000 4,605,000 4,568,000
Due after five years
through ten years - - 4,343,000 4,485,000
Mortgage-backed
securities - - 11,145,000 11,152,000
Governmental mutual
fund 3,128,000 3,041,000 - -
----------- ----------- ----------- -----------
Total $13,418,000 $13,328,000 $20,258,000 $20,373,000
=========== =========== =========== ===========
</TABLE>
The Federal Home Loan Bank and Federal Reserve Bank stocks are not
included in the maturity table as there is no stated maturity. Sale of
securities resulted in gross realized gains of $148,000 for 1995, (none in
1994 and $143,000 in 1993) and gross realized losses of $71,000 in 1995
($196,000 in 1994 and none in 1993.) During 1994, the Company transferred
securities from available for sale to held to maturity. The net unrealized
loss at the date of transfer of $214,000 is being amortized over the
remaining maturities of the investments. The unamortized portion of the
loss is $188,000 at December 31, 1995.
Mortgage-backed securities generally have stated maturities of four to
fifteen years, but are subject to likely and substantial prepayments which
effectively accelerate actual maturities. The Company's investment in
governmental mutual funds has no fixed maturity. At December 31, 1995
investments with an amortized cost of $12,306,000 were pledged to secure
public and certain other deposits as required by law or contract.
Effective December 7, 1995, two securities totaling $ 3,000,000 in
amortized cost and $3,105,000 market value and Federal Home Loan Bank
stock totaling $1,958,000 were reclassified from held to maturity to
available for sale in connection with initial adoption of the Financial
Accounting Standards Board Special Report "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities."
<PAGE>
4. LOANS AND ALLOWANCES FOR CREDIT LOSSES
Loans at December 31, are comprised of the following:
1995 1994
Real estate
Construction $ 7,837,000 $ 5,278,000
Other 17,507,000 14,654,000
Commercial 11,585,000 12,082,000
Installment 77,000 543,000
Lease financing 920,000 1,375,000
Unearned income on lease financing (83,000) (161,000)
------------ ------------
Total loans 37,843,000 33,771,000
Deferred loans fees (308,000) (230,000)
------------ ------------
Loans, net of deferred loan fees $ 37,535,000 $ 33,541,000
============ ============
The activity in the allowance for credit losses is summarized as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Balance, beginning of year $ 738,000 $1,339,000 $ 971,000
Provision (credited) charged
to expense - (636,000) 560,000
Write-offs (45,000) (73,000) (259,000)
Recoveries 83,000 108,000 67,000
------------ ---------- ----------
Balance, end of year $ 776,000 $ 738,000 $1,339,000
========== ========== ==========
</TABLE>
There were no nonaccrual loans at December 31, 1995 (1994, $707,000 and
1993, $2,294,000). The reduction in interest income associated with these
loans in 1994 and 1993 was $59,000 and $163,000, respectively. Interest
income recognized on such loans in 1994 and 1993 was $28,000 and $16,000.
5. PREMISES AND EQUIPMENT
Premises and equipment at December 31 are comprised of the following:
1995 1994
Land $ 948,000 $ 948,000
Building and leasehold improvements 1,194,000 1,181,000
Furniture and equipment 860,000 832,000
Leased equipment 390,000 405,000
------------ ------------
Total 3,392,000 3,366,000
Accumulated depreciation and
amortization (1,404,000) (1,171,000)
------------ ------------
Premises and equipment, net $ 1,988,000 $ 2,195,000
<PAGE> ============ ============
The Company's Los Gatos and San Jose branches are leased under
noncancellable operating leases which expire in 1998 and 1999,
respectively. The Bank has renewal options with adjustments to
the lease payments based on changes in the consumer price index.
Future minimum annual lease payments are as follows:
Fiscal
1996 $ 241,000
1997 250,000
1998 188,000
1999 176,000
-------------
Total $ 855,000
Rental expense under operating leases was $236,000 in 1995, $226,000 in
1994 and $222,000 in 1993.
6. OTHER REAL ESTATE OWNED
Other real estate owned was $1,745,000 and $1,717,000 at December 31, 1995
and 1994, respectively, (net of valuation allowance of $303,000 and
$268,000, respectively). The net cost of operation of other real estate
owned is as follows:
1995 1994 1993
Increases in valuation
allowance to reflect
decreases in estimated
fair value $ (35,000) $ (481,000) $ (202,000)
Net holding costs (80,000) (33,000) (60,000)
---------- ----------- ----------
Total $ (115,000) $ (514,000) $ (262,000)
========== ========== ==========
7. OTHER BORROWINGS
Other borrowings consist of borrowings from an U. S. agency of which
$3,570,000 is due in 1996 and the remaining is due subsequent to
December 1999.
<PAGE>
8. INCOME TAXES
The provision for income taxes is comprised of the following:
Current:
Federal $ 68,000 $189,000 $434,000
State 79,000 57,000 121,000
--------- -------- --------
Total Current 147,000 246,000 555,000
--------- -------- --------
Deferred:
Federal 345,000 94,000 (340,000)
State 47,000 37,000 (87,000)
--------- -------- --------
Total Deferred 392,000 131,000 (427,000)
--------- -------- --------
Total $ 539,000 $377,000 $128,000
========= ======== ========
The effective tax rate differs from the federal statutory rate as follows:
Federal statutory rate 35.0% 35.0% 35.0%
State income tax, net of federal effect 6.0 5.9 5.8
Tax exempt income (3.6) (4.2) (11.7)
Officer's life insurance 1.3 0.3 1.2
Other, net (0.7) (0.6) 4.0
---- ---- ----
Total 38.0% 36.4% 34.3%
==== ==== ====
<PAGE>
The Company's net deferred tax asset at December , 31 is as follows:
Deferred tax assets:
Provision for credit losses $ 198,000 $ 214,000 $ 512,000
Provision for other real estate owned 126,000 121,000 147,000
Unrealized lossed on investments
available for sale 111,000 202,000 -
Deferred rent 52,000 63,000 69,000
Deferred compensation 30,000 60,000 42,000
Depreciation and amortization - 9,000 -
Other - 13,000 -
--------- -------- --------
Total deferred assets 517,000 682,000 770,000
--------- -------- --------
Deferred tax liabilities
Depreciation and amortization (242,000) - (111,000)
Cash basis income tax reporting - - (42,000)
Other (76,000) - (6,000)
--------- -------- --------
Total deferred liabilities (318,000) - (159,000)
--------- -------- --------
Net deferred tax asset $ 199,000 $ 682,000 $ 611,000
========= ========= =========
There was no valuation allowance at December 31, 1995 and 1994.
<PAGE>
9. STOCK OPTION PLAN
The Company's stock option plans authorize the issuance to employees,
officers and directors of incentive and nonstatutory options to purchase
common stock. Options generally are granted at fair market value, become
exercisable over terms of up to four years from date of grant and expire
no more than ten years from date of grant.
Option activity is summarized as follows:
Balances at January 1, 1993 191,747 $3.50 -$9.17
Exercised (7,717) 3.63 - 4.36
Cancelled (7,653) 5.90 - 9.17
--------- ------------
Balances at December 31, 1993 176,377 3.50 - 9.17
Granted 97,300 6.31
Cancelled (7,000) 6.17 - 6.31
--------- ------------
Balances at December 31, 1994 266,677 3.50 - 9.17
Granted 31,750 6.75
Cancelled (6,200) 6.17 - 6.75
--------- ------------
Balances at December 31, 1995 292,227 $3.50 -$9.17
====== ============
At December 31, 1995, options for 21,558 shares are available for future
grant and 247,798 are exercisable.
10. COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include loan commitments of $15,021,000 and
standby letters of credit of $35,000 at December 31, 1995. The Bank's
exposure to credit loss is limited to amounts funded or drawn; however,
at December 31, 1995, no losses are anticipated as a result of these
commitments.
Loan commitments are typically contingent upon the borrower's meeting
certain financial and other covenants and such commitments typically
have fixed expiration dates and require payment of a fee. As many of
these commitments are expected to expire without being drawn upon, the
total commitments do not necessarily represent future cash requirements.
The Bank evaluates each potential borrower and the necessary collateral
on an individual basis. Collateral varies, and may include real property,
bank deposits, or business or personal assets.
<PAGE>
Standby letters of credit are conditional commitments written by the Bank
to guarantee the performance of a customer to a third party. These
guarantees are issued primarily relating to inventory purchases by the
Bank's commercial customers and such guarantees are typically short-term.
Credit risk is similar to that involved in extending loan commitments to
customers and the Bank, accordingly, uses evaluation and collateral
requirements similar to those for loan commitments. Virtually all of such
commitments are collateralized.
Officers of the Company have severance agreements which provide, in the
event of a change in control meeting certain criteria, severance payments
based on a multiple of their current compensation. At December 31, 1995,
these payments would have aggregated up to $291,000.
11. LOAN CONCENTRATIONS
The Bank's customers are primarily located in Santa Clara County, which is
located in the southern portion of the San Francisco Bay Area. Commercial
loans represent 31% of total loans, with no particular industry
representing a significant portion. Approximately 21% of the Bank's loans
are for real estate construction, of which 92% are for single family
residential properties and 8% are for land development. Other real estate
secured loans, primarily for commercial properties, represent another 46% of
loans. Installment and other loans, primarily automobile loans, represent
the remainder of loans. Many of the Bank's customers are employed by or
otherwise dependent on the high technology and real estate development
industries and, accordingly, the ability of the Bank's borrowers to repay
loans may be affected by the performance of these sectors of the economy.
Virtually all loans are collateralized. Generally, real estate loans are
secured by real property and commercial and other loans are secured by
business or personal assets. Repayment is generally expected from
refinancing or sale of the related property for real estate construction
loans and from cash flows of the borrower for all other loans.
<PAGE>
12. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
statements is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Values of Financial Statements." The estimated
fair value amounts have been determined by using available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented are not necessarily
indicative of the amounts that could be realized in a current market
exchange. The use of different market assumptions and/or estimation
techniques may have a material effect on the estimated fair value amounts.
The following table presents the carrying amount and estimated fair value
of certain assets and liabilities of the Company at December 31, 1995. The
carrying amounts reported in the consolidated balance sheets approximate
fair value for the following financial instruments: cash and due from
banks, federal funds sold, interest bearing deposits in other banks, demand
and savings deposits, federal funds purchased and other borrowings (See
Note 3 for information regarding securities).
December 31, 1995
Carrying Estimated fair
Amount Value
Loans, net $36,759,000 $31,047,000
Time deposits $27,208,000 $27,375,000
Loans
The fair value of loans with fixed rates is estimated discounting the
future cash flows using current rates at which similar loans would be made
to borrowers with similar credit ratings. For loans with variable rates
which adjust with changes in market rates of interest, the carrying amount
is a reasonable estimate of fair value.
Deposit liabilities
The fair value of demand deposits, savings accounts and certain money
market deposits, is the amount payable on demand at the reporting date
and is equal to the carrying value. The fair value of fixed maturity
certificates of deposit is estimated using rates currently offered for
deposits of similar remaining maturities.
Commitments to extend credit and standby letters of credit
Commitments to extend credit and standby letters of credit are issued
in the normal course of business by the Bank. Commitments to extend
credit are issued with variable interest rates tied to market interest
rates at the time the commitment is funded and the amount of the commitment
equals its fair value. Standby letters of credit are supported by
commitments to extend credit with variable interest rates tied to market
interest rates at the time the commitments is funded and the amount of the
standby letter of credit equals its fair value.
<PAGE>
13. REGULATORY MATTERS
The Company is subject to Federal Reserve Board ("FRB") guidelines and the
Bank is subject to Federal Deposit Insurance Corporation ("FDIC")
regulations governing capital adequacy. The FRB guidelines and the FDIC
regulations require that bank holding companies and banks meet both
risk-weighted capital and leverage capital ratio requirements.
The risk-weighted capital requirements involve assigning assets to four
broad risk categories and establishing minimum capital ratios based on the
require maintenance of an 8% ratio of capital to risk-weighted assets, with
Tier I capital comprising at least 4% thereof. Tier I capital consists of
common equity and retained earnings. At December 31, 1995, the ratio of
Tier I capital to risk-weighted assets was 20.8% and 20.5% for the Company
and the Bank, respectively. In addition, the FRB and the FDIC have adopted
leverage capital guidelines which call for a minimum ratio of 3% to 5% of
Tier I capital to total assets for bank holding companies and banks. The
leverage ratio of Tier I capital to total assets was 11.7% and 11.5% for
the Company and the Bank, respectively, at December 31, 1995.
14. CONDENSED FINANCIAL INFORMATION OF SARATOGA BANCORP (PARENT ONLY)
The condensed financial statements of Saratoga Bancorp are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
CONDENSED BALANCE SHEETS
ASSETS:
Cash-interest bearing account
with Bank $ 149,000 $ 8,000
Short-term interest bearing
deposits - 250,000
Real estate loans - 36,000
Investment in Bank 10,882,000 9,322,000
Other assets 27,000 12,000
------------- ------------
Total $ 11,058,000 $ 9,628,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 1,000 $ 1,000
Common stock 4,427,000 4,427,000
Retained earnings 6,797,000 6,019,000
Unrealized loss on investments
available for sale (167,000) (819,000)
------------- -------------
Total $ 11,058,000 $ 9,628,000
============= =============
</TABLE>
<PAGE>
<TABLE>
December 31,
<S> <C> <C> <C>
CONDENSED INCOME STATEMENTS 1995 1994 1993
Interest income $ 8,000 $ 43,000 $ 49,000
Credit for credit losses - 10,000 1,000
Other expenses (50,000) (57,000) (61,000)
------------- ------------- ------------
Loss before income taxes and
equity in undistributed net
income of Bank (42,000) (4,000) (11,000)
Income taxes 16,000 1,000 4,000
Equity in undistributed net
income of Bank 907,000 661,000 252,000
------------ ------------- ------------
Net income $ 881,000 $ 658,000 $ 245,000
============ ============= ============
Cash flows from operations:
Net income $ 881,000 $ 658,000 $ 245,000
Adjustments to reconcile
net income to net
cash (used in) provided
by operating activities:
Equity in undistributed
net income of Bank (907,000) (661,000) (252,000)
Credit for credit losses - (10,000) (1,000)
Change in other assets (16,000) - 78,000
Change in other liabilities - 1,000 -
----------- ------------ -----------
Net cash (used in) provided
by operating activities (42,000) (12,000) 70,000
Cash flows from investing
activities - Net change
in loans 36,000 354,000 619,000
----------- ------------ -----------
Cash flows from financing
activities -
Cash dividend (103,000) - -
Repurchase of common stock - (944,000) -
Sale of common stock - - 9,000
----------- ------------ -----------
Net cash (used in) provided
by financing activities (103,000) (944,000) 9,000
----------- ------------ -----------
Net (decrease) increase in cash (109,000) (602,000) 698,000
Cash, beginning of year 258,000 860,000 162,000
----------- ------------ -----------
Cash, end of year $ 149,000 $ 258,000 $ 860,000
=========== ============ ===========
</TABLE>
The ability of the Company to pay future dividends will largely depend
upon the dividends paid to it by the Bank. Under federal law regulating
national banks, dividends declared by the Bank in any calendar year may
not exceed the lesser of its undistributed net income for the most recent
three fiscal years or its retained earnings. As of December 31, 1995, the
amount available for distribution from the Bank to the Company was
approximately $1,681,000, subject to approval by the Office of the
Comptroller of the Currency. The Bank is also restricted as to the amount
and form of loans, advances or other transfers of funds or other assets to
the Company.
* * * * *
<PAGE>
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required hereunder is incorporated by
reference from the Company's definitive proxy statement for the
Company's 1996 Annual Meeting of Shareholders (to be filed
pursuant to Regulation 14A).
Item 11. Executive Compensation.
The information required hereunder is incorporated by
reference from the Company's definitive proxy statement for the
Company's 1996 Annual Meeting of Shareholders (to be filed
pursuant to Regulation 14A).
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required hereunder is incorporated by
reference from the Company's definitive proxy statement for the
Company's 1996 Annual Meeting of Shareholders (to be filed
pursuant to Regulation 14A).
Item 13. Certain Relationships and Related Transactions.
The information required hereunder is incorporated by
reference from the Company's definitive proxy statement for the
Company's 1996 Annual Meeting of Shareholders (to be filed
pursuant to Regulation 14A).
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) Financial Statements. This information is listed
and included in Part II, Item 8.
(a) (2) Financial Statement Schedules. All schedules have
been omitted since the required information is not
resent or is not present in amounts sufficient to
require submission of the schedule or because the
information required is included in the
Consolidated Financial Statements or notes
thereto.
<PAGE>
(a) (3) Exhibits. The exhibits listed on the accompanying
Exhibit Index are filed as part of this report.
(3.1) Articles of Incorporation, as amended, are
incorporated by reference herein to Exhibit 3.1 of
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, as filed with
the Securities and Exchange Commission on March
27, 1989.
(3.2) By-laws, as amended, are incorporated by reference
herein to Exhibit 3.2 of Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993 as filed with the Securities and
Exchange Commission on March 29, 1994.
(4.1) Specimen stock certificate is incorporated by
reference to Exhibit 4.1 of Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994 as filed with the Securities and
Exchange Commission on March 30, 1995.
(10.1) Lease agreement dated 10/19/87 for 15405 Los Gatos
Blvd., Suite 103, Los Gatos, CA is incorporated
by reference herein to Exhibit 10.1 of
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987 as filed with
the Securities and Exchange Commission on March
31, 1988.
(10.2) Agreement of Purchase and Sale dated July 27, 1988
for 12000 Saratoga-Sunnyvale Road, Saratoga, CA is
incorporated by reference herein to Exhibit 10.1
of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, as filed with
the Securities and Exchange Commission on March
27, 1989.
*(10.3) Indemnification Agreements with directors and
Executive Officers of the Registrant are
incorporated by reference herein to Exhibit 10.2
of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, as filed with
the Securities and Exchange Commission on March
27, 1989.
(10.4) Lease agreement dated 1/17/89 for 160 West Santa
Clara Street, San Jose, California is incorporated
by reference herein to Exhibit 10.4 of
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, as filed with
the Securities and Exchange Commission on March
27, 1990.
<PAGE>
(10.5) Bank of the West Master Profit Sharing and Savings
Plan and Amendment, amended as of March, 1990 is
incorporated by reference herein to Exhibit 10.5
of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, as filed with
the Securities and Exchange Commission on March
20, 1991.
*(10.6) Employment Agreement and Management Continuity
Agreement and Chief Executive Officer
Compensation Plan/Richard L. Mount is incorporated
by reference herein to Exhibit 10.6 of
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, as filed with
the Securities and Exchange Commission on March
20, 1991.
(21) Subsidiaries of the registrant: Registrant's only
subsidiary is Saratoga National Bank, a national
banking association, which operates a commercial
and retail banking operation in California.
(23) Independent Auditors' consent
(27) Financial Data Schedule
* Denotes management contracts, compensatory plans or
arrangements.
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K for the
three month period ended December 31, 1995.
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security
holders. The Company shall furnish copies of such material to
the Commission when it is sent to security holders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SARATOGA BANCORP
By_______________________________
Richard L. Mount, President
(Principal Executive Officer)
Date_____________________________
By_______________________________
Mary Page-Rourke, Treasurer
(Principal Financial and
Accounting Officer)
Date_____________________________
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Name Title Date
__________________ Director _______________
Victor Aboukhater
__________________ Director and Secretary _______________
Neal A. Cabrinha
<PAGE>
Name Title Date
__________________ Director _______________
Robert G. Egan
__________________ Director _______________
William D. Kron
__________________ Director _______________
John F. Lynch III
__________________ Director _______________
V. Ronald Mancuso
Chairman of the Board
__________________ President and Director _______________
Richard L. Mount (Principal Executive
Officer)
__________________ Treasurer _______________
Mary Page-Rourke (Principal Financial and
Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Number Exhibits Page
10.8 Saratoga Bank Savings Plan dated
June 19, 1995 74 - 177
23 Independent Auditors' Consent 178
27 Financial Data Schedule 179
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 5239 6514
<INT-BEARING-DEPOSITS> 200 250
<FED-FUNDS-SOLD> 17700 3500
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 15376 15129
<INVESTMENTS-CARRYING> 20348 23644
<INVESTMENTS-MARKET> 20463 22611
<LOANS> 36759 32803
<ALLOWANCE> 776 738
<TOTAL-ASSETS> 100497 87536
<DEPOSITS> 74949 73872
<SHORT-TERM> 3070 1500
<LIABILITIES-OTHER> 904 537
<LONG-TERM> 10517 2000
0 0
0 0
<COMMON> 4427 4427
<OTHER-SE> 6630 5200
<TOTAL-LIABILITIES-AND-EQUITY> 100497 87536
<INTEREST-LOAN> 3788 3361
<INTEREST-INVEST> 2363 1824
<INTEREST-OTHER> 421 261
<INTEREST-TOTAL> 6572 5446
<INTEREST-DEPOSIT> 2470 1919
<INTEREST-EXPENSE> 2861 1929
<INTEREST-INCOME-NET> 3711 3517
<LOAN-LOSSES> 0 (396)
<SECURITIES-GAINS> 72 (206)
<EXPENSE-OTHER> 2868 3327
<INCOME-PRETAX> 1420 1035
<INCOME-PRE-EXTRAORDINARY> 1420 1035
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 881 658
<EPS-PRIMARY> .83 .59
<EPS-DILUTED> .82 .59
<YIELD-ACTUAL> 8.3 7.7
<LOANS-NON> 0 707
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 196 209
<LOANS-PROBLEM> 1161 1030
<ALLOWANCE-OPEN> 738 1339
<CHARGE-OFFS> 45 73
<RECOVERIES> 83 108
<ALLOWANCE-CLOSE> 776 738
<ALLOWANCE-DOMESTIC> 776 738
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 344 143
</TABLE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-34674 of Saratoga Bancorp on Form S-8 of our report dated February 2, 1996,
appearing in this Annual Report on Form 10-K of Saratoga Bancorp for the year
ended December 31, 1995.
