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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
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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: 0-17286
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PRIME BANCORP, INC.
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(Exact name or registrant as specified in its charter)
Pennsylvania 23-2860688
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7111 Valley Green Road, Fort Washington, PA 19034-2209
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 836-2400
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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 per share
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(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 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant is approximately $143.1 million.(1)
The number of shares of the registrant's Common Stock outstanding as of
March 18, 1998 was 5,466,763 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part II Part III
Certain portions of the Annual Report Certain portions of the
to Shareholders for the year ended Proxy Statement 1998
December 31, 1997 March 18, 1998
(1) The aggregate dollar amount of the voting stock set forth equals the number
of shares of Common Stock outstanding, reduced by the number of shares of Common
Stock held by executive officers, directors and stockholders owning in excess of
10% of the registrant's Common Stock multiplied by the closing price for the
Common Stock on the National Association of Securities Dealers National Market
System on March 18, 1998. The information provided shall in no way be construed
as an admission that any person whose holdings are included in this figure is an
affiliate of the registrant and any such admission is hereby disclaimed. The
information provided herein is included solely for record keeping purposes of
the Securities and Exchange Commission.
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PRIME BANCORP, INC.
Part I
Item 1. Business
Introduction
Prime Bancorp, Inc. ("the Company") was incorporated under the laws of the
Commonwealth of Pennsylvania in 1996 for the purpose of converting the Company's
predecessor from a Delaware Corporation to a Pennsylvania Corporation, while at
the same time effecting the merger with First Sterling Bancorp, Inc. The Company
is regulated as a bank holding company. Prior to October 1, 1997, the Company's
principal subsidiaries were Prime Bank, a savings bank ("Prime Savings") and
First Sterling Bank, a commercial bank ("First Sterling"). On October 1, 1997,
the Company completed the merger between the Banks. The combined entity is one
commercial bank called Prime Bank (the "Bank"). The principal business of the
Company and the Bank consists of attracting deposits and obtaining borrowings,
then converting those deposits and borrowings into various types of loans and
investments.
The Company's corporate headquarters is in Fort Washington, Pennsylvania.
Its operations center is in northeast Philadelphia, Pennsylvania. The Company's
bank subsidiary has eight additional full service branch offices in northeast
Philadelphia, five full service branches in Bucks County, Pennsylvania, eight
full service branches in Montgomery County, Pennsylvania, two in Delaware
County, Pennsylvania, and one in Chester County, Pennsylvania.
Business
The Company follows a strategy which focuses on providing individuals,
businesses, and communities with high quality banking services. Banking services
includes lending money, gathering money and other complimentary fee generating
services. The Company's loan products include commercial, commercial real
estate, consumer and residential mortgages. Deposits and funding are gathered
along five major lines which are checking, savings, retail CDs, jumbo CDs and
commercial cash management.
Non-banking Subsidiary Activities
The Company presently conducts business through or has an investment in
eight non-banking subsidiaries. Of these, six are wholly owned by the Bank:
Prime Abstract, Inc. ("Prime Abstract"), Rowland Service Corporation
("Rowland"), Prime Financial Inc. ("Prime Financial"), NEFA Corporation
("NEFA"), 723 Service Corporation and 6524 Service Corporation. None of the
Company's non-banking subsidiaries generates net income which is individually or
in the aggregate, material to the consolidated financial results of the Company
on a consolidated basis.
o Prime Abstract, Inc.: Prime Abstract Inc., a wholly owned subsidiary of the
Bank, is a Delaware Corporation formed in 1988 for the purpose of
performing title searches and providing related permissable services for
its banking affiliates.
o Rowland Service Corporation: Rowland, a subsidiary of the Bank, was formed
to participate in a joint venture project with one local developer
involving the construction of a 15,000 square foot professional condominium
complex.
o Prime Financial Inc.: Prime Financial, a subsidiary of the Bank, was formed
to oversee full-service brokerage operations at the Bank. It is currently
inactive.
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o NEFA Corporation: NEFA, a subsidiary of the Bank, was formed to acquire
land currently held for development and resale.
o 723 Service Corporation: 723 Service Corporation, a subsidiary of the Bank,
was formed for the acquisition of property for debts previously contracted
by borrowers of the Bank.
o 6524 Service Corporation: 6524 Service Corporation was formed for the
acquisition of property for debts previously contracted by borrowers of the
Bank.
o Del-Prime, Inc.: Del-Prime, Inc., a wholly owned subsidiary of the Company,
was incorporated as a Delaware Corporation on November 8, 1989 to do
business exclusively in Delaware. The subsidiary holds tax-free municipal
investment securities.
o Del-Prime Investments, Inc.: Del-Prime Investments, Inc., a wholly owned
subsidiary of the Company, was incorporated as a Delaware Corporation on
November 28, 1994 to do business exclusively in Delaware. The subsidiary
was formed to hold taxable investments.
At December 31, 1997, the Company's aggregate debt and equity investment in
the non-banking subsidiares was $17.0 million. (1.78% of the Company's total
assets)
Sources of Funds
General
The sources of funds to be used in lending and for other general business
purposes of the Company are deposits, loan repayments, sales and maturities of
investment securities, borrowings from the Federal Home Loan Bank ("FHLB") of
Pittsburgh, and other borrowed funds. Deposit inflows and outflows are
influenced significantly by money market and general interest rate conditions,
although the Company has the ability to respond to market conditions through the
pricing of deposit accounts. The Company may also utilize borrowings from the
FHLB of Pittsburgh and other borrowed funds to support expanded lending
activities or where otherwise advantageous to the Company.
Deposits
The Company has a stable base of core deposits, with approximately 9.26% of
its deposits held in passbook accounts which currently earn 1.83%. The Company
also offers short-term certificates of deposit and other deposit alternatives
that are more responsive to market conditions than passbook deposits and longer
maturity fixed-rate certificates. The core deposit base and overall variety of
deposits allow the Company to be competitive in obtaining funds and to respond
with more flexibility to the threat of disintermediation. The Company's deposits
are obtained primarily from the areas in Pennsylvania immediately surrounding
its offices.
Borrowings
The FHLB System functions as a reserve credit facility for thrift
institutions and certain other home financing institutions. It also provides
certain special purpose loan and service programs for its members. As a member
of the FHLB System, the Bank is required to own capital stock in the FHLB of
Pittsburgh and is authorized to apply for advances on the security of such stock
and certain of its home mortgages and other assets (principally securities which
are obligations of, or guaranteed by, the United States Government) provided
certain creditworthiness standards have been met. Such advances may be made
pursuant to several different credit programs, each with its own interest rate,
maximum size of advance and range of maturities. Depending on the program,
limitations on the amount of such borrowings are based either on a percentage of
the Bank's capital or on the FHLB of Pittsburgh's assessment of the
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Bank's creditworthiness. See "Regulation of the Bank - Federal Home Loan Bank
System". At December 31, 1997, the Bank had $79.6 million in borrowings from the
FHLB of Pittsburgh.
The Company uses borrowings and repurchase agreements as a funding
alternative. Included in such borrowings are fundings from commercial cash
management relationships.
See Note 9 Other Borrowed Money on page 31 of the 1997 Annual Report to
Shareholders.
Employees
At December 31, 1997, the Company had 322 full-time equivalent employees,
including 288 full-time and 68 part-time employees. None of these employees are
represented by a collective bargaining agreement. Employee benefits include a
profit sharing plan and life, health and disability insurance. Management
believes that relations with its employees are good.
Competition
The Company faces strong competition in the attraction of deposits. Its
most direct competition for deposits is from thrifts and commercial banks
located in its primary market area. The Company faces additional competition for
investor funds from mutual funds, the stock market and other corporate and
governmental securities.
The Company competes for deposits principally by offering depositors a wide
variety of savings programs, a market rate of return, tax-deferred retirement
programs and other related services and by the efficiency and quality of
services provided to borrowers, real estate brokers and builders. The Company's
competition for loans varies from time to time depending upon the general
availability of lendable funds and credit, general and local economic
conditions, current interest rate levels, volatility in the markets and other
factors that are not readily predictable. The Company does not rely upon any
individual, group or entity for a material portion of its deposits.
REGULATION AND SUPERVISION
The Company and Prime Bank are subject to extensive federal and state
regulation by various bank regulatory agencies. Their activities may also be
subject to regulation by federal or state securities regulatory agencies, state
insurance regulatory agencies, and other federal, state and local governmental
bodies. Banking statutes and regulations are comprehensive and are intended
primarily for the protection of the insurance fund and depositors. Bank
regulatory authorities have extensive discretion in connection with their
supervisory activities and examination policies and have authority to impose a
wide variety of enforcement actions and penalties on an institution or company
that fails to comply with its regulatory requirements. Possible enforcement
actions include the imposition of a capital plan, imposition of civil money
penalties, conservatorship or receivership, and termination of deposit
insurance. Certain enforcement powers extend to directors and officers of banks
and other financial institutions and to other "institution-affiliated" parties,
including stockholders, attorneys, appraisers and accountants. The following is
only a general summary of the applicable banking laws and regulations. The
expense of regulatory compliance for the Company is substantial and increasing
and has an adverse effect on the net income of all regulated institutions such
as the Company and the Bank when compared with competitors which are
substantially less regulated.
Regulation of the Company
The Company is a bank holding company within the meaning of Section 3 of
the Bank Holding Company Act of 1956, as amended ("BHCA"). As such, the Company
is regulated and subject to examination and supervision by the Board of
Governors of the Federal Reserve System ("FRB") and is subject to certain
reporting requirements. The Company is also subject to regulation by
Pennsylvania banking statutes affecting bank holding companies.
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Federal Bank Holding Company Regulation
The Company is required to file with the FRB an annual report and such
additional information as the FRB may require pursuant to the BHCA. The FRB may
also make examinations of the Company and each of its non-bank subsidiaries. The
BHCA requires each bank holding company to obtain the approval of the FRB before
it may acquire any non-banking company or substantially all of the assets of any
bank, or before it may acquire ownership or control of any voting shares of any
bank if, after such acquisition, it would own or control, directly or
indirectly, more than five percent of the voting shares of such bank. Pursuant
to the BHCA, the Company may only engage in or own companies that engage in
banking or in activities deemed by the FRB to be so closely related to the
business of banking or managing or controlling banks as to be a proper incident
thereto, and the Company must gain permission from the FRB prior to engaging in
many new business activities. Under FRB regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner.
Capital Adequacy
The FRB has adopted risk-based capital and leverage ratio requirements for
bank holding companies such as the Company.
Risk-Based Capital Guidelines. The FRB's risk-based capital guidelines for
bank holding companies set a required minimum ratio of total capital to
risk-weighted assets (including off-balance sheet activities, such as standby
letters of credit) of 8%. At least half of the total capital is required to be
"Tier 1 capital", consisting principally of common Shareholders' equity,
noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill and other intangibles. The remainder
("Tier 2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock and a limited amount of the general
loan loss allowance.
Tier 1 Capital Leverage Ratio. The FRB has also established a minimum level
of Tier 1 capital to total assets of 3% for those bank holding companies which
have the highest regulatory examination ratings and are not contemplating or
experiencing significant growth or expansion. All other bank holding companies
are required to maintain a Tier 1 capital leverage ratio of at least 1% to 2%
above the 3% stated minimum.
Other Capital Ratios. Furthermore, the FRB requires bank holding companies
to maintain a minimum level of primary capital to total assets of 5.5% and a
minimum level of total capital to total assets of 6.0% on the same basis as
required for member banks.
The Company currently meets these minimum capital requirements.
Change in Bank Control Act
Under the Change in Bank Control Act of 1978, as amended ("Change in
Control Act") and the regulations adopted thereunder, no person, acting directly
or indirectly or through or in concert with one or more other persons, may
acquire "control" of any federally insured depository institution unless the
appropriate federal banking agency has been given 60 days prior written notice
of the proposed acquisition and within that period has not issued a notice
disapproving of the proposed acquisition or has issued written notice of its
intent not to disapprove the action. "Control" is generally defined as the
power, directly or indirectly, to direct the management or policies of an
institution or to vote 25% or more of any class of its voting securities. A
presumption of "control" arises upon most acquisitions of power to vote 10% or
more of any class of voting securities if the institution or holding company has
registered securities under Section 12 of the Securities Exchange Act of 1934 or
if no other person will own a greater percentage of that class of voting
securities
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immediately after the transaction. This presumption may be rebutted upon a
formal finding by the appropriate federal banking agency that the acquisition
will not result in control.
Pennsylvania Laws Affecting Bank Holding Companies
Under the Pennsylvania Banking Code of 1965, as amended ("PA Code") as
presently enacted, the Company will be permitted to control an unlimited number
of banks, subject to prior approval of applicable federal bank regulatory
agencies and, in certain cases, the Pennsylvania Department of Banking
("PADOB"). The PA Code authorizes reciprocal interstate banking without any
geographic limitation. Reciprocity between states exists when a foreign state's
law authorizes Pennsylvania bank holding companies to acquire banks or bank
holding companies located in that state on terms and conditions substantially no
more restrictive than those applicable to such an acquisition by a bank holding
company located in that state. Interstate ownership of banks in Pennsylvania
with banks in many other states, including the adjoining states of Delaware,
Maryland, New Jersey, Ohio, New York and other states, is currently authorized.
With certain exceptions, the PA Code prohibits any person from acquiring,
directly or indirectly, the power to elect a majority of the board of directors
of a Pennsylvania commercial bank or stock savings bank, or more than 10% of any
class of outstanding stock of such institutions (5% in certain circumstances)
without prior approval of PADOB.
Regulation of the Bank
Prime Bank is a Pennsylvania chartered commercial bank as of October 1,
1997, which is a member of the Federal Reserve Bank System. Its deposit accounts
are insured up to applicable limits by the Federal Deposit Insurance Corporation
("FDIC"). Most of its deposits are insured under the Savings Association
Insurance Fund ("SAIF"), although some deposits are insured under the Bank
Insurance Fund ("BIF"). Prime Bank is subject to extensive regulation, reporting
requirements and examination by the PADOB, as its chartering agency, the FRB, as
its primary federal banking regulator, and the FDIC as its deposit insurer.
Pennsylvania Banking Laws
The activities of Pennsylvania chartered commercial banks are governed by
the PA Code. The PA Code limits the powers and activities of Pennsylvania
chartered commercial banks and savings banks, including the investment and
lending activities of those institutions. Subject to certain exclusions and
qualifications, the Bank is generally limited in making loans to any one
customer or group of related customers to an amount which equals 15% of the
Bank's unimpaired capital and surplus from time to time.
PADOB regulations establish minimum capital requirements for Pennsylvania
chartered financial institutions such as the Bank (the "PA Capital Rules"). The
PA Capital Rules include a minimum requirement for leverage capital -- the ratio
of "Tier 1" capital (as defined for federal bank regulatory purposes) to total
assets -- of 4.00%, and a minimum requirement for "risked-based capital" as that
which is required by federal banking laws. PADOB may set a higher minimum
leverage ratio requirement for individual institutions. At December 31, 1997,
Prime Bank met the Pennsylvania minimum capital requirements.
Federal Reserve System
Federal Reserve Membership. Prime Bank is a member of the Federal Reserve
System. Member banks are entitled to certain borrowing, item clearing and other
privileges at Federal Reserve Banks, and are obligated to purchase shares in the
local Federal Reserve Bank. Member banks are also required to comply with
applicable regulations of the FRB.
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Reserve Requirements. FRB regulations require the Bank to maintain
non-interest earning reserves against the Bank's transaction accounts (primarily
NOW and regular checking accounts). The FRB regulations generally require that
reserves of 3% (below certain levels) and 10% (for deposits above certain
levels) must be maintained against aggregate transaction accounts, subject to an
exemption for specified levels of deposits which would otherwise be reservable.
Because required reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the FRB, the effect of this reserve requirement is to reduce the
effective return or yield on the Bank's assets.
Federal Deposit Insurance Regulation
The FDIC administers the BIF and SAIF funds, although the funds' assets and
liabilities are not commingled. Each fund is to be maintained at a designated
ratio to the aggregate dollar amount of deposits insured by that fund. Pursuant
to a federal law enacted in 1996, the SAIF fund was recapitalized, and the two
funds are to be merged on or before January 1, 1999 if on that date no further
savings associations exist.
Prompt Corrective Action. Federal banking laws and regulations establish a
system of prompt corrective action to resolve the problems of undercapitalized
institutions. The federal banking regulators are required to take certain
supervisory actions against undercapitalized institutions. The adopted rules
create five categories consisting of "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized" and
"critically undercapitalized". Regulatory action taken will depend on the level
of capitalization of the institution and may range from restrictions on
distributions of dividends to seizure of the institution. Generally, subject to
a narrow exception, federal law requires the institution's regulator to appoint
a receiver or conservator for an institution that is critically
undercapitalized. Regulators are authorized to specify the ratio of tangible
capital to assets at which an institution becomes critically undercapitalized
and requires that the ratio be no less than 2% of assets. An institution such as
the Bank must maintain capital of not less than the requirements established by
its primary federal regulator in order to be deemed "adequately capitalized".
Real Estate Lending Standards. Federally insured depository institutions
must adopt and maintain written policies, in conformance with minimum federal
guidelines, that establish appropriate limits and standards for extensions of
credit that are secured by liens or interests in real estate or are made for the
purpose of financing permanent improvements to real estate.
Brokered Deposits. Federal law and regulations impose restrictions on the
acceptance of brokered deposits. Absent a waiver from the FDIC, an insured
depository institution will not be permitted to accept brokered deposits unless
the institution is "well capitalized." The FDIC can only grant waivers to
institutions that are "adequately capitalized" or that are in conservatorship.
Dividends
Dividend payments by the Bank to the Company are subject to the PA Code and
federal banking laws and regulations. Under the Pa Code, dividends may be paid
from `accumulated net earnings' (generally, undivided profits) without prior
regulatory approval. Under federal banking law, no dividends may be paid by an
insured bank if the bank is in arrears in the payment of any insurance
assessment due to the FDIC. In addition, banks which are not adequately
capitalized or otherwise fail to meet regulatory standards, including those for
safety and soundness, may be restricted in payment of dividends. The FRB and the
FDIC have formal and informal policies which provide that insured banks and bank
holding companies should generally pay dividends only out of current operating
earnings.
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Transactions with Affiliates and Other Related Parties
The Bank is subject to certain restrictions on transactions with
"affiliates" such as the Company and any other non-bank subsidiaries of the
Company pursuant to Sections 23A and 23B of the Federal Reserve Act. In summary,
Section 23A
(i) imposes individual and aggregate percentage of capital limits on the
dollar amount of a wide variety of affiliate dealings coming within the
definition of a "covered transaction" (in general, the aggregate amount of
transactions with any one non-bank affiliate is limited to 10% of the
capital and surplus of the Bank and the aggregate amount of transactions
with all non-bank affiliates is limited to 20% of the Bank's capital and
surplus);
(ii) establishes rules for ensuring arms' length dealings between a bank and
its affiliates;
(iii) precludes the acquisition of "low quality" assets by a bank from its
affiliates; and
(iv) imposes detailed collateralization requirements for affiliate credit
transactions.
Section 23B requires a wide range of transactions between a bank and its
affiliates to be on terms which are at least as favorable to the bank as would
apply to similar transactions with non-affiliated companies. These include
"covered transactions" that are subject to Section 23A, as well as
(i) sales of securities or other assets to an affiliate including assets
subject to an agreement to repurchase;
(ii) a payment of money or the furnishing of services to an affiliate under
contract, lease, or otherwise;
(iii) any transaction in which an affiliate acts as an agent or broker or
receives a fee for its services to the association or to any other person;
or
(iv) any transaction or series of transactions with a third party if an
affiliate has an interest in the third party or participates in the
transaction.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the FRA. Among other things, these
regulations require such loans to be made on terms substantially similar to
those offered to unaffiliated individuals, place limits on the amount of loans
the Bank may make to such persons based, in part, on the Bank's capital
position, and require certain approval and reporting procedures to be followed.
Federal and state laws and regulations restrict management personnel of a
bank from serving as directors or in other management positions with securities
firms and with certain depository institutions whose assets exceed a specified
amount or which have an office within a specified geographic area, and restrict
management personnel from borrowing from another institution that has a
correspondent relationship with their bank.
Classification of Assets
Under current federal regulations, an institution must classify its problem
assets according to one of four categories: "substandard", "doubtful", "loss"
and "special mention". For assets classified "substandard", and "doubtful", the
institution is required to establish prudent general loan loss reserves in
accordance with generally accepted accounting principles. Assets classified
"loss" must be either completely written off or supported by a 100% specific
reserve.
Federal Minimum Capital Requirements
The FRB has adopted risk-based capital and leverage ratio requirements for
member insured banks such as Prime Bank.
Risk-Based Capital Guidelines. The FRB's risk-based capital guidelines for
member banks set a required minimum ratio of total capital to risk-weighted
assets (including off-balance sheet activities, such as standby letters of
credit) of 8%. At least half of the total capital is required to be "Tier 1" (or
"core") capital, consisting
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principally of common shareholders' equity, noncumulative perpetual preferred
stock, a limited amount of cumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries, less goodwill.
The remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt and intermediate-term preferred stock, certain hybrid capital instruments
and other debt securities, perpetual preferred stock and a limited amount of the
general loan loss allowance.
Tier 1 Capital Leverage Ratio. The FRB has also established a minimum level
of Tier 1 capital to total assets of 3% for those member banks which have the
highest regulatory examination ratings and are not contemplating or experiencing
significant growth or expansion. All other member banks are required to maintain
a Tier 1 capital leverage ratio of at least 1% to 2% above the 3% stated
minimum.
