<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of
------
the Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1994
or
Transition Report Pursuant to Section 13 or 15(d) of
------
the Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
------ ------
Commission file number 0-11033
GULF SOUTHWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0045946
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 WESTHEIMER, SUITE 210, HOUSTON, TEXAS 77027
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (713) 622-0042
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $1.00
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
There is no established market for the registrant's common stock. Accordingly,
the registrant is unable to estimate the value of shares held by non-affiliates.
On March 1, 1995, there were 1,258,636 shares of common stock issued and
outstanding. See Item 5, entitled "Market for the Registrant's Common Equity
and Related Shareholder Matters" for additional information concerning the
market for the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Selected designated portions of the definitive proxy statement to be used in
connection with the registrant's 1995 annual meeting of shareholders are
incorporated by reference into Part III of this Form 10-K.
<PAGE>
PART I.
ITEM 1. BUSINESS
------
Gulf Southwest Bancorp, Inc. ("Gulf Southwest" or "Company") is a Texas bank
holding company organized in 1982 under the Bank Holding Company Act of 1956, as
amended (the "Holding Company Act"). Gulf Southwest maintains its principal
offices at 4200 Westheimer, Suite 210, Houston, Texas 77027 (telephone:
713/622-0042).
Gulf Southwest's principal activity, through its wholly-owned subsidiary, Gulf
Southwest Nevada Bancorp, Inc., a Nevada corporation ("Nevada Bancorp"), is the
ownership and management of Merchants Bank, a state-chartered bank with five
locations in the Houston, Texas area. (Such bank is hereafter referred to as
the "Subsidiary Bank".) The Subsidiary Bank draws substantially all of its
deposits and makes substantially all of its loans in the Houston/Harris County,
Texas area. In addition, Nevada Bancorp has one non-banking subsidiary which
conducts various aspects of its non-banking operations. Nevada Bancorp owns
100% of the outstanding stock of both subsidiaries.
As a bank holding company, Gulf Southwest may own or control, directly or
indirectly, one or more banks and furnish services to such banks. Banking
activities of Gulf Southwest are conducted by the Subsidiary Bank. The officers
and directors of the Subsidiary Bank direct its operations. The principal role
of Gulf Southwest is to provide management assistance with respect to various
aspects of the Subsidiary Bank's operations, including the areas of asset and
liability management, business development, loan policies and procedures,
capital planning, advertising, data processing, credit and loan administration,
accounting, auditing, financial reporting and compliance with legal and
governmental regulations.
BANKING SERVICES
----------------
The Subsidiary Bank offers a full range of financial services to
commercial, industrial, financial and individual customers, including short-term
and medium-term loans, revolving credit arrangements, inventory and accounts
receivable financing, equipment financing, real estate lending, Small Business
Administration lending, letters of credit, installment and other consumer loans,
savings accounts and various savings programs, including individual retirement
accounts, and interest and non-interest-bearing checking accounts. Other
services include federal tax depository, safe deposit and night depository
services.
Other than the Subsidiary Bank's charter to operate as a bank, the business
of Gulf Southwest is not materially dependent upon any patent, trademark,
license, franchise or concession. The business of Gulf Southwest is not
seasonal.
1
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SUBSIDIARY BANK
---------------
The following table sets forth certain balance sheet and operating
information at December 31, 1994, with respect to the Subsidiary Bank:
<TABLE>
<CAPTION>
MERCHANTS BANK
--------------
<S> <C>
At December 31, 1994
--------------------
Balance Sheet:
Assets $251,269,000
Deposits 226,451,000
Loans 144,459,000
Allowances for Credit Losses 2,063,000
Total Equity 22,710,000
Year Ended December 31, 1994
----------------------------
Results of Operations:
Interest Income $ 16,951,000
Interest Expense 4,796,000
Provision for Credit Losses 50,000
Net Earnings 3,441,000
</TABLE>
Merchants Bank is a state-chartered banking association organized in 1970.
Merchant Bank's main office is at 999 North Shepherd, Houston, Texas with four
branches in the surrounding communities. The services offered by Merchants Bank
are generally those offered by commercial banks of comparable size in its trade
area. Merchants Bank does not engage in international operations or trust
activities.
NON-BANKING ACTIVITIES
----------------------
G.S.W. Data Processing, Inc. ("GSWDP") performs certain data processing
services for the Subsidiary Bank. In addition, the Board of Governors of the
Federal Reserve System (the "Board") has authorized GSWDP to furnish data
processing services to banks in Texas which are not affiliated with Gulf
Southwest. As of December 31, 1994, GSWDP was furnishing these services for one
non-affiliated bank and three affiliated banks. Gulf Southwest owns 100.0% of
the outstanding stock of GSWDP.
SUBSIDIARY BANK HOLDING COMPANY
-------------------------------
Nevada Bancorp is a Nevada corporation organized in 1994, and is
wholly owned by Gulf Southwest. The only activities of Nevada Bancorp relate to
holding the stock of Merchants Bank and GSWDP. Nevada Bancorp currently has no
employees.
EXPANSION
---------
ACQUISITION OF TEXAS GULF COAST BANCORP, INC. On November 9, 1994,
--------------------------------------------
Gulf Southwest entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement") to acquire Texas Gulf Coast Bancorp, Inc. ("Texas
Gulf Coast"). Texas Gulf Coast is a holding company which owns 100% of the
stock of First Bank Mainland in LaMarque, Texas and over 95% of the stock of
each of Texas City Bank in Texas City, Texas and First Bank Pearland in
Pearland, Texas. As of December 31, 1994, Texas Gulf Coast had consolidated
assets of approximately $208 million.
On March 22, 1995, a special meeting of the shareholders of Texas Gulf
Coast was held and the Reorganization Agreement was approved by the shareholders
of Texas Gulf Coast. The Reorganization Agreement provides for each share of
the common stock, $1.00 par value per share, of Texas Gulf Coast to be converted
into
2
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2.1176 shares of the common stock, $1.00 par value per share, of Gulf Southwest
(the "Common Stock"). The acquisition was approved by the Board on March 24,
1995 and will be consummated on April 30, 1995.
SUPERVISION AND REGULATION
--------------------------
GULF SOUTHWEST. As a bank holding company, Gulf Southwest is subject to
--------------
regulation by the Board and is required to file with the Board an annual report
and to furnish such additional information as the Board may require pursuant to
the Holding Company Act. The Board may conduct examinations of Gulf Southwest
and each of its subsidiaries.
Gulf Southwest is required to obtain the prior approval of the Board for
the acquisition of five percent or more of the voting shares or substantially
all the assets of any bank or bank holding company. In considering proposed
acquisitions, the Board considers the expected benefits to the public, including
greater convenience, identifying and meeting the credit needs of the
applicant's entire community, increased competition or gains in efficiency,
weighed against the risks of possible adverse effects, such as undue
concentration of resources, lessening or elimination of competition, conflicts
of interest or unsound banking practices. After an application to acquire the
voting shares of a state or national bank in Texas has been accepted for filing
by the Board, a copy of such application must be submitted to the Texas Banking
Commissioner ("Commissioner") pursuant to the Texas Banking Code of 1943, as
amended ("Code"). Prior to September 29, 1995, no application to acquire shares
of a bank located outside Texas may be approved by the Board unless such
acquisition is expressly authorized by the statutes of the state where the bank
whose shares or assets are to be acquired is located.
Bank holding companies are prohibited by law, except in certain instances
prescribed by statute, from acquiring a direct or indirect interest in or
control of more than five percent of the voting shares of any company which is
not a bank or bank holding company and from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks or
providing service to its subsidiaries. Bank holding companies, however, may
engage in, and may own shares of companies engaged in certain activities found
by the Board to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. After an application concerning these
activities has been accepted for filing by the Board, a copy of such application
also must be submitted to the Commissioner pursuant to the Code for a
determination as to whether the application should be approved. The
Commissioner is required to deny the application unless the proposed activities
will produce benefits to the public, such as greater convenience or increased
competition, that outweigh possible adverse effects, such as unfair competition,
conflicts of interest or unsound banking practices.
Under the Holding Company Act and the Board's regulations, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or lease or sale of
property or furnishing of services. The Board possesses enforcement powers
intended to prevent or eliminate practices of bank holding companies and their
non-bank subsidiaries deemed to be unsafe and unsound or in violation of
applicable laws.
THE INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994. On September
-----------------------------------------------------------
29, 1994, the Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA")
was enacted into law. The IBBEA authorizes adequately capitalized and
adequately managed bank holding companies to acquire banks in any state
beginning September 29, 1995, subject to certain restrictions. In addition,
IBBEA authorizes interstate branching. Beginning June 1, 1997, a bank may merge
with a bank located in another state so long as neither of the states have opted
out of interstate banking. States may enact laws opting out of interstate
branching anytime before June 1, 1997. States also may enact laws permitting
(a) interstate branching before June 1, 1997, or (b) de novo branching. If a
state opts out, no bank in any other state may establish a branch in that state,
either through an acquisition or de novo. A bank whose home state opts out of
interstate branching may not participate in any interstate branching. If Texas
does not opt out, certain competitors may consolidate their subsidiaries in
order to reduce operating costs and create a nation-wide branch network.
3
<PAGE>
SUBSIDIARY BANK. As a Texas state chartered bank, the Subsidiary Bank is
---------------
subject to regulation, supervision and periodic examination by the Texas
Department of Banking. Because the bank is not a member of the Federal Reserve
System (i.e., a "nonmember bank") and its deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC") to the extent authorized by law, it is
also subject to supervision and regulation, as well as examination by the FDIC.
Various requirements of federal and Texas law affect the operation of the
Subsidiary Bank, including requirements relating to maintenance of reserves
against deposits, restrictions on the nature and amount of loans which may be
made and the interest that may be charged thereon and restrictions relating to
investments and other activities.
Cash revenues derived from dividends paid by the Subsidiary Bank represent
the primary source of revenues for Gulf Southwest. Under Texas law, prior to
the declaration of any dividend by the Subsidiary Bank, the Subsidiary Bank must
transfer to certified surplus an amount not less than 10% of its net profits
earned since the last dividend was declared, if certified surplus is less than
the capital stock of such bank. At December 31, 1994, there was an aggregate of
$13,110,000 available for the payment of dividends by the Subsidiary Bank under
these restrictions. The payment of dividends is further subject to the
authority of regulatory authorities to prohibit payment of dividends if such
payment is determined to be an unsafe or unsound banking practice or if after
making such distribution, the subsidiary bank would be considered
"undercapitalized".
For further discussion of certain additional regulations affecting Gulf
Southwest and the Subsidiary Bank, reference should be made to the "Government
Fiscal and Monetary Policies" discussion below.
ENVIRONMENTAL ISSUES. Under the Comprehensive Environmental Response,
--------------------
Compensation and Liability Act ("CERCLA"), an owner or operator of a property
where hazardous substances are located is potentially liable for hazardous waste
cleanup costs. CERCLA specifically excludes from the definition of owner or
operator "a person, who without participating in the management of a vessel or
facility, holds indicia of ownership primarily to protect his security interest
in the vessel or facility." However, courts have reached differing conclusions
as to what actions can be taken by a secured lender without such lender being
deemed to be "participating in the management" of a property. Merchants Bank is
not aware of any material liability to which it may be subject for hazardous
waste clean-up costs. If a property is deemed to have a potential environmental
problem, Merchants Bank will not foreclosure on the property until an
environmental study has been performed.
COMPETITION
-----------
The activities in which the Subsidiary Bank engages are highly competitive.
Each activity engaged in and geographic market served involves competition with
other banks, as well as with non-banking financial institutions and non-
financial enterprises. The Subsidiary Bank actively competes with other banks
in their efforts to obtain deposits and make loans, in the scope of types of
services offered, in interest rates paid on time deposits and charged on loans
and in other aspects of banking. At December 31, 1994, the Subsidiary Bank had
deposits of $226,450,000.
In addition to competing with other commercial banks within and outside
their primary service area, the Subsidiary Bank competes with other financial
institutions engaged in the business of making loans or accepting deposits, such
as savings and loan associations, credit unions, industrial loan associations,
insurance companies, small loan companies, finance companies, mortgage
companies, real estate investment trusts, certain governmental agencies, credit
card organizations and other enterprises. In recent years, competition for
funds from securities brokers for money market accounts has intensified.
Additional competition for deposits comes from government and private issues of
debt obligations and other investment alternatives for depositors such as money
market funds.
CUSTOMERS. The Subsidiary Bank is not dependent upon any single customer
---------
or few customers; the loss of any one or more would not have a materially
adverse effect upon its business.
GOVERNMENT FISCAL AND MONETARY POLICIES
---------------------------------------
The commercial banking business is affected not only by general economic
conditions but also by the fiscal and monetary policies of the Board. Changes
in the discount rate on Federal Reserve borrowings, availability of
4
<PAGE>
borrowings at the Federal Reserve "discount window", open market operations, the
imposition of any changes in reserve requirements against member banks' deposits
and assets of foreign branches, the imposition of any changes in reserve
requirements against certain borrowings by member banks and their affiliates,
and the placing of limits on interest rates which member banks may pay on time
and savings deposits are some of the instruments of fiscal and monetary policy
available to the Board. Fiscal and monetary policies influence to a significant
extent the overall growth of bank loans, investments and deposits and the
interest rates charged on loans or paid on time and savings deposits. The
nature of future monetary policies and the effect of such policies on the future
business and earnings of Gulf Southwest and the Subsidiary Bank cannot be
predicted.
The Board has cease and desist powers over bank holding companies, non-
banking subsidiaries or any institution-affiliated party thereof to forestall
activities which represent unsafe and unsound practices or constitute violations
of law or regulations. The Board can also require affirmative actions to
correct a violation or practice through the issuance of a cease and desist
order. In certain instances, the Board is empowered to assess civil penalties
against companies or individuals who violate the Act or regulations or orders
issued pursuant thereto in amounts up to $1,000,000 for each day's violation, to
order termination of non-banking activities of non-banking subsidiaries and to
order termination of ownership and control of a non-subsidiary bank by a bank
holding company.
Section 18(j) of the Federal Deposit Insurance Act makes applicable to
state nonmember insured banks the provisions of Section 23A of the Federal
Reserve Act among other statutes. Section 23A of the Federal Reserve Act and
related statutes impose limits and collateralization requirements with respect
to the amount of loans, extensions of credit, or investments or certain other
transactions by member banks with their "affiliates", as well as limits on the
amount of advances to third parties which are collateralized by the securities
or obligations. Gulf Southwest and GSWDP are "affiliates" of the Subsidiary
Bank and, therefore, these restrictions are applicable to transactions by the
Subsidiary Bank with Gulf Southwest and GSWDP. In addition, Section 23B of the
Federal Reserve Act prohibits a bank that is an insured depository institution
from engaging in certain transactions (including, for example, loans) with
certain affiliates unless the transactions are substantially the same or at
least as favorable to such bank or its subsidiaries, as those prevailing at the
time for comparable transactions with or involving other nonaffiliated
companies. In the absence of such comparable transactions, any transaction
between a member bank and its affiliates must be on terms and under
circumstances, including credit standards, that, in good faith, would be offered
to or would apply to nonaffiliated companies. The Subsidiary Bank is also
subject to certain prohibitions against tie-in arrangements in connection with
extensions of credit and certain other transactions.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") contains important provisions affecting all federally insured
financial institutions ("banking organizations") in such areas as anti-fraud and
anti-abuse enforcement powers, each banking organization's performance and
record in meeting community credit needs, and acquisitions of savings and loans
institutions. For further discussion of these capital requirements, reference
should be made to the "Capital Management" presentation beginning on page 24 of
this report.
In 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted. The provisions of FDICIA include a plan to
recapitalize the Bank Insurance Fund that is the source of deposit insurance
coverage to FDIC-insured institutions, authority to ultimately fund such
recapitalization plan through increased deposit insurance premiums, various
supervisory reforms which will increase the frequency of on-site examinations by
federal banking regulators, changes in the deposit insurance system, an array of
new consumer lending requirements, and the adoption of the Truth in Savings Act.
FDICIA also authorizes federal banking regulators to take prompt, corrective
action against institutions which are under-capitalized, institute a risk-based
assessment system for deposit insurance, and implement a series of operational
and management-based standards and potential sanctions for violations of such
standards. Under FDICIA, the FDIC is authorized to assess insurance premiums on
a bank's deposits at a variable rate depending on the probability that the
deposit insurance fund will incur a loss with respect to the bank. The premium
which is charged ranges from $.23 per $100.00 of deposits to $.31 per $100.00 of
deposits. Currently, the Subsidiary Bank is paying premiums at the rate of $.23
per $100.00 of deposits.
EFFECTS OF INTEREST RATES AND USURY LAWS. Texas usury laws limit the rate
----------------------------------------
of interest that may be charged by the Subsidiary Bank. Certain federal laws
provide a limited preemption of Texas usury laws. The maximum rate
5
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of interest that the Subsidiary Bank may charge on business loans under Texas
law varies between 18% per annum and (i) 28% per annum for business loans above
$250,000 or (ii) 24% per annum for other loans. Texas' floating usury ceilings
are tied to the 26-week United States Treasury Bill auction rate. A 1980
federal statute removed the interest ceiling under usury laws for loans by the
Subsidiary Bank which are secured by first liens on residential real property.
EMPLOYEES. Gulf Southwest and its subsidiaries had approximately 160
---------
employees as of December 31, 1994. None of the employees are represented by any
collective bargaining unit, and management believes it has excellent relations
with its staff.
ITEM 2. PROPERTIES
------
Gulf Southwest's primary asset is its investment in its direct and indirect
subsidiaries, and the Subsidiary Bank's primary asset is its loan portfolio.
The branch facility located at 1111 Spencer Highway, South Houston, Texas,
consists of a two-story brick building owned by the Subsidiary Bank. The
banking quarters and the adjacent fourteen-window drive-in facility consist of
approximately 27,000 square feet.
The branch facility located at 2051 West Main, League City, Texas consists of
approximately 13,000 square feet of office and lobby space with an eight-window
drive-in facility and is owned by the Subsidiary Bank.
The branch facility located at 3409 Spencer Highway, Pasadena, Texas consists of
a two-story brick veneer building containing approximately 4,400 square feet and
is owned by the Subsidiary Bank.
The other banking quarters and adjacent land used for parking and drive-in
facilities are leased.
ITEM 3. LEGAL PROCEEDINGS
------
Neither Gulf Southwest nor any of its subsidiaries is a party to any legal
proceedings, which, in management's judgment, based upon opinions of legal
counsel, would have a material adverse effect on the consolidated financial
position of Gulf Southwest and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------
Gulf Southwest held its annual shareholders meeting on October 18, 1994. The
only matter voted on at the meeting was the election of directors. The
following table sets forth the names of the directors elected at the meetings,
the number of votes cast for, against, or withheld, and the number of
abstentions and broker non-votes.
<TABLE>
<CAPTION>
VOTES CAST Votes BROKER
NAME FOR AGAINST Withheld ABSTENTIONS NON-VOTES
---------------------- ---------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Norman H. Bird 912,983 0 1,464 0 0
Donald R. Harding 912,983 0 1,464 0 0
J. W. Lander, Jr. 912,983 0 1,464 0 0
J. W. Lander, III 912,983 0 1,464 0 0
</TABLE>
There are no other directors whose term of office as a director continued after
the meeting.
No other matters were submitted to a vote of the shareholders of Gulf Southwest
during the fourth quarter of 1994.
6
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
------
RELATED SHAREHOLDER MATTERS
There is no established trading market for shares of the Common Stock. The
Board of Directors of Gulf Southwest has no present intention to arrange for the
listing of the Gulf Southwest Common Stock on any stock exchange.
Notwithstanding the foregoing, a limited market for the shares of the Common
Stock exists, and such shares are traded on a sporadic basis. During 1994,
21,592 shares of Common Stock were presented for transfer on the books of Gulf
Southwest.
The following table sets forth the number of shares of Gulf Southwest Common
Stock presented for transfer on the books of Gulf Southwest for each quarterly
period within the last two calendar years.
<TABLE>
<CAPTION>
1993 1994
----- ------
<S> <C> <C>
First Quarter 1,438 10,338
Second Quarter 143 3,021
Third Quarter 714 5,581
Fourth Quarter 4,179 2,652
</TABLE>
Because there is no public market for the Common Stock, the trading price is
determined by private negotiations between the buyer and the seller. Gulf
Southwest has no information with respect to the trading prices during the
periods presented above.
HOLDERS
-------
At March 1, 1995, the Common Stock was owned of record by approximately
636 shareholders. On such date, no shares of Gulf Southwest's preferred stock
were issued and outstanding. The officers and directors of Gulf Southwest
collectively owned 22.8% of the Common Stock as of such date.
DIVIDENDS AND DIVIDEND POLICY
-----------------------------
DIVIDEND POLICY. Holders of Common Stock are entitled to receive such
---------------
dividends as are declared by Gulf Southwest's Board of Directors in accordance
with Gulf Southwest's dividend policy. Factors which Gulf Southwest's Board of
Directors consider prior to declaring a dividend include earnings, regulatory
capital requirements, general business conditions and the capital needs of its
subsidiaries, as well as other factors which the Board of Directors may deem
relevant.
DIVIDEND HISTORY. Gulf Southwest paid quarterly cash dividends on its
----------------
Common Stock from 1983 through December 31, 1986. Effective March 31, 1987,
Gulf Southwest suspended the payment of dividends to holders of Common Stock as
a consequence of losses sustained from operations and a resulting desire to
conserve capital. On December 14, 1993, Gulf Southwest's Board of Directors
resumed the payment of cash dividends on the Common Stock by declaring a
quarterly cash dividend of $.05 per share and a special cash dividend of $.05
per share. During 1994, regular quarterly dividends of $.05 per share of Common
Stock were paid. On March 14, 1995, the Board of Directors declared a cash
dividend of $.08 per share to shareholders of record on March 14, 1995, payable
on March 28, 1995.
7
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ITEM 6. SELECTED FINANCIAL DATA
------
<TABLE>
<CAPTION>
GULF SOUTHWEST BANCORP, INC. AND SUBISIDIARIES
DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-----------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Loans $ 144,459 $ 127,452 $ 123,456 $ 122,842 $ 118,061
Allowance for loan losses 2,063 1,986 1,725 2,079 2,213
Investment securities 56,852 52,329 47,672 40,313 46,603
Total assets 253,027 242,005 228,920 215,299 220,298
Deposits 226,064 218,942 207,968 198,662 205,038
Long-term debt 0 0 350 350 350
Stockholders' equity 25,539 21,932 19,637 15,264 13,532
INCOME INFORMATION:
Interest income $ 16,965 $ 15,801 $ 16,317 $ 18,449 $ 19,403
Interest expense 4,796 4,943 5,898 9,048 10,229
Net interest income 12,169 10,858 10,419 9,401 9,174
Provision for loan losses 50 410 1,165 825 519
Noninterest income 3,238 2,979 2,811 3,113 2,780
Noninterest expense 10,393 10,494 9,919 9,921 9,840
Income before income taxes 4,964 2,933 2,146 1,768 1,595
Income tax expense 999 512 242 36 0
Accounting change 0 0 2,470 0 0
--------- --------- --------- -------- ---------
Net income $ 3,965 2,421 4,374 1,732 1,595
========= ========= ========= ========= =========
PER SHARE DATA:
Weighted average number of shares
of common stock outstanding 1,258,636 1,261,731 1,261,775 1,261,775 1,001,259
========= ========= ========= ========= =========
Net income per common share $ 3.15 $ 1.92 3.47 1.37 1.47
========= ========= ========= ========= =========
Dividends per common share $ 0.20 $ 0.10 $ 0.00 $ 0.00 $ 0.00
========= ========= ========= ========= =========
Book value per common share $ 20.29 $ 17.39 $ 15.56 $ 12.10 $ 13.51
========= ========= ========= ========= =========
Return on average assets 1.61% 1.03% 1.99% 0.79% 0.73%
Return on average stockholders'
equity 16.93% 11.56% 25.38% 12.03% 13.07%
Dividend payout ratio 6.35% 5.21% N/A N/A N/A
Average equity to average assets 9.52% 8.89% 7.85% 6.54% 5.59%
Allowance for loan losses as a
percentage of nonperforming
loans 153.6% 122.4% 78.7% 51.8% 52.3%
</TABLE>
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CONDENSED STATEMENTS OF EARNINGS
--------------------------------
The following is a comparison of Gulf Southwest's condensed statements of
earnings for the most recent five-year period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Interest income /(1)/ $16,965 $15,801 $16,317 $18,449 $19,403
Interest expense 4,796 4,943 $ 5,898 $ 9,048 $10,229
------- ------- ------- ------- ------
Net interest income /(1)/ 12,169 10,858 10,419 9,401 9,174
Provision for credit losses 50 410 1,165 825 519
Noninterest income 3,238 2,979 2,811 3,113 2,780
Noninterest expense 10,393 10,494 9,919 9,921 9,840
------- ------- ------- ------- ------
Earnings before income taxes 4,964 2,933 2,146 1,768 1,595
Income tax expense 999 512 242 36 0
------- ------- ------- ------- ------
Earnings before
accounting change 3,965 2,421 1,904 1,732 1,595
Accounting change 0 0 2,470 0 0
------- ------- ------- ------- ------
Net earnings $ 3,965 $ 2,421 $ 4,374 $ 1,732 $ 1,595
======= ======= ======= ======= ======
</TABLE>
/(1)/ For the years ended December 31, 1994, 1993, 1992, 1991 and 1990,
interest income would have been $17,156,000, $16,071,000, $16,688,000,
$18,960,000, and $20,013,000 respectively, and net interest income would have
been $12,360,000, $11,128,000, $10,790,000, $9,912,000, and $9,784,000,
respectively, if all such amounts were shown using a comparable fully taxable
equivalent basis (using a tax rate of 34%).
9
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CONDENSED AVERAGE BALANCE SHEETS
--------------------------------
Although year-end statistics present general trends, the daily average balance
sheets are more indicative of Gulf Southwest's levels of activity throughout the
years indicated and less subject to day-to-day business activity fluctuations.
The following schedule sets forth comparison of the most recent five years'
consolidated daily average balance sheets for Gulf Southwest.
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 12,445 $ 12,123 $ 12,572 $ 11,609 $ 12,266
Loans, net 135,077 123,605 123,369 121,006 114,153
Interest-bearing deposits 1,372 1,573 2,889 2,693 5,850
Investment securities:
Taxable 52,704 42,795 34,099 29,364 22,761
Non-taxable 5,494 7,600 10,237 13,411 17,657
------ ------- ------- ------- -------
Total Securities 58,198 50,395 44,336 42,775 40,418
------ ------- ------- ------- -------
Federal funds sold 30,304 36,420 26,094 29,304 31,735
Other assets 8,633 11,509 10,184 12,775 14,041
------- ------- ------- ------- -------
Total Assets $246,029 $235,625 $219,444 $220,162 $218,463
======= ======= ======= ======= =======
Liabilities and Stockholders' Equity:
Deposits
Noninterest bearing demand $ 65,909 $ 59,577 $ 52,385 $ 50,398 $ 49,875
Interest bearing demand 46,103 46,643 46,377 45,808 44,583
Savings 29,097 28,035 25,617 19,013 16,767
Time 79,786 78,712 76,195 89,003 92,254
------- ------- ------- ------- -------
Total Deposits 220,895 212,967 200,574 204,222 $203,479
------- ------- ------- ------- -------
Borrowings 0 321 350 350 1,209
Other liabilities 1,716 1,394 1,284 1,192 1,570
------- ------- ------- ------- -------
Total Liabilities 222,611 214,682 202,208 205,764 206,258
------- ------- ------- ------- -------
Stockholders' Equity 23,418 20,943 17,236 14,398 12,205
------- ------- ------- ------- -------
Total Liabilities and
Stockholder's Equity $246,029 $235,625 $219,444 $220,162 $218,463
======= ======= ======= ======= =======
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------
CONDITION AND RESULTS OF OPERATIONS
Net earnings increased 63.8% in 1994 to $3,965,000, as compared to $2,421,000 in
1993. In 1994, earnings per common share were $3.15, as compared to $1.92 in
1993. Highlights of the major components that affect Gulf Southwest's net
earnings are as follows:
. Average assets grew $10.4 million, or 4.4%, to $246,029,000, with average
deposits totaling $220,895,000, representing an increase of 3.7%.
. Non-performing assets - loans past due 90 days or more, non-accrual loans plus
other real estate ("ORE") acquired - decreased by 12.4% to $2,804,000 at
December 31, 1994, or 1.1% of total assets.
. Net interest income - the difference between total interest income on earning
assets and total interest expense on deposits and borrowings - increased
12.1%, or $1,311,000 to $12,169,000.
. Non-interest income - the fees charged for banking services - increased by
$259,000 to $3,238,000.
. Non-interest expense - carrying costs and losses incurred with the acquisition
and sale of other real estate, employee compensation and other expenses, such
as for occupancy, furniture and equipment, advertising, professional fees,
deposit insurance premiums and supplies - decreased by .9%, or $101,000 to
$10,393,000 for 1994.
. Income tax expense - the income tax provision on current year earnings -
increased by $487,000 to $999,000 for 1994.
In the following sections, these and other major factors and trends affecting
the components of income and expense are examined in depth. Information
concerning assets and liabilities is subsequently provided so that an evaluation
can be made of capitalization and liquidity as they may affect Gulf Southwest's
future outlook.
NET INTEREST INCOME
-------------------
Net interest income on a taxable equivalent basis for 1994 was $12.4 million, an
increase of $1.2 million, or 11.1%, from $11.1 million in 1993. Net interest
income for 1993 was $11.1 million, up $300 thousand, or 3.1% from $10.8 million
for 1992. The improvement in net interest income for 1994 was primarily due to
an increase in average earning assets, which was the result of increased
deposits and the shift of non-earning assets to earning assets. The increase in
1993 was mainly due to interest rates paid by the Subsidiary Bank decreasing
more rapidly than interest rates earned by the Subsidiary Bank. Total interest
expense decreased by $147 thousand in 1994 as compared to the 1993 decrease of
$955 thousand. These decreases were primarily due to lower interest paid on
deposits by the Subsidiary Bank. The data used in the analysis of net interest
income changes is derived from the daily average levels of interest-bearing
assets and liabilities as well as from the rates earned and paid on these
amounts. The following schedule gives a three-year history of Gulf Southwest's
daily average interest-earning assets and interest-bearing liabilities. Net
interest income is developed on a taxable equivalent basis because management of
Gulf Southwest is of the opinion that such a presentation facilitates the
analytical discussion of changes in the components of earnings as follows. A
history of the net interest margin on a taxable equivalent basis (using a
federal income tax rate of 34%) is set forth below (in thousands), followed by
detailed schedules of its components.
11
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(IN THOUSANDS)
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------------------------- ------------------------------------------
AVG. BAL. INTEREST AVG. RATE AVG. BAL. INTEREST AVG. RATE
------------ ----------- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Securities:
Taxable $ 52,704 $ 3,041 5.77% $ 42,795 $ 2,642 $ 6.17%
Non-taxable 5,494 562 10.23% 7,600 795 10.46%
Due from CD's 1,372 62 4.52% 1,573 46 2.92%
Federal Funds Sold 30,304 1,216 4.01% 36,420 1,076 2.95%
Net loans 135,077 12,275 9.09% 123,605 11,513 9.31%
-------- ------- ----- -------- ------- ------
Total Interest earning assets 224,951 17,156 7.63% 211,993 16,072 7.58%
-------- ------- ----- -------- ------- ------
Cash and due from banks 12,455 12,123
Premises, equipment and other 8,633 11,509
-------- --------
$246,029 $235,625
======== ========
Deposits:
Demand - interest bearing $ 46,103 954 2.07% $ 46,643 1,082 2.32%
Savings 29,097 736 2.53% 28,035 758 2.70%
Time 79,786 3,106 3.89% 78,712 3,066 3.90%
Borrowings 0 0 0.00% 321 37 11.53%
-------- ------- ----- -------- ------- ------
Total interest bearing liabilities 154,986 4,796 3.09% 153,711 4,943 3.22%
-------- ------- ----- -------- ------- ------
Deposits - non-interest bearing 65,909 59,577
Other liabilities 1,716 1,394
Stockholders' equity 23,418 20,943
-------- --------
$246,029 $235,625
======== ========
Net interest earnings $12,360 $11,129
======= =======
Net yield on interest earning 5.49% 5.25%
assets ===== ======
Interest rate spread 4.54% 4.36%
===== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1992
----------------------------------------
AVG. BAL. INTEREST AVG. RATE
--------- -------- ---------
<S> <C> <C> <C>
Investment Securities:
Taxable $ 34,099 $ 2,606 7.64%
Non-taxable 10,237 1,092 10.67%
Due from CD's 2,889 76 2.63%
Federal Funds Sold 26,094 892 3.42%
Net loans 123,369 12,022 9.75%
-------- ------- -----
Total Interest earning assets 196,688 16,688 8.48%
-------- ------- -----
Cash and due from banks 12,572
Premises, equipment and other 10,184
--------
$219,444
--------
Deposits:
Demand - interest bearing $ 46,377 1,375 2.96%
Savings 25,617 895 3.49%
Time 76,195 3,593 4.72%
Borrowings 350 35 10.00%
-------- ------- -----
Total interest bearing liabilities 148,539 5,898 3.97%
-------- ------- -----
Deposits - non-interest bearing 52,385
Other liabilities 1,284
Stockholders' equity 17,236
--------
$219,444
========
$10,790
=======
Net interest earnings
Net yield on interest earning 5.49%
assets ====
Interest rate spread 4.51%
====
</TABLE>
Note: Average balances are based upon daily balances. The interest on non-
taxable securities has been calculated on a fully taxable equivalent basis - 34%
tax basis. Non accruing loans have been included in assets for these
computations, thereby reducing yields on these investments.
12
<PAGE>
The following rate/volume variance has been allocated to the changes in rates.
Non-accrual loans are included in the calculations made below. The interest on
non-taxable investment income has been calculated on a fully taxable equivalent
basis incorporating an effective tax rate of 34%.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(IN THOUSANDS)
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------------------------------- ---------------------------------------------
CHANGES FROM CHANGES IN CHANGES IN CHANGES FROM CHANGES IN CHANGES IN
PRIOR YEAR VOLUME RATES PRIOR YEAR VOLUME RATES
------------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Taxable securities $ 399 $ 610 $(211) $ 36 $ 664 $ (628)
Non-taxable securities (233) (220) (13) (297) (281) (16)
Due from CD's 16 (6) 22 (30) (35) 5
Federal funds sold 140 (181) 321 184 354 (170)
Loans 762 1,059 (297) (509) 23 (532)
------ ------ ----- ----- ----- -------
Total interest income 1,084 1,262 (178) (616) 725 (1,341)
------ ------ ----- ----- ----- -------
Interest expense:
Deposits:
Demand - interest bearing (128) (13) (115) (293) 8 (301)
Savings (22) 27 (49) (137) 83 (220)
Time 40 48 (8) (527) 119 (646)
Borrowings (37) (37) 0 2 (3) 5
------ ------ ----- ----- ----- -------
Total interest expense (147) 25 (172) (955) 207 (1,162)
------ ------ ----- ----- ----- -------
Net interest expense $1,231 $1,237 $ (6) $ 339 518 (179)
====== ====== ===== ===== ===== =======
</TABLE>
13
<PAGE>
LOAN PORTFOLIO
--------------
The following tables show the composition of the loan portfolio at the end of
the last five years and the loan maturity distribution as of December 31, 1994
(dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 28,593 $ 27,935 $ 26,047 $ 25,715 $ 29,196
Real estate - construction 7,205 2,997 2,145 2,690 1,836
Real estate - other 80,472 68,837 65,842 64,958 60,233
Installment 27,786 27,428 29,322 29,216 26,461
Other 403 255 100 263 335
Total loans, net of -------- -------- -------- -------- --------
unearned discount $144,459 $127,452 $123,456 $122,842 $118,061
======== ======== ======== ======== ========
DECEMBER 31,
------------------------------------
1 YEAR 1 - 5 AFTER
DUE IN: OR LESS YEARS 5 YEARS
--------- --------- ---------
Commercial and industrial loans $ 18,284 $ 8,117 $ 2,192
Real estate construction 1,980 5,225 0
-------- -------- --------
Total $ 20,264 $ 13,342 $ 2,192
======== ======== ========
Loans due after 1 year which have:
Predetermined interest rates $ 7,590
Floating or adjustable rates 7,944
--------
Total $ 15,534
========
</TABLE>
LOAN PORTFOLIO COMPOSITION
--------------------------
Total loans increased 13.3% from December 31, 1993 to December 31, 1994.
Commercial and industrial loans increased $658,000 or 2.4%, real estate related
loans increased $15,843,000, or 22.1%, and installment loans increased $358,000,
or 1.3%.
The composition of the loan portfolio at the end of the last three years is
displayed in the following table:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Commercial and industrial 19.8% 21.9% 21.1%
Real estate - construction 5.0% 2.4% 1.7%
Real estate - other 55.7% 54.0% 53.3%
Individuals for household and
other consumer purposes 19.2% 21.5% 23.8%
Other .3% .2% .1%
</TABLE>
Non-accrual loans and past due loans (90 days or more) totaled $1,215,000 and
$128,000, respectively at December 31, 1994, as compared to $1,455,000 and
$168,000, respectively at December 31, 1993.
14
<PAGE>
PROVISION FOR CREDIT LOSSES
---------------------------
The allowance for credit losses at December 31, 1994 was $2,063,000 representing
1.43% of outstanding loans. A year earlier, this ratio was 1.56%. The
provision for credit losses charged against earnings was $50,000 in 1994,
$410,000 in 1993 and $1,165,000 in 1992. For the year 1994, the Company had net
recoveries totaling $27,000 as compared to net losses of $149,000 and $1,519,000
for the years 1993 and 1992, respectively. During 1993 and 1992, the net
charge-off ratio to average loans was .12% and 1.20%, respectively, as compared
to a net-recovery ratio to average loans of .02% in 1994. The improving quality
of the Subsidiary Bank's loan portfolio and net recovery position allowed it to
decrease the provision for possible loan losses despite increased loan balances.
To a very large extent, the Subsidiary Bank loan portfolio remains secured and
current re-appraisals of collateral value have been received and undertaken in
an effort to further assess loss potential. Management has closely scrutinized
its loss potential on its non-performing assets, as well as on the entire loan
portfolio, and has, to the best of its knowledge and belief, reserved for losses
accordingly.
The transactions occurring in the allowance for credit losses for the five years
ended December 31, 1994, including a breakdown of net charge-offs by type of
loan, are as follows:
15
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average loans outstanding $135,077 $125,476 $125,199 $123,056 $116,481
======== ======== ======== ======== ========
Loans outstanding at year-end $144,459 $127,452 $123,456 $122,842 $118,061
======== ======== ======== ======== ========
Allowance at beginning of period $ 1,986 $ 1,725 $ 2,079 $ 2,213 $ 2,358
-------- -------- -------- -------- --------
Provision charged to expense 50 410 1,165 825 519
-------- -------- -------- -------- --------
Loans charged off:
Commercial and industrial (175) (197) (441) (583) (651)
Real estate - construction 0 0 0 0 0
Real estate - other (159) (54) (1,002) (291) (255)
Installment (103) (136) (201) (277) (133)
Other 0 0 0 0 0
-------- -------- -------- -------- --------
Total (437) (387) (1,644) (1,151) (1,039)
-------- -------- -------- -------- --------
Loans recovered:
Commercial and industrial 155 150 54 86 237
Real estate - construction 0 0 0 0 0
Real estate - other 296 44 20 54 97
Installment 13 44 51 52 41
Other 0 0 0 0 0
-------- -------- -------- -------- --------
Total 464 238 125 192 375
-------- -------- -------- -------- --------
Net loans (charged-off) recovered 27 (149) (1,519) (959) (664)
-------- -------- -------- -------- --------
Allowance at end of period $ 2,063 $ 1,986 $ 1,725 $ 2,079 $ 2,213
======== ======== ======== ======== ========
Ratios:
Allowance as a percent of loans
outstanding at year-end 1.43% 1.56% 1.40% 1.69% 1.87%
Allowance as a percent of
average loans 1.53% 1.58% 1.38% 1.69% 1.90%
Net loans charged-off (recovered)
as a percent of average loans
outstanding (.02%) 0.12% 1.20% 0.80% 0.50%
Allowance as a percentage
of nonperforming loans 153.60% 122.40% 78.70% 51.80% 52.30%
</TABLE>
16
<PAGE>
Management of the Subsidiary Bank continues to concentrate on identifying and
addressing credit problems. Efforts have been undertaken and are ongoing to
strengthen credit review policies and procedures. Intensive efforts are ongoing
to ensure that any existing or identifiable developing problem loans receive the
necessary effective attention. The Subsidiary Bank's procedures for reviewing
the adequacy of its allowance for credit losses involve a review of lending
policies and practices, the lending history of personnel involved in the lending
process and the compliance by those personnel with the policies. Consideration
also is given to (i) management's review of individual outstanding and proposed
credits, (ii) the current size and composition of the loan portfolio, (iii)
expectations of future economic conditions and their impact on particular
industries and specific borrowers, (iv) the level and composition of non-
performing loans, (v) evaluation of the underlying collateral for secured loans,
(vi) historical loan loss and recovery experience and (vii) comments made during
regular examinations or audits by banking regulators, the Subsidiary Bank's
internal loan review staff and independent auditors.
The allocation of the Subsidiary Bank's allowance for credit losses by loan
category for the five years ended December 31, 1994 is presented in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------------ ------------------ ------------------ ------------------ ------------------
% of % of % of % of % of
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
and industrial $ 826 19.8% $1,010 21.9% $ 463 21.1% $1,424 20.9% $1,295 24.7%
Real estate -
construction * 5.0% * 2.4% * 1.7% 4 2.2% 22 1.6%
Real estate -
other 751 55.7% 277 54.0% 1,051 53.3% 314 52.9% 666 51.0%
Installment 486 19.2% 699 21.5% 211 23.8% 337 23.8% 230 22.4%
Other * .3% * .2% * .1% * .2% * .3%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total $2,063 100.0% $1,986 100.0% $1,725 100.0% $2,079 100.0% $2,213 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
*Less than $1,000
NON-PERFORMING ASSETS
---------------------
All loans which cause management to have doubt as to the borrower's ability to
substantially comply with present loan repayment terms are included in the
schedule of non-performing loans.
Non-performing loans consist of loans on which interest is not being accrued;
loans which are 90 days or more past due as to principal and/or interest payment
and not yet in a non-accruing status. The policy of the Subsidiary Bank is to
continue to accrue interest on loans which are 90 days or more past due if
periodic payments are being made on the loans. If a loan is classified as past
due and payments then resume on the loan, it continues to be classified as past
due until all past due amounts are paid. The Subsidiary Bank had no material
renegotiated or troubled debt restructuring loans during the years 1990 through
1994.
17
<PAGE>
The following table discloses information regarding non-performing assets for
each of the last five years (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $1,215 $1,455 $1,737 $3,394 $ 3,829
Past due 90 days or more 128 168 456 621 401
------ ------ ------ ------ -------
Total non-performing loans 1,343 1,623 2,193 4,015 4,230
Other Real Estate Owned 1,461 1,578 3,037 5,090 6,284
------ ------ ------ ------ -------
Total non-performing assets $2,804 $3,201 $5,230 $9,105 $10,514
====== ====== ====== ====== =======
</TABLE>
The Subsidiary Bank included in reported income for 1994, $1,059 of interest
received on non-accrual loans. Had these loans paid interest at their original
rates, the Subsidiary Bank would have reported $105,740 of interest on these
non-accrual loans.
NON-INTEREST INCOME
-------------------
Non-interest income increased 8.7% in 1994 compared to an increase of 6.0%
during 1993. Service charges on deposits, the largest component of non-interest
income, decreased by 1.40% in 1994 as compared to an increase of 5.4% in 1993.
The components of the "other" categories of non-interest income consist of
miscellaneous fees such as collection fees, credit card fees, safe deposit
rentals, research fees, check printing income and wire transfer fees. These
fees correlate to the level of transactions in each of the referenced
categories. In addition, other operating income includes the fees charged for
data processing by GSWDP. During 1994, data processing for three additional
banks was provided and is responsible for the increase of $300,000, or 82.6%, in
other operating income.
The following table sets forth by category the non-interest income and the
percentage from the prior year for the most recent three years:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
------------------- ------------------- -------------------
% % %
AMOUNT CHANGE AMOUNT CHANGE AMOUNT CHANGE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service charges on
deposit accounts $2,353 (1.4)% $2,387 5.4% $2,264 2.9%
Other service
charges and fees 222 11.0% 200 (4.8)% 210 (4.1)%
Other operating income 663 82.6% 363 12.8% 321 (53.7)%
Securities transactions 0 0.0% 29 81.3% 16 0.0%
------ ----- ------ ----- ------ ------
Total $3,238 8.7% $2,979 6.0% $2,811 (9.7)%
====== ===== ====== ===== ====== ======
</TABLE>
NON-INTEREST EXPENSE
--------------------
Total non-interest expense decreased by 1.0% for 1994 as compared to an increase
of 5.8% in 1993. The most significant percentage increases were in the
categories of occupancy and furniture and equipment expense. These increases
are primarily attributable to the expansion and remodeling of the Subsidiary
Bank's primary banking facility.
18
<PAGE>
The most significant decrease in expenses was in the category of other real
estate expense. Although other real estate owned totaled $1,461,000 at December
31, 1994, as compared to $1,578,000 at December 31, 1993, reductions totaling
approximately $1,017,000 had occurred before a loan was foreclosed in October
1994 resulting in an increase of $900,000.
The following table sets forth by category the operating expenses and the
percentage change from the prior year for the most recent three years:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994 1993 1992
-------------------- -------------------- -------------------
% % %
Amount Change Amount Change Amount Change
-------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 4,825 1.2% $ 4,770 10.8% $4,306 1.0%
Occupancy expense 1,154 25.4% 920 15.9% 794 (3.4)%
Furniture and equipment
expense 530 10.7% 479 4.6% 458 (22.5)%
Other real estate expense 454 (52.3)% 951 (21.1)% 1,206 45.8%
Other operating expense 3,430 1.7% 3,374 7.0% 3,155 (7.7)%
------- ------ ------- ------ ------ ------
Total $10,393 (1.0)% $10,494 5.8% $9,919 0.0%
======= ====== ======= ====== ====== ======
</TABLE>
INCOME TAXES
------------
At December 31, 1994, the Company has, for tax reporting purposes, investment
tax credit carryforwards of approximately $96,000, net operating loss
carryforwards of approximately $1,136,000 that expire on or before 2004 and
alternative minimum tax credits of approximately $406,000.
BALANCE SHEET MANAGEMENT
------------------------
During 1994, total average earning assets increased $13.0 million or 6.1% from
1993. Average loans increased $11.5 million or 9.3% and average investment
securities increased $7.8 million or 15.5%. These increases were partially
funded by a decrease of $6.3 million or 19.9% in average short-term money market
investments, which include federal funds sold and interest-bearing deposits in
financial institutions. The remaining growth in average assets was funded by
deposits and shareholders' equity, which expanded by an average balance of $7.9
million and $2.5 million, respectively.
During 1993, total average earning assets increased $15.3 million or 7.8% from
1992. Average loans increased $236,000 or .2% and average investment securities
increased $6.1 million or 13.7%. Average short-term money market investments
increased by $9.0 million or 31.1% (these investments include federal funds sold
and interest-bearing deposits in financial institutions.) The increase in
average earning assets was due to a $16.2 million increase in average total
assets and a reduction in non-interest earning assets such as non-accrual loans
and other real estate. The growth in average assets was funded by deposits and
shareholders' equity, which expanded by an average balance of $12.4 million and
$3.7 million, respectively.
19
<PAGE>
The following table presents the Company's average balance sheet composition on
a percentage basis:
<TABLE>
<CAPTION>
BALANCE SHEET COMPOSITION -
PERCENTAGE OF TOTAL ASSETS 1994 1993 1992
-------------------------- ------ ------ ------
<S> <C> <C> <C>
Investment securities:
Taxable 21.4% 18.2% 15.5%
Non-taxable 2.2 3.2 4.7
Due from CD's .6 .7 1.0
Federal funds sold 12.3 15.4 11.9
Net loans 54.9 52.5 56.2
----- ----- -----
Total earning assets 91.4 90.0 89.3
Cash and due from banks 5.1 5.1 5.7
Premises, equipment and other 3.5 4.9 5.0
----- ----- -----
Total Assets 100.0% 100.0% 100.0%
===== ===== =====
PERCENTAGE OF TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------
1994 1993 1992
----- ----- -----
Deposits - interest bearing 63.0% 65.1% 67.5%
Borrowings 0.0 .1 .2
----- ----- -----
Total interest bearing liabilities 63.0 65.2 67.7
Deposits - non-interest bearing 26.8 25.3 23.9
Other liabilities .7 .6 .5
Stockholders' Equity 9.5 8.9 7.9
----- ----- -----
Total Liabilities and Stockholders' Equity 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
20
<PAGE>
INVESTMENT SECURITIES
---------------------
The book and market values of investment securities held by the Company as of
dates indicated are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Book Value:
U.S. Treasury & Agencies $50,340 $44,096 $37,732
States and Political Subdivisions 6,505 8,226 9,934
Other 7 7 6
------- ------- -------
Total $56,852 $52,329 $47,672
======= ======= =======
Market Value $55,766 $54,107 $48,981
======= ======= =======
</TABLE>
On January 1, 1994, all bank holding companies were required to adopt the
Financial Accounting Standard Board ("FASB") Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." FASB No. 115 requires
institutions to divide their securities holdings among three categories: held-
to-maturity, available-for-sale and trading securities. The accounting standard
provides a different accounting treatment for each category.
Held-to-maturity securities are those debt securities which an institution has
the positive intent and ability to hold to maturity. These debt securities are
reported at amortized cost.
Trading securities are those debt and equity securities that an institution buys
and holds principally for the purpose of selling in the near term. Trading
securities are reported at fair value, with unrealized changes in value reported
directly in the income statement as a part of the institution's earnings.
Available-for-sale securities are those debt securities which the institution
does not have the positive intent and ability to hold to maturity, yet does not
intend to trade actively as part of its trading account. Available-for-sale
securities must be reported at fair value with any unrealized appreciation or
depreciation in the value of these securities, net of tax effects, reported
directly as a separate component of equity capital. Thus, unrealized changes in
the value of these securities will have no effect on the reported earnings of
the bank holding company.
The following table shows as of December 31, 1994, the distribution of
maturities and the weighted average interest yields to maturity of the Company's
investment securities (dollars in thousands):
21
<PAGE>
<TABLE>
<CAPTION>
HELD TO MATURITY
------------------------------------------------------------------
U.S. TREASURY STATES & POLITICAL SUBDIVISIONS
---------------------------------
& AGENCIES TAXABLE NON-TAXABLE TOTAL
-------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
Due within one year:
Book Value $ 8,267 $ 530 $1,124 $ 9,921
Market Value 8,208 529 1,126 9,863
Yield 5.75% 5.58% 9.08% 6.08%
Due after one but within five years:
Book Value $32,576 $1,084 $2,771 $36,431
Market Value 31,496 1,016 2,854 35,366
Yield 6.04% 4.97% 10.15% 6.32%
Due after five but within ten years:
Book Value $ 1,541 $ 97 $ 869 $ 2,507
Market Value 1,520 95 930 2,545
Yield 7.72% 8.10% 11.11% 8.90%
Due after ten years:
Book Value $ 0 $ 0 $ 30 $ 30
Market Value 0 0 30 30
Yield 0.00% 0.00% 10.42% 10.42%
AVAILABLE FOR SALE
----------------------------------------------
U.S. TREASURY
& AGENCIES OTHER TOTAL
-------------- ------------ --------
Due within one year:
Book Value $6,494 $ 7 $ 6,501
Market Value 6,494 7 6,501
Yield 4.18% 0.00% 4.18%
Due after one but within five years:
Book Value $1,462 $ 0 $ 1,462
Market Value 1,462 0 1,462
Yield 5.98% 0.00% 5.98%
Due after five but within ten years:
Book Value $ 0 $ 0 $ 0
Market Value 0 0 0
Yield 0.00% 0.00% 0.00%
Due after ten years:
Book Value $ 0 $ 0 $ 0
Market Value 0 0 0
Yield 0.00% 0.00% 0.00%
</TABLE>
The interest on non-taxable investment securities has been calculated on a fully
taxable equivalent basis incorporating an effective tax rate of 34%.
LIQUIDITY MANAGEMENT
--------------------
Like any commercial bank, the liability structure of the Subsidiary Bank
requires that it maintain an appropriate level of liquid resources to meet
normal day-to-day fluctuations in deposit volume and to make new loans and
investments as opportunities arise. Liquidity can be provided by either assets
or liabilities. The liquidity of Gulf Southwest is provided primarily by
dividends from the Subsidiary Bank and GSWDP, income tax benefits and interest
on time deposits in financial institutions. Sources of liquidity for the
Subsidiary Bank are principally provided by maturing
22
<PAGE>
loans, deposits, cash, short-term investments, time deposits in other financial
institutions, federal funds sold and profits. At December 31, 1994, the
Subsidiary Bank had $14,957,000 in cash, $26,950,000 in federal funds sold,
$1,494,000 in time deposits with other financial institutions and a $56,852,000
investment securities portfolio in which the market value was $1,086,000 less
than the carrying value. The loan-to-deposit ratio was 63.9% at December 31,
1994 compared to 58.2% at December 31, 1993.
A financial service company's activities consist primarily of financing and
investing activities. These activities result in large cash flows. Gulf
Southwest's Consolidated Statement of Cash Flows on pages 33 and 34 indicates
the sources of these cash flows.
CAPITAL COMMITMENTS
-------------------
Gulf Southwest believes that it has sufficient capital and financial resources
to meet its current and anticipated capital commitments.