DELOITTE & TOUCHE LLP
San Jose, California
March 25, 1996
SARATOGA BANK SAVINGS PLAN<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS 20
2.2 DETERMINATION OF TOP HEAVY STATUS 20
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 24
2.4 DESIGNATION OF ADMINISTATIVE AUTHORITY 25
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 25
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR 26
2.7 RECORDS AND REPORTS 27
2.8 APPOINTMENT OF ADVISERS 27
2.9 INFORMATION FROM EMPLOYER 27
2.10 PAYMENT OF EXPENSES 28
2.11 MAJORITY ACTIONS 28
2.12 CLAIMS PROCEDURE 28
2.13 CLAIMS REVIEW PROCEDURE 28
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY 29
3.2 APPLICATION FOR PARTICIPATION 30
3.3 EFFECTIVE DATE OF PARTICIPATION 30
3.4 DETERMINATION OF ELIGIBILITY 30
3.5 TERMINATION OF ELIGIBILITY 30
3.6 OMISSION OF ELIGIBLE EMPLOYEE 31
3.7 INCLUSION OF INELIGIBLE EMPLOYEE 31
3.8 ELECTION NOT TO PARTICIPATE 31
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION 31
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION 32
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 37
4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS 37
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS 43
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS 46
4.7 MAXIMUM ANNUAL ADDITIONS 48
4.8 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 53
4.9 TRANSFERS FROM QUALIFIED PLANS 54
4.10 DIRECTED INVESTMENT ACCOUNT 56
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND 57
5.2 METHOD OF VALUATION 57
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT 58
6.2 DETERMINATION OF BENEFITS UPON DEATH 58
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT 82
8.2 TERMINATION 82
8.3 MERGER OR CONSOLIDATION 82
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS 83
9.2 ALIENATION 83
9.3 CONSTRUCTION OF PLAN 84
9.4 GENDER AND NUMBER 84
9.5 LEGAL ACTION 84
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS 85
9.7 BONDING 85
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 86
9.9 INSURER'S PROTECTIVE CLAUSE 86
9.10 RECEIPT AND RELEASE FOR PAYMENTS 86
9.11 ACTION BY THE EMPLOYER 86
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 87
9.13 HEADINGS 87
9.14 APPROVAL BY INTERNAL REVENUE SERVICE 88
9.15 UNIFORMITY 88
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS 88
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS 89
10.3 DESIGNATION OF AGENT 90
10.4 EMPLOYEE TRANSFERS 90
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION 90
10.6 AMENDMENT 91
10.7 DISCONTINUANCE OF PARTICIPATION 91
10.8 ADMINISTRATOR'S AUTHORITY 81
SARATOGA BANK SAVINGS PLAN
THIS AGREEMENT, hereby made and entered into this
19th day of June ,1995 , by and between Saratoga National Bank
(herein referred to as the "Employer") and Mary Page Rourke,
Barbara Resop, Earl Lanna and Richard Mount (herein referred to as
the "Trustee").
W I T N E S S T H
WHEREAS, the Employer heretofore established a Profit
Sharing Plan and Trust effective January 1, 1987, (hereinafter
called the "Effective Date") known as Saratoga Bank Savings Plan
(herein referred to as the "Plan") in recognition of the
contribution made to its successful operation by its employees and
for the exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Plan, the Employer
has the ability to amend the Plan, provided the Trustee joins in
such amendment if the provisions of the Plan affecting the Trustee
are amended;
NOW,THEREFORE, effective July 1, 1995, except as
otherwise provided, the Employer and the Trustee in accordance with
the provisions of the Plan pertaining to amendments thereof, hereby
amend the Plan in its entirety and restate the Plan to provide as
follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act
of 1974, as it may be amended from time to time.
1.2 "Administrator" means the person or entity designated by
the Employer pursuant to Section 2.4 to administer the Plan on
behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a
member of a controlled group of corporations (as defined in Code
Section 414(b)) which includes the Employer; any trade or business
(whether or not incorporated) which is under common control (as
defined in Code Section 414(c)) with the Employer; any organization
(whether or not incorporated) which is a member of an affiliated
service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the
Employer pursuant to Regulations under Code Section 414(0).
1.4 "Aggregate Account" means, with respect to each
Participant, he value of all accounts maintained on behalf of a
Participant, whether attributable to Employer or Employee contributions,
subject to the provisions of Section 2.2.
1.5 "Anniversary Date" means December 31.
1.6 "Beneficiary" means the person to whom the share of a
deceased Participant's total account is payable, subject to the
restrictions of Sections 6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as amended
or replaced from time to time.
1.8 "Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other
payments of compensation by the Employer (in the course of the
Employer's trade or business) for a Plan Year for which the
Employer is required to furnish the Participant a written statement
under Code Sections 6041(d),6051(a) (3) and 6052. Compensation must
be determined without regard to any rules under Code Section
3401(a)that limit the remuneration included in wages based on the
nature or location of the employment or the services performed
(such as the exception for agricultural labor in Code Section 3401(a
(2)).
For purposes of this Section, the determination of Compensation
shall be made by:
(a) including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which
are not includible in the gross income of the Participant
under Code Sections 125, 402(e)(3),402(h)(1)(B), 403(b) or457,
and Employee contributions described in Code Section 414(h)(2)
that are treated as Employer contributions.
For a Participant's initial year of participation,
Compensation shall be recognized for the entire Plan Year.
Compensation in excess of $200,000 shall be
disregarded. Such amount shall be adjusted at the same time and
in such manner as permitted under Code Section 415(d), except
that the dollar increase in effect on January 1 of any calendar
year shall be effective for the Plan Year beginning with or
within such calendar year and the first adjustment to the
$200,000 limitation shall be effective on January 1, 1990. For
any short Plan Year the Compensation limit shall be an amount
equal to the Compensation limit for the calendar year in which
the number of full months 'in the short Plan Year by twelve (12).
In applying this limitation, the family group of a Highly
Compensated Participant who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner" of the Employer or
one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be treated as
a single Participant, except that for this purpose Family Members
shall include only the affected Participant's spouse and any
lineal descendants who have not attained age nineteen (19)
before the close of the year. If, as a result of the
application of such rules the adjusted $200,000 limitation is
exceeded, then the limitation shall be prorated among the
affected Family Members in proportion to each such Family
Member's Compensation prior to the application of this
limitation, or the limitation shall be adjusted in accordance
with any other method permitted by Regulation.
In addition to other applicable limitations set forth
in the Plan, and notwithstanding any other provision of the Plan
to the contrary, for Plan Years beginning on or after January 1,
1994, the annual Compensation of each Employee taken into account
under the Plan shall not exceed the OBRA '93 annual compensation
limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living
in accordance with Code Section 401(a)(17)(B). The cost of living
adjustment in effect for a calendar year applies to any period,'
not exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA
'93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994,
any reference in this Plan to the limitation under Code Section
401(a) (17) shall mean the OBRA '93 annual compensation limit set
forth in this provision.
If Compensation for any prior determination period is
taken into account in determining an Employee's benefits accruing
in the current Plan Year, the Compensation for that prior
determination period is subject to the OBRA '93 annual
compensation limit in effect for that prior determination period.
For this purpose, for determination periods beginning before the
first day of the first Plan Year beginning on or after January 1,
1994, the OBRA '93 annual compensation limit is $150,000.
If, as a result of such rules, the maximum "annual
addition" limit of Section 4.7(a) would be exceeded for one or more
of the affected Family Members, the prorated Compensation of all
affected Family Members shall be adjusted to aviod or reduce any
excess. The prorated Compensation of any affectd Family Member
whose allocation would exceed the limit shall be adjusted downward
to the level needed to provide an allocation equal to such limit.
The prorated Compensation of affected Family Members not affected
by such limit shall then be adjusted upward on a pro rata basis not
to exceed each such affected Family Member's Compensation as
determined prior to application of the Family Member rule. The
resulting allocation shall not exceed such individual's maximum
"annual addition" limit. If, after these adjustments, an "excess
amount" still results, such "excess amount" shall be disposed of in
a manner described in Section 4.8(a) pro rata among all affected
Family Members.
For purposes of this Section, if the Plan is a plan
described in Code Section 413(c) or 414(f) (a plan maintained by
more than one Employer), the $200,000 limitation applies separately
with respect to the Compensation of any Participant from each
Employer maintaining the Plan.
If, in connection with the adoption of this amendment and
restatement, the definition of Compensation has been modified, then,
for Plan Years prior to the Plan Year which includes the adoption
date of this amendment and restatement, Compensation means
Compensation determined pursuant to the Plan then in effect.
For Plan Years beginning prior to January 1, 1989, the
$200,000 limit (without regard to Family Member aggregation) shall
apply only for Top Heavy Plan Years and shall not be adjusted.
1.9 "Contract" or "Policy" means any life insurance policy,
retirement income of annuity contract (group or individual) issued
pursuant to the terms of the Plan.
1.10 "Deferred Compensation" with respect to any Participant
means the amount of the Participant's total Compensation which has
been contributed to the Plan in accordance with the Participant's
deferral election pursuant to Section 4.2 excluding any such amounts
distributed as excess "annual additions" pursuant to Section 4.8(a).
1.11 "Early Retirement Date." This Plan does not provide for
retirement date prior to Normal Retirement Date.
1.12 "Elective Contribution" means the Employer's
contributions to the Plan of Deferred Compensation excluding any
such amounts distributed as excess "annual additions" pursuant to
Section 4.8(a). In addition, the Employer's matching
contribution made pursuant to Section 4.1(b) and any Employer
Qualified Non-Elective Contribution made pursuant to Section
4.1(c) and Section 4.6 shall be considered an Elective
Contribution for purposes of the Plan. Any such contributions
deemed to be Elective Contributions shall be subject to the
requirements of Sections 4.2(b) and 4.2(c) and shall further be
required to satisfy the discrimination requirements of Regulation
1.401(k)-l(b) (5), the provisions of which are specifically
incorporated herein by reference.
1.13 "Eligible Employee" means any Employee.
Employees of Affiliated Employers shall not be eligible to
participate in this Plan unless such Affiliated Employers have
specifically adopted this Plan in writing.
1.14 "Employee" means any person who is employed by the
Employer or Affiliated Employer, but excludes any person who is
an independent contractor. Employee shall include Leased
Employees within the meaning of Code Sections 414(n)(2) and
414(0) (2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do
not constitute more than 20% of the recipient's non-highly
compensated work force.
1.15 "Employer" means Saratoga National Bank and any
Participating Employer (as defined in Section 10.1) which shall
adopt this Plan; any successor which shall maintain this Plan;
and any predecessor which has maintained this Plan. The Employer
is a corporation, with principal offices in the State of
California.
1.16 "Excess Contributions" means, with respect to a Plan
Year, the excess of Elective Contributions made on behalf of
Highly Compensated Participants for the Plan Year over the
maximum amount of such contributions permitted under Section
4.5(a). Excess Contributions shall be treated as an "annual
addition" pursuant to Section 4.7(b).
1.17 "Excess Deferred Compensation" means, with respect to
any taxable year of a Participant, the excess of the aggregate
amount of such Participant's Deferred Compensation and the
elective deferrals pursuant to Section 4.2(f) actually made on
behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is
incorporated herein by reference. Excess Deferred Compensation
shall be treated as an "annual addition" pursuant to Section
4.7(b) when contributed to the Plan unless distributed to the
affected Participant not later than the first April 15th
following the close of the Participant's taxable year.
Additionally, for purposes of Sections 2.2 and 4.4(f), Excess
Deferred Compensation shall continue to be treated as Employer
contributions even if distributed pursuant to Section 4.2(f).
However, Excess Deferred Compensation of Non-Highly Compensated
Participants is not taken into account for purpose's of Section
4.5(a) to the extent such Excess Deferred Compensation occurs
pursuant to Section 4.2(d).
1.18 "Family Member" means, with respect to an affected
Participant, such Participant's spouse and such Participant's
lineal descendants and ascendants and their spouses, all as
described in Code Section 414(q)(6)(B).
1.19 "Fiduciary" means any person who (a) exercises any
discretionary authority or discretionary control respecting
management of the Plan or exercises any authority or control
respecting management or disposition of its assets, (b) renders
investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of the
Plan or has any authority or responsibility to do so, or (c)
has any discretionary authority or discretionary responsibility
in the administration of the Plan, including, but not limited
to, the Trustee, the Employer and its representative body, and
the Administrator.
1.20 "Fiscal Year" means the Employer's accounting year of 12
months commencing on January 1st of each year and ending the
following December 31st.
1.21 "Forfeiture." Under this Plan, Participant accounts are
100% Vested at all times. Any amounts that may otherwise be
forfeited under the Plan pursuant to Section 3.7, 4.2(f) or 6.9
shall be used to reduce the contribution of the Employer.
1.22 "Former Participant" means a person who has been a
Participant, but who has ceased to be a Participant for any reason.
1.23 "415 Compensation" with respect to any Participant means
such Participant's wages as defined in Code Section 3401(a) and all
other payments of compensation by the Employer (in the course of
the Employer's trade or business) for a Plan Year for which the
Employer is required to furnish the Participant a written statement
under Code Sections 6041(d), 6051(a) (3) and 6052. "415
Compensation" must be determined without regard to any rules under
Code Section 3401(a) that limit the remuneration included in wages
based on the nature or location of the employment or the services
performed such as the exception for agricultural labor in Code
Section 3401(a)(2)).
If, in connection with the adoption of this amendment and
restatement, the definition of "415 Compensation" has been modified,
then, for Plan Years prior to the Plan Year which includes the
adoption date of this amendment and restatement, "415 Compensation"
means compensation determined pursuant to the Plan then in effect.
1.24 "414(s) Compensation" with respect to any Participant
means such Participant's "415 Compensation" paid during a Plan Year.
The amount of "414(s) Compensation" with respect to any Participant
shall include "414(s) Compensation" for the entire twelve (12)
month period ending on the last day of such Plan Year.
For purposes of this Section, the determination of "414(s)
Compensation" shall be made by including amounts which are
contributed by the Employer pursuant to a salary reduction agreement
and which are not includible in the gross income of the Participant
under Code Sections 125, 402(e) (3), 402(h) (1)(B), 403(b) or 457,
and Employee contributions described in Code Section 414(h) (2)
that are treated as Employer contributions.
"414(s) Compensation" in excess of $200,000 shall be
disregarded. Such amount shall be adjusted at the same time and in
such manner as permitted under Code Section 415(d), except that the
dollar increase in effect on January 1 of any calendar year shall
be effective for the Plan Year beginning with or within such
calendar year and the first adjustment to the $200,000 limitation
shall be effective on January 1, 1990. For any short Plan Year the
"414(s) Compensation" limit shall be an amount equal to the
"414(s) Compensation" limit for the calendar year in which the Plan
Year begins multiplied by the ratio obtained by dividing the number
of full months in the short Plan Year by twelve (12). In applying
this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules
of Code Section 414(q)(6) because such Participant is either a
"five percent owner" of the Employer or one of the ten (10) Highly
Compensated Employees paid the greatest "415 Compensation" during
the year, shall be treated as a single Participant, except that
for this purpose Family Members shall include only the affected
Participant's spouse and any lineal descendants who have not
attained age nineteen (19) before the close of the year.
In addition to other applicable limitations set forth in
the Plan, and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994, the
annual Compensation of each Employee taken into account under the
Plan shall not exceed the OBRA '93 annual compensation limit. The
OBRA '93 annual compensation limit is $150,000, as adjusted
by the Commissioner for increases in the cost of living in
accordance with Code Section 401(a) (17) (B). The cost of living
adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which Compensation is determined
(determination period)beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination
period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Code Section 401(a)
(17) shall mean the OBRA '93 annual compensation limit set forth
in this provision.
If Compensation for any prior determination period is
taken into account in determining an Employee's benefits accruing
in the current Plan Year, the Compensation for that prior
determination period is subject to the OBRA '93 annual compensation
limit in effect for that prior determination period. For this
purpose, for determination periods beginning before the first day
of the first Plan Year beginning on or after January 1, 1994, the
OBRA '93 annual compensation limit is $150,000.
If, in connection with the adoption of this amendment and
restatement, the definition of "414(s) Compensation" has been
modified, then, for Plan Years prior to the Plan Year which
includes the adoption date of this amendment and restatement,
"414(s) Compensation" means compensation determined pursuant to the
Plan then in effect.
1.25 "Highly Compensated Employee" means an Employee described
in Code Section 414(q) and the Regulations thereunder, and
generally means an Employee who performed services for the Employer
during the "determination year" and is in one or more of the
following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" as defined in
Section 1.31(c).
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess
of $75,000.
(c) Employees who received "415 Compensation" during
the "look-back year" from the Employer in excess of
$50,000 and were in the Top Paid Group of Employees for
the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received "415 Compensation"
during the "look-back year" from the Employer greater than 50 percent
of the limit in effect under Code Section 415(b) (1)(A) for any such
Plan Year. The number of officers shall be limited to the lesser of
of 3 employees or 10 percent of all employees. For the purpose of
determining the number of officers, Employees described in Section
1.54(a),(b),(c) and (d) shall be excluded, but such Employees shall
still be considered for the purpose of identifying the particular
Employees who are officers. If the Employer does not have at least
one officer whose annual "415 Compensation" is in excess
of 50 percent of the Code Section 415(b) (1) (A) limit,
then the highest paid officer of the Employer will be treated as a
Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees
paid the greatest "415 Compensation" during the "determination year" and are
also described in (b), (c) or (d) above when these paragraphs are modified
to substitute "determination year" for "look-back year."
The "look-back year" shall be the calendar year ending
with or within the Plan Year for which testing is being performed,
and the "determination year" (if applicable) shall be the period
of time, if any, which extends beyond the "look-back year" and ends
on the last day of the Plan Year for which testing is being
performed (the "lag period"). If the "lag period" is less than
twelve months long, the dollar threshold amounts specified in (b),
(c) and (d) above shall be prorated based upon the number of months
in the "lag period."
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are
contributed by the Employer pursuant to a salary reduction agreement
and which are not includible in the gross income of the Participant
under Code Sections 125, 402(e) (3), 402(h) (1)(B), 403(b) or
457, and Employee contributions described in Code Section 414(h)
(2) that are treated as Employer contributions. Additionally, the
dollar threshold amounts specified in (b) and (c) above shall be
adjusted at such time and in such manner as is provided in
Regulations. In the case of such an adjustment, the dollar limits
which shall be applied are those for the calendar. year in which the
"determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee,
Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the
Employer constituting United States source income within the meaning
of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, all Affiliated Employers shall be taken into account
as a single employer and Leased Employees within the meaning of Code
Sections 414(n)(2) and 414(0)(2) shall be considered Employees
unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan
maintained by the Employer. The exclusion of Leased Employees for
this purpose shall be applied on a uniform and consistent basis for
all of the Employer's retirement plans. Highly Compensated Former
Employees shall be treated as Highly Compensated Employees without
regard to whether they performed services during the "determination
year."
1.26 "Highly Compensated Former Employee" means a former
Employee who had a separation year prior to the "determination year"
and was a Highly Compensated Employee in the year of separation from
service or in any "determination year" after attaining age 55.
Notwithstanding the foregoing, an Employee who separated from
service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the
separation year) or any year after the Employee attains age 55 (or
the last year ending before the Employee's 55th birthday) the
Employee either received "415 Compensation" in excess of $50,000 or
was a "five percent owner." For purposes of this Section,
"determination year," "415 Compensation" and "five percent owner"
shall be determined in accordance with Section 1.25. Highly
Compensated Former Employees shall be treated as Highly Compensated
Employees. The method set forth in this Section for determining who
is a "Highly Compensated Former Employee" shall be applied on a
uniform and consistent basis for all purposes for which the Code
Section 414(q) definition is applicable.
1.27 "Highly Compensated Participant" means any Highly
Compensated Employee who is eligible to participate in the Plan.
1.28 "Hour of Service" means (1) each hour for which an
Employee is directly or indirectly compensated or entitled to
compensation by the Employer for the performance of duties during
the applicable computation period; (2) each hour for which an
Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the
employment relationship has terminated) for reasons other than
performance of duties (such as vacation, holidays, sickness,
jury duty, disability, lay-off, military duty or leave of
absence) during the applicable computation period; (3) each hour
for which back pay is awarded or agreed to by the Employer without
regard to mitigation of damages. These hours will be credited to
the Employee for the computation period or periods to which the
award or agreement pertains rather than the computation period in
which the award, agreement or payment is made. The same Hours of
Service shall not be credited both under (1) or (2), as the case
may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of
Service are required to be credited to an Employee on account of any
single continuous period during which the Employee performs no
duties (whether or not such period occurs in a single computation
period); (ii) an hour for which an Employee is directly or
indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited
to the Employee if such payment is made or due under a plan
maintained solely for the purpose of complying with applicable
worker's compensation, or unemployment compensation or disability
insurance laws; and (iii) Hours of Service are not required to be
credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed
to be made by or due from the Employer regardless of whether such
payment is made by or due from the Employer directly, or indirectly
through, among others, a trust fund, or insurer, to which the
Employer contributes or pays premiums and regardless of whether
contributions made or due to the trust fund, insurer, or other
entity are for the benefit of particular Employees or are on behalf
of a group of Employees in the aggregate.
An Hour of Service must be counted for the purpose of
determining a Year of Service, a year of participation for purposes
of accrued benefits, a l-Year Break in Service, and employment
commencement date (or reemployment commencement date). In addition,
Hours of Service will be credited for employment with other
Affiliated Employers. The provisions of Department of Labor
regulations 2530.200b-2(b) and (c) are incorporated herein by
reference.