Leverage Ratio. For banks which are members of the Federal Reserve System,
the FRB has established a minimum level of "primary capital" to total assets of
5.5% and a minimum level of "total capital" to total assets of 6.0%. For these
purposes, the components of "primary capital" generally include common stock,
surplus, undivided profits, contingency and other capital reserves, and the
allowance for possible loan losses ("ALLL"), and "total capital" includes the
primary capital components plus limited life preferred stock and certain
subordinated debt. In calculating the regulatory capital ratios, goodwill is
deducted from both the numerator (capital) and the denominator (total assets) of
the ratio, and the ALLL is added to the denominator (total assets). Generally,
the FRB expects member banks to operate above the minimum levels. Those member
banks whose operations are deemed by the FRB to involve or to be exposed to high
or inordinate degrees of risk may be expected to hold additional capital to
compensate for those risks.
At December 31, 1997, Prime Bank met each of its capital requirements.
In addition, the FRB has established three "zones" for total capital for
banking organizations of all sizes for the purpose of determining the nature and
intensity of supervisory actions. Generally, a member bank with total capital of
at least 7.0% is placed in "Zone 1" and will be considered adequately
capitalized provided its "primary capital" is above the 5.5% minimum. In
contrast, a member bank with total capital below 6.0% is placed in "Zone 3" and
will generally be considered undercapitalized, absent clear extenuating
circumstances. Member banks in "Zone 2" (having capital between the other two
zones) will be scrutinized for a variety of financial risks and capital adequacy
will be determined accordingly.
Prime Bank's total capital ratio would place it in "Zone 1" for these
purposes as of December 31, 1997.
Insurance of Deposit Accounts
The FDIC sets deposit insurance assessment rates on a semiannual basis
separately for the Bank Insurance Fund ("BIF") and the Savings Association
Insurance Fund ("SAIF"). The FDIC has authority to reduce the assessment rates
for either fund whenever the ratio of its reserves to insured deposits is equal
to or greater than 1.25%, and to increase deposit insurance assessments whenever
that ratio is less than 1.25%.
An institution's semiannual deposit insurance assessment is computed
primarily by multiplying its "average assessment base" (generally, total
insurable domestic deposits) for the prior semiannual period by one-half the
annual assessment rate applicable to that institution depending upon its risk
category, which is based principally on two measures of risk. These measures
involve capital and supervisory factors.
For the capital measure, institutions are assigned semiannually to one of
three capital groups according to their levels of supervisory capital as
reported on their call reports: "well capitalized" (group 1), "adequately
capitalized" (group 2) and "undercapitalized" (group 3). The capital ratio
standards for classifying an institution in one of these three groups are total
risk-based capital ratio (10 percent or greater for group 1, and between 8 and
10 percent for group 2), the Tier 1 risk-based capital ratio (6 percent or
greater for group 1, and between 4 and 6 percent for group 2), and the leverage
capital ratio (5 percent or greater for group 1, between 4 and 5 percent for
group 2).
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Within each capital group, institutions are assigned to one of three
supervisory risk subgroups--subgroup A, B, or C, depending upon an assessment of
the institution's perceived risk based upon the results of its most recent
examination and other information available to regulators. Subgroup A will
consist of financially sound institutions with only a few minor weaknesses.
Subgroup B will consist of institutions that demonstrate weaknesses which, if
not corrected, could result in significant deterioration of the institution and
increased risk of loss to the BIF. Subgroup C will consist of institutions that
pose a substantial probability of loss to the deposit insurance fund unless
effective corrective action is taken. Thus, there are nine possible
classifications to which varying assessment rates are applicable. The regulation
generally prohibits institutions from disclosing their subgroup assignments or
assessment risk classifications without FDIC authorization.
Prime Bank currently is not required to pay any deposit insurance.
In addition to the foregoing FDIC deposit insurance assessments, all
insured institutions are also obligated to pay assessments to the federal
Financing Corporation ("FICO") to help pay interest on FICO bonds issued to pay
part of the costs of the savings and loan bailout in 1979. SAIF-insured deposits
are currently subject to a FICO assessment of 6.5 basis points, and BIF-insured
deposits are currently subject to a FICO assessment of approximately 1.3 basis
points. The Bank pays these FICO assessments on its BIF and SAIF deposits.
There is no assurance whether the foregoing assessment rates will remain
constant or change.
Interstate Banking Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act"), enacted on September 29, 1994, permits bank
holding companies to acquire banks in any state beginning in 1995. Beginning in
1997, acquired banks in different states may be merged into a single bank, and
thereafter merged banks may establish and acquire additional branches anywhere
the acquiree could have branched. Limited branch purchases are still subject to
state laws. On July 6, 1995, Pennsylvania adopted an interstate banking act (the
"PA Interstate Banking Act") to harmonize Pennsylvania banking laws with the
Federal Interstate Banking Act. The PA Interstate Banking Act "opts in" early
under the Federal Interstate Banking Act to permit interstate mergers,
non-Pennsylvania holding company acquisitions of Pennsylvania banks, branch
acquisitions and de novo branching in any of the manners contemplated by the
Federal Interstate Banking Act, subject to prior regulatory approvals or
filings. In general, the PA Interstate Banking Act permits out-of-state banking
institutions may establish branches in Pennsylvania with the approval of the
Pennsylvania Banking Department, provided the law of the state where the banking
institution is located would permit a Pennsylvania banking institution to
establish and maintain a branch in that state on substantially similar terms and
conditions. It also permits Pennsylvania banking institutions to maintain
branches in other states. Bank management anticipates that the federal and
Pennsylvania interstate banking legistration will increase competitive pressures
in the Bank's market by permitting entry of additional competitors, but
management is of the opinion that they will not have a material impact upon the
anticipated results of operations of the Bank.
Community Reinvestment
Under the Community Reinvestment Act ("CRA"), an institution has
obligations to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the applicable federal regulator for each bank to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution. The CRA requires public disclosure of an institution's CRA rating.
10
<PAGE>
Federal Home Loan Bank System
Prime Bank is a member of the FHLB System by way of investment in the
Federal Home Loan Bank of Pittsburgh ("FHLBP"). The FHLB System consists of 12
regional Federal Home Loan Banks, subject to supervision and regulation by a
newly created Federal Housing Finance Board. The Federal Home Loan Banks provide
a central credit facility primarily for member financial institutions. Each
financial institution member is required to acquire and hold shares of Federal
Home Loan Bank capital stock. Advances from a FHLB are secured by a member's
shares of stock in the FHLB, certain types of mortgages and other assets.
Interest rates charged on advances vary with the maturity and the cost of funds
to the FHLB. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but FRB regulations require institutions to exhaust
all FHLB sources before borrowing from a Federal Reserve Bank.
Other Laws and Regulations
The Company and the Bank are subject to a variety of laws and regulations
which are not limited to banking organizations. Without limiting the foregoing,
in lending to commercial and consumer borrowers, and in owning and operating
their properties, the Bank is subject to regulations and risks under state and
federal environmental laws.
Legislation and Regulatory Changes
Legislation and regulations may be proposed or enacted from time to time
which could increase the cost of doing business, limit or expand permissible
activities, or affect the competitive balance between banks and other competing
financial services providers. No prediction can be made as to the likelihood of
any major changes or the impact such changes might have on the Company or the
Bank.
Effect of Government Monetary Policies
The earnings of the Company and the Bank are affected by domestic and
international economic conditions and the monetary and fiscal policies of the
United States government and its agencies, as well as those of foreign
countries. It is not possible to predict the nature and impact of future changes
in economic conditions or governmental monetary or fiscal policies.
Item 2. Properties.
The Company neither owns nor leases any real property. At present, it uses
the premises, equipment and furniture of Prime Bank, subject to payment of such
reasonable compensation, if any, as may be determined from time to time. In the
future it may consider acquiring office facilities.
Prime Bank has eight offices in Philadelphia County, five in Bucks County,
one office in Chester County, two offices in Delaware county, and eight in
Montgomery County, Pennsylvania. Of the twenty-four offices, eight are owned,
and sixteen offices are subject to leases. At its home office, Prime Bank offers
a full range of customer services. Except for safe deposit boxes, these same
services are available at each of Prime Bank's other offices. Prime Bank
participates in the MAC Money Access Service shared Automated Teller Machine
("ATM") network and the PLUS SYSTEM network which is the leading international
system of shared automated teller machines (ATMs) which enables customers to
obtain cash almost anytime and almost anywhere they travel in the United States.
Twelve offices are equipped with ATMs owned by Prime.
Item 3. Legal Proceedings.
There are no material legal proceedings to which the Company, the Bank or
its subsidiary service corporations are a party or to which any of their
properties are subject.
11
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The information contained under the captions "Market Information" (page 19)
and Note 1 of "Notes to Consolidated Financial Statements" (page 24) in the
Company's 1997 Annual Report to Shareholders is incorporated herein by reference
thereto.
Item 6. Selected Financial Data.
The information set forth under the caption "Financial Condition Data" on
page 17 of the Company's 1997 Annual Report to Shareholders is incorporated
herein by reference thereto.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information contained under the caption "Management's Discussion and
Analysis" (pages 9 through 18) in the Company's 1997 Annual Report to
Shareholders is incorporated herein by reference thereto.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements, the notes thereto, and the opinion
of independent auditors thereon, appearing on pages 20 through 40 of the
Company's 1997 Annual Report to Shareholders are incorporated herein by
reference thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant.
The information contained under the captions "ELECTION OF DIRECTORS" on
pages 5 through 6, "Executive Officers Who Are Not Directors" on page 8, and
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 8. of the
Company's definitive Proxy Statement dated March 18, 1998 is incorporated herein
by reference thereto.
Item 11. Executive Compensation.
See information contained under the caption "EXECUTIVE COMPENSATION" on
pages 9 through 14 of the Company's definitive Proxy Statement dated March 18,
1998 which are incorporated herein by reference. The "Performance Graph" on page
14 and the "Board Compensation Committee Report on Executive Compensation" on
pages 12 and 13 shall not be deemed "soliciting material" or "filed" with the
Commission or incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the caption "BENEFICIAL OWNERSHIP OF VOTING
SECURITIES" on pages 2 through 4 of the Company's definitive Proxy Statement
dated March 18, 1998 is incorporated herein by reference.
12
<PAGE>
Item 13. Certain Relationships and Related Transactions.
The information contained under the caption "Indebtedness of Management and
"Certain Relationships and Related Transactions" on page 12 of the Company's
definitive Proxy Statement dated March 18, 1998 is incorporated herein by
reference.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) The following consolidated financial statements of the Company
and the opinion of independent auditors thereon which appear on
pages 20 through 37 of the Company's 1997 Annual Report included
as an exhibit to this report:
Page Reference
Annual Report
Financial Statements to Shareholders Page
------------------------------------ ----
Consolidated Statements of Financial Condition ............... 20
Consolidated Statements of Income ............................ 21
Consolidated Statements of Shareholders' Equity .............. 22
Consolidated Statements of Cash Flow ......................... 23
Notes to Consolidated Financial Statements ................ 24-35
Management's Statement on Financial Reporting ................ 36
Independent Auditors' Reports ................................ 37
(2) Other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
(3) The following exhibits:
Exhibit
No. Description
- ------- -----------
2.1 Agreement and Plan of Organization dated June 12, 1996 and First
Amendment thereto dated September 12, 1996, by and among
Registrant, the former Prime Bancorp, Inc., a Delaware
corporation ("Old Prime") Prime and First Sterling. Prime will
supplementally provide a copy of the disclosure schedules to the
SEC upon request.
3.1 Articles of Incorporation of Prime Bancorp, Inc. - Incorporated
herein by reference to Exhibit 3.1 of Registration Statement
#333-13741.
3.2 Bylaws - Incorporated by reference to Exhibit 3.2 of Registration
Statement #333-13741.
4.1 Form of Registrant's Stock Certificate for common stock. -
Incorporated herein by reference to Exhibit 4.2 to Registration
Statement #333-13741.
5.1 Consent and Opinion of Stradley, Ronon, Stevens & Young LLP
regarding legality of shares. Incorporated herein by reference to
Exhibit 5.1 to Registration Statement #333-13741.
8.1 Consent and form of Opinion of Stradley, Ronon, Stevens & Young
LLP regarding tax matters. Incorporated herein by reference to
Exhibit 8.1 to Registration Statement #333-13741.
8.2 Form of Opinion of Kania, Linder, Lasak and Feeney regarding tax
matters. Incorporated herein by reference to Exhibit 8.2 to
Registration Statement #333-13741.
13
<PAGE>
Exhibit
No. Description
------- -----------
10.1 Employment Agreement between the Prime, Prime Bank and James J.
Lynch dated December 18, 1995. Incorporated by reference to
Exhibit 10.1(c) to Registrants Annual Report on Form 10-K for
year ended December 31, 1995, File No. 0-17286.
10.2 Change in Control Agreement between the Company, Prime Prime and
James E. Kelly dated November 17, 1997.
10.3 Employment Agreement between the Prime, Prime Bank and Erwin T.
Straw dated November 14, 1988. Incorporated by reference to
Exhibit 10.1 to Registrant's Annual Report on Form 10-K for year
ended June 30, 1989.
10.4 Addendum to Employment between the Prime, Prime Bank and Erwin T.
Straw dated as of January 29, 1996. - Incorporated herein by
reference to Exhibit 10.4 to Registration Statement #333-13741.
10.5 Employment Agreement between the Prime, Prime Bank and William H.
Bromley to become effective upon completion of the merger with
First Sterling. - Incorporated herein by reference to Exhibit
10.5 to Registration Statement #333-13741.
10.6 First Sterling 1988 Non-Qualified Stock Option Plan -
Incorporated herein by reference to Exhibit 10.6 to Registration
Statement #333-13741.
10.7 Lease Agreement between Dominion Properties L.P. and First
Sterling Bank dated December 7, 1995 for Devon branch and office.
- Incorporated herein by reference to Exhibit 10.7 to
Registration Statement #333-13741.
10.8 Lease Agreement between Dominion Properties L.P. and First
Sterling Bank dated June 4, 1996 regarding right to reduce the
space leased under lease agreement for Devon offices and then
lease term for a portion of such space. - Incorporated herein by
reference to Exhibit 10.8 to Registration Statement #333-13741.
10.9 Lease Agreement between Dominion Properties L.P. and First
Sterling Bank dated as of December 15, 1995 for the St. David's
branch. - Incorporated herein by reference to Exhibit 10.9 to
Registration Statement #333-13741.
10.10 Lease Agreement between Dominion Properties L.P. and First
Sterling Bank dated as of December 15, 1995 for branch in Bryn
Mawr Square. - Incorporated herein by reference to Exhibit 10.10
to Registration Statement #333-13741.
10.11 Lease Agreement between Monument Road Associates and First
Sterling Bank dated April 14, 1994 for Bala Cynwyd branch. -
Incorporated herein by reference to Exhibit 10.11 to Registration
Statement #333-13741.
10.12 Lease Agreement between Silvio F. and Elizabeth O. D'Ignazio and
First Sterling Bank dated as of July 3, 1996 for Media branch. -
Incorporated herein by reference to Exhibit 10.12 to Registration
Statement #333-13741.
10.13 Executive Benefit Plan for Erwin T. Straw
10.14 Incentive Stock Option Plan
14
<PAGE>
Exhibit
No. Description
------- -----------
10.15 Prime's Salary Continuation and Supplemental Retirement Plan -
Incorporated by reference to Exhibit 10.3 to Prime's Annual
Report on Form 10-K for the fiscal year ending June 30, 1989,
filed with the Securities and Exchange Commission on September
27, 1989.
10.16 Prime's Retirement Plan - Incorporated by reference to Exhibit
10.4 to Prime's Annual Report on Form 10-K for the fiscal year
ending June 30, 1989, filed with the Securities and Exchange
Commission on September 27, 1989.
10.17 Prime Bancorp, Inc. Retirement Savings Plan as amended and
restated effective January 1, 1998.
10.18 Lease Agreement between Prime Bank and Lotz Realty, Inc. -
Incorporated by reference to exhibit to Prime's Annual Report on
Form 10-K for the fiscal year ending June 30, 1989, filed with
the Securities and Exchange Commission on September 27, 1989.
10.19 Lease Agreement, between Prime Bank and Village Plaza Shopping
Center. - Incorporated by reference to exhibit 10.7 to Prime's
Annual Report on Form 10-K for the fiscal year ending June 30,
1989, filed with the Securities and Exchange Commission on
September 27, 1989.
10.20 Lease Agreement, between Prime Bank and Grant Plaza. -
Incorporated by reference to Exhibit 10.8 to Prime's Annual
Report on Form 10-K for the fiscal year ending June 30, 1989,
filed with the Securities and Exchange Commission on September
27, 1989.
10.21 Lease Agreement, between Prime Bank and Hopkinson Corporation -
Incorporated by reference to Exhibit 10.10 to Prime's Annual
Report on Form 10-K for the fiscal year ending December 31, 1993,
filed with the Securities and Exchange Commission on April 14,
1993.
10.22 Lease Agreement, between Prime Bank and Foxcroft Square Company -
Incorporated by reference to Exhibit 10.11 to Prime's quarterly
report on Form 10-Q for the quarter ended March 31, 1993, filed
with the Securities and Exchange Commission on April 14, 1993.
10.23 Lease Agreement, between Prime Bank and Bell Atlantic Properties,
Inc. dated January 7, 1985. Incorporated by reference to Exhibit
10.12 to Prime's Annual Report on Form 10-K for the fiscal
year ending December 31, 1994, filed with the Securities and
Exchange Commission on March 30, 1995.
10.24 Lease Agreement, between Prime Bank and the Trust of Russell A.
Allen, deceased dated July 31, 1985. Incorporated by reference to
Exhibit 10.13 to Prime's Annual Report on Form 10-K for the
fiscal year ending December 31, 1994, filed with the Securities
and Exchange Commission on March 30, 1995.
10.25 Lease Agreement, between Prime Bank and Mark Cohen dated
September 24, 1994. - Incorporated by reference to Exhibit 10.14
to Prime's Annual Report on Form 10-K for the fiscal year ending
December 31, 1994, filed with the Securities and Exchange
Commission on March 30, 1995.
10.26 Lease Agreement, between Prime Bank and CoreStates Bank dated
March 1, 1995. Incorporated by reference to Exhibit 10.15 to
Prime's Annual Report on Form 10-K for the year ended December
31, 1995, filed with the Securities and Exchange Commission on
March 30, 1996.
15
<PAGE>
Exhibit
No. Description
------- -----------
10.27 Lease Agreement, between Prime Bank and Cameron C. Troilo and
Olga Jean Troilo dated June 26, 1995. Incorporated by reference
to Exhibit 10.16 to Prime's Annual Report on Form 10-K for the
year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 30, 1996.
10.28 Report on Form 11-K, Prime Bancorp, Inc. Retirement Savings Plan
for the year ended December 31, 1997. (to be filed by amendment)
13.1 Annual Report to Shareholders for the year ended December 31,
1997.
22.1 Subsidiaries
23.1 Consent of Coopers & Lybrand, L.L.P.
23.2 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE>
PRIME BANCORP, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused his report to be signed on its
behalf by the undersigned, hereunto duly authorized.
PRIME BANCORP, INC.
/s/ James J. Lynch
-------------------------------------
James J. Lynch, President and
Chief Executive Officer
Date: March 28, 1998
Pursuant to the requirements of the Securities and 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.
Signature Title Date
--------- ----- ----
/s/ Frederick G. Betz Director March 28, 1998
- ----------------------------
Frederick G. Betz
/s/ William J. Cunningham Director March 28, 1998
- ----------------------------
William J. Cunningham
/s/ Joseph A. Fluehr, III Director March 28, 1998
- ----------------------------
Joseph A. Fluehr, III
/s/ Robert A. Fox Director March 28, 1998
- ----------------------------
Robert A. Fox
/s/ Arthur J. Kania Director March 28, 1998
- ----------------------------
Arthur J. Kania
17
<PAGE>
Signature Title Date
--------- ----- ----
/s/ James E. Kelly Executive Vice President March 28, 1998
- ---------------------------- and Chief Financial Officer
James E. Kelly.
/s/ Ernest Larenz Director March 28, 1998
- ----------------------------
Ernest Larenz
/s/ James J. Lynch Director, President and Chief March 28, 1998
- ---------------------------- Executive Officer (Principal
James J. Lynch Executive Officer)
/s/ Joseph G. Markmann Director March 28, 1998
- ----------------------------
Joseph G. Markmann
/s/ Roy T. Peraino Director March 28, 1998
- ----------------------------
Roy T. Peraino
/s/ David H. Platt Director March 28, 1998
- ----------------------------
David H. Platt
/s/ Arthur L. Powell Director March 28, 1998
- ----------------------------
Arthur L. Powell
/s/ Frank H. Reeves Senior Vice President March 28, 1998
- ---------------------------- Chief Accounting Officer
Frank H. Reeves
/s/ Erwin T. Straw Chairman March 28, 1998
- ----------------------------
Erwin T. Straw
18
CHANGE OF CONTROL AGREEMENT
FOR
JAMES E. KELLY
THIS CHANGE OF CONTROL AGREEMENT (this "Agreement"), made as of November
17, 1997, is by and among PRIME BANCORP, INC. ("Holding Company"), PRIME BANK, a
Pennsylvania bank with main office at 6425 Rising Sun Avenue, Philadelphia, PA
19111 ("Bank") (Holding Company and Bank are sometimes referred to individually
and collectively herein as the "Company") and JAMES E. KELLY, an individual
residing at 4043 Westaway Drive, Lafayette Hill, PA ("Executive").