DEPOSITS
--------
The most important source of the Subsidiary Bank's funds is deposits. The type
of deposits that were in the Subsidiary Bank on a daily average basis and the
related average rate paid during each of the last three years are broken down as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ------------------ ------------------
RATE RATE RATE
AMOUNT PAID AMOUNT PAID AMOUNT PAID
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Demand - non-interest bearing $65,909 0.00% $59,577 0.00% $52,385 0.00%
Demand - interest bearing 46,103 2.07% 46,643 2.32% 46,377 2.96%
Savings 29,097 2.53% 28,035 2.70% 25,617 3.49%
Time 79,786 3.89% 78,712 3.90% 76,195 4.72%
</TABLE>
The following table provides certain information regarding certificates of
deposit issued by the Subsidiary Bank in amounts equal to or exceeding $100,000
at December 31, 1994 (dollars in thousands):
<TABLE>
<S> <C>
Three (3) months or less $ 8,910
Over three (3) months through six (6) months 3,428
Over six (6) months through twelve (12) months 3,380
Over twelve (12) months 825
-------
Total $16,543
=======
</TABLE>
INTEREST RATE SENSITIVITY
-------------------------
The objectives of monitoring and managing the interest rate risk position of the
balance sheet are to contribute to earnings and to minimize the adverse changes
in net interest income. The potential for earnings to be affected by changes in
interest rates is inherent in a financial institution.
Interest rate sensitivity is the relationship between changes in market interest
rates and changes in net interest income due to the repricing characteristics of
assets and liabilities. An asset sensitive position in a given period will
result in more assets being subject to repricing; therefore, market interest
rate changes will be reflected more quickly in asset rates. If interest rates
decline, such a position will normally have an adverse effect on net interest
income. Conversely, in a liability sensitive position, where liabilities
reprice more quickly than assets in a given period, a decline in rates will
benefit net interest income.
23
<PAGE>
One way to analyze interest rate risk is to evaluate the balance of the interest
sensitivity position. A mix of assets and liabilities that are roughly equal in
volume and repricing represents a matched interest sensitivity position. Any
excess of assets or liabilities results in an interest sensitivity gap. The
purpose of this analysis is to be aware of the potential risk on future earnings
resulting from the impact of possible future changes in interest rates on
currently existing net asset or net liability positions. However, this type of
analysis is as of a point-in-time; when in fact that position can quickly change
as market conditions, customer needs, and management strategies change.
Additionally, interest rate changes do not affect all categories of assets and
liabilities equally or at the same time.
The following table presents the interest sensitivity position of the Company at
December 31, 1994 (dollars in thousands).
<TABLE>
<CAPTION>
RATE SENSITIVE WITHIN NONRATE
----------------------------------------------------
30-DAY 90-DAY 180-DAY ONE YEAR TOTAL SENSITIVE TOTAL
---------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loan, Net of Unearned
Discount $ 41,655 $ 4,389 $ 4,755 $10,646 $ 61,445 $ 83,014 $144,459
Investment Securities 1,250 4,750 3,855 6,567 16,422 40,430 56,852
Federal Funds Sold 26,950 0 0 0 26,950 0 26,950
Other Earning Assets 1,094 900 0 0 1,994 0 1,994
-------- ------- ------- ------- -------- -------- --------
Total Earning Assets 70,949 10,039 8,610 17,213 106,811 123,444 230,255
-------- ------- ------- ------- -------- -------- --------
Interest Bearing Liabilities:
Interest-Bearing Deposits 87,412 15,161 17,078 22,683 142,334 11,747 154,081
-------- ------- ------- ------- -------- -------- --------
Total Interest-Bearing
Liabilities 87,412 15,161 17,078 22,683 142,334 11,747 154,081
-------- ------- ------- ------- -------- -------- --------
Interest Sensitivity Gap $(16,463) $(5,122) $(8,468) $(5,470) $(35,523)
======== ======= ======= ======= ========
Ratio of Earning Assets to
Interest Bearing Liabilities 81.2% 66.2% 50.4% 75.9% 75.0%
======== ======= ======= ======= ========
</TABLE>
The Company had a negative interest rate sensitive gap position in the 30-day
period of $16.5 million. The cumulative rate sensitive gap position was a
negative $35.5 million, which indicates that the Company may benefit from
falling interest rates; conversely rising interest rates may have a negative
impact upon the Company.
CAPITAL MANAGEMENT
------------------
The Board has adopted a system using the risk-based capital adequacy guidelines
to evaluate the capital adequacy of bank holding companies. Under the risk-
based capital guidelines, different categories of assets are assigned different
risk weights, based generally on the perceived credit risk of the asset. These
risk weights are multiplied by corresponding asset balances to determine a
"risk-weighted" asset base. Certain off-balance sheet items, which previously
were not expressly considered in capital adequacy computations, are added to the
risk-weighted asset base by converting them to a balance sheet equivalent and
assigning them to the appropriate risk weight.
The guidelines require that banking organizations achieve minimum ratios of
total capital-to-risk-weighted assets of 8.0% (of which at least 4.0% should be
in the form of certain "Tier 1" elements). Total capital is defined as the sum
of "Tier 1" and "Tier 2" capital elements, with "Tier 2" being limited to 100
percent of "Tier 1." For bank holding companies, "Tier 1" capital includes,
with certain restrictions, common stockholders' equity, perpetual preferred
stock, and minority interests in consolidated subsidiaries. "Tier 2" capital
includes, with certain limitations, certain forms of perpetual preferred stock,
as well as maturing capital instruments and the reserve for possible credit
losses.
At December 31, 1994, the Company's ratio of "Tier 1" and total capital to risk-
weighted assets were approximately 16.81% and 18.19%, respectively. Both ratios
significantly exceed regulatory minimums.
24
<PAGE>
The following table summarizes the Company's Tier 1 and Total Capital (dollars
in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------
AMOUNT RATIO
--------- ------
<S> <C> <C>
Tier 1 Capital $ 25,227 16.81%
Tier 1 Capital Minimum Requirement 6,001 4.00%
-------- -----
Excess Tier 1 Capital $ 19,226 12.81%
======== =====
Total Capital $ 27,290 18.19%
Total Capital Minimum Requirement 12,003 8.00%
-------- -----
Excess Total Capital $ 15,287 10.19%
======== =====
Risk Adjusted Assets, Net of Goodwill $150,034
========
</TABLE>
In addition to the risk-based capital guidelines, the Board and the FDIC have
adopted the use of a leverage ratio as an additional tool to evaluate the
capital adequacy of banks and bank holding companies. The leverage ratio
replaces the old standard of primary and secondary capital, and is defined to be
a company's "Tier 1" capital divided by its adjusted total assets. The leverage
ratio adopted by the federal banking agencies requires a ratio of 3.0% "Tier 1"
capital to adjusted total assets for banks with a CAMEL rating of 1 or for bank
holding companies with a BOPEC rating of 1. All other institutions will be
expected to maintain at least a 100 to 200 basis point cushion, i.e., these
institutions will be expected to maintain a leverage ratio of 4.0% to 5.0%. The
Company's leverage ratio at December 31, 1994 was 9.90% which also exceeds the
regulatory minimum.
PENDING REGULATORY MATTERS
--------------------------
The FDIC has proposed a reduction in the premium rates paid by federally-insured
banks to the FDIC. The new rates would be at various levels ranging from $.04
per $100 of deposits to $.23 per $100 deposits with the rate paid by each bank
determined by its financial strength. If the premium rate reduction proposal is
adopted, this would have a favorable impact on the net income of Gulf Southwest.
In 1994, the Subsidiary Bank paid premiums of $477,000 based on a rate of $.23
per $100 of deposits. No assurance can be given as to whether the proposal will
be adopted in its present form and, if adopted, at what rate the Subsidiary Bank
will be assessed.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.................................... 27
Gulf Southwest Bancorp, Inc. and Subsidiaries:
Consolidated Balance Sheet - December 31, 1994 and 1993..... 28
Consolidated Statement of Income -
For each of the three years in the period
ended December 31, 1994................................. 30
Consolidated Statement of Stockholders' Equity -
For each of the three years in the period
ended December 31, 1994................................. 32
Consolidated Statement of Cash Flows -
For each of the three years in the period
ended December 31, 1994................................. 33
Gulf Southwest Bancorp, Inc. (Parent Company Only):
Balance Sheet - December 31, 1994 and 1993................... 35
Statement of Income -
For each of the three years in the period
ended December 31, 1994................................. 36
Statement of Stockholders' Equity -
For each of the three years in the period
ended December 31, 1994................................. 32
Statement of Cash Flows -
For each of the three years in the period
ended December 31, 1994................................. 37
Notes to Financial Statements..................................... 38
</TABLE>
All other schedules or supplementary data are omitted as the required
information is inapplicable or the information is presented in the financial
statements or related notes.
26
<PAGE>
HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.
C E R T I F I E D P U B L I C A C C O U N T A N T S
(Originally Founded in 1949)
Board of Directors and Shareholders
Gulf Southwest Bancorp, Inc.
Houston, Texas
Independent Auditors' Report
----------------------------
We have audited the accompanying consolidated balance sheet of Gulf Southwest
Bancorp, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1994, and the balance sheet
of Gulf Southwest Bancorp, Inc. (parent company only) as of December 31, 1994
and 1993, and the related statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gulf Southwest
Bancorp, Inc. and subsidiaries and the financial position of Gulf Southwest
Bancorp, Inc. (parent company only) as of December 31, 1994 and 1993, and the
respective results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, in 1994.
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
Houston, Texas
January 30, 1995
3555 TIMMONS LANE, SUITE 460 - HOUSTON, TEXAS 77027 - (713) 963-8008
27
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1993
------------- -------------
<S> <C> <C>
Cash and due from banks (Note 3) $ 14,962,004 $ 12,046,668
Time deposits in financial institutions 1,994,000 1,294,000
Federal funds sold 26,950,000 40,775,000
Investment securities (Note 4):
Held-to-maturity (Market value
1994 - $47,802,547
1993 - $54,106,371) 48,888,543 52,328,819
Available-for-sale (Market value
1994 - $7,963,020) 7,963,020 --
Loans (Note 5):
Loans, net of unearned income
of $2,945,396 in 1994 and
$2,899,539 in 1993 144,459,176 127,451,717
Less allowance for possible loan
losses 2,062,786 1,986,438
------------ ------------
Total loans, net 142,396,390 125,465,279
Bank premises and equipment (Note 6) 4,620,923 4,198,328
Accrued interest receivable 2,009,835 1,686,936
Excess of cost of subsidiaries over
equity in net assets acquired, net
of accumulated amortization of
$264,076 in 1994 and $249,685
in 1993 311,590 325,981
Real estate and other loan-related assets 1,469,272 1,578,441
Other assets 1,461,266 2,305,488
------------ ------------
Total Assets $253,026,843 $242,004,940
============ ============
</TABLE>
See notes to financial statements.
28
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Deposits:
Non-interest bearing $ 71,983,647 $ 61,618,886
Interest bearing (Note 7) 154,080,631 157,323,252
------------ ------------
226,064,278 218,942,138
Accrued interest, taxes and other
liabilities 1,423,467 1,131,049
------------ ------------
Total Liabilities 227,487,745 220,073,187
------------ ------------
Commitments and Contingencies (Note 10) -- --
Stockholders' Equity (Notes 8 and 11):
Preferred stock $20 par value,
authorized 2,000,000 shares -- --
Common stock, $1 par value,
authorized 10,000,000 shares,
issued 1,281,650 shares in 1994
and in 1993 1,281,650 1,281,650
Paid-in capital 8,630,862 8,630,862
Retained earnings 16,002,758 12,289,467
Net unrealized gain (loss) on
securities available-for-sale
(net of income taxes) (62,728) --
------------ ------------
25,852,542 22,201,979
Less cost of stock held in treasury:
Common, 23,014 shares in 1994 and
20,407 in 1993 (313,444) (270,226)
------------ ------------
Total Stockholders' Equity 25,539,098 21,931,753
------------ ------------
Total Liabilities and Stockholders' Equity $253,026,843 $242,004,940
============ ============
See notes to financial statements.
</TABLE>
29
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $12,274,698 $11,512,713 $12,022,258
Investment securities:
Taxable interest 3,041,308 2,641,958 2,605,724
Non-taxable interest 370,726 524,996 720,696
Time deposits with financial institutions 62,363 45,730 76,186
Federal funds sold 1,216,142 1,076,099 891,837
----------- ----------- -----------
Total Interest Income 16,965,237 15,801,496 16,316,701
----------- ----------- -----------
Interest Expense:
Deposits 4,796,133 4,906,504 5,862,735
Long-term borrowings -- 36,534 35,000
----------- ----------- -----------
Total Interest Expense 4,796,133 4,943,038 5,897,735
----------- ----------- -----------
Net interest income 12,169,104 10,858,458 10,418,966
Provision for possible loan losses (Note 5) 50,000 410,000 1,165,000
Net interest income after provision for ----------- ----------- -----------
possible loan losses
12,119,104 10,448,458 9,253,966
----------- ----------- -----------
Non-interest Income:
Service charges on deposit accounts 2,353,282 2,387,457 2,264,425
Other service charges and fees 222,001 200,414 209,780
Other operating income 662,771 362,421 320,967
Securities transactions (Note 4) -- 28,793 15,714
----------- ----------- -----------
Total Non-interest Income 3,238,054 2,979,085 2,810,886
----------- ----------- -----------
Non-interest Expense:
Salaries and employee benefits 4,825,183 4,769,640 4,306,313
Occupancy expense 1,153,620 919,686 794,328
Furniture and equipment expense 529,730 479,420 457,925
Other real estate expense 454,216 950,786 1,206,165
Other operating expense (Note 14) 3,430,091 3,374,888 3,154,451
----------- ----------- -----------
Total Non-interest Expenses 10,392,840 10,494,420 9,919,182
----------- ----------- -----------
</TABLE>
See notes to financial statements.
30
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
--------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Income before income taxes and 4,964,318 2,933,123 2,145,670
cumulative effect of an accounting change
Provision for income taxes (Note 9) 999,300 512,500 241,500
---------- ---------- ----------
Income before cumulative effect of an 3,965,018 2,420,623 1,904,170
accounting change
Cumulative effect of an accounting
change (Note 9) -- -- 2,469,500
---------- ---------- ----------
Net Income $3,965,018 $2,420,623 $4,373,670
========== ========== ==========
Weighted Average Number of Common
Shares Outstanding 1,258,636 1,261,731 1,261,775
========== ========== ==========
Net Income per Common Share:
Income before cumulative effect of an $ 3.15 $ 1.92 $ 1.51
accounting change
Accounting Change -- -- 1.96
---------- ---------- ----------
Net Income $ 3.15 $ 1.92 $ 3.47
========== ========== ==========
</TABLE>
See notes to financial statements.
31
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES (CONSOLIDATED)
------------------------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN(LOSS)
ON
SECURITIES
PREFERRED COMMON PAID-IN RETAINED AVAILABLE- TREASURY
STOCK STOCK STOCK EARNINGS FOR-SALE STOCK
--------- ------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $ -- $1,281,650 $8,630,862 $ 5,621,298 $ -- $(270,226)
Net Income -- -- -- 4,373,670 -- --
--------- ---------- ---------- ----------- ---------- ---------
Balance at December 31, 1992 -- 1,281,650 8,630,862 9,994,968 -- (270,226)
Net Income -- -- -- 2,420,623 -- --
Cash dividend paid -
common stock, $.10 per share -- -- -- (126,124) -- --
Acquired 532 shares of
treasury stock -- -- -- -- ---------- --
--------- ---------- ---------- ----------- -- ---------
----------
Balance at December 31, 1993 -- 1,281,650 8,630,862 12,289,467 -- (270,226)
Net Income -- -- -- 3,965,018 -- --
Cash dividend paid -
common stock, $.20 per share -- -- -- (251,727) -- --
Change in accounting method
(Note 4) -- -- -- -- 49,656 --
Net change in unrealized losses on
investment securities available
for sale -- -- -- -- (112,384) --
Acquired 2,607 shares of
treasury stock -- -- -- -- -- (43,218)
--------- ---------- ---------- ----------- ---------- ---------
Balance at December 31, 1994 $ -- $1,281,650 $8,630,862 $16,002,758 $ (62,728) $(313,444)
========= ========== ========== =========== ========== =========
</TABLE>
See notes to financial statements.
32
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 3,965,018 $ 2,420,623 $ 4,373,670
------------ ------------ ------------
Adjustments to Reconcile Net Income to
Cash Flows from Operating Activities:
Provision for possible loan losses 50,000 410,000 1,165,000
Discount (accretion) amortized to income 465,510 383,578 83,041
(Gain) Loss on sale of investment securities -- (28,793) (15,714)
Depreciation and amortization 520,777 428,566 395,061
Loss (Gain) on sale of premises and equipment (10,475) 50,689 6,696
Provision for losses on real estate and other
loan-related assets 245,343 654,438 1,146,174
(Gain) Loss on sale of real estate and other
loan-related assets 1,571 (42,798) (196,273)
(Increase) Decrease in accrued interest
receivable (322,899) (32,006) 144,782
Decrease (Increase) in other assets 876,537 153,948 (2,057,517)
Increase (Decrease) in accrued interest, taxes
and other liabilities 292,418 166,310 (58,697)
------------ ------------ ------------
Total Adjustments 2,118,782 2,143,932 612,553
------------ ------------ ------------
Net Cash Flows from Operating Activities 6,083,800 4,564,555 4,986,223
------------ ------------ ------------
Cash Flows from Investing Activities:
Net decrease (increase) in time deposits in
financial institutions (700,000) 648,000 196,000
Proceeds from sales of held-to-maturity
investment securities -- 745,000 --
Proceeds from the maturities of held-to-
maturity investment securities 6,830,000 13,548,450 16,303,100
Proceeds from the sales of available-for-sale
investment securities -- -- --
Proceeds from the maturities of available-for-
sale investment securities 7,500,000 -- --
Purchase of held-to-maturity investment
securities (17,924,547) (19,305,243) (23,729,106)
Purchase of available-for-sale investment
securities (1,488,750) -- --
Net (increase) decrease in loans (17,417,795) (3,259,252) (1,473,164)
Rebates paid to customers (470,934) (594,272) (784,841)
Recoveries of loans charged-off 464,273 237,664 125,447
Proceeds from sale of premises and equipment 28,300 62,887 133,668
Capital expenditures (946,806) (724,762) (762,884)
Proceeds from sale of real estate and other
loan-related assets 305,600 318,704 1,102,759
------------ ------------ ------------
Net Cash Flows From Investing Activities (23,820,659) (8,322,824) (8,889,021)
------------ ------------ ------------
</TABLE>
See notes to financial statements.
33
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Net increase (decrease) in deposits 7,122,140 10,974,419 9,305,516
Repayment of long-term borrowings -- (350,000) --
Purchase of treasury stock (43,218) -- --
Dividends paid (251,727) (126,124) --
------------ ----------- -----------
Net Cash Flows From Financing Activities 6,827,195 10,498,295 9,305,516
------------ ----------- -----------
Net Increase (decrease) in Cash and Cash
Equivalents (10,909,664) 6,740,026 5,402,718
Cash and Cash Equivalents at Beginning of Period 52,821,668 46,081,642 40,678,924
------------ ----------- -----------
Cash and Cash Equivalents at End of Period $ 41,912,004 $52,821,668 $46,081,642
============ =========== ===========
Interest Paid $ 4,814,583 $ 4,907,871 $ 6,083,741
============ =========== ===========
Federal Income Taxes Paid $ 289,000 $ 12,000 $ 55,000
============ =========== ===========
Non-Cash Transactions:
Bank loans for real estate and other loan-related
assets sold $ 749,330 $ 971,700 $ 1,412,832
Foreclosed properties transferred to real estate
and other loan related assets $ 1,216,352 $ 449,828 $ 1,440,409
Investment securities transferred to securities
available-for-sale $ 14,185,179 $ -- $ --
</TABLE>
See notes to financial statements.
34
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
(PARENT COMPANY ONLY)
---------------------
BALANCE SHEET
-------------
ASSETS
------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1993
------------- -------------
<S> <C> <C>
Cash $ 213,062 $ 395,477
Certificates of Deposit 500,000 --
Due from non-bank subsidiary 104,256 78,256
Due from bank subsidiary 841,800 418,500
Investment in subsidiaries:
Bank 23,021,849 19,332,037
Non-bank -- 202,769
Excess of cost of subsidiaries over equity in net assets
acquired, net of accumulated amortization of $264,076
in 1994 and $249,685 in 1993 311,590 325,981
Deferred tax asset 728,679 1,228,079
----------- -----------
Total Assets $25,721,236 $21,981,099
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITABLE
--------------------------------------
Accrued expenses $ 138,666 $ 49,346
Due to Bank subsidiary 43,472 --
----------- -----------
Total Liabilities 182,138 49,346
----------- -----------
Commitments and Contingencies (Note 10) -- --
Stockholders' Equity (Notes 8 and 11):
Preferred stock, $20 par value, authorized 2,000,000 shares -- --
Common stock, $1 par value, authorized 10,000,000 shares,
issued 1,281,650 shares in 1994 and in 1993 1,281,650 1,281,650
Paid-in capital 8,630,862 8,630,862
Retained earnings 16,002,758 12,289,467
Net unrealized gain (loss) on securities available-for-sale
(net of income taxes) (62,728) --
----------- -----------
25,852,542 22,201,979
Less cost of stock held in treasury:
Common, 23,014 shares in 1994 and 20,407 in 1993 (313,444) (270,226)
----------- -----------
Total Stockholders' Equity 25,539,098 21,931,753
----------- -----------
Total Liabilities and Stockholder's Equity $25,721,236 $21,981,099
=========== ===========
</TABLE>
See notes to financial statements.
35
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
(PARENT COMPANY ONLY)
---------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Interest income $ 14,097 $ 5,140 $ 7,812
Expenses:
Interest -- 36,534 35,000
Other operating expenses 177,276 50,175 63,195
---------- ---------- ----------
177,276 86,709 98,195
---------- ---------- ----------
Income (loss) before income tax benefit and equity in
undistributed income of subsidiaries and cumulative
effect of an accounting change (163,179) (81,569) (90,383)
Income tax benefit 621,900 328,000 103,800
---------- ---------- ----------
Income (loss) before equity in undistributed income of
subsidiaries and cumulative effect of an accounting
change 458,721 246,431 13,417
Equity in undistributed income of subsidiaries 3,506,297 2,174,192 2,520,053
---------- ---------- ----------
Income before cumulative effect of an accounting
change 3,965,018 2,420,623 2,533,470
Cumulative effect of an accounting change (Note 9) -- -- 1,840,200
---------- ---------- ----------
Net income $3,965,018 $2,420,623 $4,373,670
========== ========== ==========
</TABLE>
See notes to financial statements.
36
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
(PARENT COMPANY ONLY)
---------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 3,965,018 $ 2,420,623 $ 4,373,670
Adjustments to Reconcile Net Income to Cash
Flows From Operating Activities:
Equity in undistributed income of subsidiaries (3,506,297) (2,174,192) (2,520,053)
Amortization 14,390 14,391 14,390
Increase (Decrease) in accrued expenses 89,319 49,346 --
(Increase) in other assets (449,300) (216,501) (198,766)
Decrease (Increase) in deferred tax asset 499,400 547,154 (1,775,233)
--------------- --------------- ---------------
Net Cash Flows From Operating Activities 612,530 640,821 (105,992)
--------------- --------------- ---------------
Cash Flows From Financing Activities:
Payments on long-term borrowings -- (350,000) --
Purchase of treasury stock (43,218) -- --
Dividends paid (251,727) (126,124) --
--------------- --------------- ---------------
Net Cash Flow From Financing Activities (294,945) (476,124) --
--------------- --------------- ---------------
Net Increase (Decrease) in Cash and
Cash Equivalents 317,585 164,697 (105,992)
Cash and Cash Equivalents at Beginning
of Year 395,477 230,780 336,772
--------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 713,062 $ 395,477 $ 230,780
=============== =============== ===============
Interest Paid $ -- $ 36,534 $ 35,000
=============== =============== ===============
Taxes Paid $ 289,000 $ 12,000 $ 55,000
=============== =============== ===============
</TABLE>
See notes to financial statements.
37
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
The accounting and reporting policies of Gulf Southwest Bancorp, Inc. (Company)
and its subsidiaries conform to generally accepted accounting principles and
practices within the banking industry. The Company and its subsidiaries provide
banking and data processing services to its customers in the greater Houston,
Texas metropolitan area. A summary of the more significant accounting policies
follows:
FINANCIAL STATEMENT PRESENTATION
--------------------------------
The consolidated financial statements include the accounts of the parent company
and its wholly-owned subsidiary, Gulf Southwest Nevada Bancorp, Inc. and its
wholly-owned subsidiaries Merchants Bank and G.S.W. Data Processing, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in subsidiaries are accounted for on the equity
method of accounting in the Parent Company Only financial statements.
INVESTMENT SECURITIES
---------------------
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). Investment securities that may be sold in response to
or in anticipation of changes in interest rates or other factors are classified
as available-for-sale and carried at fair value. The unrealized gains and
losses on these securities are reported net of applicable income taxes as a
separate component of stockholders' equity. At December 31, 1993, securities
available-for-sale were carried at amortized cost. Securities that the Company
has the intent and ability to hold to maturity continue to be carried at
amortized cost.
Interest income on investment securities, including amortization of premiums and
accretion of discounts, is recognized using the interest method. The specific
identification method is used to determine realized gains and losses on sales of
securities, which are reported in securities transactions.
LOANS
-----
Loans are stated at the principal amount outstanding, net of unearned income and
the allowance for possible loan losses. Interest on commercial and real estate
loans is accrued over the term of the loan based on the amount of principal
outstanding except where serious doubt exists as to the collectibility of a
loan, in which case the accrual of interest is discontinued. Interest income on
installment loans is computed primarily on sum-of-the-months-digit method which,
in the aggregate, does not differ materially from the interest method. Net loan
origination and commitment fees are being deferred over the contractual life of
the loans as an adjustment of the yield.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
----------------------------------
The allowance for possible loan losses is established by a charge to income as a
provision for loan losses. Actual loan losses or recoveries are charged or
credited directly to this allowance. The amount of the allowance is determined
based upon evaluation of the loan portfolio, a review of past loan loss
experience and management's judgment with respect to current and expected
economic conditions and their potential impact on the loan portfolio.
38
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
BANK PREMISES AND EQUIPMENT
---------------------------
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed on the straight-line method based upon the
estimated useful lives of the assets. Amortization of leasehold improvements is
based on the estimated useful lives of the improvements or the term of the
respective lease, whichever is shorter. At the time of a retirement or sale,
the related cost and accumulated depreciation are removed from the accounts, and
any resulting gain or loss is recorded in income. Maintenance and repairs are
charged to expense as incurred. Renewals and betterments, expenditures which
generally increase the value of the property or extend its useful life, are
capitalized.
REAL ESTATE AND OTHER LOAN-RELATED ASSETS
-----------------------------------------
Real estate and other loan-related assets are stated at the lower of cost or
estimated fair value, less the estimated costs to sell. Any reduction from cost
(loan value) to estimated fair value at the time of foreclosure is charged to
the allowance for possible loan losses. Subsequent valuation adjustments are
charged to current earnings through the provision for revaluation of real estate
and other loan-related assets or are charged directly to expense in the period
in which they are identified. Losses on dispositions are recognized in the
period of occurrence while gains are not recognized until all criteria for
income recognition have been met. Also, any income received or expense incurred
during the period the assets are owned is recognized as income or expense during
the period in which it is received or incurred and is included in other real
estate expense.
EXCESS OF COST OVER EQUITY IN NET ASSETS ACQUIRED
-------------------------------------------------
The fair value of the net assets acquired in transactions accounted for as
purchases is recorded as an investment by the parent company. The excess of the
cash or market value of the consideration given in the transaction over the fair
value of the net assets acquired is recorded as the excess of cost over fair
value of assets acquired, which is amortized into other operating expenses on a
straight-line basis over a period of 40 years.
INCOME TAXES
------------
The Company and its subsidiaries file a consolidated Federal income tax return.
The subsidiaries record income tax expense by applying the statutory tax rate to
their income as adjusted for tax exempt interest and other temporary differences
and remit the portion of Federal income taxes currently due to the parent
company. The parent company records, as a tax benefit, the difference between
total taxes reflected by the subsidiaries and the consolidated provision for
income taxes. Deferred tax assets and liabilities are recognized for balance
sheet basis differences for tax and financial reporting purposes. The deferred
taxes represent future tax return consequences of those differences. Investment
tax credits are recognized as a reduction of Federal income taxes when such
credits are utilized.
39
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
EARNINGS PER SHARE
------------------
Earnings per share of common stock are computed by dividing earnings by the
weighted average number of shares outstanding during the year.
CASH AND CASH EQUIVALENTS
-------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
RECLASSIFICATIONS
-----------------
Certain amounts in the 1993 and 1992 financial statements have been reclassified
to conform with the 1994 presentation.
NOTE 2 - AGREEMENT AND PLAN OF MERGER
-------------------------------------
In November 1994, the Company, through its wholly owned subsidiary Gulf
Southwest Nevada Bancorp, Inc., entered into an agreement and plan of merger
with Texas Gulf Coast Bancorp, Inc. When the merger becomes effective Texas
Gulf Coast Bancorp, Inc. will merge into Gulf Southwest Nevada Bancorp, Inc. and
its separate existence will cease.
The effective date of the merger will be after approval is received from the
Federal Reserve Bank and the approval of the shareholders of both companies.
The merger transaction will be recorded using the purchase method of accounting.
If the merger had taken place as of December 31, 1994, a pro forma condensed
consolidated balance sheet would have been as follows:
<TABLE>
<CAPTION>
[In thousands]
--------------
<S> <C>
Assets:
Cash and due from banks $ 28,687
Time deposits in banks 1,994
Federal funds sold 49,105
Investment securities 143,148
Loans 220,067
Other assets 18,152
--------
Total Assets $461,153
========
Liabilities:
Deposits $411,929
Other liabilities 2,895
Borrowings 2,950
--------
Total Liabilities 417,774
Stockholders' Equity 43,379
--------
Total Liabilities and Stockholders' Equity $461,153
========
</TABLE>
40
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 2 - AGREEMENT AND PLAN OF MERGER (CONTINUED)
-------------------------------------------------
Effective November 30, 1994, the Company contributed its investment in Merchants
Bank and G.S.W. Data Processing, Inc., its wholly owned subsidiaries, to Gulf
Southwest Nevada Bancorp, Inc., a newly formed, wholly owned, bank holding
company subsidiary.
NOTE 3 - RESERVE REQUIREMENTS
-----------------------------
Cash and due from banks of approximately $ 5,245,000 and $ 4,530,000 at
December 31, 1994 and 1993, respectively, were maintained to satisfy regulatory
reserve and other requirements.
NOTE 4 - INVESTMENT SECURITIES
------------------------------
On January 1, 1994, the Company adopted SFAS 115, which addresses the accounting
for investments in debt and equity securities. Such securities are classified
in three categories and accounted for as follows: debt securities that the
Company has the intent and ability to hold to maturity are classified as held-
to-maturity and are carried at amortized cost; debt and equity securities bought
and held principally for the purpose of reselling, of which the Company has
none, are classified as trading securities and are carried at fair value, with
unrealized gains and losses included in income; debt or equity securities not
classified as either held-to-maturity or trading securities are deemed
available-for-sale and are carried at fair value, with unrealized gains and
losses, net of applicable income taxes, reported as a separate component of
stockholders' equity.
Prior to the adoption of SFAS 115, all investment securities were carried at
amortized cost.
As a result of the adoption of SFAS 115, debt securities in the amount of $
14,185,179 that were previously carried at amortized cost are measured at fair
value.
HELD-TO-MATURITY INVESTMENT SECURITIES:
---------------------------------------
The amortized cost and estimated fair value of held-to-maturity investment
securities were as follows:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ------------------------- Fair
Cost Gains Losses Value
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
December 31, 1994:
U.S.Treasury and other
U.S. Government
agencies $42,383,642 $ 12,367 $1,173,439 $41,222,570
State, county and
municipal
obligations 6,504,901 147,533 72,457 6,579,977
----------- -------- ---------- ------------
$48,888,543 $159,900 $1,245,896 $47,802,547
=========== ======== ========== ============
</TABLE>
41
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 4 - INVESTMENT SECURITIES (CONTINUED)
------------------------------------------
HELD-TO-MATURITY INVESTMENT SECURITIES: (CONTINUED)
---------------------------------------------------
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ------------------------ Fair
Cost Gains Losses Value
------------ ----------- -------- ------------
<S> <C> <C> <C> <C>
December 31, 1993:
U.S.Treasury and other
U.S. Government
agencies $44,096,005 $1,408,380 $18,230 $45,486,155
State, county and
municipal
obligations 8,226,314 390,875 3,473 8,613,716
Other 6,500 -- -- 6,500
----------- ----------- -------- ------------
$52,328,819 $1,799,255 $21,703 $54,106,371
=========== =========== ======== ============
</TABLE>
AVAILABLE-FOR-SALE INVESTMENT SECURITIES:
-----------------------------------------
The amortized cost and estimated fair value of available-for-sale investment
securities were as follows:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ------------------------ Fair
Cost Gains Losses Value
------------ ----------- -------- ------------
<S> <C> <C> <C> <C>
December 31, 1994:
U.S.Treasury and other
U.S. Government
agencies $8,051,563 $-- $95,043 $7,956,520
Other 6,500 -- -- 6,500
----------- ----- ------- -----------
$8,058,063 $-- $95,043 $7,963,020
=========== ===== ======= ===========
</TABLE>
Cash proceeds from the maturity and sales of held-to-maturity investment
securities during 1994, 1993 and 1992 were $6,830,000, $14,293,450 and
$16,303,100, respectively. Cash proceeds from the maturity and sales of
available-for-sale investment securities during 1994 was $7,500,000. The
Company had no gross gains or losses from matured or sold held-to-maturity or
available-for-sale securities during 1994. Net gains from investment securities
matured or sold in 1993 amounted to $28,793 (gross gains of $61,419 and gross
losses of $32,626), and a net gain of $15,714 (gross gains of $19,201 and gross
losses of $3,487) in 1992.
42
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 4 - INVESTMENT SECURITIES (CONTINUED)
------------------------------------------
The amortized cost and estimated fair value of investment securities at December
31, 1994 by contractual maturity were as follows:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
---------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 9,921,680 $ 9,863,165 $6,559,512 $6,494,216
Due after one year through
five years 36,429,992 35,365,434 1,492,051 1,462,304
Due after five years through
ten years 2,506,871 2,543,826 -- --
Due after ten years 30,000 30,122 6,500 6,500
----------- ----------- ---------- ----------
Total Investment Securities $48,888,543 $47,802,547 $8,058,063 $7,963,020
=========== =========== ========== ==========
</TABLE>
Investment securities with amortized costs of $ 6,220,306 and $ 3,728,987 at
December 31, 1994 and 1993, were pledged to secure public deposits and for other
purposes as required by law.
NOTE 5 - LOANS
--------------
The loan portfolio was comprised of the following categories at December 31:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Commercial and industrial $ 28,592,898 $ 27,934,861
Real estate - construction 7,205,357 2,997,329
Real estate - other 80,471,985 68,836,580
Installment loans 30,731,534 30,327,248
Other loans 402,798 255,238
------------ ------------
Total loans 147,404,572 130,351,256
Less:
Unearned income (2,945,396) (2,899,539)
Allowance for possible
loan losses (2,062,786) (1,986,438)
------------ ------------
Net Loans $142,396,390 $125,465,279
============ ============
</TABLE>
43
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 5 - LOANS (CONTINUED)
--------------------------
Loans on which interest was not being accrued amounted to $ 1,215,347 and
$1,454,922 at December 31, 1994 and 1993, respectively. Interest income loss on
non-performing loans was $ 104,680, $ 173,595 and $ 309,017 for the years ended
December 31, 1994, 1993 and 1992, respectively.
Some of the directors and executive officers of the Company and its
subsidiaries and their related parties are loan customers at the Company's
subsidiary bank. In management's judgment, such borrowings were on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with others and do
not involve other than normal risk of collectibility.
An analysis of loans to these parties, exclusive of loans to such persons
that in the aggregate do not exceed $ 60,000, is as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Balance at beginning of year $ 3,294,546 $ 2,866,935
New loans 2,815,617 2,210,629
Amounts collected (2,010,980) (1,783,018)
Loans to customers no
longer related
parties and other (15,509) --
---------- -----------
Balance at end of year $ 4,083,674 $ 3,294,546
=========== ===========
</TABLE>
Transactions in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of ye $1,986,438 $ 1,725,384 $ 2,079,094
Provision charged to expense 50,000 410,000 1,165,000
Loan losses:
Charge-offs (437,925) (386,610) (1,644,157)
Recoveries 464,273 237,664 125,447
---------- ----------- -----------
Net loan losses 26,348 (148,946) (1,518,710)
---------- ----------- -----------
Balance at end of year $2,062,786 $ 1,986,438 $ 1,725,384
========== =========== ===========
</TABLE>
In 1994, the Financial Accounting Standards Board issued Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan and No. 118,
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures. The Company will adopt these new standards on January 1, 1995.
The adoption of these new standards will have no material effect on the
Company's financial position or results of operations.
44
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 6 - BANK PREMISES AND EQUIPMENT
------------------------------------
Bank premises and equipment were comprised of the following at December 31:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Land -- $ 831,304 $ 831,304
Bank premises and leasehold
improvements 5 to 40 yrs. 4,616,478 4,113,283
Furniture and equipment 3 to 10 yrs. 3,624,676 3,568,046
Automobiles 3 to 5 yrs. 273,144 247,616
Construction in progress -- 409,727
Less - accumulated depreciation
and amortization (4,724,679) (4,971,648)
----------- -----------
Net balance at end of year $ 4,620,923 $ 4,198,328
=========== ===========
</TABLE>
Depreciation and amortization charged to operating expense was $ 506,385 in
1994, $ 414,175 in 1993, and $ 380,671 in 1992.
NOTE 7 - INTEREST BEARING DEPOSITS
----------------------------------
Interest bearing deposits were comprised of the following categories at
December 31:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Interest bearing demand $ 45,897,535 $ 49,000,325
Savings 28,481,431 28,611,322
Time 63,158,385 66,365,482
Time over $100,000 16,543,280 13,346,123
------------ ------------
$154,080,631 $157,323,252
============ ============
</TABLE>
NOTE 8 - DIVIDENDS FROM SUBSIDIARIES
------------------------------------
Substantially all of the retained earnings of the Company represent
undistributed net income of subsidiaries. Dividends paid by the Company's
subsidiary bank are subject to restrictions by certain regulatory agencies.
45
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 9 - FEDERAL INCOME TAXES
-----------------------------
The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, effective January 1, 1992. The cumulative
adjustment resulted in a tax benefit of $ 2,469,500.
Deferred income tax provision (benefit) results from differences between amounts
of assets and liabilities as measured for income tax and financial reporting
purposes. The significant components of Federal deferred tax assets and
liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- --------
<S> <C> <C>
Deferred Tax Assets:
Carrying value of other real estate owned $ 283,500 $ 483,200
Allowance for possible loan losses 176,500 159,500
Net operating tax loss carryforward 227,200 1,041,900
Investment tax credit 95,800 95,800
Alternative minimum tax credit 406,000 90,300
Unrealized investment securities gain (loss) 32,300 --
---------- -----------
1,221,300 1,870,700
---------- -----------
Deferred Tax Liability:
Accretion on municipal bonds 51,900 64,300
---------- -----------
Net Deferred Tax $1,169,400 $1,806,400
========== ===========
</TABLE>
No valuation allowance was recognized in that the deferred tax assets should
be realized in future years.
The consolidated provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Currently payable $330,000 $ 68,000 $ 32,600
Deferred 669,300 444,500 208,900
-------- -------- ---------
$999,300 $512,500 $241,500
======== ======== =========
</TABLE>
The income tax expense applicable to securities gains and losses for the years
1994, 1993 and 1992 was $ -0-, $5,760 and $3,150, respectively.
46
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 9 - FEDERAL INCOME TAXES (CONTINUED)
-----------------------------------------
The difference between the effective tax rate on consolidated income before
income taxes and the statutory rate is attributed to the following:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Federal income tax
provision at statutory rate $1,687,900 $ 997,000 $ 729,500
Tax exempt income (126,000) (178,500) (245,000)
Utilization of net operating loss
carryforward, net of alternative
minimum tax credit 499,000 547,000 62,800
Change in other deferred tax assets (150,400) (79,000) 176,500
Reversal of deferred tax liability (12,400) (17,000) (30,400)
Tax difference on alternative
minimum taxable income and
regular taxable income (898,800) (757,000) (451,900)
---------- --------- ---------
$ 999,300 $ 512,500 $ 241,500
========== ========= =========
</TABLE>
Deferred income taxes result from temporary differences between the carrying
value of assets and liabilities for financial reporting and tax reporting
purposes. The sources and related tax effects of these differences are as
follows:
<TABLE>
<CAPTION>
Tax effect of temporary differences: 1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Use of net operating loss $499,000 $ 547,000 $ 62,800
Other real estate owned charged down
for book and not tax 199,700 53,500 96,300
Allowance for loan loss in excess
of tax (17,000) (139,000) 80,200
Accretion on municipal bonds
over tax (12,400) (17,000) (30,400)
-------- --------- --------
$669,300 $ 444,500 $208,900
======== ========= ========
</TABLE>
At December 31, 1994, the Company has, for tax reporting purposes, investment
tax credit carryforwards of approximately $ 96,000 and net operating loss
carryforwards of approximately $ 1,136,000 that expire on or before 2004 and
alternative minimum tax credits of approximately $ 406,000.
47
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES
---------------------------------------
In the normal course of business, the Company's subsidiary bank is a party to
financial instruments with off balance sheet risk to meet the financing needs of
its customers. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amounts recognized in the consolidated
balance sheet.
The Company's subsidiary bank uses the same credit policies in making
commitments as it does for on-balance sheet instruments. Collateral is required
to support the off-balance sheet instruments when it is deemed necessary.
Collateral held varies, but may include: deposits held in financial
institutions, accounts receivable, inventory and property, plant and equipment.
Financial instruments whose contract amounts represent potential credit risk are
as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Commitments to extend credit $19,075,185 $24,016,089
Standby and commercial letters of credit $ 623,122 $ 627,800
Letters of guaranty $ 65,000 $ 3,000
</TABLE>
The Company and subsidiaries have non-cancelable operating leases covering
certain equipment and buildings. The following is a schedule of future
minimum lease payments as of December 31, 1994:
<TABLE>
<CAPTION>
Year Ending December 31, Buildings Equipment
------------------------ --------- ---------
<S> <C> <C>
1995 $ 383,078 $1,669
1996 361,397 --
1997 361,397 --
1998 361,397 --
1999 305,731 --
2000 and after 2,598,705 --
---------- ------
$4,371,705 $1,669
========== ======
</TABLE>
Rent expense incurred under operating leases amounted to $402,859, $305,460
and $212,590 for the years ended December 31, 1994, 1993 and 1992, respectively.
Various lawsuits are pending against the Company's subsidiary bank.
Management, after reviewing these suits with legal counsel, considers that the
aggregate liability, if any, would not have a material adverse effect on
the Company's financial position.
48
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 11 - FLEXIBLE STOCK OPTION PLAN
------------------------------------
In 1986, the Company adopted a Flexible Stock Option Plan, pursuant to which two
hundred thousand (200,000) shares of the authorized, but unissued, or reacquired
common stock were reserved for issuance. The plan provides for both incentive
and nonstatutory stock options.
Options may be granted to any key employee, including officers and directors
who are also employees, of the Company or of subsidiary corporations of the
Company. Options granted under the plan generally become exercisable in
installments of 25 percent per year beginning one year after the date of
grant.
The exercise price of the stock options granted under the plan will be
determined by the Board of Directors at the time of grant, and said exercise
price must be at least equal to the fair market value of the common stock on
the date of grant. The exercise price to any participant who owns
stock possessing more than 10 percent of the total combined voting power
of all classes of the stock of the Company, must be at least 110 percent
of the fair market value of the common stock on the date of grant.
The maximum number of shares of common stock for which options may be granted
to members of the Board of Directors under the plan is one hundred thousand
(100,000) shares. No individual member of the Board of Directors may be granted
options to purchase more than an aggregate of ten thousand (10,000) shares of
common stock.
As of December 31, 1994 no options have been granted under the plan.
NOTE 12 - PENSION PLAN
----------------------
The Company adopted a noncontributory defined benefit pension plan as of
September 1, 1994. The plan covers substantially all full time employees.
Contributions will be made to the plan when actuarial determinations are made as
to the plan's funding requirements. As of December 31, 1994, the Company has
accrued $ 65,000 for the initial pension plan contribution.
NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
-------------------------------------------------------
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, Disclosure about Fair
Value of Financial Instruments. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
49
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
-------------------------------------------------------------------
Cash and cash equivalents -- For cash and due from banks, time deposits in
financial institutions and federal funds sold, the carrying amount is a
reasonable estimate of fair value.
Investment securities -- Investment securities fair value equals quoted
market price, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans -- The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Deposits -- The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
Commitments to extend credit and standby letters of credit -- The fair value
of commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counter parties. For fixed-rate
commitments, fair value also considers the difference between current levels of
interest rates and committed rates. The fair value of letters of credit is
based on fees currently charged for similar letters of credit.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 43,906,004 $ 43,906,004 $ 54,115,668 $ 54,115,668
Investment securities $ 56,851,563 $ 55,765,567 $ 52,328,819 $ 54,106,371
Loans, net $142,396,390 $142,067,103 $125,465,279 $127,183,296
Liabilities:
Deposits $226,064,278 $226,207,860 $218,942,138 $219,744,938
Off-balance sheet instruments
(unrealized gains [losses]) $ -- $ 4,965 $ -- $ 5,829
</TABLE>
50
<PAGE>
GULF SOUTHWEST BANCORP, INC. AND SUBSIDIARIES
---------------------------------------------
AND
---
GULF SOUTHWEST BANCORP, INC. (PARENT COMPANY ONLY)
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 14 - OTHER OPERATING EXPENSE
---------------------------------
Other operating expense for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Stationery, supplies and
printing $ 277,648 $ 232,033 $ 241,577
Legal, accounting and
professional 464,815 374,657 378,710
Data processing 486,560 601,313 567,565
Advertising 225,532 178,036 65,958
Insurance 539,192 578,045 599,166
Postage and freight 244,703 263,411 229,933
Other 1,191,641 1,147,393 1,071,542
---------- ---------- ----------
$3,430,091 $3,374,888 $3,154,451
========== ========== ==========
</TABLE>
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------
ACCOUNTING AND FINANCIAL DISCLOSURE
Since Gulf Southwest's inception, (i) no accountant's report relating to the
financial statements of Gulf Southwest has contained an adverse opinion or
disclaimer of opinion or was qualified or modified as to uncertainty, audit
scope or accounting principles and (ii) it has not had any disagreement with its
accountants on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of such accountant, would have caused such
accountant to make reference to the subject matter of the disagreement in
connection with its report.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-------
The information relating to Gulf Southwest's directors, nominees for election as
a director and executive officers to be included under the heading "Nominees for
Election as Directors" in Gulf Southwest's definitive proxy statement (the
"Proxy Statement") to be used in connection with its 1995 annual meeting of
stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
-------
The information relating to compensation paid to officers and directors of Gulf
Southwest to be included in the Proxy Statement under the Heading "Executive
Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------
MANAGEMENT
The information relating to the security ownership of certain beneficial owners
and management of Gulf Southwest to be included in the Proxy Statement under the
heading "Ownership of Common Stock" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------
The information relating to certain relationships and transactions involving the
officers, directors and/or certain stockholders of Gulf Southwest to be included
in the Proxy Statement under the heading "Certain Relationships and Related
Transactions" is incorporated herein by reference.
52
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
-------
FORM 8-K
(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) Financial Statements
See index to financial statements at Item 8 of this report.
(2) Exhibits
(B) REPORTS ON FORM 8-K.
None
<TABLE>
<CAPTION>
(IF APPLICABLE)
INCORPORATED BY REFERENCE FROM
-----------------------------------------
<S> <C> <C> <C> <C>
(C) EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT
------------------------------ ---- ---- -------- -------
(2) Plan of acquisition, reorganization,
------------------------------------
arrrangement, liquidation or succession
---------------------------------------
2.1 Agreement and Plan of Reorganization S-4 11/25/94 33-86750 2.1
2.2 Agreement and Plan of Merger N/A N/A N/A N/A
(3) Articles of Incorporation and Bylaws
------------------------------------
3.1 Articles of Incorporation, together
with amendments thereto 10-K 12/31/90 0-11033 3.1
3.2 Bylaws of the Registrant 10 03/31/83 0-11033 3.2
(4) Instruments defining rights of security holders,
------------------------------------------------
including indentures
--------------------
4.1 Form of specimen certificate representing
the Common Stock, par value $1.00 per
share of the Registrant S-4 07/06/90 33-35767 4.1
(9) Voting trust agreement
----------------------
9.1 Voting Trust Agreement naming J. W.
Lander, Jr. as Voting Trustee 10-K 12/31/91 0-11033 9.1
(10) Material contracts
------------------
10.1 Profit sharing plan of Gulf Southwest
Bancorp, Inc. 10-K 12/31/83 0-11033 10.1
10.2 Gulf Southwest Bancorp, Inc. Flexible
Stock Option Plan
10-K 12/31/86 0-11033 10.2
10.3 Gulf Southwest Bancorp, Inc.
401 (k) Plan 10-K 12/31/89 0-11033 10.3
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
(IF APPLICABLE)
INCORPORATED BY REFERENCE FROM
--------------------------------------
<S> <C> <C> <C> <C>
(C) EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT
------------------------------ ---- ---- -------- -------
(CONTINUED)
-----------
10.4 Gulf Southwest Bancorp, Inc.
Defined Benefit Pension Plan N/A N/A N/A N/A
10.5 Texas Bankers Association Retirement
System Declaration of Trust and First
Amendment thereto N/A N/A N/A N/A
10.6 Texas Bankers Association Retirement
System Defined Benefit Pension Plan and
First Amendment thereto N/A N/A N/A N/A
(21) Subsidiaries of the Registrant
------------------------------
21.1 List of Subsidiaries N/A N/A N/A N/A
(27) Financial Data Schedule
------------------------------
27.1 Financial Data Schedule N/A N/A N/A N/A
</TABLE>
54
<PAGE>
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.
GULF SOUTHWEST BANCORP, INC.
BY: /s/ J. W. Lander, Jr.
---------------------
J. W. Lander, Jr.
Chief Executive Officer
Date: March 28, 1995
Pursuant to the requirement 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.
<TABLE>
<CAPTION>
Signature Title Date
-------------------------- ----------------------- --------------
<S> <C> <C>
Director, Chairman,
/s/ J. W. Lander, Jr. and Chief Executive
-------------------------- Officer March 28, 1995
J. W. Lander, Jr.
Director, President and
/s/ J. W. Lander, III Principal Financial and
-------------------------- Accounting Officer March 28, 1995
J. W. Lander, III
/s/ Norman H. Bird Director, Secretary,
-------------------------- and Vice President March 28, 1995
Norman H. Bird
/s/ Donald Harding Director March 28, 1995
--------------------------
Donald Harding
</TABLE>
55
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMMISSION FILE NUMBER 0-11033
GULF SOUTHWEST BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
(IF APPLICABLE)
INCORPORATED BY REFERENCE FROM
----------------------------------------
Exhibit number and description Form Date File No. Exhibit
----------------------------------- ---- ---- -------- -------
<S> <C> <C> <C> <C>
(2) Plan of acquisition, reorganization,
-----------------------------------
arrangement, liquidation or succession
--------------------------------------
2.1 Agreement and Plan of Reorganization S-4 11/25/94 33-86750 2.1
2.2 Agreement and Plan of Merger N/A N/A N/A N/A
(3) Articles of Incorporation and Bylaws
------------------------------------
3.1 Articles of Incorporation, together
with amendments thereto 10-K 12/31/90 0-11033 3.1
3.2 Bylaws of the Registrant 10 03/31/83 0-11033 3.2
(4) Instruments defining rights of security
---------------------------------------
holders, including indentures
-----------------------------
4.1 Form of specimen certificate representing
the Common Stock, par value $1.00 per
share of the Registrant S-4 07/06/90 33-35767 4.1
(9) Voting trust agreement
--------------------------
9.1 Voting Trust Agreement naming J. W.
Lander, Jr. as Voting Trustee 10-K 12/31/91 0-11033 9.1
(10) Material contracts
-----------------------
10.1 Profit sharing plan of Gulf Southwest
Bancorp, Inc. 10-K 12/31/83 0-11033 10.1
10.2 Gulf Southwest Bancorp, Inc. Flexible
Stock Option Plan 10-K 12/31/86 0-11033 10.2
10.3 Gulf Southwest Bancorp, Inc.
401 (k) Plan 10-K 12/31/89 0-11033 10.3
10.4 Gulf Southwest Bancorp, Inc.
Defined Benefit Pension Plan N/A N/A N/A N/A
10.5 Texas Bankers Association Retirement
System Declaration of Trust and
First Amendment thereto N/A N/A N/A N/A
10.6 Texas Bankers Association Retirement
System Defined Benefit Pension Plan and
First Amendment thereto N/A N/A N/A N/A
</TABLE>
<PAGE>
INDEX TO EXHIBITS
(Continued)
<TABLE>
<CAPTION>
(IF APPLICABLE)
INCORPORATED BY REFERENCE FROM
----------------------------------------
Exhibit number and description Form Date File No. Exhibit
----------------------------------- ---- ---- -------- -------
<S> <C> <C> <C> <C>
(21) Subsidiaries of the Registrant
------------------------------
21.1 List of Subsidiaries N/A N/A N/A N/A
(27) Financial Data Schedule
---------------------
27.1 Financial Data Schedule N/A N/A N/A N/A
</TABLE>
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger ("Agreement") dated as of November 9,
1994, between GULF SOUTHWEST NEVADA BANCORP, INC., a Nevada corporation
("GSNB"), and TEXAS GULF COAST BANCORP, INC., a Texas corporation ("Texas Gulf
Coast"), such corporations being hereinafter sometimes called "Constituent
Corporations," evidences as follows:
ARTICLE I
Section 1.1 In accordance with the provisions of the Texas Business
Corporation Act and the Nevada General Corporation Law, Texas Gulf Coast will at
the Effective Time (as hereinafter defined) be merged into GSNB, which will be
the surviving corporation ("Surviving Corporation"). GSNB will continue to
exist under and to be governed by the laws of Nevada. Such transaction is
hereinafter referred to as the "Merger." Except as herein specifically set
forth, the identity, existence, purposes, powers, objectives, franchises,
privileges, rights and immunities of GSNB will continue unaffected and
unimpaired by the Merger, and the corporate franchises, existence and rights of
Texas Gulf Coast will be merged with and into GSNB and GSNB, as the Surviving
Corporation, will be fully vested therewith. The separate existence and
corporate organization of Texas Gulf Coast, except insofar as they may be
continued by statute, will cease when the Merger becomes effective.