1.29 "Income" means the income or losses allocable to "excess
amounts" which shall equal the allocable gain or loss for the
"applicable computation period". The income allocable to "excess
amounts" for the "applicable computation period" is determined by
multiplying the income for the "applicable computation period" by
a fraction. The numerator of the fraction is the "excess amount" for
the "applicable computation period." The denominator of the fraction
is the total "account balance" attributable to "Employer
contributions" as of the end of the "applicable computation period",
reduced by the gain allocable to such total amount for the
"applicable computation period" and increased by the loss allocable
to such total amount for the "applicable computation period". The
provisions of this Section shall be applied:
(a) For purposes of Section 4.2(f), by substituting:
(1) "Excess Deferred Compensation" for "excess
amounts";
(2) "taxable year of the Participant" for
"applicable computation period";
(3) "Deferred Compensation" for "Employer
contributions"; and
(4) "Participant's Elective Account" for "account
balance."
(b) For purposes of Section 4.6(a), by substituting:
(1) "Excess Contributions" for "excess amounts";
(2) "Plan Year" for "applicable computation period";
(3) "Elective Contributions" for "Employer
contributions"; and
(4) "Participant's Elective Account" for "account
balance."
Income allocable to any distribution of Excess Deferred
Compensation on or before the last day of the taxable year of the
Participant shall be calculated from the first day of the taxable
year of the Participant to the date on which the distribution is
made pursuant to either the "fractional method" or the "safe
harbor method." Under such "safe harbor method," allocable Income
for such period shall be deemed to equal ten percent (10%) of
the Income allocable to such Excess Deferred Compensation
multiplied by the number of calendar months in such period. For
purposes of determining the number of calendar months in such
period, a distribution occurring on or before the fifteenth day
of the month shall be treated as having been made on the last day
of the preceding month and a distribution occurring after such
fifteenth day shall be treated as having been made on the first
day of the next subsequent month.
Notwithstanding the above, for "applicable computation
periods" which began in 1987, Income during the "gap period"
shall not be taken into account.
1.30 "Investment Manager" means an entity that (a) has
the power to manage, acquire, or dispose of Plan assets and (b)
acknowledges fiduciary responsibility to the Plan in writing.
Such entity must be a person, firm, or corporation registered
as an investment adviser under the Investment Advisers Act of
1940, a bank, or an insurance company.
1.31 "Key Employee" means an Employee as defined in Code
Section 416(i) and the Regulations thereunder. Generally, any
Employee or former Employee (as well as each of his
Beneficiaries) is considered a Key Employee if he, at any time
during the Plan Year that contains the "Determination Date" or
any of the preceding four (4) Plan Years, has been included in
one of the following categories:
(a) an officer of the Employer (as that term is
defined within the meaning of the Regulations under
Code Section 416) having annual "415 Compensation"
greater than 50 percent of the amount in effect under
Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual
"415 Compensation" from the Employer for a Plan Year
greater than the dollar limitation in effect under Code
Section 415(c) (1)(A) for the calendar year in which
such Plan Year ends and owning (or considered as
owning within the meaning of Code Section 318) both
more than one-half percent interest and the largest
interests in the Employer.
(c) a "five percent owner" of the Employer.
"Five percent owner" means any person who owns (or is
considered as owning within the meaning of Code Section
318) more than five percent (5%) of the outstanding
stock of the Employer or stock possessing more than
five percent (5%) of the total combined voting power
of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than
five percent (5%) of the capital or profits interest
in the Employer. In determining percentage ownership
hereunder, employers that would otherwise be
aggregated under Code Sections 414(b), (c), (m) and
(0) shall be treated as separate employers.
(d) a "one percent owner" of the Employer
having an annual "415 Compensation" from the Employer
of more than $150,000. "One percent owner" means any
person who owns (or is considered as owning within the
meaning of Code Section 318) more than one percent
(1%) of the outstanding stock of the Employer or stock
possessing more than one percent (1%) of the total
combined voting power of all stock of the Employer or,
in the case of an unincorporated business, any person
who owns more than one percent (1%) of the capital or
profits interest in the Employer. In determining
percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections 414(b),
(c), (m) and (0) shall be treated as separate
employers. However, in determining whether an
individual has "415 Compensation" of more than
$150,000, "415 Compensation" from each employer
required to be aggregated under Code Sections 414(b),
c), (m) and (0) shall be taken into account.
For purposes of this Section, the determination of
"415 Compensation" shall be made by including amounts which are
contributed by the Employer pursuant to a salary reduction
agreement and which are not includible in the gross income of the
Participant under Code Sections 125, 402(e) (3), 402(h) (1)(B),
403(b) or 457, and Employee contributions described in Code
Section 414(h) (2) that are treated as Employer contributions.
1.32 "Late Retirement Date" means the first day of the month
coinciding with or next following a Participant's actual
Retirement Date after having reached his Normal Retirement Date.
1.33 "Leased Employee" means any person (other than an
Employee of the recipient) who pursuant to an agreement between
the recipient and any other person ("leasing organization") has
performed services for the recipient (or for the recipient and
related persons determined in accordance with Code Section 414(n)
(6) on a substantially full time basis for a period of at least
one year, and such services are of a type historically performed
by employees in the business field of the recipient employer.
Contributions or benefits provided a Leased Employee by the
leasing organization which are attributable to services performed
for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an
Employee of the recipient:
(a) if such employee is covered by a money purchase
pension plan providing:
(1) a non-integrated employer contribution
rate of at least 10% of compensation, as
defined in Code Section 415(c) (3), but
including amounts which are contributed by
the Employer pursuant to a salary reduction
agreement and which are not includible in the
gross income of the Participant under Code
Sections 125, 402(e)(3), 402(h)(1)(B), 403(b)
or 457, and Employee contributions described
in Code Section 414(h) (2) that are treated
as Employer contributions.
(2) immediate participation; and
(3) full and immediate vesting; and
(b if Leased Employees do not constitute more than 20%
of the recipient's non-highly compensated work force.
1.34 "Non-Elective Contribution" means the Employer's
contributions to the Plan excluding, however, contributions
made pursuant to the Participant's deferral election provided for
in Section 4.2, matching contributions made pursuant to Section
4.1(b) and any Qualified Non-Elective Contribution.
1.35 "Non-Highly Compensated Participant" means any
Participant who is neither a Highly Compensated Employee nor a
Family Member.
1.36 "Non-Key Employee" means any Employee or former
Employee (and his Beneficiaries) who is not a Key Employee.
1.37 "Normal Retirement Age" means the Participant's 65th
birthday. A Participant shall become fully Vested in his
Participant's Account upon attaining his Normal Retirement Age.
1.38 "Normal Retirement Date" means the first day of the
month coinciding with or next following the Participant's Normal
Retirement Age.
1.39 "l-Year Break in Service" means the applicable
computation period during which an Employee has not completed
more than 500 Hours of Service with the Employer. Further,
solely for the purpose of determining whether a Participant has
incurred a l-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and
paternity leaves of absence." Years of Service and l-Year Breaks
in Service shall be measured on the same computation period.
"Authorized leave of absence" means an unpaid,
temporary cessation from active employment with the Employer
pursuant to an established nondiscriminatory policy, whether
occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means,
for Plan Years beginning after December 31, 1984, an absence
from work for any period by reason of the Employee's pregnancy,
birth of the Employee's child, placement of a child with the
Employee in connection with the adoption of such child, or any
absence for the purpose of caring for such child for a period
immediately following such birth or placement. For this purpose,
Hours of Service shall be credited for the computation period in
which the absence from work begins, only if credit therefore is
necessary to prevent the Employee from incurring a l-Year Break
in Service, or, in any other case, in the immediately following
computation period. The Hours of Service credited for a
"maternity or paternity leave of absence" shall be those which
would normally have been credited but for such absence, or, in
any case in which the Administrator is unable to determine such
hours normally credited, eight (8) Hours of Service per day.
The total Hours of Service required to be credited for a
"maternity or paternity leave of absence" shall not exceed 501.
1.40 "Participant" means any Eligible Employee who
participates in the Plan as provided in Sections 3.2 and 3.3,
and has not for any reason become ineligible to participate
further in the Plan.
1.41 "Participant's Account" means the account established
and maintained by the Administrator for each Participant with
respect to his total interest in the Plan and Trust resulting
from the Employer's Non-Elective Contributions.
1.42 "Participant's Combined Account" means the total
aggregate amount of each Participant's Elective Account and
Participant's Account.
1.43 "Participant's Elective Account" means the account
established and maintained by the Administrator for each
Participant with respect to his total interest in the Plan and
Trust resulting from the Employer's Elective Contributions. A
separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to
Elective Contributions pursuant to Section 4.2, Employer
matching contributions pursuant to Section 4.1(b) and any
Employer Qualified Non-Elective Contributions.
1.44 "Plan" means this instrument, including all
amendments thereto.
1.45 "Plan Year" means the Plan's accounting year of twelve
(12) months commencing on January 1st of each year and ending
the following December 31st.
1.46 "Qualified Non-Elective Contribution" means the
Employer's contributions to the Plan that are made pursuant to
Section 4.1(c) and Section 4.6. Such contributions shall be
considered an Elective Contribution for the purposes of the Plan
and used to satisfy the "Actual Deferral Percentage" tests.
1.47 "Regulation" means the Income Tax Regulations as
promulgated by the Secretary of the Treasury or his delegate,
and as amended from time to time.
1.48 "Retired Participant" means a person who has been a
Participant, but who has become entitled to retirement benefits
under the Plan.
1.49 "Retirement Date" means the date as of which a
Participant retires for reasons other than Total and Permanent
Disability, whether such retirement occurs on a Participant's
Normal Retirement Date or Late Retirement Date (see Section
6.1).
1.50 "Super Top Heavy Plan" means a plan described in Section
2.2(b) .
1.51 "Terminated Participant" means a person who has been a
Participant, but whose employment has been terminated other than by
death, Total and Permanent Disability or retirement.
1.52 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.53 "Top Heavy Plan Year" means a Plan Year during which the
Plan is a Top Heavy Plan.
1.54 "Top Paid Group" means the top 20 percent of Employees
who performed services for the Employer during the applicable
year, ranked according to the amount of "415 Compensation"
(determined for this purpose in accordance with Section 1.25)
received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and
Leased Employees within the meaning of Code Sections 414(n)(2)
and 414(0)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)
(5) and are not covered in any qualified plan maintained by the
Employer. Employees who are non-resident aliens and who received
no earned income (within the meaning of Code Section 911(d) (2))
from the Employer constituting United States source income within
the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, for the purpose of determining the
number of active Employees in any year, the following additional
Employees shall also be excluded; however, such Employees shall
still be considered for the purpose of identifying the particular
Employees in the Top Paid Group:.
(a) Employees with less than six (6) months of
service;
(b) Employees who normally work less than 17 1/2
hours per week;
(c) Employees who normally work less than six (6)
months during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees
of the Employer are covered under agreements the Secretary of
Labor finds to be collective bargaining agreements between
Employee representatives and the Employer, and the Plan covers
only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from
both the total number of active Employees as well as from the
identification of particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section
shall be applied on a uniform and consistent basis for all
purposes for which the Code Section 414(q) definition is
applicable.
1.55 "Total and Permanent Disability" means a physical or
mental condition of a Participant resulting from bodily injury,
disease, or mental disorder which renders him incapable of
continuing his usual and customary employment with the Employer..
The disability of a Participant shall be determined by a licensed
physician chosen by the Administrator. The determination shall be
applied uniformly to all Participants.
1.56 "Trustee" means the person or entity named as trustee
herein or in any separate trust forming a part of this Plan, and
any successors.
1.57 "Trust Fund" means the assets of the Plan and Trust as
the same shall exist from time to time.
1.58 "Vested" means the nonforfeitable portion of any
account maintained on behalf of a Participant.
1.59 "Year of Service" means the computation period of
twelve (12) consecutive months, herein set forth, during
which an Employee has at least 1000 Hours of Service.
For purposes of eligibility for participation, the
initial computation period shall begin with the date on which the
Employee first performs an Hour of Service. The participation
computation period beginning after a l-Year Break in Service
shall be measured from the date on which an Employee again
performs an Hour of Service. The participation computation
period shall shift to the Plan Year which includes the
anniversary of the date on which the Employee first performed an
Hour of Service. An Employee who is credited with the required
Hours of Service in both the initial computation period (or the
computation period beginning after a l-Year Break in Service)
and the Plan Year which includes the anniversary of the date on
which the Employee first performed an Hour of Service, shall be
credited with two (2) Years of Service for purposes of
eligibility to participate.
For all other purposes, the computation period shall be
the Plan Year.
Notwithstanding the foregoing, for any short Plan
Year, the determination of whether an Employee has completed a
Year of Service shall be made in accordance with Department of
Labor regulation 2530.203-2(c).
Years of Service with any Affiliated Employer shall be
recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide
the special vesting requirements of Code Section 416(b) pursuant
to Section 6.4 of the Plan and the special minimum allocation
requirements of Code Section 416(c) pursuant to Section 4.4 of
the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any
Plan Year in which, as of the Determination Date, (1)
the Present Value of Accrued Benefits of Key Employees
and (2) the sum of the Aggregate Accounts of Key
Employees under this Plan and all plans of an
Aggregation Group, exceeds sixty percent (60%) of
the Present Value of Accrued Benefits and the Aggregate
Accounts of all Key and Non-Key Employees under this
Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee
for any Plan Year, but such Participant was a Key
Employee for any prior Plan Year, such Participant's
Present Value of Accrued Benefit and/or Aggregate
Account balance shall not be taken into account for
purposes of determining whether this Plan is a Top
Heavy or Super Top Heavy Plan (or whether any
Aggregation Group which includes this Plan is a Top
Heavy Group). In addition, if a Participant or
Former Participant has not performed any services for
any Employer maintaining the Plan at any time during
the five year period ending on the Determination
Date, any accrued benefit for such Participant or
Former Participant shall not be taken into account
for the purposes of determining whether this Plan is
a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan
for any Plan Year in which, as of the Determination
Date, (1) the Present Value of Accrued Benefits of
Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under this Plan and all
plans of an Aggregation Group, exceeds ninety
percent (90%) of the Present Value of Accrued
Benefits and the Aggregate Accounts of all Key and
Non-Key Employees under this Plan and all plans of an
Aggregation Group.
(c) Aggregate Account: A Participant's
Aggregate Account as of the Determination Date is the
sum of:
(1) his Participant's Combined Account balance
as of the most recent valuation occurring within
a twelve (12) month period ending on the
Determination Date;
(2) an adjustment for any contributions due as
of the Determination Date. Such adjustment
shall be the amount of any contributions
actually made after the valuation date but due
on or before the Determination Date, except for
the first Plan Year when such adjustment shall
also reflect the amount of any contributions
made after the Determination Date that are
allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the
Plan Year that includes the Determination Date
or within the four (4) preceding Plan Years.
However, in the case of distributions made
after the valuation date and prior to the
Determination Date, such distributions are not
included as distributions for top heavy purposes
to the extent that such distributions are
already included in the Participant's Aggregate
Account balance as of the valuation date.
Notwithstanding anything herein to the contrary,
all distributions, including distributions made
prior to January 1, 1984, and distributions
under a terminated plan which if it had not been
terminated would have been required to be
included in an Aggregation Group, will be
counted. Further, distributions from the Plan
(including the cash value of life insurance
policies) of a Participant's account balance
because of death shall be treated as a
distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax deductible
qualified voluntary employee contributions shall not be
considered to be a part of the Participant's Aggregate
Account balance.
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee
and made from a plan maintained by one employer to a plan
maintained by another employer), if this Plan provides the
rollovers or plan-to-plan transfers, it shall always
consider such rollovers or plan-to-plan transfers as a
distribution for the purposes of this Section. If this Plan
is the plan accepting such rollovers or plan-to-plan
transfers, it shall not consider such rollovers or plan-to-plan transfers as
part of the Participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or
made to a plan maintained by the same employer), if this
Plan provides the rollover or plan-to-plan transfer, it
shall not be counted as a distribution for purposes of this
Section. If this Plan is the plan accepting such rollover
or plan-to-plan transfer, it shall consider such rollover
or plan-to-plan transfer as part of the Participant's
Aggregate Account balance, irrespective of the date on
which such rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two employers
are to be treated as the same employer in (5) and (6)
above, all employers aggregated under Code Section 414(b),
(c), (m) and (0) are treated as the same employer.
(d) "Aggregation Group" means either a
Required Aggregation Group or a Permissive
Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in which
a Key Employee is a participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and
each other plan of the Employer which enables any plan in which a
Key Employee participates to meet the requirements of Code
Sections 401(a) (4) or 410, will be required to be aggregated.
Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group,
each plan in the group will be considered a Top
Heavy Plan if the Required Aggregation Group is
a Top Heavy Group. No plan in the Required
Aggregation Group will be considered a Top Heavy
Plan if the Required Aggregation Group is not a
Top Heavy Group.
(2) Permissive Aggregation Group: The Employer
may also include any other plan not required to
be included in the Required Aggregation Group,
provided the resulting group, taken as a whole,
would continue to satisfy the provisions of Code
Sections 401(a)(4) and 410. Such group shall
be known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group,
only a plan that is part of the Required
Aggregation Group will be considered a Top Heavy
Plan if the Permissive Aggregation Group is a
Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy
Plan if the Permissive Aggregation Group is not
a Top Heavy Group.
(3) Only those plans of the Employer in which
the Determination Dates fall within the same
calendar year shall be aggregated in order to
determine whether such plans are Top Heavy
Plans.
(4) An Aggregation Group shall include any
terminated plan of the Employer if it was
maintained within the last five (5 years
ending on the Determination Date.
(e) "Determination Date" means (a the last
day of the preceding Plan Year, or (b) in the case
of the first Plan Year, the last day of such Plan
Year.
(f) Present Value of Accrued Benefit: In the
case of a defined benefit plan, the Present Value of
Accrued Benefit for a Participant other than a Key
Employee, shall be as determined using the single
accrual method used for all plans of the Employer and
Affiliated Employers, or if no such single method
exists, using a method which results in benefits
accruing not more rapidly than the slowest accrual rate
permitted under Code Section 411(b)(1) (C). The
determination of the Present Value of Accrued Benefit
shall be determined as of the most recent valuation
date that falls within or ends with the 12-month period
ending on the Determination Date except as provided in
Code Section 416 and the Regulations thereunder for the
first and second plan years of a defined benefit plan.
(g) "Top Heavy Group" means an Aggregation
Group in which, as of the Determination Date, the sum
of:
(1) the Present Value of Accrued Benefits of Key
Employees under all defined benefit plans
included in the group, and
(2) the Aggregate Accounts of Key Employees
under all defined contribution plans included in
the group exceeds sixty percent (60%) of a
similar sum determined for all Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to
appoint and remove the Trustee and the Administrator
from time to time as it deems necessary for the
proper administration of the Plan to assure that the
Plan is being operated for the exclusive benefit of
the Participants and their Beneficiaries in
accordance with the terms of the Plan, the Code,
and the Act.
(b) The Employer shall establish a "funding
policy and method," i.e., it shall determine
whether the Plan has a short run need for liquidity
e.g., to pay benefits) or whether liquidity is a
long run goal and investment growth (and stability
of same is a more current need, or shall appoint a
qualified person to do so. The Employer or its
delegate shall communicate such needs and goals to
the Trustee, who shall coordinate such Plan needs
with its investment policy. The communication of such
a "funding policy and method" shall not, however,
constitute a directive to the Trustee as to
investment of the Trust Funds. Such "funding policy
and method" shall be consistent with the objectives
of this Plan and with the requirements of Title I of
the Act.
(c) The Employer shall periodically review
the performance of any Fiduciary or other person to
whom duties have been delegated or allocated by it
under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may
be satisfied by formal periodic review by the Employer
or by a qualified person specifically designated by the
Employer, through day-to-day conduct and evaluation,
or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators.
Any person, including, but not limited to, the Employees of
the Employer, shall be eligible to serve as an Administrator.
Any person so appointed shall signify his acceptance by filing
written acceptance with the Employer. An Administrator may resign
by delivering his written resignation to the Employer or be
removed by the Employer by delivery of written notice of removal,
to take effect at a date specified therein, or upon delivery to
the Administrator if no date is specified.
The Employer, upon the resignation or removal of an
Administrator, shall promptly designate in writing a successor
to this position. If the Employer does not appoint an
Administrator, the Employer will function as the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator,
the responsibilities of each Administrator may be specified by
the Employer and accepted in writing by each Administrator. In
the event that no such delegation is made by the Employer, the
Administrators may allocate the responsibilities among
themselves, in which event the Administrators shall notify the
Employer and the Trustee in writing of such action and specify
the responsibilities of each Administrator. The Trustee
thereafter shall accept and rely upon any documents executed by
the appropriate Administrator until such time as the Employer or
the Administrators file with the Trustee a written revocation of
such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to
administer the Plan for the exclusive benefit of the Participants
and their Beneficiaries, subject to the specific terms of the
Plan. The Administrator shall administer the Plan in accordance
with its terms and shall have the power and discretion to
construe the terms of the Plan and to determine all questions
arising in connection with the administration, interpretation,
and application of the Plan. Any such determination by the
Administrator shall be conclusive and binding upon all persons.
The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such
manner and to such extent as shall be deemed necessary or
advisable to carry out the purpose of the Plan; provided,
however, that any procedure, discretionary act, interpretation
or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be
consistent with the intent that the Plan shall continue to be
deemed a qualified plan under the terms of Code Section 401(a),
and shall comply with the terms of the Act and all regulations
issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this
Plan.