Background
A. Company and Executive wish to enter into an agreement pursuant to which
Company wishes to secure the future services of Executive by providing Executive
the severance payments provided in this Agreement as additional incentive to
induce Executive to devote Executive's time and attention to the interests and
affairs of the Company.
B. Executive is willing to enter into this Agreement upon the terms and
conditions herein set forth.
C. The Boards of Directors of the Holding Company and the Bank have each
approved this Agreement and it is intended to be maintained as part of the
official records of the Holding Company and the Bank.
NOW THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the parties agree as follows:
1. Employment. Except strictly to such extent (if any) as may be provided
in another agreement between Holding Company or Bank and Executive, Executive
shall remain an employee at will of the Company hereafter. This Agreement is not
an employment agreement, but shall only be interpreted as governing the payment
of severance which may be due to Executive upon termination of Executive's
employment with Company under the specific circumstances described in this
Agreement. No provision of this Agreement shall be interpreted to derogate from
the power of the Company or its Board of Directors to terminate the employment
of the Executive, subject nevertheless to the terms of this Agreement.
2. Compensation. The compensation to be paid by Company to Executive from
time to time, including any fringe benefits or other employee benefits, shall
not be governed by this Agreement. This agreement shall not be deemed to affect
the terms of any stock options, employee benefits or other agreements between
the Company and Executive.
3. Severance Payments upon Termination of Employment After a "Change in
Control". This Agreement does not govern any termination of Executive's
employment with Company which occurs prior to a "change in control" as defined
in subsection (e) of this Section. No inference shall be drawn from any
provision of this Section 3 concerning the rights and obligations of the
<PAGE>
parties in connection with a termination of Executive's employment prior to such
a "change in control."
(a) Termination by Company for Cause or Not for Cause. If Executive's
employment is terminated by Company for "cause" (as defined in subsection (c) of
this Section) at any time, or with or without "cause" prior to (or more than two
years after) a "change in control", Executive shall have no right to any
severance or other payments under this Agreement due to such termination. If
Executive is terminated by Company or Holding Company within two (2) years after
a "change in control" (as defined in subsection (e) of this Section) other than
for "cause", Executive shall be entitled to a severance payment as set forth in
this Section. A termination by Company of Executive's employment with Bank only
or Holding Company only shall be deemed a termination for purposes of this
Agreement, and Executive's right to severance payments (if any) hereunder, shall
be determined as if such termination were a termination from employment with
Company entirely.
(b) Termination by Executive for Good Reason or Not for Good Reason. If
Executive terminates Executive's employment with Holding Company and Bank prior
to a change in control, or without "good reason" (as defined in subsection (d)
of this Section) at any time, Executive shall have no right to any severance or
other payments under this Agreement due to such termination. If Executive
terminates Executive's employment with Holding Company and Bank for "good
reason" after a "change in control" (as defined in subsection (e) of this
Section), Executive's shall be entitled to a severance payment as set forth in
this Section.
(c) Definition of "Cause". For the purpose of this Agreement,
termination for "cause" shall mean termination for personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, conviction of a felony, suspension or removal from office or prohibition
from participation in the conduct of Holding Company's or Bank's affairs
pursuant to a notice or other action by any Regulatory Agency, or willful
violation of any law, rule or regulation or final cease-and-desist order which
in the reasonable judgment of the Board of Directors of the Company will
probably cause substantial economic damages to the Company, willful or
intentional breach or neglect by Executive of his duties, or material breach of
any material provision of this Agreement. For purposes of this paragraph, no
act, or failure to act on Executive's part shall be considered "willful" unless
done, or omitted to be done, by him without good faith and without reasonable
belief that this action or omission was in the best interest of Company;
provided that any act or omission to act by Executive in reliance upon an
approving opinion of counsel to the Company or counsel to the Executive shall
not be deemed to be willful. The terms "incompetence" and "misconduct" shall be
defined with reference to standards generally prevailing in the banking
industry. In determining incompetence and misconduct, Company shall have the
burden of proof with regard to the acts or omission of Executive and the
standards prevailing in the banking industry.
(d) Definition of "Good Reason". For purposes of this Agreement,
Executive shall have "good reason" for terminating his employment with Holding
Company and Bank if Executive terminates such employment within two (2) years
after the occurrence of any one or more of the following events (a "Triggering
Event") without Executive's express written consent, but only if the
2
<PAGE>
Triggering Event occurs within two (2) years after a "change in control" (as
defined in subsection (e) of this Section) of Bank or Holding Company: (i) the
assignment to Executive of any duties inconsistent with Executive's positions,
duties, responsibilities, titles or offices with Bank or Holding Company as in
effect immediately prior to a change in control of Bank or Holding Company, (ii)
any removal of Executive from, or any failure to re-elect Executive to, any of
such positions, except in connection with a termination or suspension of
employment for cause, disability, death or retirement, (iii) a reduction by
Holding Company or Bank in Executive's base annual salary as in effect
immediately prior to a change in control or as the same may be increased from
time to time thereafter, or (iv) any purported termination of Executive's
employment with Bank or Holding Company when "cause" (as defined in this
Agreement) for such termination does not exist.
(e) Definition of "Change in Control". For purposes of this Agreement,
a "change in control" of Company or Bank shall mean any one or more of the
following:
(1) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act") (or any successor
provision) as it may be amended from time to time; or
(2) any "persons" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act in effect on the date first written above), other than
Company or Bank or any "person" who on the date hereof is a director or officer
of Company or Bank, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of Company
or Bank representing 25% or more of the combined voting power of Company's or
Bank's then outstanding securities.
(f) Amount of Severance Payment. If Executive is entitled to severance
payments under subsection (a) or (b) of this Section, and if Executive shall
have signed a release or releases as more fully described in Section 4 of this
Agreement, Company shall pay as severance to Executive an amount equal to the
sum of: (I) the product of multiplying (A) the highest annual base salary paid
to the Executive and includible in the Executive's gross income for federal
income tax purposes for any of the five calendar years preceding the calendar
year in which the date of termination occurs (or such lesser number of full
calendar years as the Executive has been employed by Company at the time of
termination), by (B) 2.00; plus (II) the "Pro-Rated Portion" (as defined below)
of an amount (the "Bonus Amount") equal to the cash bonus (if any) received by
Executive and includible in the Executive's gross income for federal income tax
purposes in the calendar year immediately preceding the calendar year in which
the date of termination occurs. For purposes of this Agreement, the "Pro-Rated
Portion" of the Bonus Amount shall be determined with reference to the date of
termination and the fiscal year of the Company in which such date of termination
occurs, and shall be equal to the product obtained by multiplying the Bonus
Amount by a fraction, the numerator of which is the number of days in the fiscal
year to and including the date of termination, and the denominator of which
shall be 365 (or 366 if the date of termination occurs in a leap year).
3
<PAGE>
(g) Time of Severance Payment. The severance payment provided for in
subsection (f) of this Section shall be made in a lump sum within one (1)
calendar week following the date of termination, but Company shall be entitled
to apply to such payment federal, state and local income or wage tax withholding
to the same degree it was withholding on account of such taxes from Executive's
salary immediately prior to termination.
(h) Limitation on Severance Payments. Notwithstanding any provision of
this Agreement or any other agreement of the parties, if the severance payment
or payments under this Agreement, either alone or together with other payments
which the Executive has the right to receive from the Company, would constitute
a "parachute payment" (as defined in Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code") or any successor provision, such lump sum
severance payment shall be reduced to the largest amount as will result in no
portion of the lump sum severance payment under this Agreement being subject to
the excise tax imposed by Section 4999 of the Code.
(i) Form of Notice. Any termination of Executive's employment by
Company or by Executive after a "change in control" shall be communicated by a
dated, written notice, signed by the party giving the notice, which shall (A)
indicate the specific termination provision in this Agreement relied upon; (B)
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated; (C) specify the effective date of termination.
(j) Subject to Regulatory Requirements. All obligations under this
Agreement are subject to termination by any bank regulatory agency having
jurisdiction over Holding Company or Bank ("Regulatory Agency") in accordance
with any applicable provisions of law or regulations granting such authority,
but rights of the Executive to compensation earned as of the date of termination
shall not be affected.
(k) No Obligation to Mitigate. Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise. The severance payments provided for in this
Agreement shall not be reduced by any compensation or other payments received by
Executive after the date of termination of Executive's employment from any
source.
4. Execution of Release Required. Executive agrees that, as a precondition
to receiving the payments provided for in this Agreement, Executive shall have
executed and delivered to Holding Company and Bank a release or releases, in
form satisfactory to Holding Company and Bank, releasing all claims which
Executive may then have against Holding Company or Bank, including without
limitation any claims related to employment, termination of employment,
discrimination, harassment, compensation or benefits, but excluding any claims
for payments due or to become due under this Agreement.
5. Payment Obligations Absolute. Provided that the preconditions for
payment set forth in this Agreement are fully satisfied, Company's obligation to
pay Executive the severance payments provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including,
4
<PAGE>
without limitation, any set-off counter claim, recoupment, defense or other
right which Company may have against Executive. All amounts payable by Company
hereunder shall be paid without notice or demand.
6. Continuing Obligations. Executive shall retain in confidence any
confidential information known to him concerning Company and its business so
long as such information is not publicly disclosed.
7. Reimbursement of Legal Fees. The Company shall pay all reasonable costs,
including attorneys' fees incurred by Executive (a) in seeking to obtain any
amount or benefit granted pursuant to this Agreement which the Executive in good
faith shall believe the Company has not paid or provided, or shall not be
intending to pay or provide when due, or (b) in seeking to enforce any
obligation which the Executive in good faith shall believe the Company has to
the Executive under the Agreement, or (c) in interpreting or negotiating the
terms of this Agreement in good faith. Such reasonable cost and fees shall be
paid by the Company whether or not the Executive shall have commenced litigation
or any other similar proceedings.
8. Amendments. No amendments to this Agreement shall be binding unless in a
writing, signed by both parties, which states expressly that it amends this
Agreement.
9. Notices. Notices under this Agreement shall be deemed sufficient and
effective if (i) in writing and (ii) either (A) when delivered in person or by
facsimile, telecopier, telegraph or other electronic means capable of being
embodied in written form or (B) forty-eight (48) hours after deposit thereof in
the U.S. mails by certified or registered mail, return receipt requested,
postage prepaid, addressed to each party at such party's address first set forth
above and, in the case of Company, to the attention of the Chairman of the
Board, or to such other notice address as the party to be notified may have
designated by written notice to the sending party.
10. Prior Agreements. There are no other agreements between Company and
Executive regarding Executive's employment. This Agreement is the entire
agreement of the parties with respect to its subject matter and supersedes any
and all prior or contemporaneous discussions, representations, understandings or
agreements regarding its subject matter.
11. Assigns and Successors. The rights and obligations of Company and
Executive under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of Company and Executive respectively,
provided, however, that Executive shall not assign or anticipate any of his
rights hereunder, whether by operation of law or otherwise. For purposes of this
Agreement, "Company" shall also refer to any successor to Holding Company or
Bank, whether such succession occurs by merger, consolidation, purchase and
assumption, sale of assets or otherwise.
12. Executive's Acknowledgment of Terms. Executive acknowledges that he has
read this Agreement fully and carefully, understands its terms and that it has
been entered into by Executive voluntarily. Executive acknowledges that any
payments to be made hereunder will constitute additional compensation to
Executive. Executive further acknowledges that Executive has had sufficient
opportunity to consider this Agreement and discuss it with
5
<PAGE>
Executive's own advisors, including Executive's attorney and accountants.
Executive has been informed that Executive has the right to consider this
Agreement for a period of at least twenty one (21) days prior to entering into
it. Executive acknowledges that Executive has taken sufficient time to consider
this Agreement before signing it. Executive also acknowledges that Executive has
the right to revoke this Agreement for a period of seven (7) days following this
Agreement's execution by giving written notice of revocation to Company.
IN WITNESS WHEREOF, the parties hereto have caused the due execution of
this Agreement as of the date first set forth above.
Holding Company:
Attest: PRIME BANCORP, INC.
/s/ Seth Mackler By: /s/ James J. Lynch
- ------------------------ -------------------------------
Secretary President
Bank:
Attest: PRIME BANK
/s/ Seth Mackler By: /s/ James J. Lynch
- ------------------------ -------------------------------
Secretary President
Witness: Executive:
/s/ Seth Mackler /s/ James E. Kelly
- ------------------------ -------------------------------
James E. Kelly, Individually
PRIME BANK
EXECUTIVE BENEFIT PLAN
FOR
ERWIN T. STRAW
1. PURPOSE
A. The purpose of this Prime Bank Executive Benefit Plan for Erwin T. Straw
(the "Plan") is to provide supplemental retirement income benefits to Erwin T.
Straw (the "Participant"), an executive employee of Prime Bank (the "Employer"),
in addition to any other benefits or compensation provided to the Participant
under any other benefit or compensation plan or agreement of the Employer. The
Plan is intended to be unfunded for federal income tax purposes and for purposes
of Title I of the Employee Retirement Income Security Act of 1974. The Plan is
not intended to be a qualified plan under Section 401(a) of the Code.
B. This Plan and the benefits provided to the Participant hereunder shall
replace the benefits accrued by the Participant under the Prime Savings Bank,
fsb Executive Benefit Plan, and the Participant shall cease to participate
thereunder. This Plan shall not be effective until the Participant has
acknowledged that this Plan shall replace the Executive Benefit Plan as to him
and that he shall no longer be entitled to benefits thereunder by affixing his
signature hereto.
2. CONTRIBUTIONS
Within 15 days of the date on which this Plan becomes effective, the
Employer shall cause the sum of one million, four hundred thousand dollars
($1,400,000) in cash to be transferred to the Trustee of the Trust of the
Executive Benefit Plan of Prime Bank for Erwin T. Straw (the "Trust") as the
Employer's sole contribution to the Trust and in full satisfaction of its
funding obligations under this Plan. The Employer's contribution to the Trust
shall become subject to the terms of the Trust.
3. BENEFITS
A. The Participant or the Participant's beneficiary shall be entitled to
receive Monthly Payments from the Trust (the "Monthly Payments") equal to the
value of the Trust's assets (as provided in Section 6 of the Trust) as of the
last day of the immediately preceding calendar year (reduced by any monthly
payment due on that day under this Section 3), divided by the number of calendar
months remaining in the Benefit Period as of such day; provided, however, in no
event shall the amount of any Monthly Payment exceed the balance of the Trust's
assets. For purposes of this Plan, the value of the Trust's assets as of
December 31, 1996 shall be deemed to be one million, four hundred thousand
dollars ($1,400,000). Monthly
<PAGE>
Payments shall be due the last day of each calendar month in the Benefit Period;
provided, however, payments for any month ending prior to the effective date of
this Plan shall be suspended until such date, and shall be paid as soon as
practicable thereafter.
B. For purposes of this Section 3, the Benefit Period shall be the 10-year
period commencing on January 1, 1997 and ending on December 31, 2006.
C. Computation of the Monthly Payments pursuant to the foregoing provisions
of this Section 3 may be illustrated by the following examples (assuming the
balance of the Trust's assets is sufficient as of the due date of each Monthly
Payment).
Example 1
The Monthly Payment for each month of 1997, the first year of the Benefit
Period, shall be eleven thousand, six hundred and sixty-six dollars and
sixty-seven cents ($11,666.67), computed as follows:
$1,400,000.00 X number of months remaining in Benefit Period
as of 12/31/96
= $1,400,000.00 X 120
= $ 11,666.67
=============
Example 2
Assume that the balance of the Trust's assets as of December 31, 2000
(after the Monthly Payment for December 2000) has decreased to one million,
three hundred thousand dollars ($1,300,000). The Monthly Payment for each
of the months during the year 2001 shall be eighteen thousand and
fifty-five dollars and fifty-six cents ($18,055.56), computed as follows:
$1,300,000.00 X number of months remaining in Benefit Period
as of 12/31/00
= $1,300,000.00 X 72
= $ 18,055.56
=============
D. If the Monthly Payment computed under this Section without reference to
this sentence shall be less than $1,000, the entire balance of the Trust's
assets shall be paid to the
2
<PAGE>
Participant or the Participant's beneficiary as the first monthly payment due
for that calendar year and the last payment due hereunder.
E. The Monthly Payments pursuant to this Plan shall be reduced by any
amounts required to be withheld for taxes in accordance with the laws of any
jurisdiction.
F. In the event of the Participant's death prior to the expiration of the
Benefit Period, the Monthly Payments shall be paid to the Participant's
beneficiary as designated in writing by the Participant in the form prescribed
by the Employer and delivered to the Employer. The Participant may, from time to
time, revoke or change his beneficiary designation by filing a new designation
with the Employer. The last such designation received by the Employer shall be
controlling; provided, however, that no designation, change or revocation
thereof shall be effective unless received by the Employer prior to the
Participant's death. If the Participant fails to designate a beneficiary in such
manner, the Monthly Payments shall be made to the Participant's estate.
G. The obligation of the Employer under the Plan shall be limited to the
value of the Trust's assets determined under the Trust. The Participant shall
have no security interest in the Trust. The rights of the Participant in the
Trust's assets shall be limited to those of a general creditor of the Employer
and the Employer's undertaking pursuant to the Plan shall be deemed to be an
unfunded and unsecured promise to make the Monthly Payments.
H. Notwithstanding any other provision of the Plan, the Employer may direct
the trustee of the Trust to make one or more distributions from the Trust to the
Participant or the Participant's beneficiary on account of hardship. For
purposes of this subsection, the term "hardship" shall mean an extraordinary and
unforeseeable need of the Participant or the Participant's beneficiary for funds
arising from an event or events beyond the control of the Participant or the
Participant's beneficiary which need is substantial and cannot be feasibly met
from other sources of the Participant or the Participant's beneficiary. The term
hardship shall include a severe financial hardship resulting from sudden and
unexpected illness, accident, loss of property or imminent loss of property.
I. Within thirty (30) days following a Change in Control, as defined in
subsection J, below, in lieu of any benefits to which the Participant would
otherwise be entitled under this Section 3, the Participant shall be entitled to
a lump sum cash payment, payable within thirty (30) days following a Change in
Control, equal to the balance of the Trust's assets.
J. "Change in Control" shall mean, with respect to the Employer or Prime
Bancorp, Inc., as the case may be (hereinafter, the "Company"):
(i) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities
3
<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject to such reporting requirement; provided that, without
limitation, such a Change in Control shall be deemed to have occurred if (A) any
"person" (as hereinafter defined) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities; (B) during any period of two
consecutive years (not including any period prior to the execution of this
Plan), individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director, whose election to the Board or
nomination for election to the Board by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board; (C) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 20% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, except that a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 20% of the combined voting
power of the Company's then outstanding securities shall not constitute a change
in control of the Company; or (D) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(ii) For purposes of this subsection, "person" shall have the meaning as
used in Sections 13(d) and 14(d) of the Exchange Act.
4. ASSIGNMENT
No amount payable to or in respect of the Participant or the Participant's
beneficiary shall be subject in any manner to assignment, anticipation,
bankruptcy, pledge, attachment, charge or encumbrance of any kind. Any attempt
to assign, anticipate, pledge, attach, charge or encumber or seize any benefits
of the Participant under the Plan shall be null and void.
5. ADMINISTRATION
A. The Plan shall be administered by the Employer. The Employer shall have
full and final discretionary authority to interpret the Plan and to establish
such rules and regulations under the Plan as it deems appropriate to the
efficient and fair administration of the Plan as long as such actions are in
good faith.
4
<PAGE>
B. The Participant or, in the event of his death, his beneficiary, may file
a written claim for Plan benefits with the Employer. In the event of a denial of
any benefit or payment due to or requested by the Participant or his beneficiary
(the "claimant"), the Employer will give the claimant written notification
containing specific reasons for the denial. The written notification will
contain specific reference to the pertinent Plan or Trust provisions on which
the denial of the benefit is based. In addition, it will contain a description
of any other material or information necessary for the claimant to perfect a
claim, and an explanation of why such material or information is necessary. The
notification will provide further appropriate information as to the steps to be
taken if the claimant wishes to submit the claim for review. This written
notification will be given to a claimant within 90 days after receipt of the
claim by the Employer unless special circumstances require an extension of time
for processing the claim.
C. In the event of a denial of a claim for benefits, the claimant or a duly
authorized representative will be permitted to review pertinent documents and to
submit issues and comments in writing to the Employer. In addition, the claimant
or a duly authorized representative may make a written request for a full and
fair review of the claim and its denial by the Employer; provided, however, that
such written request is received by the Employer (or its delegate) within 60
days after receipt by the claimant of written notification of the denial. The
60-day requirement may be waived by the Employer in appropriate cases.
D. A decision on review of a claim for benefits will be rendered by the
Employer within 60 days after the receipt of the request. Under special
circumstances, an extension (up to an additional 60 days) can be granted for
processing the decision. This extension must be provided in writing to the
claimant prior to the expiration of the initial 60-day period. In no event will
the decision be rendered more than 120 days after the initial request for
review. Any decision by the Employer will be furnished to the claimant in
writing and will set forth the specific reasons for the decision and the
specific Plan provisions on which the decision is based.