Section 1.2 At the Effective Time, the name of the Surviving Corporation
will be Gulf Southwest Nevada Bancorp, Inc.
Section 1.3 The Articles of Incorporation of GSNB as in effect immediately
prior to the Effective Time will, until further amended as provided by law, be
the Articles of Incorporation of the Surviving Corporation.
Section 1.4 The bylaws of GSNB in effect immediately prior to the
Effective Time will be the bylaws of the Surviving Corporation until altered,
amended or rescinded.
<PAGE>
Section 1.5 At the Effective Time the following persons will be the
directors of the Surviving Corporation and will hold office from the Effective
Time until their respective successors are elected and qualify:
J.W. Lander, Jr. Donald R. Harding
J.W. Lander, III A. Harrel Blackshear
Norman H. Bird
Section 1.6 At the Effective Time the following persons will be the
officers of the Surviving Corporation and will hold the indicated offices from
the Effective Time until their respective successors are elected and qualify:
Name Office
---- ------
J. W. Lander, Jr. Chairman
J. W. Lander, III President and Treasurer
Norman H. Bird Vice President and Secretary
Alice Gay Assistant Secretary and
Assistant Treasurer
ARTICLE II
Section 2.1 The shares of common stock of GSNB, $1.00 par value per share
("GSNB Common Stock"), outstanding at the Effective Time will continue to be
outstanding shares of common stock of the Surviving Corporation.
Section 2.2 Except as set forth in Section 24, at the Effective Time,
without any action on the part of the shareholders of Texas Gulf Coast, each
outstanding share of Texas Gulf Coast's $1.00 par value per share common stock
("Texas Gulf Coast Common Stock") will be canceled and exchanged for 2.1176
shares of the common stock, $1.00 par value per share (the "Gulf Southwest
Common Stock") of Gulf Southwest Bancorp, Inc ("Gulf Southwest"), a Texas
corporation and the owner of all of the outstanding shares of GSNB Common Stock.
Section 2.3 At and after the Effective Time, each holder of a certificate
representing shares of Texas Gulf Coast Common Stock, upon presentation and
surrender of such certificate to Gulf Southwest, will be entitled to receive in
exchange therefor a certificate or certificates representing the number of fully
paid and nonassessable whole shares of Gulf Southwest Common Stock to which he
is entitled as provided in Section 2.2 and any cash to which such holder may be
entitled on account
-2-
<PAGE>
of any fractional share interest (without interest thereon) as provided in
Section 2.4. Upon consummation of the Merger, each such certificate which
represented issued and outstanding shares of Texas Gulf Coast Common Stock at
the Effective Time will be deemed for all purposes other than the payment of
dividends or other distributions to evidence ownership of the number of whole
shares of Gulf Southwest Common Stock into which such shares of Texas Gulf Coast
Common Stock will have been converted pursuant to the Merger. Pending surrender
of such certificates in exchange for a certificate or certificates representing
Gulf Southwest Common Stock, the holder thereof will not be entitled to receive
any dividend or other distribution payable to holders of shares of Gulf
Southwest Common Stock, provided that upon surrender of such certificates
representing Texas Gulf Coast Common Stock, there will be paid to the record
holder thereof the amount of dividends or other distributions (without interest)
which theretofore became payable and were not paid to such holder with respect
to the number of whole shares of Gulf Southwest Common Stock issued upon such
surrender.
Section 2.4 No fractional shares of Gulf Southwest Common Stock will be
issued. Instead, each holder of shares of Texas Gulf Coast Common Stock
otherwise entitled to receive a fractional interest arising upon the conversion
or exchange of such shares will, at the time of surrender of his certificate or
certificates theretofore representing his Texas Gulf Coast Common Stock be paid
by Gulf Southwest an amount in cash equal to the value of such fractional
interest based upon each share of Gulf Southwest Common Stock having a value of
$25.50.
Section 2.5 To the extent holders of the outstanding shares of Texas Gulf
Coast Common Stock exercise appraisal rights with respect to their shares
pursuant to Article 5.12 of the Texas Business Corporation Act, such shares will
continue to be held subject to the rights of such holders under the foregoing
Article 5.12 and will not be deemed to be outstanding or converted into cash.
The obligation of GSNB and Gulf Southwest to effect the Merger is subject to the
condition that the holders of not more than 10% of the outstanding shares of
Texas Gulf Coast Common Stock will perfect any statutory right of dissent and
appraisal. Shares of Texas Gulf Coast Common Stock held in Texas Gulf Coast's
treasury, if any, will be canceled, and certificates representing any such
treasury shares will be canceled.
Section 2.6 All shares of Texas Gulf Coast's Common Stock presented and
surrendered will be canceled.
-3-
<PAGE>
ARTICLE III
Section 3.1 This Agreement will be submitted to the shareholders of the
Constituent Corporations for their approval and adoption. The Constituent
Corporations will proceed expeditiously and cooperate fully in the procurement
of any consents and approvals, the taking of any other action and the
satisfaction of all other requirements prescribed by law of otherwise necessary
for the consummation of the Merger.
Section 3.2 The appropriate officers of the Constituent Corporations will
execute and verify, and cause to be filed with the Secretary of State of the
State of Texas and the Secretary of State of the State of Nevada, Articles of
Merger in accordance with Article 5.04 of the Texas Business Corporation Act and
Section 78.458 of the Nevada General Corporation Law.
Section 3.3 The Merger will become effective in accordance with Article
5.05 of the Texas Business Corporation Act at the time Articles of Merger have
been executed, verified and filed by the Constituent Corporations and a
Certificate of Merger has been issued in accordance with Article 5.04 of the
Texas Business Corporation Act, and will become effective in accordance with
Section 78.458 of the Nevada General Corporation Law at the time Articles of
Merger have been executed and filed by the Surviving Corporation in accordance
with such Section 78.458. Such Articles of Merger will not be filed until all
necessary orders, consents and approvals have been entered by each regulatory
authority having jurisdiction, which will include, but not be limited to, an
order by the Board of Governors of the Federal Reserve System granting
authorization to consummate the transactions contemplated hereby under
applicable provisions of the Bank Holding Company Act of 1956, as amended, and
all applicable statutory waiting periods will have expired.
The time when the Merger becomes effective, as defined in this Article III,
is hereinafter referred to as the "Effective Time."
ARTICLE IV
Section 4.1 When the Merger becomes effective, the separate existence of
Texas Gulf Coast will cease and GSNB as the Surviving Corporation, will possess
all the rights, privileges, powers and franchises, of a public as well as of a
private nature, and be subject to all the restrictions, disabilities, duties,
and obligations of each of the Constituent Corporations. The rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever accounts, as well as for stock
subscriptions as all
-4-
<PAGE>
other things in action, or belonging to either of such corporations will be
vested in the Surviving Corporation. All property, rights, privileges, powers
and franchises, and all and every other interest will be thereafter as
effectively the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise, under the laws of any jurisdiction, in either of the Constituent
Corporations, will not revert or be in any way impaired. All rights of
creditors and all liens upon any property of either of the Constituent
Corporations will be preserved unimpaired, and all debts, liabilities, duties
and obligations of the Constituent Corporations will attach to the Surviving
Corporation and may be enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it. No liability or
obligation due or to become due at the Effective Time, or any claim or demand
for any cause then existing against either of the Constituent Corporations or
any shareholder, officer of director thereof, will be released or impaired by
the Merger.
Section 4.2 At any time, or from time to time, after the Effective Time,
the last acting officers and directors of Texas Gulf Coast will, as and when
requested by the Surviving Corporation or its successors or assigns, execute and
deliver all such deeds, assignments and other instruments and take or cause to
be taken all such further or other reasonable action as the Surviving
Corporation deems reasonably necessary or desirable in order to vest, perfect or
confirm in the Surviving Corporation title to and possession of all of Texas
Gulf Coast's properties, rights, privileges, powers, franchises, immunities and
interests and otherwise to carry out the purpose of this Agreement.
ARTICLE V
Section 5.1 This Agreement will be closed at the time and date as may be
mutually agreed upon by the Constituent Corporations.
Section 5.2 This Agreement may be terminated upon termination of the
Reorganization Agreement.
Section 5.3 This Agreement may be executed in multiple counterparts, each
of which will be deemed on original and all of which together will constitute
one agreement.
-5-
<PAGE>
In order to evidence the foregoing, GSNB and Texas Gulf Coast have caused
this Agreement to be signed by their duly authorized officers as of the date
first above written.
GULF SOUTHWEST NEVADA BANCORP, INC.
By:
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------
TEXAS GULF COAST BANCORP, INC.
By:
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------
-6-
<PAGE>
EXHIBIT 10.4
STANDARD FORM ADOPTION AGREEMENT
DEFINED BENEFIT PENSION PLAN
UNDER TEXAS BANKERS ASSOCIATION RETIREMENT SYSTEM
EXHIBIT A
GULF SOUTHWEST BANCORP, INC.
DEFINED BENEFIT PENSION PLAN
You are hereby advised to consult with your
-------------------------------------------
attorney before executing this document.
----------------------------------------
<PAGE>
STANDARD FORM ADOPTION AGREEMENT
DEFINED BENEFIT PENSION PLAN
UNDER TEXAS BANKERS ASSOCIATION RETIREMENT SYSTEM, EXHIBIT A
EMPLOYER INFORMATION
--------------------
Name of Employer Gulf Southwest Bancorp, Inc.
----------------
Address of Employer 4200 Westheimer, Suite 210
------------------- Houston, Texas 77027
Telephone Number (713) 622-0046
----------------
Employer Fiscal Year End December 31
------------------------
Employer Tax Identification Number 76-0045946
----------------------------------
PLAN INFORMATION
----------------
Name of Plan
------------ Gulf Southwest Bancorp, Inc. Defined
Benefit Pension Plan as adopted
under the Texas Bankers Association
Retirement System, Exhibit A
Plan Type:
----------
A Defined Benefit Plan with a ___ This Plan is subject to the
X unit benefit formula permitted disparity rules
--- (relating to plans integrated
___ fixed percentage benefit formula w/Social benefit Security
___ flat dollar amount benefits) by means of ____ an
excess formula ____ an offset
formula.
Original Effective Date of Plan September 1, 1994
--------------------------------
Plan Year September 1 to August 31
---------
Plan Number 002
-----------
********************************************************************************
NOTE: YOU ARE HEREBY ADVISED TO CONSULT WITH YOUR ATTORNEY
BEFORE EXECUTING THIS DOCUMENT.
********************************************************************************
Exh. A AA
Page 1 of 15 pages
<PAGE>
GULF SOUTHWEST BANCORP, INC.
DEFINED BENEFIT PENSION PLAN
WHEREAS, the Texas Bankers Association Retirement System, originally
established by Declaration of Trust effective as of November 1, 1948, and as
amended and restated from time to time, provides a method whereby an employer
may establish an employee benefit plan for the exclusive benefit of its eligible
employees; and
WHEREAS, the Employer desires to become a signatory to the Texas Bankers
Association Retirement System and comply in all respects with the requirements
of the Employee Retirement Income Security Act of 1974; and
WHEREAS, effective as of January 1, 1989, the Texas Bankers Association
amended and restated the Defined Benefit Pension Plan attached to the Texas
Bankers Association Retirement System Declaration of Trust as Exhibit A which is
intended to qualify under Section 401(a) of the Internal Revenue Code of 1986 as
amended from time to time; and
WHEREAS, the Employer now desires to adopt said amended and restated plan:
NOW, THEREFORE, the Employer hereby adopts the amended and restated Defined
Benefit Pension Plan under the Texas Bankers Association Retirement System for
its eligible employees and hereby agrees to be bound by all the terms,
provisions, conditions, and limitations as if copied verbatim herein of: (i) the
Declaration of Trust effective as of November 1, 1948, and as amended and
restated effective July 1, 1989 establishing the Texas Bankers Association
Retirement System, and (ii) the Defined Benefit Pension Plan attached to the
Declaration of Trust as Exhibit A as amended on January 1, 1989, and as may be
amended from time to time thereafter.
********************************************************************************
This Adoption Agreement, accompanying Plan document, Declaration of Trust,
and any amendments thereto are important legal instruments with legal and tax
implications for which neither the System Coordinator nor the Trustee hereunder
assumes responsibility. It is understood and agreed that the undersigned
Employer has read this Adoption Agreement, accompanying Plan document, and
Declaration of Trust in their entirety, has consulted legal and tax counsel with
respect to the adoption of the Plan and Trust and acknowledges that the Plan and
Trust are suitable for its purposes and accepts full responsibility for
participation hereunder.
It is further understood and agreed that any instrument executed by the
undersigned Employer or any Participant or his/her Beneficiary shall be received
by the Trustee as conclusive evidence of any matters asserted therein or
contained in the Plan and Trust, and that the Trustee shall be fully protected
in taking, permitting, or omitting any action on the basis thereof and shall
incur no liability or responsibility for reliance thereon. The undersigned
Employer further agrees and consents to the exercise by the Texas Bankers
Association Retirement System Committee and Trustee of the limited right to
amend the Plan and Trust as set forth in those instruments.
********************************************************************************
Exh. A AA
Page 2 of 15 pages
<PAGE>
The Employer through execution of this Adoption Agreement makes the
following elections and qualifications under the Plan:
(1) CONSIDERED COMPENSATION:
-----------------------
(a) BASIC MONTHLY COMPENSATION determined as of the [12 month period
----- ending on] _____________ [immediately preceding/coinciding with
the beginning of] the Plan Year including :
___ Elective Contributions to 401(k) Plan;
___ Salary Deferrals to Section 125 Cafeteria Plan.
IF THIS PLAN IS INTEGRATED WITH SOCIAL SECURITY BENEFITS, BASIC
COMPENSATION MAY ONLY BE USED TO THE EXTENT IT CAN BE
DEMONSTRATED THAT IT DOES NOT DISCRIMINATE UNDER CODE SECTION
401(A)(4) OR APPLICABLE FINAL IRS REGULATIONS. THIS
DETERMINATION WILL BE REQUIRED ON AN ANNUAL BASIS .
(b) X TOTAL MONTHLY COMPENSATION earned during the twelve month period
----- ending on the August 31st immediately preceding the Plan Year
-----------
including:
X Elective Contributions to 401(k) Plan;
-----
X Salary Deferrals to Section 125 Cafeteria Plan.
-----
and excluding:
___ Bonuses; ___ Overtime; ___ Commissions.
(c) Considered Compensation shall be averaged using:
X Highest paid five consecutive years.
-----
_____ Highest paid three consecutive years.
_____ Career Average Method.
_____ Highest paid ____ (at least three (3)) consecutive years out of
the last ____ (no more than ten (10)) years.
(2) REQUIREMENTS FOR ELIGIBILITY:
-----------------------------
NOTE: If this is an amendment and restatement of an existing Plan, any
Employee who is a Participant in this Plan on the later of the day before
the Effective Date of this amendment and restatement or the date of adoption
of this amendment and restatement shall continue to be a Participant in the
Plan, regardless of the requirements for eligibility listed below, unless he
or she ceases to be a Participant under the terms of the Plan. All Employees
who are NOT Participants pursuant to the above sentence shall be subject to
the following eligibility requirements:
(a) MINIMUM AGE shall be: 21 (not to exceed age 21).
------
Exh. A AA
Page 3 of 15 pages
<PAGE>
(b) MINIMUM LENGTH OF SERVICE as of Entry Date (see paragraph (d) below):
___ month period of service (not to exceed six (6) months),
regardless of the number of Hours of Service credited during any
particular month, beginning on the first day an Employee
completes an Hour of Service.
1 Year(s) of Service (not to exceed two (2) years). NOTE: If
----- minimum service is longer than one (1) year, Employees must be
100% Vested immediately upon entry into the Plan.
(c) CLASSIFICATION OF EMPLOYEES eligible to participate shall be all
Eligible Employees except:
_____ Union Employees whose retirement benefits have been the subject
of good faith bargaining;
_____ Leased Employees;
X Other: Security Guards. (Must be a nondiscriminatory
----- ---------------
classification pursuant to Code Section 410 and applicable
regulations.)
(d) ENTRY DATE: An Employee upon satisfying the eligibility requirements
above shall commence participation as of the:
_____ First day of the Plan Year
X Semi-annual Entry Dates on September 1st and March 1st. (If
----- ------------- ---------
minimum length of service is longer than six months, Entry Date
-----------
must include the first day of the Plan Year.)
_____ Other: __________________________________________________. (If
minimum length of service is longer than six months, Entry Date
-----------
must include the first day of the Plan Year.)
coincident with or next following satisfaction of the requirements for
eligibility.
(Note: Employees must begin participation no later than the first day
of the Plan Year following satisfaction of the minimum age and service
requirements of Code Section 410(a)(1) or the date six (6) months after
the date on which the requirements are satisfied, whichever is
earlier.)
(3) NORMAL RETIREMENT AGE:
---------------------
(a) NORMAL RETIREMENT AGE ("NRA") shall be:
(i) X Age 65 (not later than age 65).
----- ------
In the event the benefit formula under paragraph (4) below
is an integrated formula, election of this option shall
cause the limitations on "Maximum Excess Allowance" or
"Maximum Offset Allowance" to be reduced in accordance
with final Treasury Regulations.
Exh. A AA
Page 4 of 15 pages
<PAGE>
_____ Social Security Retirement Age:
If Year of Birth is ...NRA is:
------------------- ----------
Before 1938 65
1938 - 1954 66
After 1954 67
and as may change from time to time.
(ii) X The later of the age specified in (i) above or the
----- Anniversary Date of the Plan coincident with or next
following the Participant's 5th anniversary (no more than
---
5th) of commencement of participation in the Plan.
(b) Participants X May ___ May Not elect to receive benefits while
-----
still employed by the Employer beyond Normal Retirement Date.
(4) MONTHLY RETIREMENT BENEFIT:
---------------------------
(a) Formula to determine monthly retirement benefit:
(i) Formula Not Subject to Permitted Disparity
X UNIT BENEFIT: 1.25% of average Considered Compensation
----- ----
times Years of Service. Limited to a maximum of 5 years
past service as of the effective date of the Plan.
_____ FIXED PERCENTAGE BENEFIT: [___]% of average Considered
Compensation.
_____ The Accrued Retirement Benefit shall be reduced ___ for
each Year of Service less than ___ at Normal Retirement
Date.
_____ FLAT DOLLAR BENEFIT: [$____] per month for each Year of
Service.
(ii) Formula Subject to Permitted Disparity:
EXCESS FORMULA
_____ UNIT BENEFIT: ____% (the "base percentage") of average
Considered Compensation times Years of Service up to ____
years,
plus
____% (the "excess percentage" -- not to exceed the
"maximum excess allowance") of average Considered
Compensation in excess of the Integration Level times
Years of Service up to ____ years.
Maximum Excess Allowance, for purposes of the unit benefit
formula, means the lesser of the base percentage or .75%.
The ".75%" limit shall be reduced in accordance with
Article IV of Exhibit A for Years of Service credited in
excess of 35 years and for retirement prior to Social
Security Retirement Age.
Exh. A AA
Page 5 of 15 pages
<PAGE>
_____ FIXED PERCENTAGE BENEFIT: ____% (the "base percentage") of
average Considered Compensation at Normal Retirement Date,
plus
____% (the "excess percentage" -- not to exceed the "maximum
excess allowance") of average Considered Compensation in excess
of the Integration Level at Normal Retirement Date.
_____ The base percentage shall be reduced ____ for each Year
of Service less than ____ at Normal Retirement Date.
_____ The excess percentage shall be reduced [1/35] for each
Year of Service less than [35] at Social Security
Retirement Age. (Years of Service must equal or exceed
the excess percentage divided by .75%.)
_____ The Accrued Retirement Benefit shall be reduced ___ for
each Year of Service less than ___ at Normal Retirement
Date.
Maximum Excess Allowance, for purposes of the fixed
percentage benefit formula, means the lesser of (i) the
base percentage, or (ii) 26.25% reduced 1/35 for each
Year of Service less than 35 at Social Security
Retirement Age. The "26.25%" limit shall be reduced in
accordance with Article IV of Exhibit A for retirement
prior to Social Security Retirement Age.
OFFSET FORMULA
_____ UNIT BENEFIT: [____]% of average Considered Compensation (the
"basic percentage") times Years of Service offset by [____]%
(the "offset percentage" -- not to exceed the "maximum offset
allowance") of "final average compensation" up to the
Integration Level times Years of Service. The maximum number
of Years of Service taken into account under the preceding
sentence shall be ______ (not to exceed 35).
Maximum Offset Allowance, for purposes of the unit benefit
formula, means the lesser of (i) 1/2 of the employer-derived
benefit (disregarding the offset) provided by the
Participant's "final average compensation" for the Plan Year,
or (ii) .75%. The ".75%" limit shall be reduced in accordance
with Article IV of Exhibit A for retirement prior to Social
Security Retirement Age.
_____ FIXED PERCENTAGE BENEFIT: [____]% of average Considered
Compensation (the "basic percentage") offset by [____]% (the
"offset percentage -- not to exceed the "maximum offset
allowance") of "final average compensation" up to the
Integration Level.
Maximum Offset Allowance, for purposes of the fixed
percentage benefit formula, means the lesser of (i) 1/2 of
the Employer derived benefit (disregarding the offset)
provided by the "Final Average Compensation" for the Plan
Year, or (ii) the product of .75% times the Participant's
total Years of Service (not in excess of 35 years). The
".75%" limit shall be reduced in accordance with Article IV
of Exhibit A for retirement prior to Social Security
Retirement Age.
Exh. A AA
Page 6 of 15 pages
<PAGE>
Final Average Compensation, for purposes of the offset
formula, means a Participant's most recent three (3) year
average of Considered Compensation excluding Considered
Compensation in excess of the Taxable Wage Base for any year.
If Normal Retirement Age is defined as an age less than
Social Security Retirement Age (as described in paragraph
(3)), then the "maximum excess allowance" or "maximum offset
allowance," as applicable, shall be reduced to the extent
required by final Treasury Regulations.
Covered Compensation, for purposes of the excess formula,
means:
_____ Social Security Covered Compensation Table II in
effect at the beginning of the preceding Plan
Year but in no event earlier than the 1989
table.
_____ Social Security Covered Compensation Table
_______________________________________________
_______________________________________________
(not to exceed the limits of IRS Notice 89-70 or
superseding IRS publications).
INTEGRATION LEVEL
The Integration Level for each Plan Year for each Participant
shall be an amount equal to:
_____ The Participant's Covered Compensation.
_____ The greater of $10,000 or one-half (1/2) of the
Covered Compensation of any Participant who attains
Social Security Retirement Age during the Plan Year.
_____ $________ (a uniform dollar amount not to exceed the
greater of $10,000 or one-half (1/2) of Covered
Compensation of any Participant who attains Social
Security Retirement Age during the Plan Year.)
(iii) Formula Adjustments:
_____ N/A.
_____ MINIMUM BENEFIT: The Plan shall provide a minimum benefit
of $____ per month at Normal Retirement Date, regardless
of the formula in (i) or (ii) above.
_____ MAXIMUM BENEFIT: The Plan shall provide a maximum benefit
of $____ per month at Normal Retirement Date, regardless
of the formula in (i) or (ii) above.
_____ MAXIMUM PERCENTAGE: The Plan shall provide a maximum
benefit of ____% of average Considered Compensation at
Normal Retirement Date
Exh. A AA
Page 7 of 15 pages
<PAGE>
regardless of the formula in (i) or (ii) above.
_____ OTHER PLANS: The [Accrued/Projected] Retirement Benefit
determined by formula in (i) or (ii) above shall be
[reduced by/increased by/no less than] the Accrued
Retirement Benefit provided under [the
_________________________ Plan/this Plan] on
________________ (date).
(iv) IF THIS IS AN AMENDED FORMULA: Unless IRS has granted approval
for retroactive amendment reducing Accrued Retirement Benefits,
in no event shall the amendment of the Accrued Retirement Benefit
Formula cause any Participant's Accrued Retirement Benefit to be
less than the benefit accrued on the day before adoption of this
amendment.
(b) Basic form of payment used to fund retirement benefits shall be a
monthly annuity payable for 120 months certain and life thereafter.
--------------------------------------
(c) "Year of Service" for accrual of monthly retirement benefit under (a)
above shall be calculated from:
(i) X Date of employment.
-----
_____ Date of participation.
(ii) _____ The later of (i) above or _____________ (date).
(iii) _____ In addition to (i) and/or (ii) above, for a Participant who
entered the Plan on the first day of the 1988 Plan Year
solely by reason of the elimination of the maximum age
limitation, date of participation.
-------------
(5) ACTUARIAL EQUIVALENT BENEFIT ASSUMPTIONS:
-----------------------------------------
Unless otherwise required by the provisions of the definition of Present
Value of Vested Accrued Retirement Benefits as specified in the Plan, the
following actuarial assumptions shall be used to compute equivalent
benefits:
(a) Benefits payable in form of monthly annuity:
Mortality: UP-1984
Interest: 8%
-
(b) Lump Sum Distributions (to the extent permitted by paragraph (11)):
Mortality: UP-1984
Interest: X 8%
----
____ determining the present value of a
lump sum distribution on plan PBGC
rates in effect on the first day of
the Plan Year for termination.
(c) In the event the definition of Present Value of Vested Accrued
Retirement Benefits as specified in the Plan requires actuarial
equivalent benefits to be computed using actuarial assumptions
published by the Pension Benefit Guaranty Corporation, the interest
rate used
Exh. A AA
Page 8 of 15 pages
<PAGE>
to calculate the actuarial equivalent of a benefit shall be:
(i) X 100% of the applicable interest rate.
-----
(ii) _____ 100% of the applicable interest rate but only if the
Present Value of the Vested Accrued Retirement Benefit
using such rate does not exceed $25,000; and
120% of the applicable interest rate but only if the
Present Value of the Vested Accrued Retirement Benefit
using such rate exceeds $25,000.
(6) REQUIRED EMPLOYEE CONTRIBUTIONS:
--------------------------------
X No Employee Contributions required.
-----
_____ Required Employee Contributions of [___]% of Considered Compensation
(not to exceed 6%).
(7) EARLY RETIREMENT BENEFIT:
-------------------------
(a) _____ No early retirement benefit provided under this Plan.
(b) X An early retirement benefit is available to any Participant
----- severing prior to Normal Retirement Date who is 55 Years
------
of age and has completed 15 years of vesting service.
------
(c) X Early retirement benefits shall be the Participant's:
-----
(i) _____ Vested Accrued Retirement Benefit reduced 1/15th
for each of the first five (5) years and 1/30 for
each of the next five (5) years by which payment
precedes Normal Retirement Date.
(ii) X Vested Accrued Retirement Benefit reduced .4167%
----- for each month (5% for each full year) by which
payment precedes Normal Retirement Date.
(iii) _____ Other: _____________________________________.
(Must fall within the 1/15th - 1/30th range in (i)
above.)
(d) _____ Full Accrued Early Retirement Benefits:
If the Participant retires [on or] after attaining age [___]
and has completed [___] or more Years of Service since date of
employment, there shall be no reduction of the Vested Accrued
Retirement Benefit unless such reduction is required by
applicable laws and regulations.
(8) DETERMINATION OF BENEFITS UPON SEVERANCE:
-----------------------------------------
(a) Vesting Computation Period shall be:
Exh. A AA
Page 9 of 15 pages
<PAGE>
X The twelve consecutive month period beginning from the date the
----- Employee first performs an Hour of Service for the Employer and
each anniversary of such date.
_____ The Plan Year.
(b) Service excluded for vesting purposes:
_____ Service prior to the original Effective Date of this Plan (or,
if this is a "successor" plan, the original Effective Date of
the prior plan);
_____ Service prior to the attainment of age 18;
_____ Service during years in which an Employee declines to make
Required Employee Contributions.
_____ Service prior to ______________. (No later than effective date
of Plan.)
(c) A Participant's vested percentage in his Accrued Retirement Benefit
derived from Employer Contributions shall be based on the following
schedule:
X Cliff vesting as follows:
-----
(i) Non Top-Heavy Plan Years:
Years of Service Vested Percentage
---------------- -----------------
Less than 5 years 0%
5 or more years 100%
(ii) Top-Heavy Plan Years; and all years subsequent to any Top-
Heavy Year, regardless of top-heavy status:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 years 0%
3 or more years 100%
_____ Graded vesting as follows:
(i) Non Top-Heavy Plan Years:
Years of Service Vested Percentage
---------------- -----------------
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
Exh. A AA
Page 10 of 15 pages
<PAGE>
(ii) Top-Heavy Plan Years; and all years subsequent to any Top-
Heavy Year, regardless of top-heavy status:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
_____ Other (Specify): ____________________________________________.
(Must be at least as favorable as either the cliff vesting or
graded vesting in non Top-Heavy Plan Years described above.)
If the above schedule is an amendment of the prior schedule, in no
event shall a Participant's vested percentage in his Employer-derived
Accrued Retirement Benefit be less than his vested percentage on the
day immediately preceding the effective date of this amendment and
restatement.
(9) TOTAL AND PERMANENT DISABILITY:
-------------------------------
Benefit Formula:
X As specified in Exhibit A (100% vesting in Accrued Retirement
----- Benefit).
_____ Other: _____________________________________________________. (Must
not discriminate in favor of Highly Compensated Participants.)
(10) DEATH BENEFITS:
---------------
(a) Formula to determine death benefits for a Participant who dies while
in the active employment of the Employer prior to commencement of his
Normal Retirement Benefit payments:
(i) X The greater of the Participant's Present Value of Vested
----- Accrued Retirement Benefit or $1000 per each $15 of
projected monthly benefit at Normal ---
Retirement Date.
(ii) _____ Other: _________________________________________ (within
limits of Article IV of Exhibit A).
(b) Death Benefits determined by the formula in subparagraph (a) shall be
provided through:
_____ Insurance contracts purchased with plan assets.
X Death Benefit Reserve Account. To the extent Death Benefits
----- exceed the amount insurable through the Death Benefit Reserve
Account, they will be self-insured to the extent that assets
are available to cover such liability.
Exh. A AA
Page 11 of 15 pages
<PAGE>
(11) LIMITATIONS ON LUMP SUM DISTRIBUTIONS:
--------------------------------------
(a) _____ No lump sum distributions permitted.
(IF THE ABOVE ITEM IS CHECKED, DO NOT COMPLETE REMAINING LUMP
SUM DISTRIBUTION ALTERNATIVES.)
(b) Lump sum distributions permitted under the following conditions:
(i) [X] Death, [X] Disability, [N/A] Normal Retirement Date, [N/A]
Early Retirement Date (if applicable) payable within time period
described in Article V of the plan document (includes lump sum
distributions to Former Participants upon occurrence of such
event);
(ii) X QDRO within time period described in QDRO;
-----
(iii) X Plan Termination within time period described in the Plan
----- document.
(iv) X Severance subject to the following limitations:
-----
(1) Conditions:
X Available to all Participants for total
----- distribution up to $3,500.
-----
_____ Available to all Participants regardless of amount.
(2) Timing:
X As soon as administratively feasible following date
----- of severance.
_____ As soon as administratively feasible following the
close of the Plan Year in which the Participant
separates from service.
_____ As soon as administratively feasible following the
close of the Plan Year in which the anniversary of
the Participant's date of severance occurs.
(v) Subject to objective criteria as follows:
_____ Participant must execute covenant not to compete.
(Employer must attach to Adoption Agreement addendum
of objective conditions with respect to terms of
such covenant and employees and circumstances
requiring execution of such covenant.)
_____ Participant must prove extreme financial need.
(Employer must attach to Adoption Agreement addendum
defining objective criteria for determining such
financial need.)
_____ Other (Specify): _________________________________.
(Must be within the guidelines specified under
Treasury Regulation Section 1.411(d)-4 Q&A 6.)
Exh. A AA
Page 12 of 15 pages
<PAGE>
(12) OTHER SERVICE:
--------------
(a) In addition to service credited to a Participant pursuant to Exhibit
A, service with the following Employers shall be credited as service
under the Plan:
---------------------------------------------------------------------
(b) And shall be credited for the following purposes:
_____ Vesting;
_____ Eligibility;
_____ Accrual.
(13) TOP-HEAVY MINIMUM:
------------------
In the event this Plan is Top-Heavy in any year and the Employer maintains
more than one plan in such year which is aggregated with this Plan for
purposes of Code Section 416, the Top-Heavy minimum shall be provided
under:
(a) X This Plan.
-----
(b) _____ Other Plan (Specify): _______________________________________.
(14) LOANS TO PARTICIPANTS:
----------------------
Participant loans ____ Shall X Shall Not be permitted. If loans are
-----
permitted, they shall be granted in accordance with the provisions of
Article X of the Plan document and nondiscriminatory procedures
established by the Employer and executed by the Plan Committee.
(CAUTION: LOANS TO PARTICIPANTS FROM A DEFINED BENEFIT PLAN EXPOSES THE
TRUST TO GREATER RISK OF DISQUALIFICATION DUE TO PREMATURE DISTRIBUTION
AND INADEQUATE COLLATERAL.)
(15) ADOPTION OF PLAN BY AFFILIATES:
-------------------------------
If affiliates of the Employer adopt the Plan, Contributions made on behalf
of the Employees of the various Employers and Forfeitures arising from the
termination of Employees of the various Employers shall be used:
(a) X To the benefit of all Participants and Beneficiaries of the
----- Plan without regard to the particular Employer.
(b) _____ To the benefit of only those Participants and Beneficiaries of
the particular Employer who made the contribution, or by
reason of whose Employees' the Forfeitures arose.
NOTE: IF (15)(B) IS SELECTED ABOVE, EACH SEPARATE POOL OF ASSETS WILL BE
DEEMED A SEPARATE PLAN FOR PURPOSES OF CODE SECTION 401(A)(26) MINIMUM
PARTICIPATION RULES.
Exh. A AA
Page 13 of 15 pages
<PAGE>
(16) TRUSTEE:
-------
The Trustee shall be:
(a) X First Interstate Bank of Texas, N.A. Trust Agreement shall be
----- the Texas Bankers Association Retirement System Declaration of
Trust.
(b) _____ The Employer (specify name and address of Trustee):
Name: ____________________________________________________
Address: ____________________________________________________
____________________________________________________
Trust Agreement shall be an Individual Trust Agreement.
Name of Trust: ________________________________________
The governing law for the construction of the Plan and related
Trust shall be Texas.
IN WITNESS WHEREOF, this Adoption Agreement has been executed in six (6)
original counterparts all of which constitute but one and the same original
document by the undersigned Employer acting herein by and through its duly
authorized officers, on this the____ Day of _________________ 19__, to be and
become effective as of the 1st Day of September, 1994.
--- --------- --
GULF SOUTHWEST BANCORP, INC.
----------------------------------
President
ATTEST:
--------------------------------
Secretary
Exh. A AA
Page 14 of 15 pages
<PAGE>
CORPORATE SEAL
Accepted by the Trustee on this the ____ Day of _________________, 19__.
FIRST INTERSTATE BANK OF TEXAS, N.A.
BY:
------------------------------
Trust Officer
ATTEST:
--------------------------------
Secretary
CORPORATE SEAL
Exh. A AA
Page 15 of 15 pages
<PAGE>
EXHIBIT 10.5
TEXAS BANKERS ASSOCIATION RETIREMENT SYSTEM
DECLARATION OF TRUST
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I - STATEMENT OF PURPOSE............................................ 1
1.1 Declaration of Trust........................................... 1
1.2 Statement of Purpose........................................... 3
ARTICLE II - DEFINITIONS.................................................... 3
2.1 "Act".......................................................... 3
2.2 "Adoption Agreement"........................................... 3
2.3 "Affiliate".................................................... 3
2.4 "Association".................................................. 3
2.5 "Code"......................................................... 3
2.6 "Declaration of Trust"......................................... 4
2.7 "Exhibit"...................................................... 4
2.8 "Investment Manager"........................................... 4
2.9 "Performance Evaluation Consultant"............................ 4
2.10 "Plan"......................................................... 4
2.11 "Plan Committee"............................................... 4
2.12 "Signatory".................................................... 4
2.13 "System"....................................................... 4
2.14 "System Committee"............................................. 4
2.15 "System Coordinator"........................................... 4
2.16 "Trust Fund"................................................... 4
2.17 "Trustee"...................................................... 5
ARTICLE III - RETIREMENT SYSTEM COMMITTEE................................... 5
3.1 Function....................................................... 5
3.2 Membership..................................................... 5
3.3 Term of Office................................................. 5
3.4 Vacancies...................................................... 6
3.5 Resignation/Removal from System Committee...................... 6
3.6 Meeting Dates.................................................. 6
3.7 Organization................................................... 7
3.8 Powers and Duties.............................................. 7
3.9 Action of the System Committee................................. 8
3.10 Liability of Members of System Committee....................... 8
3.11 Compensation of Members; Bond; Expenses........................ 9
ARTICLE IV - TRUSTEE........................................................ 9
4.1 Function....................................................... 9
4.2 Qualifications................................................. 9
4.3 Duties and Powers.............................................. 9
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TABLE OF CONTENTS
-----------------
Continued
Page
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4.4 Records........................................................ 12
4.5 Compensation................................................... 13
4.6 Responsibility................................................. 13
4.7 Change of Name, Merger or Consolidation........................ 13
4.8 Resignation or Discharge of the Trustee........................ 13
4.9 Successor Trustee.............................................. 14
4.10 Reliance Upon Acts of Trustee.................................. 14
ARTICLE V - SYSTEM COORDINATOR.............................................. 14
5.1 Qualification and Duties....................................... 14
5.2 Compensation................................................... 14
5.3 Resignation or Discharge of System Coordinator................. 15
5.4 Successor System Coordinator................................... 15
ARTICLE VI - PERFORMANCE EVALUATION CONSULTANT.............................. 15
6.1 Qualification and Duties....................................... 15
6.2 Compensation................................................... 15
6.3 Resignation or Discharge of Performance Evaluation Consultant.. 16
6.4 Successor Performance Evaluation Consultant.................... 16
ARTICLE VII - INVESTMENT MANAGER............................................ 16
7.1 Qualification and Duties....................................... 16
7.2 Compensation................................................... 17
7.3 Resignation or Discharge of Investment Manager................. 18
7.4 Successor Investment Manager................................... 18
ARTICLE VIII - ADMINISTRATIVE EXPENSES...................................... 18
8.1 Payment by Signatories......................................... 18
ARTICLE IX - PROHIBITION AGAINST DIVERSION OF FUNDS......................... 18
9.1 Exclusive Benefit.............................................. 18
ARTICLE X - AMENDMENTS...................................................... 18
10.1 Amendment of Declaration of Plan Documents..................... 18
ARTICLE XI - MISCELLANEOUS.................................................. 19
11.1 Liability...................................................... 19
11.2 Governing Law.................................................. 19
11.3 Severability of Provisions..................................... 19
11.4 Headings....................................................... 20
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<PAGE>
TABLE OF CONTENTS
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Continued
Page
----
11.5 Multiple Copies................................................ 20
11.6 Retention of Affiliate of Trustee.............................. 20
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<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF TRAVIS (S)
TEXAS BANKERS ASSOCIATION RETIREMENT SYSTEM
PREAMBLE
WHEREAS, the Texas Bankers Association, a nonprofit corporation organized
and existing under the laws of the State of Texas (the "Association") and
Mercantile National Bank at Dallas (the "Trustee"), a national banking
association with trust powers duly organized and existing under the laws of the
United States, by Declaration of Trust effective June 1, 1974, amended and
restated the Texas Bankers Association Retirement System (the "System")
originally effective November 1, 1948;
WHEREAS, the Declaration of Trust was thereafter amended and restated
effective June 1, 1986, by and between the Association and MBank Dallas, N.A. as
Trustee;
WHEREAS, the Declaration of Trust was thereafter amended and restated
effective July 1, 1989, by and between the Association and First Interstate Bank
of Texas, N.A.;
WHEREAS, Section 10.1 of said Declaration of Trust reserved to the System
Committee as constituted pursuant to Article III thereof, with the consent of
the majority of the Signatories to the System, the right to amend the
Declaration of Trust at any time to any lawful extent deemed advisable; and
WHEREAS, the System Committee deems it advisable to amend the Declaration
of Trust to make certain revisions for the benefit of Signatories thereto and
the System Committee has received the consent of a majority of the Signatories
to such amendment;
NOW, THEREFORE, BE IT RESOLVED that effective as of April 1, 1991, the
Declaration of Trust establishing the Texas Bankers Association Retirement
System is hereby amended and restated as follows:
ARTICLE I
STATEMENT OF PURPOSE
1.1 Declaration of Trust. Subject to the terms, conditions, and
--------------------
limitations contained herein, the Association does hereby amend and restate the
Texas Bankers Association Retirement System, originally effective November 1,
1948, for the exclusive
<PAGE>
benefit of employees of (i) the Association, (ii) each banking institution
domiciled in the State of Texas which is currently a member or becomes a member
of the Association and is a Signatory hereto; and (iii) each Affiliate of a
member bank described in (ii) above.
The System established by the terms of this Declaration of Trust as it
relates individually to each Signatory by virtue of such Signatory's executed
Adoption Agreement consists of the following documents incorporated herein by
reference as fully as if copied verbatim herein:
(a) Declaration of Trust (each Plan's adoption constitutes a separate
trust);
(b) One or more of the Plans or collective investment fund documents
attached as Exhibits hereto which include:
(1) Exhibit A: Texas Bankers Association Retirement System
Defined Benefit Pension Plan;
(2) Exhibit B: Texas Bankers Association Retirement System Profit
Sharing Plan;
(3) Exhibit C: Texas Bankers Association Retirement System Thrift
Plan;
(4) Exhibit D: Texas Bankers Association Retirement System
Employee Stock Ownership Plan;
(5) Exhibit E: Texas Bankers Association Retirement System
Employee Savings Plan;
(6) Exhibit F: Texas Bankers Association Retirement System Target
Benefit Pension Plan;
(7) Exhibit G: Texas Bankers Association Retirement System
Collective Investment Equity Fund;
(8) Exhibit H: Texas Bankers Association Retirement System
Collective Investment Fixed Income Fund;
(9) Exhibit I: Texas Bankers Association Retirement System
Collective Investment Government Fund; and
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<PAGE>
(10) Such other Texas Bankers Association Retirement System
Exhibits as may from time to time be approved by the System Committee
for use under the Texas Bankers Association Retirement System; and
(c) Individual Signatory's Adoption Agreement, and any amendments
thereto, which incorporates by reference the terms of this Declaration of
Trust and the applicable Exhibit described above.
1.2 Statement of Purpose. The purpose of the System is to (i) provide a
--------------------
convenient and economical method through which a Signatory may from time to time
establish one or more employee benefit plans qualified under Code Section 401(a)
with such Plan's own companion trust which is made a part thereof exempt under
Code Section 501(a); and (ii) provide a method through which cost of
administration of such Plans may be maintained at a reasonable level.
ARTICLE II
DEFINITIONS
As used in this instrument, the following words and phrases have the
meanings set forth below, unless the context clearly indicates otherwise, and
whenever appropriate the singular shall include the plural and plural shall
include the singular and the use of any gender shall include the other genders.
2.1 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
2.2 "Adoption Agreement" means the Agreement executed by an entity
eligible to participate hereunder as described in Section 1.1 for the purpose of
establishing a qualified employee benefit plan under Section 401(a) of the Code
through the Texas Bankers Association Retirement System and which incorporates
by reference this Declaration of Trust and any amendments to this Declaration of
Trust which may be made from time to time.
2.3 "Affiliate" means an entity affiliated with a banking institution
which is a member of the Texas Bankers Association and a Signatory to Texas
Bankers Association Retirement System.
2.4 "Association" means the Texas Bankers Association a nonprofit
corporation duly organized and existing under the laws of the State of Texas and
domiciled in Austin, Travis County, Texas.
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
-3-
<PAGE>
2.6 "Declaration of Trust" means this instrument amending and restating
the Texas Bankers Association Retirement System, and as this instrument may be
amended from time to time, and which incorporates herein by reference a
Signatory's or Affiliate's Adoption Agreement and any amendments thereto.
2.7 "Exhibit" means an employee benefit plan document described in Section
1.1 hereof.
2.8 "Investment Manager" means one or more individuals or firms appointed
by the System Committee to direct investment of a portion or all of the Trust
Fund pursuant to Article VII hereof.
2.9 "Performance Evaluation Consultant" means one or more individuals or
firms appointed by the System Committee to direct investment of a portion of all
of the Trust Fund pursuant to Article VII hereof.
2.10 "Plan" means any Plan adopted by a Signatory or Affiliate which is an
Exhibit to this Declaration of Trust.
2.11 "Plan Committee" means the committee of persons designated by a
Signatory pursuant to the terms of the Plan adopted by such Signatory or
Affiliate which is given the discretionary authority and control for
administration of such Plan.
2.12 "Signatory" means a banking institution which is a member of the Texas
Bankers Association and has adopted a Plan hereunder and shall also mean an
Affiliate of such Signatory which has adopted a Plan hereunder.
2.13 "System" means the Texas Bankers Association Retirement System
established pursuant to the terms of this Declaration of Trust as may be amended
from time to time.
2.14 "System Committee" means the Retirement System Committee appointed
pursuant to Article III hereof to supervise the administration of the Texas
Bankers Association Retirement System.
2.15 "System Coordinator" means a firm of employee benefit consultants and
actuaries appointed by the System Committee pursuant to Article V hereof.
2.16 "Trust Fund" means when referring to a particular Signatory's Plan,
all property of every kind contributed by a Signatory pursuant to the terms of
the Plan adopted by such Signatory or Affiliate and held in trust by the Trustee
pursuant to the terms hereof and, means when referring to the entire System, the
collective Trust Fund of all Signatories.
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<PAGE>
2.17 "Trustee" means First Interstate Bank of Texas, N.A. or any duly
appointed, qualified, and acting successor trustee appointed by the System
Committee pursuant to Article IV hereof.
ARTICLE III
RETIREMENT SYSTEM COMMITTEE
The System established by the terms of this Declaration of Trust as it
relates individually to each Signatory by virtue of such Signatory's executed
Adoption Agreement consists of the following documents incorporated herein by
reference as fully as if copied verbatim herein:
3.1 Function. The System Committee shall be charged with the
--------
responsibility for general supervision of the administration of the System.
3.2 Membership. The System Committee shall be comprised as follows:
----------
(a) One (1) regular voting member appointed by the Chairman of the
Association from each geographical district of the Association who shall be
an officer, director, or employee of a Signatory hereto;
(b) One (1) voting member who shall be the immediate past Chairman of
the System Committee and, in the event such past Chairman's term on the
System Committee shall have expired, shall be designated as a special
voting member of the System Committee for a term of one (1) year;
(c) The Chairman of the Association who shall be an ex-officio
nonvoting member;
(d) The President of the Association who shall be an ex-officio
nonvoting member;
(e) The General Counsel of the Association who shall be an ex-officio
nonvoting member; and
(f) One (1) member of the Trust Financial Services Division of the
Association to be appointed by the Chairman of such division who shall be
an ex-officio nonvoting member.
3.3 Term of Office. Each of the regular voting members described in
--------------
Section 3.2(a) above shall be appointed for a four (4) year term and shall be
eligible to serve no more than two (2) consecutive terms. The appointment by
the Chairman of the
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<PAGE>
Association of such regular voting members shall be made in such a manner as to
have staggered terms with the terms of two (2) members expiring each year.
The members to fill vacancies on the System Committee caused by expiring
terms shall be appointed by the Chairman of the Association on or before March
31st each year. System Committee members so appointed shall take office on the
day of the System Committee meeting held in conjunction with the annual
convention of the Association, or on June 1st of any year in which no annual
convention is to be held.
The term of office of each regular voting member shall continue until the
later of the expiration of such term of office or until a successor has been
duly appointed and has assumed the duties of his office.
3.4 Vacancies. Any vacancies resulting from death, resignation, removal,
---------
disability, or ineligibility of a regular voting member of the System Committee
shall be filled within a reasonable period of tune by the Chairman of the
Association with a member from the same geographical district of the Association
from which such vacancy occurred, and any such successor shall become a member
of the System Committee as of the date of appointment to fill the unexpired
term. Any vacancy remaining unfilled by the Chairman of the Association at the
end of thirty (30) days following the date vacancy occurred may be filled by
majority vote of the remaining voting members of the System Committee. Written
notice of appointment of any member shall be given to all other members of the
System Committee and to the Secretary thereof as well as to the member so
appointed.
3.5 Resignation/Removal from System Committee. Any member may resign from
-----------------------------------------
the System Committee with or without cause by mailing written notice thereof to
the Chairman of the Association and to the Secretary and every other member of
the System Committee which shall be effective as of the date of receipt thereof.
A member may be removed from the System Committee by the Chairman of the
Association with or without cause upon written notice from the Chairman
effective as of the date of receipt thereof.
3.6 Meeting Dates. The annual meeting of the System Committee shall be
-------------
held at the annual convention of the Association, or in the event no annual
convention is held in a particular year, on a specified date in the month of May
determined by the Chairman of the System Committee. The System Committee shall
normally meet on a quarterly basis. The time, dates, and location of such
quarterly meetings shall be established by the Chairman of the System Committee
at the annual meeting. Special meetings may be called by the Chairman or by a
majority of the members of the System Committee at such time, date, and location
as may be designated by notice in writing, or communicated by telephone, at
least three (3) days prior to such meeting to all members of the System
Committee and to the Secretary of the Association. A meeting of the System
Committee shall also be permitted other than in person by means of a telephone
conference or similar communication and participation therein shall constitute
presence at such meeting.
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<PAGE>
3.7 Organization. At the quarterly meeting of the System Committee
------------
immediately preceding the annual meeting, the System Committee shall elect a
Chairman from among its members who shall preside at all meetings of the System
Committee for the ensuing year beginning with the annual meeting. The President
of the Texas Bankers Association shall be Secretary of the System Committee.
The Secretary may appoint an Assistant Secretary of the Association to perform
the duties of such office in the absence of the Secretary. The Secretary shall
keep the minutes of the System Committee's proceedings and all data, records,
and documents pertaining to the System Committee's general supervision of the
administration of the Plan.
3.8 Powers and Duties. To the extent not inconsistent with or in
-----------------
contravention of the powers and duties granted to a Signatory's Plan Committee
as described in the Signatory's Plan and this Trust, the System Committee shall
have responsibility for general supervision of the administration of the System
according to the terms and provisions hereof and shall have all right, power,
and authority necessary to fulfill such responsibility including, but not
limited to, the following:
(1) To make rules and regulations for the administration of the System
which are not inconsistent with the terms and provisions hereof, provided
such rules and regulations are evidenced in writing and copies thereof
delivered to the Trustee and to all Signatories;
(2) To construe all forms, provisions, conditions, limitations and
uncertain terms of the System, and its interpretation or construction
thereof made in good faith shall be final and conclusive on all Signatories
and any other interested parties;
(3) To correct any defect, supply any omission, or reconcile any
inconsistency that may appear in the System, in such manner and to such
extent as deemed expedient to administer the System for the greatest
benefit of all interested parties, and its decision made in good faith
shall be final and conclusive on all Signatories and any other interested
parties;
(4) To select, employ, and compensate from time to time such
consultants, actuaries, accountants, attorneys, Investment Managers,
Performance Evaluation Consultants, System Coordinator and such other
agents, representative, and employees as the System Committee may deem
necessary, advisable, or proper in exercising its responsibilities for
administration of the System;
(5) To pay any and all other costs and expenses incurred by the System
Committee (including but not limited to.the costs and expenses incurred by
the System Committee itself as well as the costs and expenses incurred
under Section 3.8(4) above) in the administration of the System and to make
a pro-rata allocation of such costs and expenses among the Signatories in a
manner as may be
-7-
<PAGE>
determined by the System Committee. In the event such costs and expenses
are not paid by the Signatories, the Trustee shall pay same from the assets
of the appropriate Plan(s). The System Committee may require at any time
an independent actuarial and/or financial audit of the Trust Fund. A copy
of such audit shall be furnished to the Trustee and to each Signatory;
(6) To determine all questions relating to the uniform administration
of this System (but not with respect to eligibility, benefit and like
determinations under any Signatories' Plan and Trust) for the benefit of
participants and beneficiaries thereunder and resolve differences of
opinion which may arise from time to time between a Signatory, the Trustee,
the System Coordinator, Investment Manager, or Performance Evaluation
Consultant; and
(7) Every construction, interpretation, choice, determination or other
exercise by the System Committee of its discretion, whether such discretion
is either expressly or by implication authorized by the Trust, shall be
conclusive and binding on all parties directly or indirectly affected
without restriction, however, on the right of the System Committee, in its
sole and absolute discretion, to reconsider and redetermine such actions.
In exercising any power herein conferred, the System Committee shall in no
event infringe upon those benefits protected under Code Section 411(d)(6)
and applicable regulations thereto, nor shall the System Committee exercise
such power in a manner which discriminates in favor of employees who are
officers, shareholders, or highly compensated employees (as that phrase is
defined in Code Section 414(q)) of any Signatory.