The Administrator shall be charged, with the duties of
the general administration of the Plan, including, but not
limited to, the following:
(a) the discretion to determine all questions
relating to the eligibility of Employees to participate
or remain a Participant hereunder and to receive
benefits under the Plan;
(b) to compute, certify, and direct the Trustee
with respect to the amount and the kind of benefits to
which any Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with
respect to all nondiscretionary or otherwise directed
disbursements from the Trust;
(d) to maintain all necessary records for the
administration of the Plan;
(a)to interpret the provisions of the Plan and to
make and publish such rules for regulation of the Plan
as are consistent with the terms hereof;
(f) to determine the. size and type of any
Contract to be purchased from any insurer, and to
designate the insurer from which such Contract shall be
purchased;
(g) to compute and certify to the Employer and
to the Trustee from time to time the sums of money
necessary or desirable to be contributed to the Plan;
(h) to consult with the Employer and the Trustee
regarding the short and long-term liquidity needs of
the Plan in order that the Trustee can exercise any
investment discretion in a manner designed to
accomplish specific objectives;
(i) to prepare and implement a procedure to
notify Eligible Employees that they may elect to have a
portion of their Compensation deferred or paid to them
in cash;
(j) to assist any Participant regarding his
rights, benefits, or elections available under the
Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions
taken and shall keep all other books of account, records, and
other data that may be necessary for proper administration of the
Plan and shall be responsible for supplying all information and
reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of
the Administrator, may appoint counsel, specialists, advisers,
and other persons as the Administrator or the Trustee deems
necessary or desirable in connection with the administration of
this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions,
the Employer shall supply full and timely information to the
Administrator on all matters relating to the Compensation of all
Participants, their Hours of Service, their Years of Service,
their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator
may require; and the Administrator shall advise the Trustee of
such of the foregoing facts as may be pertinent to the Trustee's
duties under the Plan. The Administrator may rely upon such
information as is supplied by the Employer and shall have no duty
or responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the
Trust Fund unless paid by the Employer. Such expenses shall
include any expenses incident to the functioning of the
Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents,
and other costs of administering the Plan. Until paid, the
expenses shall constitute a liability of the Trust Fund.
However, the Employer may reimburse the Trust Fund for any
administration expense incurred.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and
delegation of administrative authority pursuant to Section 2.5,
if there shall be more than one Administrator, they shall act by
a majority of their number, but may authorize one or more of
them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in
writing with the Administrator. Written notice of the
disposition of a claim shall be furnished to the claimant within
90 days after the application is filed. In the event the claim
is denied, the reasons for the denial shall be specifically set
forth in the notice in language calculated to be understood by
the claimant, pertinent provisions of the Plan shall be cited,
and, where appropriate, an explanation as to how the claimant
can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's
claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of
either, who has been denied a benefit by a decision of the
Administrator pursuant to Section 2.12 shall be entitled to
request the Administrator to give further consideration to his
claim by filing with the Administrator (on a form which may be
obtained from the Administrator) a request for a hearing. Such
request together with a written statement of the reasons why
the claimant believes his claim should be allowed, shall be
filed, with the Administrator no later than 60 days after receipt
of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60
days, at which the claimant may be represented by an attorney or
any other representative of his choosing and at which the
claimant shall have an opportunity to submit written and oral
evidence and arguments in support of his claim. At the hearing
(or prior thereto upon 5 business days written notice to the
Administrator) the claimant or his representative shall have an
opportunity to review all documents in the possession of the
Administrator which are pertinent to the claim at issue and its
disallowance. Either the claimant or the Administrator may cause
a court reporter to attend the hearing and record the
proceedings. In such event, a complete written transcript of
the proceedings shall be furnished to both parties by the court
reporter. The full expense of any such court reporter and such
transcripts shall be borne by the party causing the court
reporter to attend the hearing. A final decision as to the
allowance of the claim shall be made by the Administrator within
60 days of receipt of the appeal (unless there has been an
extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are
communicated to the claimant within the 60 day period). Such
communication shall be written in a manner calculated to be
understood by the claimant and shall include specific reasons for
the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed 3 Months of
Service and has attained age 21 shall be eligible to participate
hereunder as of the date he has satisfied such requirements.
However, any Employee who was a Participant in the Plan prior to
the effective date of this amendment and restatement shall
continue to participate in the Plan. The Employer shall give each
prospective Eligible Employee written notice of his eligibility
to participate in the Plan prior to the close of the Plan Year in
which he first becomes an Eligible Employee.
For purposes of this Section, an Eligible Employee will
be deemed to have completed 3 Months of Service if he is in the
employ of the Employer at any time 3 months after his employment
commencement date. Employment commencement date shall be the
first day that he is entitled to be credited with an Hour of
Service for the performance of duty.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each
Eligible Employee shall make application to the Employer for
participation in the Plan and agree to the terms hereof. Upon the
acceptance of any benefits under this Plan, such Employee shall
automatically be deemed to have made application and shall be
bound by the terms and conditions of the Plan and all amendments
hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant
effective as of the first day of the calendar quarter coinciding
with or next following the date on which such Employee met the
eligibility requirements of Section 3.1, provided said Employee
was still employed as of such date (or if not employed on such
date, as of the date of rehire if a l-Year Break in Service has
not occurred).
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of
each Employee for participation in the Plan based upon
information furnished by the Employer. Such determination shall
be conclusive and binding upon all persons, as long as the same
is made pursuant to the Plan and the Act. Such determination
shall be subject to review per Section 2.13.
3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible
Employee, such Former Participant shall continue to
vest in his interest in the Plan for each Year of
Service completed while a noneligible Employee, until
such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the
Plan. Additionally, his interest in the Plan shall
continue to share in the earnings of the Trust Fund.
(b) In the event a Participant is no longer a
member of an eligible class of Employees and becomes
ineligible to participate but has not incurred a l-Year
Break in Service, such Employee will participate
immediately upon returning to an eligible class of
Employees. If such Participant incurs a l-Year Break
in Service, eligibility will be determined under the
break in service rules of the Plan.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be
included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution
by his Employer for the year has been made, the Employer shall
make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have
contributed with respect to him had he not been omitted. Such
contribution shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under
applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have
been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made
until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made
with respect to the ineligible person regardless of whether or
not a deduction is allowable with respect to such contribution.
In such event, the amount contributed with respect to the
ineligible person shall constitute a Forfeiture (except for
Deferred Compensation which shall be distributed to the
ineligible person) for the Plan Year in which the discovery is
made.
3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the
Employer, elect voluntarily not to participate in the Plan. The
election not to participate must be communicated to the Employer,
in writing, at least thirty (30) days before the beginning of
a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to
the Plan:
(a) The amount of the total salary reduction
elections of all Participants made pursuant to
Section 4.2(a), which amount shall be deemed an
Employer's Elective Contribution.
(b) On behalf of each Participant who is
eligible to share in matching contributions for the
Plan Year, a discretionary matching contribution
equal to a percentage of each such Participant's
Deferred Compensation, the exact percentage to be
determined each year by the Employer, which amount
shall be deemed an Employer's Elective Contribution.
(c) On behalf of each Non-Highly Compensated
Participant who is eligible to share in the Qualified
Non-Elective Contribution for the Plan Year, a
discretionary Qualified Non-Elective Contribution
equal to a percentage of each eligible individual's
Compensation, the exact percentage to be determined
each year by the Employer. The Employer's Qualified
Non-Elective Contribution shall be deemed an
Employer's Elective Contribution.
(d) A discretionary amount, which amount
shall be deemed an Employer's Non-Elective
Contribution.
(e) Notwithstanding the foregoing, however,
the Employer's contributions for any Plan Year shall
not exceed the maximum amount allowable as a
deduction to the Employer under the provisions of
Code Section 404. All contributions by the Employer
shall be made in cash or in such property as is
acceptable to the Trustee.
(f) Except, however, to the extent necessary
to provide the top heavy minimum allocations, the
Employer shall make a contribution even if it exceeds
the amount which is deductible under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer a
portion of his Compensation which would have been
received in the Plan Year (except for the deferral
election) by up to the maximum amount which will not
cause the Plan to violate the provisions of Sections
4.5(a) and 4.7, or cause the Plan to exceed the
maximum amount allowable as a deduction to the
Employer under Code Section 404. A deferral election
(or modification of an earlier election) may not be
made with respect to Compensation which is currently
available on or before the date the Participant
executed such election. Each Participant may make a
separate deferral election with regard to any bonuses
received during the Plan Year.
The amount by which Compensation is reduced
shall be that Participant's Deferred Compensation and
be treated as an Employer Elective Contribution and
allocated to that Participant's Elective Account.
(b) The balance in each Participant's
Elective Account shall be fully Vested at all times
and shall not be subject to Forfeiture for any reason
except as provided for in Sections 4.2(f) and
4.6(a)(1).
(c) Amounts held in the Participant's
Elective Account may not be distributable earlier than:
(1) a Participant's termination of employment,
Total and Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the termination of the Plan without the
establishment or existence of a "successor
plan," as that term is described in Regulation
1.401(k)-l(d) (3;
(4) The date of disposition by the Employer to
an entity that is not an Affiliated Employer of
substantially all of the assets (within the
meaning of Code Section 409(d) (2)) used in a
trade or business of such corporation if such
corporation continues to maintain this Plan
after the disposition with respect to a
Participant who continues employment with the
corporation acquiring such assets;
(5) the date of disposition by the Employer or
an Affiliated Employer who maintains the Plan of
its interest in a subsidiary. (within the meaning
of Code Section 409(d)(3)) to an entity which is
not an Affiliated Employer but only with respect
to a Participant who continues employment with
such subsidiary; or
(6) the proven financial hardship of a
Participant, subject to the limitations of
Section 6.10.
(d) For each Plan Year beginning after
December 31, 1987, a Participant's Deferred
Compensation made under this Plan and all other
plans, contracts or arrangements of the Employer
maintaining this Plan shall not exceed, during any
taxable year of the Participant, the limitation
imposed by Code Section 402(g), as in effect at the
beginning of such taxable year. If such dollar
limitation is exceeded, a Participant will be deemed
to have notified the Administrator of such excess
amount which shall be distributed in a manner
consistent with Section 4.2(f). The dollar
limitation shall be adjusted annually pursuant to the
method provided in Code Section 415(d) in accordance
with Regulations.
(e) In the event a Participant has received a
hardship distribution from his Participant's Elective
Account pursuant to Section 6.10 or pursuant to
Regulation 1.401(k)-l(d)(2) iv) (B) from any other
plan maintained by the Employer, then such
Participant shall not be permitted to elect to have
Deferred Compensation contributed to the Plan on his
behalf for a period of twelve (12) months following
the receipt of the distribution. Furthermore, the
dollar limitation under Code Section 402(g) shall be
reduced, with respect to the Participant's taxable
year following the taxable year in which the hardship
distribution was made, by the amount of such
Participant's Deferred Compensation, if any,
pursuant to this Plan (and any other plan maintained
by the Employer) for the taxable year of the
hardship distribution.
(f) If a Participant's Deferred Compensation under
this Plan together with any elective deferrals
(as defined in Regulation 1.402(g)-l(b)) under
another qualified cash or deferred arrangement (as
defined in Code Section 401(k)), a simplified
employee pension (as defined in Code Section
408(k)), a salary reduction arrangement (within the
meaning of Code Section
3121(a) (5)(D)), a deferred compensation plan under
Code Section 457, or a trust described in Code
Section 501(c) (18) cumulatively exceed the
limitation imposed by Code Section 402(g) (as
adjusted annually in accordance with the method
provided in Code Section 415(d) pursuant to
Regulations) for such Participant's taxable year,
the Participant may, not later than March 1
following the close of the Participant's taxable
year, notify the Administrator in writing of such
excess and request that his Deferred Compensation
under this Plan be reduced by an amount specified by
the Participant. In such event, the Administrator
may direct the Trustee to distribute such excess
amount(and any Income allocable to such excess
amount) to the Participant not later than the first
April 15th following the close of the Participant's
taxable year. Distributions in accordance with this
paragraph may be made for any taxable year of the
Participant which begins after December 31, 1986.
Any distribution of less than the entire amount of
Excess Deferred Compensation and Income shall be
treated as a pro rata distribution of Excess Deferred
Compensation and Income. The amount distributed shall
not exceed the Participant's Deferred Compensation
under the Plan for the taxable year. Any distribution
on or before the last day of the Participant's
taxable year must satisfy each of the following
conditions:
(1) the distribution must be made after the
date on which the Plan received the Excess
Deferred Compensation;
(2) the Participant shall designate the
distribution as Excess Deferred Compensation;
and
(3) the Plan must designate the distribution as
a distribution of Excess Deferred Compensation.
Matching contributions which relate to Excess
Deferred Compensation which is distributed pursuant to
this Section 4.2(f) shall be forfeited.
(g) Notwithstanding Section 4.2(f) above, a
Participant's Excess Deferred Compensation shall be
reduced, but not below zero, by any distribution of
Excess Contributions pursuant to Section 4.6(a) for
the Plan Year beginning with or within the taxable year
of the Participant.
(h) At Normal Retirement Date, or such other
date when the Participant shall be entitled to receive
benefits, the fair market value of the Participant's
Elective Account shall be used to provide additional
benefits to the Participant or his Beneficiary.
(i) All amounts allocated to a Participant's
Elective Account may be treated as a Directed
Investment Account pursuant to Section 4.10.
(j) Employer Elective Contributions made
pursuant to this Section may be segregated into a
separate account for each Participant in a federally
insured savings account, certificate of deposit in a
bank or savings and loan association, money market
certificate, or other short-term debt security
acceptable to the Trustee until such time as the
allocations pursuant to Section 4.4 have been made.
(k) The Employer and the Administrator shall
implement the salary reduction elections provided for
herein in accordance with the following:
(1) A Participant may commence making elective
deferrals to the Plan only after first
satisfying the eligibility and participation
requirements specified in Article III. However,
the Participant must make his initial salary
deferral election within a reasonable time, not
to exceed thirty (30) days, after entering
the Plan pursuant to Section 3.3. If the
Participant fails to make an initial salary
deferral election within such time, then such
Participant may thereafter make an election in
accordance with the rules governing
modifications. The Participant shall make such
an election by entering into a written salary
reduction agreement with the Employer and filing
such agreement with the Administrator. Such
election shall initially be effective beginning
with the pay period following the acceptance of
the salary reduction agreement by the
Administrator, shall not have retroactive
effect and shall remain in force until revoked.
(2) A Participant may modify a prior election
during the Plan Year and concurrently make a new
election by filing a written notice with the
Administrator within a reasonable time before
the pay period for which such modification is to
be effective. However, modifications to a
salary' deferral election shall only be
permitted quarterly, during election periods
established by the Administrator prior to the
first day of each Plan Year quarter. Any
modification shall not have retroactive effect
and shall remain in force until revoked.
(3) A Participant may elect to prospectively
revoke his salary reduction agreement in its
entirety at any time during the Plan Year by
providing the Administrator with thirty (30)
days written notice of such revocation (or upon
such shorter notice period as may be acceptable
to the Administrator). Such revocation shall
become effective as of the beginning of the
first pay period coincident with or next
following the expiration of the notice period.
Furthermore, the termination of the
Participant's employment, or the cessation of
participation for any reason, shall be deemed to
revoke any salary reduction agreement then in
effect, effective immediately following the
close of the pay period within which such
termination or cessation occurs.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its
contribution to the Plan for each Plan Year within the time
prescribed by law, including extensions of time, for the filing
of the Employer's federal income tax return for the Fiscal Year.
However, Employer Elective Contributions accumulated
through payroll deductions shall be paid to the Trustee as of the
earliest date on which such contributions can reasonably be
segregated from the Employer's general assets, but in any event
within ninety (90) days from the date on which such amounts
would otherwise have been payable to the Participant in cash.
The provisions of Department of Labor regulations 2510.3-102 are
incorporated herein by reference. Furthermore, any additional
Employer contributions which are allocable to the Participant's
Elective Account for a Plan Year shall be paid to the Plan no
later than the twelve-month period immediately following the
close of such Plan Year.
4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS
(a) The Administrator shall establish and
maintain an account in the name of each Participant to
which the Administrator shall credit as of each
Anniversary Date all amounts allocated to each such
Participant as set forth herein.
(b) The Employer shall provide the Administrator
with all information required by the Administrator to
make a proper allocation of the Employer's
contributions for each Plan Year. Within a reasonable
period of time after the date of receipt by the
Administrator of such information, the Administrator
shall allocate such contribution as follows:
(1) With respect to the Employer's Elective
Contribution made pursuant to Section 4.1(a),
to each Participant's Elective Account in an
amount equal to each such Participant's Deferred
Compensation for the year.
(2) With respect to the Employer's Elective
Contribution made pursuant to Section 4.1(b),
to each Participant's Elective Account in
accordance with Section 4.1(b).
Any Participant actively employed during the
Plan Year shall be eligible to share in the
matching contribution for the Plan Year.
(3) With respect to the Employer's Qualified
Non-Elective Contribution made pursuant to
Section 4.1 c), to each Participant's Elective
Account in accordance with Section 4.1(c).
Only Non-Highly Compensated Participants who are
actively employed on the last day of the Plan
Year shall be eligible to share in the Qualified
Non-Elective Contribution for the year. In
addition, the Administrative Committee may
establish other non-discriminatory criteria on
an annual basis, for the purpose of deciding
which Employees will be eligible to share in the
Qualified Non-Elective Contribution for any such
year.
(4) With respect to the Employer's Non-Elective
Contribution made pursuant to Section
4.1(d), to each Participant's Account in the
same proportion that each such Participant's
Compensation for the year bears to the total
Compensation of all Participants for such year.
Only Participants who are actively employed on
the last day of the Plan Year shall be eligible
to share in the discretionary contribution for
the year.
(a) For any Top Heavy Plan Year, Non-Key
Employees not otherwise eligible to
share in the allocation of contributions
as provided above, shall receive the
minimum allocation provided for in
Section 4.4(f) if eligible pursuant to
the provisions of Section 4.4 (h).
(d) Participants who 'are not actively
employed on the last day of the Plan Year due to
Retirement (Normal or Late), Total and
Permanent Disability or death shall share in the
allocation of contributions for that Plan Year
only if otherwise eligible in accordance with
this Section.
(a)As of each Anniversary Date or other
valuation date, before the current valuation period
allocation of Employer contributions and after
allocation of Forfeitures, any earnings or losses
(net appreciation or net depreciation) of the Trust
Fund shall be allocated in the same proportion that
each Participant's and Former Participant's
nonsegregated accounts bear to the total of all
Participants' and Former Participants' nonsegregated
accounts as of such date.
Participants' transfers from other qualified
plans deposited in the general Trust Fund shall share
in any earnings and losses (net appreciation or net
depreciation) of the Trust Fund in the same manner
provided above. Each segregated account maintained on
behalf of a Participant shall be credited or charged
with its separate earnings and losses.
(f) Minimum Allocations Required for Top Heavy
Plan Years: Notwithstanding the foregoing, for any Top
Heavy Plan Year, the sum of the Employer's
contributions allocated to the Participant's Combined
Account of each Non-Key Employee shall be equal to at
least three percent (3%) of such Non-Key Employee's
"415 Compensation" (reduced by contributions and
forfeitures, if any, allocated to each Non-Key
Employee in any defined contribution plan included with
this plan in a Required Aggregation Group). However,
if
(1) the sum of the Employer's contributions
allocated to the Participant's Combined Account of each
Key Employee for such Top Heavy Plan Year is less than
three percent (3%) of each Key Employee's "415
Compensation" and (2) this Plan is not required to be
included in an Aggregation Group to enable a defined
benefit plan to meet the requirements of Code Section
401(a) (4) or 410, the sum of the Employer's
contributions allocated to the Participant's Combined
Account of each Non-Key Employee shall be equal to the
largest percentage allocated to the Participant's
Combined Account of any Key Employee. However, in
determining whether a Non-Key Employee has received the
required minimum allocation, such Non-Key Employee's
Deferred Compensation and matching contributions needed
to satisfy the "Actual Deferral Percentage" tests
pursuant to Section 4.5(a) shall not be taken into
account.
However, no such minimum allocation shall
be required in this Plan for any Non-Key Employee
who participates in another defined contribution
plan subject to Code Section 412 providing such
benefits included with this Plan in a Required
Aggregation Group.
(g) For purposes of the minimum allocations
set forth above, the percentage allocated to the
Participant's Combined Account of any Key Employee
shall be equal to the ratio of the sum of the
Employer's contributions allocated on behalf of
such Key Employee divided by the "415
Compensation" for such Key Employee.
(h) For any Top Heavy Plan Year, the minimum
allocations set forth above shall be allocated to the
Participant's Combined Account of all Non-Key
Employees who are Participants and who are employed
by the Employer on the last day of the Plan Year,
including Non-Key Employees who have (1) failed to
complete a Year of Service; and (2) declined to
make mandatory contributions (if required) or, in
the case of a cash or deferred arrangement, elective
contributions to the Plan.
(i) For the purposes of this Section, "415
Compensation" shall be limited to
$200,000. Such amount shall be adjusted
at the same time and in the same manner
as permitted under Code Section 415(d),
except that the dollar increase in
effect on January 1 of any calendar year
shall be effective for the Plan Year
beginning with or within such calendar
year and the' first adjustment to the
$200,000 limitation shall be effective
on January 1, 1990. For any short Plan
Year the "415 Compensation" limit shall
be an amount equal to the "415
Compensation" limit for the calendar
year in which the Plan Year begins
multiplied by the ratio obtained by
dividing the number of full months in
the short Plan Year by twelve (12).
However, for Plan Years beginning prior
to January 1, 1989, the $200,000 limit
shall apply only for Top Heavy Plan
Years and shall not be adjusted.