5
<PAGE>
6. AMENDMENT AND TERMINATION
A. The Employer shall have the right to amend the Plan from time to time
without the consent of the Participant except that no such amendment shall
diminish in any way the benefits of the Participant under the Plan.
B. The Employer may terminate the Plan at any time. Upon termination of the
Plan, the balance of the Account shall be paid to the Participant (or his
beneficiary, as the case may be) in a single lump sum, based on the value of the
Account immediately preceding the date of payment.
7. GOVERNING LAW
The Plan shall be governed by and construed, enforced and administered in
accordance with the laws of the Commonwealth of Pennsylvania, except to the
extent such laws are preempted by laws of the United States.
IN WITNESS WHEREOF, the Employer has caused this Plan to be executed by its
duly authorized officers as of the date set forth below.
ATTEST: PRIME BANK
/s/ Carol M. Schlacter By: /s/ James J. Lynch
- ----------------------------- -------------------------------
Asst. Secretary Signature
Date: March 10, 1997
--------------
Acknowledged:
ERWIN T. STRAW
/s/ Erwin T. Straw
- -----------------------------
Signature
Date: March 11, 1998
--------------
6
<PAGE>
PRIME BANK EXECUTIVE BENEFIT PLAN
FOR ERWIN T. STRAW
TRUST AGREEMENT
THIS AGREEMENT made this 11th day of March, 1997, by and between Prime Bank
("Bank") and Investors Trust Company ("Trustee").
WHEREAS, Bank has adopted the Prime Bank Executive Benefit Plan for Erwin
T. Straw ("Plan"); and
WHEREAS, Bank wishes to establish a trust (hereinafter called "Trust") and
to contribute to the Trust assets that shall be held therein, subject to the
claims of Bank's creditors in the event of Bank's Insolvency, as herein defined,
until paid to the Plan's participant and his beneficiaries in such manner and at
such times as specified in the Plan; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
and
WHEREAS, it is the intention of Bank to contribute funds to the Trust to
provide a source of funds to meet its liabilities under the Plan.
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment Of Trust
(a) Bank hereby deposits with Trustee in trust one dollar ($1.00), which
shall become the initial principal of the Trust to be held, administered and
disposed of by Trustee as provided in this Trust Agreement. Bank shall make such
additional deposits in trust with Trustee as are required by the terms of the
Plan.
(b) The Trust hereby established shall be irrevocable.
7
<PAGE>
(c) The Trust is intended to be a grantor trust, of which Bank is the
grantor, within the meaning of sub-part E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of Bank and shall be used exclusively for
the uses and purposes of the Plan's participant and the Bank's general creditors
as herein set forth. The Plan's participant and his beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement shall be mere
unsecured contractual rights of the Plan's participant and his beneficiaries
against Bank. Any assets held by the Trust will be subject to the claims of
Bank's general creditors under federal and state law in the event of Insolvency,
as defined in Section 3(a) herein.
(e) The terms of the Plan are incorporated herein and made a part of this
Agreement.
Section 2. Payments to Plan's Participant and His Beneficiaries.
(a) Bank shall deliver to Trustee a schedule (the "Payment Schedule") that
indicates the amounts payable in respect of the Plan participant (and his
beneficiaries), that provides a formula or other instructions acceptable to
Trustee for determining the amounts so payable, the form in which such amount is
to be paid (as provided for or available under the Plan), and the time of
commencement for payment of such amounts, to the extent that one or more of such
matters is not controlled by the terms of the Plan. Except as otherwise provided
herein, Trustee shall make payments to the Plan's participant and his
beneficiaries in accordance with such Payment Schedule or the terms of the Plan,
as the case may be. The Trustee shall make provision for the reporting and
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits pursuant to the terms of the
Plan and shall pay amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and paid by Bank.
(b) The entitlement of the Plan participant or his beneficiaries to
benefits under the Plan shall be determined by Bank or such party as it shall
designate under the Plan, and any claim for such benefits shall be considered
and reviewed under the procedures set out in the Plan.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
When Bank Is Insolvent.
(a) Trustee shall cease payment of benefits to the Plan's participant and
his beneficiaries if the Bank is Insolvent. Bank shall be considered "Insolvent"
for purposes of the
8
<PAGE>
Trust Agreement if (i) Bank is unable to pay its debts as they become due, (ii)
Bank is subject to a pending conservatorship or receivership proceedings, or a
bank regulatory agency takes possession of the Bank or its assets, under 12
U.S.C. Section 1821 or 71 P.S. Sections 733-504 or 733-601 or other provisions
of applicable law, or (iii) Bank is deemed to be insolvent by any federal or
state regulatory agency having administrative jurisdiction with respect to Bank.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Bank under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of Bank shall
have the duty to inform Trustee in writing of Bank's Insolvency. If a person
claiming to be a creditor of Bank alleges in writing to Trustee that Bank has
become Insolvent, Trustee shall determine whether Bank is Insolvent and, pending
such determination, Trustee shall discontinue payment of benefits to Plan
participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Bank's Insolvency, or has
received notice from Bank or a person claiming to be a creditor alleging that
Bank is Insolvent, Trustee shall have no duty to inquire whether Bank is
Insolvent. Trustee may in all events rely on such evidence concerning Bank's
solvency as may be furnished to Trustee and that provides Trustee with a
reasonable basis for making a determination concerning Bank's solvency.
(3) If at any time Trustee has determined that Bank is Insolvent,
Trustee shall discontinue payments to the Plan's participants or his
beneficiaries and shall hold the assets of the Trust for the benefit of Bank's
general creditors. Nothing in this Trust Agreement shall in any way diminish any
rights of the Plan's participant or his beneficiaries to pursue their rights as
general creditors of Bank with respect to benefits due under the Plan or
otherwise.
(4) Trustee shall resume the payment of benefits to the Plan's
participant or his beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that Bank is not Insolvent (or is no
longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues the
payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Plan's participant or his beneficiaries under the terms of the Plan for the
period of such discontinuance, less the aggregate amount of any payments made to
the Plan's participant or his beneficiaries by Bank in lieu of the payments
provided for hereunder during any such period of discontinuance.
9
<PAGE>
Section 4. Investment Authority.
(a) Trustee shall invest the assets of the Trust in its discretion, in
accordance with the Investment Policy Considerations set forth in Schedule A
attached hereto, provided, however, that the Trustee need not follow the
Investment Policy Considerations if it believes there is a compelling reason to
do otherwise.
(b) Trustee may invest in securities (including stock or rights to acquire
stock) issued by Bank.
(c) All rights associated with assets of the Trust shall be exercised by
Trustee or the person designated by Trustee, and shall in no event be
exercisable by or rest with the Plan's participant.
Section 5. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 6. Accounting by Trustee.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between Bank
and Trustee. Within 30 days following the close of each calendar year and within
30 days after the removal or resignation of Trustee, Trustee shall deliver to
Bank a written account of its administration of the Trust during such year or
during the period from the close of the last preceding year to the date of such
removal or resignation, setting forth all investment, receipts, disbursements
and other transactions effected by it, including a description of all securities
and investments purchased and sold with the cost or net proceeds of such
purchases or sales (accrued interest paid or receivable being shown separately),
and showing all cash, securities and other property held in the Trust at the end
of such year or as of the date of such removal or resignation, as the case
may be.
10
<PAGE>
Section 7. Responsibility of Trustee.
(a) (i) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Bank which is contemplated by, and in
conformity with, the terms of the Plan or this Trust and is given in writing by
Bank.
(ii) Any dispute between Bank and the participant or the Trustee as to
the interpretation or application of the provisions of this Agreement, and,
after any Change in Control, any questions concerning amounts payable hereunder,
shall be determined in the Commonwealth of Pennsylvania, County of Philadelphia,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court of
competent jurisdiction. The parties to such arbitration, other than the Trustee,
shall bear their respective fees and expenses of such arbitration. Fees and
expenses incurred by the Trustee in connection with any such arbitration shall
be provided in accordance with Section 7(b), below.
(b) If Trustee undertake or defends any litigation arising in connection
with this Trust, Bank agrees to indemnify Trustee against Trustee's reasonable
costs, expenses and liabilities (including, without limitation, attorneys' fees
and expenses) relating thereto and to be primarily liable for such payments,
subject to the annual limit set forth in Section 8, below; any such reasonable
costs, expenses and liabilities in excess of such limit shall be charged to the
assets of the Trust. If Bank does not pay such costs, expenses and liabilities
in a reasonably timely manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
Bank generally) with respect to any of its duties or obligations hereunder.
(d) Trustee may hire agents, accountants, actuaries, investment advisors,
financial consultants or other professionals to assist it in performing any of
its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on Trustees
by applicable law, unless expressly provided otherwise herein.
(f) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of
11
<PAGE>
section 301.7701-2 of the Procedure and Administrative Regulations promulgated
pursuant to the Internal Revenue Code.
Section 8. Compensation and Expenses of Trustee.
The Trustee shall be entitled to reasonable compensation for its services
as from time to time agreed upon between the Trustee and the Bank. If the
Trustee and the Bank fail to agree upon the Trustee's compensation, the Trustee
shall be entitled to compensation at a rate equal to the rate charged by the
Trustee for similar services rendered by it during the current fiscal year for
other trusts similar to this Trust. Bank shall pay the Trustee's compensation,
but not more than thirty-five one-hundredths of one percent (.35%) of the market
value of the Trust's assets, determined on an annual basis; the balance of the
Trustee's compensation shall be a charge to the Trust's assets. The Trustee
shall not be entitled to a termination commission in addition to the aforesaid
fees.
Section 9. Resignation and Removal of Trustee.
Trustee may resign and be discharged from its duties hereunder at any time
by giving notice in writing to Bank specifying a date (not less than 30 days
after the giving of such notice) when such resignation shall take effect.
Promptly after such notice, Bank and the Plan participant shall appoint a
successor trustee, such Trustee to become a successor hereunder upon the
resignation date specified in such notice. If Bank and Plan participant are
unable to so agree upon a successor trustee within 30 days after such notice,
the Trustee shall be entitled, at the expense of the Bank, to petition a United
States District Court, or any state court having jurisdiction, to appoint its
successor. The Trustee shall continue to serve until its successor accepts the
trust and receives delivery of the Trust assets being held hereunder. Bank and
the Plan participant may at any time substitute a new trustee by giving 15 days
notice thereof to the Trustee then acting. The Trustee and any successor thereto
appointed hereunder shall be a commercial bank which is not an affiliate of the
Bank, but which is a national banking association or established under the laws
of one of the states of the United States, and which has equity in excess of one
hundred million dollars ($100,000,000).
12
<PAGE>
Section 10. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument executed by
Trustee and Bank. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Plan or shall make the Trust revocable. Upon
receipt by the Trustee of notice of termination of the Trust, the Trustee shall
pay, according to the payment schedule then in effect, the amount specified or
determined from the formulae or instructions, subject to Section 3 of the Plan,
in a lump sum cash payment as soon as practicable thereafter to the Plan
participant, and without the necessity of presentation of an affidavit and
receipt (or death certificate).
(b) The Trust shall not terminate until the date on which the Plan's
participant and his beneficiaries are no longer entitled to benefits pursuant to
the terms of the Plan. No part of the corpus or income of the Trust shall be
recoverable by the Bank or used for any purpose other than for the exclusive
purpose of providing payment to the Plan participant in accordance with the
provisions of this Trust Agreement until all such payments required by this
Trust Agreement have been made, except to the extent otherwise required pursuant
to Section 3, above.
Section 11. Miscellaneous.
(a) Any provision of this trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Plan's participant and his beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
13
<PAGE>
Section 12. Effective Date.
The effective date of this Trust Agreement shall be March 11, 1997.
PRIME BANK
By: /s/ James J. Lynch
-------------------------------
Signature
Title: President & CEO
----------------------------
INVESTORS TRUST COMPANY
By: /s/ R.T. Karl, Jr.
-------------------------------
Signature
Title: Vice President
----------------------------
14
<PAGE>
Schedule A
Investment Policy Considerations
A. In accordance with generally recognized and accepted fiduciary standards,
including observation of the Uniform Prudent Investors Act regarding the
management of trust assets, the Trustee intends to accomplish the
following: (i) establish a clearly defined investment policy in the
management of assets, (ii) propose prudent standards to select appropriate
investment vehicles to implement investment policy, (iii) establish and
implement ongoing measurement standards to benchmark investment
performance, investment fees, and (iv) establish a communication program to
allow informed investment decisions.
B. In determining an overall asset allocation contemplating Modern Portfolio
Theory (MPT) to minimize investment risk, investment vehicles can include
domestic and international equity mutual funds, fixed income funds,
guaranteed investment contracts, U.S. government and corporate bonds,
direct equity and bond investments, and other cost-efficient vehicles.
C. A model trust asset allocation could be implemented to attain a total
average annual rate of return 8%, based upon the following allocations,
approximately (i) 59% taxable bonds, (ii) 7% cash equivalents, (iii) 25%
large cap stocks, (iv) 9% international stocks.
D. "Total rate of return" shall be defined as the time weighted rate of return
of measured over a specific time period, inclusive of dividend and/or
interest income and both realized and unrealized capital gains and losses.
E. The Trustee shall arrange to prepare at least semi-annually, investment
performance reports. Such reports shall display (i) total rate of return
for each asset class, (ii) comparison of each asset class total return to
appropriate benchmark and indices, (iii) volatility and performance on a
year-to-date and trailing one, three, five and seven year period.
PRIME BANCORP, INC.
INCENTIVE STOCK OPTION PLAN
Section 1.01. The purpose of this Incentive Stock Option Plan (the "Plan")
is to promote the growth and general prosperity of Prime Bancorp, Inc. (the
"Corporation") and its subsidiary financial institution, Prime Bank, ("Prime" or
the "Bank") and its subsidiary service corporations by permitting the Company to
grant options to purchase shares of its $1.00 par value common stock (the
"Common Stock"). The Plan is designed to help attract and retain superior
personnel for positions of substantial responsibility with the Company and the
Bank and to provide key employees and non-employee directors with an additional
incentive to contribute to the success of the Company and the Bank. The Company
intends that options granted to employees pursuant to the provisions of the Plan
will quality as "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") and Treasury
Regulations promulgated thereunder ("Qualified Options"), unless an option, by
its terms, would not qualify thereunder. The Plan also provides for the granting
of non-incentive options to directors who are not employees ("Non-Qualified
Options"). As used in the Plan, the terms "corporation" and "subsidiary" shall
have the meanings set forth in subsections (e) and (f), respectively, of Section
424 of the Code.
Section 2.01. Administration. The Plan shall be administered by the board
of directors of the Company or by a committee of the board of directors
comprised solely of two or more "Non-Employee Directors," within the meaning of
Rule 16b-3(b)(3)(ii) of the General Rules and Regulations under the Securities
Exchange Act of 1934, to whom administration of the Plan has been delegated by
resolution of the board of directors. The members of the board, or that
committee, as the case may be, are hereafter referred to as the "Plan
Administrators." Actions of the Plan Administrators shall be taken by a majority
vote or by unanimous written consent.
Section 2.02. Authority of Plan Administrators. Subject to the provisions
of the Plan, and with a view to effecting its purpose, the Plan Administrators
shall have sole authority, in their absolute discretion, (a) to construe and
interpret the Plan, (b) to define the terms used herein, (c) to prescribe,
amend, and rescind rules and regulations relating to the Plan, (d) to determine
the individuals to whom options to purchase Common Stock shall be granted under
the Plan, (e) to determine the time or times at which options shall be granted
under the Plan, (f) to determine the number of shares of Common Stock subject to
each option, the option price and the duration of each option granted under the
Plan, (g) to determine all of the other terms and conditions of options granted
under the Plan, and (h) to make all other determinations necessary or advisable
for the administration of the Plan and do everything necessary or appropriate to
administer the Plan. All decisions, determinations and interpretations made by
the Plan Administrators shall be binding and conclusive on all participants in
the Plan and on their legal representatives, heirs and beneficiaries. The Plan
Administrators shall endeavor to ensure that option agreements entered into
pursuant to the Plan which are intended to be Qualified Options meet all the
requirements for incentive stock options described in Section 422 of the Code.
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Section 2.03. Terms, Conditions and Method of Grant. The terms and
conditions of options granted under the Plan may differ from one another as the
Plan Administrators, in their absolute discretion, shall determine as long as
all options granted under the Plan satisfy the requirements of the Plan. No
employee who receives an option (the "optionee") shall have any rights with
respect to an option granted under the Plan unless the optionee shall have
executed and delivered to the Plan Administrators an option agreement (with a
copy of the Plan attached). The option agreement shall be in the form and shall
contain such provisions consistent with the Plan as the Plan Administrators,
acting with the benefit of legal counsel, shall deem advisable. The date of the
option agreement shall be the date of granting the option to the optionee for
all purposes of the Plan. No option under the Plan shall be granted the exercise
of which shall be conditioned upon the exercise of any other option under the
Plan or any other plan.
Section 3.01. Maximum Number of Shares of Common Stock Subject to the Plan.
Subject to the provisions of Section 13.01, the maximum aggregate number of
shares with respect to which options may be granted under the Plan is 353,617
shares of authorized and unissued Common Stock, which number of shares
constitutes 10 percent of the number of shares issued on January 31, 1995. The
maximum number of shares subject to the Plan may be adjusted pursuant to the
provisions of Section 13.01 of the Plan. If any of the options granted under the
Plan expire or terminate for any reason before they have been exercised in full,
the unpurchased Common Stock subject to those expired or terminated options
shall again be available for the purpose of the Plan.
Section 4.01. Eligibility and Participation. Only full-time employees of
the Company or the Bank, whether or not directors of the Company or the Bank,
shall be eligible for selection by the Plan Administrators to participate in the
Plan. As used herein, the term "full-time employee" shall mean any person
employed by the Company or the Bank in return for salary, wages or other
compensation, whose employment shall be regular as opposed to a part-time or job
basis. Directors who are not full time employees of the Company or the Bank
shall be eligible to receive Non-Qualified Options pursuant to the Plan.
Section 5.01. Effective Date and Term of Plan. The Plan shall become
effective upon its adoption by the board of directors of the Company, subject to
approval of the Plan by the stockholders of the Company, as provided in Section
15.01. The Plan shall continue in effect for a term of 10 years unless sooner
terminated under Section 14.01.
Section 5.02. Duration of Options. Each option and all rights thereunder
granted pursuant to the terms of the Plan shall expire on the date determined by
the Plan Administrators, but in no event shall any option granted under the Plan
expire later than ten (10) years from the date on which the option is granted.
In addition, each option shall be subject to early termination as provided in
this Plan.
Section 5.03. Purchase Price. The purchase price for shares of Common Stock
acquired pursuant to the exercise (in whole or in part) of any option shall not
be less than the
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greater of the fair market value of the stock at the time of the grant of the
option. Fair market value shall be determined by the Plan Administrators on the
basis of those factors they deem appropriate; provided that the Plan
Administrators shall make a good faith effort to determine such fair market
value in selecting such factors, and provided further, that if at the time the
determination is made the Common Stock is admitted to trading on a national
securities exchange, the fair market value of the shares shall be not less than
the greater of (i) the mean between the high bid and asked prices reported for
the Common Stock on that exchange on the day the option is granted or the most
recent trading day preceding the date on which the option is granted or (ii) the
last reported sale price reported for the Common Stock on that exchange on the
day or most recent trading day preceding the date on which the option is
granted. The phrase "national securities exchange" shall include the National
Association of Securities Dealers Automated Quotation System and the
over-the-counter market.
Section 5.04. Term and Purchase Price of Option Granted to More Than Ten
Percent Stockholder. Notwithstanding anything to the contrary in Sections 5.02
and 5.03, if an option is to be granted to an optionee who at the time the
option is granted owns (or under Section 424(d) of the Code is deemed to own)
more than 10 percent of the voting power or value of all classes of stock of the
Company, (i) that option by its terms shall not be exercisable after the
expiration of five years after the date that option is granted, and (ii) the
purchase price for shares acquired pursuant to the exercise (in whole or in
part) of that option shall be at least 110 percent of the fair market value (as
determined under Section 5.03) of the shares subject to the option at the time
the option is granted.
Section 5.05. Maximum Amount of Options in Any Calendar Year. To the extent
that the aggregate fair market value of stock with respect to which options
under this Plan and all other such option plans of the Company (or a parent or
subsidiary as defined in Section 424 of the Code), and which would otherwise be
Qualified Options, are exercisable for the first time by an Optionee in any
calendar year exceeds $100,000, such options shall not be treated as Qualified
Options. Nothing contained herein shall prohibit a grant of a Non-Qualified
Option regardless of whether Qualified Options are granted to such person in
such year.
Section 6.01. Exercise of Options by Optionee. Each option shall be
exercisable in one or more installments during its term, and the right to
exercise may be cumulative as determined by the Plan Administrators. No option
may be exercised for a fraction of a share of Common Stock and no partial
exercise of an option may be for less than 100 shares, unless fewer than 100
shares remain subject to the option. In addition, no option may be exercised
other than on a business day of the Company. The full purchase price of any
shares purchased shall be paid at the time of exercise of the option by a
combination of cash, certified or cashier's check payable to the order of the
Company or shares of Common Stock. If any portion of the purchase price is paid
in shares of Common Stock, those shares shall be tendered at their then fair
market value, as determined by the Plan Administrators in accordance with
Section 5.03 of the Plan. In addition, except with respect to any Qualified
Options granted prior to [the date of this Board meeting], the optionee may
purchase all or any portion of the shares subject to an
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option by directing the Company to withhold from delivery to the optionee the
number of shares having a fair market value equal to the aggregate exercise
price of the total number of shares purchased. No option may be exercised on a
date later than 10 years from the date it is granted.