3.9 Action of the System Committee. Any act which the System Committee is
------------------------------
authorized or required to perform hereunder may be done by a majority of the
members of the System Committee at any time, and the action of such majority of
the members of the System Committee expressed by a vote pursuant to a meeting,
or in writing without a meeting, shall constitute the action of the System
Committee and shall have the same effect for all purposes as if assented to by
all the members of the System Committee in office at the time such action is
taken. Either the Chairman or the Secretary may execute any certificate or
other written evidence of the action of the System Committee. Except as
otherwise provided herein, the decision or judgment of the System Committee on
any question arising hereunder shall be final and conclusive on all Signatories
to the System and any other interested parties.
3.10 Liability of Members of System Committee. No member of the System
----------------------------------------
Committee shall be liable for any act or omission of any other member of the
System Committee, the Trustee, System Coordinator, Signatory, Plan Committee,
Investment Manger, Performance Evaluation Consultant, or any person or persons,
partnerships, or corporations performing, or engaged to perform any service for
the System except to the extent liability cannot be waived by reason of
applicable laws. No member of the System
-8-
<PAGE>
Committee shall be liable for any act or omission on his own part except to the
extent liability cannot be waived by reason of applicable laws.
3.11 Compensation of Members; Bond; Expenses. The members of the System
---------------------------------------
Committee shall serve without bond unless bonding is required by law or
regulation and shall serve without compensation for their services rendered
hereunder. However, members shall be reimbursed for expenses incurred in
performing duties prescribed herein.
ARTICLE IV
TRUSTEE
4.1 Function. The System shall be operated through the facilities of the
--------
Trustee under the supervision of the System Committee. The Trustee upon
signature hereto agrees to receive all property contributed by Signatories
hereto and acceptable to the Trustee and to hold, preserve, manage, use, and
otherwise disburse the Trust Fund in accordance with the provisions hereof and
any written investment policy guidelines provided to the Trustee.
4.2 Qualifications. The Trustee under the System shall be a corporation
--------------
with trust powers duly organized and existing under the laws of the State of
Texas or the laws of the United States and domiciled in the State of Texas which
shall agree in writing to accept all the terms, provisions, conditions, and
limitations hereof.
4.3 Duties and Powers. The Trustee is hereby authorized and empowered to
-----------------
perform for and on behalf of each Signatory the following functions with respect
to the Trust Fund of such Signatory:
(a) When directed by the Plan Committee of a Signatory, to invest and
reinvest the Trust Fund of such Signatory in one or more pooled investment
accounts maintained by the Trustee for the benefit of Plans qualified under
Code Section 401(a). To the extent of investment by the Trustee in a
pooled investment account, the terms of the instrument establishing such
pooled investment account are incorporated herein by reference. This
provision constitutes the express permission required by Section 408(b)(8)
of the Act. If, however, after a reasonable period of time the Plan
Committee fails to instruct the Trustee with regard to the investment of
its Plan Assets, the Trustee will use its cash equivalent accounts for the
investment of such assets;
(b) When directed by the Plan Committee, to purchase, surrender,
borrow on, change beneficiaries, convert, exercise nonforfeiture options,
or exercise any option accorded the absolute owner of insurance contracts,
and to execute such instruments as may be deemed necessary or appropriate
to effect
-9-
<PAGE>
such actions. The Trustee is empowered to hold title to, and to pay all
premiums on, insurance contracts acquired at the direction of the Plan
Committee;
(c) When directed by the Plan Committee, to make investments of types
other than as specified above permitted by applicable law or regulation;
(d) When directed by the Plan Committee, to make distributions of
benefits pursuant to the terms of a Signatory's Plan;
(e) When directed by the System Committee, to receive or disburse
funds for or on behalf of Signatories in order to facilitate payment of
administrative expenses;
(f) The Trustee in exercising its duties and powers shall carry out
its duties with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent trustee acting in a like
capacity and familiar with the duties of a trustee of a tax-exempt employee
benefit plan trust would use in the conduct of the administration and
investment of the assets of the Trust under the Act and is specifically
authorized and empowered:
(1) To acquire property returning no income or slight income and
to retain in cash or other property unproductive of income so much of
the Trust Fund as deemed advisable, without liability therefor;
(2) To deposit in its commercial banking department that portion
of the Trust Fund awaiting investment or distribution, without
liability for the payment of any interest thereon;
(3) To borrow funds to the extent permitted by applicable law or
regulation and mortgage or pledge any portion or all of the Trust Fund
represented by or acquired with the proceeds of such loan to the
extent permitted by applicable law or regulation;
(4) To provide such ancillary services as defined by applicable
laws or regulations to the extent the Trustee fully satisfies the
requirements imposed therein;
(5) In accordance with applicable laws or regulations, to invest
any portion or all of the assets of the Plan of any Signatory in such
time deposits or certificates of deposit of such Signatory, the
Trustee, or any other bank or similar financial institution which is a
fiduciary of the Plan, if (i) such bank or financial institution is
supervised by the United States or a state; (ii) such deposits bear
reasonable rates of return in interest; and (iii) the guidelines for
prohibited transaction statutory or administrative
-10-
<PAGE>
exemptions, as applicable, are satisfied; notwithstanding the
foregoing and any authority of the Plan Committee under the Plan, a
decision of the Plan Committee to direct the Trustee to invest in
certificates of deposit and other time deposits of the Signatory must
be ratified and approved by the Board of Directors of such Signatory
acting here in such capacity as a plan fiduciary;
(6) To cause any investment in the Trust Fund to be registered
in, or transferred into, its name as Trustee or the name of its
nominee or nominees or retain them unregistered or in form permitting
transferability by delivery, but the books and records of the Trustee
shall at all times show that all such investments are part of the
Trust Fund; and
(7) To exercise all other powers presently or hereafter granted
to trustees by the Texas Trust Code not in conflict with the
provisions hereof, it being intended to incorporate herein by
reference all provisions of the Texas Trust Code as now or hereafter
amended.
(g) Notwithstanding any other provisions of this Declaration of Trust,
all or any part of the assets held hereunder may be invested in:
(1) any collective investment trust (pooled fund or common trust
fund) which then provides for the pooling of assets of employee
pension benefits plans which are qualified under Section 401(a) of the
Code and exempt from taxation under Section 501(a) of the Code
provided that such trust (or fund) is exempt from tax under the Code
or regulations or rulings thereunder and is then maintained by the
Trustee or an affiliate of the Trustee; in which case the provisions
of the document governing the trust (or fund), as amended from time to
time, shall govern the investments therein and such provisions are
incorporated herein and made a part of this Declaration of Trust; and
(2) shares of any open-end or closed-end investment company
registered under the Investment Company Act of 1940 (15 U.S.C. (S)80a-
1, et. seq.), as amended. The Trustee shall not be precluded from
making such investment on the grounds that an investment company is
organized, sponsored or controlled by the Trustee or an affiliate of
the Trustee, or on the grounds that the Trustee or an affiliate of the
Trustee provides services to such investment company as investment
advisor, custodian, transfer agent, registrar, distributor or
otherwise; provided that any requirements of the U.S. Department of
Labor ("DOL") and/or the Internal Revenue Service ("IRS") are complied
with in making purchases and sales of any such shares and in
particular the provisions of Prohibited Transaction Class Exemption
77-4 (March 31, 1977, 47FRI8732) as modified or amended by
-11-
<PAGE>
subsequent exemptions. The Trustee is specifically authorized to
invest in shares of the investment portfolios offered by the Westcore
Trust, subject, as aforesaid, to compliance with applicable DOL and
IRS requirements.
4.4 Records. The Trustee shall maintain a complete and separate account
-------
for each Signatory's Plan and shall within thirty (30) days following a
Signatory Plan's Valuation Date furnish the Signatory and System Coordinator
with a report of such Signatory's account for the previous twelve (12) month
period. Such report shall contain complete data applicable to such account upon
which the System Coordinator can base its annual valuation.
Annual reports prepared for each Signatory by the Trustee described above
shall reflect the market value of the Signatory's Trust fund as of the Valuation
Date applicable to such Signatory. Each such report shall reflect:
(a) A statement of assets and liabilities showing cost and market
value of all assets;
(b) A statement for the period since the last report showing
purchases, with costs, sales, with profit or loss and any other investment
changes, income and disbursements;
(c) A statement of cash receipts and disbursements for the prior
twelve (12) month period;
(d) A statement of income on an accrual basis exclusive of realized
capital gains or losses during the preceding twelve (12) month period.
Each asset held by the Trustee shall be allocated and credited to the Trust
Fund of the Signatory which contributed or authorized such investment. All
assets of a Signatory which are represented by "units" or a "percentage of
participation" in a pooled investment account maintained by the Trustee shall be
valued at market value as determined in accordance with the provisions of the
trust agreement governing such pooled investment accounts. If a Signatory or a
Plan Committee should be dissatisfied with any item or items appearing on the
annual report prepared by the Trustee, then not later than three (3) months
after receipt of the Trustee's report the objecting party or parties shall
prepare and deliver to the Trustee written exceptions to the specific item or
items thereof stating the reason therefor. Any annual report, or any specific
item or items thereof to which no written exceptions have been delivered to the
Trustee within such three (3) month period shall be considered approved by all
parties concerned. The books and records of the Trustee so far as they relate
to the Trust Fund of any Signatory shall be made available to the Plan Committee
of such Signatory during regular business hours upon ten (10) days notice to the
Trustee.
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<PAGE>
Not less frequently than once during each period of three months, the
Trustee shall determine the value of the assets in any pooled investment account
which any part of a Signatory's Trust Fund is invested. The valuation of assets
in such pooled investment accounts will be determined at their market value, or
in the absence of readily ascertainable market values, at such values as the
Trustee shall determine in accordance with methods consistently followed and
uniformly applied.
4.5 Compensation. The Trustee shall be paid such reasonable compensation
------------
for its services hereunder as may be agreed upon from time to time by and
between the Trustee and the System Committee to include reimbursement of the
Trustee from the Signatory's Trust Fund for any reasonable expenses incurred by
the Trustee on behalf of such Signatory.
4.6 Responsibility. The Trustee shall not be responsible for any acts or
--------------
omissions of the System Committee, any Signatory, any Plan Committee, Investment
Manager or the System Coordinator. The Trustee shall be under no duty to
inquire into any rule, regulation, instruction, direction or order, purporting
to have been issued by any of the above. The Trustee shall also be fully
protected in acting in good faith upon any notice, resolution, instruction,
direction, order, certificate, opinion, letter, telegram or other document
believed by the Trustee to be the act of one of the parties described above.
4.7 Change of Name, Merger or Consolidation. No change of name of the
---------------------------------------
Trustee acting hereunder, nor a merger or consolidation with any other
corporation, shall affect its right, power and authority to act as Trustee of
this System so long as its successor satisfies the qualification requirements of
the Trustee described in Section 4.2.
4.8 Resignation or Discharge of the Trustee The Trustee may resign with
---------------------------------------
or without cause or be discharged with or without cause and be relieved of its
duties by the System Committee, but such resignation or discharge shall become
effective only at the expiration of ninety (90) days from and after the date
written notice thereof is forwarded by registered or certified mail by the
Trustee or the System Committee as the case may be, to the other party and to
each Signatory.
Upon such resignation or discharge the Trustee shall have the right to a
full, final and complete settlement of its account with each Signatory either
(i) by agreement of settlement between said resigning or discharged Trustee and
each Signatory; or (ii) if no such agreement can be reached then by judicial
settlement in an action instituted by the resigning or discharged Trustee in a
court of competent jurisdiction in the county where the resigning or discharged
Trustee's place of business is located. Upon the making of such settlement, the
resigning or discharged Trustee shall transfer to the successor trustee the
Trust Fund as then constituted and true copies of its records relating to each
Signatory and shall execute all documents necessary to transfer the Trust Fund
to the successor trustee. The resigning or discharged Trustee thereupon shall
be discharged from further liability for all matters included within such
settlement.
-13-
<PAGE>
4.9 Successor Trustee. If the Trustee acting hereunder should resign or
-----------------
be discharged, the System Committee shall forthwith appoint a successor Trustee
meeting the qualifications described in Section 4.2. Any successor trustee
appointed hereunder may qualify as such by executing, acknowledging, and
delivering to the System Committee and Trustee an instrument acceptable to the
System Committee and Trustee evidencing its acceptance of such appointment,
whereupon such successor trustee shall be and become vested with all the estate,
rights, powers, discretions, duties and obligations as Trustee pursuant to this
Declaration of Trust.
4.10 Reliance Upon Acts of Trustee. No person dealing with the Trustee
-----------------------------
under this System shall be required to verify the application by the Trustee of
any money paid or other property delivered to the Trustee, and any person
dealing with the Trustee under this system shall be entitled to rely upon the
representations and decisions of the Trustee as to its authority and are
released from duty of inquiry with respect thereto. Any action of the Trustee
hereunder shall be evidenced for all purposes of this Declaration of Trust by a
certificate of the Trustee duly signed by an authorized officer of the Trustee,
and such certificate when received by any person shall constitute conclusive
evidence of the facts recited therein and shall fully protect all persons
relying thereon. A third party dealing with the Trustee shall not be required
to make any inquiry as to whether the Trustee is authorized to take or omit any
action, and any person dealing with the Trustee in good faith shall be fully
protected in acting upon any notice, resolution, instruction, direction, order,
certificate, opinion, letter, telegram or other document believed by such person
to be genuine, to have been signed by a duly authorized officer or agent of the
Trustee, and to be the act of the Trustee.
ARTICLE V
SYSTEM COORDINATOR
5.1 Qualification and Duties. The System Coordinator shall be a firm of
------------------------
employee benefit consultants and actuaries appointed by the System Committee for
the purpose of working with Signatories and the Trustee in the design,
installation, and rendering of administrative duties for Plans which are from
time to time established by signatories. The System Coordinator shall perform
advisory, consulting, marketing, and such other duties and responsibilities for
the System and System Committee as deemed necessary from time to time by the
System Committee or any Signatory. The System Coordinator shall not have any
duty, responsibility, discretionary control or authority with respect to
receipt, management, investment, or distribution of the Trust Fund.
5.2 Compensation. The System Coordinator shall receive compensation for
------------
any and all services rendered to the System, System Committee, and individual
Signatories in such form and amount as may be agreed upon from time to time by
and between the System Coordinator and System Committee. With specific
reference to compensation for services rendered to a Signatory, such
compensation shall be in the amount as
-14-
<PAGE>
prescribed by a published fee schedule agreed upon by and between the System
Coordinator and System Committee from time to time which shall enumerate the
services to be rendered on behalf of an individual Signatory's plan.
5.3 Resignation or Discharge of System Coordinator. The System
----------------------------------------------
Coordinator may resign with or without cause or be discharged and relieved of
its duties, with or without cause by the System Committee, but such resignation
or discharge shall become effective only at the expiration of ninety (90) days
from the date written notice or such resignation or discharge is forwarded by
registered or certified mail by the System Coordinator or the System Committee,
as the case may be, to the other party and to the Trustee.
5.4 Successor System Coordinator. If the System Coordinator should resign
----------------------------
or be discharged, the System Committee shall forthwith appoint a successor
System Coordinator meeting the qualifications described above. Upon the making
of such appointment, the resigning or discharged System Coordinator shall
transfer to the successor System Coordinator true copies of all records relating
to the System and to all present Signatories and shall execute such documents or
instruments deemed necessary by the System Committee to transfer such records to
the successor System Coordinator.
ARTICLE VI
PERFORMANCE EVALUATION CONSULTANT
6.1 Qualification and Duties. The Performance Evaluation Consultant shall
------------------------
be a firm appointed by the System Committee employing one or more individuals
having experience in the analysis of relative investment performance of
discretionary plan trust funds of plans qualified under Section 401(a) of the
Code. The Performance Evaluation Consultant shall review with the System
Committee on a periodic basis investment policy, guidelines, and objectives and
a comparative analysis of the Trust Fund together with such other duties and
responsibilities as deemed necessary from time to time by the System Committee.
The Performance Evaluator shall not have any duty, responsibility, discretionary
control or authority with respect to investment of the Trust Fund.
6.2 Compensation. The Performance Evaluation Consultant shall receive
------------
compensation for any and all services rendering hereunder in such form and
amounts as may be agreed upon from time to time by and between the Performance
Evaluation Consultant and System Committee. Nothing contained herein shall
prevent an individual Signatory hereto from employing the Performance Evaluation
Consultant for purposes of rendering services with regard to the individual
Signatory's Plan with compensation for such services to be determined by and
between the Performance Evaluation Consultant and individual Signatory.
-15-
<PAGE>
6.3 Resignation or Discharge of Performance Evaluation Consultant. The
-------------------------------------------------------------
Performance Evaluation Consultant may resign with or without cause or be
discharged and relieved of its duties with or without cause by the System
Committee with such resignation or discharge as the case may be effective as of
the date written notice of such resignation or discharge is delivered to the
other party evidencing such resignation or discharge.
6.4 Successor Performance Evaluation Consultant. If the Performance
-------------------------------------------
Evaluation Consultant should resign or be discharged, the System Committee shall
forthwith appoint a successor Performance Evaluation Consultant meeting the
qualifications described above. Upon the making of such appointment, the
resigning or discharged Performance Evaluation Consultant shall transfer to the
successor Performance Evaluation Consultant true copies of all records relating
to the System maintained by the Performance Evaluation Consultant in the
performance of its duties and responsibilities as directed by the System
Committee.
ARTICLE VII
INVESTMENT MANAGER
7.1 Qualification and Duties. The System Committee May from time to time
------------------------
at its discretion appoint one or more Investment Managers to perform such duties
and responsibilities as described below under the supervision of the System
Committee as set forth in writing by the System Committee and delivered to the
Investment Manager and Trustee. The Investment Manager shall be either (i)
registered under the Investment Advisor's Act of 1940 and having within its
discretionary management of $250,000,000 or more of qualified employee benefit
plan assets; or (ii) a bank or trust company supervised by a State or Federal
agency, as defined in the Investment Advisor's Act of 1940.
With respect to accounts under its management and control, the Investment
Manager shall:
(a) Acknowledge in writing that the Investment Manager has received,
read, and understands the Declaration of Trust and related plan documents
and that the Investment Manager is a fiduciary with respect to the Plan and
Trust Fund in such account;
(b) Acknowledge in writing that the Investment Manager has assumed the
duties and responsibilities conferred by the System Committee;
(c) Select specific investments to be used for purposes of achieving
the investment objectives;
-16-
<PAGE>
(d) Prepare an economic analysis pertaining to decisions on the
purchasing or sale of investments in the account;
(e) Make all decisions relating to asset mix within the investment
account;
(f) Attend meetings upon the request of the System Committee for
purposes of furnishing information relative to the economy and information
concerning the investment account structure to take advantage of findings
concerning the economy;
(g) Perform such other functions as the System Committee may from time
to time deem necessary or advisable.
Any Investment Manager duly appointed and authorized by the System
Committee in accordance with this Section, shall, during the period of its
appointment, possess fully and absolutely those powers, rights, and duties of
the Trustee (to the extent delegated by the System Committee and to the extent
permissible under the terms of this Declaration of Trust) with respect to the
investment or reinvestment of that portion of the Trust Fund over which such
Investment Manager has investment management authority. During any period of
time when such Investment Manager is so appointed and serving, and with respect
to those assets of the Trust Fund over which such Investment Manager exercises
investment management authority, the Trustee shall have no responsibility for
the investment performance thereof and shall be responsible only for providing
such accounting services, and executing such investment instructions as directed
by such Investment Manager. The Trustee shall not be responsible for any acts
or omissions of such Investment Manager. Any certificates or other instrument
duly signed by such Investment Manager (or the authorized representative of such
Investment Manager), purporting to evidence any instruction, direction or order
of such Investment Manager with respect to the investment of those assets of the
plan over which the Investment Manager has investment management authority shall
be accepted by the Trustee as conclusive proof thereof. The Trustee shall also
be fully protected in acting in good faith upon any notice, instruction,
direction, order, certificate, opinion, letter, telegram or other document
believed by the Trustee to be genuine and to be the act of such Investment
Manager (or the authorized representative of such Investment Manager). The
Trustee shall not be liable for any action taken or omitted by such Investment
Manager or for any mistakes of judgment or other action made, taken or omitted
by the Trustee in good faith upon direction of such Investment Manager.
7.2 Compensation. The Investment Manager shall be compensated on a fee
------------
basis in such form and amount as may be agreed upon from time to time by and
between the Investment Manager and System Committee.
-17-
<PAGE>
7.3 Resignation or Discharge of Investment Manager. The Investment
----------------------------------------------
Manager may resign with or without cause or be discharged and relieved of its
duties with or without cause by the System Committee but such resignation or
discharge shall become effective as of the date written notice of such
resignation or discharge as the case may be is forwarded by registered or
certified mail by the Investment Manager or System Committee to the other party
and to the Trustee.
7.4 Successor Investment Manager. If the Investment Manager should resign
----------------------------
or be discharged, the System Committee shall forthwith appoint a successor
Investment Manager meeting the qualifications described above. Upon the making
of such appointment, the resigning or discharged Investment Manager shall
transfer to the successor Investment Manager true copies of all records of
accounts managed by the Investment Manager in the performance of its duties and
responsibilities as directed by the System Committee.
ARTICLE VIII
ADMINISTRATIVE EXPENSES
8.1 Payment by Signatories. Each individual Signatory shall pay any and
----------------------
all expenses incurred in the administration of its Plan under the System
including, but not limited to, fees of the Trustee and System Coordinator either
through payment directly from the Signatory or through the Signatory's Trust
Fund.
ARTICLE IX
PROHIBITION AGAINST DIVERSION OF FUNDS
9.1 Exclusive Benefit. Except to the extent provided in an individual
-----------------
Signatory's Plan and as permitted by applicable law or regulation, it shall be
impossible at any time prior to satisfaction of all liabilities with respect to
participants and their beneficiaries, for any portion of the Trust Fund of an
individual Signatory's Plan, whether corpus or income, or any funds contributed
thereto, to be used for, or diverted to, purposes other than the exclusive
benefit of participants and beneficiaries under such individual Signatory's
Plan.
ARTICLE X
AMENDMENTS
10.1 Amendment of Declaration of Plan Documents. The System Committee,
------------------------------------------
with the consent of a majority of the Signatories, expressly reserves the right
to amend this Declaration of Trust at any time and to any lawful extent deemed
advisable. Such amendment shall be evidenced by an instrument in writing duly
executed and acknowledged by the Chairman and Secretary of the System Committee
and each such
-18-
<PAGE>
amendment shall become effective upon ratification thereof by a majority of the
Signatories and upon delivery of such instrument to the Trustee. No amendment,
however, shall (i) affect the rights, duties or responsibilities of the Trustee
without the written approval of the Trustee; (ii) cause or permit any portion of
the Trust Fund to revert to any Signatory; or (iii) deprive any Participant of
any benefit vested in him under the provisions of a Signatory's Plan, unless
such an amendment shall be required in order to qualify this System for tax
purposes under provisions of the Code in effect from time to time and applicable
laws or regulations.
Notwithstanding provisions to the contrary herein, the System Committee
expressly reserves the right to amend this Declaration of Trust and Plan
documents as Exhibits thereto without approval by any Signatory in the following
respects:
(a) Adopting new Plans;
(b) Amending any existing Plan which has not been adopted by a
Signatory;
(c) Adopting, deleting, or amending instruments establishing pooled
investment funds under the System for the exclusive benefit of Signatories;
or
(d) Adopting revisions in Plans for purposes of satisfying
requirements of the Act, Code, and applicable laws or regulations.
ARTICLE XI
MISCELLANEOUS
11.1 Liability. The Texas Bankers Association shall not be responsible for
---------
any acts or omissions of the Trustee, System Committee, System Coordinator,
Performance Evaluation Consultant, Investment Manager, Plan Committee,
Signatory, or any employee, participant, or beneficiary of a Signatory.
11.2 Governing Law. This Declaration of Trust shall be construed and
-------------
enforced according to the Code, the Act, applicable regulations thereunder and
the laws of the State of Texas to the extent not preempted by the Act.
11.3 Severability of Provisions. If any provision of this Declaration of
--------------------------
Trust, which shall include instruments incorporated herein by reference, shall
be held illegal or invalid for any reason, such illegality or invalidity shall
not effect the remaining provisions hereof, instead, each provision shall be
fully severable and the Declaration of Trust shall be construed and enforced as
if such illegal or invalid provision had never been included herein.
-19-
<PAGE>
11.4 Headings. The headings and subheadings of this Declaration of Trust
--------
have been inserted for convenience of reference only and are to be ignored in
any construction of the provisions hereof.
11.5 Multiple Copies. This Declaration of Trust, which shall include
---------------
instruments incorporated herein by reference, may be executed in any number of
counterparts, each of which shall be deemed the original and all of which shall
constitute but one and the same document. Any xerox, photostatic or similarly
reproduced copy of this Plan shall also be deemed an original for all purposes.
11.6 Retention of Affiliate of Trustee. It is contemplated that an
---------------------------------
affiliate of the Trustee may be retained to provide investment advice with
regard to one or more Texas Bankers Association Retirement System collective
investment funds for a fee that is acceptable to the System Committee.
IN WITNESS WHEREOF, the Chairman and Secretary of the System Committee of
the Texas Bankers Association Retirement System and First Interstate Bank of
Texas, N.A., Trustee, have caused this amended and restated Declaration of Trust
to be approved as to form and executed by the Trustee on this the 13th day of
May, 1991, to become effective as of April 1, 1991, pursuant to the direction of
the System Committee with respect to all Plans in existence on such date and
upon the written consent and approval of a majority of the Signatories and
thereafter effective with respect to later adoption by any other Signatories
upon their execution of an appropriate Adoption Agreement.
APPROVED AS TO FORM AND DUTIES
HEREUNDER OF THE SYSTEM COMMITTEE
ACCEPTED BY:
TEXAS BANKERS ASSOCIATION
RETIREMENT SYSTEM
ATTEST:
By /s/
------------------------------------
/s/
---------------------------- ---------------------------------
Assistant Secretary (Title)
(Title)
-20-
<PAGE>
ACCEPTED BY:
TEXAS BANKERS ASSOCIATION
RETIREMENT SYSTEM
ATTEST:
By /s/
------------------------------------
/s/ Secretary, System Committee
--------------------------- (Title)
Assistant to the President
(Title)
ACCEPTED BY:
FIRST INTERSTATE BANK OF
TEXAS, NA., TRUSTEE
ATTEST: By /s/
------------------------------------
Vice President and Trust Officer
/s/ (Title)
---------------------------
---------------------------
(Title)
-21-
<PAGE>
FIRST AMENDMENT
TEXAS BANKERS ASSOCIATION RETIREMENT SYSTEM
DECLARATION OF TRUST
WHEREAS, the Texas Bankers Association, a nonprofit corporation organized
and existing under the laws of the State of Texas (the "Association") and First
Interstate Bank of Texas, N.A. (the "Trustee"), by Declaration of Trust
effective April 1, 1991, amended and restated the Texas Bankers Association
Retirement System (the "System") originally effective November 1, 1948; and
WHEREAS, Section 10.1 of said Declaration of Trust reserves to the System
Committee as constituted pursuant to Article III thereof, the right to amend the
Declaration of Trust at any time to any lawful extent deemed advisable; and
WHEREAS, the System Committee deems it advisable to amend the Declaration
of Trust to permit signatory banks to the Texas Bankers Association Retirement
System which possess duly constituted trust powers to serve as trustee of any
plan adopted by such bank under the System:
NOW, THEREFORE, BE IT RESOLVED, that effective as of June 1, 1992, the
Declaration of Trust establishing the Texas Bankers Association Retirement
System is hereby amended and restated in the following particulars, but only the
following particulars, to wit:
SECTION 1.1 CONCERNING THE DECLARATION OF TRUST IS HEREBY AMENDED IN THE
SECOND PARAGRAPH TO READ AS FOLLOWS:
The System established by the terms of this Declaration of Trust as it
relates individually to each Signatory by virtue of such Signatory's
executed Adoption Agreement and, if applicable, such Signatory's Individual
Trust Agreement consists of the following documents incorporated herein by
reference as fully as if copied verbatim herein:
SECTION 1.1, SUBPARAGRAPH (A) IS HEREBY AMENDED TO READ AS FOLLOWS:
(a) Declaration of Trust (each Plan's adoption constitutes a
separate trust) or, if indicated in the Adoption Agreement and
executed by the Signatory, the Signatory's Individual Trust Agreement;
THE FIRST TWO LINES OF THE SENTENCE IN SECTION 1.1, SUBPARAGRAPH (B) ARE
AMENDED TO READ AS FOLLOWS:
(b) One or more of the Plans or collective investment fund
documents attached as Exhibits hereto or attached to the Signatory's
Individual Trust Agreement which include:
SECTION 1.1, SUBPARAGRAPH (C) IS HEREBY AMENDED TO READ AS FOLLOWS:
<PAGE>
(c) Individual Signatory's Adoption Agreement, and any amendments
thereto, which incorporates by reference the terms of this Declaration
of Trust and/or the Signatory's Individual Trust Agreement and the
applicable Exhibits described above.
ARTICLE II IS HEREBY AMENDED TO ADD THE DEFINITION FOR "INDIVIDUAL TRUST
AGREEMENT" TO BE NUMBERED AS 2.8 AND SHALL READ AS FOLLOWS:
2.8 "INDIVIDUAL TRUST AGREEMENT" means a trust agreement adopted in
lieu of this Declaration of Trust, as indicated in the Adoption Agreement,
which names the Signatory or one of its Affiliates as the Trustee solely
with respect to the Signatory's Plan. An Individual Trust Agreement must
incorporate by reference the Signatory's Adoption Agreement and any
amendments thereto.
SECTIONS 2.8 THROUGH 2.17 ARE HEREBY RENUMBERED AS SECTIONS 2.9 THROUGH
2.18 TO ACCOMMODATE THE ADDITION OF THE NEW SECTION 2.8 REGARDING THE DEFINITION
FOR "INDIVIDUAL TRUST AGREEMENT."
SECTION 2.10 REGARDING THE DEFINITION OF "PLAN" IS HEREBY RENUMBERED TO BE
SECTION 2.11 AND IS HEREBY AMENDED TO READ AS FOLLOWS:
2.11 "PLAN" means any Plan adopted by a Signatory or Affiliate which
is an Exhibit to this Declaration of Trust.
SECTION 2.16 REGARDING THE DEFINITION OF "TRUST FUND" IS HEREBY RENUMBERED
TO BE SECTION 2.17 AND IS AMENDED TO READ AS FOLLOWS:
2.17 "TRUST FUND" means, when referring to a particular Signatory's
Plan, all property of every kind contributed by a Signatory pursuant to the
terms of the Plan adopted by such Signatory or Affiliate and held in trust
by the Trustee pursuant to the terms hereof and, when referring to the
entire System, "Trust Fund" means the collective Trust Fund of all
Signatories which maintain the Declaration Trust.
SECTION 2.17 REGARDING THE DEFINITION OF "TRUSTEE" IS HEREBY RENUMBERED TO
BE SECTION 2.18 AND AMENDED TO READ AS FOLLOWS:
2.18 "TRUSTEE" means First Interstate Bank of Texas, N.A. or any duly
appointed, qualified, and acting successor trustee appointed by the System
Committee pursuant to Article IV hereof.
SECTION 3.2(B) REGARDING THE SYSTEM COMMITTEE MEMBERSHIP IS AMENDED TO READ
AS FOLLOWS:
(b) One (1) voting member who shall be the immediate past
Chairman of the System Committee and, in the event such past
Chairman's term on the System Committee shall have expired, shall
<PAGE>
be designated as a special voting member of the System Committee for a
term of one (1) year;
SECTION 4.3 REGARDING DUTIES AND POWERS IS AMENDED TO READ AS FOLLOWS:
4.3 DUTIES AND POWERS. The Trustee is hereby authorized and
empowered to perform for and on behalf of each Signatory the following
functions with respect to the Trust Fund of such Signatory which maintains
the Declaration of Trust.
THE FIRST PARAGRAPH OF SECTION 4.4 REGARDING RECORDS IS AMENDED TO READ AS
FOLLOWS:
4.4 RECORDS. The Trustee shall maintain complete and separate
account for the Plan of each Signatory which maintains the Declaration of
Trust and shall within thirty (30) days following a Signatory Plan's
Valuation Date furnish the Signatory and System Coordinator with a report
of such Signatory's account for the previous twelve (12) month period.
Such report shall contain complete data applicable to such account upon
which the System Coordinator can base its annual valuation.
SECTION 4.6 REGARDING RESPONSIBILITIES IS AMENDED TO READ AS FOLLOWS:
4.6 RESPONSIBILITY. The Trustee shall not be responsible for any
acts or omissions of the System Committee, any trustee of an Individual
Trust Agreement, any Signatory, any Plan Committee, Investment Manager or
the System Coordinator. The Trustee shall be under no duty to inquire into
any rule, regulation, instruction, direction or order, purporting to have
been issued by any of the above. The Trustee shall also be fully protected
in acting in good faith upon any notice, resolution, instruction,
direction, order, certificate, opinion, letter, telegram or other document
believed by the Trustee to be the act of one of the parties described
above. The Trustee is responsible only for the funds actually received by
it as Trustee.
<PAGE>
IN WITNESS WHEREOF, the Chairman and Secretary of the System Committee of
the Texas Bankers Association Retirement System and First Interstate Bank of
Texas, N.A., Trustee have caused this amended and restated Declaration of Trust
to be approved as to form and executed by the Trustee on this the 1st day of
September, 1992, to become effective as of June 1, 1992, pursuant to the
direction of the System Committee with respect to all Plans in existence on such
date and upon the written consent and approval of a majority of the Signatories
and thereafter effective with respect to later adoption by any other Signatories
upon their execution of an appropriate Adoption Agreement.
APPROVED AS TO FORM AND
DUTIES HEREUNDER OF THE
SYSTEM COMMITTEE
ACCEPTED BY:
TEXAS BANKERS ASSOCIATION
RETIREMENT SYSTEM
ATTEST:
BY: /s/
----------------------------------
Chairman, System Committee
------------------
------------------
(Title)
ACCEPTED BY:
TEXAS BANKERS ASSOCIATION
RETIREMENT SYSTEM
ATTEST:
BY: /s/
----------------------------------
Secretary, System Committee
------------------
------------------
(Title)
<PAGE>
ACCEPTED BY:
FIRST INTERSTATE BANK OF TEXAS, N.A.,
TRUSTEE
ATTEST:
BY: /s/
----------------------------------
Vice President and Trust Officer
------------------
------------------
(Title)
<PAGE>
EXHIBIT 10.6
TEXAS BANKERS ASSOCIATION RETIREMENT SYSTEM
DEFINED BENEFIT PENSION PLAN
EXHIBIT A
AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1989
CONFORMED TO INCLUDE THE SPECIAL AMENDMENT
<PAGE>
TEXAS BANKERS ASSOCIATION RETIREMENT SYSTEM
EXHIBIT A
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
STATEMENT OF PURPOSE AND PRINCIPLE
ARTICLE I DEFINITIONS I-1
Section 1.01 Accrued Retirement Benefit I-1
Section 1.02 Act I-1
Section 1.03 Adoption Agreement I-1
Section 1.04 Affiliated Employer I-2
Section 1.05 Anniversary Date I-3
Section 1.06 Authorized Leave of Absence I-3
Section 1.07 Base Benefit Percentage I-3
Section 1.08 Beneficiary I-3
Section 1.09 Code I-3
Section 1.10 Considered Compensation I-3
Section 1.11 Covered Compensation I-6
Section 1.12 Death Benefit Reserve Account I-6
Section 1.13 Declaration of Trust I-6
Section 1.14 Early Retirement Date I-6
Section 1.15 Effective Date I-6
Section 1.16 Eligible Employee I-7
Section 1.17 Employee I-7
Section 1.18 Employer I-8
Section 1.19 Entry Date I-8
Section 1.20 Excess Benefit Percentage I-8
Section 1.21 Family Member I-8
Section 1.22 Fiduciary I-8
Section 1.23 Fiscal Year I-8
Section 1.24 Former Participant I-8
Section 1.25 Highly Compensated Participant I-9
Section 1.26 Hour of Service I-10
Section 1.27 Integration Level I-11
Section 1.28 Investment Manager I-11
Section 1.29 Leased Employee I-11
Section 1.30 Limitation Year I-12
Section 1.31 Named Fiduciary I-12
Section 1.32 Non-Highly Compensated Participant I-12
Section 1.33 Normal Retirement Age I-12
Section 1.34 Normal Retirement Date I-13
<PAGE>
Section 1.35 Participant I-13
Section 1.36 Participant Account I-13
Section 1.37 Plan I-13
Section 1.38 Plan Assets I-13
Section 1.39 Plan Committee I-13
Section 1.40 Plan Year I-13
Section 1.41 Present Value of Vested Accrued Retirement
Benefit I-13
Section 1.42 Projected Retirement Benefit I-14
Section 1.43 Required Beginning Date I-15
Section 1.44 Required Employee Contributions I-15
Section 1.45 Retired Participant I-15
Section 1.46 Section 415 Compensation I-15
Section 1.47 Social Security Retirement Age I-17
Section 1.48 System Committee I-17
Section 1.49 System Coordinator I-17
Section 1.50 Taxable Wage Base I-17
Section 1.51 Total and Permanent Disability I-17
Section 1.52 Trustee I-17
Section 1.53 Valuation Date I-17
Section 1.54 Vested Accrued Retirement Benefit I-18
Section 1.55 Year of Service I-18
ARTICLE II ELIGIBILITY II-1
Section 2.01 Requirements for Eligibility II-1
Section 2.02 Application for Participation II-1
Section 2.03 Determination of Eligibility II-1
Section 2.04 Rehired Employees and Former Participants:
Termination of Eligibility II-1
Section 2.05 Ineligible Employee II-2
Section 2.06 Service for Predecessor Employer II-2
Section 2.07 Discontinuance of Participation II-3
ARTICLE III CONTRIBUTIONS/MAXIMUM BENEFIT LIMITATIONS III-1
Section 3.01 Contributions by the Employer III-1
Section 3.02 Contributions by Participants III-1
Section 3.03 Limitations on Benefits III-2
Section 3.04 Annual Valuation III-11
Section 3.05 Incorporation by Reference III-11
<PAGE>
ARTICLE IV BENEFITS IV-1
Section 4.01 Benefit Formula/Basic Form of
Benefit/Accrual Service IV-1
Section 4.01A Benefit Formula Subject to Permitted Disparity IV-2
Section 4.02 Retirement Subsequent to Normal
Retirement Date IV-3
Section 4.03 Adjustments in Retirement Benefits IV-4
Section 4.04 Early Retirement IV-4
Section 4.05 Vesting Service/Severance Benefit IV-5
Section 4.06 Accrued Retirement Benefit Derived from
Required Employee Contributions (Pre-1992) IV-6
Section 4.07 Allocation of Required Employee Contributions
to Separate Participant Accounts IV-7
Section 4.08 Contribution Percentage Tests and Adjustments
for Excessive Allocation IV-8
Section 4.09 Total and Permanent Disability IV-10
Section 4.10 Death Benefits IV-10
ARTICLE V DISTRIBUTION OF BENEFITS V-1
Section 5.01 Distribution of Benefits V-1
Section 5.02 Rehired Retired Participant/Suspension
of Benefits V-17
Section 5.03 Recovery of Severance Gains V-18
Section 5.04 Cash Out/Buy-Back Provisions V-18
Section 5.05 Distribution of Death Benefit V-21
Section 5.06 Benefits Payable to Minors and
Incompetents V-29
Section 5.07 Notification of Benefits Payable V-29
Section 5.08 Non-Transferability of Annuity Contracts V-29
ARTICLE VI PLAN ADMINISTRATION VI-1
Section 6.01 Powers and Responsibilities of the
Employer VI-1
Section 6.02 Assignment and Designation of
Administrative Authority/Compensation of
Plan Committee VI-1
Section 6.03 Allocation and Delegation of
Responsibilities VI-2
Section 6.04 Powers, Duties and Responsibilities VI-2
Section 6.05 Records and Reports VI-3
Section 6.06 Appointment of Advisors VI-4
<PAGE>
Section 6.07 Information from Employer VI-4
Section 6.08 Payment of Expenses VI-4
Section 6.09 Majority Actions VI-4
Section 6.10 Bonding VI-4
Section 6.11 Indemnification VI-5
Section 6.12 Interpretation VI-5
Section 6.13 Claims Procedure VI-5
Section 6.14 Claims Review Procedure VI-5
ARTICLE VII RESTRICTED BENEFITS VII-1
Section 7.01 Restricted Benefits for Plan Years Before
January 1, 1992 VII-1
Section 7.02 Restricted Benefits for Plan Years Beginning
After December 31, 1991 VII-3
Section 7.03 Conformity with Regulations VII-3
ARTICLE VIII AMENDMENT OF PLAN VIII-1
Section 8.01 Method of Amendment VIII-1
Section 8.02 Restrictions on Amendment VIII-1
ARTICLE IX PLAN TERMINATION, MERGER,
CONSOLIDATION, TRANSFER OF ASSETS,
SUCCESSOR EMPLOYER IX-1
Section 9.01 Termination IX-1
Section 9.02 Allocation of Plan Assets IX-4
Section 9.03 Return of Residual Assets to Employer IX-5
Section 9.04 Merger, Consolidation, Transfer of
Plan Assets IX-5
Section 9.05 Successor Employer IX-6
ARTICLE X LOANS TO PARTICIPANTS X-1
Section 10.01 Limitations X-1
Section 10.02 Uniform and Nondiscriminatory
Application X-1
Section 10.03 Loan Agreement X-1
<PAGE>
ARTICLE XI CONTRIBUTIONS CONDITIONED ON INITIAL
PLAN QUALIFICATION; CONTRIBUTIONS
CONDITIONED ON DEDUCTIBILITY;
CONTRIBUTIONS MADE ON MISTAKE OF FACT XI-1
Section 11.01 Contributions Conditioned on Initial
Plan Qualification XI-1
Section 11.02 Contributions Conditioned on
Deductibility; Contributions Made
on Mistake of Fact XI-1
ARTICLE XII CONTROLLED GROUP/AFFILIATED SERVICE
ORGANIZATIONS; ADOPTION OF PLAN BY
AFFILIATED EMPLOYERS XII-1
Section 12.01 Employees of a Controlled Group of
Corporations and Commonly Controlled
Businesses/Service with Predecessor
Employer XII-1
Section 12.02 Employees of an Affiliated Service
Group XII-1
Section 12.03 Leased Employees XII-1
Section 12.04 Adoption of Plan by Affiliated
Employers XII-1
Section 12.05 No Joint Venture Implied XII-3
Section 12.06 Separate Records XII-3
Section 12.07 Transfers XII-3
Section 12.08 Expenses XII-3
Section 12.09 Withdrawal of Participating
Employer XII-3
ARTICLE XIII RECEIPT OF PLAN ASSETS FROM OR
TRANSFER OF ASSETS TO A QUALIFIED
RETIREMENT PLAN XIII-1
Section 13.01 Transfers from Qualified Plans XIII-1
Section 13.02 Transfer of Assets to Another
Qualified Plan XIII-1
ARTICLE XIV TOP-HEAVY PROVISIONS XIV-1
Section 14.01 Application of Article XIV-1
Section 14.02 Definitions XIV-1
<PAGE>
Section 14.03 Determination of Top-Heavy Status XIV-3
Section 14.04 Minimum Benefit Accrual XIV-5
Section 14.05 Minimum Vesting Schedule XIV-6
Section 14.06 Change in Top-Heavy Status XIV-6
Section 14.07 Adjustments in Code Section 415
Limits for Top-Heavy Plan XIV-6
ARTICLE XV MISCELLANEOUS XV-1
Section 15.01 Plan Not a Contract XV-1
Section 15.02 Spendthrift Provision XV-1
Section 15.03 Insurance Companies XV-2
Section 15.04 Governing Law XV-2
Section 15.05 Legal Action XV-2
Section 15.06 Prohibition Against Diversion
of Funds XV-2
Section 15.07 Receipt and Release for Payments XV-2
Section 15.08 Action by Employer XV-2
Section 15.09 Headings XV-3
Section 15.10 Uniformity XV-3
Section 15.11 Severability XV-3
Section 15.12 Multiple Copies XV-3
<PAGE>
DEFINED BENEFIT PENSION PLAN
(EXHIBIT A TO TEXAS BANKERS ASSOCIATION RETIREMENT SYSTEM DECLARATION OF TRUST)
STATEMENT OF PURPOSE AND PRINCIPLE
----------------------------------
By Declaration of Trust effective November 1, 1948, the Texas Bankers
Association established the Texas Bankers Association Retirement System (the
"System") and created certain standardized Defined Benefit and Defined
Contribution Plans attached as Exhibits to the Declaration of Trust. The purpose
of the System is to provide an instrumentality through which an Employer may, by
execution of an Adoption Agreement, adopt for the exclusive benefit of
Participants thereunder and their Beneficiaries an employee benefit plan which
is intended to qualify under Section 401(a) of the Internal Revenue Code of 1986
(the "Code") and the trust which is a part thereof to be exempt under Code
Section 501(a).
The adoption of this Plan and Declaration of Trust by an Employer is
accomplished by execution of an Adoption Agreement, the provisions of which
supplement the standard provisions of the Plan. Any Employer contemplating
adoption of one of the standardized Plans under the auspices of the Texas
Bankers Association is advised that the Declaration of Trust, Plan Exhibit,
Adoption Agreement, and any amendments thereto, which comprise the Employer's
Plan, are important legal instruments with significant legal and tax
implications. The Employer is advised to consult with competent legal counsel
with regard to the adoption of any such Plan. Neither the Texas Bankers
Association, the Trustee, the System Coordinator, nor the System Committee of
the Texas Bankers Association Retirement System is in a position to render any
legal advice to anyone or act as a substitute for independent legal counsel of
the Employer.
*************************************************
<PAGE>
ARTICLE I
DEFINITIONS
-----------
As used in this Plan, the following words and phrases have the meanings set
forth below, unless the context clearly indicates otherwise; and wherever
appropriate the singular shall include the plural and plural shall include the
singular, and the use of any gender shall include the other genders:
SECTION 1.01 - ACCRUED RETIREMENT BENEFIT coincident with or prior to
-----------------------------------------
Normal Retirement Date means the monthly retirement benefit determined in
accordance with Sections 4.01 and 4.01A which a Participant is entitled to
receive beginning at Normal Retirement Date based on Average Monthly
Compensation and Years of Service as of the date of determination.
In the event the Adoption Agreement specifies a fixed percentage benefit
formula, a Participant's Accrued Retirement Benefit shall not be less than the
monthly retirement benefit beginning at Normal Retirement Date based on Average
Monthly Compensation and Years of Service as of the date of determination,
multiplied by a fraction, not greater than one (1), the numerator of which is
such Participant's Years of Service and the denominator of which is the
aggregate number of Years of Service the Participant could accumulate if he
continued employment with the Employer to Normal Retirement Date; provided,
however, if the Employer's Adoption Agreement specifies that the fixed
percentage benefits shall be determined on a career average method of
computation, then a Participant's annual rate of accrual shall not exceed 133
1/3 percent of the accrual rate for any prior Plan Year in accordance with Code
Section 411(b).
For retirement subsequent to Normal Retirement Date, Accrued Retirement
Benefit shall be determined in accordance with the method specified in Section
4.02.
In the event the Adoption Agreement specifies a unit benefit formula, a
Participant's Accrued Retirement Benefit shall accrue at an annual rate which
shall not exceed 133 1/3 percent of the accrual rate for any prior Plan Year in
accordance with Code Section 411(b).
For Plan Years commencing prior to the effective date of the benefit
accrual requirements of Code Section 411 the Participant's Accrued Retirement
Benefit shall be the greater of that provided by the Plan or one-half ( 1/2) of
the benefit which would have accrued had the "3-percent method," the "133 1/3
percent rule," and the "fractional rule" as defined in paragraphs (A), (B) and
(C) respectively of Code Section 411(b)(1) been in effect. In the event the
Accrued Retirement Benefit as of the effective date of Code Section 411 is less
than that required in the above sentence, the difference shall be accrued in
accordance with this Section 1.01.
SECTION 1.02 - ACT means the Employee Retirement Income Security Act of
------------------
1974, as amended from time to time.
SECTION 1.03 - ADOPTION AGREEMENT means the Agreement executed by the
---------------------------------
Employer for the purpose of establishing, for the sole and exclusive benefit of
Participants and their Beneficiaries
I-1
<PAGE>
hereunder, a Defined Benefit Pension Plan under the Texas Bankers Association
Retirement System which incorporates by reference this instrument, the Texas
Bankers Association Retirement System Declaration of Trust, and any amendments
thereto. An Employer may, in its Adoption Agreement or by amendment thereto,
adopt language limiting, expanding, or otherwise modifying language contained
herein as such provision relates to the Employer's Plan provided such
modifications do not affect the qualified status of the Plan under applicable
laws and regulations.
SECTION 1.04 - AFFILIATED EMPLOYER means the Employer and any corporation
----------------------------------
which is a member of a controlled group of corporations (as defined in Code
Section 414(b)) which includes the Employer; any trade or business (whether or
not incorporated) which is under common control (as defined in Code Section
414(c)) with the Employer; any organization (whether or not incorporated) which
is a member of an affiliated service group (as defined in Code Section 414(m))
which includes the Employer; and any other entity required to be aggregated with
the Employer pursuant to regulations under Code Section 414(o).
If the Plan provides contributions or benefits for one or more owner-
employees (as defined in Section 1.17) who control both the business for which
the Plan is established and one or more other trades or businesses, this Plan
and the Plan established for other trades or businesses must, when looked at as
a single plan, satisfy Code Sections 401(a) and (d) for the Employees of this
and all other trades or businesses.
If the Plan provides contributions or benefits for one or more owner-
employees who control one or more other trades or businesses, the employees of
the other trades or businesses must be included in a plan which satisfies Code
Sections 401(a) and (d) and which provides contributions and benefits not less
favorable than provided for owner-employees under this Plan.
If an individual is covered as an owner-employee under the plans of two or
more trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the employees under the
plan of the trade or business which are controlled must be as favorable as those
provided for the owner-employee under the most favorable plan of the trade or
business which is not controlled.
For purposes of the preceding paragraphs, an owner-employee, or two or more
owner-employees, will be considered to control a trade or business if the owner-
employee, or two or more owner-employees together:
(a) own the entire interest in an unincorporated trade or business, or
(b) in the case of a partnership, own more than fifty (50%) percent
or either the capital interest or the profits interest in the
partnership.
For purposes of the preceding sentence, an owner-employee, or two or more
owner-employees, shall be treated as owning any interest in a partnership which
is owned, directly or
I-2
<PAGE>
indirectly, by a partnership which such owner-employee, or such two or more
owner-employees, are considered to control within the meaning of the preceding
sentence.
SECTION 1.05 - ANNIVERSARY DATE means the first day of the Plan Year.
-------------------------------
SECTION 1.06 - AUTHORIZED LEAVE OF ABSENCE means a temporary cessation from
------------------------------------------
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason. An
Authorized Leave of Absence shall not cause a Break in Service.
SECTION 1.07 - BASE BENEFIT PERCENTAGE means the rate, expressed as a
--------------------------------------
percentage of Considered Compensation, at which Employer derived benefits are
accrued with respect to Considered Compensation of Participants at or below the
Integration Level for the Plan Year.
SECTION 1.08 - BENEFICIARY means the person or persons, estate, or trust to
--------------------------
whom or which the death benefit, if any, of a Participant is payable upon the
death of a Participant.
SECTION 1.09 - CODE means the Internal Revenue Code of 1986, as amended
-------------------
from time to time.
SECTION 1.10 - CONSIDERED COMPENSATION means Compensation as specified in
--------------------------------------
the Adoption Agreement defined as follows:
(a) Basic Monthly Compensation means a Participant's basic rate of
--------------------------
pay or salary for services performed for the Employer, including, if
specified in the Adoption Agreement, elective contributions under a
qualified cash or deferred arrangement pursuant to Code Section
401(k) or contributions to a cafeteria plan pursuant to Code Section
125 (to the extent that the limits specified in Section 3.03 of this
Plan are not exceeded), but excluding overtime pay, bonuses,
commissions, and other extra payments, and any deferred compensation
paid by the Employer under this or any other plan of deferred
compensation maintained by the Employer unless otherwise specified in
the Adoption Agreement. Basic Monthly Compensation shall be
determined by the Employer on a consistent and uniform basis and as
of such date or dates as specified in the Adoption Agreement. If no
date is specified, Basic Monthly Compensation shall be determined on
a Plan Year basis.
(b) Total Monthly Compensation means wages, salary, overtime pay,
--------------------------
bonuses, commissions, and other extra payments for services performed
for the Employer, including, if specified in the Adoption Agreement,
elective contributions under a cash or deferred arrangement pursuant
to Code Section 401(k), and/or contributions to a cafeteria plan
pursuant to Code Section 125 (to the extent that the limits specified
in Section 3.03 of
I-3
<PAGE>
this Plan are not exceeded), but not including any deferred
compensation paid by the Employer under this or any other plan of
deferred compensation maintained by the Employer unless otherwise
specified in the Adoption Agreement. Total Compensation shall have
the same meaning as set forth in Code Section 414(s) and shall be
determined by the Employer on a consistent and uniform basis and for
such period or periods as specified in the Adoption Agreement. If no
period is specified, Total Monthly Compensation shall be determined
on a Plan Year basis.
(c) Earned Income means, with respect to a self-employed individual,
-------------
the net earnings from self-employment in the trade or business, with
respect to which the Plan is established, for which the personal
services of the individual are a material income-producing factor.
Net earnings will be determined without regard to items not included
in gross income and the deductions allocable to such items and shall
only include that income which is actually paid to the Participant
during the Plan Year unless another computation period is selected by
the Employer in the Adoption Agreement. Net earnings are reduced by
contributions by the Employer to a qualified plan to the extent
deductible under Code Section 404. Net earnings shall be determined
with regard to the deduction allowed to the taxpayer by Code Section
164(f) for taxable years beginning after December 31, 1989.
(d) Average Monthly Compensation means the monthly Considered
----------------------------
Compensation of a Participant averaged over the consecutive Years of
Service (without regard to any Breaks in Service) specified in the
Adoption Agreement which produces the highest average compensation.