In addition to other applicable limitations set
forth in the Plan, and notwithstanding any
other provision of the Plan to the contrary,
for Plan Years beginning on or after January 1,
1994, the annual Compensation of each Employee
taken into account under the Plan shall not
exceed the OBRA '93 annual compensation limit.
The OBRA '93 annual compensation limit is
$150,000, as adjusted by the Commissioner for
increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of
living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months,
over which Compensation is determined
(determination period) beginning in such
calendar year. If a determination period
consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by
a fraction, the numerator of which is the
number of months in the determination period,
and the denominator of which is 12.
For Plan Years beginning on or after
January 1, 1994, any reference in this Plan to
the limitation under Code Section 401(a)(17)
shall mean the OBRA '93 annual compensation
limit set forth in this provision.
If Compensation for any prior
determination period is taken into account in
determining an Employee's benefits accruing in the
current Plan Year, the Compensation for that prior
determination period is subject to the OBRA '93
annual compensation limit in effect for that prior
determination period. For this purpose, for
determination periods beginning before the first day
of the first Plan Year beginning on or after January
1, 1994, the OBRA '93 annual compensation limit is
$150,000.
(j) Notwithstanding anything herein to the
contrary, Participants who terminated employment for
any reason during the Plan Year shall share in the
salary reduction contributions made by the Employer
for the year of termination without regard to the
Hours of Service credited.
(k) If a Former Participant is reemployed
after five (5) consecutive l-Year Breaks in
Service, then separate accounts shall be maintained
as follows:
(1) one account for nonforfeitable benefits
attributable to pre-break service; and
(2) one account representing his status in the
Plan attributable to post-break service.
(1) Notwithstanding anything to the contrary,
for Plan Years beginning after December 31, 1989, if
this is a Plan that would otherwise fail to meet the
requirements of Code Sections 401(a){26), 410(b) (1)
or 410 (b)(2)(A)(i) and the Regulations thereunder
because Employer contributions would not be allocated
to a sufficient number or percentage of Participants
for a Plan Year, then the following rules shall apply:
(1) The group of Participants eligible to
share in the Employer's contribution for the
Plan Year shall be expanded to include the
minimum number of Participants who would not
otherwise be eligible as are necessary to
satisfy the applicable test specified above. The
specific Participants who shall become eligible
under the terms of this paragraph shall be those
who are actively employed on the last day of the
Plan Year and, when compared to similarly
situated Participants, have completed the
greatest number of Hours of Service in the Plan
Year.
(2) If after application of paragraph (1)
above, the applicable test is still not
satisfied, then the group of Participants
eligible to share in the Employer's contribution
for the Plan Year shall be further expanded to
include the minimum number of Participants who
are not actively employed on the last day of the
Plan Year as are necessary to satisfy the
applicable test. The specific Participants who
shall become eligible to share shall be those
Participants, when compared to similarly
situated Participants, who have completed the
greatest number of Hours of Service in the Plan
Year before terminating employment.
(3) Nothing in this Section shall permit the
reduction of a Participant's accrued benefit.
Therefore any amounts that have previously been
allocated to Participants may not be reallocated
to satisfy these requirements. In such event,
the Employer shall make an additional
contribution equal to the amount such affected
Participants would have received had they been
included in the allocations, even if it exceeds
the amount which would be deductible under Code
Section 404. Any adjustment to the allocations
pursuant to this paragraph shall be considered a
retroactive amendment adopted by the last day of
the Plan Year.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan
Year beginning after December 31, 1986, the annual
allocation derived from Employer Elective Contributions
to a Participant's Elective Account shall satisfy one
of the following tests:
(1) The "Actual Deferral Percentage" for the
Highly Compensated Participant group shall not
be more than the "Actual Deferral Percentage" of
the Non-Highly Compensated Participant group
multiplied by 1.25, or
(2) The excess of the "Actual Deferral
Percentage" for the Highly Compensated
Participant group over the "Actual Deferral
Percentage" for the Non-Highly Compensated
Participant group shall not be more than two
percentage points. Additionally, the "Actual
Deferral Percentage" for the Highly Compensated
Participant group shall not exceed the "Actual
Deferral Percentage" for the Non-Highly
Compensated Participant group multiplied by 2.
The provisions of Code Section 401(k)(3) and
Regulation 1.401(k)-l(b) are incorporated
herein by reference.
However, for Plan Years beginning after
December 31, 1988, in order to prevent the
multiple use of the alternative method described
in (2) above and in Code Section 401(m) (9)
(A), any Highly Compensated Participant eligible
to make elective deferrals pursuant to Section
4.2 and to make Employee contributions or to
receive matching contributions under any other
plan maintained by the Employer or an Affiliated
Employer shall have his actual contribution
ratio reduced pursuant to Regulation 1.401(m)-2,
the provisions of which are incorporated herein
by reference.
(b) For the purposes of this Section "Actual
Deferral Percentage" means, with respect to the Highly
Compensated Participant group and Non-Highly
Compensated Participant group for a Plan Year, the
average of the ratios, calculated separately for each
Participant in such group, of the amount of Employer
Elective Contributions allocated to each Participant's
Elective Account for such Plan Year, to such
Participant's "414(s) Compensation" for such Plan
Year. The actual deferral ratio for each Participant
and the "Actual Deferral Percentage" for each group
shall be calculated to the nearest one-hundredth of one
percent for Plan Years beginning after December 31,
1988. Employer Elective Contributions allocated to
each Non-Highly Compensated Participant's Elective
Account shall be reduced by Excess Deferred
Compensation to the extent such excess amounts are made
under this Plan or any other plan maintained by the
Employer and any matching contributions which relate to
such Excess Deferred Compensation.
(c) For the purpose of determining the
actual deferral ratio of a Highly Compensated Employee
who is subject to the Family Member aggregation rules
of Code Section 414(q)(6) because such Participant is
either a "five percent owner" of the Employer or one of
the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, the
following shall apply:
(1) The combined actual deferral ratio for the
family group (which shall be treated as one
Highly Compensated Participant) shall be
determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all
eligible Family Members (including Highly
Compensated Participants). However, in
applying the $200,000 limit to "414(s)
Compensation," for Plan Years beginning after
December 31, 1988, Family Members shall include
only the affected Employee's spouse and any
lineal descendants who have not attained age 19
before the close of the Plan Year.
Notwithstanding the foregoing, with respect to
Plan Years beginning prior to
January 1, 9990, compliance with the
Regulations then in effect shall be deemed to be
compliance with this paragraph.
(2) The Employer Elective Contributions and
"414(s) Compensation" of all Family Members
shall be disregarded for purposes of determining
the "Actual Deferral Percentage" of the Non-Highly
Compensated Participant group except to
the extent taken into account in paragraph (1)
above.
(3) If a Participant is required to be
aggregated as a member of more than one family
group in a plan, all Participants who are
members of those family groups that include the
Participant are aggregated as one family group
in accordance with paragraphs (1) and (2)
above.
(d) For the purposes of Sections 4.5(a) and
4.6, a Highly Compensated Participant and a Non-Highly
Compensated Participant shall include any Employee
eligible to make a deferral election pursuant to
Section 4.2, whether or not such deferral election was
made or suspended pursuant to Section 4.2.
(e) For the purposes of this Section and Code
Sections 401(a)(4), 410(b) and 401(k), if two or
more plans which include cash or deferred arrangements
are considered one plan for the purposes of Code
Section 401(a) (4) or 410(b) (other than Code Section
410(b) (2)(A)(ii) as in effect for Plan Years
beginning after December 31, 1988), the cash or
deferred arrangements included in such plans shall be
treated as one arrangement. In addition, two or more
cash or deferred arrangements may be considered as a
single arrangement for purposes of determining whether
or not such arrangements satisfy Code Sections 401(a)
(4) 410(b) and 401(k). In such a case, the cash or
deferred arrangements included in such plans and the
plans including such arrangements shall be treated as
one arrangement and as one plan for purposes of this
Section and Code Sections 401(a) (4), 410(b) and
401(k). Plans may be aggregated under this paragraph
(e) for Plan Years beginning after December 31, 1989
only if they have the same plan year.
Notwithstanding the above, for Plan Years
beginning after December 31, 1988, an employee stock
ownership plan described in Code Section 4975(e) (7)
or 409 may not be combined with this Plan for purposes
of determining whether the employee stock ownership
plan or this Plan satisfies this Section and Code
Sections 401(a) (4), 410(b) and 401(k).
(f) For the purposes of this Section, if a
Highly Compensated Participant is a Participant under
two or more cash or deferred arrangements (other than
a cash or deferred arrangement which is part of an
employee stock ownership plan as defined in Code
Section 4975(e)(7) or 409 for Plan Years beginning
after December 31, 1988) of the Employer or an
Affiliated Employer, all such cash or deferred
arrangements shall be treated as one cash or deferred
arrangement for the purpose of determining the actual
deferral ratio with respect to such Highly Compensated
Participant. However, for Plan Years beginning after
December 31, 1988, if the cash or deferred
arrangements have different plan years, this paragraph
shall be applied by treating all cash or deferred
arrangements ending with or within the same calendar
year as a single arrangement.
<PAGE>
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the
Employer's Elective Contributions made pursuant to Section 4.4 do
not satisfy one of the tests set forth in Section 4.5(a) for
Plan Years beginning after December 31, 1986, the Administrator
shall adjust Excess Contributions pursuant to the options set
forth below:
(a) On or before the fifteenth day of the
third month following the end of each Plan Year, the
Highly Compensated Participant having the highest
actual deferral ratio shall have his portion of Excess
Contributions distributed to him until one of the tests
set forth in Section 4.5(a) is satisfied, or until
his actual deferral ratio equals the actual deferral
ratio of the Highly Compensated Participant having the
second highest actual deferral ratio. This process
shall continue until one of the tests set forth in
Section 4.5(a) is satisfied. For each Highly
Compensated Participant, the amount of Excess
Contributions is equal to the Elective Contributions on
behalf of such Highly Compensated Participant
(determined prior to the application of this paragraph)
minus the amount determined by multiplying the Highly
Compensated Participant's actual deferral ratio
(determined after application of this paragraph) by
his "414(s) Compensation." However, in determining
the amount of Excess Contributions to be distributed
with respect to an affected Highly Compensated
Participant as determined herein, such amount shall be
reduced by any Excess Deferred Compensation previously
distributed to such affected Highly Compensated
Participant for his taxable year ending with or within
such Plan Year and any matching contributions which
relate to such Excess Deferred Compensation.
(1) With respect to the distribution of Excess
Contributions pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of
the Plan Year following the Plan Year to which they are
allocable;
(ii) shall cause matching contributions which relate
to such Deferred Compensation to be forfeited;
(iii) shall be adjusted for Income; and
(iv) shall be designated by the Employer as a
distribution of Excess Contributions (and Income).
(2) Any distribution of less than the entire amount of
Excess Contributions shall be treated as a pro rata
distribution of Excess Contributions and Income.
(3) The determination and correction of Excess
Contributions of a Highly Compensated Participant whose
actual deferral ratio is determined under the family
aggregation rules shall be accomplished by reducing the
actual deferral ratio as required herein, and the Excess
Contributions for the family unit shall then be allocated
among the Family Members in proportion to the Elective
Contributions of each Family Member that were combined to
determine the group actual deferral ratio. Notwithstanding
the foregoing, with respect to Plan Years beginning prior to
January 1, 1990, compliance with the Regulations then in
effect shall be deemed to be compliance with this paragraph.
(b) Within twelve (12) months after the end of the Plan
Year, the Employer may make a special Qualified Non-Elective
Contribution on behalf of Non-Highly Compensated Participants in
an amount sufficient to satisfy one of the tests set forth in
Section 4.5(a). Such contribution shall be allocated to the
Participant's Elective Account of each Non-Highly Compensated
Participant in the same proportion that each Non-Highly
Compensated Participant's Compensation for the year bears to the
total Compensation of all Non-Highly Compensated Participants.
(c) If during a Plan Year the projected
aggregate amount of Elective Contributions to be
allocated to all Highly Compensated Participants under
this Plan would, by virtue of the tests set forth in
Section 4.5(a), cause the Plan to fail such tests,
then the Administrator may automatically reduce
proportionately or in the order provided in Section
4.6(a) each affected Highly Compensated Participant's
deferral election made pursuant to Section 4.2 by an
amount necessary to satisfy one of the tests set forth
in Section 4.5(a).
4.7 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum
"annual additions" credited to a Participant's accounts
for any "limitation year" shall equal the lesser of:
(1) $30,000 (or, if greater, one-fourth of the
dollar limitation in effect under Code Section 415(b)
(1) (A)) or (2) twenty-five percent (25%) of the
Participant's "415 Compensation" for such "limitation
year." For any short "limitation year," the dollar
limitation in (1) above shall be reduced by a
fraction, the numerator of which is the number of full
months in the short "limitation year" and the
denominator of which is twelve (12).
(b) For purposes of applying the limitations of
Code Section 415, "annual additions" means the sum
credited to a Participant's accounts for any
"limitation year" of (1) Employer contributions, (2)
Employee contributions, (3) forfeitures,
(4) amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Code Section
415(1) (2) which is part of a pension or annuity plan
maintained by the Employer and (5) amounts derived
from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which
are attributable to post-retirement medical benefits
allocated to the separate account of a key employee
(as defined in Code Section 419A(d)(3)) under a
welfare benefit plan (as defined in Code Section
419(e)) maintained by the Employer. Except, however,
the "415 Compensation" percentage limitation referred
to in paragraph (a) 2) above shall not apply to:
(1) any contribution for medical benefits (within the
meaning of Code Section 419A(f)(2)) after separation
from service which is otherwise treated as an "annual
addition," or (2) any amount otherwise treated as an
"annual addition" under Code Section 415(1)(1).
(c) For purposes of applying the
limitations of Code Section 415, the transfer
of funds from one qualified plan to another is
not an "annual addition." In addition, the
following are not Employee contributions for the
purposes of Section 4.7(b)(2): (1) rollover
contributions (as defined in Code Sections
402(a) (5), 403(a) (4), 403(b) (8) and
408(d)(3)); (2) repayments of loans made to a
Participant from the Plan; (3) repayments of
distributions received by an Employee pursuant
to Code Section 411(a) (7)(B) (cash-outs); (4)
repayments of distributions received by an
Employee pursuant to Code Section 411(a) (3) (D)
(mandatory contributions); and (5) Employee
contributions to a simplified employee pension
excludable from gross income under Code Section
408(k) 6).
d) For purposes of applying the
limitations of Code Section 415, the
"limitation year" shall be the Plan Year.
(e) The dollar limitation under Code
Section 415(b) (1)(A) stated in paragraph (a)
(1) above shall be adjusted annually as
provided in Code Section 415(d) pursuant to the
Regulations. The adjusted limitation is
effective as of January 1st of each calendar
year and is applicable to "limitation years"
ending with or within that calendar year.
(f) For the purpose of this Section,
all qualified defined benefit plans (whether
terminated or not) ever maintained by the
Employer shall be treated as one defined benefit
plan, and all qualified defined contribution
plans (whether terminated or not) ever
maintained by the Employer shall be treated as
one defined contribution plan.
(g) For the purpose of this Section,
if the Employer is a member of a controlled
group of corporations, trades or businesses
under common control (as defined by Code Section
1563(a) or Code Section 414(b) and (c) as
modified by Code Section 415(h)), is a member
of an affiliated service group (as defined by
Code Section 414(m)), or is a member of a group
of entities required to be aggregated pursuant
to Regulations under Code Section 414(0), all
Employees of such Employers shall be considered
to be employed by a single Employer.
(h) For the purpose of this Section, if this
Plan is a Code Section 413(c) plan, all Employers
of a Participant who maintain this Plan will be
considered to be a single Employer.
(i) (1) If a Participant participates in more
than one defined contribution plan maintained by the
Employer which have different Anniversary Dates, the
maximum "annual additions" under this Plan shall
equal the maximum "annual additions" for the
"limitation year" minus any "annual additions"
previously credited to such Participant's accounts
during the "limitation year."
(2) If a Participant participates in both a
defined contribution plan subject to Code
Section 412 and a defined contribution plan not
subject to Code Section 412 maintained by the
Employer which have the same Anniversary Date,
"annual additions" will be credited to the
Participant's accounts under the defined
contribution plan subject to Code Section 412
prior to crediting "annual additions" to the
Participant's accounts under the defined
contribution plan not subject to Code Section
412.
(3 If a Participant participates in more than
one defined contribution plan not subject to
Code Section 412 maintained by the Employer
which have the same Anniversary Date, the
maximum "annual additions" under this Plan shall
equal the product of (A) the maximum "annual
additions" for the "limitation year" minus
any "annual additions" previously credited under
subparagraphs (1) or (2) above, multiplied
by a fraction (i) the numerator of which is
the "annual additions" which would be credited
to such Participant's accounts under this Plan
without regard to the limitations of Code
Section 415 and (ii) the denominator of which
is such "annual additions" for all plans
described in this subparagraph.
(j) If an Employee is (or has been) a
Participant in one or more defined benefit plans and
one or more defined contribution plans maintained by
the Employer, the sum of the defined benefit plan
fraction and the defined contribution plan fraction
for any "limitation year" may not exceed 1.0.
(k) The defined benefit plan fraction for any
"limitation year" is a fraction, the numerator of
which is the sum of the Participant's projected
annual benefits under all the defined benefit plans
(whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser
of 125 percent of the dollar limitation determined
for the "limitation year" under Code Sections 41B(b)
and (d) or 140 percent of the highest average
compensation, including any adjustments under Code
Section 415(b).
Notwithstanding the above, if the Participant
was a Participant as of the first day of the first
"limitation year" beginning after
December 31, 1986, in one or more defined
benefit plans maintained by the Employer which were
in existence on May 6, 1986, the denominator of
this fraction will not be less than 125 percent of
the sum of the annual benefits under such plans which
the Participant had accrued as of the close of the
last "limitation year" beginning before January 1,
1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986. The
preceding sentence applies only if the defined
benefit plans individually and in the aggregate
satisfied the requirements of Code Section 415 for
all "limitation years" beginning before January 1,
1987.
(1) The defined contribution plan fraction
for any "limitation year" is a fraction, the
numerator of which is the sum of the annual additions
to the Participant's Account under all the defined
contribution plans (whether or not terminated)
maintained by the Employer for the current and all
prior "limitation years" (including the annual
additions attributable to the Participant's
nondeductible Employee contributions to all defined
benefit plans, whether or not terminated, maintained
by the Employer, and the annual additions
attributable to all welfare benefit funds, as
defined in Code Section 419(e), and individual
medical accounts, as defined in Code Section
415(1)(2), maintained by the Employer), and the
denominator of which is the sum of the maximum
aggregate amounts for the current and all prior
"limitation years" of service with the Employer
(regardless of whether a defined contribution plan
was maintained by the Employer). The maximum
aggregate amount in any "limitation year" is the
lesser of 125 percent of the dollar limitation
determined under Code Sections 415(b) and (d) in
effect under Code Section 415(c) (1) (A) or 35
percent of the Participant's Compensation for such
year.
If the Employee was a Participant as of the end
of the first day of the first "limitation year"
beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer
which were in existence on May 6, 1986, the
numerator of this fraction will be adjusted if the
sum of this fraction and the defined benefit fraction
would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the
product of
(1) the excess of the sum of the fractions
over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is
calculated using the fractions as they would be
computed as of the end of the last "limitation year"
beginning before January 1, 1987, and disregarding
any changes in the terms and conditions of the Plan
made after May 5, 1986, but using the Code Section
415 limitation applicable to the first "limitation
year" beginning on or after January 1, 1987. The
annual addition for any "limitation year" beginning
before January 1, 1987 shall not be recomputed to
treat all Employee contributions as annual additions.
(m) Notwithstanding the foregoing, for any
"limitation year" in which the Plan is a Top Heavy
Plan, 100 percent shall be substituted for 125
percent in Sections 4.7(k) and 4.7(1) unless the
extra minimum allocation is being provided pursuant
to Section 4.4. However, for any "limitation year"
in which the Plan is a Super Top Heavy Plan, 100
percent shall be substituted for 125 percent in any
event.
(n) Notwithstanding anything contained in
this Section to the contrary, the limitations,
adjustments and other requirements prescribed in this
Section shall at all times comply with the provisions
of Code Section 41S and the Regulations thereunder,
the terms of which are specifically incorporated
herein by reference.
4.8 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of a reasonable error in
estimating a Participant's Compensation, a reasonable
error in determining the amount of elective deferrals
(within the meaning of Code Section 402(g)(3)) that
may be made with respect to any Participant under the
limits of Section 4.7 or other facts and circumstances
to which Regulation 1.415-6(b)(6) shall be applicable,
the "annual additions" under this Plan would cause the
maximum "annual additions" to be exceeded for any
Participant, the Administrator shall (1) distribute
any elective deferrals (within the meaning of Code
Section 402(g) (3)) or return any voluntary Employee
contributions credited for the "limitation year" to the
extent that the return would reduce the "excess amount"
in the Participant's accounts (2) hold any "excess
amount" remaining after the return of any elective
deferrals or voluntary Employee contributions in a
"Section 415 suspense account" (3) use the "Section
415 suspense account" in the next "limitation year"
(and succeeding "limitation years" if necessary) to
reduce Employer contributions for that Participant if
that Participant is covered by the Plan as of the end
of the "limitation year," or if the Participant is not
so covered, allocate and reallocate the "Section 415
suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to all
Participants in the Plan before any Employer or
Employee contributions which would constitute "annual
additions" are made to the Plan for such "limitation
year" (4) reduce Employer contributions to the Plan
'for such "limitation year" by the amount of the
"Section 415 suspense account" allocated and
reallocated during such "limitation year."