Section 6.02. Exercise of Options by Estate or Beneficiaries. Subject to
the provisions of Section 12.01, if an option shall have been transferred to an
estate of an optionee, or to any beneficiary thereof who shall have acquired
such option by bequest or inheritance by reason of the death of such optionee,
the option shall be exercisable in the same manner as if exercised by such
optionee pursuant to Section 6.01. Notwithstanding the provisions of Section
9.01, the executor or administrator of such estate, or the beneficiary thereof
shall not be required to exercise such option within three months following the
death of such optionee, provided, however, that the exercise of such option
shall otherwise be pursuant to the terms of such option. Such options, if so
exercised, shall be eligible for treatment under Section 422 of the Code without
regard to whether such executor, administrator or beneficiary is then employed
by the Company or Prime Bank, provided the optionee shall have met the
employment requirements of the Plan at the date of death thereof. If a Qualified
Option had not been exercised by an optionee prior to the expiration of the
applicable holding period of Section 422(a)(1) of the Code, the executor,
administrator or beneficiary of the estate of such optionee may exercise such
option, and such option shall be treated as a Qualified Option, notwithstanding
whether the shares of Common Stock acquired thereunder shall be disposed of
prior to the expiration of such applicable period.
Section 6.03. Written Notice Required. Any option granted pursuant to the
terms of the Plan shall be considered exercised when written notice of that
exercise, together with the investment representations described in Section
7.01, if any, have been given to the Company at its principal office by the
person entitled to exercise the option and full payment for the shares with
respect to which the option is exercised has been received by the Company. Upon
receipt thereof, and in connection with the transfer of Common Stock, the
Company shall provide optionee with a written statement containing the
information required by Section 6039(a) of the Code.
Section 7.01. Compliance with State and Federal Laws. Shares of Common
Stock shall not be issued with respect to any option granted under the Plan
unless the exercise of that option and the issuance and delivery of the Common
Stock pursuant to that exercise shall comply with all relevant provisions of
state and federal laws, rules and regulations, and the requirements of any stock
exchange upon which the Common Stock may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to that
compliance. If any law or any regulation of any federal or state body having
jurisdiction shall require the Company or the optionee to take any action in
connection with the shares specified in the optionee's notice, then the date for
the delivery of the shares shall be postponed until the completion of the
necessary action. The Plan Administrators also shall require (to the extent
required by applicable laws, rules and regulations) an optionee to furnish
evidence satisfactory to the Company (including a written and signed
representation letter and a consent to be bound by any transfer
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restrictions imposed by law, legend, condition, or otherwise) that the Common
Stock is being purchased only for investment and without any present intention
to sell or distribute the Common Stock in violation of any law, rule or
regulation. Further, each optionee shall consent to the imposition of a legend
on the shares of Common Stock subject to his or her option restricting their
transferability as may be required by applicable laws, rules and regulations.
Section 8.01. Employment of Optionee. Each optionee who is an employee, if
required by the Plan Administrators, must agree in writing as a condition of the
granting of his or her option, that he or she will remain in the employ of the
Company or the Bank following the date of the granting of that option for a
period specified by the Plan Administrators, which period shall in no event
exceed three years. Nothing in the Plan (including the foregoing sentence) or in
any option agreement entered into under the Plan shall confer upon any optionee
any right to continued employment by the Company or Prime Bank, or continued
service as a director thereof, or limit in any way the right of the Company or
the Bank at any time to terminate or alter the terms of the employee's
employment or to be removed as a director.
Section 9.01. Option Rights Upon Termination of Employment or Service as a
Director. If an optionee who is an employee ceases to be employed by the Company
or Prime Bank, without regard to the anticipated duration of that unemployment,
for any reason other than death or permanent and total disability, his or her
option shall immediately terminate, unless an option agreement allows the option
to be exercised (to the extent exercisable on the date of termination of
employment) at any time within 3 months after the date of termination of
employment; provided, however, in the case of an employee who is also a
director, the Plan Administrators may, in their discretion, permit the option to
be exercised for a specified period of time ending not later than 3 years from
the date of termination of employment. For this purpose, the employment
relationship in respect of which an option shall have been granted shall be
deemed to continue while the optionee to whom said option shall have been
granted shall be on military leave, leave on account of illness or other bona
fide leave determined in the discretion of the Plan Administrators, provided the
period of such leave shall not exceed 90 days, or if longer, so long as the
right of the optionee to reemployment with the Company or its subsidiary
financial institutions is guaranteed either by operation of law or contract. If
such reemployment is not so guaranteed by operation of law or contract, then
such employment relationship shall be deemed to terminate on the 91st day of
such leave. In the case of an optionee who is a non-employee director, upon his
or her termination of service as a director for any reason, his or her option
shall immediately terminate, unless the Plan Administrators, in their
discretion, permit the option to be exercised for a specified period of time
ending not later than 3 years from termination of the director's service.
Section 10.01. Option Rights upon Death or Disability. Except as otherwise
limited by the Plan Administrators at the time of the grant of an option, if an
optionee dies or becomes permanently and totally disabled within the meaning of
Section 22(e)(3) of the Code while employed by the Company or the Bank, or while
a director in the case of a non-employee director, or dies within 3 months
following termination of employment in the case of a Qualified
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Option, his or her option shall expire one year after the date of death or the
date of permanent and total disability, and in the case of a Non-Qualified
Option, such option will expire upon its term, unless in either case the option
agreement or the Plan otherwise provides for earlier termination. During that
period, the unexercised portion of the option may be exercised by the optionee,
if living, or by the person or persons to whom the optionee's rights under the
option shall pass by will or by the laws of descent and distribution, but only
to the extent that the optionee is entitled to exercise the option at the date
of death or the date of permanent and total disability, as the case may be.
Section 11.01. Privileges of Stock Ownership. Notwithstanding the exercise
of any option granted pursuant to the Plan, no optionee shall have any of the
rights or privileges of a stockholder of the Company in respect of any shares of
Common Stock issuable upon the exercise of his or her option until the optionee
becomes a stockholder of record.
Section 12.01. Options Not Transferable. Options granted pursuant to the
terms of the Plan may not be sold, pledged, assigned or transferred in any
manner other than by will or the laws of descent or distribution any may be
exercised during the lifetime of an optionee only by that optionee.
Section 13.01. Adjustments for Changes in Capitalization or Organization;
Acceleration of Right to Exercise Option. All options granted pursuant to this
Plan shall be adjusted in the manner prescribed by this section.
(a) If the outstanding shares of the Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities through recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and proportionate
adjustment shall be made in the maximum number and kind of shares of Common
Stock as to which options may be granted under the Plan. A corresponding
adjustment changing the number or kind of shares of Common Stock allocated to
unexercised options or portions thereof, which shall have been granted prior to
any such change, shall likewise be made. Any such adjustment in outstanding
options shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the option, but with a corresponding adjustment in
the price for each share of Common Stock or other unit of any security covered
by the option.
(b) Upon the effective date of the dissolution or liquidation of the
Company, or of a reorganization, merger, combination or consolidation of the
Company with one or more other corporations in which the Company is not the
surviving corporation, or of the transfer of substantially all of the assets or
stock of the Company to another corporation, the Plan and any option theretofore
granted hereunder shall terminate unless provision is made in writing in
connection with that transaction for the continuance of the Plan and for the
assumption of options theretofore granted hereunder, or the substitution for
those options of new options covering the stock of the successor corporation, or
a parent or subsidiary thereof, with appropriate
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adjustments, as determined or approved by the Plan Administrators, as to the
number and kind of shares of stock subject to the substituted options and prices
therefor, in which event the Plan and the options theretofore granted, or the
new options substituted therefor, shall continue in the manner and under the
terms so provided. For the purposes of the preceding sentence, the excess of the
aggregate fair market value of the shares subject to the option immediately
after the substitution or assumption over the aggregate option price of those
shares shall not be more than the excess of the aggregate fair market value of
the shares subject to the option immediately before the substitution or
assumption over the aggregate option price of those shares, and the new option
or assumption of the old option shall not give the optionee additional benefits
which the optionee did not have under the old option.
In the event of (i) such dissolution, liquidation, reorganization, merger,
combination, consolidation or sale or transfer of assets or stock in which
provision is not made in the transaction for the continuance of the Plan and for
the assumption of options theretofore granted or the substitution for those
options of new options covering the securities of a successor corporation or a
parent or subsidiary thereof or (ii) a difference between the excess of the
aggregate fair market value of the shares subject to the option immediately
after the substitution or assumption over the aggregate option price of those
shares and the excess of the aggregate fair market value of the shares subject
to the option immediately before the substitution or assumption over the
aggregate option price of those shares, each optionee (or that person's estate
or a person who acquired the right to exercise the option from the optionee by
bequest or inheritance) shall be entitled, prior to the effective date of the
consummation of any such transaction, to purchase, in whole or in part, the full
number of shares of Common Stock under the option or options granted to him or
her which he or she would otherwise have been entitled to purchase during the
remaining term of the option and without regard to any otherwise applicable
exercise restrictions set forth in the option agreement. To the extent that any
such exercise relates to stock that is not otherwise available for purchase
through the exercise of the option by the optionee at that time, the exercise
shall be contingent upon the consummation of that dissolution, liquidation,
reorganization, merger, combination, consolidation, or sale or transfer of
assets or stock.
(c) Notwithstanding the foregoing, in the event of a complete liquidation
of the Company, or in the event that such corporation ceases to be a subsidiary
as that term is defined herein, any unexercised options theretofore granted to
an employee of the subsidiary financial institution shall be deemed canceled
three months after the occurrence of any such event unless the employee shall
become employed by the Company or by any other subsidiary financial institution
on or before the occurrence of any such event.
Section 14.01. Termination and Amendment of Plan. The Plan shall terminate
10 years after the earlier of its adoption by the Board of Directors or its
approval by the stockholders of the Company, and no options shall be granted
under the Plan after that date; provided, however, that termination of the Plan
shall not terminate any option granted prior thereto, and options granted prior
to termination of the Plan and existing at the time of
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termination of the Plan shall continue to be subject to all the terms and
conditions of the Plan as if the Plan had not terminated. Subject to the
limitation contained in Section 14.02, the Plan Administrators may at any time
amend or revise the terms of the Plan (including the form and substance of the
option agreements to be used hereunder), provided that no amendment or revision
shall (i) increase the maximum aggregate number of shares of Common Stock
provided for in Section 3.01 that may be sold pursuant to options granted under
the Plan, except with the approval of the stockholders of the Company and the
Office of Thrift Supervision or except as required under the provisions of
Section 13.01(a), (ii) permit the granting of an option to anyone other than as
provided in Section 4.01, (iii) increase the maximum term provided for in
Sections 5.02 and 5.04 of any option, or (iv) change the minimum purchase price
for shares of Common Stock under Sections 5.03 and 5.04.
Section 14.02. Prior Rights and Obligations. No amendment, suspension or
termination of the Plan shall, without the consent of the optionee, alter or
impair any of that optionee's rights or obligations under any option granted
under the Plan prior to that amendment, suspension or termination.
Section 15.01. Approval of Stockholders. Within 12 months after its
adoption by the board of directors of the Company, as provided by Section 5.01,
the Plan must be approved by stockholders of the Company holding at least a
majority of the voting stock of the Company voting in person or by proxy at a
duly held stockholders' meeting. Options may be granted under the Plan prior to
obtaining approval, subject to the limitations of Section 14.01 concerning the
period during which options may be granted, but those options shall be
contingent upon approval being obtained and may not be exercised prior to the
receipt of that approval.
Section 16.01. Reservation of Shares of Common Stock. The Company, during
the term of the Plan, will at all times reserve and keep available a sufficient
number of shares of Common Stock to satisfy the requirements of the Plan. In
addition, the Company will from time to time, as is necessary to accomplish the
purposes of the Plan, seek to obtain from any regulatory agency having
jurisdiction any requisite authority in order to grant options under the Plan
and to issue and sell shares of Common Stock hereunder. The inability of the
Company to obtain from any regulatory agency having jurisdiction the authority
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of Common Stock hereunder shall relieve the Company of any liability in respect
of the non-issuance or sale of the Common Stock as to which the requisite
authority shall not have been obtained.
Section 17.01. Headings. The headings of the sections of the Plan are for
convenience only and shall not be considered or referred to in resolving
questions of interpretation.
Section 18.01. Brokers' Commissions. No commission may be paid to brokers
on the sale by the Company to the optionee of Common Stock that is optioned and
sold under the Plan.
Section 19.01. Adoption. The Plan has been adopted by a resolution duly
adopted by the board of directors of the Company.
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Section 20.00. Applicable Law. The Plan and Options granted hereunder
shall be governed by the Commonwealth of Pennsylvania.
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NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
This Option Agreement is made as of the ______ day of ____________________,
in the year _____, by and between Prime Bancorp, Inc. (the "Corporation") and
_______________________ (the "Optionee").
WHEREAS, the Optionee is a non-employee member of the Board of Directors of
the Corporation; and
WHEREAS, the Corporation desires to afford the Optionee an opportunity to
purchase shares of common stock of the Corporation as hereinafter provided, in
accordance with the provisions of the Prime Bancorp, Inc. Incentive Stock Option
Plan (the "Plan").
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto,
intending to be legally bound hereunder, agree as follows:
1. Grant of Option. The Corporation hereby grants to the Optionee the right
and option (the "Option") to purchase from the Corporation up to, but not
exceeding in the aggregate, ______________ shares of the Corporation's common
stock, par value of $1.00 per share (the "Common Stock"), at the price of
$__________ per share (the "Option Shares"), which price is the fair market
value of the Common Stock determined in accordance with the Plan, or, if the
Optionee owns or is deemed to own, within the meaning of Section 424(d) of the
Internal Revenue Code of 1986 ("Code"), more than ten percent (10%) of the
outstanding Common Stock as of the date hereof ("10% Owner"), 110% of such fair
market value. This Option is in all respects limited and conditioned, as
hereinafter provided, and is subject to the terms and conditions of the Plan now
in effect and as they may be amended, from time to time, in accordance with the
Plan (which terms and conditions are and automatically shall be incorporated
herein by reference and made a part hereof and shall control in the event of any
conflict with any other terms of this Option Agreement).
2. Exercise and Expiration of Option. The Option granted hereby shall be
exercisable only as follows:
(a) An Option may be exercised by the Optionee only during the
continuance of the Optionee's service as a Director of the Corporation, except
as provided in subparagraphs 2(d) through 2(f) below. Once an Option Share has
become exercisable, the Optionee may exercise his Option with respect to such
number of Option Shares so exercisable as the Optionee may elect before the
termination of the Option as set forth in this Agreement and in the Plan.
(b) The Option granted hereby may not be exercised after the expiration
of the end of the term hereof, which shall be the 10th anniversary of the date
hereof, or, if the Optionee is a 10% Owner, the fifth anniversary of the date
hereof, unless earlier terminated
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pursuant to any provision of the Plan or this Agreement.
(c) The Option granted hereby shall be exercisable in part or in whole
at such time as the Optionee determines in his or her discretion, [commencing
immediately.] [commencing as of the dates set forth below:
Date First Exercisable Number of Option Shares
---------------------- -----------------------
]
(d) If Optionee's service as a Director of the Corporation shall
terminate other than by reason of permanent and total disability, as defined in
the Plan, or death, the Option granted hereby shall be exercisable by the
Optionee at any time within three months after the date of such termination of
service to the extent that the Option was exercisable by the Optionee on the
date of such termination, but in no event after the expiration of the term of
the Option. If the Option is not exercised as provided in this subparagraph (d),
it shall expire and shall not thereafter be exercisable.
(e) If the Optionee's service as a Director of the Corporation shall
terminate by reason of the Optionee's permanent and total disability (as defined
in the Plan), the Option granted hereby shall be exercisable by the Optionee at
any time within one year after the date of such termination of service due to
disability to the extent that the Option was exercisable by the Optionee on the
date of such termination due to disability, but in no event after the expiration
of the term of the Option. If the Option is not exercised as provided in this
subparagraph (e) it shall expire and shall not thereafter be exercisable.
(f) If Optionee dies within three months of termination of service as a
Director of the Corporation or the termination of service as a Director is due
to the death of the Optionee while serving as a Director of the Corporation, the
Option granted hereby shall be exercisable by the estate of the Optionee, or the
person or persons who acquired the right to exercise such Option by bequest or
inheritance, at any time within the earlier of one year of the date of such
termination of service or the date of death, to the extent that the Option was
exercisable by the Optionee on the date of such termination of service, but in
no event after the expiration of the term of the Option. If the Option is not
exercised as provided in this subparagraph (f), it shall expire and shall not
thereafter be exercisable.
(g) The Option may not be exercised for a fraction of a share and no
partial exercise of the Option may be for less than 100 shares, unless fewer
than 100 shares remain subject to the Option.
(h) By accepting the Option, Optionee represents and agrees for himself
or herself, and all persons who acquire rights in the Option in accordance with
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the Plan through Optionee, that none of the shares of Common Stock purchased
upon exercise of the Option will be distributed in violation of applicable
federal and state laws and regulations, and Optionee shall furnish evidence
satisfactory to the Corporation (including a written and signed representation
letter and a consent to be bound by any transfer restrictions imposed by law,
legend, condition or otherwise) that the Common Stock is being purchased only
for investment and without any present intention to sell or distribute the
Common Stock in violation of any law, rule or regulation. Further, each Optionee
shall consent to the imposition of a legend on the shares of Common Stock
subject to his or her Option restricting their transferability as may be
required by applicable laws, rules and regulations.
(i) The foregoing provisions of this Paragraph 2 notwithstanding, the
Optionee's right to exercise this Option is subject to the terms and conditions
of the Plan.
3. Non-Transferability of Option. The Option granted hereby shall not be
assignable or transferable by the Optionee except by the laws of descent and
distribution, and during the lifetime of the Optionee, the Option shall be
exercisable only by Optionee or by his or her guardian or legal representative.
4. Notice of Exercise of Option and Payment for Shares.
(a) Subject to the terms and conditions of this Option Agreement and the
Plan, the Optionee shall deliver to the Corporation written notice of his
election to exercise all or part of the Option granted hereby, which notice
shall specify the number of Option Shares in respect to which the Option is to
be exercised and shall be accompanied by payment in full of the aggregate Option
price for such Option Shares.
(b) The Optionee shall pay to the Corporation, in whole or in part, at
the principal office of the Corporation, the Option price of the Option Shares
with respect to which the Option is being exercised:
(i) in cash or its equivalent;
(ii) in Common Stock of the Corporation having a fair market value
on the date of tender of the shares equal to the Option Price;
(iii) by directing the Corporation to withhold from delivery to the
Optionee the number of shares having a fair market value on the date of exercise
equal to the aggregate exercise price of the Option Shares purchased; or
(iv) by a combination of (i), (ii) and (iii), above, or any two
thereof.
In the event the Option is exercised in accordance with subparagraphs
4(b)(i), (ii), (iii) or (iv), above, the Corporation shall deliver to the
Optionee, as soon as practicable thereafter, certificates registered in the name
of the Optionee representing the number of shares of stock or other securities
in respect of which the Option is being exercised, less any
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<PAGE>
shares withheld in accordance with subparagraph 4(b)(iii), above. In the event
the Option shall be exercised by any person or persons after the death of the
Optionee, such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise the Option.
5. Acknowledgment of Plan Documents. By execution of this Agreement,
Optionee acknowledges receipt of (i) the Prospectus dated ___________________,
together with any amendments thereto as of the date of this Agreement,
containing information about the Plan and the statement of availability of each
of the Corporation's Securities and Exchange Commission filings and other
information which is incorporated into the Prospectus by reference; and (ii) a
copy of the Corporation's most recent annual report to shareholders. Optionee
acknowledges that he or she has read and understands the Plan and that he or she
is aware that by its terms:
(a) the issuance of shares of Common Stock pursuant to the exercise of
the Option, and any resale of those shares, may only be effected in compliance
with applicable state and federal laws and regulations;
(b) Optionee is not entitled to any rights as a stockholder with respect
to any shares of Common Stock issuable hereunder until a certificate or
certificates representing those shares are issued and delivered to him or her.
The Corporatin will issue and deliver such shares within three weeks of exercise
of the Option; and
(c) the shares of Common Stock subject hereto may be adjusted in the
event of certain organizational changes in the capital structure of the
Corporation or for any other reason permitted by the Plan.
6. Definitions. Except as otherwise defined in this Agreement, the terms
used in this Agreement shall have the meanings set forth in the Plan.
7. Governing Law. The Interpretation of this Agreement shall be governed in
accordance with the laws of the Commonwealth of Pennsylvania.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to be
duly executed by its officers thereunto duly authorized, and the Optionee has
hereunto set his hand and seal, all as of the day and year first above written.
PRIME BANCORP, INC. OPTIONEE:
By:
------------------------------ -----------------------------------
(signature) (signature)
Title:
---------------------------
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<PAGE>
EMPLOYEE STOCK OPTION AGREEMENT
This Option Agreement is made as of the ______ day of ____________________,
in the year _____, by and between Prime Bancorp, Inc. (the "Corporation") and
_______________________ (the "Optionee").
WHEREAS, the Optionee is an employee of the Corporation; and
WHEREAS, the Corporation desires to afford the Optionee an opportunity to
purchase shares of common stock of the Corporation as hereinafter provided, in
accordance with the provisions of the Prime Bancorp, Inc. Incentive Stock Option
Plan (the "Plan").