If a Participant has fewer than the number of Years of Service
specified in the Adoption Agreement for averaging purposes at date of
severance, such Participant's Average Monthly Compensation will be
based on his monthly Considered Compensation from his date of
employment to the date of calculation.
(e) Limitation on Compensation: For Plan Years commencing after
--------------------------
December 31, 1988, annual compensation in excess of $200,000 for any
Participant shall be disregarded for all purposes under the Plan.
Such dollar limitation shall be adjusted at the same time and in such
manner as specified under Code Section 415(d); except that the dollar
increase in effect on January 1st of any calendar year is effective
for years beginning in such calendar year, and the first adjustment
to the $200,000 limitation is effective on January 1, 1990. If a Plan
determines compensation on a period of time that contains fewer than
twelve (12) calendar months, then the annual compensation limit is an
amount equal to the annual compensation limit for the calendar year
in which the compensation period begins multiplied by
I-4
<PAGE>
the ratio obtained by dividing the number of full months in the
period by twelve (12).
In determining the annual compensation of a Participant for purposes
of this limitation, the rules of Code Section 414(q)(6) shall apply;
except in applying such rules, the term "family" shall include only
the spouse of the Participant and any lineal descendants of the
Participant who have not attained age nineteen (19) before the close
of the Plan Year. If as a result of the application of this paragraph
the adjusted $200,000 limitation is exceeded, then (except for
purposes of determining the portion of compensation up to the
integration level if the Plan provides for permitted disparity) the
limitation shall be pro-rated among the affected individuals in
proportion to each such individual's compensation as determined under
this section prior to the application of this limitation.
If compensation for any prior Plan Year is taken into account in
determining an Employee's contributions or benefits for the current
year, the compensation for the prior year is subject to the a
pplicable annual compensation limit in effect for that prior year.
For this purpose, the applicable annual compensation limit is
$200,000 for years beginning before January 1, 1990.
(f) Considered Compensation for Employees compensated on other than
-----------------------
a monthly basis shall be determined as follows:
(1) Annual compensation divided by twelve (12) or by the number
of months worked during the year if less than twelve (12);
(2) Bi-weekly compensation times 2.1666667;
(3) Weekly compensation times 4.3333333;
(4) Hourly compensation times the number of hours customarily
worked in a month;
(5) Commission compensation shall be the amount equitably
determined by the Plan Committee in a uniform and
non-discriminatory manner.
(g) Final Average Compensation, for purposes of calculating the
--------------------------
maximum offset allowance, means the average of the Participant's
annual Considered Compensation from the Employer for the three (3)
consecutive year period ending with or within the Plan Year. If a
Participant's entire period of service with the Employer is less than
three (3) consecutive years,
I-5
<PAGE>
Considered Compensation is averaged on an annual basis over the
Participant's entire period of service. Considered Compensation for
any year in excess of the Taxable Wage Base in effect at the
beginning of such year shall not be taken into account.
SECTION 1.11 - COVERED COMPENSATION means the average (without indexing) of
-----------------------------------
the Taxable Wage Bases used for each calendar year during the thirty-five (35)
year period ending with the last day of the calendar year in which the
Participant attains (or will attain) Social Security Retirement Age. No increase
in Covered Compensation shall decrease a Participant's Accrued Retirement
Benefit under the Plan.
In determining a Participant's Covered Compensation for a Plan Year, the
Taxable Wage Base used for the current Plan Year and any subsequent Plan Year
will be assumed to be the same as the Taxable Wage Base in effect for the Plan
Year for which the determination is being made.
Unless otherwise specified in the Adoption Agreement, a Participant's
Covered Compensation for a Plan Year before the thirty-five (35) year period
ending with the last day of the calendar year in which the Participant attains
Social Security Retirement Age shall be determined by Table II (as published by
the Internal Revenue Service from time to time) in effect at the beginning of
the Plan Year preceding the current Plan Year but in no event earlier than 1989.
A Participant's Covered Compensation for a Plan Year after such thirty-five (35)
year period is the Participant's Covered Compensation used for the Plan Year
during which the Participant attained Social Security Retirement Age.
SECTION 1.12 - DEATH BENEFIT RESERVE ACCOUNT means the bookkeeping account
--------------------------------------------
maintained by the System Coordinator for the purpose of facilitating the pooling
of mortality experience among adopting Employers electing to provide death
benefits for Participants through this account.
SECTION 1.13 - DECLARATION OF TRUST means that certain Declaration of Trust
-----------------------------------
published by Texas Bankers Association, amended and restated as of April 1, 1991
and as may be amended from time to time, which is incorporated herein by
reference.
SECTION 1.14 - EARLY RETIREMENT DATE means the date prior to Normal
------------------------------------
Retirement Age on or after which a Participant who has satisfied the
requirements, if any, for early retirement specified in the Adoption Agreement,
may elect to retire and commence receiving benefits hereunder. A Former
Participant who severs employment after satisfying the service requirement, but
prior to satisfying the age requirement specified in the Adoption Agreement for
early retirement, and who has not received a cash-out of his Vested Accrued
Retirement Benefit, shall be eligible for an early retirement benefit in
accordance with Section 4.04 upon attaining such age.
SECTION 1.15 - EFFECTIVE DATE means the date specified in the Adoption
-----------------------------
Agreement upon which the Plan shall become effective according to its terms.
I-6
<PAGE>
SECTION 1.16 - ELIGIBLE EMPLOYEE means an Employee of an Employer who
--------------------------------
adopts this Plan hired in a capacity to produce 1,000 or more Hours of Service
in a twelve (12) consecutive month period (unless otherwise specified in the
Adoption Agreement) and who has satisfied the requirements for participation in
the Plan.
Any Employee who has otherwise satisfied the requirements for participation
in the Plan, but is employed in a capacity which would not produce 1,000 or more
Hours of Service in a twelve (12) consecutive month period, and in fact produces
1,000 or more Hours of Service in such twelve (12) month period, thereby
completing one Year of Service, shall be retroactively qualified as a
Participant as of the Entry Date which is coincident with or which next follows
the satisfaction of eligibility requirements for participation specified in the
Adoption Agreement.
Unless otherwise excluded from participation as specified in the Employer's
Adoption Agreement, Eligible Employee shall also mean any Leased Employee who is
considered an Employee as described in Section 1.17 below.
The Adoption Agreement may provide for an exclusion from participation of
one or more nondiscriminatory classifications of Employees.
SECTION 1.17 - EMPLOYEE means any person who is employed by the Employer or
-----------------------
Affiliated Employer as a common-law employee. Employee also means, with respect
to an unincorporated business, a Self-Employed Individual who has Earned Income
for the taxable year from the trade or business for which the Plan is
established and any individual who would have had Earned Income but for the fact
the trade or business had no net profits for the taxable year.
If the Employer in its Adoption Agreement has excluded Leased Employees
from participation and such exclusion would cause the Plan to fail Code Sections
410(b) and 401(a)(26) coverage and participation requirements, Leased Employees
shall be eligible to participate herein effective as of the first day of the
Plan Year in which coverage requirements were failed due to the exclusion of
Leased Employees. Inclusion of Leased Employees pursuant to this paragraph shall
be limited to Plan Years in which such coverage and participation requirements
are otherwise failed. To the extent required by the Code, but not for
eligibility to participate in the Plan, Employees shall include Leased Employees
of the Employer as provided in Code Sections 414(n) or (o).
An Owner-Employee means a sole proprietor who owns the entire interest in
the Employer or a partner who owns more than ten (10%) percent of either the
capital interest or the profits interest in the Employer or Affiliated Employer
and receives income for personal services from the Employer or Affiliated
Employer.
A Shareholder-Employee means an Employee who owns more than five (5%)
percent of the Employer's or Affiliated Employer's outstanding capital stock
during any year in which the Employer or Affiliated Employer elected to be taxed
as a Small Business Corporation as defined under the Code.
I-7
<PAGE>
A Self-Employed Individual means an individual who has Earned Income for
the taxable year for the trade or business from which the Plan is established;
also, an individual who would have had Earned Income but for the fact that the
trade or business had no net profits for the taxable year.
SECTION 1.18 - EMPLOYER means the Texas Bankers Association, any member
-----------------------
bank of the Texas Bankers Association, any affiliate of a member of the Texas
Bankers Association which adopts this Plan, or any successor organization of
such Employer which assumes the obligations of this Plan.
SECTION 1.19 - ENTRY DATE means the date or dates specified in the Adoption
-------------------------
Agreement upon which an Eligible Employee shall be entitled to commence
participation hereunder.
SECTION 1.20 - EXCESS BENEFIT PERCENTAGE, for purposes of determining the
----------------------------------------
excess benefit subject to permitted disparity, means the rate, expressed as a
percentage of Considered Compensation, at which Employer derived benefits are
accrued with respect to Considered Compensation of Participants above the
Integration Level for the Plan Year.
SECTION 1.21 - FAMILY MEMBER means the spouse and lineal ascendants and
----------------------------
descendants (and spouses of such ascendants and descendants) of any Employee or
Former Employee.
SECTION 1.22 - FIDUCIARY means any person who:
------------------------
(a) exercises any discretionary authority or discretionary control
respecting management of the Plan or exercises any authority or
control respecting management or disposition of Plan Assets;
(b) renders investment advice for a fee or other compensation, directly
or indirectly, with respect to any monies or other property of the
Plan or has any authority or responsibility to do so; or
(c) has any discretionary authority or discretionary responsibility
in the administration of the Plan.
SECTION 1.23 - FISCAL YEAR means the Employer's accounting year.
--------------------------
SECTION 1.24 - FORMER PARTICIPANT means an individual who has been a
---------------------------------
Participant, but who has ceased to be a Participant for any reason prior to the
beginning of the Plan Year. For purposes of Section 1.25, a Former Participant
shall be treated as a Highly Compensated Participant if such Former Participant
performs no service for the Employer or Affiliated Employer during the Plan Year
and was a Highly Compensated Participant when he separated from service with the
Employer or Affiliated Employer or was a Highly Compensated Participant at any
time after attaining age fifty-five (55).
I-8
<PAGE>
SECTION 1.25 - HIGHLY COMPENSATED PARTICIPANT means any Participant who is
---------------------------------------------
a Highly Compensated Employee as defined in Code Section 414(q) and the
regulations thereunder. Generally, any Participant is considered a Highly
Compensated Participant if during the Plan Year or Look-Back Year such
Participant:
(a) Was a "five percent owner" as defined in Section 14.02(c);
(b) Received Section 415 Compensation from the Employer in excess of
$75,000 (or such dollar amount as may be adjusted in accordance with
Code Section 415(d)). In determining whether an individual has Section
415 Compensation of more than $75,000, Section 415 Compensation from
each employer required to be aggregated under Code Sections 414(b),
(c), (m), and (o) shall be taken into account;
(c) Received Section 415 Compensation from the Employer in excess of
$50,000 (or such dollar amount as may be adjusted in accordance with
Code Section 415(d)) and was in the top-paid group of Employees for
the Plan Year. An Employee is in the top-paid group of Employees for
any Plan Year if such Employee is in the group consisting of the top
twenty (20%) percent of the Employees when ranked on the basis of
Section 415 Compensation paid during the Plan Year. Employees
described in Code Section 414(q)(8) and Q&A 9(b) of Section 1.414(q))-
1T are excluded. In determining whether an individual has Section 415
Compensation of more than $50,000, Section 415 Compensation from each
employer required to be aggregated under Code Section 414(b), (c),
(m), and (o) shall be taken into account;
(d) Was an officer as defined in Code Section 416(i) having Section 415
Compensation greater than fifty (50%) percent of the amount in effect
under Code Section 415(b)(1)(A) for any such Plan Year. If no officer
satisfies this requirement in either the Plan Year or the Look-Back
Year, the highest paid officer for such year shall be treated as a
Highly Compensated Employee who, if participating in the Plan, shall
be a Highly Compensated Participant.
For purposes of this Section, "Look-Back Year" means the twelve (12) month
period immediately preceding the Plan Year being tested.
Notwithstanding the above, for the current Plan Year, a Participant shall
not be treated as being described in paragraphs (b), (c), or (d) above unless
such Participant performs service during the year and is a member of the group
consisting of the one-hundred (100) Employees paid the highest Section 415
Compensation during the Plan Year.
<PAGE>
A Participant will be treated as a Highly Compensated Participant hereunder
if such Participant was a Family Member (during the Plan Year or Look-Back Year)
of either (i) a "five percent owner," or (ii) a Highly Compensated Employee who
is a member of the group consisting of the ten (10) Employees paid the greatest
Section 415 Compensation during the year. Any Participant who is treated as a
Highly Compensated Participant solely as a consequence of being a Family Member
of a Highly Compensated Participant as described in this paragraph shall be
aggregated with such Highly Compensated Participant. Such aggregated
Participants shall be treated as a single Participant receiving an amount of
Compensation and a Plan contribution or benefit that is based on the sum of the
Compensation, contributions, and benefits of such aggregated Participants.
The number of officers determined to be Highly Compensated Participants in
accordance with this Section shall be limited to fifty (50) (or, if less, the
greater of three (3) employees or ten (10%) percent of employees). For purposes
of this Section 1.25 only, Section 415 Compensation includes elective or salary
reduction contributions to a Cafeteria Plan under Code Section 125, cash or
deferred arrangement under Code Sections 401(k) or 402(h)(1)(B) or tax-sheltered
annuity under Code Section 403(b).
SECTION 1.26 - HOUR OF SERVICE means:
------------------------------
(a) Each hour for which an Employee is directly or indirectly compensated
or entitled to compensation by the Employer or an Affiliated Employer
for the performance of duties during the applicable computation
period;
(b) Each hour for which an Employee is directly or indirectly compensated
or entitled to compensation by the Employer or an Affiliated Employer
(irrespective of whether the employment relationship has terminated)
for reasons other than performance of duties (such as vacation,
holidays, sickness, disability or other incapacity, lay-off, jury
duty, military duty, or Authorized Leave of Absence) during the
applicable computation period; and
(c) Each hour for which back pay is awarded or agreed to by the Employer
or Affiliated Employer without regard to mitigation of damages. The
same Hours of Service will not be credited under both paragraph (a) or
paragraph (b), as the case may be, and this paragraph (c). 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.
Notwithstanding (b) above,
(1) no more than 501 Hours of Service will be credited to an
Employee on account of any single continuous period during
<PAGE>
which the Employee performs no duties (whether or not such period
occurs in a single computation period);
(2) an hour for which an Employee is directly or indirectly paid, or
entitled to payment, on account of a period during which no duties are
performed will not 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
(3) Hours of Service will not 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 or Affiliated 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 or Affiliated 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.
Hours of Service will also be credited for any individual considered an
Employee for purposes of this Plan under Code Section 414(n) or Code Section
414(o).
An Hour of Service must be counted for the purpose of determining a Year of
Service, Break in Service, and employment commencement date (or reemployment
commencement date). The provisions of Department of Labor regulations 2530.200b-
2(b) and (c) are incorporated herein by reference.
SECTION 1.27 - INTEGRATION LEVEL means the respective level of Considered
--------------------------------
Compensation for each Participant to the extent provided by the benefit formula
in the Adoption Agreement, above which he is entitled to an excess benefit in
an excess formula or at which his final average compensation is limited in an
offset formula. The Integration Level shall be determined in accordance with the
"Formula Subject to Permitted Disparity" section of the Adoption Agreement.
SECTION 1.28 - INVESTMENT MANAGER means any person, firm, or corporation
---------------------------------
that is a registered investment advisor under the Investment Advisors Act of
1940 or a bank or an insurance company which (i) has the power to manage,
acquire, or dispose of Plan Assets, and (ii) acknowledges in writing his or its
fiduciary responsibility with respect to the Plan.
SECTION 1.29 - LEASED EMPLOYEE means any person (other than an Employee of
------------------------------
the recipient) who pursuant to an agreement between the recipient and any other
entity ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in
<PAGE>
accordance with Code Section 414(n)(6)) on a substantially full-time basis for a
period of at least one (1) year (including service for the recipient for which
the Employee would have been a Leased Employee but for this paragraph), and such
services are of a type historically performed by employees in the business field
of the recipient employer. Contributions or benefits provided a Leased Employee
by the leasing organization which are attributable to services performed for the
recipient employer shall be treated as provided by the recipient employer.
A Leased Employee shall not be considered an Employee of the recipient if:
(a) such Employee is covered by a money purchase pension plan providing:
(1) a nonintegrated employer contribution rate of at least ten (10%)
percent of compensation, as defined in Code Section 415(c)(3),
but including amounts contributed by the Employer pursuant to a
salary reduction agreement which are excludable from the
Employee's gross income under Code Section 125, Code Section
402(a)(8), Code Section 402(h), or Code Section 403(b);
(2) immediate participation; and
(3) full and immediate vesting; and
(b) leased employees do not constitute more than twenty (20%) percent of
the recipient's non-highly compensated workforce.
SECTION 1.30 - LIMITATION YEAR means the Plan Year. If the Limitation Year
------------------------------
is amended to a different 12-consecutive month period, the new Limitation Year
shall begin on a date within the Limitation Year in which the amendment is made.
SECTION 1.31 - NAMED FIDUCIARY means the Plan Committee.
------------------------------
SECTION 1.32 - NON-HIGHLY COMPENSATED PARTICIPANT means any Participant or
-------------------------------------------------
Former Participant who is neither a Highly Compensated Participant nor a Family
Member of a Highly Compensated Participant.
SECTION 1.33 - NORMAL RETIREMENT AGE means the age specified in the
------------------------------------
Employer's Adoption Agreement at which a Participant becomes eligible to retire
in accordance with Section 4.01. If the Employer enforces a mandatory retirement
age, Normal Retirement Age means the lesser of the mandatory retirement age or
the age specified in the Adoption Agreement. If, for Plan Years beginning before
January 1, 1988, Normal Retirement Age was determined with reference to the
anniversary of the participation commencement date (more than five (5) but not
to exceed ten (10) years), the anniversary date for Participants who first
commenced participation under the Plan before the first Plan Year beginning on
or after January 1, 1988 shall be the earlier of (i) the tenth
<PAGE>
(10th) anniversary of the date the Participant commenced participation in the
Plan (or such anniversary as had been elected by the Employer if less than ten
(10)), or (ii) the fifth (5th) anniversary of the first day of the first Plan
Year beginning on or after January 1, 1988. The Participation commencement date
is the first day of the first Plan Year in which the Participant commenced
participation in the Plan.
Notwithstanding the vesting schedule elected by the Employer in the
Adoption Agreement, a Participant shall be one-hundred (100%) percent vested
upon attaining the earlier of: (i) the later of age sixty-five (65) or
completion of five (5) years of participation, or (ii) Normal Retirement Age as
specified in the Adoption Agreement, regardless of the number of Years of
Service credited under the terms of the Plan.
SECTION 1.34 - NORMAL RETIREMENT DATE means the first day of the month
-------------------------------------
coincident with or next following the Participant's attainment of Normal
Retirement Age.
SECTION 1.35 - PARTICIPANT means any Eligible Employee participating in the
--------------------------
Plan who has not become ineligible to participate. A Participant shall cease to
be a Participant in any Plan Year in which he fails to be credited with at least
501 Hours of Service.
SECTION 1.36 - PARTICIPANT ACCOUNT means the separate account to which each
----------------------------------
Participant's Required Employee Contributions, if any, plus gains and/or losses
applicable to his Participant Account are allocated for Plan Years beginning on
or after January 1, 1992.
SECTION 1.37 - PLAN means the plan established by the Employer by means of
-------------------
this document, the Adoption Agreement, Declaration of Trust, and any amendments
thereto.
SECTION 1.38 - PLAN ASSETS means any and all assets held by the Trustee
--------------------------
pursuant to this Plan.
SECTION 1.39 - PLAN COMMITTEE means the committee of persons designated by
-----------------------------
the Employer to administer the Plan on behalf of the Employer, and which,
pursuant to Section 3(16)(A) of the Act, shall be the Plan Administrator.
SECTION 1.40 - PLAN YEAR means the Plan's accounting period of twelve (12)
------------------------
consecutive months as specified in the Adoption Agreement.
SECTION 1.41 - PRESENT VALUE OF VESTED ACCRUED RETIREMENT BENEFIT means the
-----------------------------------------------------------------
actuarial equivalent of the basic form of retirement benefit specified in the
Adoption Agreement expressed in terms of a single-sum dollar amount of a
Participant's Vested Accrued Retirement Benefit calculated as of a particular
date. The actuarial equivalent shall be determined using the mortality rate
assumption specified in the Adoption Agreement and the following interest rate
assumption:
(a) an interest rate no greater than the lesser of (i) the rate specified
in the Adoption Agreement, or (ii) the "applicable interest rate" if
the Present
<PAGE>
Value of the Vested Accrued Retirement Benefit using such rate is not
greater than $25,000; and
(b) an interest rate no greater than the lesser of (i) the rate specified
in the Adoption Agreement, or, if specified in the Adoption Agreement,
(ii) one-hundred twenty (120%) percent of the "applicable interest
rate" if the Present Value of the Vested Accrued Retirement Benefit
exceeds $25,000 as determined under subparagraph (a) above, provided
the Present Value as calculated under this clause (b) is not less than
$25,000.
The amount of any distribution (which is the actuarial equivalent of the
basic form of retirement benefit specified in the Adoption Agreement) will be
determined in accordance with this Section 1.41.
For purposes of this Section, the "applicable interest rate" means the rate
which would be used (as of the first day of the Plan Year which contains the
annuity starting date) by the Pension Benefit Guaranty Corporation for the
purpose of determining the present value of a lump sum distribution on plan
termination.
The applicable interest rate limitations described in subparagraphs (a) and
(b) above shall apply to distributions in Plan Years beginning after December
31, 1984. Notwithstanding the foregoing, these interest rate limitations shall
not apply to any distributions commencing in Plan Years beginning before January
1, 1987 if such distributions were determined in accordance with the interest
rate(s) as required by Regulation Section 1.417(e)-1T(e) (including the PBGC
immediate interest rate).
The applicable interest rate limitations described in subparagraphs (a) and
(b) above shall not apply to annuity contracts owned by the Employer or
distributed to or owned by a Participant prior to the first Plan Year after
December 31, 1988 if the annuity contracts satisfied the requirements of
Regulation Section 1.401(a)-11T and 1.417(e)-1T. The preceding sentence shall
not apply if additional contributions are made under the Plan by the Employer
with respect to such contracts on or after the beginning of the first Plan Year
beginning after December 31, 1988.
This Section shall not apply to the extent it would cause the Plan to fail
to satisfy Sections 3.03 or 5.01(a).
SECTION 1.42 - PROJECTED RETIREMENT BENEFIT means the retirement benefit,
-------------------------------------------
calculated as of a particular date, which a Participant would be entitled to
receive as a basic retirement benefit beginning at his Normal Retirement Date
assuming the Participant continues in the employment of the Employer at the same
level of compensation and under the same plan provisions as in effect on the
calculation date until Normal Retirement Date and further assuming that the Plan
is continued in full force and effect by the Employer with all contributions
required to fund the Plan on a sound actuarial basis made by the Employer until
such Participant reaches Normal Retirement Date.
<PAGE>
SECTION 1.43 - REQUIRED BEGINNING DATE means the April 1 of the calendar
--------------------------------------
year following the calendar year in which the Participant attains age 70 1/2.
Transitional Rule: For Participants who attained age 70 1/2 prior to
-----------------
January 1, 1988, Required Beginning Date means:
(a) For a Participant who is not a five percent owner, the April 1 of the
calendar year following the calendar year in which the later of
retirement or attainment of age 70 1/2 occurs; or
(b) For a Participant who is a five percent owner during any Plan Year
beginning after December 31, 1979, the April 1 following the later of
(i) the calendar year in which such Participant attains age 70 1/2, or
(ii) the calendar year which ends with or within the Plan Year in
which the Participant becomes a five percent owner (or the calendar
year in which the Participant retires if earlier).
A "five percent owner" for purposes of this Section means a Participant who
is a five percent owner as defined in Code Section 416(i) (determined without
regard to the Plan's top-heavy status) at any time during the Plan Year ending
with or within the calendar year in which such Participant attains age 66 1/2 or
any subsequent Plan Year. The Required Beginning Date of a Participant who is
not a five percent owner who attains age 70 1/2 during 1988 and who has not
retired as of January 1, 1989 is April 1, 1990.
In the case of a distribution upon the death of the Participant, the
Required Beginning Date means the date specified in Section 5.05(b).
SECTION 1.44 - REQUIRED EMPLOYEE CONTRIBUTIONS means the amount, if any,
----------------------------------------------
which an Employee must contribute as a condition of participation in the Plan.
SECTION 1.45 - RETIRED PARTICIPANT means a Participant who has retired
----------------------------------
under the provisions of Section 4.01 or 4.04.
SECTION 1.46 - SECTION 415 COMPENSATION means:
---------------------------------------
(a) A Participant's wages, salaries, fees for professional services, and
other amounts received for personal services actually rendered in the
course of employment with the Employer or Affiliated Employer
maintaining the Plan (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of
profits, tips, and bonuses).
<PAGE>
(b) In the case of a Participant who is an Employee within the meaning of
Code Section 401(c)(1) and the regulations thereunder, Section 415
Compensation means such Participant's Earned Income.
(c) Section 415 Compensation does not include contributions made by the
Employer or Affiliated Employer to a plan of deferred compensation to
the extent that, before the application of the limitations of Code
Section 415 to such plan, the contributions are not includable in the
gross income of the Employee for the taxable year in which
contributed. In addition, Employer or Affiliated Employer
contributions made on behalf of an Employee to a simplified employee
pension plan described in Code Section 408(k) are not considered as
Section 415 Compensation for the taxable year in which contributed to
the extent such contributions are deductible by the Employee under
Code Section 404(h)(1)(A). Additionally, any distributions from a plan
of deferred compensation for purposes of Code Section 415, regardless
of whether such amounts are includable in the gross income of the
Employee when distributed, will not be considered Section 415
Compensation. However, any amount received by an Employee pursuant to
an unfunded non-qualified plan may be considered as Section 415
Compensation in the year such amounts are includable in the gross
income of the Employee.
(d) Section 415 Compensation also does not include amounts realized from
the exercise of a non-qualified stock option, or amounts realized when
restricted stock (or property) held by an Employee either becomes
freely transferable or is no longer subject to a substantial risk of
forfeiture (as described in Code Section 83 and the regulations
thereunder).
(e) Section 415 Compensation, further, does not include amounts realized
from the sale, exchange, or other disposition of stock acquired under
a qualified stock option. It also does not include other amounts which
receive special tax benefits, or contributions made by an Employer or
Affiliated Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in
Code Section 403(b) (whether or not the contributions are excludable
from the gross income of the Employee).
For any Self-Employed Individual, Section 415 Compensation means Earned
Income as defined in Section 1.10(c). For Limitation Years beginning after
December 31,1991, for purposes of applying the limitations of Section 3.03,
Section 415 Compensation for a Limitation Year is the compensation actually paid
or includable in gross income during such Limitation Year.
<PAGE>
The rules of Code Section 414(q)(6) shall apply, except that in applying
such rules, the term "family" shall include only the spouse of the Employee and
any lineal descendants of the Employee who have not attained age nineteen (19)
before the close of the year.
SECTION 1.47 - SOCIAL SECURITY RETIREMENT AGE means the age used as the
---------------------------------------------
retirement age under Section 216(1) of the Social Security Act, except that such
section shall be applied without regard to the age increase factor and as if the
early retirement age under Section 216(1)(2) of such Act were sixty-two (62).
For a Participant who was born before January 1, 1938, such age is 65; for a
Participant born after December 31, 1937 but before January 1, 1955, such age is
66; and for a Participant born after December 31, 1954, such age is 67.
SECTION 1.48 - SYSTEM COMMITTEE means the Retirement System Committee
-------------------------------
appointed to supervise the administration of the Texas Bankers Association
Retirement System.
SECTION 1.49 - SYSTEM COORDINATOR means a firm of employee benefit
---------------------------------
consultants and actuaries appointed by the System Committee to work with any
adopting Employer and the Trustee in the design, installation, and servicing of
employee benefit plans which have been or may from time to time be established
under the auspices of the Texas Bankers Association Retirement System.
SECTION 1.50 - TAXABLE WAGE BASE means the contribution and benefit base in
--------------------------------
effect under Section 230 of the Social Security Act at the beginning of the Plan
Year.
SECTION 1.51 - TOTAL AND PERMANENT DISABILITY means the inability to engage
---------------------------------------------
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration.
SECTION 1.52 - TRUSTEE means First Interstate Bank of Texas, N.A. or any
----------------------
duly appointed, qualified, and acting successor trustee which assumes the
responsibility and liability for the Plan Assets under such terms acceptable to
the Trustee and System Committee and upon execution of such document or
documents acceptable to the Trustee and System Committee evidencing acceptance
of Plan Assets and liabilities by such successor trustee. Notwithstanding the
above, the Employer may serve as its own Trustee if specified in the Adoption
Agreement and the Employer is a Bank with trust powers which are in accordance
with the banking laws of the State of Texas. In no event, however, shall such
Employer be Trustee of an unrelated Employer's plan (except to the extent the
Employer is specifically named Trustee or successor Trustee of the Texas Bankers
Association Retirement System Declaration of Trust) or of the Death Benefit
Reserve Account of Section 4.10(b)(1).
SECTION 1.53 - VALUATION DATE means the last day of the Plan Year, or any
-----------------------------
date upon which the Plan Committee requests a special valuation to be performed,
for purposes of valuing Plan Assets.
<PAGE>
SECTION 1.54 - VESTED ACCRUED RETIREMENT BENEFIT means the portion of the
------------------------------------------------
Accrued Retirement Benefit derived from Employer and Required Employee
Contributions, if any, and rollover contributions, if any, pursuant to Article
XIII to which a Participant has, at any given time, a nonforfeitable right.
SECTION 1.55 - YEAR OF SERVICE means a computation period of twelve (12)
------------------------------
consecutive months during which an Employee is credited with 1,000 or more Hours
of Service:
(a) Eligibility: For purposes of eligibility to participate, the
-----------
initial eligibility computation period shall begin with the date on
which the Employee is first credited with an Hour of Service for the
Employer. In the event a Participant fails to meet the service
requirement for eligibility to participate in the initial eligibility
computation period, the eligibility computation period shall shift to
the current Plan Year which includes the first anniversary of such
Employee's date of employment. An Employee who is credited with 1,000
or more Hours of Service in both the initial eligibility computation
period and the Plan Year which includes the first anniversary of such
Employee's date of employment will be credited with two (2) Years of
Service for purposes of eligibility to participate. The Plan Year
shall also be used as the computation period for determining a
Participant's eligibility to continue participation in the Plan. Years
of Service and Breaks in Service will be measured on the same
eligibility computation period.
(b) Vesting: For vesting purposes, a Year of Service shall be the
-------
twelve (12) consecutive month vesting computation period as set forth
in the Adoption Agreement during which an Employee completes 1,000 or
more Hours of Service.
(c) Accrual: For purposes of a Participant's accrual of benefits, a
-------
Participant's Years of Service shall mean (subject to any maximum
limitation on Years of Service specified in the Adoption Agreement)
the sum of: (i) the Participant's years of participation pursuant to
Article II, and (ii) other years specified in the Adoption Agreement
taken into account under the Plan's benefit formula. Participants who
complete fewer than 2,000 Hours of Service during the Plan Year shall
accrue a portion of their benefit in accordance with Section 4.01
regardless of their employment status on the last day of the Plan
Year.
(d) Break in Service: A Break in Service shall occur in a
----------------
computation period during which an Employee or Participant fails to be
credited with more than five-hundred (500) Hours of Service. Solely
for purposes of determining whether a Break in Service has occurred
for participation and vesting purposes in a particular computation
period, and notwithstanding
<PAGE>
provisions to the contrary in Section 1.26 for crediting Hours of
Service, an individual who is absent from work for maternity or
paternity reasons (regardless of whether paid or entitled to payment
therefor) shall receive credit for the Hours of Service which would
otherwise have been credited to such individual, but for such absence,
up to a maximum of 501 hours. In the event such hours cannot be
determined, eight (8) Hours of Service per day of such absence shall
be credited. An absence from work for maternity or paternity reasons
means an absence:
(1) by reason of the pregnancy of the individual;
(2) by reason of a birth of a child of the individual;
(3) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual; or
(4) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
The Hours of Service credited under this paragraph shall be credited:
(1) in the computation period during which the absence begins if
the crediting is necessary to prevent a Break in Service in that
period; or
(2) in all other cases, in the next following computation period.
Years of Service shall include all Years of Service prior to severance from
service other than any Year of Service which may be disregarded by reason of
prior Breaks in Service in accordance with applicable laws and regulations.
For purposes of computing an Employee's right to his Accrued Retirement
Benefit, Years of Service and Breaks in Service shall be measured on the same
vesting computation period.
If a Participant receives an accrual for a Plan Year in accordance with the
safe harbor accrual described in Section 4.01, such Participant shall be
credited with a Year of Service for accrual purposes for the Plan Year,
regardless of actual hours credited but subject to any maximum limitation on
Years of Service credited in the benefit formula specified in the Adoption
Agreement, in addition to Years of Service otherwise credited under the Plan.
<PAGE>
ARTICLE II
ELIGIBILITY
-----------
SECTION 2.01 - REQUIREMENTS FOR ELIGIBILITY: An Employee of an adopting
-------------------------------------------
Employer who has satisfied the minimum age and/or service requirement specified
in the Adoption Agreement, and is not a member of an ineligible classification
of Employees specified in the Adoption Agreement, shall be eligible to
participate in the Plan as of the Entry Date coincident with or immediately
following satisfaction of such requirements. An Eligible Employee shall
participate on the earlier of: (i) the first day of the Plan Year beginning
after the date on which the Employee met the minimum age and service
requirements under Code Section 410(a)(1), or (ii) six (6) months after the date
the requirements are met.
SECTION 2.02 - APPLICATION FOR PARTICIPATION: Upon becoming eligible to
--------------------------------------------
participate in the Plan, an Eligible Employee shall complete a Beneficiary
designation form and such other forms as deemed necessary by the Plan Committee
for participation in the Plan. An Eligible Employee shall also furnish any
information requested by the Plan Committee or Trustee, and consent to make
Required Employee Contributions, if any, as set forth in the Adoption Agreement
as a condition of participation herein. Upon becoming a Participant, an Employee
shall automatically be bound by the terms and conditions of the Plan, including
any amendments as may be made from time to time.
SECTION 2.03 - DETERMINATION OF ELIGIBILITY: The Plan Committee 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 in
accordance with this Plan and applicable laws and regulations.
SECTION 2.04 - REHIRED EMPLOYEES AND FORMER PARTICIPANTS: TERMINATION OF
------------------------------------------------------------------------
ELIGIBILITY: An Employee who satisfies the requirements for participation and
-----------
terminates employment prior to his Entry Date for participation herein and is
rehired before incurring a one-year Break in Service shall commence
participation immediately on date of re-employment but in no event prior to his
original Entry Date.
A Former Participant who had a vested interest in his Accrued Retirement
Benefit at the time of termination from service shall become a Participant
immediately upon date of re-employment.
A Former Participant who did not have a vested interest in his Employer
derived Accrued Retirement Benefit at the time of termination from service will
be considered a new Employee for eligibility purposes if the number of
consecutive one-year Breaks in Service equals or exceeds the greater of five (5)
years or the aggregate number of Years of Service before such Break in Service.
The aggregate number of Years of Service before the Break in Service will not
include any Years of Service disregarded under the preceding sentence by reason
of prior Breaks in Service. If such Former Participant's Years of Service before
termination may not be disregarded pursuant to this paragraph, such Former
Participant shall participate immediately upon date of re-employment.
<PAGE>
Years of Service for purposes of determining commencement of participation
upon rehire shall include all Years of Service prior to termination from service
other than any Year of Service which may be disregarded by reason of prior
Breaks in Service; except in the event the Adoption Agreement specifies a
minimum service requirement of more than one year and the Participant is 100%
vested in his Accrued Retirement Benefit derived from Employer contributions
upon entering the Plan, service before a one-year Break in Service performed by
an Employee who did not satisfy the Plan's eligibility requirements before
severing his service with the Employer shall not be included in determining the
Employee's satisfaction of the eligibility requirements upon re-employment.
An Employee or Former Participant who re-enters the Plan on a date other
than the Effective Date or Anniversary Date shall not be entitled to a death
benefit (other than the present value of such Participant's Vested Accrued
Retirement Benefit) set forth by formula in the Adoption Agreement, if any,
until the Anniversary Date next following reentry into the Plan.
SECTION 2.05 - INELIGIBLE EMPLOYEE: In the event a Participant shall go
----------------------------------
from an eligible class of Employees to an ineligible class of Employees or shall
cease to make Required Employee Contributions, if any, such Former Participant
shall continue to vest in his Accrued Retirement Benefit until the earlier of
such time as he incurs a Break in Service, or until the beginning of the vesting
computation period during which he makes no Required Employee Contributions. In
the event a Participant becomes ineligible to participate because he is no
longer a member of an eligible class of Employees, but has not incurred a Break
in Service, such Employee shall participate immediately upon his return to an
eligible class of Employees. If such Participant incurs a Break in Service, his
eligibility to participate shall be determined pursuant to Section 2.04.
An Employee who becomes an Eligible Employee shall not receive credit for
accrual purposes for any period of employment in which he was not a Participant
in this Plan. Notwithstanding the preceding sentence, if a Participant ceases to
be a Participant because he suspends his Required Employee Contributions to the
Plan during the Plan Year (but has made Required Employee Contributions at any
time during the Plan Year), he shall be considered a Participant for the entire
Plan Year for accrual purposes. If the Adoption Agreement specifies that all
service from date of employment shall be used to calculate a Participant's
Accrued Retirement Benefit, such service shall not include any period of
---
employment during which the Employee was not an Eligible Employee.
An Employee who is not a member of the eligible class of Employees who
becomes a member of the eligible class, shall participate immediately if such
Employee has satisfied the minimum age and/or service requirement and would have
previously become a Participant had he been in the eligible class.
SECTION 2.06 - SERVICE FOR PREDECESSOR EMPLOYER: If the Employer maintains
-----------------------------------------------
the Plan of a predecessor employer, service for such predecessor employer shall
be treated as service for the Employer. If the predecessor employer was not a
corporation, Years of Service shall include service with the predecessor
employer to the extent permitted by applicable laws and regulations.
<PAGE>
If the predecessor employer did not maintain a plan or maintained a plan that
has been terminated, Years of Service under this Plan shall include service with
the predecessor employer to the extent specified in the Adoption Agreement.
SECTION 2.07 - DISCONTINUANCE OF PARTICIPATION: In the event an Employee is
----------------------------------------------
required to make contributions to the Plan as a condition of participation, a
Participant wishing to discontinue participation shall give written notice of
intent to withdraw from participation to the Plan Committee thirty (30) days
prior to discontinuance. Following a one (1) year period from the date of
discontinuance, such former Participant shall be entitled to recommence
participation, but shall relinquish all right to Years of Service for purposes
of vesting and accrual of benefits for each year the Eligible Employee makes no
Required Employee Contributions to the Plan. Accrued Retirement Benefits
attributable to Employee contributions shall be distributed according to the
provisions of the Plan only upon the occurrence of death, Total and Permanent
Disability, severance, or retirement.
<PAGE>
ARTICLE III
CONTRIBUTIONS/MAXIMUM BENEFIT LIMITATIONS
-----------------------------------------
SECTION 3.01 - CONTRIBUTIONS BY THE EMPLOYER: The Employer shall remit to
--------------------------------------------
the Trustee, from time to time, such amount of contribution as the Plan
Committee and Employer, upon advice of the System Coordinator, shall determine
to be necessary to provide the benefits under the Plan by using such actuarial
methods and assumptions as will reasonably reflect the cost of Plan benefits.
Employer contributions shall be remitted on or before the date specified by law
for filing the Employer's federal income tax return (including extensions
thereof) for the applicable fiscal year or, if earlier, the time prescribed
under Code Section 412(m) for making Employer contributions to a defined benefit
retirement plan unless a funding waiver has been obtained for such contribution
in accordance with applicable government procedures.
SECTION 3.02 - CONTRIBUTIONS BY PARTICIPANTS:
--------------------------------------------
(a) The Employer may in its Adoption Agreement require contributions by
its Employees as a condition of participation in the Plan. Required
Employee Contributions, if any, shall first be applied to mortality
costs, if any, computed in accordance with applicable laws and
regulations. Such Required Employee Contributions shall be contributed
to the trust as soon as they can reasonably be segregated from the
Employer's general assets, but in no event later than ninety (90) days
from the date such amounts are either received by the Employer or
would otherwise have been paid to the Participant in cash.
(b) A Participant may discontinue his Required Employee Contributions by
notifying the Employer of his election in accordance with Section
2.07. However, withdrawal of amounts attributable to Required Employee
Contributions prior to termination of employment is not permitted. Any
Participant who has elected to discontinue his Required Employee
Contributions may resume making Required Employee Contributions
pursuant to Section 2.07.
(c) An Employee's right to an Accrued Retirement Benefit derived from
Required Employee Contributions shall be nonforfeitable.
(d) In the event the Employer specifies a benefit formula in the Adoption
Agreement which makes use of the permitted disparity rules described
in Section 4.01A, Required Employee Contributions shall be allocated
to each Participant's Required Employee Contribution Account.
<PAGE>
SECTION 3.03 - LIMITATIONS ON BENEFITS:
--------------------------------------
(a) Maximum Annual Benefit: Subject to certain exceptions described
----------------------
below, the Annual Benefit payable under this Plan in any Limitation
Year shall not exceed the lesser of: (i) $90,000 as adjusted by Code
Section 415(d) (the defined benefit dollar limitation); or (ii) 100%
of the Participant's average Section 415 Compensation for the period
of three consecutive years (or actual number of years for Employees
who have been employed for fewer than three years) during which the
Employee had the greatest aggregate Section 415 Compensation from the
Employer. In determining an Employee's average Section 415
Compensation, a Year of Service with the Employer is the twelve (12)
consecutive month period coincident with the Plan Year.
(b) Definition of Annual Benefit: For purposes of this Article,
----------------------------
"Annual Benefit" means a benefit payable in the form of a straight
life annuity on an annual basis with no ancillary benefit. If a
benefit is payable in any form other than a straight life annuity or a
qualified joint and survivor annuity, the Annual Benefit limitation
shall be applied by adjusting it to the equivalent of a straight life
annuity in accordance with the regulations prescribed by the Secretary
of the Treasury. The interest rate assumption used to determine
actuarial equivalence will be the greater of the interest rate
specified in the Adoption Agreement without regard to the applicable
interest rate or five (5%) percent. The Annual Benefit does not
include any benefits attributable to Required Employee Contributions
or rollover contributions, or the assets transferred from a qualified
plan that was not maintained by the Employer. No actuarial adjustment
to the benefit is required for (i) the value of benefits that are not
directly related to retirement benefits (ancillary benefits), and (ii)
the value of post-retirement cost-of-living increases made in
accordance with Code Section 415(d) and Section 1.415-3(c)(2)(iii) of
the regulations.
(c) Employer Plans Combined: For the purpose of the maximum
-----------------------
limitations of this Article, all defined benefit plans maintained by
the Employer, whether or not terminated, shall be treated as a single
defined benefit plan, and all defined contribution plans maintained by
the Employer, whether or not terminated, shall be treated as a single
defined contribution plan. Any Employee contributions made to the
defined benefit plan, whether required or voluntary, shall be
considered to be a separate defined contribution plan.
(d) Adjustments to Maximum Dollar Limitation:
----------------------------------------
<PAGE>
(1) If the Annual Benefit of the Participant commences before the
Participant's Social Security Retirement Age, but on or after age
sixty-two (62), the defined benefit dollar limitation as reduced
in accordance with Section 3.03(f), if necessary, shall be
determined as follows:
(i) If a Participant's Social Security Retirement Age is sixty-
five (65), the dollar limitation for benefits commencing on
or after age sixty-two (62) is determined by reducing the
defined benefit dollar limitation by 5/9 of one percent for
each month by which benefits commence before the month in
which the Participant attains age sixty-five (65).
(ii) If a Participant's Social Security Retirement Age is greater
than sixty-five (65), the dollar limitation for benefits
commencing on or after age sixty-two (62) is determined by
reducing the defined benefit dollar limitation by 5/9 of one
percent for each of the first thirty-six (36) months and
5/12 of one percent for each of the additional months (up to
24 months) by which benefits commence before the month of
the Participant's Social Security Retirement Age.
(2) If the Annual Benefit of a Participant commences prior to age
sixty-two (62), the defined benefit dollar limitation shall be
the actuarial equivalent of an Annual Benefit beginning at age
sixty-two (62), as determined above, reduced for each month by
which benefits commence before the month in which the Participant
attains age sixty-two (62). To determine actuarial equivalence,
the interest rate assumption is the greater of the rate specified
in the Adoption Agreement without regard to the applicable
interest rate or five (5%) percent. Any decrease in the defined
benefit dollar limitation determined in accordance with this
provision shall not reflect the mortality decrement to the extent
that benefits will not be forfeited upon the death of the
Participant.
(3) Notwithstanding paragraph (1) above, for Plan Years beginning
prior to January 1, 1987 and for all Plan Years of an Employer
exempt from tax under subtitle A of the Code, the $90,000 limit
shall not be reduced if the Annual Benefit begins on or after age
62. If the Annual Benefit begins before
<PAGE>
age 62, the dollar limitation shall be reduced so that it is the
actuarial equivalent of the dollar limitation beginning at age
62. However, the dollar limitation shall not be actuarially
reduced to less than: (1) $75,000 if the Annual Benefit commences
on or after age 55, or (2) the amount which is the actuarial
equivalent of the $75,000 limitation at age 55 if the Annual
Benefit commences prior to age 55. For purposes of adjusting the
dollar limitation applicable prior to age 62 or the $75,000
limitation applicable prior to age 55, the adjustment shall be
made pursuant to the Adoption Agreement except that the interest
rate assumption shall be the greater of five (5%) percent or the
rate specified in the Adoption Agreement (without regard to the
applicable interest rate defined in Section 1.41) and the
mortality decrement shall be ignored to the extent that a
forfeiture does not occur at death.
(4) If the Annual Benefit begins after the Participant's Social
Security Retirement Age (or for Plan Years beginning prior to
January 1, 1987 and for all Plan Years of an Employer exempt from
tax under Subtitle A of the Code, age 65), the dollar limitation
shall be increased so that it is the actuarial equivalent of the
dollar limitation at the Participant's Social Security Retirement
Age (or for Plan Years beginning prior to January 1, 1987, age
65). To determine actuarial equivalence, the interest rate
assumption used is the lesser of the rate specified in the
Adoption Agreement (without regard to the applicable interest
rate defined in Section 1.41) or five (5%) percent.
(5) For purposes of adjusting the dollar limitation applicable after
the Participant's Social Security Retirement Age (or for Plan
Years beginning prior to January 1, 1987 and for all Plan Years
of an Employer exempt from tax under Subtitle A of the Code, age
65), the adjustment shall be made pursuant to the Adoption
Agreement except that the interest rate assumption shall be the
lesser of five (5%) percent or the rate specified in the Adoption
Agreement (without regard to the applicable interest rate defined
in Section 1.41) and the mortality decrement shall be ignored to
the extent that a forfeiture does not occur at death.
(e) Cost of Living Adjustment in Maximum Limitation: The maximum
-----------------------------------------------
dollar limitation of $90,000 shall be automatically adjusted as
provided by Code Section 415(d) to reflect increases in cost-of-living
made after
<PAGE>
December 31, 1987 in accordance with regulations prescribed by the
Secretary of the Treasury. Adjustments to the dollar limitation shall
not be taken into account before the Limitation Year which ends with
or within the calendar year for which such adjustments are effective.
(f) If a Participant has fewer than ten (10) years of participation in the
Plan at the time he begins to receive benefits under the Plan, the
limitations in Sections 3.03(a)(i) and 3.03(d) shall be reduced by
multiplying such limitations by a fraction (i) the numerator of which
is the number of years of participation (or part thereof) in the Plan
and (ii) the denominator of which is ten (10), provided, however, that
said fraction shall in no event be less than 1/10th. The limitations
of Sections 3.03(a)(ii) shall be reduced in the same manner except the
preceding sentence shall be applied with respect to Years of Service
with the Employer rather than years of participation in the Plan.
Years of Service shall include future years occurring before the
Participant's Normal Retirement Age. Such future years shall include
the year which contains the date the Participant reaches Normal
Retirement Age, only if it can be reasonably anticipated that the
Participant will receive a Year of Service for such year.
Additionally, to the extent provided in regulations, the above
described reductions shall be applied separately with respect to each
change in the benefit structure of the Plan.
Notwithstanding the foregoing, for Limitations Years beginning
prior to January 1, 1987, if a Participant has fewer than ten (10)
Years of Service with the Employer at the time he begins to receive
benefits under the Plan, the limitations in Sections 3.03(a) and (d)
shall be reduced by multiplying such limitations by a fraction (i) the
numerator of which is the number of Years of Service (or part thereof)
with the Employer and (ii) the denominator of which is ten (10).
(g) Exception Benefit: Subject to the limitations of subparagraph (f)
-----------------
above, the Projected Retirement Benefit (without regard to the age at
which benefits commence) payable with respect to a Participant shall
not be considered as exceeding the limitations of subparagraph (a)
hereof if the benefit attributable to Employer contributions under the
Plan and all other defined benefit plans of the Employer does not
exceed $1,000 multiplied by the Participant's number of Years of
Service or parts thereof (not to exceed 10) with the Employer, and the
Employer has not at any time maintained a defined contribution plan, a
welfare benefit plan as defined in Code Section 419(e), or an
individual medical account as defined in Code Section 415(1)(2) in
which such Participant participated.
<PAGE>
(h) Preservation of Accrued Retirement Benefit: Notwithstanding the
------------------------------------------
limitations provided in subparagraph (a) hereof, the maximum annual
benefit computed under subparagraph (a) shall be a Participant's
Accrued Retirement Benefit payable under the Plan provisions in effect
at the close of the last Plan Year beginning before January 1, 1983,
if such Accrued Retirement Benefit is greater than the maximum annual
benefit provided for in subparagraph (a) based upon his rate of
compensation under the Plan in effect as of such date and based on the
Years of Service to such date. For purposes of calculating a
Participant's Accrued Retirement Benefit under this paragraph, no
changes in the terms and conditions of the Plan after July 1, 1982 and
no cost-of-living adjustments after July 1, 1982 shall be taken into
account.
With respect to a plan that was in existence on May 6, 1986 and
that met the applicable requirements of Code Section 415 as in effect
for all Limitation Years: If the Current Accrued Benefit of an
individual who is a Participant as of the first day of the Limitation
Year beginning on or after January 1, 1987 exceeds the benefit
limitations under Code Section 415(b), for purposes of Code Sections
415(b) and (e), the maximum annual benefit computed under subparagraph
(a) hereof with respect to such individual shall be equal to such
individual's Current Accrued Benefit. For purposes of this Section,
"Current Accrued Benefit" means a Participant's Accrued Retirement
Benefit under the Plan, determined as if the Participant had separated
from service as of the close of the last Limitation Year beginning
before January 1, 1987 when expressed as an annual benefit within the
meaning of Code Section 415(b)(2). In determining the amount of the
Participant's Current Accrued benefit, the following shall be
disregarded:
(1) any change in the terms and conditions of the Plan after May
5, 1986; and
(2) any cost-of-living adjustment occurring after May 5, 1986.
(i) Multiple Plan Reduction: If an Employee is covered (or has ever
-----------------------
been covered) by another plan maintained by the Employer, including a
qualified plan, a welfare benefit fund as defined in Code Section
419(e), or an individual medical account, as defined in Code Section
415(1)(2), which provides an annual addition as described in Section
3.03(j), the sum of the defined benefit plan fraction and the defined
contribution plan fraction for any Limitation Year may not exceed 1.0.
The defined benefit plan fraction for any Limitation Year is a
fraction (i) the numerator of which is the sum of the Projected
Retirement
<PAGE>
Benefit of the Participant under this Plan (determined as of the close
of the Plan Year), and the Projected Retirement Benefits from all
plans maintained by the Employer (whether or not terminated) under
which the Participant is or ever was covered, and (ii) the denominator
of which is the greater of the product of 1.25 multiplied by the
Accrued Retirement Benefit described in 3.03(h) or lesser of: (1) the
product of 1.25 multiplied by the maximum dollar limitation determined
under Code Section 415(b)(1)(A) and 415(d) for such Limitation Year,
or (2) the product of 1.4 multiplied by the amount which may be taken
into account under Code Section 415(b)(1)(B) for such Limitation Year.
Notwithstanding the above, if the Participant was a Participant
as of the first day of the Limitation Year beginning on or after
January 1, 1987, 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 1.25 multiplied by 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
plans 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.
The defined contribution plan fraction for any Limitation Year
is a fraction (i) the numerator of which is the sum of the Annual
Additions to the Participant's account for the current Limitation Year
and all prior Limitation Years under this Plan and any other defined
contribution plan or defined benefit plan maintained or ever
maintained by the Employer (whether or not terminated) including a
welfare benefit fund, as defined in Code Section 419(e), or an
individual medical account as defined in Code Section 415(1)(2), and
(ii) the denominator of which is the sum of, for each Year of Service
with the Employer (regardless of whether or not a plan was maintained
by the Employer), the lesser of the following amounts: (1) The product
of 1.25 multiplied by the dollar limitation determined under Code
Section 415(c)(1)(A) for such Limitation Year (determined without
regard to Code Section 415(c)(6)), or (2) the product of 1.4
multiplied by the amount which may be taken into account under Code
Section 415(c)(1)(B) for such Limitation Year.
(j) Definition of Annual Additions: For purposes of this Article,
------------------------------
"Annual Additions" means the sum credited to a Participant's accounts
under a defined contribution or defined benefit plan for any
Limitation Year of (i) Employer contributions to such defined
contribution plan, (ii) Employee contributions (except, however, for
Limitation Years beginning prior to
<PAGE>
January 1, 1987, only that portion of Employee contributions equal to
the lesser of (a) Employee contributions in excess of six (6%) percent
of Section 415 Compensation or (b) one-half ( 1/2) of Employee
contributions, shall be considered an annual addition), (iii)
forfeitures, (iv) 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
(v) 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.