(b) For purposes of this Article, "excess
amount" for any Participant for a "limitation year"
shall mean the excess, if any, of (1 the "annual
additions" which would be credited to his account under
the terms of the Plan without regard to the limitations
of Code Section 415 over (2) the maximum "annual
additions" determined pursuant to Section 4.7. (c)
For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the
sum of "excess amounts" for all Participants in the
Plan during the "limitation year." The "Section 415
suspense account" shall not share in any earnings or
losses of the Trust Fund.
4.9 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator,
amounts may be transferred from other qualified plans
by Participants, provided that the trust from which
such funds are transferred permits the transfer to be
made and the transfer will not jeopardize the tax
exempt status of the Plan or Trust or create adverse
tax consequences for the Employer. The amounts
transferred shall be set up in a separate account
herein referred to as a "Participant's Rollover
Account." Such account shall be fully Vested at all
times and shall not be subject to Forfeiture for any
reason.
(b) Amounts in a Participant's Rollover Account
shall be held by the Trustee pursuant to the provisions
of this Plan and may not be withdrawn by, or
distributed to the Participant, in whole or in part,
except as provided in paragraphs (c) and (d) of
this Section.
(c) Except as permitted by Regulations (including
Regulation 1.411(d)-4), amounts attributable to
elective contributions (as defined in Regulation
1.401(k)-l(g) (3)) including amounts treated as
elective contributions, which are transferred from
another qualified plan in a plan-to-plan transfer shall
be subject to the distribution limitations provided for
in Regulation 1.401(k)-l(d).
(d) At Normal Retirement Date, or such other
date when the Participant or his Beneficiary shall be
entitled to receive benefits, the fair market value of
the Participant's Rollover Account shall be used to
provide additional benefits to the Participant or his
Beneficiary. Any distributions of amounts held in a
Participant's Rollover Account shall be made in a
manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited
to, all notice and consent requirements of Code
Section 411(a) (11) and the Regulations thereunder.
Furthermore, such amounts shall be considered as part
of a Participant's benefit in determining whether an
involuntary cash-out of benefits without Participant
consent may be made.
(e) The Administrator may direct that
employee transfers made after a valuation date be
segregated into a separate account for each Participant
in a federally insured savings account, certificate of
deposit in a bank or savings and loan association,
money market certificate, or other short term debt
security acceptable to the Trustee until such time as
the allocations pursuant to this Plan have been made,
at which time they may remain segregated or be invested
as part of the general Trust Fund, to be determined by
the Administrator.
(f) All amounts allocated to a Participant's
Rollover Account may be treated as a Directed
Investment Account pursuant to Section 4.10.
(g) For purposes of this Section, the term
"qualified plan" shall mean any tax qualified plan
under Code Section 401(a). The term "amounts
transferred from other qualified plans" shall mean:
(i) amounts transferred to this Plan directly from
another qualified plan; (ii) distributions from
another qualified plan which are eligible rollover
distributions and which are either transferred by the
Employee to this Plan within sixty (60) days
following his receipt thereof or are transferred
pursuant to a direct rollover; (iii) amounts
transferred to this Plan from a conduit individual
retirement account provided that the conduit individual
retirement account has no assets other than assets
which (A) were previously distributed to the Employee
by another qualified plan as a lump-sum distribution
(B) were eligible for tax-free rollover to a qualified
plan and (C) were deposited in such conduit
individual retirement account within sixty 60) days
of receipt thereof and other than earnings on said
assets; and (-iv) amounts distributed to the Employee
from a conduit individual retirement account meeting
the requirements of clause (iii) above, and
transferred by the Employee to this Plan within sixty
(60) days of his receipt thereof from such conduit
individual retirement account.
(h) Prior to accepting any transfers to which
this Section applies, the Administrator may require
the Employee to establish that the amounts to be
transferred to this Plan meet the requirements of this
Section and may also require the Employee to provide an
opinion of counsel satisfactory to the Employer that
the amounts to be transferred meet the requirements of
this Section.
(i) This Plan shall not accept any direct or
indirect transfers (as that term is defined
and interpreted under Code Section 401(a)(11)
and the Regulations thereunder) from a
defined benefit plan, money purchase plan
(including a target benefit plan), stock
bonus or profit sharing plan which would
otherwise have provided for a life annuity
form of payment to the Participant.
(j) Notwithstanding anything herein to the
contrary, a transfer directly to this Plan from
another. qualified plan (or a transaction having the
effect of such a transfer) shall only be permitted if
it will not result in the elimination or reduction of
any "Section 411(d) (6) protected benefit" as
described in Section 8.1.
4.10 DIRECTED INVESTMENT ACCOUNT
(a) The Administrator, in his sole
discretion, may determine that all Participants be
permitted to direct the Trustee as to the investment of
all or a portion of the interest in any one 'or more of
their individual account balances. If such
authorization is given, Participants may, subject to
a procedure established by the Administrator and
applied in a uniform nondiscriminatory manner, direct
the Trustee in writing to invest any portion of their
account in specific assets, specific funds or other
investments permitted under the Plan and the directed
investment procedure. That portion of the account of
any Participant so directing will thereupon be
considered a Directed Investment Account, which shall
not share in Trust Fund earnings.
(b) A separate Directed Investment Account
shall be established for each Participant who has
directed an investment. Transfers between the
Participant's regular account and his Directed
Investment Account shall be charged and credited as the
case may be to each account. The Directed Investment
Account shall not share in Trust Fund earnings, but it
shall be charged or credited as appropriate with the
net earnings, gains, losses and expenses as well as
any appreciation or depreciation in market value during
each Plan Year attributable to such account.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each
Anniversary Date, and at such other date or dates deemed
necessary by the Administrator, herein called "valuation date,"
to determine the net worth of the assets comprising the Trust
Fund as it exists on the "valuation date." In determining such
net worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation date"
and shall deduct all expenses for which the Trustee has not yet
obtained reimbursement from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held
in the Trust Fund which are listed on a registered stock
exchange, the Administrator shall direct the Trustee to value
the same at the prices they were last traded on such exchange
preceding the close of business on the "valuation date." If such
securities were not traded on the "valuation date," or if the
exchange on which they are traded was not open for business on
the "valuation date," then the securities shall be valued at the
prices at which they were last traded prior to the "valuation
date." Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on
the "valuation date," which bid price shall be obtained from a
registered broker or an investment banker. In determining the
fair market value of assets other than securities for which
trading or bid prices can be obtained, the Trustee may appraise
such assets itself, or in its discretion, employ one or more
appraisers for that purpose and rely on the values established by
such appraiser or appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the
Employer and retire for the purposes hereof on his Normal
Retirement Date. However, a Participant may postpone the
termination of his employment with the Employer to a later date,
in which event the participation of such Participant in the Plan,
including the right to receive allocations pursuant to Section
4.4, shall continue until his Late Retirement Date. Upon a
Participant's Retirement Date, or as soon thereafter as is
practicable, the Trustee shall distribute all amounts credited
to such Participant's Combined Account in accordance with Section
6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before
his Retirement Date or other termination of his
employment, all amounts credited to such Participant's
Combined Account shall become fully Vested. The
Administrator shall direct the Trustee, in accordance
with the provisions of Sections 6.6 and 6.7, to
distribute the value of the deceased Participant's
accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant,
the Administrator shall direct the Trustee, in
accordance with the provisions of Sections 6.6 and 6.7,
to distribute any remaining Vested amounts credited to
the accounts of a deceased Former Participant to such
Former Participant's Beneficiary.
(c) Any security interest held by the Plan by
reason of an outstanding loan to the Participant or
Former Participant shall be taken into account in
determining the amount of the death benefit.
(a)The Administrator may require such proper
proof of death and such evidence of the right of any
person to receive payment of the value of the account
of a deceased Participant or Former Participant as the
Administrator may deem desirable. The Administrator's
determination of death and of the right of any person
to receive payment shall be conclusive.
(e) The Beneficiary of the death benefit
payable pursuant to this Section shall be the
Participant's spouse. Except, however, the
Participant may designate a Beneficiary other than his
spouse if:
(1) the spouse has waived the right to be the
Participant's Beneficiary, or
(2) the Participant is legally separated or
has been abandoned (within the meaning of local
law) and the Participant has a court order to
such effect (and there is no "qualified
domestic relations order" as defined in Code
Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a
Beneficiary shall be made on a form satisfactory to the
Administrator. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary
by filing written notice of such revocation or change
with the Administrator. However, the Participant's
spouse must again consent in writing to any change in
Beneficiary unless the original consent acknowledged
that the spouse had the right to limit consent only to
a specific Beneficiary and that the spouse voluntarily
elected to relinquish such right. In the event no
valid designation of Beneficiary exists at the time of
the Participant's death, the death benefit shall be
payable to his estate.
(f) Any consent by the Participant's spouse
to waive any rights to the death benefit must be in
writing, must acknowledge the effect of such waiver,.
and be witnessed by a Plan representative or a notary
public. Further, the spouse's consent must be
irrevocable and must acknowledge the specific nonspouse
Beneficiary.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent
Disability prior to his Retirement Date or other termination of
his employment, all amounts credited to such Participant's
Combined Account shall become fully Vested. In the event of a
Participant's Total and Permanent Disability, the Trustee, in
accordance with the provisions of Sections 6.5 and 6.7, shall
distribute to such Participant all amounts credited to such
Participant's Combined Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date
coinciding with or subsequent to the termination of a
Participant's employment for any reason other than
death, Total and Permanent Disability or retirement,
the Administrator may direct the Trustee to segregate
the amount of the Vested portion of such Terminated
Participant's Combined Account and invest the aggregate
amount thereof in a separate, federally insured
savings account, certificate of deposit, common or
collective trust fund of a bank or a deferred annuity.
In the event the Vested portion of a Participant's
Combined Account is not segregated, the amount shall
remain in a separate account for the Terminated
Participant and share in allocations pursuant to
Section 4.4 until such time as a distribution is made
to the Terminated Participant.
Distribution of the funds due to a Terminated
Participant shall be made on the occurrence of an event
which would result in the distribution had the
Terminated Participant remained in the employ of the
Employer (upon the Participant's death, Total and
Permanent Disability or Normal Retirement). However,
at the election of the Participant, the Administrator
shall direct the Trustee to cause the entire Vested
portion of the Terminated Participant's Combined
Account to be payable to such Terminated Participant.
Any distribution under this paragraph shall be made in
a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited
to, all notice and consent requirements of Code
Section 411(a) (11) and the Regulations thereunder.
If the value of a Terminated Participant's
Vested benefit derived from Employer and Employee
contributions does not exceed $3,500 and has never
exceeded $3,500 at the time of any prior distribution,
the Administrator shall direct the Trustee to cause the
entire Vested benefit to be paid to such Participant in
a single lump sum.
(b) The computation of a Participant's
nonforfeitable percentage of his interest in the Plan
shall not be reduced as the .result of any direct or
indirect amendment to this Plan. For this purpose, the
Plan shall be treated as having been amended if the
Plan provides for an automatic change in vesting due to
a change in top heavy status. In the event that the
Plan is amended to change or modify any vesting
schedule, a Participant with at least three (3)
Years of Service as of the expiration date of the
election period may elect to have his nonforfeitable
percentage computed under the Plan without regard to
such amendment. If a Participant fails to make such
election, then such Participant shall be subject to
the new vesting schedule. The Participant's election
period shall commence on the adoption date of the
amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment,
or
(3) the date the Participant receives
written notice of the amendment from the
Employer or Administrator.
(c) (1) If any Former Participant shall be
reemployed by the Employer before a l-Year Break in
Service occurs, he shall continue to participate in
the Plan in the same manner as if such termination had
not occurred.
(2) If a Former Participant completes one
(1) Year of Service for eligibility purposes
following his reemployment with the Employer, he
shall participate in the Plan retroactively from
his date of reemployment.
(3) If a Former Participant completes a Year
of Service (a l-Year Break in Service previously
occurred, but employment had not terminated), he
shall participate in the Plan retroactively from
the first day of the Plan Year during which he
completes one (1) Year of Service.
6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the
election of the Participant, shall direct the Trustee
to distribute to a Participant or his Beneficiary any
amount to which he is entitled under the Plan in one or
more of the following methods:
(1) One lump-sum payment in cash or in
property;
(2) Payments over a period certain in monthly,
quarterly, semiannual, or annual cash
installments. In order to provide such
installment payments, the Administrator may
(A) segregate the aggregate amount thereof in a
separate, federally insured savings account,
certificate of deposit in a bank or savings and
loan association, money market certificate or
other liquid short-term security or (B)
purchase a nontransferable annuity contract for
a term certain (with no life contingencies)
providing for such payment. The period over
which such payment is to be made shall not
extend beyond the Participant's life expectancy
(or the life expectancy of the Participant and
his designated Beneficiary).
(b) Any distribution to a Participant who has
a benefit which exceeds, or has ever exceeded, $3,500
at the time of any prior distribution shall require
such Participant's consent if such distribution
commences prior to the later of his Normal Retirement
Age or age 62. With regard to this required consent:
(1) The Participant must be informed of his
right to defer receipt of the distribution. If
a Participant fails to consent, it shall be
deemed an election to defer the commencement of
payment of any benefit. However, any election
to defer the receipt of benefits shall not apply
with respect to distributions which are required
under Section 6.5 c).
(2) Notice of the rights specified under this
paragraph shall be provided no less than 30 days
and no more than 90 days before the first day on
which all events have occurred which entitle the
Participant to such benefit.
(3) Written consent Of the Participant to the
distribution must not be made before the
Participant receives the notice and must not be
made more than 90 days before the first day on
which all events have occurred which entitle the
participant to such benefit.
(4) No consent shall be valid if a significant
detriment is imposed under the Plan on any
Participant who does not consent to the
distribution.
If a distribution is one to which Code
Sections 401(a) (11) and 417 do not apply,
such distribution may commence less than 30 days
after the notice required under Regulation
1.411(a)-11(c) is given, provided that: (1)
the Administrator clearly informs the
Participant that the Participant has a right to
a period of at least 30 days after receiving the
notice to consider the decision of whether or
not to elect a distribution (and, if
applicable, a particular distribution option),
and (2) the Participant, after receiving the
notice, affirmatively elects a distribution.
(c) Notwithstanding any provision in the Plan
to the contrary, the distribution of a Participant's
benefits shall be made in accordance with the following
requirements and shall otherwise comply with Code
Section 401(a)(9) and the Regulations thereunder
(including Regulation 1.401(a)(9)-2), the provisions
of which are incorporated herein by reference:
(1) A Participant's benefits shall be
distributed to him not later than April 1st of
the calendar year following the later of (i)
the calendar year in which the Participant
attains age 70 1/2 or (ii) the calendar year
in which the Participant retires, provided,
however, that this clause (ii) shall not
apply in the case of a Participant who is a
"five (5) percent owner" at any time during
the five (5) Plan Year period ending in the
calendar year in which he attains age 70 1/2 or,
in the case of a Participant who becomes a "five
(5) percent owner" during any subsequent Plan
Year, clause (ii) shall no longer apply and
the required beginning date shall be the April
1st of the calendar year following the calendar
year in which such subsequent Plan Year ends.
Alternatively, distributions to a Participant
must begin no later than the applicable April
1st as determined under the preceding sentence
and must be made over a period certain measured
by the life expectancy of the Participant (or
the life expectancies of the Participant and his
designated Beneficiary) in accordance with
Regulations. Notwithstanding the foregoing,
clause (ii) above shall not apply to any
Participant unless the Participant had attained
age 70 1/2 before January 1, 1988 and was not a
"five (5) percent owner" at any time during
the Plan Year ending with or within the calendar
year in which the Participant attained age 66
1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his
Beneficiaries shall only be made in accordance
with the incidental death benefit requirements
of Code Section 401(a)(9)(G) and the
Regulations thereunder.
Additionally, for calendar years beginning
before 1989, distributions may also be made
under an alternative method which provides that
the then present value of the payments to be
made over the period of the Participant's life
expectancy exceeds fifty percent (50%) of the
then present value of the total payments to be
made to the Participant and his Beneficiaries.
(d) For purposes of this Section, the life
expectancy of a Participant and a Participant's spouse
shall be redetermined annually in accordance with
Regulations. Life expectancy and joint and last
survivor expectancy shall be computed using the return
multiples in Tables V and VI of Regulation 1.72-9.
(e) All annuity Contracts under this Plan shall
be non-transferable when distributed. Furthermore, the
terms of any annuity Contract purchased and distributed
to a Participant or spouse shall comply with all of the
requirements of the Plan.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) (1) The death benefit payable pursuant to
Section 6.2 shall be paid to the Participant's
Beneficiary within a reasonable time after the
Participant's death by either of the following methods,
as elected by the Participant (or if no election has
been made prior to the Participant's death, by his
Beneficiary) subject, however, to the rules
specified in Section 6.6(b):
(i) One lump-sum payment in cash or in
property;
(ii) Payment in monthly, quarterly,
semi-annual, or annual cash installments
over a period to be determined by the
Participant or his Beneficiary. After
periodic installments commence, the
Beneficiary shall have the right to direct
the Trustee to reduce the period over which
such periodic installments shall be made,
and the Trustee shall adjust the cash
amount of such periodic installments
accordingly.
(2) In the event the death benefit payable
pursuant to Section 6.2 is payable in
installments, then, upon the death of the
Participant, the Administrator may direct the
Trustee to segregate the death benefit into a
separate account, and the Trustee shall invest
such segregated account separately, and the
funds accumulated in such account shall be used
for the payment of the installments.
(b) Notwithstanding any provision in the Plan
to the contrary, distributions upon the death of a
Participant shall be made in accordance with the
following requirements and shall otherwise comply with
Code Section 401(a)(9) and the Regulations thereunder.
If it is determined pursuant to Regulations that the
distribution of a Participant's interest has begun and
the Participant dies before his entire interest has
been distributed to him, the remaining portion of such
interest shall be distributed at least as rapidly as
under the method of distribution selected pursuant to
Section 6.5 as of his date of death. If a Participant
dies before he has begun to receive any distributions
of his interest under the Plan or before distributions
are deemed to have begun pursuant to Regulations, then
his death benefit shall be distributed to his
Beneficiaries by December 31st of the calendar year in
which the fifth anniversary of his date of death
occurs.
However, the 5-year distribution requirement
of the preceding paragraph shall not apply to any
portion of the deceased Participant's interest which is
payable to or for the benefit of a designated
Beneficiary. In such event, such portion may, at the
election of the Participant (or the Participant's
designated Beneficiary), be distributed over a period
not extending beyond the life expectancy of such
designated Beneficiary provided such distribution
begins not later than December 31st of the calendar
year immediately following the calendar year in which
the Participant died. However, in the event the
Participant's spouse (determined as of the date of the
Participant's death) is his Beneficiary, the
requirement that distributions commence within one year
of a Participant's death shall not apply. In lieu
thereof, distributions must commence on or before the
later of: (1) December 31st of the calendar year
immediately following the calendar year in which the
Participant died; or (2) December 31st of the calendar
year in which the Participant would have attained age
70 1/2. If the surviving spouse dies before
distributions to such spouse begin, then the 5-year
distribution requirement of this Section shall apply as
if the spouse was the Participant.
(a)For purposes of Section 6.6(b), the
election by a designated Beneficiary to be excepted
from the 5-year distribution requirement must be made
no later than December 31st of the calendar year
following the calendar year of the Participant's death.
Except, however, with respect to a designated
Beneficiary who is the Participant's surviving spouse,
the election must be made by the earlier of: (1)
December 31st of the calendar year immediately
following the calendar year in which the Participant
died or, if later, the calendar year in which the
Participant would have attained age 70 1/2; or (2)
December 31st of the calendar year which contains the
fifth anniversary of the date of the Participant's
death. An election by a designated Beneficiary must be
in writing and shall be irrevocable as of the last day
of the election period stated herein. In the absence
of an election by the Participant or a designated
Beneficiary, the B-year distribution requirement shall
apply.
(d) For purposes of this Section, the life
expectancy of a Participant and a Participant's spouse
shall be redetermined annually in accordance with
Regulations. Life expectancy and joint and last
survivor expectancy shall be computed using the return
multiples in Tables V and VI of Regulation 1.72-9.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the
Trustee is to make a distribution or to commence a series of
payments on or as of an Anniversary Date, the distribution or
series of payments may be made or begun on such date or as soon
thereafter as is practicable. However, unless a Former
Participant elects in writing to defer the receipt of benefits
(such election may not result in a death benefit that is more
than incidental), the payment of benefits shall begin not later
than the 60th day after the close of the Plan Year in which the
latest of the following events occurs: (a) the date on which
the Participant attains the earlier of age 65 or the Normal
Retirement Age specified herein; (b) the 10th anniversary of
the year in which the Participant commenced participation in the
Plan; or (c) the date the Participant terminates his service
with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor,
then the Administrator may direct that such distribution be paid
to the legal guardian, or if none, to a parent of such
Beneficiary or a responsible adult with whom the Beneficiary
maintains his residence, or to the custodian for such
Beneficiary under the Uniform Gift to Minors Act or Gift to
Minors Act, if such is permitted by the laws of the state in
which said Beneficiary resides. Such a payment to the legal
guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further
liability on account thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the
distribution payable to a Participant or his Beneficiary
hereunder shall, at the later of the Participant's attainment of
age 62 or his Normal Retirement Age, remain unpaid solely by
reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known
address, and after further diligent effort, to ascertain the
whereabouts of such Participant or his Beneficiary, the amount
so distributable shall be treated as a Forfeiture pursuant to the
Plan. In the event a Participant or Beneficiary is located
subsequent to his benefit being reallocated, such benefit shall
be restored.