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto,
intending to be legally bound hereunder, agree as follows:
1. Grant of Option. The Corporation hereby grants to the Optionee the right
and option (the "Option") to purchase from the Corporation up to, but not
exceeding in the aggregate, ______________ shares of the Corporation's common
stock, par value of $1.00 per share (the "Common Stock"), at the price of
$__________ per share (the "Option Shares"), which price is the fair market
value of the Common Stock determined in accordance with the Plan, or, if the
Optionee owns or is deemed to own, within the meaning of Section 424(d) of the
Internal Revenue Code of 1986 ("Code"), more than ten percent (10%) of the
outstanding Common Stock as of the date hereof ("10% Owner"), 110% of such fair
market value. This Option is in all respects limited and conditioned, as
hereinafter provided, and is subject to the terms and conditions of the Plan now
in effect and as they may be amended, from time to time, in accordance with the
Plan (which terms and conditions are and automatically shall be incorporated
herein by reference and made a part hereof and shall control in the event of any
conflict with any other terms of this Option Agreement).
2. Exercise and Expiration of Option. The Option granted hereby shall be
exercisable only as follows:
(a) An Option may be exercised by the Optionee only during the
continuance of the Optionee's employment by the Corporation, except as provided
in subparagraphs 2(e) through 2(h) below. Once an Option Share has become
exercisable, the Optionee may exercise this Option with respect to such number
of Option Shares so exercisable as the Optionee may elect before the termination
of the Option as set forth in this Agreement and in the Plan.
(b) The Option granted hereby may not be exercised after the expiration
of the end of the term hereof, which shall be the 10th anniversary of the date
hereof, or, if the Optionee is a 10% Owner, the fifth anniversary of the date
hereof, unless earlier terminated pursuant to any provision of the Plan or this
Agreement.
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<PAGE>
(c) The Option granted hereby shall be exercisable in part or in whole
at such time as the Optionee determines in his or her discretion, [commencing
immediately.] [commencing as of the dates set forth below:
Date First Exercisable Number of Option Shares
---------------------- -----------------------
]
(d) The Option Shares shall be treated as shares with respect to an
incentive stock option, within the meaning of Section 422 of the Code; provided,
however, to the extent that Option Shares which are first exercisable during any
calendar year have an aggregate fair market value, as of the date hereof, in
excess of $100,000, the number of Option Shares having a value equal to such
excess shall not be treated as incentive stock option shares.
(e) If Optionee's employment with the Corporation shall terminate other
than by reason of permanent and total disability, as defined in the Plan, or
death, the Option granted hereby shall be exercisable by the Optionee at any
time within three months after the date of such termination of employment to the
extent that the Option was exercisable by the Optionee on the date of such
termination, but in no event after the expiration of the term of the Option. If
the Option is not exercised as provided in this subparagraph (e), it shall
expire and shall not thereafter be exercisable.
(f) If the Optionee's employment with the Corporation shall terminate by
reason of the Optionee's permanent and total disability (as defined in the
Plan), the Option granted hereby shall be exercisable by the Optionee at any
time within one year after the date of such termination of employment due to
disability to the extent that the Option was exercisable by the Optionee on the
date of such termination due to disability, but in no event after the expiration
of the term of the Option. If the Option is not exercised as provided in this
subparagraph (f) it shall expire and shall not thereafter be exercisable.
(g) If Optionee dies within three months of termination of employment or
the termination of employment is due to the death of the Optionee while in the
employ of the Corporation, the Option granted hereby shall be exercisable by the
estate of the Optionee, or the person or persons who acquired the right to
exercise such Option by bequest or inheritance, at any time within the earlier
of one year of the date of such termination or the date of death, to the extent
that the Option was exercisable by the Optionee on the date of such termination
of employment, but in no event after the expiration of the term of the Option.
If the Option is not exercised as provided in this subparagraph (g), it shall
expire and shall not thereafter be exercisable.
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<PAGE>
(h) If, upon the Optionee's termination of employment with the
Corporation, the Optionee is and remains a member of the Corporation's Board of
Directors, the Option granted hereby shall be exercisable by the Optionee within
three years after the date of such termination of employment to the extent that
the Option was exercisable by the Optionee on the date of such termination, or
to the extent the Option becomes exercisable thereafter during the Optionee's
service as a Director, but in no event after the expiration of the term of the
Option. If the Option is not exercised as provided in this subparagraph (h), it
shall expire and shall not thereafter be exercisable.
(i) The Option may not be exercised for a fraction of a share and no
partial exercise of the Option may be for less than 100 shares, unless fewer
than 100 shares remain subject to the Option.
(j) By accepting the Option, Optionee represents and agrees for himself
or herself, and all persons who acquire rights in the Option in accordance with
the Plan through Optionee, that none of the shares of Common Stock purchased
upon exercise of the Option will be distributed in violation of applicable
federal and state laws and regulations, and Optionee shall furnish evidence
satisfactory to the Corporation (including a written and signed representation
letter and a consent to be bound by any transfer restrictions imposed by law,
legend, condition or otherwise) that the Common Stock is being purchased only
for investment and without any present intention to sell or distribute the
Common Stock in violation of any law, rule or regulation. Further, each Optionee
shall consent to the imposition of a legend on the shares of Common Stock
subject to his or her Option restricting their transferability as may be
required by applicable laws, rules and regulations.
(k) The foregoing provisions of this Paragraph 2 notwithstanding, the
Optionee's right to exercise this Option is subject to the terms and conditions
of the Plan.
3. Non-Transferability of Option. The Option granted hereby shall not be
assignable or transferable by the Optionee except by the laws of descent and
distribution, and during the lifetime of the Optionee, the Option shall be
exercisable only by Optionee or by his or her guardian or legal representative.
4. Notice of Exercise of Option and Payment for Shares.
(a) Subject to the terms and conditions of this Option Agreement and the
Plan, the Optionee shall deliver to the Corporation written notice of his
election to exercise all or part of the Option granted hereby, which notice
shall specify the number of Option Shares in respect to which the Option is to
be exercised and shall be accompanied by payment in full of the aggregate Option
price for such Option Shares in the manner set forth in subparagraph (b), above.
(b) The Optionee shall pay to the Corporation, in whole or in part, at
the principal office of the Corporation, the Option price of the Option Shares
with respect to which the Option is being exercised:
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<PAGE>
(i) in cash or its equivalent;
(ii) in Common Stock of the Corporation having a fair market value
on the date of tender of the shares equal to the Option Price;
(iii) by directing the Corporation to withhold from delivery to the
Optionee the number of shares having a fair market value on the date of exercise
equal to the aggregate exercise price of the Option Shares purchased; or
(iv) by a combination of (i), (ii) and (iii), above, or any two
thereof.
In the event the Option is exercised in accordance with subparagraphs
4(b)(i), (ii), (iii) or (iv), above, the Corporation shall deliver to the
Optionee, as soon as practicable thereafter, certificates registered in the name
of the Optionee representing the number of shares of stock or other securities
in respect of which the Option is being exercised, less any shares withheld in
accordance with subparagraphs 4(b)(iii), above, and 4(c), below. In the event
the Option shall be exercised by any person or persons after the death of the
Optionee, such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise the Option.
(c) The Optionee's right to exercise the Option shall be subject to the
condition that he or she deliver cash or its equivalent to the Corporation in an
amount sufficient to satisfy the Corporation's federal, state and local tax
withholding obligations, if any, with respect to such exercise. Alternatively,
the Optionee may direct the Corporation to withhold from delivery to the
Optionee the number of shares of Common Stock having a fair market value on the
date of exercise equal to the amount required to be withheld, including the
amount, if any, required to be withheld with respect to shares withheld from
delivery pursuant to this subparagraph (c).
5. Employment by Subsidiaries. For purposes of this Agreement, the term
"Corporation" shall include any subsidiary of the Corporation and any subsidiary
of a subsidiary of the Corporation (a "Subsidiary"), and none of the following
transfers of the Optionee in his capacity as an employee shall be deemed a
termination of employment with the Corporation:
(a) From the Corporation to a Subsidiary;
(b) From a Subsidiary to the Corporation; or
(c) From a Subsidiary to another Subsidiary.
6. No Contract for Employment
(a) Nothing contained in this Agreement shall be deemed to require the
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<PAGE>
Corporation to continue the Optionee's employment by the Corporation. Except as
may be provided in a written employment contract executed by a duly authorized
officer of the Corporation and approved by the Board of Directors of the
Corporation, the Optionee shall at all times be an employee-at-will of the
Corporation and the Corporation may discharge the Optionee at any time for any
reason, with or without cause, and with or without severance compensation.
(b) From time to time, the Corporation may distribute employee manuals
or handbooks, and officers or other representatives of the Corporation may make
written or oral statements relating to the Corporation's policies and
procedures. Such manuals, handbooks and statements are intended only for the
general guidance of employees. No policies, procedures or statements of any
nature by or on behalf of the Corporation (whether written or oral, and whether
or not contained in any formal employee manual or handbook) shall be construed
to modify this Agreement or to create express or implied obligations to the
optionee of any nature.
7. Notice to Corporation of Disqualifying Disposition. By accepting an
incentive stock option (within the meaning of Section 422 of the Code) under the
Plan, the Optionee agrees to notify the Corporation in writing immediately after
he or she makes a disqualifying disposition (as described in Sections 421, 422
and 424 of the Code and regulations thereunder) of any stock acquired pursuant
to the exercise of incentive stock options granted under the Plan. A
disqualifying disposition is generally any disposition occurring within two
years of the date the incentive stock option was granted or within one year of
the date the incentive stock option was exercised, whichever period ends later.
8. Acknowledgment of Plan Documents. By execution of this Agreement,
Optionee acknowledges receipt of (i) the Prospectus dated ___________________,
together with any amendments thereto as of the date of this Agreement,
containing information about the Plan and the statement of availability of each
of the Corporation's Securities and Exchange Commission filings and other
information which is incorporated into the Prospectus by reference; and (ii) a
copy of the Corporation's most recent annual report to shareholders. Optionee
acknowledges that he or she has read and understands the Plan and that he or she
is aware that by its terms:
(a) the issuance of shares of Common Stock pursuant to the exercise of
the Option, and any resale of those shares, may only be effected in compliance
with applicable state and federal laws and regulations;
(b) Optionee is not entitled to any rights as a stockholder with respect
to any shares of Common Stock issuable hereunder until a certificate or
certificates representing those shares are issued and delivered to him or her.
The Corporatin will issue and deliver such shares within three weeks of exercise
of the Option; and
(c) the shares of Common Stock subject hereto may be adjusted in the
event of certain organizational changes in the capital structure of the
Corporation or for
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<PAGE>
any other reason permitted by the Plan.
Optionee further acknowledges that he or she understands that any shares of
Common Stock obtained by exercise of the Option which would otherwise qualify as
shares with respect to an incentive stock option, within the meaning of Section
422 of the Code, shall not qualify for the favorable federal income tax
treatment afforded incentive stock options if Optionee sells or disposes of
those shares prior to a date (i) within 2 years from the date of this Agreement,
or (ii) within 1 year after those shares have been transferred to him or her by
the Corporation.
Optionee further acknowledges that he or she understands that the favorable
federal income tax treatment afforded incentive stock options may be unavailable
as to any previously acquired shares of Common Stock used to pay any part of the
purchase price for shares subject to the Option, as set forth in subparagraph
4(b)(ii), above, if those previously acquired shares were acquired through the
exercise of an incentive stock option and with respect to such shares there
shall have elapsed less than either (i) 2 years from the date the option to
acquire such shares was granted, or (ii) 1 year after those shares have been
transferred to him or her by the Corporation.
9. Definitions. Except as otherwise defined in this Agreement, the terms
used in this Agreement shall have the meanings set forth in the Plan.
10. Governing Law. This Option Agreement shall be construed in a manner
consistent with the Code provisions concerning incentive stock options, and its
interpretation shall otherwise be governed in accordance with the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to be
duly executed by its officers thereunto duly authorized, and the Optionee has
hereunto set his hand and seal, all as of the day and year first above written.
PRIME BANCORP, INC. OPTIONEE:
By:
------------------------------ -----------------------------------
(signature) (signature)
Title:
---------------------------
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<TABLE>
<S> <C>
This section should be completed THE EMPLOYER, Prime Bancorp., Inc., filing as |_|
with the type of business the Sole Proprietor |_| Partnership |X| Regular Corporation |_| Subchapter S
Employer maintains, and whether Corporation, engaged in the business of _________________________ hereby:
the Employer is adopting this as a
new plan, amending a predecessor |_| adopts
plan, or amending an existing |X| adopts as an amendment to a predecessor plan, Delaware Charter
standardized Delaware Charter Guarantee & Trust Company's 401(k) Retirement/Savings Plan and
Guarantee & Trust Company plan. hereby executes the Trust Agreement,
|_| adopts as an amendment to an existing Delaware Charter Guarantee &
Trust Prototype Plan, Delaware Charter Guarantee & Trust Company's
401(k) Retirement/Savings Plan and hereby executes the Trust
Agreement.
Each plan an Employer maintains
should be assigned a number The Plan Number the Employer assigns to this Plan is: ____002_____.
beginning with #001. Plans which
are amendments to existing
arrangements should use the same
plan number they currently have. A. Employer's Federal Tax ID #: ___23-2528428____ .
B. The Plan's Original Effective Date is 07 / 01 / 84.
----- ------ -----
Month Day Year
Original effective date is the date The Plan's Amendment Effective Date is 01 / 01 / 98.
the plan was initially adopted. ----- ------ ------
Month Day Year
The amendment effective date is the
date Delaware Charter will be the
recordkeeper.
Each employee who has met the eligibility requirements as set forth in
Employees may become participants Section E of the Adoption Agreement as of the Plan's
of the entry date following Effective Date will be eligible to enter the Plan as
completion of the age/service of such Date. All other employees will be eligible to enter
requirements. the Plan after meeting the eligibility requirements set forth in
Section E of the Adoption Agreement as of the following Entry
Date:(select one)
|X| Monthly (the first day of the month)
|_| Semi-annually (the first day of the first and seventh month during
the Plan year)
|_| Quarterly (the first day of the first, fourth, seventh, and tenth
month during the Plan year)
|_| Other (specify)*________________________________
*NOTE: In no event shall any entry Date selected exceed a period of six (6)
months.
C. The Plan Year shall be: The 12-consecutive month period commencing
Insert the month and first day of the on 01/01 and each anniversary thereof.
plan year.
-1-
<PAGE>
Compensation which will be used D. Compensation will mean all of each Participant's:
for determining benefits is defined in
this section. (such as salary (1) |X| Wages, tips, and other compensation as reported on Form W-2.
deferrals under a 401(k) or cafeteria (2) |_| Section 3401(a) wages.
plan, certain qualified/nonqualified (3) |_| 415 safe-harbor compensation.
stock options and amount receiving
special tax benefits (e.g. the value
of group life insurance coverage)).
Compensation |X| shall include |_| shall not include Employer
contributions made pursuant to a salary reduction agreement
You may include/exclude which are not includible in the gross income of the employee under
contributions to a cafeteria plan Sections 125, 402(e)(3)(8), 402(h)(1)(b), or 403(b) of the Code.
(125), salary deferral plan 402(a)(8),
and/or SEP 402(b) from Compensation shall be determined over the following applicable period:
compensation.
|X| the Plan Year,
For purposes of calculating benefits, |_| ________(a consecutive 12 month period ending with or within the Plan Year).
the Employer may elect to exclude |_| the period of Plan participation during the Plan Year.
certain items from compensation. If Notwithstanding the foregoing, Compensation excludes: (check
no items are excluded, the no appropriate items)
exclusions box should be checked. |_| Overtime |X| Other (specify): severance pay
|_| Bonuses |_| No exclusions
|_| Commissions
Note: Earned income equals the net
income from self-employment.
The Compensation exclusions listed above shall apply for purposes of:
|X| All contribution types under the Plan.
|_| Only those contribution types specified as follows:
In any year the Plan is Top-Heavy, for purposes of
computing the minimum allocation, no exclusions, as
noted above, are allowed (for any Self-Employed individual
covered under the Plan, Compensation means Earned Income.)
Compensation shall be
|X| recognized as of an Employee's effective date of participation
pursuant to Article 2.1 or
|_| for a participant's initial year of participation,
compensation shall be recognized for the
entire taxable year ending with or within the Plan Year.
For purposes of ADP and ACP testing, the Employees' Compensation
which shall be taken into account shall be: (select one)
Option 1: |X| The Employee's Compensation only from the time the
Employee becomes a Participant in the Plan
Option 2: |_| The Employee's Compensation for the whole of such Plan
Year.
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<PAGE>
For the Plan Year in which an Employee enters the Plan, the
Employees' Compensation which shall be taken into account for
purposes of the Plan (other than ADP or ACP testing) shall
be (select one):
Option 1: |X| The Employee's Compensation only from the time the
Employee became a Participant in the Plan.
Option 2: |_| The Employees' Compensation for the whole of such Plan
Year.
This section excludes certain E. Each Employee will be eligible to participate in this plan in accordance
employees from participating in the with Article II, except the following:
plan.
|X| Employees who have not attained the age of 21 (cannot exceed 21).
Age cannot exceed 21.
|X| Employees who have not completed one (1) Year(s) of Service (cannot
If a partial year (1/4, 1/2) is selected, exceed 1 year). If the Year(s) of Service selected is or includes a
no minimum hours of service must fractional year, an Employee will not be required to complete any
be completed. Cannot exceed one specified number of Hours of Service to receive credit for such
year. fractional year.
|X| Employees included in a unit of Employees covered by a collective
bargaining agreement between the Employer and Employee
You may choose to exclude union representatives, if retirement benefits were the subject of good faith
members. An organization which is bargaining and if two percent or less of the Employees who are
comprised of more than 50 percent covered pursuant to that agreement are professionals as defined in
of owners, officers, or executives of Section 1.410(b)-9 of the regulations. For this purpose, the term
the Employer will not constitute a "Employee Representatives" does not include any organization more
union. than half of whose members are Employees who are owners, officers,
or executives of the Employer.
|X| Employees who are nonresident aliens and who receive no Earned
You may exclude employees who Income from the Employer which constitutes income from sources
are not residents of the U.S. and do within the United States within the meaning of Section 861(a)(3).
not receive any earned income.
|_| Employees paid on a salaried basis.
You may exclude employees based |_| Employees paid on an hourly basis.
on the way they are compensated.
|_| Employees paid on a commission basis.
You may exclude employees based
on the location, division, or position |_| Employees employed at the following location or divisions or in the
in which they are employed. following positions:
CAUTION: The Plan is required to
satisfy "coverage" testing. If the
number of employees excluded due Notwithstanding the foregoing, if this box |X| is marked then all Employees of
to last four choices under Item E is the Employer on the Effective Date are eligible as of the Effective Date ar not
significant, plan qualification issues subject to any eligibility restrictions noted above.
may arise.
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<PAGE>
All Employees with initial credited service after the Effective Date are
subject to the eligibility restrictions noted above.
Break-in service (select one):
You may apply the break in service
rules to participation in the plan. For purposes of determining eligibility to participate in the Plan
|X| shall
|_| shall not
apply any Break-in-service rule.
For purposes of determining years of service, Employees shall be given
credit for Hours of Service with the following predecessor employers:
Name Dates: From / To
Cheltenham Federal Sav. & Loan (All Service)
Northeast Federal Savings (All Service)
First Sterling Bank (All Service)
F. Participant Normal Retirement Age is: (select one)
May not exceed age 65.
|X| Age 65 (not to exceed age 65).
You may condition normal |_| The later of age ____ (not to exceed 65) or the _______ (not to exceed 5th)
retirement age on the completion of anniversary of the Participant Commencement Date. The Participant
a number of years of service, not Commencement Date is the first day of the first Plan Year in which
exceeding five. the Participant commenced participation in the Plan. All Participants
shall be fully vested in their account balances at their Normal
Retirement Age.
G. Early Retirement Age is: (select one)
May be any age past 55. |_| Age ___ (not earlier than age 55).
You may condition early retirement |X| The later of age 55 (not earlier than age 55) or the 5th (not more than 6th)
age on the completion of a number anniversary of the Participant Commencement Date.
of years of service, not exceeding
six.
H. Crediting of Service
Service shall be credited based on the following method (select one):
|X| Hours of Service. Under this method, a "Year of Service" is
a 12 consecutive month period during which the employee
completes at least 1,000 hours. Hours of Service will be
determined on the basis of the method selected below. Only
one method may be selected. The method selected will be
applied to all employees covered under the Plan. -4-
<PAGE>
|_| On the basis of actual hours for
which the Employee is paid or entitled to payment.
|X| On the basis of weeks worked. An employee will be credit with
forty-five (45) hours of service if under Section 1.27 of the
Plan such Employee would be credited with at least one(1)
hour of service during the week.
|_| Elapsed Time. Under this method, Service is measured from date of
employment to date of termination and a Period of Service shall include
any Period of Severance of less than 12 consecutive months.
I. Calendar Year Election for Determining Highly Compensated Employees
The Employer may elect to use the calendar year to determine whether an
Employee is a Highly Compensated Employee in the look-back year (as
defined in Treasury Regulations under Section 414(q) of the Code)
calculation. The calendar year used will be the calendar year ending with
or within the determination year (as defined in the regulations under
Section 414(q) of the Code). The determination year shall be the months
(if any) in the current Plan Year which follow the end of the calendar
look-back year. If the Employer elects to make the calendar year
calculation election with respect to any Plan, entity, or arrangement,
such election must apply with respect to all plans, entities, and
arrangements of the Employer.
|X| Employer elects to use the calendar year to determine whether an
Employee is a Highly Compensated Employee in the look-back year.