(k) Definition of Employee Contributions: 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 the above
paragraph:
(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). The
Annual Additions for any Limitation Year beginning before January
1, 1987 shall not be recomputed to treat all Employee
contributions as Annual Additions.
(l) Transition Rules Where the Sum of Defined Contribution and
----------------------------------------------------------
Defined Benefit Plan Fractions Exceeds 1.0:
------------------------------------------
(1) If an Employee is a Participant in one or more defined benefit
and one or more defined contribution plans which were in
existence on July 1, 1982 and which satisfied the requirements of
Code Section 415 for the last Limitation Year beginning before
January 1, 1983, the numerator of the defined contribution plan
fraction shall be permanently reduced so that
<PAGE>
the sum of the defined benefit plan fraction and the defined
contribution plan fraction does not exceed 1.0. The numerator of
the defined contribution plan fraction shall be reduced by an
amount equal to the product of (i) the sum of the defined benefit
plan fraction and the defined contribution plan fraction as of
the determination date minus one (1), times (ii) the denominator
of the defined contribution plan fraction as of the determination
date. For purposes of this paragraph, the determination date is
the day preceding the first Limitation Year beginning after 1982.
(2) If an Employee is a Participant in one or more defined benefit
plans and one or more defined contribution plans which are top-
heavy plans required to substitute the number 1.0 for the number
1.25 wherever it appears in Sections 3.03(i) hereunder for the
first Limitation Year beginning after 1983, and which satisfied
the requirements of Code Section 415 for the last Limitation Year
beginning before 1984, the numerator of the defined contribution
plan fraction shall be permanently reduced so that the sum of the
defined benefit plan fraction and the defined contribution plan
fraction shall not exceed 1.0. The numerator shall be reduced by
an amount equal to the product of (i) the sum of the defined
benefit plan fraction and the defined contribution plan fraction
as of the determination date minus one (1), times (ii) the
denominator of the defined contribution plan fraction as of the
determination date. For purposes of this paragraph, the
determination date is the day preceding the first Limitation Year
after 1983.
(3) If an Employee is a Participant as of the first day of the first
Limitation Year beginning on or after January 1, 1987 in one or
more defined benefit plans and one or more defined contribution
plans which were in existence on May 6, 1986 and which satisfied
the requirements of Code Section 415 for the last Limitation Year
beginning before 1987, the numerator of the defined contribution
plan shall be permanently reduced so that the sum of the defined
benefit plan fraction and the defined contribution plan fraction
shall not exceed 1.0. The numerator shall be reduced by an amount
equal to the product of (i) the sum of the defined benefit plan
fraction plus the defined contribution plan fraction as of the
determination date minus one (1), times (ii) the denominator of
the defined contribution plan fraction as of the determination
date. For purposes of this paragraph, the determination date is
the day
<PAGE>
preceding the first Limitation Year after 1986, without regard to
any change in the terms and conditions of the plans made after
May 6, 1986, but subject to the Code Section 415 limitation
applicable to the first Limitation Year beginning on or after
January 1, 1987.
(m) Special Rule for Defined Contribution Fraction: At the election
----------------------------------------------
of the Plan Committee, in applying the provisions of this subparagraph
with respect to the defined contribution plan fraction for defined
contribution plans in effect on or before July 1, 1982, for any Plan
Year ending after December 31, 1982, the amount taken into account as
the denominator for each Participant for all Plan Years ending before
January 1, 1983 shall be an amount equal to the product of the amount
of the denominator determined under this subparagraph for Plan Years
ending before January 1, 1982, multiplied by a transition fraction (i)
the numerator of which is the lesser of (1) $51,875 or (2) 1.4
multiplied by twenty-five (25%) percent of the Participant's Section
415 Compensation for the Plan Year ending in 1981, and (ii) the
denominator of which is the lesser of (1) $41,500 or (2) twenty-five
(25%) percent of the Participant's Section 415 Compensation for the
Plan Year ending in 1981.
Notwithstanding the foregoing, for any Limitation Year in which
the Plan is top-heavy, $41,500 shall be substituted for $51,875 in
determining the transition fraction described above unless the extra
minimum benefit is being provided pursuant to Section 14.07. However,
for any Limitation Year in which the plan is a Super Top-Heavy Plan,
$41,500 shall be substituted for $51,875 in any event.
(n) Excessive Benefit: If the sum of the defined benefit plan
-----------------
fraction and the defined contribution plan fraction exceeds 1.0 in any
Limitation Year for any Participant in this Plan, the Employer shall
adjust the numerator of the defined contribution plan fraction so that
the sum of both fractions shall not exceed 1.0 in any year for such
Participant. If, after such limitation to the numerator of the defined
contribution fraction, the sum of the defined benefit plan fraction
and the defined contribution plan fraction still exceeds 1.0, the
Employer shall then adjust the numerator of the defined benefit plan
fraction so that the sum of both fractions does not exceed 1.0 in any
Limitation Year for such Participant.
If (i) the substitution of 1.0 for 1.25 and $41,500 for $51,875
above or (ii) the excess benefit accruals or annual additions provided
for in Internal Revenue Service Notice 82-19 cause the 1.0 limitation
to be exceeded for any Participant in any Limitation Year, such
Participant shall be subject to the following restrictions for each
future Limitation Year
<PAGE>
until the 1.0 limitation is satisfied: (1) the Participant's Accrued
Retirement Benefit shall not increase, (2) no Annual Additions shall
be credited to such Participant's account, and (3) no Employee
contributions shall be made by or on behalf of the Participant under
any defined benefit plan or defined contribution plan of the Employer.
(o) Plan of Controlled Group of Corporations: For the purpose of
----------------------------------------
this Article, 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)) or is a member of an affiliated service group (as
defined by Code Section 414(m)), all Employees of such Employers, and
any other entity required to be aggregated with the Employer pursuant
to regulations under Code Section 414(o), shall be considered to be
employed by a single Employer.
(p) Effective Date: Notwithstanding Section 1.15 to the contrary,
--------------
the provisions of this Section 3.03 shall be effective for Plan Years
beginning after December 31, 1986 except where otherwise indicated in
the context of any paragraph.
SECTION 3.04 - ANNUAL VALUATION: As of the Effective Date and each
-------------------------------
Anniversary Date of the Plan, the System Coordinator shall ascertain the amount
which, when added to the Required Employee Contributions, if any, must be
contributed by the Employer for the current Plan Year in order to fund the
benefits of the Plan on a sound actuarial basis in accordance with the Plan's
computation method and actuarial assumptions. In arriving at the amount required
to be contributed by the Employer for the second and subsequent Plan Years, the
System Coordinator shall use the value of assets determined by the Trustee as of
the immediately preceding Valuation Date and shall adjust the value so
determined to a Valuation value by means of an acceptable formula recommended by
the actuary and approved by the Plan Committee.
Notwithstanding anything to the contrary above, in no event shall the
actuarial asset valuation method result in an actuarial value of Plan Assets
which is less than eighty (80%) percent of the current fair market value of Plan
Assets at the Valuation Date or more than one-hundred twenty (120%) percent of
the current fair market value of Plan Assets at the Valuation Date.
SECTION 3.05 - INCORPORATION BY REFERENCE: Notwithstanding anything
-----------------------------------------
contained in this Article to the contrary, the limitations, adjustments, and
other requirements prescribed in this Article shall at all times comply with the
provisions of Code Section 415 and the regulations thereunder, the terms of
which are specifically incorporated herein by reference.
<PAGE>
ARTICLE IV
BENEFITS
--------
SECTION 4.01 - BENEFIT FORMULA/BASIC FORM OF BENEFIT/BENEFIT ACCRUAL
--------------------------------------------------------------------
SERVICE: The Employer shall specify in its Adoption Agreement the retirement
-------
benefit formula used to calculate a Participant's Projected Retirement Benefit
and the Considered Compensation to be used in the computation of benefits. The
normal retirement benefit of each Participant shall not be less than the largest
periodic benefit that would have been payable to the Participant upon separation
from service at or prior to Normal Retirement Age under the Plan exclusive of
social security supplements, premiums on disability or term insurance, and the
value of disability benefits not in excess of the normal retirement benefit. For
purposes of comparing periodic benefits in the same form, commencing prior to
and at Normal Retirement Age, the greater benefit is determined by converting
the benefit payable prior to Normal Retirement Age into the same form of annuity
benefit payable at Normal Retirement Age and comparing the amount of such
annuity payments. In the case of a top-heavy plan, the normal retirement benefit
shall not be smaller than the minimum benefit to which the Employee is entitled
under Section 14.04.
The Employer shall specify in its Adoption Agreement the basic form of
benefit payments for purposes of determining the funding requirements of the
Plan.
Considered Compensation shall be determined as of the date sixty (60) days
prior to the Valuation Date unless otherwise specified in the Adoption
Agreement. The Employer shall also specify in its Adoption Agreement whether
retirement benefits shall be computed on a career average basis or a final
average pay basis and the basic form of payment of monthly retirement benefits
from the Plan.
For purposes of determining a Year of Service for benefit accrual, the
accrual computation period shall be specified in the Adoption Agreement. In the
event a Participant is credited with fewer than 2,000 Hours of Service in the
accrual computation period, such Participant shall be credited with one-twelfth
(1/12) Year of Service for each month during such accrual computation period in
which the Participant is credited with at least eighty-three (83) Hours of
Service; provided, however, Years of Service not required to be counted for
vesting purposes pursuant to Section 4.05 on account of the Participant
incurring a Break in Service shall not be counted for purposes of benefit
accrual.
A Participant shall be credited with eighty-three (83) Hours of Service in
each month of his employment during an accrual computation period if, during
such period, his average number of Hours of Service per month equals or exceeds
eighty-three (83) Hours. Notwithstanding the above, in the event a Participant
completes 1,000 Hours of Service in a period of less than six (6) consecutive
months, he shall receive a pro-rata portion of his Accrued Retirement Benefit
for the year equal to his actual number of Hours of Service completed in the
computation period divided by 2,000.
<PAGE>
Unless the Participant elects an optional form of benefit payment under
Section 5.01(b), payment of normal retirement benefits under this Section 4.01
or Section 4.01A shall be in the form of a qualified joint and survivor annuity
described in Section 5.01(a).
Safe Harbor Accrual: If after crediting accruals in accordance with the
-------------------
above paragraph the Plan does not satisfy both the "Minimum Coverage
Requirements" of Code Section 410(b) and applicable regulations and the "Minimum
Participation Requirements" of Code Section 401(a)(26) and applicable
regulations, any Participant who completes more than 500 Hours of Service during
the Plan Year and who is employed on the last day of the Plan Year shall receive
an accrual for the Plan Year which bears the same ratio to a full accrual as the
number of hours the Participant actually completes bears to 2,000. Such benefit
shall be based upon the Considered Compensation the Participant would have
earned had he completed 2,000 Hours of Service.
If after crediting accruals in accordance with the above paragraph the Plan
still does not satisfy both the Minimum Coverage Requirements and the Minimum
Participation Requirements, any Participant who completes more than 500 Hours of
Service during the Plan Year, regardless of employment status at the end of the
Plan Year, shall receive an accrual for the Plan Year which bears the same ratio
to a full accrual as the number of hours the Participant actually completes
bears to 2,000. Such benefit shall be based upon the Considered Compensation the
Participant would have earned had he completed 2,000 Hours of Service.
SECTION 4.01A - BENEFIT FORMULA SUBJECT TO PERMITTED DISPARITY: In the
---------------------------------------------------------------
event the benefit formula specified in the Adoption Agreement incorporates
permitted disparity provisions, the benefit formula shall comply with the
limitations described in Code Section 401(l) and applicable laws and
regulations. Except as otherwise provided by the transitional rules in (c)
below, the provisions of this Article shall apply to Plan Years and benefits
attributable to Plan Years beginning after December 31, 1988. Pursuant to the
above, the following limitations shall be observed to the extent applicable in
addition to any other limitations required by the Adoption Agreement.
(a) Reduction to Maximum Excess Allowance: The following reduction
-------------------------------------
shall be applied to the .75% limit of the maximum excess allowance in
addition to any other reductions required by the Plan.
(i) For a unit benefit plan the .75% limit shall be reduced for Years
of Service in excess of thirty-five (35) to the extent necessary
so that total Years of Service times the new percentage limit
does not exceed 26.25%;
(ii) The .75% limit shall be reduced for retirement earlier than the
Participant's Social Security Retirement Age in accordance with
Section 4.04;
<PAGE>
(b) Reductions to Maximum Offset Allowance: The following reduction
--------------------------------------
shall be applied to the .75% limit of the maximum offset allowance in
addition to any other reductions required by the Plan.
(i) The .75% limit shall be reduced for retirement age earlier than
the Participant's Social Security Retirement Age in accordance
with Section 4.04;
(ii) Notwithstanding any plan provision to the contrary, the amount of
the Plan's offset shall not exceed the maximum offset otherwise
allowable prior to Plan Years beginning in 1989 reduced 1/15th
for each of the first five (5) years and 1/30th for each of the
next five (5) years by which the starting date of such benefit
precedes Social Security Retirement Age and reduced actuarially
for each additional year thereafter.
(c) Transitional Rule: The following transitional rule shall apply
-----------------
to all Participants with at least one (1) Hour of Service in a Plan
Year beginning after December 31, 1988. A Participant's Accrued
Retirement Benefit under the Plan as of any Plan Year beginning after
December 31, 1988 shall be equal to the greater of (i) the
Participant's Accrued Retirement Benefit determined under the plan as
of the close of the last Plan Year beginning before April 1, 1989 as
if the Participant terminated employment with the Employer on the date
the Plan was amended and restated to comply with the Tax Reform Act of
1986, or (ii) the Participant's Accrued Retirement Benefit taking into
account the Participant's total Years of Service for accrual purposes
based on the benefit formula under the Plan in effect for Plan Years
beginning on or after January 1, 1989.
If a Participant's Accrued Retirement Benefit is adjusted in
accordance with the above transitional rule, then with respect to
benefits accruing during Plan Years beginning after December 31, 1988,
each Participant will accrue a benefit of not less than (i) .5% of the
Participant's total Average Monthly Compensation times Years of
Service for accrual purposes (if the Plan uses a unit benefit
formula), or (ii) 25% of the Participant's total Average Monthly
Compensation (if the Plan uses a fixed benefit formula). The 25%
minimum in (ii) above shall be reduced 1/50th for each Year of Service
(for accrual purposes) less than 50 as of the date the accrual is
measured.
SECTION 4.02 - RETIREMENT SUBSEQUENT TO NORMAL RETIREMENT DATE: In the
--------------------------------------------------------------
event a Participant continues in the employment of the Employer beyond his
Normal Retirement Date, receipt of his benefit shall be deferred until date of
actual retirement, or, if provided in the Adoption Agreement,
<PAGE>
the Participant shall have the option to have such payments begin at any time
after Normal Retirement Date.
In the event such a Participant elects to defer receipt of his retirement
benefits, such benefits payable at date of actual retirement shall be increased
by the greater of (i) credit for accrual of benefits received for Years of
Service after his Normal Retirement Date, or (ii) the actuarial equivalence of
the single sum value of the benefit to which the Participant was entitled as of
the later of the immediately preceding Valuation Date or Normal Retirement Date
increased by the greater of the interest actually earned by the Plan or by the
interest assumption specified by the Employer for actuarial equivalence for
monthly benefits. The interest assumption shall be determined by the rate
specified in the Adoption Agreement without regard to the applicable interest
rate.
In the event such a Participant elects to begin receipt of the payment of
retirement benefits, such benefits will commence being paid as if the
Participant had actually retired on his Normal Retirement Date. As of each
Valuation Date subsequent to Normal Retirement Date but prior to his actual
retirement date, such Participant shall be entitled to a monthly retirement
benefit payable each subsequent Plan Year equal to the benefit determined in the
preceding paragraph offset by the actuarial equivalent value of the total
benefit distributions made by the close of the Plan Year.
SECTION 4.03 - ADJUSTMENTS IN RETIREMENT BENEFITS: The Projected Retirement
-------------------------------------------------
Benefit for each Participant shall be adjusted upward or may be adjusted
downward on each Anniversary Date to reflect increases or decreases in
Considered Compensation which have not theretofore been taken into consideration
in computing the amount of Projected Retirement Benefit which such Participant
shall be entitled to receive at his Normal Retirement Date.
SECTION 4.04 - EARLY RETIREMENT: The Employer may provide in the Adoption
-------------------------------
Agreement for payment of benefits prior to a Participant's Normal Retirement
Date upon separation from service after completion of a specified number of
Years of Service with the Employer or years of Plan participation and/or
attainment of a specified age. If qualification for early retirement benefits is
conditioned upon satisfaction of both an age and service requirement, a
Participant who satisfied the service requirement for such early retirement
benefit, but separates from service (with a vested interest in his Accrued
Retirement Benefit) before satisfying such age requirement, shall be entitled
upon satisfying such age requirement to receive a benefit not less than the
benefit to which he would be entitled at Normal Retirement Date actuarially
reduced in the same method prescribed in the Adoption Agreement for payment of
retirement benefits prior to reaching his Normal Retirement Date. Such early
retirement benefit shall be payable in accordance with the vesting schedule
specified in the Adoption Agreement
If the retirement benefit formula specified in the Adoption Agreement
prescribes benefits which are integrated with Social Security, then early
retirement benefits shall not be greater than the actuarial value of the
Participant's Vested Accrued Retirement Benefit. This requirement will be met if
either of the following adjustments is made:
<PAGE>
(a) The Participant's Vested Accrued Retirement Benefit is reduced 1/15
for each of the first five (5) years and 1/30 for each of the next
five (5) years by which the payment of early retirement benefits
precedes the Participant's Social Security Retirement Age; or
(b) The maximum permissible integration percentage of the retirement
benefit formula is reduced by the percentage of the greatest
difference between the actual early retirement reduction used, if any,
and the reduction specified in subparagraph (a) above.
Any Participant who is eligible to receive early retirement benefits may
request the Plan Committee to authorize the commencement of such benefits as of
the first day of any month coincident with or which next follows the
Participant's Early Retirement Date or, in lieu thereof, may request that
payment of benefits not commence until the Participant reaches his Normal
Retirement Date. Unless the Participant elects an optional form of benefit
payment under Section 5.01(b), payment of early retirement benefits shall be in
the form of a qualified joint and survivor annuity described in Section 5.01(a).
SECTION 4.05 - VESTING SERVICE/SEVERANCE BENEFIT: All of an Employee's
------------------------------------------------
Years of Service with the Employer shall be counted to determine his vested
percentage in his Accrued Retirement Benefit derived from Employer contributions
except service excludable under the Break in Service rules described below or as
specified in the Adoption Agreement. A Participant shall at all times be one-
hundred (100%) percent vested in that portion of his Accrued Retirement Benefit
derived from Employee Contributions, if any.
Unless otherwise specified in the Adoption Agreement, the computation
period for determining Years of Service and Breaks in Service for purposes of
calculating a Participant's vested percentage shall be the twelve (12)
consecutive month period beginning on the date the Employee first performs an
Hour of Service for the Employer and each anniversary of such date.
For vesting purposes, a Former Participant who had a vested interest in all
or any portion of his Accrued Retirement Benefit derived from Employer
contributions at date of termination from service shall receive credit for Years
of Service prior to a Break in Service upon becoming re-employed by the
Employer, unless they may be disregarded by reason of previous Breaks in
Service.
A Former Participant who did not have a vested interest in all or any
portion of his Accrued Retirement Benefit derived from Employer Contributions at
date of termination from Service shall receive credit for Years of Service prior
to such Break in Service upon becoming re-employed by the Employer if the number
of consecutive one-year Breaks in Service is less than the greater of five (5)
years or the aggregate number of Years of Service before such Break. Such
aggregate number of Years of Service before such Break in Service shall be
deemed not to include any Years of Service not required to be taken into account
by reason of any prior Break in Service.
<PAGE>
Any Participant whose service with the Employer is terminated prior to his
Normal Retirement Date and who is not otherwise eligible to receive benefits
under some other provision of the Plan, shall have his benefits determined as
follows:
(a) The Participant's Accrued Retirement Benefit derived from Required
Employee Contributions (as calculated in Section 4.06 below), if any,
computed at date of severance, plus
(b) The Participant's Accrued Retirement Benefit derived from Employer
contributions computed at date of severance multiplied by the
appropriate vested percentage pursuant to the schedule specified in
the Adoption Agreement, plus
(c) The Participant's Required Employee Contributions plus interest,
if any, allocated to a separate account under the Plan.
Except as otherwise provided in Section 5.04, payment of Vested Accrued
Retirement Benefits attributable to Employer contributions shall be delayed
until the Participant's Normal Retirement Date and, unless the Participant
elects an optional form of benefit payment under Section 5.01(b), payment of
such benefits shall be in the form of a qualified joint and survivor annuity
described in Section 5.01(a). No separated Participant's benefits or rights to
benefits shall ever be decreased due to any increase in Social Security
benefits.
SECTION 4.06 - ACCRUED RETIREMENT BENEFIT DERIVED FROM REQUIRED EMPLOYEE
------------------------------------------------------------------------
CONTRIBUTIONS (PRE-1992): For Plan Years beginning prior to January 1, 1992, the
------------------------
Accrued Retirement Benefit derived from Required Employee Contributions shall be
computed as follows:
(a) The total amount of contributions made by a Participant as a condition
of participation in the Plan and, where applicable, a prior plan; plus
(b) Interest, if any, required by the terms of the prior plan to be paid
on such contributions up to the ERISA compliance date; plus
(c) Interest compounded annually at the rate of five (5%) percent from
the ERISA compliance date or the date the Participant began
participation in the Plan, whichever is later, to the end of the last
Plan Year beginning before January 1, 1988 or the Participant's Normal
Retirement Age whichever is earlier; plus
(d) (1) Interest compounded annually at the rate of one-hundred twenty
(120%) percent of the Federal mid-term rate (as in effect under
Code Section 1274 for the first month of the Plan Year) from the
beginning of the first Plan Year commencing after December 31,
1987 to the "determination date." (For
<PAGE>
purposes of this paragraph, the "determination date" is the date
as of which the Employee derived Accrued Retirement Benefit is
determined.); plus
(2) Interest compounded annually at the "projected rate" from
the determination date (as defined in (1) above) to the
Participant's Normal Retirement Date. For purposes of this
paragraph, the "projected rate" is either the Plan's rate for
determining actuarial equivalence for lump sum benefits specified
in the Adoption Agreement or the rate for determining plan
liabilities by the Pension Benefit Guaranty Corporation on plan
termination, whichever rate provides the higher lump sum value at
the Valuation Date. The mortality assumption used for this
determination shall be the mortality assumption specified in the
Adoption Agreement for determining lump sum benefits.
(e) If the benefit is paid in a form of annuity involving life
contingencies, the amount of the annuity shall be determined using the
interest and mortality assumptions specified in subparagraph (d)(2)
above.
Where the terms of the Plan, or prior plan, at any time require that an
Employee make contributions in order to be a Participant, and the Plan or prior
plan has been amended so as to no longer require contributions, the
Participant's Accrued Retirement Benefit derived from Required Employee
Contributions and Accrued Retirement Benefit derived from Employer Contributions
shall be determined as if the Plan required contributions of the Employee as a
condition of participation at the time of termination of employment. This
section, however, shall not apply to the extent that the contributions the
Participant has made to the Plan (or prior plan) have been refunded.
The Accrued Retirement Benefit shall equal the excess, if any, of the
Accrued Retirement Benefit over the Accrued Retirement Benefit derived from
Required Employee Contributions. A Participant shall be 100% Vested in the
Employee derived Accrued Retirement Benefit.
SECTION 4.07 - ALLOCATION OF REQUIRED EMPLOYEE CONTRIBUTIONS TO SEPARATE
------------------------------------------------------------------------
PARTICIPANT ACCOUNTS: Any Required Employee Contributions made for Plan Years
--------------------
beginning on or after January 1, 1992 shall be allocated to individual
Participant Accounts. The Plan Committee shall establish and maintain individual
Participant Accounts for each Participant. The Employer shall provide the Plan
Committee with all information required by the Plan Committee to make a proper
allocation to Participant Accounts as follows:
(a) Net Income (or Loss): As of each Valuation Date, Participant
--------------------
Accounts (including Accounts of Former Participants) shall be adjusted
to reflect any net appreciation or net depreciation in Plan Assets,
gains, losses, or
<PAGE>
expenses of Plan administration (if the Plan Committee has directed
the Trustee to pay such expenses from Plan Assets) attributable to
Participant Accounts. Adjustments to Participant Accounts shall be
based on the ratio in which the average monthly Account balance of
each Account bears to the average monthly Account balance of all
Participant Accounts. The average monthly Account balance shall be
determined by taking the sum of the balances of each Account as of the
last day of each month during the valuation period, adjusted for
monthly allocations made thereto for Required Employee Contributions,
and dividing by the number of months in the valuation period.
(b) Required Employee Contributions: Required Employee Contributions
-------------------------------
shall be allocated to each Participant's Account in an amount equal to
the Participant's Required Employee Contributions made for the Plan
Year.
SECTION 4.08 - CONTRIBUTION PERCENTAGE TESTS AND ADJUSTMENT FOR EXCESSIVE
-------------------------------------------------------------------------
ALLOCATIONS:
-----------
(a) Contribution Percentage Tests: For each Plan Year, the annual
-----------------------------
allocation derived from Required Employee Contributions to a
Participant's Account shall satisfy one of the following tests:
(1) The Average Contribution Percentage for the Highly
Compensated Participants shall not be more than the Average
Contribution Percentage for the Non-Highly Compensated
Participants multiplied by 1.25, or
(2) The excess of the Average Contribution Percentage for the Highly
Compensated Participants over the Average Contribution Percentage
for the Non-Highly Compensated Participants shall not be more
than two (2) percentage points (or such lesser amount determined
pursuant to regulations to prevent the multiple use of this
alternative limitation with respect to any Highly Compensated
Participant), and the Average Contribution Percentage for the
Highly Compensated Participants shall not exceed the Average
Contribution Percentage for the Non-Highly Compensated
Participants multiplied by two (2).
(b) Average Contribution Percentage: "Average Contribution
-------------------------------
Percentage" means the average of the ratios, calculated separately for
each Eligible Employee, of the sum of Required Employee Contributions,
if any, made for the Plan Year to such Participant's Compensation for
the Plan Year.
<PAGE>
(c) Compensation: For the purposes of this Section, the term
------------
"Compensation" shall mean the Total Compensation earned while a
Participant in the Plan for such Plan Year.
(d) Aggregation of Plans: For the purposes of this Section, if two
--------------------
(2) or more plans are considered as one (1) plan for the purposes of
Code Section 401(a)(4) or 410(b), or if a Highly Compensated
Participant is a Participant under two (2) or more plans of the
Employer or an Affiliated Employer, all such plans shall be treated as
one (1) plan for purposes of applying the contribution percentage
tests.
(e) Distribution of Excess Allocation: In the event the Average
---------------------------------
Contribution Percentage for the Highly Compensated Participants
exceeds the permissible percentage relative to the Average
Contribution Percentage for the Non-Highly Compensated Participants
specified in subparagraph (a) above, the Plan Committee (on or before
the fifteenth day of the third month following the end of the Plan
Year, if possible, but in no event later than the last day of the
twelve (12) month period immediately following such Plan Year) shall
direct the Trustee to distribute the "Excess Aggregate Contributions"
(and any income allocable to such contributions for the Plan Year and
the period between the end of the Plan Year and the date of
distribution) to the Highly Compensated Participants to the extent
necessary to satisfy the tests described in subparagraph (a). Such
distribution shall be made to the Highly Compensated Participants in
order of their contribution percentages (derived from Required
Employee Contributions, if any) beginning with the Highly Compensated
Participant having the highest contribution percentage and continuing
in a manner such that no reduction is made with respect to any Highly
Compensated Participant as long as any other Highly Compensated
Participant has a higher percentage in effect of Required Employee
Contributions to Compensation.
For purposes of this Section, "Excess Aggregate Contributions"
means, with respect to any Plan Year, the excess of:
(1) The aggregate amount of Required Employee Contributions, if
any, actually made by the Highly Compensated Participant for such
Plan Year, over
(2) The maximum amount of such contributions permitted by the
limitations of subparagraph (a) above.
(f) Interim Average Contribution Percentage Test: At any time prior
--------------------------------------------
to the end of the Plan Year the Plan Committee may, in its sole
discretion,
<PAGE>
perform one or more Average Contribution Percentage Tests in order to
project the results of the Average Contribution Percentage Tests for
the Plan Year. In the event the Plan Committee determines from this
interim test that the limitations of subparagraph (a) above are
expected to be exceeded, it may either cease or reduce Required
Employee Contributions for the Highly Compensated Participants in a
manner similar to the leveling method described in subparagraph (e)
above to the extent necessary to meet the limitations of subparagraph
(a).
(g) In the case of a Highly Compensated Participant whose contribution
percentage is determined under the family aggregation rules, the
determination and correction of the amount of excess contributions
shall be made by reducing the Highly Compensated Participant's
contribution percentage as required in subparagraph (b) above and
allocating the excess contributions for the family group among the
family members in proportion to the Excess Aggregate Contributions of
each family member that is combined to determine the contribution
percentage of the family group.
SECTION 4.09 - TOTAL AND PERMANENT DISABILITY: Unless otherwise specified
---------------------------------------------
in the Adoption Agreement, a Participant shall become one-hundred (100%) percent
vested in his Accrued Retirement Benefit upon Total and Permanent Disability and
shall be eligible for a distribution of his benefit in accordance with Article
V. If the retirement benefit formula elected by the Employer prescribes benefits
which are integrated with Social Security, a Participant must be eligible for
disability benefits under the Social Security Act in order to qualify for
disability benefits under the Plan. The disability status of a Participant if
the Plan is not integrated with Social Security shall be determined by the Plan
Committee.
Unless the Participant elects an optional form of benefit payment under
Section 5.01(b), payment of disability benefits shall be in the form of a
qualified joint and survivor annuity described in Section 5.01(a). Any amount
due a disabled Participant at date of death will be paid to his designated
Beneficiary in accordance with the manner of payment elected by the Participant.
SECTION 4.10 - DEATH BENEFITS:
-----------------------------
(a) Amount of Death Benefit:
-----------------------
(1) Before Normal Retirement Age Participants: The Employer
-----------------------------------------
shall specify in its Adoption Agreement the death benefit to be
paid to the Beneficiary of a Participant who dies prior to Normal
Retirement Age while employed by the Employer and who was
accruing a benefit under the Plan as of the date of death. The
death benefit shall in no event be less than the
<PAGE>
present value of such Participant's Vested Accrued Retirement
Benefit, if any.
(2) Separated Participants: The death benefit payable to a
----------------------
Participant who has separated from service with a deferred Vested
Accrued Retirement Benefit shall be the present value of such
deferred Vested Accrued Retirement Benefit.
(3) On or after Normal Retirement Age: The death benefit payable
---------------------------------
to a Participant who dies on or after reaching Normal Retirement
Age but prior to commencement of payment of retirement benefits
shall be the present value of the reserve required to provide the
Participant's Accrued Retirement Benefit which the Participant
would have been entitled to receive had the Participant retired
as of the date of death.
(4) After Commencement of Retirement Benefits: In the event of
-----------------------------------------
death of a Participant subsequent to the commencement of
retirement benefits, such Participant's Beneficiary shall be
entitled to whatever death benefit may be available, if any,
pursuant to the benefit option under which the Participant's
benefit is being paid.
(5) Incidental Death Benefit Limitation: Death Benefits provided
-----------------------------------
by the Plan shall be incidental to the retirement benefits
hereunder and shall not exceed the greatest of (i), (ii), or
(iii) below:
(i) one-hundred (100) times the Participant's Projected Monthly
Retirement Benefit plus Required Employee Contributions, if
any, with interest credited thereon;
(ii) the reserve which would be accumulated in a typical
retirement income contract to provide the Participant's
Projected Monthly Retirement Benefit, or;
(iii) the face amount of any whole life insurance contract or term
insurance contract in effect on the life of a Participant
plus one-hundred (100%) percent of such Participant's
actuarial reserve. Such reserve shall be equal to the
accumulated value of the deposits, as of the date of death
of the
<PAGE>
Participant, that would have been required to fund the
monthly Projected Retirement Benefit on the assumption that
Plan benefits were funded using the level premium method of
funding less any cash surrender value available under a
whole life insurance contract. The normal cost shall be
determined through the valuation date preceding the date of
a Participant's death. If whole life or other cash value
life insurance is purchased, the premium shall be less than
sixty-six and two-thirds percent (66 2/3%) of the amount of
a Participant's cost as determined under the level premium
method of funding. In determining such limitations on any
life insurance premiums, the Participant's normal cost, at
any time, shall be the cumulative normal cost that would be
required to be made on behalf of the Participant to fund his
monthly Projected Retirement Benefit on the assumption that
the monthly Projected Retirement Benefit was being funded on
the level premium method of funding. If term insurance is
purchased, then the sixty-six and two-thirds (66 2/3%)
percent hereinabove shall be reduced to thirty-three and
one-third (33 1/3%) percent. In addition the following shall
apply:
(I) Level premium method means the calculation of a
Participant's level normal cost for his monthly
Projected Retirement Benefit based upon his attained
age and using the interest rate currently used for
funding the Plan. Changes which affect the level normal
cost shall be taken into account in the year they
occur, and
(II) If a Participant's premium exceeds the sixty-six and
two-thirds (66 2/3%) percent limitation, then that
Participant's death benefit shall be equal to the
actuarial equivalent of his Accrued Retirement Benefit
plus the proceeds of any whole life insurance contract
or term insurance contract in
<PAGE>
effect on the life of the Participant, excluding any
key man insurance. Any cash surrender value available
under a whole life insurance contract shall be
subtracted from the actuarial equivalent of the Accrued
Retirement Benefit.
(b) Method for Funding Death Benefits: The Employer shall specify in
---------------------------------
its Adoption Agreement one of the following methods or combination
thereof for funding death benefits:
(1) Death benefits provided through the facilities of the Death
Benefit Reserve Account: It is specifically provided that if the
Employer elects this method for any of its Participants, this
method shall be applied consistently for at least seventy (70%)
percent of its Participants. The anticipated cost to provide the
death benefit for each Participant shall be calculated by the
System Coordinator each year as a regular part of the funding
liability of the Employer. The liability applicable to such death
benefits shall be calculated in accordance with the 1960
Commissioner's Standard Group Table of Mortality with four (4%)
percent interest. Mortality experience of all Employers electing
to provide death benefits through the facilities of the Death
Benefit Reserve Account shall be handled on a pooled basis. The
System Coordinator shall allocate to the Death Benefit Reserve
Account the anticipated cost to fund the death benefits
applicable to the Participants of each Employer as of the
Anniversary Date of such Employer's plan. Benefits paid by reason
of the death of any such Participant shall be pro-rated in the
Death Benefit Reserve Account among all Employers participating
in such account in the ratio which the liability of each Employer
in the account bears to the liability of all Employers in the
account as of the Participant's date of death.
Upon the death of a Participant whose death benefits are
provided through the facilities of the Death Benefit Reserve
Account, the Plan Committee shall forward to the System
Coordinator a certified copy of the death certificate and a copy
of the Beneficiary designation executed by the Participant. The
System Coordinator shall thereupon (1) calculate the death
benefit payable, (2) calculate the amount to be charged against
the account of each Employer participating in the
<PAGE>
Death Benefit Reserve Account, and (3) notify the Trustee of the
amount to be charged against the account of each such Employer
and of the amount of death benefits payable to the Beneficiary
designated by the Participant.
It is specifically provided that the Trustee, at the
direction of the System Committee and upon the advice of the
System Coordinator, may reinsure any portion or all of the death
benefits provided through the Death Benefit Reserve Account.
(2) Death benefits provided through the purchase of insurance
policies to the extent each Participant is insurable. The Trustee
shall be owner and Beneficiary of such policies. This method of
funding death benefits shall be considered as funded through Plan
Assets.
(c) Designation of Beneficiary/Spousal Consent: Subject to the
------------------------------------------
spousal consent requirements below, a Participant shall designate the
Beneficiary entitled to receive death benefits under the provisions of
this Section at the time and in the manner established by the Plan
Committee, including the Beneficiary of any insurance contract issued
on the Participant's life (unless death benefits are to be paid solely
from Plan Assets). The Participant may at any time change his
Beneficiary designation by filing written notice of such change which
shall become effective upon its receipt by the Plan Committee. Death
benefits which become payable on account of the death of a married
Participant, except death benefits which exceed the present value of
the Participant's Vested Accrued Retirement Benefit, shall be payable
to such Participant's surviving spouse and the Participant shall be
deemed to have named his surviving spouse as Beneficiary regardless of
any Beneficiary designation to the contrary unless the spouse consents
in writing to the Participant designating a Beneficiary other than the
spouse. Written consent of the spouse to the Participant's naming
someone else as Beneficiary shall be on the Beneficiary designation
form furnished by the Plan Committee, shall acknowledge the specific
nonspouse Beneficiary (including any class of Beneficiaries or
contingent Beneficiaries), shall provide for the spouse acknowledging
the effect of the consent, shall be witnessed by a Plan representative
or notary public, and shall be effective only with respect to the
spouse who signs it. Any prior designation by a Participant for whom
no spousal consent was required prior to the time of payment of death
benefits, but for whom spousal consent is required when benefits are
paid, shall be void, and the Participant's spouse at date of death
shall be deemed as his designated Beneficiary.
<PAGE>
Spousal consent in accordance with the preceding paragraph shall
not be required if the Participant establishes to the satisfaction of
the Plan Committee that he has no spouse, that the Participant's
spouse cannot be located, or for such other reason as may be permitted
by applicable regulations.
In the event an unmarried Participant dies without leaving an
effective Beneficiary designation, the death benefit shall be paid to
the first-named Beneficiary, or class of Beneficiaries, of the
following successive Beneficiaries who survive the Participant:
(1) lawful descendants, including legally adopted persons, per
stirpes and not per capita;
(2) father and mother, equally or all to the survivor;
(3) brothers and sisters, equally;
(4) the duly appointed and qualified executor or administrator
of the Participant's estate for the benefit of such estate.
(d) Proof of Death: The Plan Committee may require such proper proof
--------------
of death and such evidence of the right of any person to receive
payment of the death benefits hereunder. The Plan Committee's
determination of proper proof of death and the right of any person to
receive payment shall be conclusive.
(e) Form of Payment: Unless the Participant (or, where the Participant
---------------
has died, the surviving spouse) elects an optional form of benefit
payment under Section 5.01(b), payment of death benefits shall be in
the form of a qualified joint and survivor benefit, if death occurs on
or after the Participant's Normal Retirement Date, or a qualified pre-
retirement survivor annuity if death occurs before the Participant's
Normal Retirement Date.
<PAGE>
ARTICLE V
DISTRIBUTION OF BENEFITS
------------------------
SECTION 5.01 - DISTRIBUTION OF BENEFITS: The provisions of this Article V
---------------------------------------
shall apply to a Participant who is vested in amounts attributable to Employer
contributions, Required Employee Contributions, if any, or both at the time of
death or distribution. Benefits will be paid from this Plan only on death as
provided by Sections 4.10 and 5.05, Total and Permanent Disability as provided
by Section 4.09, termination of employment as provided by Section 4.05, Plan
termination as provided by Article IX, early retirement as provided in the
Adoption Agreement and Section 4.04, or at Normal Retirement Date as provided by
Section 4.01 or 4.01A in accordance with the following:
(a) Automatic Form of Distribution:
------------------------------
(1) Qualified Joint and Survivor Annuity: Unless otherwise
------------------------------------
elected in accordance with the provisions of this Section, a
Participant who is married on the annuity starting date as
defined below and who does not die before the annuity starting
date shall receive the value of Accrued Retirement Benefits
hereunder in the form of an immediate qualified joint and
survivor annuity payable as of the annuity starting date. Such
qualified joint and survivor annuity following the Participant's
death shall continue to the spouse during the spouse's lifetime
at a rate equal to fifty (50%) percent of the rate at which such
annuity was payable to the Participant. The Participant may elect
to receive a smaller annuity benefit with continuation of
payments to the spouse at a rate of seventy-five (75%) percent or
one-hundred (100%) percent of the rate payable to a Participant
during his lifetime.
An unmarried Participant shall receive the value of Accrued
Retirement Benefits hereunder in the form of an immediate life
annuity payable as of the annuity starting date. Such unmarried
Participant, however, may elect in writing to waive the life
annuity. The election must comply with the provisions of this
Section as if it were an election to waive the qualified joint
and survivor annuity by a married Participant, but without the
spousal consent requirement.
The qualified joint and survivor annuity and the life
annuity form of distribution shall be the actuarial equivalent of
the basic form of benefit specified in the Adoption Agreement.
<PAGE>
A Participant may elect to have the qualified joint and
survivor annuity or life annuity, as applicable, distributed upon
attainment of the earliest retirement age under the Plan,
provided the Participant is no longer employed by the Employer on
the date distribution begins (unless otherwise specified in the
Adoption Agreement).
(2) Waiver Election: Any election to waive the qualified joint
---------------
and survivor annuity must be made by the Participant in writing
during the election period defined below and must be consented to
in writing by the Participant's spouse. Such election shall
designate a specific alternate Beneficiary, including any class
of Beneficiaries or any contingent Beneficiary, (or a form of
benefits) that may not be changed without spousal consent (unless
the consent of the spouse expressly permits designations by the
Participant without the requirement of further consent by the
spouse). Such spouse's consent shall be irrevocable and must
acknowledge the effect of such election and be witnessed by a
Plan representative or a notary public. Such consent shall not be
required if it is established to the satisfaction of the Plan
Committee that the required consent cannot be obtained because
there is no spouse, the spouse cannot be located, or other
circumstances that may be prescribed by regulations.
The election made by the Participant and consented to by the
Participant's spouse may be revoked by the Participant in writing
without the consent of the spouse at any time during the election
period. The number of revocations shall not be limited, however
any new election must comply with the requirements of this
paragraph. Any consent by a spouse obtained under this provision
(or establishment that the consent of a spouse may not be
obtained) shall be effective only with respect to such spouse. A
consent that permits designations by the Participant without any
requirement of further consent by such spouse must acknowledge
that the spouse has the right to limit consent to a specific
beneficiary, and a specific form of benefit where applicable, and
that the spouse voluntarily elects to relinquish either or both
of such rights. No consent obtained under this provision shall be
valid unless the Participant has received notice as provided in
subparagraph 3 below.
<PAGE>
(3) Election Period: The election period to waive the qualified
---------------
joint and survivor annuity shall be the ninety (90) day period
ending on the annuity starting date.
(4) Annuity Starting Date: For purposes of this Section, the
---------------------
annuity starting date means the first day of the first period for
which an amount is payable as an annuity, or, in the case of a
benefit not payable in the form of an annuity, the first day on
which all events have occurred which entitle the Participant to
such benefit. The annuity starting date for disability benefits
shall be the date such benefits commence if the disability
benefit is not an auxiliary benefit. An auxiliary benefit is a
disability benefit which does not reduce the benefit payable at
Normal Retirement Age. If benefit payments in any form are
suspended pursuant to Section 5.02 for an Employee who continues
in service without a separation and who does not receive a
benefit payment, the recommencement of benefit payments shall be
treated as a new annuity starting date.
(5) Disclosure: With regard to the election, the Plan Committee
----------
shall provide the Participant at least thirty (30) days but no
more than ninety (90) days before the annuity starting date (and
consistent with regulations) a written explanation of:
(i) the terms and conditions of the qualified joint and
survivor annuity,
(ii) the Participant's right to make and the effect of an
election to waive the qualified joint and survivor annuity,
(iii) the right of the Participant's spouse to consent to any
election to waive the qualified joint and survivor annuity,
and
(iv) the right of the Participant to revoke, and the effect
of such revocation of, a previous election to waive the
qualified joint and survivor annuity, and
(v) the relative values of the various optional forms of
benefit under the Plan.
<PAGE>
(6) Applicability: The qualified joint and survivor annuity
-------------
requirements provided for in this Section shall apply only to
Participants who are credited with an Hour of Service on or after
August 23, 1984. Former Participants who are not credited with an
Hour of Service on or after August 23, 1984 shall have the right to
have a qualified joint and survivor annuities provided to them in
accordance with the terms of this Plan in effect prior to the
effective date of this amendment and restatement and in accordance
with the provisions of Section 303(e)(1) of the Retirement Equity
Act of 1984.
(i) Transitional Rules: Any living Participant not receiving
------------------
benefits on August 23, 1984, who would otherwise not receive the
benefits prescribed by the other Sections of this Article, must
be given the opportunity to elect to have the
other Sections of this Article apply if such Participant is
credited with at least one Hour of Service under this Plan or a
predecessor plan in a Plan Year beginning on or after January 1,
1976, and such Participant had at least ten (10) years of
vesting service when he or she separated from service.
(ii) Any living Participant not receiving benefits on August 23, 1984,
who was credited with at least one Hour of Service under this
Plan or a predecessor Plan on or after September 2, 1974, and who
is not otherwise credited with any service in a Plan Year
beginning on or after January 1, 1976, must be given the
opportunity to have this or her benefits paid in accordance with
subparagraph (iv) below.
(iii) The respective opportunities to elect (as described in (i) and
(ii) above) must be afforded to the appropriate Participants
during the period commencing on August 23, 1984, and ending on
the date benefits would otherwise commence to said Participants.
(iv) Any Participant who has elected pursuant to
subparagraph (ii) above and any Participant who does not elect
under subparagraph (i) or who
<PAGE>
meets the requirements of (i) except that such Participant does
not have at least ten (10) years of vesting service when he or
she separates from service, shall have his or her benefits
distributed in accordance with all of the following requirements
if benefits would have been payable in the form of a life
annuity:
(I) Automatic joint and survivor annuity. If benefits in
the form of a life annuity become payable to a married
Participant who:
(A) begins to receive payments under the Plan on or
after Normal Retirement Age; or
(B) dies on or after Normal Retirement Age while
still working for the Employer; or
(C) begins to receive payments on or after the
qualified early retirement age; or
(D) separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement age)
and after satisfying the eligibility requirements for
the payment of benefits under the Plan and thereafter
dies before beginning to receive such benefits; then
such benefits will be received under this Plan in the
form of a qualified joint and survivor annuity, unless
the
<PAGE>
Participant has elected otherwise during the election
period. The election period shall begin at least six
(6) months before the Participant attains qualified
early retirement age and end not more than ninety (90)
days before the commencement of benefits. Any election
hereunder will be in writing and may be changed by the
Participant at any time.
(II) Election of early survivor annuity. A Participant
who is employed after attaining the qualified early
retirement age will be given the opportunity to elect,
during the election period, to have a survivor annuity
payable on death. If the Participant elects the survivor
annuity, payments under such annuity must not be less than
the payments which would have been made to the spouse under
the qualified joint and survivor annuity if the Participant
had retired on the date before his or her death. Any
election under this provision will be in writing and may be
changed by the Participant at any time. The election period
begins on the later of (i) the 90th day before the
Participant attains the qualified early retirement age, or
(ii) the date on which participation begins, and ends on the
date the Participant terminates employment.
(III) For purposes of this subparagraph (iv):
<PAGE>
(A) Qualified early retirement age is the latest of:
(i) the earliest date, under the Plan, on which the
Participant may elect to receive retirement
benefits,
(ii) the first day of the 120th month beginning before
the Participant reaches Normal Retirement Age, or
(iii) the date the Participant begins participation.
(B) Qualified joint and survivor annuity is an annuity for
the life of the Participant with a survivor annuity for
the life of the spouse as described in Section 5.01(a).
(7) The distribution of a benefit in the form of a qualified joint
and survivor annuity shall require the Participant's consent if
such distribution commences prior to the later of his Normal
Retirement Age or age sixty-two (62).
(8) Spouse (Surviving Spouse): Spouse means the spouse or
-------------------------
surviving spouse of the Participant, provided that a former
spouse will be treated as the spouse or surviving spouse and a
current spouse will not be treated as the spouse or surviving
spouse to the extent provided under a qualified domestic
relations order as described in Code Section 414(p).
(b) Alternate Forms of Distribution:
-------------------------------
(1) Options: In the event a married Participant duly elects
-------
pursuant to subparagraph (a) above not to receive the Accrued
Retirement Benefit in the form of a qualified joint and survivor
annuity, or if such Participant is not married, in the form of a
life annuity, the Plan Committee shall direct the Trustee to
distribute to such Participant or the Participant's
<PAGE>
Beneficiary the Accrued Retirement Benefit under the Plan or in
lieu thereof an amount which is the actuarial equivalent of the
basic form of Accrued Retirement Benefit provided in Section 4.01
in one or more of the following methods, as elected by the
Participant, payable as of the annuity starting date:
(i) An immediate joint and survivor annuity payable throughout
the lives of the Participant and some person other than the
Participant's spouse provided the actuarial value of the
Accrued Retirement Benefit payable to the Participant shall
exceed fifty (50%) percent of the total actuarial value of
the basic form of Accrued Retirement Benefit to which such
Participant is entitled.
(ii) An immediate annuity payable over a period certain not
extending beyond either the life of the Participant (or
joint lives of the Participant and his designated
Beneficiary) or the life expectancy of the Participant (or
the joint life expectancies of the Participant and his
designated Beneficiary) or a combination thereof. For
purposes of this Section (except for subparagraph (e)
hereof), the life expectancy of a Participant and a
Participant's spouse may not be redetermined. For purposes
of this paragraph (3), the benefit continuing to the
designated Beneficiary shall be calculated as if the
Participant's spouse were the designated Beneficiary, and
the amount of each payment to the designated Beneficiary
shall not be greater than the amount of each payment to the
Participant during his lifetime.
(iii) A lump-sum distribution, subject to the conditions and
limitations, if any, specified in the Employer's Adoption
Agreement, with distribution to occur immediately if the
present value of the Participant's Accrued Retirement
Benefit derived from Employer and Employee contributions
does not exceed $3,500 (or such other amount as may be
specified by applicable laws and regulations). A
distribution shall be considered immediately distributable
hereunder if
<PAGE>
any part of the Participant's Accrued Retirement Benefit may
be distributed prior to the later of the Participant's
attainment of Normal Retirement Age or age sixty-two (62).
If the Participant has reached the earliest date on which he
could commence receiving benefits on account of retirement
or disability, regardless of the amount distributable, or if
the present value of the Participant's Accrued Retirement
Benefit exceeds $3,500, the Participant and his spouse (or
where the Participant has died, the surviving spouse) shall
be required to consent in writing to such distribution.
(iv) A direct transfer of an Eligible Rollover Distribution to an
Eligible Retirement Plan, as described in Section 13.02 of
the Plan, if the Participant is otherwise eligible to
receive such distribution under the terms of the Plan
subject to the limitations and restrictions, if any, of this
Article V.
(2) In the event the Employer's Adoption Agreement does not permit
lump-sum distributions upon occurrence of any or all
distributable events, then payment of benefits in one of the
forms specified in (i) or (ii) above shall commence at Early
Retirement Age, Normal Retirement Age, death, or disability (as
specified in the Adoption Agreement) and shall be payable over a
period of time specified by the Participant or the Participant's
Beneficiary which is equal to or greater than five (5) years but
in no event exceeding the Participant's (or his designated
Beneficiary's) life expectancy.
(3) Failure of a Participant (or Participant's spouse) to consent in
writing to a distribution under this subparagraph shall be deemed
an election on the part of the Participant, and spouse if
applicable, to have benefit payments commence no later than a
date in compliance with Section 5.01(d).
(4) A Participant's election (or, where applicable, the election made
by the Participant's surviving spouse) shall be irrevocable once
benefit payments commence.
<PAGE>
(c) Actuarial Equivalent Benefits: The actuarial assumptions used to
-----------------------------
compute actuarial equivalent benefits hereunder shall be as specified
in the Adoption Agreement.
It is specifically provided that in the event the Plan is amended
to change the assumptions specified herein for determining actuarial
equivalent benefits, the actuarial equivalent of a Participant's
Accrued Retirement Benefit on or after the date of change shall be
determined as the greater of (i) the actuarial equivalent of the
Accrued Retirement Benefit as of the date of change computed on the
old basis, or (ii) the actuarial equivalent of the Accrued Retirement
Benefit computed on the new basis.
(d) Benefit Commencement Date: Unless the Participant elects
-------------------------
otherwise in writing, distribution of benefits shall be made or
commence being made no later than the sixtieth (60th) day after the
latest of the close of the Plan Year in which (i) the Participant
attains age sixty-five (65) (or Normal Retirement Age, if earlier),
(ii) the tenth (10th) anniversary of the year in which the Participant
commenced participation in the Plan, or (iii) the termination of the
Participant's service with the Employer. If a Participant elects in
writing, he may defer commencement of distribution of benefits until a
date no later than the Participant's Required Beginning Date.
Notwithstanding the foregoing, the failure of a Participant and spouse
to consent to a distribution while a benefit is immediately
distributable, within the meaning of subparagraph (b)(1)(iii) above,
shall be deemed to be an election to defer commencement of payment of
any benefit sufficient to satisfy this Section.
(e) Minimum Distribution Requirement: The distribution of a
--------------------------------
Participant's Accrued Retirement Benefit shall begin no later than
such Participant's Required Beginning Date. Except as otherwise
provided by the qualified joint and survivor and qualified pre-
retirement survivor annuity requirements of Section 5.01 and Section
5.05, survivor annuity requirements of this paragraph (e) shall take
precedence over any inconsistent provisions of the Plan. Unless
otherwise specified, these provisions apply to calendar years
beginning after December 31, 1984.
(1) Annuity Requirements: Annuity payments under the Plan shall
--------------------
satisfy the following requirements:
(i) The annuity distributions shall be paid in periodic
payments made at intervals not longer than one year.
<PAGE>
(ii) The distribution period shall be over a life (or lives) or
over a period certain not longer than a life expectancy (or
joint life and last survivor expectancy) described in Code
Section 401(a)(9)(A)(ii) or Code Section 401(a)(9)(B)(iii),
whichever is applicable.