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of
the Participant, shall direct the Trustee to
distribute to any Participant in any one Plan Year up
to the lesser of 100% of his Participant's Elective
Account valued as of the last anniversary Date or
other valuation date or the amount necessary to
satisfy the immediate and heavy financial need of the
Participant. Any distribution made pursuant to this
Section shall be deemed to be made as of the first
day of the Plan Year or, if later, the valuation
date immediately preceding the date of distribution,
and the Participant's Elective Account shall be
reduced accordingly. Withdrawal under this Section
shall be authorized only if the distribution is on
account of:
(1) Expenses for medical care described in
Code Section 213(d) previously incurred by the
Participant, his spouse, or any of his
dependents (as defined in Code Section 152) or
necessary for these persons to obtain medical
care;
(2) The costs directly related to the purchase
of a principal residence for the Participant
(excluding mortgage payments);
(3) Payment of tuition and related educational
fees for the next twelve (12) months of post-secondary
education for the Participant, his
spouse, children, or dependents; or
(4) Payments necessary to prevent the eviction
of the Participant from his principal residence
or foreclosure on the mortgage of the
Participant's principal residence.
(a) No distribution shall be made pursuant
to this Section unless the
Administrator, based upon the
Participant's representation and such
other facts as are known to the
Administrator, determines that all of
the following conditions are satisfied:
(1) The distribution is not in excess of the
amount of the immediate and heavy financial need
of the Participant. The amount of the immediate
and heavy financial need may include any amounts
necessary to pay any federal, state, or local
income taxes or penalties reasonably anticipated
to result from the distribution;
(2) The Participant has obtained all
distributions, other than hardship
distributions, and all nontaxable (at the time
of the loan) loans currently available under all
plans maintained by the Employer;
(3) The Plan, and all other plans maintained
by the Employer, provide that the Participant's
elective deferrals and voluntary Employee
contributions will be suspended for at least
twelve (12) months after receipt of the
hardship distribution or, the Participant,
pursuant to a legally enforceable agreement,
will suspend his elective deferrals and
voluntary Employee contributions to the Plan and
all other plans maintained by the Employer for
at least twelve (12) months after receipt of
the hardship distribution; and
(4) The Plan, and all other plans maintained
by the Employer, provide that the Participant
may not make elective deferrals for the
Participant's taxable year immediately following
the taxable year of the hardship distribution in
excess of the applicable limit under Code
Section 402(g) for such next taxable year less
the amount of such Participant's elective
deferrals for the taxable year of the hardship
distribution.
(c) Notwithstanding the above, for Plan
Years beginning after December 31, 1988,
distributions from the Participant's Elective Account
pursuant to this Section shall be limited, as of the
date of distribution, to the Participant's Elective
Account as of the end of the last Plan Year ending
before July 1, 1989, plus the total Participant's
Deferred Compensation after such date, reduced by the
amount of any. previous distributions pursuant to this
Section.
(d) Any distribution made pursuant to this
Section shall be made in a manner which is consistent
with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and
consent requirements of Code Section 411(a)(11) and
the Regulations thereunder.
6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections,
provided to a Participant in this Plan shall be subject to the
rights afforded to any "alternate payee" under a "qualified
domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the
affected Participant has not separated from service and has not
reached the "earliest retirement age" under the Plan. For the
purposes of this Section, "alternate payee," "qualified
domestic relations order" and "earliest retirement age" shall
have the meaning set forth under Code Section 414(p).
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of
responsibilities: '
(a) Consistent with the "funding policy and
method" determined by the Employer, to invest,
manage, and control the Plan assets subject, however,
to the direction of an Investment Manager if the
Trustee should appoint such manager as to all or a
portion of the assets of the Plan;
(b) At the direction of the Administrator, to
pay benefits required under the Plan to be paid to
Participants, or, in the event of their death, to
their Beneficiaries;
(c) To maintain records of receipts and
disbursements and furnish to the Employer and/or
Administrator for each Plan Year a written annual
report per Section 7.7; and
(a) If there shall be more than one Trustee,
they shall act by a majority of their
number, but may authorize one or more
of them to sign papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the
Trust Fund to keep the Trust Fund invested without
distinction between principal and income and in such
securities or property, real or personal, wherever
situated, as the Trustee shall deem advisable,
including, but not limited to, stocks, common or
preferred, bonds and other evidences of indebtedness or
ownership, and real estate or any interest therein.
The Trustee shall at all times in making investments of
the Trust Fund consider, among other factors, the
short and long-term financial needs of the Plan on the
basis of information furnished by the Employer. In
making such investments, the Trustee shall not be
restricted to securities or other property of the
character expressly authorized by the applicable law
for trust investments; however, the Trustee shall give
due regard to any limitations imposed by the Code or
the Act so that at all times the Plan may qualify as a
qualified Profit Sharing Plan and Trust.
(b) The Trustee may employ a bank or trust
company pursuant to the terms of its usual and
customary bank agency agreement, under which the duties
of such bank or trust company shall be of a custodial,
clerical and record-keeping nature.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities
under common law, statutory authority, including the Act, and
other provisions of the Plan, shall have the following powers
and authorities, to be exercised in the Trustee's sole
discretion:
(a) To purchase, or subscribe for, any
securities or other property and to retain the same.
In conjunction with the purchase of securities, margin
accounts may be opened and maintained;
(a)To sell, exchange, convey, transfer,
grant options to purchase, or otherwise dispose of any
securities or other property held by the Trustee, by
private contract or at public auction. No person
dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into
the validity, expediency, or propriety of any such
sale or other disposition, with or without
advertisement;
(c) To vote upon any stocks, bonds, or other
securities; to give general or special proxies or
powers of attorney with or without power of
substitution; to exercise any conversion privileges,
subscription rights or other options, and to make any
payments incidental thereto; to oppose, or to consent
to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and
to pay any assessments or charges in connection
therewith; and generally to exercise any of the powers
of an owner with respect to stocks, bonds,
securities, or other property;
(d) To cause any securities or other property
to be registered in the TrUstee's own name or in the
name of one or more of the Trustee's nominees, and to
hold any investments in bearer form, but the books and
records of the Trustee shall at all times show that all
such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes
of the Plan in such amount, and upon such terms and
conditions, as the Trustee shall deem advisable; and
for any sum so borrowed, to issue a promissory note
as Trustee, and to secure the repayment thereof by
pledging all, or any part, of the Trust Fund; and
no person lending money to the Trustee shall be bound
to see to the application of the money lent or to
inquire into the validity, expediency, or propriety
of any borrowing;
(f) To keep such portion of the Trust Fund in
cash or cash balances as the Trustee may, from time
to time, deem to be in the best interests of the
Plan, without liability for interest thereon;
(g) To accept and retain for such time as the
Trustee may deem advisable any securities or other
property received or acquired as Trustee hereunder,
whether or not such securities or other property
would normally be purchased as investments hereunder;
(a)To make, execute, acknowledge, and
deliver any and all documents of transfer and
conveyance and any and all other instruments that may
be necessary or appropriate to carry out the powers
herein granted;
(i) To settle, compromise, or submit to
arbitration any claims, debts, or damages due or
owing to or from the Plan, to commence or defend
suits or legal or administrative proceedings, and to
represent the Plan in all suits and legal and
administrative proceedings;
(j) To employ suitable agents and counsel and
to pay their reasonable expenses and compensation,
and such agent or counsel may or may not be agent or
counsel for the Employer;
(k) To apply for and procure from responsible
insurance companies, to be selected by the
Administrator, as an investment of the Trust Fund
such annuity, or other Contracts (on the life of
any Participant) as the Administrator shall deem
proper; to exercise, at any time or from time to
time, whatever rights and privileges may be granted
under such annuity, or other Contracts; to collect,
receive, and settle for the proceeds of all such
annuity or other Contracts as and when entitled to do
so under the provisions thereof;
(1 To invest funds of the Trust in time
deposits or savings accounts bearing a reasonable
rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms
of United States government obligations;
(n To invest in shares of investment companies
registered under the Investment Company Act of 1940;
(0) To sell, purchase and acquire put or call
options if the options are traded on and purchased
through a national securities exchange registered
under the Securities Exchange Act of 1934, as
amended, or, if the options are not traded on a
national securities exchange, are guaranteed by a
member firm of the New York Stock Exchange;
(p) To deposit moneys in federally insured
savings accounts or certificates of deposit in banks
or savings and loan associations;
(q) To pool all or any of the Trust Fund,
from time to time, with assets belonging to any
other qualified employee pension benefit trust
created by the Employer or an affiliated company of
the Employer, and to commingle such assets and make
joint or common investments and carry joint accounts
on behalf of this Plan and such other trust or
trusts, allocating undivided shares or interests in
such investments or accounts or any pooled assets of
the two or more trusts in accordance with their
respective interests;
(a)To do all such acts and exercise all such
rights and privileges, although not specifically
mentioned herein, as the Trustee may deem necessary
to carry out the purposes of the Plan.
(a) Directed Investment Account. The
powers granted to the Trustee shall
be exercised in the sole fiduciary
discretion of the Trustee. However,
if Participants are so empowered by
the Administrator, each Participant
may direct the Trustee to separate
and keep separate all or a portion
of his account; and further each
Participant is authorized and
empowered, in his sole and
absolute discretion, to give
directions to the Trustee pursuant
to the procedure established by the
Administrator and in such form as
the Trustee may require concerning
the investment of the Participant's
Directed Investment Account. The
Trustee shall comply as promptly as
practicable with directions given
by the Participant hereunder. The
Trustee may refuse to comply with
any direction from the Participant
in the event the Trustee, in its
sole and absolute discretion,
deems such directions improper by
virtue of applicable law. The
Trustee shall not be responsible or
liable for any loss or expense
which may result from the Trustee's
refusal or failure to comply with
any directions from the
Participant. Any costs and expenses
related to compliance with the
Participant's directions shall be
borne by the Participant's Directed
Investment Account.
7.4 LOANS TO PARTICIPANTS
(a)The Trustee may, in the Trustee's
discretion, make loans to Participants and
Beneficiaries under the following circumstances:
(1) loans shall be made available to all
Participants and Beneficiaries on a
reasonably equivalent basis; (2) loans
shall not be made available to Highly
Compensated Employees in an amount
greater than the amount made available
to other Participants and Beneficiaries;
(3) loans shall bear a reasonable rate
of interest; (4) loans shall be
adequately secured; and (5) shall
provide for repayment over a reasonable
period of time.
(b) Loans made pursuant to this Section
(when added to the outstanding balance of all other
loans made by the Plan to the Participant) shall be
limited to the lesser of:
(1) $50,000 reduced by the excess (if any)
of the highest outstanding balance of loans from
the Plan to the Participant during the one year
period ending on the day before the date on
which such loan is made, over the outstanding
balance of loans from the Plan to the
Participant on the date on which such loan was
made, or
(2) one-half (1/2 of the present value of
the non-forfeitable accrued benefit of the
Participant under the Plan.
For purposes of this limit, all plans of the
Employer shall be considered one plan.
(c) Loans shall provide for level
amortization with payments to be made not less
frequently than quarterly over a period not to exceed
five (5) years. However, loans used to acquire any
dwelling unit which, within a reasonable time, is to
be used (determined at the time the loan is made) as
a principal residence of the Participant shall provide
for periodic repayment over a reasonable period of time
that may exceed five (5) years.
(d) Any loans granted or renewed on or after
the last day of the first Plan Year beginning after
December 31, 1988 shall be made pursuant to a
Participant loan program. Such loan program shall be
established in writing and must include, but need
not be limited to, the following:
(1) the identity of the person or positions
authorized to administer the Participant loan
program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and
amounts of loans offered;
(5) the procedure under the program for
determining a reasonable rate of interest;
(6) the types of collateral which may secure a
Participant loan; and
(7) the events constituting default and the
steps that will be taken to preserve Plan
assets.
Such Participant loan program shall be
contained in a separate written document which, when
properly executed, is hereby incorporated by reference
and made a part of the Plan. Furthermore, such
Participant loan program may be modified or amended in
writing from time to time without the necessity of
amending this Section.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee
shall, from time to time, in accordance with the terms of the
Plan, make payments out of the Trust Fund. The Trustee shall
not be responsible in any way for the application of such
payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation
as shall from time to time be agreed upon in writing by the
Employer and the Trustee. An individual serving as Trustee who
already receives full-time pay from the Employer shall not
receive compensation from the Plan. In addition, the Trustee
shall be reimbursed for any reasonable expenses, including
reasonable counsel fees incurred by it as Trustee. Such
compensation and expenses shall be paid from the Trust Fund
unless paid or advanced by the Employer. All taxes of any kind
and all kinds whatsoever that may be levied or assessed under
existing or future laws upon, or in respect of, the Trust Fund
or the income thereof, shall be paid from the Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of
the Anniversary Date or receipt of the Employer's contribution
for each Plan Year, the Trustee shall furnish to the Employer
and Administrator a written statement of account with respect to
the Plan Year for which such contribution was made setting forth:
(a) the net income, or loss, of the Trust
Fund;
(b) the gains, or losses, realized by the
Trust Fund upon sales or other disposition of the
assets;
(c) the increase, or decrease, in the value
of the Trust Fund;
(d) all payments and distributions made from
the Trust Fund; and
(e) such further information as the Trustee
and/or Administrator deems appropriate. The
Employer, forthwith upon its receipt of each such
statement of account, shall acknowledge receipt
thereof in writing and advise the Trustee and/or
Administrator of its approval or disapproval thereof.
Failure by the Employer to disapprove any such
statement of account within thirty (30) days after
its receipt thereof shall be deemed an approval
thereof. The approval by the Employer of any
statement of account shall be binding as to all
matters embraced therein as between the Employer and
the Trustee to the same extent as if the account of
the Trustee had been settled by judgment or decree in
an action for a judicial settlement of its account in
a court of competent jurisdiction in which the
Trustee, the Employer and all persons having or
claiming an interest in the Plan were parties;
provided, however, that nothing herein contained
shall deprive the Trustee of its right to have its
accounts judicially settled if the Trustee so
desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall
be required by the Act and the regulations thereunder
for any Plan Year, the Administrator shall direct
the Trustee to engage on behalf of all Participants
an independent qualified public accountant for that
purpose. Such accountant shall, after an audit of
the books and records of the Plan in accordance with
generally accepted auditing standards, within a
reasonable period after the close of the Plan Year,
furnish to the Administrator and the Trustee a report
of his audit setting forth his opinion as to whether
any statements, schedules or lists that are required
by Act Section 103 or the Secretary of Labor to be
filed with the Plan's annual report, are presented
fairly in conformity with generally accepted
accounting principles applied consistently. All
auditing and accounting fees shall be an expense of
and may, at the election of the Administrator, be
paid from the Trust Fund.
(b) If some or all of the information
necessary to enable the Administrator to comply with
Act Section 103 is maintained by a bank, insurance
company, or similar institution, regulated and
supervised and subject to periodic examination by a
state or federal agency, it shall transmit and
certify the accuracy of that information to the
Administrator as provided in Act Section 103(b)
within one hundred twenty (120) days after the end
of the Plan Year or by such other date as may be
prescribed under regulations of the Secretary of
Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by
delivering to the Employer, at least thirty (30)
days before its effective date, a written notice of
his resignation.
(b) The Employer may remove the Trustee by
mailing by registered or certified mail, addressed
to such Trustee at his last known address, at least
thirty (30) days before its effective date, a
written notice of his removal.
(c) Upon the death, resignation,
incapacity, or removal of any Trustee, a successor
may be appointed by the Employer; and such successor,
upon accepting such appointment in writing and
delivering same to the Employer, shall, without
further act, become vested with all the estate,
rights, powers, discretions, and duties of his
predecessor with like respect as if he were
originally named as a Trustee herein. Until such a
successor is appointed, the remaining Trustee or
Trustees shall have full authority to act under the
terms of the Plan.
(d) The Employer may designate one or more
successors prior to the death, resignation,
incapacity, or removal of a Trustee. In the event a
successor is so designated by the Employer and
accepts such designation, the successor shall,
without further act, become vested with all the
estate, rights, powers, discretions, and duties of
his predecessor with the like effect as if he were
originally named as Trustee therein immediately upon
the death, resignation, incapacity, or removal of
his predecessor.
(e) Whenever any Trustee hereunder ceases to
serve as such, he shall furnish to the Employer and
Administrator a written statement of account with
respect to the portion of the Plan Year during which
he served as Trustee. This statement shall be either
(i) included as part of the annual statement of
account for the Plan Year required under Section 7.7
or (ii) set forth in a special statement. Any such
special statement of account should be rendered to
the Employer no later than the due date of the annual
statement of account for the Plan Year. The
procedures set forth in Section 7.7 for the approval
by the Employer of annual statements of account shall
apply to any special statement of account rendered
hereunder and approval by. the Employer of any such
special statement in the manner provided in Section
7.7 shall have the same effect upon the statement as
the Employer's approval of an annual statement of
account. No successor to the Trustee shall have any
duty or responsibility to investigate the acts or
transactions of any predecessor who has rendered all
statements of account required by Section 7.7 and
this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this
Plan, the Trustee at the direction of the Administrator shall
transfer the Vested interest, if any, of such Participant in
his account to another trust forming part of a pension, profit
sharing or stock bonus plan maintained by such Participant's new
employer and represented by said employer in writing as meeting
the requirements of Code Section 401(a), provided that the trust
to which such transfers are made permits the transfer to be made.
7.11 DIRECT ROLLOVER
(a)This Section applies to distributions made
on or after January 1, 1993. Notwithstanding any
provision of the Plan to the contrary that would
otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and
in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover
distribution paid directly to an eligible retirement
plan specified by the distributee in a direct
rollover.
(b) For purposes of this Section the
following definitions shall apply:
(1) An eligible rollover distribution is any
distribution of all or any portion of the
balance to the credit of the distributee, except
that an eligible rollover distribution does not
include: any distribution that is one of a
series of substantially equal periodic payments
(not less frequently than annually) made for
the life (or life expectancy) of the
distributee or the joint lives (or joint life
expectancies) of the distributee and the
distributee's designated beneficiary, or for a
specified period of ten years or more; any
distribution to the extent such distribution is
required under Code Section 401(a) (9); 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).
(2) An eligible retirement plan is an
individual retirement account described in Code
Section 408(a), an individual retirement
annuity described in Code Section 408(b), an
annuity plan described in Code Section 403(a),
or a qualified trust described in Code Section
401(a), that accepts the distributee's eligible
rollover distribution. However, in the case of
an eligible rollover distribution to the
surviving spouse, an eligible retirement plan
is an individual retirement account or
individual retirement annuity.
(3) A distributee includes an Employee or
former Employee. In addition, the Employee's
or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former
spouse who is the alternate payee under a
qualified domestic relations order, as defined
in Code Section 414(p), are distributees with
regard to the interest of the spouse or former
spouse.
(4) A direct rollover is a payment by the plan
to the eligible retirement plan specified by the
distributee.
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any
time to amend the Plan, subject to the limitations of
this Section. Any such amendment shall be adopted by
formal action of the Employer's board of directors and
executed by an officer authorized to act on behalf of
the Employer. However, any amendment which affects the
rights, duties or responsibilities of the Trustee and
Administrator may only be made with the Trustee's and
Administrator's written consent. Any such amendment
shall become effective as provided therein upon its
execution. The Trustee shall not be required to execute
any such amendment unless the Trust provisions
contained herein are a part of the Plan and the
amendment affects the duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective
if it authorizes or permits any part of the Trust Fund
(other than such part as is required to pay taxes and
administration expenses) to be used for or diverted to
any purpose other than for the exclusive benefit of the
Participants or their Beneficiaries or estates; or
causes any reduction in the amount credited to the
account of any Participant; or causes or permits any
portion of the Trust Fund to revert to or become
property of the Employer.
(c) Except as permitted by Regulations, no
Plan amendment or transaction having the effect of a
Plan amendment (such as a merger, plan transfer or
similar transaction) shall be effective to the extent
it eliminates or reduces any "Section 411(d) (6)
protected benefit" or adds or modifies conditions
relating to' "Section 411(d) (6) protected benefits"
the result of which is a further restriction on such
benefit unless such protected benefits are preserved
with respect to benefits accrued as of the later of the
adoption date or effective date of the amendment.
"Section 411(d)(6) protected benefits', are benefits
described in Code Section 411(d)(6) (A) early
retirement benefits and retirement-type subsidies, and
optional forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any
time to terminate the Plan by delivering to the Trustee
and Administrator written notice of such termination.
Upon any full or partial termination, all amounts
credited to the affected Participants' Combined
Accounts shall become 100% Vested as provided in
Section 6.4 and shall not thereafter be subject to
forfeiture, and all unallocated amounts shall be
allocated to the accounts of all Participants in
accordance with the provisions hereof.
(b) Upon the full termination of the Plan,
the Employer shall direct the distribution of the
assets of the Trust Fund to Participants in a manner
which is consistent with and satisfies the provisions
of Section 6.5. Distributions to a Participant shall be
made in cash or in property or through the purchase of
irrevocable nontransferable deferred commitments from
an insurer. Except as permitted by Regulations, the
termination of the Plan shall not result in the
reduction of "Section 411(d) (6) protected benefits"
in accordance with Section 8.1(c).
8.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with,
or its assets and/or liabilities may be transferred to any other
plan and trust only if the benefits which would be received by a
Participant of this Plan, in the event of a termination of the
plan immediately after such transfer, merger or consolidation,
are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the
transfer, merger or consolidation, and such transfer, merger
or consolidation does not otherwise result in the elimination or
reduction of any "Section 411(d)(6) protected benefits" in
accordance with Section 8.1(c).
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract
between the Employer and any Participant or to be a consideration
or an inducement for the employment of any Participant or
Employee. Nothing contained in this Plan shall be deemed to give
any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the
Employer to discharge any Participant or Employee at any time
regardless of the effect which such discharge shall have upon him
as a Participant of this Plan.
9.2 ALIENATION
(a) Subject to the exceptions provided below,
no. benefit which shall be payable out of the Trust
Fund to any person (including a Participant or his
Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any
attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be
void; and no such benefit shall in any manner be liable
for, or subject to, the debts, contracts,
liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal
process for or against such person, and the same shall
not be recognized by the Trustee, except to such
extent as may be required by law.