The types of contributions that will
be made to the plan are to be J. Contribution Formula and Allocation Procedure and Forfeitures: The
completed in Section J. aggregate contribution cannot exceed the lesser of 25% or $30,000 of
each Participant's compensation:
When choosing contribution formula
amounts, it is critical to keep (1) Contribution Formulas & Allocation Procedure (select each appropriate box):
statutory limits in mind.
Internal Revenue Code Section 415
counts all annual additions against
the cap of the lesser of 25 percent
of pay or $30,000 for each
participant. Each type of Employer
and Employee contribution counts
against the 415 limits as well as all
forfeitures reallocated to participant |X| Employee Elective Deferrals: Each Participant may defer a maximum
accounts. of 25% of his/her Compensation as defined in Plan Article III, but
never more than the limit set forth in Section 402(g), as adjusted
Elective deferral may be capped at each year by the Adjustment Factor defined in the Plan. This limit for
15 percent of compensation, to 1997 is $9,500. All elective Deferral Contributions and earnings are
ensure the 415 limits are not always nonforfeitable.
violated.
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<PAGE>
Each Participant may defer up to 15% of his/her compensation.
Matching contributions may be any |_| Matching Contributions: The Employer shall make a Matching
amount per dollar, capped at any Contribution for each Participant making Elective Deferrals. Matching
percentage of compensation, Contributions shall be vested in accordance with Section M of the
keeping the 415 limits in mind. Adoption Agreement.
Matching Contributions shall be equal to $________ for each $1.00
the Participant deposits to his/her Elective Deferral
Account up to a maximum of ______%, and then __________ for each
additional $1.00 the Participant deposits to
his/her Elective Deferral account up to a maximum of
____ %, and then ________ for each additional $1.00 the
Participant deposits to his/her Elective Deferral
Account up to a maximum of ______%.
Qualified matching contributions
(QMAC) are 100 percent vested at |X| Employer Discretionary Matching Contribution: The Employer may
the time of contribution and may not contribute an amount determined by the Board of directors which will
be distributed prior too age 59-1/2 be allocated to each Participant making elective Deferrals during the
unless another distributable event Plan Year. All Employer Discretionary Matching Contributions shall be
(e.g., separation from service) vested in accordance with Section M of the Adoption Agreement.
occurs first.
|_| Qualified Matching Contributions: The Employer shall make a
qualified Matching Contribution for each Participant making Elective
Deferrals. All Qualified Matching Contribution and earnings are always
nonforfeitable.
Qualified Matching Contributions shall be equal to $_________ for
each $1.00 the Participant deposits to his/her Elective Deferral
Account up to a maximum of _________%.
Matching Contributions are made:
|X| as Employee Elective Deferrals are made.
|_| at the end of each three month quarterly period during the Plan
Year or;
|_| annually after the last day of the Plan Year or;
|_| all eligible employees who made Elective Deferrals during the
period checked above.
|_| only for those eligible Employees who made Elective
Deferrals during the period checked above and who are employed
on the last day of such period.
-6-
<PAGE>
|_| only for those eligible Employees who made Elective Deferrals
during the period checked above and who are employed on the last
day of such period and who have 1,000 completed
hours of service during such period.
|_| Matching Contributions for a Participant during any Plan Year shall
not be more than $___________.
Qualified non-elective contributions |_| Qualified Non-Elective Contributions: The Employer may make a
(QNEC). These contributions are Qualified Non-Elective Contribution in an amount determined by the
made to all participants, whether or Board of Directors which will be allocated to each Participant in the
not deferring, based on ratio that such Participant's Compensation bears to the Compensation
compensation; are 100 percent of all Participants. All Qualified Non-Elective Contributions and
vested; and may not be distributed earnings are always nonforfeitable.
prior to age 59 1/2 unless another
distributable event (e.g., separation
from service) occurs first.
Special qualified non-elective |_| Special Qualified Non-Elective Contributions: The Employer may make
contributions are made to non-highly Special Qualified Non-Elective Contributions on behalf of non-highly
compensated employees to pass compensated Participants that are sufficient to satisfy the Actual
discrimination tests, are 100 percent Deferral Percentage test or the Average Contribution Percentage test,
vested, and may not be distributed or both, pursuant to regulations under the Code. All Special Qualified
prior to age 59 1/2 unless another Non-Elective Contributions and earnings are always nonforfeitable.
distributable event (e.g., separation
from service) occurs first.
Discretionary profit sharing |X| Employer Discretionary Profit Sharing Contribution: The Employer
contributions are made to all may contribute an amount determined by the Board of Directors
participants based on compensation which will be allocated to each Participant in the ratio that such
unless precluded by conditions of Participant's Compensation bears to the Compensation of all
employment listed elsewhere in this Participants. All Employer Discretionary Profit Sharing Contributions
Item J. and earnings shall be vested in accordance with Section M of the
Adoption Agreement.
|_| Employer Discretionary Profit Sharing Contributions Integrated With
Social Security: Under this allocation method, the Employer
considers Social Security contributions made on behalf of employees
when calculating Plan contributions. The allocation of any
discretionary profit sharing contribution under this method is two
tiered as follows: First, to each Participant in the ratio that such
Participant's compensation bears to the total compensation of all
Participants, plus; Second, the ratio that such Participant's excess
compensation (if any) bears to the excess compensation of all
Participants for the Plan Year. Any remaining Employer contributions
under this option will be allocated in the same ratio that each
Participant's compensation in the Plan Year bears to the total
compensation of all Participants for the Plan Year.
</TABLE>
-7-
<PAGE>
<TABLE>
If the integration level:
<S> <C> <C> <C>
----------------------------------------------------------------------------------
is more than but not more than the applicable
percentage is
----------------------------------------------------------------------------------
0 the greater of $10,000 or 5.7
20% of the TWB
----------------------------------------------------------------------------------
the greater of $10,000 or 80% of the TWB 4.3
20% of the TWB
----------------------------------------------------------------------------------
80% of the TWB any amount more than 5.4
80% of the TWB but less
than 100% of the TWB
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
The integration level is equal to:
|_| Taxable Wage Base
|_| $__________________ a dollar amount less than the Taxable Wage Base
|_| _______% of the TWB (not to exceed 100%)
This option provides flexibility for For purposes of:
Employers with multiple locations to
make different contribution amounts |_| matching contributions and forfeitures,
for each locations.
|_| Employer discretionary profit sharing contributions and
forfeitures, the employees of ___________ shall be eligible to receive
contribution types specified above solely at
the discretion of the Employer on a nondiscriminatory basis.
This option may require an
employee to work 1,000 hours and
be employed on the last day of the |X| A Participant whose employment is terminated before the last day of
plan year to be eligible to receive the Plan Year but after completion of 1,000 Hours of Service for such
Employer contributions. year shall:
|_| share in the allocation of Employer Contributions for such year,
|X| not share in the allocation of Employer Contributions for such year.
Special entitlement rules may apply
if termination of employment is due |X| A Participant whose employment is terminated before the last day of
to death, disability, or retirement. the Plan Year due to death, disability, or retirement shall:(select one)
|_| share in the allocation of Employer contributions for such Plan Year
regardless of his/her number of credited Hours of Service in that year,
|_| share in the allocation of Employer contributions for such year if they
have completed 1,000 Hours of Service for such year,
|X| not share in the allocation of Employer contributions for such year
regardless of the number of Hours of Service completed provided
their employment is terminated before the last day of the Plan
Year.
-8-
<PAGE>
(2) Forfeitures shall be (select one):
|_| reallocated in the ratio that the Compensation of each Participant
bears to that of all Participants,
|X| used to reduce Employer contributions for the next plan
year,
|_| applied first to the payment of the Plan's administrative expenses and
any excess reallocated to Participants,
|_| applied first to the payment of the Plan's administrative
expenses and any excess applied to reduce Employer contributions.
Excess aggregate contributions are
contributions that are more than the Forfeitures of Excess Aggregate Contributions, if appropriate, shall be:
amount allowed for the plan year by
ACP testing. These are matching or (a) |X| Applied to reduce Employer contributions for the Plan Year in
voluntary contributions. These which the excess arose, but allocated as in "b" below, to the
contributions may be reallocated to extent the excess exceeds Employer contributions or the Employer
non-highly compensated employees has already contributed for such Plan Year.
based on compensation or used to
reduce Employer contributions for (b) |_| Allocated, after all other forfeitures under the Plan, to the
the next plan year. Matching Contribution account of each Non-highly Compensated
Participant who made elective deferrals or employee contributions in
the ratio which each such Participant's Compensation for the Plan
Year bears to the total Compensation of all such
Participants for such Plan Year.
If the Plan provides for permitted disparity, the above language must
provide that forfeitures will be allocated in accordance with the
allocation formula of the plan.
Both boxes should be checked
because both QNECs and QMACs (3) For purposes of calculating the Actual Deferral Percentage test, the
are used for the ADP test. These Employer shall take into account, and include all such (select each
choices represent flexible technical appropriate box):
options provided by law which
Delaware Charter will ordinarily be |_| Qualified Matching Contributions,
helpful for testing purposes. The |_| Qualified Non-Elective Contributions,
affirmative election is required by
statute. under this Plan or any other plan of the Employer, as provided by
regulations.
Both boxes should be checked (4) For purposes of calculating the Average Contribution Percentage test,
because elective deferrals and the Employer shall take into account, and include as Contribution
QNECs that are not needed for the Percentage Amounts all such (select each appropriate box):
ADP test will be used in the ACP
test. These choices represent |X| Elective Deferrals,
flexible technical options provided |_| Qualified Non-elective Contributions,
by law which Delaware Charter will under this Plan or any other plan of the Employer, as provided by
ordinarily be helpful for testing regulations.
purposes. The affirmative election is
required by statute.
-9-
<PAGE>
This section must be completed if K. Limitation on Allocation:
the Employer has or has in the past If the Employer maintains or ever maintained another qualified plan in
had another qualified plan or welfare which any Participant in this Plan is (or was) a Participant or could
plan. possibly become a Participant, the Employer must complete this section.
The Employer must also complete this section if it maintains a welfare
If the Employer checks the first box, benefit fund, as defined in Section 419(e) of the Code, or an individual
this plan will limit allocations, and medical account, as defined in Section 415(l)(2) of the Code, under
refund any excess allocations in which amounts are treated as annual additions with respect to any
accordance with 3.5-3.10. These Participant in this Plan.
plan sections provide
a last-in first-out method of distributing (1) If the Participant is covered under another qualified defined
excess allocations. contribution plan maintained by the Employer, (select one)
If the Employer checks the second |_| The provisions of Sections 3.5 through 3.10 of Article III will apply,
box, a different non-discriminatory |_| The Employer shall provide the method under which the plans will
method for limiting allocations must limit total Annual Additions to the Maximum Permissible Amount, and
be provided in space below. The will properly reduce any excess amounts, in a manner that precludes
model language which may be Employer discretion _______________________________________________
inserted is: "The Employer will
reduce its contribution or allocation ___________________________________________________________________
on behalf of the Participant in [this
plan], [the other plan maintained by ___________________________________________________________________
the Employer]."
If the participant is, or has been, a (2) If the Participant is or has ever been a Participant in a defined
participant in an Employer benefit plan maintained by the Employer, provide language which
sponsored defined benefit plan, the will satisfy the 1.0 limitation of section 415(e) of the Code. _____
following language should be
inserted: "The Employer will reduce ____________________________________________________________________
its contribution or allocation on
behalf of the Participant to the ____________________________________________________________________
defined contribution plan under
which the Participant participates."
The limitation year is the same of (3) The Limitation Year is the following 12 consecutive month period:
the plan year. The Plan Year beginning 01/01 and ending 12/31.
A plan is top heavy if the aggregate L. Top-Heavy:
of the accounts of Key Employees
under the plan exceeds 60 percent For purposes of Minimum Top-Heavy allocations, contributions, and
of the aggregate of the accounts of forfeitures equal to 3% of each non-Key employee's Compensation will
all employees under the plan. be allocated to the Employee's account when the Plan is Top-Heavy. If
you maintain or have ever maintained another qualified defined benefit
Compensation for top-heavy plan, complete the following:
minimum contribution purposes
does not include any exclusions For purposes of establishing the present value of benefits under a
noted in Item D which would defined benefit plan to establish present value to compute the
otherwise be taxable income. Top-Heavy Ratio, any benefit shall be discounted only for mortality and
interest based on the following:
Interest Rate ________% Mortality Table _______________
-10-
<PAGE>
The provision in Article 4.6 in the Plan document shall not apply to any
If the Employer maintains any other Participant to the extent the Participant is covered under any other plan
plan, this section should be or plans of the Employer. Therefore, provide the method under which
completed with a description of the Plan will meet the minimum allocation or benefit requirement
which plan will make any necessary applicable to the Top-Heavy allocation: _______________________________
minimum allocation. For example:
"The Employer will make minimum _______________________________________________________________________
allocations to [this plan], [the other
plan maintained by the Employer]." _______________________________________________________________________
The Employer should use the same
variables that were used by the For purposes of computing the Top-Heavy Ratio, the Valuation Date will
defined benefit plan's actuary in be the last day of the prior Plan Year.
performing the actuarial valuation.
In cases where the defined benefit
plan is terminated, use the last
actuarial valuation. |_| Not applicable because the Employer has not maintained a defined
benefit plan.
M. Vesting
(1) The nonforfeitable interest of each Employee in his or her
Account Balance attributable to profit sharing contributions
which are not 100% vested at all times as indicated in Section J
of the Adoption Agreement, shall be determined on the basis of
the following (select one):
</TABLE>
<TABLE>
<CAPTION>
YEARS OF SERVICE
Less than 1 2 3 4 5 6 7
1
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a.|_| 0 0 0 100
b.|_| 0 0 20 40 60 80 100
c.|_| 0 0 0 0 0 100
d.|_| 0 0 0 20 40 60 80 100
e.|X| 0 20 40 60 80 100
- -- -- -- -- --- --- ---
</TABLE>
<TABLE>
<S> <C>
If selection e. above is chosen, the vesting percentage for each year of
service must be at least equal to or greater than the vesting percentage
indicated for the corresponding year of service under selection d. above.
In any Plan Year in which this Plan is Top Heavy, if the selection above is not
a. or b., a special vesting schedule applies. This section must be completed
only by plans who selected either c., d., or e. above. The selection for the
schedule below supersedes the selections above if the Plan is Top Heavy. If
the Plan is considered Top Heavy, the nonforfeitable interest of each
employee in his or her Account Balance is determined on the basis of the
following: (select one)
-11-
<PAGE>
|_| 100% vesting after ____________ (not to exceed 3) Years of Service; or
|_| _______% (not less than 20%) vesting after 2 Years of Service,
|_| _______% (not less than 40%) vesting after 3 Years of Service,
|_| _______% (not less than 60%) vesting after 4 Years of Service,
|_| _______% (not less than 80%) vesting after 5 Years of Service,
|_| _______% (not less than 100%) vesting after 6 Years of Service.
If the vesting schedule under the Plan shifts in or out of the
above schedule for any Plan Year because of the Plan's Top
Heavy status, such shift is an amendment to the vesting
schedule and the election in Article 16.4 of the Plan applies.
Any vesting schedule may be (2) The nonforfeitable interest of each Employee in his or her account
selected. All years of service balance attributable to matching contributions which are not 100%
except as noted under M(2) are vested at all times as indicated in Section J of the Adoption Agreement,
countable for vesting purposes. For shall be determined on the basis of the following (select one):
example, under a 401(k) plan, an
employee declining to participate for
ten years is 100 percent vested in
matching contributions as soon as
he/she begins making salary
deferrals.
</TABLE>
<TABLE>
<CAPTION>
YEARS OF SERVICE
Less than 1 2 3 4 5 6 7
1
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
a.|_| 0 0 0 100
b.|_| 0 0 20 40 60 80 100
c.|_| 0 0 0 0 0 100
d.|_| 0 0 0 20 40 60 80 100
e.|X| 0 20 40 60 80 100
- -- -- -- -- --- --- ---
</TABLE>
<TABLE>
<S> <C>
If selection e. above is chosen, the vesting percentage for each year of
service must be at least equal to or greater than the vesting percentage
indicated for the corresponding year of service under selection d. above.
In any Plan Year in which this Plan is Top Heavy, if the selection above is
not a. or b., a special vesting schedule applies. This section must be
completed only by plans who selected either c., d., or e. above. The
selection for the schedule below supersedes the selections above if the
Plan is Top Heavy. If the Plan is considered Top Heavy, the nonforfeitable
interest of each employee in his or her Account Balance is determined on
the basis of the following (select one):
|_| 100% vesting after ____________ (not to exceed 3) Years of Service; or
|_| _______% (not less than 20%) vesting after 2 Years of Service,
|_| _______% (not less than 40%) vesting after 3 Years of Service,
|_| _______% (not less than 60%) vesting after 4 Years of Service,
|_| _______% (not less than 80%) vesting after 5 Years of Service,
|_| _______% (not less than 100%) vesting after 6 Years of Service.
-12-
<PAGE>
If the vesting schedule under the Plan
shifts in or out of the above schedule for
any Plan Year because of the Plan's Top
Heavy status, such shift is an amendment to
the vesting schedule and the election in
Article 16.4 of the Plan applies.
May exclude years of service for
vesting purposes before age 18 or (3) All of an Employee's Years of Service with
before the Employer maintained this the Employer are counted to determine the
plan or a predecessor plan. nonforfeitable percentage in the employee's
Account Value derived from Employer
contributions EXCEPT:
|X| Years of Service before age 18;
|_| Years of Service before the
Employer maintained this
Plan or a predecessor Plan.
N. Voluntary Contributions: (select one)
Voluntary tax contributions are
after-tax contributions. They count |_| Voluntary Contributions are permitted.
against the 415 limits and are |X| Voluntary Contributions are not permitted.
subject to plan level compliance
testing. The Employer |_| shall |_| shall not
make a Matching Contribution for each
Participant making Voluntary Contributions.
If designated above,
|_| Matching Contributions shall be equal to
$__________________ for each $1.00
the Participant deposits to his/her
voluntary Contribution account, up
to a maximum of ________% of the
Participant's Compensation
|_| a discretionary amount determined by
the Board of Directors.
These contributions shall be vested
in accordance with Section M of the
Adoption Agreement.
If permitted, a loan policy outlining
administrative limits (such as, O. Loans: (select one)
minimum loan amounts, interest
rates, etc.) must be set up. |X| Loans are permitted.
|_| Loans are not permitted.
In order to activate this item, plan
loans, if checked above, must be P. Hardship Withdrawals: (select one)
exhausted. To simplify
administration, loans and hardship |X| Hardship Withdrawals are permitted.
withdrawals should not both be |_| Hardship Withdrawals are not permitted.
checked "yes."
-13-
<PAGE>
If employees are allowed to direct Q. Account Option: (select one)
their own accounts as to
investment, select the (a). (1) Under this Plan all contributions are
directed as to their investment by:
Under Department of Labor rules (a) |X| Employee
(ERISA Act. Sec. 404(c)), an (b) |_| Employer
Employer can escape some fiduciary (c) |_| Employee and Employer
liability for bad investment results if
the participants make fully informed
choices of a wide range of (2) For purposes of (c) above:
investment options. Employee Employer
Directed Directed
Employee deferrals are: |_| |_|
Matching contributions are: |_| |_|
Discretionary profit sharing
contributions are: |_| |_|
Other (specify)___________ |_| |_|
__________________________ |-| |-|
There are certain limits to the
amount of life insurance benefits R. Life Insurance: (select one)
that can be provided under a
retirement plan. Generally, the |_| Yes, Insurance will be included in the Plan.
amounts used to pay premiums |X| No, Insurance will not be included in the
under a whole life policy can't be 50 Plan.
percent or more of the participant's
plan assets or 25 percent for term S. Distribution Options:
life policies.
Notwithstanding any selection under
this Section S, the Employer shall
be permitted to "cash-out" account
Values not exceeding $3,500 at
those times that a distribution is
allowed under this Plan.
|X| Lump-sum.
|_| Periodic Installments.
|_| Annuity Contracts issued by a Life
Insurance Company.
You may allow participants who are T. In-Service Distributions: (select one)
still employed to begin taking
withdrawals of all contributions |X| Yes, in-service distributions of any
which are 100 percent vested at contributions may be made to Participants
age 59-1/2. If you do not wish to who have attained age 59-1/2 and are 100%
allow matching contributions to be vested in their account.
withdrawn, box two should be
selected. |_| No, in-service distributions will not be
allowed except for distribution of Employee
Elective Deferrals after the Participant has
attained age 59-1/2.
-14-
<PAGE>
You may choose a definition of U. Disability: (select one)
disability ranging from most
stringent (selection one) to most |_| Any condition which constitutes total
generous (selection three). disability under the Federal Social Security
Acts.
|_| Inability to engage in any substantial
gainful activity by reason of any medically
determinable physical or mental condition;
such determination shall be made by a
licensed physician(s) acceptable to the Plan
Administrator.
|X| Inability to perform the duties of the
Participant's customary position of
employment by reason of any medically
determinable physical or mental condition;
such determination shall be made by a
licensed physician(s) acceptable to the Plan
Administrator.