(iii) The life expectancy (or joint life and last survivor
expectancy) for purposes of determining the period certain
shall be determined without recalculation of life
expectancy.
(iv) Once payments have begun over a period certain, the period
certain may not be lengthened even if the period certain is
shorter than the maximum permitted.
(v) Payments must either be non-increasing or increase only
as follows:
(I) with any percentage increase in a specified and
generally recognized cost-of-living index;
(II) to the extent of the reduction to the amount of the
Participant's payments to provide for a survivor
benefit upon death, but only if the beneficiary whose
life was being used to determine the distribution
period described in subparagraph (4) below dies and the
payments continue otherwise in accordance with
subparagraph (4) over the life of the Participant;
(III) to provide cash refunds of Required Employee
Contributions upon the Participant's death; or
(IV) because of an increase in benefits under the Plan.
<PAGE>
(vi) If the annuity is a life annuity (or a life annuity with a
period certain not exceeding 20 years), the amount which
must be distributed on or before the Participant's Required
Beginning Date (or, in the case of distributions after the
death of the Participant, the date distributions are
required to begin pursuant to Section 5.05(b)) shall be the
payment which is required for one payment interval. The
second payment need not be made until the end of the next
payment interval even if that payment interval ends in the
next calendar year. Payment intervals are the periods for
which payments are received, e.g., monthly or annually.
If the annuity is a period certain annuity without a
life contingency (or is a life annuity with a period certain
exceeding 20 years), periodic payments for each distribution
calendar year shall be combined and treated as an annual
amount. The amount which must be distributed by the
Participant's Required Beginning Date (or, in the case of
distributions after the death of the Participant, the date
distributions are required to begin pursuant to Section
5.05(b)) is the annual amount for the first distribution
calendar year. The annual amount for other distribution
calendar years, including the annual amount for the
distribution year in which the Participant's Required
Beginning Date (or the date distributions are required to
begin pursuant to Section 5.05(b)) occurs, must be
distributed on or before December 31 of the calendar year
for which the distribution is required.
(2) Annuities Purchased After December 31, 1988: Annuities
-------------------------------------------
purchased after December 31, 1988 shall be subject to the
following additional conditions:
(i) Unless the Participant's spouse is the designated
beneficiary, if the Participant's interest is distributed in
the form of a period certain annuity without a life
contingency, the period certain as of the beginning of the
first distribution calendar year shall not exceed the
applicable period
<PAGE>
determined using the table set forth in Q&A A-5 of proposed
Regulation Section 1.401(a)(9)-2.
(ii) If the Participant's interest is distributed in the form of
a joint and survivor annuity for the joint lives of the
Participant and a nonspouse beneficiary, annuity payments to
be made on or after the Participant's Required Beginning
Date to the designated Beneficiary after the Participant's
death shall not at any time exceed the applicable percentage
of the annuity payment for such period that would have been
payable to the Participant using the table set forth in Q&A
A-6 of proposed Regulation Section 1.401(a)(9)-2.
(3) Payment of Additional Benefit Accruals: If the form of
--------------------------------------
distribution is an annuity made in accordance with this paragraph
(e), any additional benefits accruing to the Participant after
the Required Beginning Date shall be distributed as a separate
identifiable component of the annuity beginning with the first
payment interval ending in the calendar year immediately
following the calendar year in which such amount accrues.
(4) Annuity Period: As of the first distribution calendar year,
--------------
distributions, if not made in a single sum, shall be made over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the joint lives of the Participant and a designated
Beneficiary,
(iii) a period certain not extending beyond the life expectancy of
the Participant, or
(iv) a period certain not extending beyond the joint and
last survivor expectancy of the Participant and designated
Beneficiary.
(5) Distribution to Five Percent Owner: Once distributions have
----------------------------------
begun to a five percent owner (as defined in Section 14.02(c))
pursuant to this paragraph (e), they shall continue to be
<PAGE>
distributed even if the Participant ceases to be a five percent
owner in a subsequent year.
(6) Date of Distribution: Distribution of a Participant's
--------------------
interest is considered to begin on the Participant's Required
Beginning Date or the date distribution is required to begin to
the surviving spouse, if applicable. If distribution in the form
of an annuity irrevocably commences to the Participant before the
Required Beginning Date, the date distribution is considered to
begin is the date distribution actually commences.
(7) Distribution Calendar Year: The distribution calendar year
--------------------------
is a calendar year for which a minimum distribution is required.
For distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year immediately
preceding the calendar year which contains the Participant's
Required Beginning Date. For distributions beginning after the
Participant's death, the first distribution calendar year is the
calendar year in which distributions are required to begin
pursuant to this paragraph (e).
(8) All distributions required under this Article V shall be
determined and made in accordance with applicable laws and
regulations, including Code Section 401(a)(9) and regulations
thereunder and, to the extent not superseded, the minimum
distribution incidental benefit requirement of Section
1.409(a)(9)-2 of the proposed regulations.
(9) Life Expectancy: The life expectancy (or joint and last
---------------
survivor expectancy) shall be calculated using the attained age
of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the
applicable calendar year. The applicable calendar year shall be
the first distribution calendar year. If annuity payments
commence before the Required Beginning Date, the applicable
calendar year is the year such payments commence. For purposes of
this paragraph, the life expectancy of a Participant and a
Participant's spouse may, at the election of the Participant or
the Participant's spouse, be redetermined in accordance with
regulations. The election, once made, shall be irrevocable and
shall apply to all subsequent years. If no election is made by
the time distributions must commence, then the life expectancy of
the Participant and the Participant's
<PAGE>
spouse shall be redetermined. Additionally, life expectancy and
joint and last survivor expectancy shall be computed using the
expected return multiples in Tables V and VI of Regulation
Section 1.72-9. The life expectancy of a non-spouse beneficiary
shall not be recalculated .
(f) Transitional Rules:
------------------
(1) Annuities Beginning Before 1989: If payments under an
-------------------------------
annuity which complies with paragraph (e) above began prior to
January 1, 1989, the minimum distribution requirements in effect
as of July 27, 1987 shall apply to such distributions from this
Plan, regardless of whether the annuity form of payment is
irrevocable. This transitional rule also applies to deferred
annuity contracts distributed to or owned by the Employee prior
to January 1, 1989, unless additional contributions are made
under the Plan by the Employer with respect to such contract.
(2) Grandfathered Distribution Election: Notwithstanding the
-----------------------------------
other requirements of this article and subject to the qualified
joint and survivor annuity requirements of Section 5.01,
distribution on behalf of any Employee, including a five percent
owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
(i) The distribution by the Trust is one which would not have
disqualified the Trust under Code Section 401(a)(9) as in
effect prior to amendment by the Deficit Reduction Act of
1984 .
(ii) The distribution is in accordance with a method of
distribution designated by the Employee whose interest in
the Trust is being distributed or, if the Employee is
deceased, by a Beneficiary of such Employee.
(iii) Such designation was in writing, was signed by the Employee
or the Beneficiary, and was made before January 1,1984.
(iv) The Employee had accrued a benefit under the Plan as of
December 31, 1983.
<PAGE>
(v) The method of distribution designated by the Employee or the
Beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made,
and in the case of any distribution upon the Employee's
death, the Beneficiaries of the Employee listed in order of
priority.
A distribution upon death will not be covered by this
transitional rule unless the information in the designation
contains the required information described above with respect to
the distributions to be made upon the death of the Employee.
For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Employee, or the
Beneficiary, to whom such distribution is being made, will be
presumed to have designated the method of distribution under
which the distribution is being made if the method of
distribution was specified in writing and the distribution
satisfies the requirements in (i) and (v) above.
(3) Revocation of Election: If an election described in
----------------------
paragraph (2) above is revoked, any subsequent distribution shall
satisfy the requirements of Code Section 401(a)(9) and the
regulations thereunder. If an election is revoked subsequent to
the date distributions are required to begin, the trust shall
distribute, by the end of the calendar year following the
calendar year in which the revocation occurs, the total amount
not yet distributed which would have been required to have been
distributed to satisfy Code Section 401(a)(9) and the regulations
thereunder, but for the Section 242(b)(2) election. Beginning
January 1, 1989 and all calendar years thereafter, such
distributions must meet the minimum distribution incidental
benefit requirements in Section 1.401(a)(9)-2 of the proposed
regulations. Any changes in the TEFRA election will be considered
to be a revocation of the election. However, the mere
substitution or addition of another Beneficiary (one not named in
the election) under the election will not be considered to be a
revocation of the election, so long as such substitution or
addition does not directly or indirectly alter the period over
which distributions are to be made under the election (e.g., by
altering the relevant measuring life). In the case of an amount
which is transferred
<PAGE>
or rolled over from one plan to another plan, the rules in Q&A J-
2 and Q&A J-3 of Section 1.401(a)(9)-1 of the proposed
regulations shall apply.
(g) Incidental Benefit Rule: Distributions to a Participant and the
-----------------------
Participant's 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 (50%) percent of the then present value of the total payments to
be made to the Participant and his Beneficiaries.
SECTION 5.02 - REHIRED RETIRED PARTICIPANT/SUSPENSION OF BENEFITS: In the
-----------------------------------------------------------------
event the Employer's Adoption Agreement does not permit payment of retirement
benefits while still employed, Normal or Early retirement benefits in pay status
will be suspended for each calendar month during which a Retired Participant
completes at least 83 Hours of Service with the Employer. Service for this
purpose means ERISA Section 203(a)(3)(B) service. Similarly, the actuarial value
of benefits which commence later than Normal Retirement Age will be computed
without regard to amounts which would have been suspended under the preceding
sentence as if the Employee had been receiving benefits since Normal Retirement
Age.
(a) Resumption of Payment: If benefit payments have been suspended,
---------------------
payments shall resume no later than the first day of the third
calendar month after the calendar month in which the Employee ceases
to be employed in ERISA Section 203(a)(3)(B) service. The initial
payment upon resumption shall include the payment scheduled to occur
in the calendar month when payments resume and any amounts withheld
during the period between the cessation of ERISA Section 203(a)(3)(B)
service and the resumption of payments.
(b) Notification: No payment shall be withheld by the Plan pursuant
------------
to this Section unless the Plan notifies the Employee (by personal
delivery or first class mail during the first calendar month or
payroll period in which the Plan withholds payment) that benefits are
suspended. Such notification shall contain a description of the
specific reasons why benefit payments are being suspended, a
description of the Plan provision relating to the suspension of
payments, a copy of such provision, and a statement to the effect that
applicable Department of Labor regulations may be found in Section
2530.203-3 of the Code of Federal Regulations.
In addition, the notice shall inform the Employee of the Plan's
procedures for affording a review of the suspension of benefits.
Requests
<PAGE>
for such reviews may be considered in accordance with the claims
procedure adopted by the Plan pursuant to ERISA Section 503 and
applicable regulations.
(c) Amount Suspended:
----------------
(1) Life Annuity: In the case of benefits payable periodically
------------
on a monthly basis for as long as a life (or lives) continues,
such as a straight life annuity or a qualified joint and survivor
annuity, the suspended amount shall equal the portion of a
monthly benefit payment derived from Employer contributions.
(2) Other Benefit Forms: In the case of a benefit payment in a
-------------------
form other than the form described in subsection (1) above, the
suspended amount shall equal the Employer-derived portion of
benefit payments for a calendar month in which the Employee is
employed in ERISA Section 203(a)(3)(B) service, equal to the
lesser of:
(i) The amount of benefits which would have been payable to the
Employee if he had been receiving monthly benefits under the
Plan since actual retirement based on a single life annuity
commencing at actual retirement age; or
(ii) The actual amount paid or scheduled to be paid to the
Employee for such month. Payments which are scheduled to be
paid less frequently than monthly may be converted to
monthly payments for purposes of the above sentence.
(d) This section does not apply to the minimum benefit to which the
Participant is entitled under the top-heavy rules of Article XIV.
SECTION 5.03 - RECOVERY OF SEVERANCE GAINS: When a Participant severs
------------------------------------------
employment with the Employer prior to Normal Retirement Date, amounts in excess
of those required to fund such Participant's Vested Accrued Retirement Benefit
shall represent a severance gain and shall be used to offset the funding
liability of the Employer. In no event shall such recoveries to the Plan be
applied to increase the benefits any Employee would otherwise receive under the
Plan.
SECTION 5.04 - CASH-OUT/BUY-BACK PROVISIONS:
-------------------------------------------
<PAGE>
(a) Cash-Out of Participant's Vested Accrued Retirement Benefit: The
-----------------------------------------------------------
Plan Committee shall direct the Trustee to cash-out the entire vested
portion of a terminated Participants' Accrued Retirement Benefit in a
single-sum distribution in accordance with the limitations, if any,
specified in the Adoption Agreement; provided, however, if a
terminated Participant's Present Value of Vested Accrued Retirement
Benefit attributable to both Employer and Required Employee
Contributions exceeds (or at the time of any prior distribution
exceeded) $3,500, and the Accrued Retirement Benefit is immediately
distributable, the Participant and the Participant's spouse, if
married (or where either the Participant or the spouse has died, the
survivor), must consent in writing to such cash-out with such consent
obtained not more than ninety (90) days before the annuity starting
date as defined in Section 5.01(a)(4). Such distribution shall be made
in a manner consistent with Section 5.01(a). The terminated
Participant's non-Vested Accrued Retirement Benefit upon cash-out of
benefits shall be treated as a Forfeiture and be used to offset the
Employer Contribution for succeeding Plan Years.
An Accrued Retirement Benefit is immediately distributable if any
part of the Accrued Retirement Benefit could be distributed to the
Participant (or surviving spouse) before the Participant attains (or
would have attained) the later of Normal Retirement Age or age sixty-
two (62).
The Plan Committee shall notify the Participant and the
Participant's spouse of the right to defer any distribution until the
Participant's Accrued Retirement Benefit is no longer immediately
distributable. The notification shall include a general description of
the material features and an explanation of the relative values of the
optional forms of benefit available under the Plan in a manner
consistent with Section 5.01(a) and shall be provided no less than
thirty (30) days and no more than ninety (90) days prior to the
annuity starting date (as defined in Section 5.01(a)(4)).
Notwithstanding the foregoing, only the Participant need consent
to the commencement of a distribution in the form of a qualified joint
and survivor annuity while the Accrued Retirement Benefit is
immediately distributable. The consent of neither the Participant nor
the Participant's spouse shall be required to the extent that a
distribution is required to satisfy Code Section 401(a)(9) or Code
Section 415.
In the event a terminated Participant is not vested in any
portion of the Accrued Retirement Benefit, or if the vested portion of
the Accrued Retirement Benefit for such Participant is $0, the
Participant shall be deemed to receive a cash-out of such Accrued
Retirement Benefit upon termination of employment.
<PAGE>
(b) Reemployment of Former Participant: If a Former Participant is
----------------------------------
reemployed before incurring five (5) consecutive one-year Breaks in
Service and has received a cash-out of his Vested Accrued Retirement
Benefit in accordance with this Section which is less than the value
of the Participant's Accrued Retirement Benefit, such Participant
shall be entitled to have his non-Vested Accrued Retirement Benefit
restored (including all optional forms of benefits relating to such
benefits) to the extent forfeited if he repays such cashed-out amount
plus interest, compounded annually from the date of distribution to
the date of repayment, to the Plan prior to the earlier of (i) five
(5) years after the first date on which the Participant is
subsequently re-employed by the Employer or (ii) the date the
Participant incurs five (5) consecutive one-year Breaks in Service
following the date of distribution. For purposes of this Section,
interest shall equal one-hundred twenty (120%) percent of the Federal
mid-term rate in effect on the first day of each Plan Year from the
date of distribution to the date of repayment.
If repayment to the Plan by the Participant is not made in
accordance herewith, the Plan shall disregard the Participant's
forfeited Accrued Retirement Benefit which occurred on account of the
cash-out. For purposes of determining the Participant's Accrued
Retirement Benefit, Years of Service performed by the Participant for
which he received the distribution upon severance pursuant to
subparagraph (a) above shall be disregarded. For purposes of
determining a Participant's vested interest in his post-break Accrued
Retirement Benefit, a Participant shall not lose credit for previously
credited service unless such service is disregarded by reason of a
prior Break in Service. If such Participant's pre-break Accrued
Retirement Benefit is restored in accordance with this Section, then
for purposes of determining a Participant's vested interest therein,
all of such Participant's Years of Service shall be aggregated for
purposes of determining the vested percentage in the Accrued
Retirement Benefit.
If a Participant is deemed to receive a distribution of $0
pursuant to subparagraph (a) above, and the Participant resumes
employment covered under this Plan before the date the Participant
incurs five (5) consecutive one (1) year Breaks in Service, upon the
re-employment of such Participant the Employer-derived Accrued
Retirement Benefit shall be restored to the amount of such Accrued
Retirement Benefit on the date of the deemed distribution.
<PAGE>
SECTION 5.05 - DISTRIBUTION OF DEATH BENEFIT:
--------------------------------------------
(a) Form of Death Benefit Payment:
-----------------------------
(1) Qualified Pre-retirement Survivor Annuity:
-----------------------------------------
Applicability: The following requirements for payment of a
-------------
minimum death benefit in the form of a qualified pre-retirement
survivor annuity to the surviving spouse of a deceased
Participant apply only to benefits in which the Participant was
vested immediately prior to death. This includes benefits derived
from both Employer and Required Employee Contributions, if any.
These requirements are not applicable to, nor shall such
qualified pre-retirement survivor annuity form of death benefit
payment be based on, any additional benefits to which a
Participant's Beneficiary becomes entitled by reason of death
including the proceeds, if any, of any life insurance contract
providing benefits hereunder to the extent the proceeds therefrom
on death of the Participant exceed the present value of the
Participant's Vested Accrued Retirement Benefit existing
immediately prior to the Participant's death. Death benefits that
exceed the minimum qualified pre-retirement survivor annuity
described under this paragraph shall be distributed in accordance
with Section 5.01(b).
(i) Death Prior to Earliest Retirement Age: Unless the
--------------------------------------
Participant makes a valid waiver election as described
below, the surviving spouse of a vested Participant who dies
before attaining the earliest retirement age under the Plan
shall be entitled to receive a qualified pre-retirement
survivor annuity which shall be an annuity for the life of
the surviving spouse in an amount not less than the payment
that would have been made to the surviving spouse if the
Participant had (i) separated from service on the date of
death (or date of separation from service, if earlier); (ii)
survived until the earliest retirement age; (iii) retired
with an immediate joint and fifty (50%) percent survivor
annuity at the earliest retirement age; and (iv) died on the
day after the earliest retirement age.
<PAGE>
Unless otherwise elected by the surviving spouse, the
benefit payment under this Section shall be paid as a pre-
retirement survivor annuity commencing at the earliest
retirement age. Benefits commencing after the earliest
retirement age will be the actuarial equivalent of the
benefit which the surviving spouse would have been entitled
to receive if benefits had commenced at the earliest
retirement age under a joint and fifty (50%) percent
survivor annuity.
For purposes of this Section 5.05, the benefit payable
to the surviving spouse shall be attributable to Required
Employee Contributions in the same proportion as the total
Accrued Retirement Benefit derived from Required Employee
Contributions is to the Accrued Retirement Benefit of the
Participant.
(ii) Death After Earliest Retirement Age: Unless the
-----------------------------------
Participant makes a valid waiver election as described
below, the surviving spouse of a vested Participant who dies
on or after attaining the earliest retirement age under the
Plan shall be entitled to receive a qualified pre-retirement
survivor annuity which shall be an annuity for the life of
the surviving spouse in an amount not less than the payment
that would have been made to the surviving spouse if the
Participant had retired with a joint and fifty (50%) percent
survivor annuity on the day before the Participant's death.
The surviving spouse may elect to commence payment under
such annuity within a reasonable period after the
Participant's death. The actuarial value of benefits which
commence later than the date on which payment would have
been made to the spouse under a joint and survivor annuity
shall be adjusted to reflect the delayed payment.
(iii) Waiver of Qualified Pre-retirement Survivor Annuity:
---------------------------------------------------
(I) Any election to waive the qualified pre-retirement
survivor annuity
<PAGE>
before the Participant's death must be made by the
Participant in writing during the election period and
shall require the spouse's irrevocable consent in the
same manner provided for in Section 5.01(a). Further,
the spouse's consent must acknowledge the specific
nonspouse Beneficiary or the alternative form of death
benefit to be paid in lieu of the qualified pre-
retirement survivor annuity. Notwithstanding the
foregoing, the nonspouse Beneficiary or the alternative
form of death benefit need not be acknowledged,
provided the consent of the spouse acknowledges that
the spouse has the right to limit consent only to a
specific Beneficiary or a specific form of benefit and
that the spouse voluntarily elects to relinquish one or
both of such rights.
(II) The election period to waive the qualified pre-
retirement survivor annuity shall begin on the first
day of the Plan Year in which the Participant attains
age thirty-five (35) and end on the date of the
Participant's death. In the event a vested Participant
separates from service prior to the beginning of the
election period, the election period shall begin on the
date of such separation from service.
(III) Waiver Prior to Age Thirty-Five: A Participant
-------------------------------
who will not yet attain age thirty-five (35) as of the
end of any current Plan Year may make a special
qualified election to waive the qualified pre-
retirement survivor annuity for the period beginning on
the date of such election and ending on the first day
of the Plan Year in which the Participant will attain
age
<PAGE>
thirty-five (35). Such election will not be valid
unless the Participant receives a written explanation
of the qualified pre-retirement survivor annuity in
such terms as are comparable to the explanation
required under Section 5.01(a). Qualified pre-
retirement survivor annuity coverage will be
automatically reinstated as of the first day of the
Plan Year in which the Participant attains age thirty-
five (35). Any new waiver on or after such date shall
be subject to the full requirements of this article.
(iv) Written Explanation of Qualified Pre-retirement
-----------------------------------------------
Survivor Annuity:
----------------
(I) With regard to the above election, the Plan Committee
shall provide each Participant within the applicable
period, with respect to such Participant (and
consistent with regulations), a written explanation of
the qualified pre-retirement survivor annuity in such
terms and in such manner as would be comparable to the
explanation required pursuant to Section 5.01(a). For
the purposes of this paragraph, the term "applicable
period" means, with respect to a Participant, whichever
of the following periods ends last:
(A) The period beginning with the first day of the
Plan Year in which the Participant attains age
thirty-two (32) and ending with the close of the
Plan Year preceding the Plan Year in which
<PAGE>
the Participant attains age thirty-five (35);
(B) A reasonable period after the individual becomes a
Participant. For this purpose, in the case of an
individual who becomes a Participant after age
thirty-two (32), the explanation shall be provided
by the end of the three (3) year period beginning
with the first day of the first Plan Year for
which the individual is a Participant;
(C) A reasonable period ending after the Plan no
longer fully subsidizes the cost of the qualified
pre-retirement survivor annuity with respect to
the Participant;
(D) A reasonable period ending after Code Section
401(a)(11) first applies to the Participant; or
(E) A reasonable period after separation from
service in the case of a Participant who separates
before attaining age thirty-five (35).
For purposes of the preceding paragraph, a reasonable
period ending after the enumerated events described above is
the end of the two year period beginning one year prior to
the date the applicable event occurs and ending one year
after that date. In the case of a Participant who
<PAGE>
separates from service before the Plan Year in which age
thirty-five (35) is attained, notice shall be provided
within the two year period beginning one year prior to
separation and ending one year after separation. If such a
Participant thereafter returns to employment with the
employer, the applicable period for such Participant shall
be redetermined.
Notwithstanding provisions to the contrary herein, the
respective notices prescribed by this Section need not be
given to a Participant if (1) the Plan fully subsidizes the
costs of the qualified joint and survivor annuity or
qualified pre-retirement survivor annuity, and (2) the Plan
does not allow the Participant to waive the qualified joint
and survivor annuity or qualified pre-retirement survivor
annuity and does not allow a married Participant to
designate a nonspouse beneficiary. For purposes of this
Section, the Plan fully subsidizes the costs of a benefit if
under the Plan no increase in cost or decrease in benefits
to the Participant may result from the Participant's failure
to elect another benefit. Prior to the time the Plan allows
the Participant to waive the qualified pre-retirement
survivor annuity, the Plan may not charge the Participant
for the cost of such benefit by reducing the Participant's
benefits under the Plan or by any other method.
(v) If the value of the qualified pre-retirement survivor
annuity derived from Employer and Required Employee
Contributions, if any, does not exceed $3,500, the Plan
Committee shall direct the immediate distribution of such
amount to the Participant's spouse. No distribution may be
made under the preceding sentence after the annuity starting
date unless the spouse consents in writing. If the value
exceeds $3,500, an immediate distribution of the entire
amount may be made to the surviving spouse, provided such
surviving spouse consents in writing to such distribution.
Any written consent required under this paragraph must be
obtained not more than
<PAGE>
ninety (90) days before commencement of the distribution and
shall be made in a manner consistent with Section 5.01(a).
The value of the qualified pre-retirement survivor annuity
shall be the Participant's Present Value of Accrued
Retirement Benefit determined in accordance with the rates
specified in the Adoption Agreement for determining a lump
sum benefit .
(vi) Earliest Retirement Age: For purposes of this Section,
-----------------------
earliest retirement age means the earliest date under the
Plan on which a Participant could elect to receive
retirement benefits.
(2) Other Forms of Death Benefit: Death benefits which become
----------------------------
payable under the Plan to the Beneficiary of a deceased
Participant, other than death benefits required to be paid in the
form of a qualified pre-retirement survivor annuity to a
surviving spouse as described in subparagraph (1) above, shall be
distributed in the form specified in Section 5.01(b) as elected
by the Beneficiary.
(b) Death Distribution Rule:
-----------------------
(1) If the distribution of a Participant's interest has begun in
accordance with a method selected in Section 5.01 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 5.01 as of his date of
death.
(2) If a Participant dies before the distribution of his interest
under the Plan begins, distribution of the Participant's entire
interest shall be completed by December 31 of the calendar year
containing the fifth (5th) anniversary of the Participant's death
unless payable in accordance with subparagraph (3) below.
(3) The five (5) year distribution requirement of Section 5.05(b)(2)
above shall not apply to any portion of the deceased
Participant's interest which is payable to or for the benefit of
a designated Beneficiary. In such event, such portion may be
distributed over the life of such designated Beneficiary (or
<PAGE>
over a period not extending beyond the life expectancy of such
designated Beneficiary) provided such distribution begins not
later than the December 31 of the calendar year immediately
following the calendar year in which the Participant died (or
such later date as may be prescribed by regulations).
The provisions of the paragraph immediately above shall not
apply in the event the Participant's spouse is the designated
Beneficiary. In lieu thereof, such distribution shall commence
not earlier than the later of (i) December 31 of the calendar
year in which the deceased Participant would have attained age
seventy and one-half (70 1/2), or (ii) December 31 of the
calendar year immediately following the calendar year in which
the Participant died. If the surviving spouse dies before the
distributions to such spouse begin, then the five (5) year
distribution requirement of Section 5.05(b)(2) (but without
regard to the exceptions in this subparagraph (3)) shall apply as
if the spouse were the Participant.
(4) If the Participant dies prior to making an election pursuant to
subparagraph (3) above, the Participant's designated Beneficiary
must elect the method of distribution no later than the earlier
of (i) December 31 of the calendar year in which distributions
would be required to begin in accordance with this Section
5.05(b), or (ii) December 31 of the calendar year which contains
the fifth (5th) anniversary of the date of death of the
Participant. If the Participant has no designated Beneficiary, or
if the designated Beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest
must be completed by December 31 of the calendar year containing
the fifth (5th) anniversary of the Participant's death.
(5) For purposes of this subparagraph (b), any amount paid to a child
of the Participant will be treated as if it had been paid to the
surviving spouse if the amount becomes payable to the surviving
spouse when the child reaches the age of majority.
(6) Life Expectancy: The provisions of Section 5.01(e)(9),
---------------
concerning the determination of life expectancy, shall also apply
to this Section 5.05.
<PAGE>
(7) Transitional Rules: The provisions of Section 5.01(f), concerning
------------------
certain exception to the annuity distribution rules,
shall also apply to this Section 5.05.
SECTION 5.06 - BENEFITS PAYABLE TO MINORS AND INCOMPETENTS: Whenever any
----------------------------------------------------------
person entitled to payments under the Plan is a minor or under other legal
disability, the Plan Committee may direct all or any portion of such payments to
be made to an existing and duly appointed guardian, conservator, or other duly
appointed legal representative.
SECTION 5.07 - NOTIFICATION OF BENEFITS PAYABLE: Each person entitled to
-----------------------------------------------
receive current distributions hereunder shall file with the Trustee from time to
time, in writing, his post office address and each change of post office
address, and any check representing payment hereunder and any communication
addressed to any person entitled to benefits hereunder which is delivered to his
last known address filed with the Trustee (or, if no such address has been
filed, then at the person's last address as indicated on the records of the
Employer) shall be deemed to have been delivered to such person for all purposes
of the Plan, and neither the Plan Committee nor the Trustee shall be obliged to
search for or ascertain the location of any such person or be liable for
delivery of benefits to such address. If, because the Participant or Beneficiary
cannot be found a benefit is forfeited, such benefit will be reinstated upon a
valid claim made by the Participant or Beneficiary. In the event the Plan
terminates in accordance with Article IX and all assets are distributed to
Participants and Beneficiaries, except those Participants and Beneficiaries who
cannot be located, the Plan Administrator shall direct the Trustee to establish
an account for each such Participant or Beneficiary outside of the Plan and
Trust subject to the requirements of applicable laws and regulations.
SECTION 5.08 - NON-TRANSFERABILITY OF ANNUITY CONTRACTS: The Trustee, at
-------------------------------------------------------
the option of the Plan Committee, may hold title to any annuity contract or
contracts purchased for the account of any severed Participant, retiree, or
Beneficiary or may distribute any such annuity contract or contracts to such
Participant, retiree, or Beneficiary. Any annuity contract distributed by the
Trustee to a Participant, retiree, or Beneficiary shall bear on the face thereof
the designation "Not Transferable" and such contract shall contain a provision
to the effect that the contract may not be sold, assigned, discounted, or
pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose to any person other than the insured
thereof. Nevertheless, each Participant, retiree, or Beneficiary for whose
benefit an annuity contract may be purchased shall have the right to designate
the person or persons who are to receive the balance of any installments certain
which may remain unpaid at the time of his death. Any annuity contract
distributed by the Trustee to a Participant, retiree, or Beneficiary shall
contain provisions to comply with the applicable requirements of Sections 5.01
and 5.05. In the event of any conflict between the terms of this Plan and the
terms of any insurance contract issued hereunder, the Plan provisions shall
control. Any payments by the insurer on account of credits such as dividends,
experience rating credits, or surrender or cancellation credits shall be
applied, within the taxable year of the Employer in which received or within the
next succeeding taxable year, toward the next premiums due before any further
employer contributions are so applied.
<PAGE>
ARTICLE VI
PLAN ADMINISTRATION
-------------------
SECTION 6.01 - POWERS AND RESPONSIBILITIES OF THE EMPLOYER:
----------------------------------------------------------
(a) The Employer shall be empowered to appoint and remove members of the
Plan Committee from time to time as it deems necessary for the proper
administration of the Plan and for the sole and exclusive benefit of
the Participants and their Beneficiaries in accordance with the terms
of this Plan, the Code, and the Act.
(b) The Employer shall establish or shall appoint a qualified person to
establish, a funding policy and method, including but not limited to
determination of the short-term objectives for liquidity and long-term
objectives for investment growth.
(c) The Employer may in its discretion appoint an Investment Manager to
manage all or a designated portion of the assets of the Plan. In such
event, the Trustee shall follow the written directive of the
Investment Manager in investing the assets of the Plan managed by the
Investment Manager.
(d) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied by
formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct
and evaluation, or through other appropriate means.
SECTION 6.02 - ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE
-----------------------------------------------------------
AUTHORITY/COMPENSATION OF PLAN COMMITTEE: The Employer shall appoint one or more
----------------------------------------
individuals to the Plan Committee. Any person, including but not limited to the
directors, shareholders, officers, and Employees of the Employer, shall be
eligible to serve on the Plan Committee. A member of the Plan Committee 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. The Employer shall furnish the Trustee with proper written
evidence of the names of individuals serving on the Plan Committee and of any
resignations and replacements thereof.
The Employer, upon the resignation or removal of a member of the Plan
Committee, shall, within thirty (30) days after such vacancy is created,
designate in writing a successor to this position. If the Employer does not
appoint a replacement, causing the absence of a Plan Committee, then the
Employer will function as the Plan Committee.
<PAGE>
The Plan Committee shall select a Chairman from among its members. A
Secretary, who may or may not be a member of the Plan Committee, shall also be
appointed. The Chairman shall preside at all meetings of the Plan Committee
unless, in his absence, a Vice Chairman selected by the Plan Committee presides.
The Secretary shall keep all minutes of Plan Committee proceedings and such
records and documents as are necessary for the proper administration of the
Plan.
Plan Committee members may receive reasonable compensation for services
rendered or for the reimbursement of expenses properly and actually incurred in
the performance of duties with the Plan; provided, however, that no person so
serving on the Plan Committee who already receives full-time pay from the
Employer or an association of Employers whose Employees are Participants in the
Plan, or from an Employee organization whose members are Participants in the
Plan, shall receive compensation from the Plan except for reimbursement of
expenses properly and actually incurred.
Any bond which may be required by applicable laws or regulations for the
performance of duties by the Plan Committee and all reasonable and necessary
costs, expenses, and liabilities incurred by the Plan Committee in the
supervision and administration of the Plan which are not paid by the Employer
shall be a charge against the Plan Assets and shall be paid therefrom by the
Trustee as directed in writing by the Plan Committee.
SECTION 6.03 - ALLOCATION AND DELEGATION OF RESPONSIBILITIES: If more than
------------------------------------------------------------
one person is appointed to serve on the Plan Committee, the responsibilities of
each member may be specified by the Employer and accepted in writing by each
member. In the event that no such delegation is made by the Employer, the Plan
Committee members may allocate the responsibilities among themselves, in which
event the Plan Committee shall notify the Employer and the Trustee in writing of
such action and specify the responsibilities of each member of the Plan
Committee. The Trustee thereafter shall accept and rely upon any documents
executed by the appropriate member of the Plan Committee until such time as the
Employer or the Plan Committee files with the Trustee a written revocation of
such designation.
SECTION 6.04 - POWERS, DUTIES, AND RESPONSIBILITIES: The primary
---------------------------------------------------
responsibility of the Plan Committee is to administer the Plan for the exclusive
benefit of the Participants and their Beneficiaries subject to the specific
terms of the Plan, including written directions to the Trustee regarding the
investment, reinvestment, holding and liquidation of any and all portions of the
Plan Assets. The Plan Committee shall administer the Plan in accordance with the
terms hereof and shall have complete discretionary control and authority to
determine all questions arising in connection with the administration,
interpretation, and application of the Plan. Any such determination by the Plan
Committee shall be conclusive and binding upon all persons. The Plan Committee
may 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 this Plan; provided, however, that any interpretation
or construction shall be done in a nondiscriminatory manner 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 the Trust which is a part
thereof exempt under Code Section 501(a) as amended from time to time and shall
comply with the terms of the Act and all regulations
<PAGE>
issued pursuant thereto. The Plan Committee shall have all discretionary powers
necessary or appropriate to accomplish its duties under this Plan.
The Plan Committee shall be charged with the duties of the general
administration of the Plan including, but not limited to, the following:
(a) Determining all questions relating to the eligibility of Employees to
participate or remain Participants hereunder;
(b) Computing, certifying, and directing the Trustee with respect to the
amount and the kind of benefits to which any Participant shall be
entitled hereunder;
(c) Authorizing and directing the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Plan;
(d) Maintaining all necessary records for the administration of the Plan;
(e) Interpreting the provisions of the Plan and making and publishing such
rules for regulation of the Plan as are consistent with the terms
hereof;
(f) Determining the size and type of any insurance or annuity contract to
be purchased from any insurer, and designating the insurer from which
such contract shall be purchased;
(g) Computing and certifying 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) Consulting with the Employer and the Trustee regarding the short and
long-term liquidity needs of the Plan in order to properly direct the
Trustee regarding investment of the Plan Assets;
(i) Assisting any Participant regarding his rights, benefits, or elections
available under the Plan; and
(j) Directing the Trustee in writing with regard to all investments of the
Plan Assets including investment in qualifying employer securities as
defined in Code Section 4975(e)(8) up to ten (10%) percent of the
Trust's assets at date of purchase, unless invested in accordance with
instructions from an Investment Manager.
SECTION 6.05 - RECORDS AND REPORTS: The Plan Committee 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
<PAGE>
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Pension Benefit
Guaranty Corporation, Department of Labor, Participants, Beneficiaries, and
others as required by law.
SECTION 6.06 - APPOINTMENT OF ADVISORS: The Plan Committee, or the Trustee
--------------------------------------
with the consent of the Plan Committee, may appoint counsel, specialists,
advisers, and other persons as the Plan Committee or the Trustee deems necessary
or desirable in connection with the administration of this Plan.
SECTION 6.07 - INFORMATION FROM EMPLOYER: To enable the Plan Committee to
----------------------------------------
perform its functions, the Employer shall supply full and timely information to
the Plan Committee on all matters relating to the Compensation of all
Participants, Hours of Service, Years of Service, occurrences of retirement,
death, Total and Permanent Disability, or termination of employment, and such
other pertinent facts and data as the Plan Committee may require; and the Plan
Committee shall advise the Trustee of the foregoing facts as may be pertinent to
the Trustee's duties under the Plan. The Plan Committee and Trustee may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
SECTION 6.08 - PAYMENT OF EXPENSES: All expenses of administration may be
----------------------------------
paid out of the Plan Assets unless paid by the Employer. Such expenses shall
include any expenses incident to the functioning of the Plan Committee,
including, but not limited to, fees of accountants, actuaries, counsel, and
other specialists, and other costs of administering the Plan. Until paid, the
expenses shall constitute a liability of the Plan Assets. However, the Employer
may reimburse the Trust for any administration expenses incurred pursuant to the
above. Any administrative expense paid to the Trust as a reimbursement shall not
be considered as an Employer contribution.
SECTION 6.09 - MAJORITY ACTIONS: Except where there has been an allocation
-------------------------------
and delegation of administrative authority pursuant to Section 6.03, if there
shall be more than one member of the Plan Committee, they shall act by a
majority of their number, but may authorize one or more of them to sign all
documentation on their behalf.
SECTION 6.10 - BONDING: Every Fiduciary, except a bank or an insurance
----------------------
company 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 connection 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 this Plan to the
contrary, the cost of such bond shall be an expense of the Plan and may, at the
election of the Plan Committee, be paid from the Plan Assets or by the Employer.
<PAGE>
SECTION 6.11 - INDEMNIFICATION: The Employer shall indemnify each member of
------------------------------
its Board of Directors and each member of the Plan Committee from and against
any and all liabilities, costs, or expenses incurred as a result of any act or
failure to act in connection with the performance of fiduciary duties or
responsibilities, if any, under this Plan and applicable laws and regulations,
but not for liabilities and claims arising from such Fiduciary's willful
misconduct or gross negligence.
SECTION 6.12 - INTERPRETATION: This Plan has been executed for the
-----------------------------
exclusive benefit of the Participants and their Beneficiaries. So far as
possible, this Plan shall be interpreted and administered in a manner consistent
with this intent and with the intention of the Employer that this Plan shall at
all times fully comply with the requirements of applicable laws and regulations.
Neither the Employer nor the Plan Committee shall exercise any power or right to
do or perform any act which is in conflict with or violates such laws and
regulations. Any power or right granted under this Plan or retained by the
Employer shall be void to the extent that its exercise or retention shall
violate laws and regulations. The Employer and the Trustee shall make any and
all retroactive amendments to this Plan that are required under applicable laws
and regulations in order to establish and maintain this Plan and the Trust in
conformity as a qualified Plan and Trust pursuant to Code Sections 401(a) and
501(a) as amended.
SECTION 6.13 - CLAIMS PROCEDURE: Claims for benefits under the Plan may be
-------------------------------
filed with the Plan Committee on forms supplied by the Plan Committee. Written
notice of the disposition of a claim shall be furnished to the claimant within
ninety (90) days after the application thereof 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.
SECTION 6.14 - CLAIMS REVIEW PROCEDURE: Any Employee, Former Employee, or
--------------------------------------
Beneficiary of either who has been denied a benefit by a decision of the Plan
Committee pursuant to Section 6.13 shall be entitled to file a request for a
hearing with the Plan Committee. Such request, together with a written statement
of the reasons why the claimant believes his claim should be allowed, shall be
filed with the Plan Committee no later than sixty (60) days after receipt of the
written notification provided for in Section 6.13. The Plan Committee shall then
conduct a hearing within the next sixty (60) days, at which time the claimant
may be represented by an attorney or any other representative of his choosing
and at which time 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 five (5) business days written notice to the Plan Committee) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Plan Committee which are pertinent to the claim at
issue and its disallowance. Either the claimant or the Plan Committee 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 Plan Committee within sixty (60) days of receipt of the appeal
<PAGE>
unless there has been an extension of sixty (60) days and such extension and the
reason therefor is communicated by the Plan Committee in writing to the
claimant. The Plan Committee's final decision 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.
<PAGE>
ARTICLE VII
RESTRICTED BENEFITS
-------------------
SECTION 7.01 - RESTRICTED BENEFITS FOR PLAN YEARS BEGINNING BEFORE JANUARY
--------------------------------------------------------------------------
1, 1992: The following restrictions shall apply to distributions occurring in
-------
Plan Years beginning before January 1, 1992 unless the Employer elects to apply
the provisions of Section 7.02 in lieu of these provisions to such
distributions.
In the event the Plan is terminated for any reason other than the failure
to obtain Internal Revenue Service approval pursuant to Section 11.01, or if
benefits become payable to a Participant within the first ten (10) years after
the Plan's Effective Date, then notwithstanding any provision in this Plan to
the contrary, during the first ten (10) years after the Effective Date hereof,
the benefits provided by the Employer's contributions for the Participants each
of whose anticipated annual retirement benefit at Normal Retirement Date exceeds
$1,500 and who at the Effective Date of the Plan were among the twenty-five (25)
highest-paid Employees of the Employer (hereinafter "Restricted Employee") will
be subject to the following restrictions:
(a) Employer contributions which may be used for the benefit of a
Restricted Employee or his Beneficiary shall not exceed the greater
of:
(1) $20,000; or
(2) An amount equal to 20% of the first $50,000 of the Restricted
Employee's annual compensation (averaged over the last five
years) multiplied by the number of years from the Effective Date
of the Plan to (i) the date of termination of the Plan, or (ii)
the date the benefit to the Restricted Employee becomes payable;
or
(3) In the case of a Restricted Employee who is a substantial owner
as defined in Section 4022(b)(5) of the Act, the dollar amount
which equals the present value of the benefits guaranteed for
such Employee under Section 4022 of the Act; or, if the Plan has
not terminated, the present value of the benefit that would be
guaranteed if the Plan terminated on the date the benefit
commences determined in accordance with regulations promulgated
by the Pension Benefit Guaranty Corporation; or, in the case of a
Restricted Employee who is not a substantial owner as defined
above, a dollar amount which equals the present value of the
maximum benefit described in Section 4022(b)(3)(B) of the Act
(determined on the date the Plan terminates or on the date
benefits commence, whichever is earlier) determined in accordance
with regulations promulgated by the Pension Benefit Guaranty
<PAGE>
Corporation without regard to any other limitations in Section
4022 of the Act. This subparagraph (3) shall apply to
distributions other than on account of Plan termination occurring
on or after January 10, 1984 and to distribution on account of
termination of the Plan occurring on or after March 12, 1984.
(b) These restrictions shall not restrict the full payment of any
survivor's benefits on behalf of a Restricted Employee who dies while
in the "Plan.
(c) These restrictions shall not restrict the current payment of full
retirement benefits called for by the Plan for any Restricted Employee
until the Plan is in full effect provided an agreement, adequately
secured, guarantees the repayment of any part of the distribution that
is or may become restricted.
(d) Notwithstanding anything to the contrary, if on the termination of the
Plan within the first ten (10) years after the Effective Date Plan
Assets are more than sufficient to provide Accrued Retirement Benefits
as defined in Section 1.01 for Participants and their Beneficiaries
including full benefits for all Participants other than such of the
twenty-five (25) highest-paid Employees as are still in the service of
the Employer and also including Accrued Retirement Benefits as limited
by this Section for such twenty-five (25) highest paid Employees, then
any excess of Plan Assets shall be used to provide Accrued Retirement
Benefits for the twenty-five (25) highest paid Employees in excess of
such limitations of this Section up to the benefits to which such
Employees would be entitled under Section 1.01 without such
limitations in accordance with applicable laws and regulations. This
subparagraph (d) shall only apply if the formula for computing
benefits as of the date of termination is not discriminatory. All
present values and values of Plan Assets determined pursuant to this
Article shall be computed using assumptions satisfying ERISA Section
4044.
(e) In the event a lump-sum distribution is made to an Employee subject to
the above restrictions in an amount in excess of that amount otherwise
permitted under this Article, an agreement shall be made and entered
into by and between the Employee and the Trustee, with adequate
security guaranteeing repayment of any amount of the distribution that
is restricted. Adequate security shall mean property having a fair
market value of at least 125% of the amount which would be repayable
if the Plan had terminated on the date of distribution of such lump
sum. If the fair market value of the property falls below 110% of the
amount which would then be repayable if the Plan were then to
terminate, the distributee shall
<PAGE>
deposit additional property to bring the value of the property to 125%
of such amount.
(f) If the Plan has been amended so as to increase substantially the
extent of possible discrimination as to contributions or as to
benefits actually payable in event of the subsequent termination of
the Plan or the subsequent discontinuance of contributions thereunder,
then the provisions of this Article shall be applied to the Plan as so
amended, with respect to the increased contributions or benefits
resulting from such amendment, as if it were a new plan established on
the date of such amendment.
(g) In the event that Congress should provide by statute, or the Treasury
Department or the Internal Revenue Service should provide by
regulation or ruling, that the limitations provided for in this
Article are no longer necessary in order to meet the requirements for
a qualified plan under the Code, the limitations in this Article shall
become void and shall no longer apply without the necessity of
amendment to this Plan.
SECTION 7.02 - RESTRICTED BENEFITS FOR PLAN YEARS BEGINNING AFTER DECEMBER
--------------------------------------------------------------------------
31, 1991: In the event of Plan termination, the benefit of any Highly
--------
Compensated Participant (including any Former Participant who was a Highly
Compensated Participant upon severance) is limited to a benefit that is
nondiscriminatory under Code Section 401(a)(4).
For Plan Years beginning on or after January 1, 1992, benefits distributed
to any of the twenty-five (25) most Highly Compensated Participants are
restricted such that the annual payments are no greater than an amount equal to
the payment that would be made on behalf of the Participant under a single life
annuity that is the actuarial equivalent of the sum of the Accrued Retirement
Benefit and the Participant's other benefits under the Plan.
The preceding paragraph shall not apply if: (i) after payment of the
benefit to a Participant described in the preceding paragraph, the value of Plan
Assets equals or exceeds one-hundred ten (110%) percent of the value of current
liabilities, as defined in Code Section 412(l)(7), or (ii) the value of the
benefits for a Participant described above is less than one (1%) percent of the
value of current liabilities.
For purposes of this Section, benefit includes loans in excess of the
amount set forth in Code Section 72(p)(2)(A), any periodic income, any
withdrawal values payable to a living Participant, and any death benefits not
provided for by insurance on the Participant's life.
SECTION 7.03 - CONFORMITY WITH REGULATIONS: To the extent any of the
------------------------------------------
provisions of this Article are not in conformity with regulations of the
Department of Treasury that are promulgated from time to time, the nonconforming
provisions shall be amended retroactively by incorporating the conforming
provisions herein by reference.
<PAGE>
ARTICLE VIII
AMENDMENT OF PLAN
-----------------
SECTION 8.01 - METHOD OF AMENDMENT: Any Plan established under the
----------------------------------
auspices of the Texas Bankers Association Retirement System as herein provided
may be amended by the Employer by an appropriate modification of its Adoption
Agreement at any time and to any lawful extent deemed advisable provided such
amendment does not increase the duties and responsibilities of the Trustee
without written consent.
The Texas Bankers Association, acting by and through the System Committee,
may amend this Exhibit A to the Texas Bankers Association Retirement System
Declaration of Trust at any time and to any lawful extent deemed advisable
provided such amendment does not affect the rights, duties, responsibilities, or
financial obligations of any Employer without its written consent. It shall be
specifically provided, however, that the System Committee shall have the right
to amend this Plan without consent of any Employer at any time for purposes of
maintaining the qualification of the Plan and trust under the Code, and any
Employer hereunder expressly grants such authority to the System Committee. A
copy of any amendment made to the Plan shall be delivered to any Employer then a
signatory hereto and the Trustee within a reasonable period of time following
execution.
SECTION 8.02 - RESTRICTIONS ON AMENDMENTS: No amendment by the Employer
-----------------------------------------
shall permit Plan Assets to be used for purposes other than for the exclusive
benefit of the Participants and their Beneficiaries or shall permit Plan Assets
to revert to the Employer except as may be permissible in accordance with
Section 9.03. No amendment which affects the rights, duties, or responsibilities
of the Trustee may be made without the Trustee's written consent.
If the Plan's vesting schedule is amended or the Plan is amended in any way
that directly or indirectly affects the computation of a Participant's
nonforfeitable percentage, or if the Plan is deemed amended by an automatic
change to a top-heavy vesting schedule, each Participant with at least three (3)
Years of Service with the Employer may elect within a reasonable period after
the adoption of the amendment or change, to have his nonforfeitable percentage
computed under the Plan without regard to such amendment or change. For
Participants who do not have at least one hour of Service in any Plan Year
beginning after December 31, 1988, the preceding sentence shall be applied by
substituting "five (5) Years of Service" for "three (3) Years of Service" where
such language appears.
The period during which the election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end on the latest
of:
(1) Sixty (60) days after the amendment is adopted;
(2) Sixty (60) days after the amendment becomes effective; or
<PAGE>
(3) Sixty (60) days after the Participant is issued written notice of the
amendment by the Employer or Plan Committee.
Unless otherwise permitted by applicable law or regulation, no amendment to
the Plan (including a change in the actuarial basis for determining optional or
early retirement benefits) shall decrease a Participant's Accrued Retirement
Benefit or eliminate an optional form of distribution. Notwithstanding the
preceding sentence, a Participant's Accrued Retirement Benefit may be reduced to
the extent permitted under Code Section 412(c)(8). For purposes of this
paragraph, a Plan amendment which has the effect of (1) eliminating or reducing
an early retirement benefit or a retirement-type subsidy, or (2) eliminating an
optional form of benefit, with respect to benefits attributable to service
before the amendment, shall be treated as reducing Accrued Retirement Benefits.
In the case of a retirement-type subsidy, the preceding sentence shall apply
only with respect to a Participant who satisfies (either before or after the
amendment) the pre-amendment conditions for the subsidy. In general, a
retirement-type subsidy is a subsidy that continues after retirement, but does
not include a qualified disability benefit, a medical benefit, a social security
supplement, or a death benefit (including life insurance). Furthermore, no
amendment to the Plan shall have the effect of decreasing a Participant's vested
interest determined without regard to such amendment as of the later of the date
such amendment is adopted or becomes effective.
<PAGE>
ARTICLE IX
PLAN TERMINATION
----------------
MERGER, CONSOLIDATION, TRANSFER OF ASSETS,
------------------------------------------
SUCCESSOR EMPLOYER
------------------
SECTION 9.01 - TERMINATION: The Employer shall have the right at any time
--------------------------
to terminate the Plan by delivering to the Trustee and Plan Committee written
notice of such termination which shall be in the form of a certified copy of a
Board of Directors Resolution or such other proper documentation setting forth
therein the effective date of termination and reason therefor. In the event of
termination of the Plan with respect to all Participants or partial termination
with respect to a group of Participants, the Accrued Retirement Benefit of each
such affected Participant shall become nonforfeitable to the extent funded as of
that date. Upon termination of the Plan, the Employer by written notice to the
Trustee may direct either:
(a) Continuation of the trust created hereunder and the distribution of
benefits at such time and in such manner as though the Plan had not
been terminated; or
(b) Subject to Paragraphs (c), (d), and (e) of this Section, that the Plan
Committee direct the Trustee to distribute the amounts allocated as
provided in Section 9.02 to the Participant or Beneficiary entitled
thereto, and any such distribution may be made in cash to the
maintenance of another or substituted plan and trust, towards the
purchase of annuities, or otherwise in accordance with the provisions
of Articles IV and V. The allocation shall be on the basis of the
amount required to provide any given retirement benefit on an
actuarial equivalent basis, except if the method of distribution
involves the purchase of an annuity, the allocation shall be on the
basis of a single premium of such annuity.
(c) Standard Termination Procedures: To the extent this Plan is
-------------------------------
covered by Title IV of the Act, the following provisions shall apply:
(1) The Plan Committee shall first notify all "affected parties" (as
defined in Act Section 4001(a)(21) but excluding the Pension
Benefit Guaranty Corporation (PBGC)) of the Employer's intention
to terminate the Plan and the proposed date of termination. Such
termination notice shall be provided at least sixty (60) days (or
such other period of time specified by applicable regulations)
prior to the proposed termination date. As soon as practicable
after the termination notice is given (or within such period of
time specified by applicable regulations), the Plan Committee
shall notify the PBGC of the Employer's intention to terminate
the Plan by means of the following:
<PAGE>
(i) a certification of an enrolled actuary of the projected
amount of the assets of the Plan as of the proposed date of
final distribution of assets, the actuarial present value of
the "benefit liabilities" (as defined in Act Section
4001(a)(16)) under the Plan as of the proposed termination
date, and confirmation that the Plan is projected to be
sufficient for such benefit liabilities as of the proposed
date of final distribution;
(ii) a certification by the Administrator that the information
provided to the PBGC and upon which the enrolled actuary
based his certification is accurate and complete; and
(iii) such other information as the PBGC may prescribe by
regulation.