(b) This provision shall not apply to the extent
a Participant or Beneficiary is indebted to the Plan,
as a result of a loan from the Plan. At the time a
distribution is to be made to or for a Participant's or
Beneficiary's benefit, such proportion of the amount
distributed as shall equal such loan indebtedness shall
be paid by the Trustee to the Trustee or the
Administrator, at the direction of the Administrator,
to apply against or discharge such loan indebtedness.
Prior to making a payment, however, the Participant
or Beneficiary must be given written notice by the
Administrator that such loan indebtedness is to be so
paid in whole or part from his Participant's Combined
Account. If the Participant or Beneficiary does not
agree that the loan indebtedness is a valid claim
against his Vested Participant's Combined Account, he
shall be entitled to a review of the validity of the
claim in accordance with procedures provided in
Sections 2.12 and 2.13.
(c) This provision shall not apply to a
"qualified domestic relations order" defined in Code
Section 414(p), and those other domestic relations
orders permitted to be so treated by the Administrator
under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written
procedure to determine the qualified status of domestic
relations orders and to administer distributions under
such qualified orders. Further, to the extent
provided under a "qualified domestic relations order,"
a former spouse of a Participant shall be treated as
the spouse or surviving spouse for all purposes under
the Plan.
91 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced'
according to the Act and the laws of the State of California,
other than its laws respecting choice of law, to the extent not
preempted by the Act.
9.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine,
feminine or neuter gender, they shall be construed as though
they were also used in another gender in all cases where they
would so apply, and whenever any words are used herein in the
singular or plural form, they shall be construed as though they
were also used in the other form in all cases where they would so
apply.
9.5 LEGAL ACTION
In the event any claim, suit, or proceeding is
brought regarding the Trust and/or Plan established hereunder to
which the Trustee or the Administrator may be a party, and such
claim, suit, or proceeding is resolved in favor of the Trustee
or Administrator, they shall be entitled to be reimbursed from
the Trust Fund for any and all costs, attorney's fees, and
other expenses pertaining thereto incurred by them for which they
shall have become liable.
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise
specifically permitted by law, it shall be
impossible by operation of the Plan or of the Trust,
by termination of either, by power of revocation or
amendment, by the happening of any contingency, by
collateral arrangement or by any other means, for
any part of the corpus or income of any trust fund
maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to,
purposes other than the exclusive benefit of
Participants, Retired Participants, or their
Beneficiaries.
(b) In the event the Employer shall make an
excessive contribution under a mistake of fact
pursuant to Act Section 403(c) (2) (A), the Employer
may demand repayment of such excessive contribution
at any time within one (1) year following the time
of payment and the Trustees shall return such amount
to the Employer within the one (1) year period.
Earnings of the Plan attributable to the excess
contributions may not be returned to the Employer but
any losses attributable thereto must reduce the
amount so returned.
9.7 BONDING
Every Fiduciary, except a bank or an insurance
company, unless exempted by the Act and regulations thereunder,
shall be bonded in an amount not less than 10% of the amount of
the funds such Fiduciary handles; provided, however, that the
minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the
beginning of each Plan Year by the amount of funds handled by
such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the
funds to be handled during the then current year. The bond
shall provide protection to the Plan against any loss by reason
of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety
company (as such term is used in Act Section 412(a) (2)), and
the bond shall be in a form approved by the Secretary of Labor.
Notwithstanding anything in the Plan to the contrary, the cost
of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the
Employer.
9.8 EMPLOYER' S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their
successors, shall be responsible for the validity of any
Contract issued hereunder or for the failure on the part of the
insurer to make payments provided by any such Contract, or for
the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.
9.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall
not have any responsibility for the validity of this Plan or for
the tax or legal aspects of this Plan. The insurer shall be
protected and held harmless in acting in accordance with any
written direction of the Trustee, and shall have no duty to see
to the application of any funds paid to the Trustee, nor be
required to question any actions directed by the Trustee.
Regardless of any provision of this Plan, the insurer shall not
be required to take or permit any action or allow any benefit or
privilege contrary to the terms of any Contract which it issues
hereunder, or the rules of the insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal
representative, Beneficiary, or to any guardian or committee
appointed for such Participant or Beneficiary in accordance with
the provisions of the Plan, shall, to the extent thereof, be
in full satisfaction of all claims hereunder against the Trustee
and the Employer, either of whom may require such Participant,
legal representative, Beneficiary, guardian or committee, as a
condition precedent to such payment, to execute a receipt and
release thereof in such form as shall be determined by the
Trustee or Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is
permitted or required to do or perform any act or matter or
thing, it shall be done and performed by a person duly
authorized by its legally constituted authority.
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the
Employer, (2) the Administrator and (3) the Trustee. The
named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them
under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under
Section 4.1; and shall have the sole authority to appoint and
remove the Trustee and the Administrator; to formulate the
Plan's "funding policy and method"; and to amend or terminate,
in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which
responsibility is specifically described in the Plan. The
Trustee shall have the sole responsibility of management of the
assets held under the Trust, except those assets, the
management of which has been assigned to an Investment Manager,
who shall be solely responsible for the management of the assets
assigned to it, all as specifically provided in the Plan. Each
named Fiduciary warrants that any directions given, information
furnished, or action taken by it shall be in accordance with the
provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named
Fiduciary may rely upon any such direction, information or
action of another named Fiduciary as being proper under the Plan,
and is not required under the Plan to inquire into the propriety
of any such direction, information or action. It is intended
under the Plan that each named Fiduciary shall be responsible for
the proper exercise of its own powers, duties, responsibilities
and obligations under the Plan. No named Fiduciary shall
guarantee the Trust Fund in any manner against investment loss or
depreciation in asset value. Any person or group may serve in
more than one Fiduciary capacity. In the furtherance of their
responsibilities hereunder, the "named Fiduciaries" shall be
empowered to interpret the Plan and Trust and to resolve
ambiguities, inconsistencies and omissions, which findings
shall be binding, final and conclusive.
9.13 HEADINGS
The headings and subheadings of this Plan have been
inserted for convenience of reference and are to be ignored in
any construction of the provisions hereof.
9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the
contrary, contributions to this Plan are conditioned
upon the initial qualification of the Plan under Code
Section 401. If the Plan receives an adverse
determination with respect to its initial
qualification, then the Plan may return such
contributions to the Employer within one year after
such determination, provided the application for the
determination is made by the time prescribed by law for
filing the Employer's return for the taxable year in
which the Plan was adopted, or such later date as the
Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the
contrary, except Sections 3.6, 3.7, and 4.1(f), any
contribution by the Employer to the Trust Fund is
conditioned upon the deductibility of the contribution
by the Employer under the Code and,' to the extent any
such deduction is disallowed, the Employer may, within
one (1) year following the disallowance of the
deduction, demand repayment of such disallowed
contribution and the Trustee shall return such
contribution within one (1) year following the
disallowance. Earnings of the Plan attributable to the
excess contribution may not be returned to the
Employer, but any losses attributable thereto must
reduce the amount so returned.
9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and
applied in a uniform, nondiscriminatory manner. In the event of
any conflict between the terms of this Plan and any Contract
purchased hereunder, the Plan provisions shall control.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with
the consent of the Employer and Trustee, any other corporation
or entity, whether an affiliate or subsidiary or not, may adopt
this Plan and all of the provisions hereof, and participate
herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such
Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be
required to use the same Trustee as provided in this
Plan.
(b) The Trustee may, but shall not be required
to, commingle, hold and invest as one Trust Fund all
contributions made by Participating Employers, as well
as all increments thereof. However, the assets of the
Plan shall, on an ongoing basis, be available to pay
benefits to all Participants and Beneficiaries under
the Plan without regard to the Employer or
Participating Employer who contributed such assets.
(c) The transfer of any Participant from or
to an Employer participating in this Plan, whether he
be an Employee of the Employer or a Participating
Employer, shall not affect such Participant's rights
under the Plan, and all amounts credited to such
Participant's Combined Account as well as his
accumulated service time with the transferor or
predecessor, and his length of participation in the
Plan, shall continue to his credit.
(d) All rights and values forfeited by
termination of employment shall inure only to the
benefit of the Participants of the Employer or
Participating Employer by which the forfeiting
Participant was employed, except if the Forfeiture is
for an Employee whose Employer is an Affiliated
Employer, then said Forfeiture shall inure to the
benefit of the Participants of those Employers who are
Affiliated Employers. Should an Employee of one
("First") Employer be transferred to an associated
("Second") Employer which is an Affiliated Employer,
such transfer shall not cause his account balance
(generated while an Employee of "First" Employer) in
any manner, or by any amount to be forfeited. Such
Employee's Participant Combined Account balance for all
purposes of the Plan, including length of service,
shall be considered as though he had always been
employed by the "Second" Employer and as such had
received contributions, forfeitures, earnings or
losses, and appreciation or depreciation in value of
assets totaling the amount so transferred.
(e) Any expenses of the Trust which are to be
paid by the Employer or borne by the Trust Fund shall
be paid by each Participating Employer in the same
proportion that the total amount standing to the credit
of all Participants employed by such Employer bears to
the total standing to the credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a
party to this Plan; provided, however, that with respect to all
of its relations with the Trustee and Administrator for the
purpose of this Plan, each Participating Employer shall be
deemed to have designated irrevocably the Employer as its agent.
Unless the context of the Plan clearly indicates the' contrary,
the word "Employer" shall be deemed to include each Participating
Employer as related to its adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred
between Participating Employers, and in the event of any such
transfer, the Employee involved shall carry with him his
accumulated service and eligibility. No such transfer shall
effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall
thereupon become obligated hereunder with respect to such
Employee in the same manner as was the Participating Employer
from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan
Year shall be allocated only among those Participants of the
Employer or Participating Employer making the contribution,
except if the contribution is made by an Affiliated Employer, in
which event such contribution shall be allocated among all
Participants of all Participating Employers who are Affiliated
Employers in accordance with the provisions of this Plan. On the
basis of the information furnished by the Administrator, the
Trustee shall keep separate books and records concerning the
affairs of each Participating Employer hereunder and as to the
accounts and credits of the Employees of each Participating
Employer. The Trustee may, but need not, register Contracts so
as to evidence that a particular Participating Employer is the
interested Employer hereunder, but in the event of an Employee
transfer from one Participating Employer to another, the
employing Employer shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when
there shall be a Participating Employer hereunder shall only be
by the written action of each and every Participating Employer
and with the consent of the Trustee where such consent is
necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to
discontinue or revoke its participation in the Plan. At the time
of any such discontinuance or revocation, satisfactory evidence
thereof and of any applicable conditions imposed shall be
delivered to the Trustee. The Trustee shall thereafter transfer,
deliver and assign Contracts and other Trust Fund assets
allocable to the Participants of such Participating Employer to
such new Trustee as shall have been designated by such
Participating Employer, in the event that it has established a
separate pension plan for its Employees, provided however, that
no such transfer shall be made if the result is the elimination
or reduction of any "Section 411(d)(6) protected benefits" in
accordance with Section 8.1(c). If no successor is designated,
the Trustee shall retain such assets for the Employees of said
Participating Employer pursuant to the provisions of Article VII
hereof. In no such event shall any part of the corpus or income
of the Trust as it relates to such Participating Employer be used
for or diverted to purposes other than for the exclusive benefit
of the Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and
all necessary rules or regulations, binding upon all
'Participating Employers and all Participants, to effectuate the
purpose of this Article.
IN WITNESS WHEREOF, this Plan has been executed the
day and year first above written.
Saratoga National Bank
By ________________________
_____________________________
TRUSTEE
_____________________________
TRUSTEE
_____________________________
TRUSTEE
_____________________________
TRUSTEE
CERTIFICATE OF CORPORATE RESOLUTION
The undersigned Secretary of Saratoga National Bank
(the Corporation) hereby certifies that the following
resolutions were duly adopted by the board of directors of the
Corporation on
June 23, 1995 , and that such resolutions have
not been modified or rescinded as of the date hereof:
RESOLVED, that the form of amended Profit Sharing Plan
and Trust effective July 1, 1995, presented to this meeting is
hereby approved and adopted and that the proper officers of the
Corporation are hereby authorized and directed to execute and
deliver to the Trustee of the Plan one or more counterparts of
the Plan.
RESOLVED, that for purposes of the limitations on
contributions and benefits under the Plan, prescribed by Section
415 of the Internal Revenue Code, the "limitation year" shall be
the Plan Year.
RESOLVED, that not later than the due date (including
extensions hereof) of the Corporation's federal income tax
return for each of its fiscal years hereafter, the Corporation
shall contribute to the Plan for each such fiscal year such
amount as shall be determined by the board of directors of the
Corporation and that the Treasurer of the Corporation is
authorized and directed to pay such contribution to the Trustee
of the Plan in cash or property and to designate to the Trustee
the year for which such contribution is made.
RESOLVED, that the proper officers of the Corporation
shall act as soon as possible to notify the employees of the
Corporation of the adoption of the Profit Sharing Plan by
delivering to each employee a copy of the summary description of
the Plan in the form of the Summary Plan Description presented to
this meeting, which form is hereby approved.
The undersigned further certifies that attached hereto
as Exhibits A, B and C, respectively, are true copies of
Saratoga Bank Savings Plan as amended and restated, Summary Plan
Description and Funding Policy and Method approved and adopted in
the foregoing resolutions.
________________________________
Secretary
Date: June 23, 1995 SARATOGA BANK SAVINGS PLAN
FUNDING POLICY AND METHOD
A pension benefit plan (as defined in the Employee
Retirement Income Security Act of 1974) has been adopted by the
company for the purpose of rewarding long and loyal service to
the company by providing to employees additional financial
security at retirement. Incidental benefits are provided in the
case of disability, death or other termination of employment.
Since the principal purpose of the plan is to provide
benefits at normal retirement age, the principal goal of the
investment of the funds in the plan should be both security and
long-term stability with moderate growth commensurate with the
anticipated retirement dates of participants. Investments,
other than "fixed dollar" investments, should be included among
the plan's investments to prevent erosion by inflation. However,
investments should be sufficiently liquid to enable the plan, on
short notice, to make some distributions in the event of the
death or disability of a participant.
SARATOGA BANK SAVINGS PLAN
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
In the case of any Domestic Relations Order (DRO) received by
Saratoga Bank Savings Plan, its status under ERISA and the Internal
Revenue Code shall be determined under the following
procedures:
Promptly upon receiving a DRO, the Administrator will ( 1 ) refer'
the DRO, issued by the State Court of Jurisdiction, to legal counsel
for the Plan to render an opinion within 60 days (or such earlier
period as shall be provided by Treasury Regulations) as to whether
the DRO is a "qualified domestic relations order" as defined by
Section 206(d)(3)(B) of ERISA, and (2) notify the concerned
Participant and any other alternate payee of the receipt by the Plan
of the DRO and of this procedure.
Promptly upon receiving the determination made by the Plan's legal
counsel as to the status of the DRO, the concerned Participant and
each alternate payee (or any representative designated by an
alternate payee by written notice to the Administrator) shall be
furnished a copy of such determination. The notice of determination
shall state that the Administrator will commence any payments
currently due under the Plan to the person or persons entitled
thereto, depending on the Plan's legal counsel's determination as
to the "qualified" status of the DRO, after the expiration of a
period of 60 days commencing on the date of the mailing of the
notice unless prior thereto the Administrator receives notice of the
institution of legal proceedings disputing the determination. The
Administrator shall, as soon as practical after such 60 day period,
ascertain the dollar amount currently payable to each payee pursuant
to the Plan and DRO and, if the DRO is "qualified," disburse any
such amounts.
If there is a dispute as to the "qualified" status of a DRO, there
shall be a delay in making payments of the amounts currently due to
payees. In that event, the Administrator shall direct that the
amounts payable be held in a separate account within the Plan. If
within 18 months after the deferral the "DRO" is determined not to
be a valid "qualified domestic relations order," or the status of
the DRO has not been finally determined, amounts held in the Plan
(including earnings or losses thereon) shall be paid to the person
or persons who would have been entitled to such amounts if there had
been no DRO. Any determination thereafter that the DRO is a
"qualified domestic relations order" shall be applied prospectively
only.
An "alternate payee" includes any spouse, former spouse, child, or
other dependent of a Participant who is designated by the "qualified
domestic relations order" as having a right to receive all or a
portion of the benefits payable under the Plan with respect to the
concerned Participant.
EXECUTED this ________day of ________________, 19_____.
________________________ ______________________________
Witness Administrator
SARATOGA BANK SAVINGS PLAN
PARTICIPANT LOAN PROGRAM
Saratoga Bank Savings Plan permits loans to be made to Participants
and their beneficiaries. However. before any loan is made. Section
7.4 of the Plan requires that a written loan program be established
which sets forth the rules and guidelines for making Participant
loans. this document shall serve as the required written loan
program. In addition. the Administrator may use this document to
serve as. or supplement. any required notice of the loan program to
Participants and their beneficiaries. All references to Participants
in this loan program shall include Participants and their
Beneficiaries who are "parties in interest" as defined by Act
Section 3(14).
1. The Administrator of the Plan is authorized to administer the
Participant loan program. All applications for loans shall be made
by a Participant to the Administrator on forms which the
Administrator will make available for such purpose.
2. All loan applications shall be considered by the Administrator
within a reasonable time after the Participant makes formal
application. The Participant shall also be required to provide such
supporting information deemed necessary by the Administrator. This
may include a financial statement. tax returns and such other
financial information which the Administrator may consider necessary
and appropriate to determine whether a loan should be granted.
Furthermore, the Participant shall authorize the Administrator to
obtain a credit report on the Participant.
3. The Administrator shall determine whether a Participant qualifies
for a loan, applying such criteria as a commercial lender of funds
would apply in like circumstances with respect to the Participant.
Such criteria shall include. but need not be limited to, the
creditworthiness of the Participant and his general ability to repay
the loan, the period of time such Participant has been employed by
the Employer, whether adequate security has been provided for the
loan. and whether the Participant agrees, as a condition for
receiving the loan. to make repayments through direct. after-tax
payroll deduction.
4. With regard to any loan made pursuant to this program, the
following rule(s) and limitation(s) shall apply. in addition to such
other requirements set forth in the Plan:
(i) No loan in an amount less than $1,000 shall be
granted to any participant.
(i)Loans shall become due and payable immediately
following termination of employment.
(iii) Participants are only allowed to have one loan
outstanding at any one time.
(iv) All loans made pursuant to this program shall be
considered a directed investment from the account(s) of
the Participant maintained under the Plan. As such. all
payments of principal and interest made by the
Participant shall be credited only to the account(s) of
such Participant.
5. Any loan granted or renewed under this program shall bear a
reasonable rate of interest. In determining such rate of interest,
the Plan shall require a rate of return commensurate with the
prevailing interest rate charged on similar commercial loans under
like circumstances by persons in the business of lending money. Such
prevailing interest rate standard shall permit the Administrator to
consider factors pertaining to the opportunity for gain and risk of
loss that a professional lender would consider on a similar arms-length
transaction. such as the creditworthiness of the Participant
and the security given for the loan. Therefore, in establishing the
rate of interest. the Administrator shall conduct a reasonable and
prudent inquiry with professional lenders in the same geographic
locale where the Participant and Employer reside to determine such
prevailing interest rate for loans under like circumstances.
6. The plan shall require that adequate security be provided by the
Participant before a loan is granted. For this purpose, the Plan
shall consider a Participant's interest under the Plan to be
adequate security. However, in no event shall more than 50% of a
Participant's vested interest in the Plan (determined immediately
after origination of the loan) be used as security for the loan.
Generally. it shall be the policy of the Plan not to make loans
which require security other than the Participant's vested interest
in the Plan. However, if additional security is necessary to
adequately secure the loan, then the Administrator shall require
that such security be provided before the loan will be granted. For
this purpose. the Participant's principal residence may serve as
additional security, if permitted by State law.
7. Generally, a default shall occur upon the failure of a
Participant to timely remit payments under the loan when due. In
such event. the Trustee shall take such reasonable actions which a
prudent fiduciary in like circumstances would take to protect and
preserve Plan assets. including foreclosing on any collateral and
commencing such other legal action for collection which the Trustee
deems necessary and advisable. However, the Trustee shall not be
required to commence such actions immediately upon a default.
Instead. the Trustee may grant the Participant reasonable rights to
cure any default, provided such actions would constitute a prudent
and reasonable course of conduct for a professional lender in like
circumstances. In addition, if no risk of loss of principal or
income would result to the Plan. the Trustee may choose. in its
discretion, to defer enforcement proceedings. If the qualified
status of the Plan is not jeopardized. the Trustee and the
Administrator may treat a loan that has been defaulted upon and not
cured within a reasonable period of time as a deemed distribution
from the Plan.
1. Upon satisfaction of the criteria established for granting a
loan, the Administrator shall inform the Trustee that the
Participant has qualified to receive a loan under the Plan's
program. The Trustee shall review the determination made by
the Administrator (including the prevailing interest rate
which has been set for the loan) and. if it determines that
such loan would be a prudent investment for the Plan. applying
such fiduciary standards required by ERISA. the Trustee may
grant the loan request. In making such determination. the
Trustee may consider the liquidity of the Plan assets
available for loans. The Trustee shall then require that the
Participant execute all documents necessary to establish the
loan. including a promissory note and such other documents
which will provide the Plan with adequate security.
<PAGE>
Adopted this 19th day of June , 19 95 This loan program
may be amended from time to time.
Employer:
__________________________
Mary Page Rourke
Trustees:
__________________________
Mary Page Rourke
__________________________
Barbara Resop
__________________________
Earl Lanna
__________________________
Richard Mount
Administrator:
__________________________
Mary Page Rourke