(2) No later than the date on which the PBGC is notified of the
proposed plan termination, the Plan Committee shall provide all
Participants and Beneficiaries under the Plan with an explanatory
statement specifying each such person's benefit liabilities, the
benefit form on the basis of which such amount is determined, and
any additional information that may be required pursuant to
regulations promulgated by the PBGC.
(3) No later than the date on which the PBGC is notified of the
proposed plan termination, the Plan Committee shall apply to the
Internal Revenue Service for a determination of the Plan's
qualified status on plan termination. Such application shall be
made in accordance with applicable procedures and forms issued by
the Internal Revenue Service for this purpose.
(4) A standard termination may only take place if, at the time the
final distribution of assets occurs, the Plan is sufficient to
meet benefit liabilities determined as of the termination date.
(d) Distress Termination Procedure: To the extent this Plan is
------------------------------
covered by Title IV of the Act, the following provisions shall apply:
(1) The Plan Committee shall first notify all affected parties,
including the PBGC, of the Employer's intention to terminate the
Plan and the proposed date of termination. Such termination
notice must be provided at least sixty (60) days (or
<PAGE>
such other period of time specified by applicable regulations)
prior to the proposed termination date. As soon as practicable
after the termination notice is given (or within such period of
time specified by applicable regulations), the Plan Committee
shall also provide a follow-up notice to the PBGC setting forth
the following:
(i) a certification of an enrolled actuary of the amount, as of
the proposed termination date, of the current value of the
assets of the Plan, the actuarial present value (as of such
date) of the benefit liabilities under the Plan, whether the
Plan is sufficient for benefit liabilities as of such date,
the actuarial present value (as of such date) of benefits
under the Plan guaranteed under Act Section 4022, and
whether the Plan is sufficient for guaranteed benefits as of
such date;
(ii) in any case in which the Plan is not sufficient for benefit
liabilities as of such date, the name and address of each
Participant and Beneficiary under the Plan as of such date;
(iii) a certification by the Plan Committee that the information
provided to the PBGC and upon which the enrolled actuary
based his certification is accurate and complete; and
(iv) such other information as the PBGC may prescribe by
regulation.
(2) A distress termination may only take place if:
(i) the Employer is the subject of a petition seeking
liquidation or reorganization in a bankruptcy or insolvency
proceeding which has not been dismissed as of the
termination date and, in the case of a reorganization, the
bankruptcy court or other appropriate court approves the
termination of the Plan;
(ii) the bankruptcy court or other appropriate court determines
that the Employer will be unable to
<PAGE>
pay its debts when due or will be unable to continue in
business if the Plan is not terminated;
(iii) the PBGC has determined that such termination is necessary
to enable the Employer to pay its debts while staying in
business or to avoid unreasonably burdensome pension costs
caused by a decline in the Employer's work force.
(e) Priority and Payment of Benefits: In the case of a distress
--------------------------------
termination, upon approval by the PBGC that the Plan is sufficient for
benefit liabilities or for guaranteed benefits, or in the case of a
standard termination if a letter of noncompliance has not been issued
within the sixty (60) day period (as extended or such other period of
time specified by the applicable regulations) following receipt by the
PBGC of notification of the Plan's proposed termination, the Plan
Committee shall allocate the assets of the Plan among Participants and
Beneficiaries pursuant to Act Section 4044(a). As soon as practicable
thereafter (or within such other period of time specified by
applicable regulations), the assets of the trust fund shall be
distributed to the Participants and Beneficiaries, in cash or through
the purchase of irrevocable commitments from an insurer, in a manner
consistent with Section 5.01. In the case of a distress termination in
which the PBGC is unable to determine that the Plan is sufficient for
guaranteed benefits, the assets of the Plan shall only be distributed
in accordance with proceedings instituted by the PBGC.
(f) No termination distribution shall be made prior to notification from
the Internal Revenue Service of the effect of the Plan's termination
on its qualified status. In the event the Internal Revenue Service
issues an adverse determination letter imposing any tax liability on
the Plan Assets, such liability shall be paid by the Employer or from
the Plan Assets prior to the distribution of Plan Assets to the Plan
beneficiaries entitled to an allocation as described in Section 9.02
below.
SECTION 9.02 - ALLOCATION OF PLAN ASSETS: The Plan Committee shall cause
----------------------------------------
the Plan Assets to be allocated in the following manner in accordance with the
Act, and the amount allocated under any of the following subparagraphs with
respect to any benefit shall be properly adjusted for any allocation with
respect to that benefit under a prior subparagraph:
(a) First: To that portion of each individual's Accrued Retirement
-----
Benefit which is derived from the Participant's Required Employee
Contributions to the Plan, if any.
<PAGE>
(b) Second: In the case of benefits payable as an annuity: (i) in
------
the case of the benefit of a Participant or Beneficiary which was in
pay status as of the beginning of the three-year period ending on the
termination date of the Plan, to each such benefit, based on the
provisions of this Plan (as in effect during the five-year period
ending on such date) under which such benefit would be the least (the
lowest benefit in pay status during a three-year period shall be
considered the benefit in pay status for such period); (ii) in the
case of a Participant's or Beneficiary's benefit (except the benefit
described in (i) immediately above) which would have been in pay
status as of the beginning of such three-year period if the
Participant had retired prior to the beginning of the three-year
period and if his benefits had commenced (in the normal form provided
herein) as of the beginning of such period, to each such benefit based
on the provisions of this Plan (as in effect during the five-year
period ending on such date) under which such benefit would be the
least.
(c) Third: (i) to all other benefits, if any, of Participants or
-----
Beneficiaries guaranteed under Title IV of the Act (determined without
regard to the $750 limitation placed on benefits paid monthly), and
(ii) to the additional benefits, if any, which would be determined
under (i) immediately above if Section 4022(b)(6) of the Act did not
apply.
(d) Fourth: To all other nonforfeitable benefits under this Plan.
------
(e) Fifth: to all other benefits under this Plan.
-----
In the event Plan Assets are insufficient to provide in full all of the
amounts to be set aside pursuant to subparagraphs (a) through (e) above, the
Plan Assets shall be applied to the benefits specified in subparagraph (a)
through (e), where each subparagraph will be funded in full in order of listing
before funding the next listed benefit. In the event the Plan Assets are not
sufficient to fully fund all benefits in any one subparagraph, then the assets
will be allocated pro-rata for that subparagraph on the basis of the present
value of the respective Participant's or Beneficiary's benefits described in
that level.
SECTION 9.03 - RETURN OF RESIDUAL ASSETS TO EMPLOYER: Any residual Plan
----------------------------------------------------
Assets may be distributed to the Employer if all liabilities of the Plan to
Participants and their Beneficiaries have been satisfied and such distribution
does not contravene any provision of applicable laws and regulations.
SECTION 9.04 - MERGER, CONSOLIDATION, TRANSFER OF PLAN ASSETS: In the event
-------------------------------------------------------------
of any merger or consolidation of the Plan with, or transfer in whole or in part
of the Plan Assets and liabilities to, another Plan maintained or to be
established for the benefit of all or some of the Participants of this Plan, the
Plan Assets applicable to such Participants shall be transferred to the other
Plan only if:
<PAGE>
(a) Each Participant would (if either this Plan or the other plan then
terminated) receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before the
merger, consolidation, or transfer (if this Plan had then terminated);
(b) A resolution of the Board of Directors of the Employer under this
Plan, and of any new or successor employer of the affected
Participants, authorizes such transfer of assets and, in the case of
the new or successor employer of the affected Participants, its
resolutions include an assumption of liabilities with respect to such
Participants' inclusion in the new employer's plan; and
(c) Such other plan and trust are qualified under Code Sections 401(a) and
501(a).
SECTION 9.05 - SUCCESSOR EMPLOYER: In the event of the dissolution, merger,
---------------------------------
consolidation, or reorganization of the Employer, provisions may be made by
which the Plan will be continued by the successor and, in that event, such
successor shall be substituted for the Employer under the Plan. The substitution
of the successor shall constitute an assumption of Plan liabilities by the
successor, and the successor shall have all the powers, duties, and
responsibilities of the Employer under the Plan.
<PAGE>
ARTICLE X
LOANS TO PARTICIPANTS
---------------------
SECTION 10.01 - LIMITATIONS: The Plan Committee in its sole discretion may
---------------------------
direct the Trustee to make a loan or loans to a Participant hereunder not to
exceed in the aggregate the lesser of (i) $50,000, reduced by the excess (if
any) of the highest outstanding balance of loans from the Plan to the
Participant during the twelve (12) month 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 (ii) fifty
(50%) percent of the present value of the Participant's Vested Accrued
Retirement Benefit. For purposes of this limit, all plans of the Employer and
any Affiliated Employer shall be considered one plan. Additionally, with respect
to any loan made prior to January 1, 1987, the $50,000 limit specified in (i)
above shall be unreduced. In no event shall loans be permitted to an Owner-
Employee or Shareholder-Employee (both as defined at Section 1.17) participating
herein.
SECTION 10.02 - UNIFORM AND NONDISCRIMINATORY APPLICATION: Loans hereunder
---------------------------------------------------------
shall be made available to all Participants on a uniform and nondiscriminatory
basis pursuant to procedures established by the Plan Committee which may include
but shall not be limited to those specific circumstances under which such loans
shall be permitted. In no event shall loans hereunder be made available to
Highly-compensated Participants, officers, or shareholders in an amount which,
when expressed as a percentage of Participant's Vested Accrued Retirement
Benefit, is greater than the amount made available to other Participants.
SECTION 10.03 - LOAN AGREEMENT: Loans made hereunder shall be evidenced in
------------------------------
writing, signed by the Trustee and Participant, and approved by the Plan
Committee which shall set forth all the terms of the loan agreement including
but not limited to the time and method of repayment, interest to be charged on
the loan, and provisions for the loan to be secured by a pledge of the
Participant's interest in the Plan Assets. Any loan made to a married
Participant shall require the written consent of the Participant's spouse in the
same form described in Section 5.01(a) within the ninety (90) day period ending
on the date the loan is made, extended, renegotiated, or renewed. Such consent
shall thereafter be binding with respect to the consenting spouse or any
subsequent spouse with respect to that loan.
By accepting the loan, the Participant shall automatically assign as
security for the loan all of his right, title, and interest in and to that
portion of the Accrued Retirement Benefit sufficient to secure such loan. In the
event the Participant defaults on the loan, the Trustee shall be authorized at
the expiration of thirty (30) days from date of default, if such default has not
been cured by such date, to deduct the total amount of the outstanding principal
and interest on the loan from any interest in the Plan to which the Participant
or Beneficiary may be entitled upon occurrence of any event described in Article
IV which would otherwise entitle such Participant or Beneficiary to a
distribution from the Plan including any benefit distributed in the form of a
pre-retirement survivor annuity described in Section 5.01 and Section 5.05.
(However, for purposes of determining the value of such survivor annuity, the
security interest shall be included in the Accrued Retirement
<PAGE>
Benefit.) If the amount of such payment, interest, or distribution is
insufficient to repay the unpaid balance of the debt, the Participant shall be
liable for and continue to make payments on the debt.
A loan hereunder shall provide for level amortization with payments of
principal and interest to be made not less frequently than quarterly over a
period not to exceed five (5) years beginning on the date the loan is made.
However, if the loan is used to acquire a dwelling unit which, within a
reasonable time, is to be used as the principal residence of the Participant,
such repayment may exceed (5) years and shall be governed by applicable laws and
regulations. An assignment or pledge of any portion of the Participant's
interest in the Plan and a loan, pledge, or assignment with respect to any
insurance contract purchased under the Plan shall be treated as a loan under
this Article. Notwithstanding the foregoing, loans made prior to January 1, 1987
which are used to acquire, construct, reconstruct, or substantially rehabilitate
any dwelling unit which, within a reasonable period of time, is to be used
(determined at the time the loan is made) as a principal residence of the
Participant or a member of his family (within the meaning of Code Section
267(c)(4)) may provide for periodic repayment over a reasonable period of time
that may exceed five (5) years. Additionally, loans made prior to January 1,
1987 may provide for periodic payments which are made less frequently than
quarterly and which do not necessarily result in level amortization.
All loans to Participants granted hereunder are to be considered
investments of the Plan, and interest charged thereon shall be determined by the
Plan Committee; provided, however, that the interest charged may not exceed a
reasonable rate.
Each loan applicant shall receive a clear statement of charges involved in
the loan transaction including the dollar amount and the annual interest rate of
the finance charges.
All loan procedures and rules established by the Plan Committee are
incorporated by reference as if copied verbatim herein.
<PAGE>
ARTICLE XI
CONTRIBUTIONS CONDITIONED ON INITIAL PLAN QUALIFICATION;
--------------------------------------------------------
CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY;
-------------------------------------------
CONTRIBUTIONS MADE ON MISTAKE OF FACT
-------------------------------------
SECTION 11.01 - CONTRIBUTIONS CONDITIONED ON INITIAL PLAN QUALIFICATION:
-----------------------------------------------------------------------
This Plan is adopted by the Employer upon the condition precedent that the Plan
shall be initially qualified by the Internal Revenue Service as meeting the
requirements of applicable laws and regulations so that the Employer will be
permitted to deduct for federal income tax purposes the amount of its
contributions to the Plan, such contributions will not be taxable to the
Participants as income when made, and this Plan and earnings on Plan Assets will
be exempt from federal income tax. Employer contributions shall be conditioned
on initial qualification of the Plan under Code Section 401(a), and in the event
the Plan receives an adverse determination letter with respect to its initial
qualification, then such contributions shall be returned to the Employer within
one (1) year after such determination, provided application therefor was 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 may be prescribed by the
Secretary of the Treasury.
SECTION 11.02 - CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY; CONTRIBUTIONS
-------------------------------------------------------------------------
MADE ON MISTAKE OF FACT: Employer contributions made hereunder are conditioned
-----------------------
upon deductibility of the contributions under Code Section 404. To the extent
any deduction is disallowed, such non-deductible contribution shall revert to
the Employer within one (1) year after the disallowance of the deduction.
In the event a contribution by the Employer is made by a mistake of fact,
such contribution may be returned to the Employer within one (1) year after the
date of payment of the contribution.
<PAGE>
ARTICLE XII
CONTROLLED GROUP/AFFILIATED SERVICE ORGANIZATIONS; ADOPTION OF
--------------------------------------------------------------
PLAN BY AFFILIATED EMPLOYERS
----------------------------
SECTION 12.01 - EMPLOYEES OF A CONTROLLED GROUP OF CORPORATIONS AND
-------------------------------------------------------------------
COMMONLY CONTROLLED BUSINESSES/SERVICE WITH PREDECESSOR EMPLOYER: For purposes
----------------------------------------------------------------
of Code Sections 401, 408(k), 410, 411, 415, and 416, all employees of all
corporations which are members of a controlled group of corporations (within the
meaning of Code Section 1563(a), determined without regard to Code Sections
1563(a)(4) and (e)(3)(C)) and all employees of trades or businesses (whether or
not incorporated) which are under common control, and employees of any other
entity required to be aggregated with the Employer pursuant to regulations
issued under Code Section 414(o) shall be treated as employed by a single
employer. Additionally, service with any predecessor of the Employer, whether as
a sole proprietor or as an employee of such sole proprietor, shall be considered
as service with the Employer in accordance with applicable laws or regulations
including regulations issued pursuant to Code Section 414(o).
SECTION 12.02 - EMPLOYEES OF AN AFFILIATED SERVICE GROUP: For purposes of
--------------------------------------------------------
Code Sections 401(a)(3), (4), (7), and (16), 408(k), 410, 411, 415, and 416, all
employees of the members of an affiliated service group as defined in Code
Section 414(m)(2) and certain organizations performing management functions as
defined by Code Section 414(m)(5) shall be treated as employed by a single
employer.
SECTION 12.03 - LEASED EMPLOYEES: For purposes of Code Sections 401(a)(3),
--------------------------------
(4), (7), and (16), 408(k), 410, 411, 415 and 416, any person who is not an
Employee of the Employer but who is a "leased employee" within the meaning of
Code Section 414(n)(2) shall be treated as an Employee of the Employer, but
contributions or benefits provided by the leasing organization which are
attributable to services performed by the "leased employee" for the Employer
shall be treated as provided by the Employer. This Section shall not apply to
any "leased employee" if such employee is covered by a plan maintained by the
leasing organization which meets the safe harbor rules of Code Section
414(n)(5).
SECTION 12.04 - ADOPTION OF PLAN BY AFFILIATED EMPLOYERS: With the consent
--------------------------------------------------------
of the Employer, any other corporation or business affiliated with the Employer
may adopt this Plan and all the provisions hereof by executing an Adoption
Agreement evidencing such intent of the adopting employer subject to the
following terms and conditions:
(a) Trustee: Each adopting employer shall be required to name the
-------
same Trustee.
(b) Commingling of Plan Assets: At the direction of the Plan
--------------------------
Committee, the Trustee may commingle, hold, and invest as a single
trust fund all contributions made by an Employer and affiliated
Employers adopting this Plan.
<PAGE>
(c) Forfeiture Allocation: If specified in the Adoption Agreement,
---------------------
amounts forfeited upon termination of employment of a Participant
shall be used to offset the subsequent year's contribution liability
of the Affiliated Employers participating in the Plan as if a single
Employer.
(d) Transferred Employees: It is anticipated that an Employee may be
---------------------
transferred between an Employer and its affiliates maintaining the
Plan, 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. In the event of an Employee transfer from
one participating Employer to another, the employing Employer shall
immediately notify the Trustee and Plan Committee thereof. For
purposes of this Section 12.04, the effective date of transfer shall
be deemed to be the last day of the Plan Year in which the Employee
transferred his employment.
(e) Participating Employers Contributions: All contributions made by
-------------------------------------
a participating Employer, as provided for in this Plan, shall be
determined on the basis of compensation paid, and shall be paid to and
held by the Trustee for the benefit of all Employees of the Affiliated
Employers participating in the Plan as if a single employer.
(f) 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.
(g) 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 Plan 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. If
no successor is designated, the Trustee shall retain such assets for
the Employees of said participating Employer until distribution
pursuant to the provisions of Article V hereof. In no such event shall
any part of the corpus or income of the trust as it relates to such
participating Employer
<PAGE>
be used for or diverted for purposes other than for the exclusive
benefit of the Employees of such participating Employer.
SECTION 12.05 - NO JOINT VENTURE IMPLIED: The adopting of this Plan by a
----------------------------------------
Participating Employer shall not create or be intended to create a joint venture
or partnership relationship between it and any other party hereto. Any
contributions made to the Plan by the Employer or a Participating Employer shall
be paid to and held by the Trustee for the exclusive benefit of all Employees
subject to all the terms and conditions of this Plan.
SECTION 12.06 - TRANSFERS: In the event any Employee is transferred from
-------------------------
one Participating Employer to another, the Plan Committee shall immediately
notify the Trustee. The transfer of any Participant from or to a Participating
Employer, whether he is a Participant of the Employer or Participating Employer,
shall not affect such Participant's rights under the Plan, and the Participant's
Vested Accrued Retirement Benefit as well as service with the transferor or
predecessor and length of participation in the Plan shall continue to be
credited to him. Under no circumstances shall there be duplication of
retirement, disability, or death benefits payable under the Plan because of
employment by more than one Participating Employer.
SECTION 12.07 - EXPENSES: Any expenses of the Plan, including but not
------------------------
limited to Trustee's fees and fees incurred in Plan administration, shall be
paid by Employers maintaining the Plan or from Plan Assets in such pro-rata
amounts determined by the Plan Committee.
SECTION 12.08 - WITHDRAWAL OF PARTICIPATING EMPLOYER: Any Participating
----------------------------------------------------
Employer may withdraw as a Participating Employer under the Plan by giving
thirty (30) days written notice of such intention to the Plan Committee and
Trustee unless such shorter notice is agreed to by such parties.
Upon the effective date of the withdrawal of a Participating Employer, in
accordance with applicable laws and regulations, an enrolled actuary shall
certify the equitable share of such Participating Employer in the Plan Assets.
The Trustee shall thereafter set aside Plan Assets equal in value to such
Participating Employer's equitable share which shall thereafter be held as a
separate trust of the withdrawn Employer and be used and applied either
according to the terms of a new plan or the terms of this Plan, in which case
the "Employer" shall be considered to refer only to the withdrawn Employer.
<PAGE>
ARTICLE XIII
RECEIPT OF PLAN ASSETS FROM OR TRANSFER OF
------------------------------------------
ASSETS TO A QUALIFIED RETIREMENT PLAN
-------------------------------------
SECTION 13.01 - TRANSFERS FROM QUALIFIED PLANS:
----------------------------------------------
(a) Amounts may be transferred from other qualified plans, provided that
the trust from which such funds are transferred permits the transfer
to be made, and the transfer will not jeopardize the qualified status
of the Plan. The amounts transferred shall be set up in a separate
Rollover Account which shall be subject to the qualified joint and
survivor annuity requirements of Section 5.01 herein and which shall
be invested at the direction of the Plan Committee in a prudent and
nondiscriminatory manner. Such account shall be fully vested at all
times and shall not be subject to forfeiture for any reason.
(b) At Normal Retirement Age, 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 only be used to
provide benefits in addition to the benefits otherwise provided
herein.
(c) For purposes of this Section the term "amounts transferred from other
qualified plans" shall mean: (i) amounts transferred to this Plan
directly from another qualified plan; (ii) lump sum distributions
received by an Employee from another qualified Plan which are eligible
for tax free rollover treatment and which are transferred by the
Employee to this Plan within sixty (60) days following his receipt
thereof; (iii) amounts transferred to this Plan from a conduit
individual retirement account provided that the conduit individual
retirement account has no assets other than assets which were
previously distributed to the Employee by another qualified plan plus
earnings thereon (other than an H.R.10 plan or individual retirement
account) as a lump sum distribution which were eligible for tax free
rollover treatment and which were deposited in such conduit individual
retirement account within sixty (60) days of receipt thereof; and (iv)
amounts distributed to the Employee from a conduit individual
retirement account. Prior to accepting any transfer to which this
Section applies the Trustee 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 Trustee that the amounts to be
transferred meet the requirements of this Section.
SECTION 13.02 - TRANSFER OF ASSETS TO ANOTHER QUALIFIED PLAN: The Trustee,
------------------------------------------------------------
upon receiving instructions from the Plan Committee, may transfer Plan Assets to
another plan or individual
<PAGE>
retirement account meeting the requirements of applicable laws and regulations
relating to qualified plans and trusts, subject to the requirements of Code
Section 414(l) and regulations thereunder.
With respect to distributions made on or after January 1, 1993:
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a Distributee's election under this Article, a Distributee may elect, at
the time and in the manner prescribed by the Plan Committee, to have any portion
of an Eligible Rollover Distribution paid directly to an Eligible Retirement
Plan specified by the Distributee in a Direct Rollover.
FOR PURPOSES OF THIS SECTION, THE FOLLOWING DEFINITIONS SHALL APPLY
"ELIGIBLE ROLLOVER DISTRIBUTION" An Eligible Rollover Distribution is any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently that 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 (10) years or more; any distribution to the extent such
distribution is requried under Section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
securities).
"ELIGIBLE RETIREMENT PLAN" An Eligible Retirement Plan is an individual
retirement account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust described in
Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution to the
surviving spouse, an Eligible Retirement Plan is an individual retirement
account or individual retirement annuity.
"DISTRIBUTEE" A Distributee includes an Employee or Former Employee. In
addition, the Employee's or Former Employee's surviving spouse and the
Employee's or Former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are Distributees with regard to the interest of the spouse or
former spouse.
"DIRECT ROLLOVER" A Direct Rollover is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
<PAGE>
ARTICLE XIV
TOP-HEAVY PROVISIONS
--------------------
SECTION 14.01 - APPLICATION OF ARTICLE: If the Plan is or becomes top-heavy
--------------------------------------
for any Plan Year beginning after December 31, 1983, as determined in accordance
with the provisions of this Article, Section 416 of the Code, and applicable
regulations, the provisions of this Article shall apply for such Plan Year and
supersede any conflicting provisions of the Plan.
SECTION 14.02 - DEFINITIONS: For purposes of this Article, the following
---------------------------
definitions shall apply:
(a) Determination Date means the last day of the immediately
------------------
preceding Plan Year except for the first Plan Year of the Plan in
which case the Determination Date is the last day of the first Plan
Year.
(b) Determination Period means the Plan Year containing the Determination
--------------------
Date and the four preceding Plan Years.
(c) Key Employee means any Employee or former Employee of the
------------
Employer or Affiliated Employer (and the beneficiaries of such
Employees) who at any time during the Determination Period was:
(1) an officer of the Employer or Affiliated Employer (as defined in
Code Section 416(i) and the Regulations thereunder) having annual
Compensation from the Employer or Affiliated Employer for a Plan
Year greater than fifty (50%) percent of the dollar limitation in
effect under Code Section 415(b)(1)(A) for the calendar year in
which such Plan Year ends.
After aggregating Affiliated Employers with the Employer
(including leased Employees, if any, under Code Section 414(n)),
the maximum number of officers required to be considered as Key
Employees under this subparagraph shall be no more than three (3)
if there are less than thirty Employees, no more than ten (10%)
percent of the number of Employees (rounded up to the next whole
integer) if there are more than thirty but less than five-hundred
Employees, or no more than fifty if there are more than five-
hundred Employees. The number of Employees which the Employer has
for purposes of determining the maximum number of officers to be
taken into account shall be based on the greatest number of
Employees the Employer has during the Determination Period;
<PAGE>
(2) One of the ten (10) Employees who owns (or is considered as
owning within the meaning of Code Section 318) during the
Determination Period the largest interests in the Employer
(or an Affiliated Employer) provided such Employee owns more
than one-half ( 1/2%) percent ownership interest in the
Employer (or in an Affiliated Employer) and has during the
Plan Year of ownership annual Compensation for such Plan
Year (from the Employer and all Affiliated Employers) which
exceeds the dollar limitation in effect under Section
415(c)(1)(A) for the calendar year in which the Plan Year
ends.
(3) A "Five Percent Owner" of the Employer. A "Five Percent
Owner" means an Employee who owns (or is considered as
owning within the meaning of Code Section 318) more than
five (5%) percent interest in the Employer (or in an
Affiliated Employer); or
(4) A "One Percent Owner" of the Employer. A "One Percent Owner"
means an Employee who owns (or is considered as owning with
the meaning of Code Section 318) more than one (1%) percent
interest in the Employer (or in an Affiliated Employer) and
whose annual compensation for the Plan Year from the
Employer and all Affiliated Employers is more than $150,000.
However, in determining whether an individual has
Compensation of more than $150,000, Compensation for each
employer required to be aggregated under Code Section
414(b), (c), and (m) shall be taken into account.
For all purposes of this Article, Compensation shall mean Section 415
Compensation (including amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludable from the Employee's gross income under
Code Sections 125, 402(a)(8), 402(h), and 403(b)) for the calendar year ending
with or within the applicable Plan Year and shall, for Plan Years beginning
prior to January 1, 1989, be limited to $200,000 in top-heavy Plan Years.
Thereafter, Compensation shall be limited to $200,000 in all Plan Years (unless
adjusted in such manner as permitted under Code Section 415(d)).
The determination of a Key Employee will be made in accordance with Code
Section 416(i) and regulations thereunder.
(d) Non-Key Employee means any Employee, Former Employee or
----------------
Beneficiary of any Employee or Former Employee who is not a Key
Employee.
<PAGE>
(e) Permissive Aggregation Group means a Required Aggregation Group
----------------------------
of plans qualified under Code Section 401(a) ("qualified plan") plus
any other qualified plan or plans of the Employer or Affiliated
Employer (including simplified employee pension plans, qualified plans
terminating during the Determination Period, and defined contribution
plans which have or have had account balances during the Determination
Period) which, when considered as a group with the Required
Aggregation Group, continue to satisfy the requirements of Code
Section 401(a)(4) and Code Section 410.
(f) Present Value of Accrued Retirement Benefits under this defined
--------------------------------------------
benefit Plan means the present value determined using the 1971 Group
Annuity Mortality Table and five (5%) percent interest.
(g) Required Aggregation Group means all qualified plans (including
--------------------------
simplified employee pension plans, qualified plans terminated during
the Determination Period, and defined contribution plans which have or
have had account balances during the Determination Period) of the
Employer or any Affiliated Employer during the Determination Period in
which at least one Key Employee participates, and any other qualified
plan (including simplified employee pension plans, if any) of the
Employer or any Affiliated Employer which enables such Plan to meet
the requirements of Code Section 401(a)(4) or Code Section 410.
(h) Valuation Date, for purposes of determining the Present Value of
--------------
Accrued Retirement Benefits under this plan, shall be the most recent
Valuation Date which is within the twelve (12) month period ending on
the Determination Date. For purposes of a defined contribution plan,
the value of account balances shall be determined as of the
Determination Date.
SECTION 14.03 - DETERMINATION OF TOP-HEAVY STATUS:
-------------------------------------------------
(a) For any Plan Year beginning after December 31, 1983, the Plan is a
top-heavy Plan if any of the following conditions exists:
(1) If the top-heavy ratio determined in subparagraph (b) for the
Plan exceeds sixty (60%) percent and the Plan is not a part of
any Required Aggregation Group or Permissive Aggregation Group of
qualified plans;
(2) If the Plan is a part of a Required Aggregation Group, but not
part of a Permissive Aggregation Group of qualified plans, and
the top-heavy ratio determined in subparagraph (b) for the
Required Aggregation Group exceeds sixty (60%) percent; or
<PAGE>
(3) If the Plan is a part of a Required Aggregation Group and part of
a Permissive Aggregation Group of qualified plans and the top-
heavy ratio determined in subparagraph (b) for the Permissive
Aggregation Group exceeds sixty (60%) percent.
(b) Top-Heavy Ratio Calculation:
(1) The top-heavy ratio with respect to the Plans taken into account
under subsection (a), as applicable, is a fraction, the numerator
of which is the sum of the Present Value of cumulative Accrued
Retirement Benefits and the account balances of all Key Employees
with respect to such qualified Plans as of the Determination Date
(including any part of any accrued benefit or account balance
distributed during the Determination Period) and the denominator
of which is the sum of the Present Value of the cumulative
Accrued Retirement Benefits and the account balances of all
Employees with respect to such qualified Plans as of the
Determination Date (including any part of any Accrued Retirement
Benefit or account balance distributed during the Determination
Period).
(2) For purposes of subparagraph (1), the value of account balances
and the Present Value of Accrued Retirement Benefits will be
determined as of the most recent Valuation Date which is within a
twelve-month period ending on the Determination Date, except as
provided in Code Section 416 and the Treasury Regulations
thereunder for the first and second Plan Years of a defined
benefit plan. Solely for purposes of determining the top-heavy
ratio, the Present Value of Accrued Retirement Benefits of a
Participant who is a Non-Key Employee shall be determined using
the single accrual method used for all plans of the Employer 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 foregoing shall
only apply to Plan Years beginning after December 31, 1986.
The account balances and Accrued Retirement Benefits of a
Participant who is not a Key Employee, but who was a Key Employee
in a prior year, will be disregarded. The calculation of the top-
heavy ratio and the extent to which distributions, rollovers,
transfers, and contributions unpaid as of the Determination Date
are taken into account will be made
<PAGE>
in accordance with Code Section 416 and the Treasury Regulations
thereunder. Employee contributions described in Code Section
219(e)(2) will not be taken into account for purposes of
computing the top-heavy ratio. When aggregating plans, the value
of account balances and accrued benefits will be calculated with
reference to the Determination Dates that fall within the same
calendar year.
(3) With respect to Plan Years beginning after December 31, 1984, the
account balances and Accrued Retirement Benefits of any Employee
who has not performed services for the Employer at any time
during the five (5) year period ending on the Determination Date
shall not be taken into account for purposes of this subsection.
SECTION 14.04 - MINIMUM BENEFIT ACCRUAL: For any Plan Year in which this
---------------------------------------
Plan is a top-heavy plan, the minimum Accrued Retirement Benefit provided solely
by Employer Contributions for a Non-key Employee payable at Normal Retirement
Date, expressed in terms of a straight life annuity or Actuarial Equivalent
thereof, shall be equal to the greater of (i) the monthly Accrued Retirement
Benefit computed under the benefit formula specified in the Adoption Agreement,
or (ii) the product of one-twelfth (1/12) of the Employee's average Compensation
for the period of consecutive years (not exceeding five (5) years) when the
Employee had the highest aggregate Compensation from the Employer (excluding
years for which the Employee was not credited with a Year of Service for Vesting
purposes) and the lesser of two (2%) percent multiplied by Years of Service or
twenty (20%) percent. The minimum accrual shall be determined without regard to
any Social Security contribution. For purposes of this Section, Years of Service
ending in Plan Years beginning prior to January 1, 1984 and Years of Service
which include the close of any Plan Year for which the Plan was not top-heavy
shall not be taken into account.
Each Non-key Employee who has at least one-thousand (1,000) Hours of
Service for an accrual computation period shall accrue the minimum Accrued
Retirement Benefit for such accrual computation period if the Plan is determined
to be top-heavy. Where the accrual computation period does not coincide with the
Plan Year, the minimum benefit must be provided for both accrual periods within
the top-heavy Plan Year. A Non-key Employee shall not fail to accrue a minimum
benefit merely because he was not employed on a specified date. Additionally,
any Non-key Employee who has been excluded from participation solely on account
of the fact that his Compensation is less than that required to accrue a benefit
under the Plan, any Non-key Employee who is excluded from participation in the
Plan because of failure to make mandatory Employee contributions, if any, and
any Non-Key Employee who would receive a lesser accrual solely because the Plan
is integrated with Social Security shall accrue the minimum Accrued Retirement
Benefit provided in this Section.
In any Plan Year in which a Non-key Employee is a Participant in both this
Plan and a defined contribution plan maintained by the Employer which is part of
a top-heavy Required
<PAGE>
Aggregation Group with this Plan, the minimum benefit shall be provided under
this Plan unless otherwise specified in the Adoption Agreement.
If the Employer or Affiliated Employer maintains one or more defined
benefit plans covering Employees who are Participants in this Plan and such
defined benefit plan does not provide that Employees who are Participants
therein shall accrue the minimum benefit applicable to top-heavy defined benefit
plans, the minimum benefit shall be provided in this Plan.
SECTION 14.05 - MINIMUM VESTING SCHEDULE: For any Plan Year in which the
----------------------------------------
Plan is deemed to be a top-heavy plan pursuant to Section 14.03, the top-heavy
vesting schedule specified in the Adoption Agreement shall apply to determine a
Participant's vested interest in Accrued Retirement Benefits derived from
Employer Contributions provided the Participant is credited with at least one
(1) Hour of Service during the Plan Year in which the Plan initially becomes
top-heavy to the extent it provides a greater vested percentage than the non
top-heavy vesting schedule. Such Participant's Vested Accrued Retirement Benefit
attributable to Employer Contributions shall be determined without regard to
this Section.
Other than the exception noted in the preceding paragraph, the top-heavy
vesting schedule shall apply to all benefits within the meaning of Code Section
411(a)(7) except those attributable to Required Employee Contributions,
including benefits accrued before the Plan became top-heavy.
To the extent required to be nonforfeitable under Code Section 416(b), the
minimum benefit accrual described in Section 14.04 above shall not become
forfeitable by reason of Code Sections 411(a)(3)(B) or (D).
All Years of Service required to be counted under Code Section 411(a) shall
be counted for purposes of this Section, and Service which the Plan otherwise
disregards under Code Section 411(a) may be disregarded for purposes of vesting
under this Section.
SECTION 14.06 - CHANGE IN TOP-HEAVY STATUS: If the Plan becomes a top-heavy
------------------------------------------
Plan and subsequently ceases to be such, the vesting schedule in Section 14.05
shall continue to apply in determining all Participants' Vested Accrued
Retirement Benefits including those benefits of Participants who enter the Plan
after it ceases to be top-heavy. However, this Section does not apply to the
Accrued Retirement Benefit of any Employee who does not have an Hour of Service
after the Plan has initially become Top-Heavy. Such Employee's Accrued
Retirement Benefit attributable to Employer contributions shall be determined
without regard to this Section.
SECTION 14.07 - ADJUSTMENT IN CODE SECTION 415 LIMITS FOR TOP-HEAVY PLAN:
------------------------------------------------------------------------
For any Plan Year in which the Plan is top-heavy, Section 3.03(i) shall be read
by substituting the number 1.0 for the number 1.25 wherever it appears unless
the top-heavy ratio is ninety (90%) percent or less and the minimum Accrued
Retirement Benefit provided in Section 14.04 is increased from two (2%) percent
to three (3%) percent of Compensation times the number of accrual Years of
Service in which the Plan was top-heavy. For purposes of this Section, a Plan in
which the top-heavy ratio is more than ninety (90%) percent shall be considered
a "Super Top-Heavy Plan."
<PAGE>
ARTICLE XV
MISCELLANEOUS
-------------
SECTION 15.01 - PLAN NOT A CONTRACT: 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.
SECTION 15.02 - SPENDTHRIFT PROVISION: Except as otherwise provided herein,
-------------------------------------
no benefit or interest which shall be payable out of the Plan Assets, either
voluntarily or involuntarily, to any person (including a Participant or
Beneficiary) shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, or any attempt to
anticipate, alienate, sell, transfer, assign, pledge, or charge; 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 the extent as may be required by
law.
This Section shall not apply to the extent a Participant or Beneficiary is
indebted to the Plan, for any reason, under any provisions of this Plan and at
the time a distribution is to be made to or for his benefit, such proportion of
the amount distributed as shall equal such indebtedness shall be paid from the
amount otherwise distributable to the Participant, at the direction of the Plan
Committee, to apply against or discharge such indebtedness. Prior to making a
payment, however, the Participant or Beneficiary must be given written notice by
the Plan Committee that such indebtedness is to be deducted in whole or in part
from his Vested Accrued Retirement Benefit. If the Participant or Beneficiary
does not agree that the indebtedness is a valid claim against his Vested Accrued
Retirement Benefit, he shall be entitled to a review of the validity of the
claim in accordance with the claims procedures provided herein.
This Section shall also apply to the creation, assignment, or recognition
of a right to any benefit payable with respect to a Participant pursuant to a
domestic relations order unless such order is determined to be a "qualified
domestic relations order" defined in Code Section 414(p), and those other
domestic relations orders permitted to be treated as such by Plan Administrators
under the provisions of the Retirement Equity Act of 1984 including any domestic
relations order entered before January 1, 1985. The Plan Committee 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.
In the event a Participant's benefits are garnished or attached by order of
any court, the Plan Committee may bring an action for declaratory judgement in a
court of competent jurisdiction to determine the proper recipient of the
benefits to be paid by the Plan.
<PAGE>
SECTION 15.03 - INSURANCE COMPANIES: No insurance company which may issue
-----------------------------------
an insurance contract under the Plan shall be required to take or permit any
action contrary to the provisions of such insurance contract; or be bound to
allow any benefit or privilege to any person interested in any insurance
contract it has issued which is not provided in such insurance contract; or be
deemed to be a party to the Plan for any purpose; or be responsible for the
validity of the Plan; or be required to look into the terms of the Plan or
question any act of the Plan Committee or the Trustee in the administration of
the Plan; or be required to see that any action of the Plan Committee or the
Trustee is authorized by the Plan. Any insurance company shall be fully
discharged from any and all liability for any amount paid to the Trustee or in
accordance with its direction, and no insurance company shall be obligated to
see to the application of any monies so paid by it. Any insurance company shall
be fully protected in taking or permitting any action on the faith of any
instrument believed by it to be executed by the Plan Committee or by the Trustee
and shall incur no liability for so doing.
SECTION 15.04 - GOVERNING LAW: This Plan shall be construed and enforced
-----------------------------
according to the Code, the Act, applicable regulations thereunder and the laws
of the State of Texas to the extent not preempted by the Act.
SECTION 15.05 - LEGAL ACTION: In the event any claim, suit, or proceeding
----------------------------
is brought regarding the Plan or related Trust to which the Trustee, Plan
Committee, or System Coordinator may be a party, and such claim, suit, or
proceeding is resolved in favor of the Trustee, Plan Committee, or System
Coordinator, they shall be entitled to be reimbursed from the Plan Assets for
any and all costs, attorney's fees, and other expenses pertaining thereto
incurred by them.
SECTION 15.06 - PROHIBITION AGAINST DIVERSION OF FUNDS: Except as provided
------------------------------------------------------
herein, it shall be impossible by operation of the Plan or 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 corpus or income of the trust fund maintained pursuant to this Plan, or any
funds contributed thereto to be used for, or diverted to, purposes other than
the exclusive benefit of Participants or their Beneficiaries.
SECTION 15.07 - RECEIPT AND RELEASE FOR PAYMENTS: Any payment to any
------------------------------------------------
Participant, his legal representative, Beneficiary, or to any guardian or
committee appointed for such Participant or Beneficiary in accordance with the
provisions of this Plan, shall, to the extent thereof, be in full satisfaction
of all claims hereunder against the Trustee, Plan Committee, System Coordinator,
and the Employer, any 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 in such form as shall be
determined by the Trustee or Employer.
SECTION 15.08 - ACTION BY EMPLOYER: Whenever the Employer under the terms
----------------------------------
of this Plan is permitted or required to do or perform any act, function, or
matter, it shall be done and performed by an officer, the Board of Directors or
such other appropriate person or entity, or agent thereof.
<PAGE>
SECTION 15.09 - HEADINGS: The headings and subheadings of this Plan have
------------------------
been inserted for convenience of reference and are not to be used in the
interpretation or construction of the provisions hereof.
SECTION 15.10 - UNIFORMITY: All provisions of this Plan shall be
--------------------------
interpreted and applied in a uniform, nondiscriminatory manner.
SECTION 15.11 - SEVERABILITY: If any provision of this Plan, which shall
----------------------------
include instruments incorporated herein by reference, shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof; instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if such illegal or invalid
provision had never been included herein.
SECTION 15.12 - MULTIPLE COPIES: This Plan, which shall include instruments
-------------------------------
incorporated herein by reference, may be executed in any number of counterparts,
each of which shall be deemed the original and all of which shall constitute but
one and the same document. Any xerographic, photostatic or similarly reproduced
copy of this Plan shall also be deemed an original for all purposes.
<PAGE>
This Defined Benefit Pension Plan is published as Exhibit A to the Texas
Bankers Association Retirement System Declaration of Trust effective on and
after January 1, 1989.
TEXAS BANKERS ASSOCIATION
RETIREMENT SYSTEM
By:
------------------------------
Chairman, Retirement System
Committee
ATTEST:
----------------------------
Secretary
<PAGE>
FIRST AMENDMENT
TEXAS BANKERS ASSOCIATION RETIREMENT SYSTEM
WHEREAS, the Texas Bankers Association created and established the Texas
Bankers Association Retirement System by execution of a Declaration of Trust
effective as of November 1, 1948 for the exclusive benefit of the employees of
the Association, each banking institution which is a member of the Association
which is now or may become a signatory thereto, or any affiliate of a signatory
banking institution; and
WHEREAS, effective January 1, 1989, the System Committee amended and
restated the Defined Benefit Pension Plan known as Exhibit A to the Declaration
of Trust, which has been approved by the Internal Revenue Service as a Volume
Submitter Plan; and
WHEREAS, the Plan reserves to the System Committee the right and power to
amend the Plan at any time to any lawful extent deemed advisable, including the
right to amend the Plan for purposes of satisfying the requirements for
qualified plans under the Internal Revenue Code of 1986, as amended from time to
time; and
WHEREAS, the Internal Revenue Service has issued Revenue Procedure 94-13
which provides a simplified method for sponsors of qualified plans to amend
their plans to comply with Internal Revenue Code Section 401(a)(17), as amended
by the Omnibus Budget Reconciliation Act of 1993, by means of adopting a model
amendment provided in the Revenue Procedure; and
WHEREAS, the System Committee deems it to be in the best interest of the
adopting Employers, and the participants and beneficiaries of the Plans so
adopted, to adopt the model amendment provided in Revenue Procedure 94-13.
NOW, THEREFORE, BE IT RESOLVED, that the Plan be amended in the following
particulars, but only the following particulars, to wit:
SECTION 1.10(E) IS AMENDED BY ADDING THE FOLLOWING PARAGRAPHS TO THE END
THEREOF:
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994, the annual
Compensation of each employee taken into account under the Plan shall
not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the Commissioner for
increases in the cost of living in accordance with Section 401(a)(17)(B)
of the Internal Revenue Code. The cost-of-living adjustment in effect
for a calendar year applies to any period, not exceeding twelve (12)
months, over which Compensation is determined (determination period)
beginning in such calendar year.
<PAGE>
If a determination period consists of fewer than twelve (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 twelve (12).
For Plan Years beginning on or after January 1, 1994, any reference
in this Plan to the limitation under Section 401(a)(17) of the Code
shall mean the OBRA '93 annual compensation limit set forth in this
provision.
If Compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current
Plan Year, the Compensation for that prior determination period is
subject to the OBRA '93 annual compensation limit in effect for that
prior determination period. For this purpose, for determination periods
beginning before the first day of the first Plan Year beginning on or
after January 1, 1994, the OBRA '93 annual compensation limit is
$150,000.
Unless otherwise provided under the Plan, and only if the formula
adopted by the Employer does not apply one of the fresh-start formulas
under Reg. Section 1.401(a)(14)-13(c)(4), each Section 401(a)(17)
Employee's accrued benefit under this Plan will be the greater of the
accrued benefit determined for the employee under (i) or (ii) below:
(i) the employee's accrued benefit determined with respect to
the benefit formula applicable for the Plan Year beginning
on or after January 1, 1994, as applied to the employee's
total years of service taken into account under the Plan
for the purposes of benefit accruals, or
(ii) the sum of:
(a) the employee's accrued benefit as of the last day of
the last Plan Year beginning before January 1, 1994,
frozen in accordance with Section 1.401(a)(4)-13 of the
regulations, and
<PAGE>
(b) the employee's accrued benefit determined under the
benefit formula applicable for the Plan Year beginning
on or after January 1, 1994, as applied to the
employee's years of service credited to the employee
for Plan Years beginning on or after January 1, 1994,
for purposes of benefit accruals.
A "Section 401(a)(17) Employee" means an employee whose current
accrued benefit as of a date on or after the first day of the first Plan
Year beginning on or after January 1, 1994, is based on compensation for
a year beginning prior to the first day of the first Plan Year beginning
on or after January 1, 1994, that exceeded $150,000.
If this Plan satisfies the requirements of Section 1.401(a)(4)-
13(d) of the regulations for a fresh-start as of the last day of the
last Plan Year beginning before January 1, 1994, then, notwithstanding
any other provisions of the Plan, any Section 401(a)(17) Employee's
accrued benefit, frozen in accordance with Section 1.401(a)(4)-13 of the
regulations as of a fresh-start date, is adjusted to reflect increases
in the employee's compensation after the fresh-start date. However, this
adjustment may be made only if the adjustment will not cause the Plan to
fail to satisfy the consistency requirement of Section 1.401(a)(4)-
13(c), as modified by Section 1.401(a)(17)-1(e) of the proposed
regulations.
In determining a Section 401(a)(17) Employee's accrued benefit in
any Plan Year beginning on or after January 1,1994, the portion of the
employee's frozen accrued benefit attributable to Plan Years beginning
before January 1, 1994, will be determined in accordance with Method A
for Statutory Section 401(a)(17) Employees and Method B for Section
401(a)(17) Employees other than Statutory Section 401(a)(17) Employees.
A "Statutory Section 401(a)(17) Employee" means an employee whose
current accrued benefit as of a date on or after January 1, 1994, is
based on compensation for a year beginning prior to January 1, 1989,
that exceeded $200,000.
<PAGE>
A "Section 401(a)(17) Employee" means an employee whose current
accrued benefit as of a date on or after January 1, 1994, is based on
compensation for a year beginning prior to January 1, 1994, that
exceeded $150,000.
METHOD A (STATUTORY SECTION 401(A)(17) EMPLOYEES):
Step 1: Determine each Statutory Section 401(a)(17) Employee's accrued benefit
as of the last day of the last Plan Year beginning before January 1,
1989, frozen in accordance with Section 1.401(a)(4)-13 of the
regulations.
Step 2: Adjust the amount in Step 1 up through the last day of the last Plan
Year beginning before the first Plan Year beginning on or after
January 1, 1994, under the method provided under the Plan for
increasing the amount in Step 1 to take into account increases in
compensation in Plan Years beginning on or after January 1, 1989.
However, if the Plan does not provide for such increases, the amount
in Step 2 shall be equal to the amount in Step 1.
Step 3: Determine the Statutory Section 401(a)(17) Employee's accrued benefit
as of the last day of the last Plan Year beginning before January 1,
1994, frozen in accordance with Section 1.401(a)(4)-13 of the
regulations.
Step 4: Subtract the amount determined in Step 2 from the amount determined
in Step 3.
Step 5: Adjust the amount in Step 4 by multiplying it by the following
fraction (not less than 1). The numerator of the fraction is the
Statutory Section 401(a)(17) Employee's average compensation
determined for the current year (as limited by Section 401(a)(17)),
using the same definition and compensation formula in effect as of the
last day of the last Plan Year beginning before January 1, 1994. The
denominator of the fraction is the employee's average compensation for
the last day of the last Plan Year beginning before January 1, 1994,
using the definition and compensation formula in effect as of the last
day of the last Plan Year beginning before January 1, 1994.
Step 6: Adjust the amount in Step 1 by multiplying it by the following
fraction (not less than 1). The numerator of the fraction is the
Statutory Section 401(a)(17) Employee's average compensation for the
current year (as limited by Section 401(a)(17)), using the same
definition of
<PAGE>
compensation and compensation formula in effect as of the last day of
the last Plan Year beginning before January 1, 1989. The denominator
of the fraction is the employee's average compensation for the last
day of the last Plan Year beginning before January 1, 1989, using the
definition and compensation formula in effect as of the last day of
the last Plan Year beginning before January 1, 1989.
Step 7: Add the amount determined in Step 5, and the greater of Steps 6 or 2.
METHOD B (SECTION 401(A)(17) EMPLOYEES OTHER THAN STATUTORY SECTION 401(A)(17)
EMPLOYEES):
Step 1: Determine the accrued benefit of each Section 401(a)(17) Employee
other than Statutory Section 401(a)(17) Employees as of the last day
of the Plan Year beginning before January 1, 1994, frozen in
accordance with Section 1.401(a)(4)-13 of the regulations.
Step 2: Adjust the amount in Step 1 by multiplying it by the following
fraction (not less than 1). The numerator of the fraction is the
average compensation of the Section 401(a)(17) Employee who is not a
Statutory Section 401(a)(17) Employee determined for the current year
(as limited by Section 401(a)(17)), using the same definition and
compensation formula in effect as of the last day of the last Plan
Year beginning before January 1, 1994. The denominator of the fraction
is the employee's average compensation for the last day of the last
Plan Year beginning before January 1, 1994, using the definition and
compensation formula in effect as of the last day of the last Plan
Year beginning before January 1, 1994
<PAGE>
IN WITNESS WHEREOF, the Chairman and Secretary of the Retirement System
Committee of the Texas Bankers Association Retirement System have caused this
Amendment to the Exhibit under the Texas Bankers Association Retirement System
Declaration of Trust to be executed in six (6) original counterparts on this the
___ Day of _____________, 1994, to become effective as of January 1, 1994.
TEXAS BANKERS ASSOCIATION
BY: EXECUTIVE COMMITTEE
------------------------------
Chairman
WITNESS:
----------------------------
----------------------------
Secretary
WITNESS:
----------------------------
ACCEPTED BY:
FIRST INTERSTATE BANK OF TEXAS, N.A.,
TRUSTEE
------------------------------
Trust Officer
WITNESS:
----------------------------
DA950880267
6114-26
376;03-29-95
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
PERCENTAGE OF JURISDICTION
NAME OF SUBSIDIARY STOCK OWNED OF INCORPORATION
------------------ ----------- ----------------
<S> <C> <C> <C>
1. Gulf Southwest Nevada Bancorp, Inc. 100.0% Nevada
</TABLE>
<TABLE>
<CAPTION>
SUBSIDIARIES OF GULF SOUTHWEST PERCENTAGE OF JURISDICTION
NEVADA BANCORP, INC. STOCK OWNED OF INCORPORATION
------------------------------ -------------- ----------------
<S> <C> <C> <C>
1. Merchants Bank 100.0% Texas
2. G.S.W. Data Processing, Inc. 100.0% Texas
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
The Schedule contains summary financial information extracted from the audited
1994 financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 14,962,004
<INT-BEARING-DEPOSITS> 1,994,000
<FED-FUNDS-SOLD> 26,950,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,963,020
<INVESTMENTS-CARRYING> 48,888,543
<INVESTMENTS-MARKET> 47,802,547
<LOANS> 144,459,176
<ALLOWANCE> 2,062,786
<TOTAL-ASSETS> 253,026,843
<DEPOSITS> 226,064,278
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,423,467
<LONG-TERM> 0
<COMMON> 1,281,650
0
0
<OTHER-SE> 24,257,448
<TOTAL-LIABILITIES-AND-EQUITY> 253,026,843
<INTEREST-LOAN> 12,274,698
<INTEREST-INVEST> 3,412,034
<INTEREST-OTHER> 1,278,505
<INTEREST-TOTAL> 16,965,237
<INTEREST-DEPOSIT> 4,796,133
<INTEREST-EXPENSE> 4,796,133
<INTEREST-INCOME-NET> 12,169,104
<LOAN-LOSSES> 50,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,392,840
<INCOME-PRETAX> 4,964,318
<INCOME-PRE-EXTRAORDINARY> 4,964,318
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,965,018
<EPS-PRIMARY> 3.15
<EPS-DILUTED> 3.15
<YIELD-ACTUAL> 5.49
<LOANS-NON> 1,215,000
<LOANS-PAST> 128,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,986,000
<CHARGE-OFFS> 437,000
<RECOVERIES> 464,000
<ALLOWANCE-CLOSE> 2,063,000
<ALLOWANCE-DOMESTIC> 2,063,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