V. Valuations:
Plan assets will be valued at the
following regular intervals:
|_| Yearly |_| Semi-annually |_| Quarterly
|_| Monthly |X| Daily
W. TO ESTABLISH ACCOUNT:
This is a general statement that the
Employer has consulted with their The Employer, by executing this Adoption
legal counsel, will abide by the Trust Agreement, represents that it has consulted
Agreement, certifies that the with the advisors of its own choosing with
information on the Adoption regard to the Plan. The Employer further agrees
Agreement is correct, acknowledges on behalf of itself and each Participant to be
the Employers duty to notify bound by the Provisions of the form of Trust
interested parties, and to complete Agreement furnished with this Adoption
necessary government filings Agreement, receipt of which is acknowledged by
required in connection with the plan. the Employer, represents that the information on
this Adoption Agreement and any accompanying
schedule is true and correct, and acknowledges
the obligation to notify all interested parties,
if applicable, as required under Section 7476 of
the Code and to file annually IRS Form 5500
Series and DOL Forms. The Trustee reserves the
right to reject this Agreement for any reason,
or to discontinue the offering of this Plan at
any time without prior notice.
This section states that
the Employer may not rely X. QUALIFICATIONS:
on this plan's opinion
letter and should file for The Employer may not rely on the opinion letter
their own determination issued by the National Office of the Internal
letter. Revenue Service as evidence that the Plan is
qualified under Section 401 of the Code. In order to
obtain reliance with respect to plan qualification,
the Employer must apply to the appropriate Key
District Office for a determination letter.
This Adoption Agreement may be used only in
conjunction with basic plan document #04.
-15-
<PAGE>
This section indemnifies Delaware Caution: This Adoption Agreement and related
Charter from any legal or tax liability documents are important legal instruments with legal
resulting from the Employer's and tax implications for which Delaware Charter
selection of this plan document. Guarantee & Trust Company cannot assume
Employers should review these responsibility. The Trustee urges the Employer to
documents with their legal counsel. consult with his/her own counsel with regard to the
adoption of such Plan and its suitability to the
Employer. Failure to properly fill out this
Adoption Agreement may result in disqualification
of the Plan. Delaware Charter Guarantee & Trust
Company will inform the adopting Employer of any
amendment to the Plan or the discontinuance or
abandonment of the Plan. If you have any questions
call us at 1-800-332-401(k) or write to Delaware
Charter Guarantee & Trust Company, Attn: 401(k)
Department, P.O. Box 8706, Wilmington, DE
19899-8706.
APPROVAL
Prime Bancorp., Inc.
-------------------------------------
Name of Employer (print)
To be effective, the plan must be
executed by all parties listed below: 7111 Valley Green Road
-------------------------------------
(i) The Employer;
(ii)Delaware Charter. Fort Washington, PA 19034-2209
-------------------------------------
Address
DATE: December 21, 1997
--------------------
AUTHORIZED OFFICER James E. Kelly
-------------------
Type or Print Name
BY: /s/ James E. Kelly
------------------------------------
Signature/Title
APPROVAL OF DELAWARE CHARTER GUARANTEE & TRUST
COMPANY, TRUSTEE
The foregoing Agreement is hereby approved by the
Trustee this 7th day of January, 1998
By: /s/ Sharon Roy
-------------------------------------
Authorized Signature
Attest: /s/ Mary Beth Eaves
---------------------
</TABLE>
-16-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I - DEFINITIONS.........................................................1
ARTICLE II - PARTICIPATION IN THE PLAN..........................................10
ARTICLE III - LIMITATION ON ALLOCATION...........................................12
ARTICLE IV - TOP-HEAVY PROVISION................................................18
ARTICLE V - CONTRIBUTIONS......................................................21
ARTICLE VI - PARTICIPANT'S ACCOUNTS.............................................29
ARTICLE VII - VALUATION..........................................................33
ARTICLE VIII - INVESTMENTS........................................................34
ARTICLE IX - VOLUNTARY CONTRIBUTIONS............................................35
ARTICLE X - DISTRIBUTION OF EXCESS DEFERRALS...................................36
ARTICLE XI - DISTRIBUTION OF EXCESS CONTRIBUTIONS...............................37
ARTICLE XII - DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.....................38
ARTICLE XIII - DISTRIBUTION REQUIREMENTS..........................................39
ARTICLE XIV - OTHER DISTRIBUTION REQUIREMENTS....................................40
ARTICLE XV - LIFE INSURANCE.....................................................47
ARTICLE XVI - AMENDMENT OF THE PLAN AND TRUST....................................48
ARTICLE XVII - DISCONTINUANCE OF CONTRIBUTIONS AND TERMINATION OF THE PLAN........49
ARTICLE XVIII - TRUSTEE............................................................50
ARTICLE XIX - MISCELLANEOUS PROVISIONS...........................................50
ARTICLE XX - JOINT AND SURVIVOR ANNUITY REQUIREMENT.............................57
TRUST AGREEMENT ...................................................................62
</TABLE>
DELAWARE CHARTER GUARANTEE & TRUST COMPANY
NON-STANDARDIZED 401(k) PLAN
The Employer, engaged in the Business stated in the Adoption Agreement, hereby
establishes this Plan, and adopts this Trust Agreement, forming a part thereof
for the purposes of establishing a retirement fund which will help provide for
the future security of Employees. This Plan and Trust Agreement incorporates the
provisions of the Tax Reform Act of 1986 which are effective up to Plan Years
beginning after December 31, 1988, as guidelines on this Act have been issued by
the Internal Revenue Service.
ARTICLE I
DEFINITIONS
As used in this Plan, the following terms shall have the meaning hereinafter set
forth, unless a different meaning is plainly required by the context:
1.1 Account Balance: The value of Earmarked Account or Master Account of the
Participant or Beneficiary shall be determined as of each Valuation Date.
1.2 Adjustment Factor: The cost of living adjustment factor prescribed by the
Secretary of the Treasury under section 415(d) of the Code for years beginning
after December 31, 1987, as applied to such items and in such manner as the
Secretary shall provide.
1.3 Adoption Agreement: The agreement for the establishment of a Plan and Trust
as it may from time to time be amended pursuant to this Plan and Trust. The
information contained therein shall be part of this Plan as set forth
fully herein.
<PAGE>
1.4 Affiliated Employer: The Employer and any corporation which is a member of a
controlled group of corporations (as defined in section 414(b) of the Code)
which includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in section 414(c) of the Code) with
the Employer; any organization (whether or not incorporated) which is a member
of an affiliated service group (as defined in section 414(m) of the Code) which
includes the Employer; and any other entity required to be aggregated with the
Employer pursuant to regulations under section 414(o) of the Code.
1.5 Anniversary Date: The date as of which the Plan becomes effective as
indicated in the Adoption Agreement and such date each year thereafter.
1.6 Annuity Contract: An individual or group annuity contract issued by an
insurance company, and not a Life Insurance Policy, providing periodic benefits,
whether fixed, variable, or both, to a person or persons named therein, the
benefits or value of which cannot be transferred, sold, assigned, discounted,
pledged as collateral for a loan or a security for the performance of an
obligation by a Participant or Beneficiary with an interest therein to any
person other than the issuer thereof.
1.7 Beneficiary: Subject to Article 15.1, a person entitled to receive any
payment from the Trust following the death of Participant. Such person shall
have the status of a Beneficiary only upon the Participant's death or upon the
issuance of any Annuity Contract or Life Insurance Policy in which such person
has an interest, which cannot be altered or revoked by the Participant except
following the death of such person. If the Participant fails to name a
Beneficiary or if the Beneficiary named by a Participant predeceases him or dies
before complete distribution of a Participant's Account Balance, then the
Trustee shall pay the Beneficiary in one (1), or any combination, of the methods
specified under Article XIV in the following order of priority to:
(a) The Participant's surviving spouse;
(b) The executor or administrator of the Participant's estate.
The Employer may require such proper proof of death and such evidence of the
right of any person to receive payment of the vested Account Balance of a
deceased Participant as the Employer may deem advisable. The Employer's
determination of death and the right of any person to receive payment shall be
final.
1.8 Benefiting: A Participant is treated as benefiting under the Plan for any
Plan Year during which the Participant received or is deemed to receive an
allocation in accordance with section 1.410(b)-3(a).
1.9 Break in Service: A twelve consecutive month period during which a
Participant does not complete more than 500 Hours of Service with the Employer.
1.10 Business: The Business of the Employer as stated in the Adoption Agreement.
1.11 Code: The Internal Revenue Code of 1986 and amendments thereto.
1.12 Compensation: Compensation will mean compensation as that term is defined
in Article 3.16 of the Plan. For any Self-Employed individual covered under the
Plan, Compensation will mean Earned Income. Compensation shall include only that
compensation which is actually paid to the Participant during the determination
period. Except as provided elsewhere in this Plan, the determination period
shall be the period selected by the Employer in the Adoption Agreement. If the
Employer makes no election, the determination period shall be the Plan Year.
Notwithstanding the above, if elected by the Employer in the Adoption Agreement,
Compensation shall include any amount which is contributed by the Employer
pursuant to a salary reduction agreement and which is not includable in the
gross income of the Employee under sections 125, 402(e)(3), 402(h)(1)(b), or
403(b) of the Code.
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In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provisions of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each
Participant 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 adjustment
in effect for a calendar year applies to any period, not exceeding 12 months,
over which Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1989, and before January 1,
1994, the annual compensation of each Participant taken into account for
determining all benefits provided under the Plan for any Plan Year shall not
exceed $200,000. This limitation shall be adjusted by the Secretary at the same
time and in the same manner as under section 415(d) of the Code, except that the
dollar increase in effect on January 1 of any calendar year is effective for
Plan Years beginning in such calendar year and the first adjustment to the
$200,000 limitation is effective on January 1, 1990.
For Plan Years beginning on or after January 1, 1994, the annual compensation of
each Participant taken into account for determining all benefits provided under
the Plan for any Plan Year shall not exceed $150,000, as adjusted 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 determination period beginning in such calendar year.
If a determination period consists of fewer than 12 months, the annual
compensation limit is an amount equal to the otherwise applicable annual
compensation limit multiplied by a fraction, the numerator of which is the
number of months in the short determination period, and the denominator of which
is 12.
In determining the compensation of a Participant for purposes of this
limitation, the rules of section 414(q)(6) of the Code 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 19 before the close of the year. If, as a result of the application of such
rules the adjusted annual compensation limitation is exceeded then (except for
purposes of determining the portion of compensation up to the integration level
if this Plan provides for permitted disparity), the limitation shall be prorated
among the affected individuals in proportion to each such individual's
compensation as determined under this section prior to the application of this
limitation.
If compensation for any prior determination period is taken into account in
determining a Participant's allocations for the current Plan Year, the
compensation for such prior determination period is subject to the applicable
annual compensation limit in effect for that prior period. For this purpose, in
determining allocations in Plan Years beginning on or after January 1, 1989, the
annual compensation limit in effect for determination periods beginning before
that date is $200,000. In addition, the determining allocations in Plan Years
beginning on or after January 1, 1994, the annual compensation limit in effect
for determination periods beginning before that date is $150,000.
1.13 Disability: For purposes of defining Disability under this Plan, the option
as selected on the Adoption Agreement shall apply.
1.14 Early Retirement Age: The age selected in the Adoption Agreement. The Early
Retirement Age may never be earlier than age 55. A Participant's account
balances attributable to Employer contributions are nonforfeitable upon the
attainment of the Early Retirement Age. If the option selected in the
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Adoption Agreement has both an age and service requirement, then a Participant
who separates from service before satisfying the age requirement for early
retirement, but has satisfied the service requirement, will be entitled to elect
an early retirement benefit upon satisfaction of such age requirement.
1.15 Employee Directed Account: Refers to the account option as described in
Article 8.1, which means those contributions which are directed by the Employee.
1.16 Earned Income: The net earnings from self-employment in the trade or
business with respect to which the Plan is established, for which personal
service of the individual are a material income producing factor. Net earnings
will be determined without regard to items not included in gross income and the
deductions allocable to such items. Net earnings are reduced by contributions by
the Employer to a qualified plan to the extent deductible under section 404 of
the Code. Net earnings shall be determined with regard to the deduction allowed
to the taxpayer by section 164(f) of the Code for taxable years beginning after
December 31, 1989.
1.17 Effective Date: As indicated in the Adoption Agreement, the date Employees
will first be covered under this Plan.
1.18 Elapsed Time: If an Employer elects to use Elapsed Time in the Adoption
Agreement, the following definitions shall replace the otherwise required Year
of Service and Break in Service definitions. For purposes of this Section, Hour
of Service shall mean each hour for which an Employee is paid or entitled to
payment for the performance of duties for the Employer.
(a) Break in Service is a Period of severance of at least 12
consecutive months.
(b) Period of Severance is a continuous period of time during which the
Employee is not employed by the Employer. Such period begins on the
date the Employee retires, quits or is discharged, or if earlier, the
12 month anniversary of the date on which the Employee was otherwise
first absent from the Service.
(c) For purposes of determining an Employee's initial or continued
eligibility to participate in the Plan or the nonforfeitable interest
in the Participant's account balance derived from Employer
contributions (except for periods of service which may be disregarded
on account of the "rule or parity" described in Article 6.5(b)), an
Employee will receive credit for the aggregate of all time period(s)
commencing with the Employee's first day of employment or re-employment
and ending on the date a Break in Service begins. The first day of
employment or reemployment is the first day the Employee performs an
Hour of Service. An Employee will also receive credit for any Period of
Severance of less than 12 consecutive months. Fractional periods of a
year will be expressed in terms of days.
(d) In the case of an individual who is absent from work for maternity
or paternity reasons, the 12 consecutive month period beginning on the
first anniversary of the first date of such absence shall not
constitute a Break in Service. For purposes of this paragraph, an
absence from work for maternity or paternity reasons means an absence
(1) by reason of the pregnancy of the individual, (2) by reason of the
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.
(e) Each Employee will share in Employer contributions for the period
beginning on the date the Employee commences participation under the
Plan and ending on the date on which such Employee
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severs employment with the Employer or is no longer a member of an
eligible class of Employees.
(f) If the Employer is a member of an affiliated service group (under
section 414(m)), a controlled group of corporations (under section
414(b)), a group of trades or businesses under common control (under
section 414(c)) or any other entity required to be aggregated with the
Employer pursuant to section 414(o), service will be credited for any
employment for any period of time for any other member of such group.
Service will also be credited for any individual required under section
414(n) or section 414(o) to be considered an Employee of any Employer
aggregated under section 414(b), (c), or (m).
1.19 Elective Deferrals: Subject to Article XIII Contributions made to the Plan
during the Plan Year by the Employer, at the election of the Participant, in
lieu of cash compensation shall include contributions made pursuant to a salary
reduction agreement. Such contributions must be nonforfeitable when made.
Elective Deferrals are not distributable to the Participant, or the
Participant's Beneficiary or Beneficiaries, in accordance with the Participant's
or Beneficiary's election earlier than upon separation from service, death, or
disability (Elective Deferrals may be distributed earlier upon hardship in
accordance with Article 5.8). A Participant's election under this Article may
not be made retroactively. Notwithstanding the foregoing, no Participant shall
be permitted to have Elective Deferrals made under this Plan, or any other
qualified plan maintained by the Employer, during any taxable year, in excess of
the dollar limitation contained in section 402(g) of the Code in effect at the
beginning of such taxable year.
1.20 Employee: Shall mean any Employee of the Employer maintaining the Plan or
of any other Employer required to be aggregated with such Employer under
sections 414(b), (c), (m), or (o) of the Code. The term Employee shall also
include any Leased Employee deemed to be an Employee of any Employer described
in the previous paragraph as provided in sections 414(n) or (o) of the Code.
1.21 Employee Contributions: After-tax Contributions to the Plan made by a
Participant during the Plan Year.
1.22 Employer: The Employer named in the Adoption Agreement and engaged in the
Business stated in the Adoption Agreement, that establishes or maintains the
Plan; any other organization which has adopted the Plan with the consent of such
establishing Employer; and any successor of such Employer which under written
agreement, assumes the obligations of the Plan.
1.23 Entry Date: The earliest of
(a) The Effective Date (if the Employee has met the eligibility
requirement set forth in the Adoption Agreement), or
(b) For Employees not meeting the eligibility requirements as of the
Effective Date, the specific dates set forth in the Adoption Agreement.
1.24 Family Member: An individual described in section 414(q)(6)(B) of the Code.
1.25 Former Participant/Beneficiary: is an individual who was a Participant in
the Plan or a Beneficiary of a Former Participant in the Plan, but no longer is
entitled to an allocation of Company contributions or forfeitures, but has not
yet received complete distribution of his or her benefits.
1.26 Highly Compensated Employee: includes Highly Compensated Active Employees
and Highly Compensated Former Employees.
A Highly Compensated Active Employee includes any Employee who performs service
for the Employer during the determination year and who, during the look-back
year:
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(a) received compensation from the Employer in excess of $75,000 (as
adjusted pursuant to section 415(d) of the Code);
(b) received compensation from the Employer in excess of $50,000 (as
adjusted pursuant to section 415(d) of the Code) and was a member of
the top-paid group for such year; or
(c) was an officer of the Employer and received compensation during
such year that is greater than 50 percent of the dollar limitation in
effect under section 415(b)(1)(A) of the Code.
The term "Highly Compensated Employee" also includes:
(1) Employees who are both described in the preceding sentence if the
term "determination year" is substituted for the term "look-back year"
and the Employee is one of the 100 Employees who received the most
compensation from the Employer during the determination year; and
(2) Employees who are 5 percent owners at any time during the look-back
year or determination year.
If no officer has satisfied the compensation requirement of (c) above during
either a determination year or look-back year, the highest paid officer for such
year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The look-back
year shall be the immediately preceding twelve month period. The Employer may
elect to use the calendar year to determine whether an Employee is a Highly
Compensated Employee in the look-back year (as defined in Treasury Regulations
under section 414(q) of the Code) calculation. The calendar year used will be
the calendar year ending with or within the determination year (as defined in
the regulations under section 414(q) of the Code). The determination year shall
be the months (if any) in the current Plan Year which follow the end of the
calendar look-back year. If the Employer elects to make the calendar year
calculation election with respect to any plan, entity, or arrangement, such
election must apply with respect to all plans, entities, and arrangements of the
Employer.
A Highly Compensated Former Employee includes any Employee who separated from
service (or was deemed to have separated) prior to the determination year,
performs no service for the Employer during the determination year and was a
Highly Compensated Active Employee for either the separation year or any
determination year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a family
member of either a 5 percent owner who is an active or former employee or a
Highly Compensated Employee who is one of the 10 most Highly Compensated
Employees ranked on the basis of compensation paid by the Employer during such
year, then the family member and the 5 percent owner or top-ten Highly
Compensated Employee shall be aggregated. In such case, the family member and 5
percent owner or top-ten Highly Compensated shall be treated as a single
Employee receiving compensation and Plan contributions or benefits equal to the
sum of such compensation and contributions or benefits of the family member and
5 percent owner or top-ten Highly Compensated Employee. For purposes of this
section, family member includes the spouse, lineal ascendants, and descendants
of the Employee or former Employee and the spouses of such lineal ascendants and
descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers and
compensation that is considered, will be made in accordance with section 414(q)
of the Code and the regulations thereunder.
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1.27 Hour of Service: Hours of Service will be determined on the basis of the
method selected in the Adoption Agreement.
(a) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours will be
credited to the Employee for the computation period in which the duties
are performed; and
(b) Each hour for which an Employee is paid, or entitled to payment, by
the Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence. No
more than 501 Hours of Service will be credited under this paragraph
for any single continuous period (whether or not such period occurs in
a single computation period). Hours under this paragraph will be
calculated and credited pursuant to section 2530.200b-2 of the
Department of Labor Regulations which are incorporated herein by this
reference; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same Hours
of Service will not be credited both under paragraph (a) or paragraph
(b), as the case may be, and under 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.
Hours of Service will be credited for employment with other members of an
affiliated service group (under section 414(m)), a controlled group of
corporations (under section 414(b)), or a group of trades or businesses under
common control (under section 414(c)), of which the adopting Employer is a
member, and any other entity required to be aggregated with the Employer
pursuant to section 414(o) and the regulations thereunder.
Hours of Service will also be credited for any individual considered an Employee
for purposes of the Plan under section 414(n) or section 414(o) and the
regulations thereunder.
Solely for purposes of determining whether a Break in Service, as defined in
Article 1.9, for participation and vesting purposes has occurred in a
computation period, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence, or in any
case in which such hours cannot be determined, 8 Hours of Service per day of
such absence. For purposes of this paragraph, an absence from work for maternity
or paternity reasons means an absence
(1) by reason of the pregnancy of the 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 (i) in the computation
period in which the absence begins if the crediting is necessary to
prevent a Break in Service in that period, or (ii) in all other cases,
in the following computation period.
In instances where actual Hours of Service are not maintained, an Employee shall
be credited with 45 Hours of Service for each week in which such Employee would
otherwise be credited with at least one Hour of Service.
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1.28 Inactive Participant: Any Employee or former Employee who has ceased to be
a Participant and on whose behalf an account is maintained under the Plan.
1.29 Insurer: Any insurance company which issues an Annuity Contract or Life
Insurance Policy under the Plan.
1.30 Life Insurance Policy: An individual or group policy issued by an insurance
company under which, at any time during the time the policy is outstanding on
the life of the Participant (determined without regard to premium refunds,
dividends, and the like), an amount is payable as a result of the death of the
Participant which exceeds the greater of the policy reserve or the aggregate
premiums paid on the policy for the Participant.
1.31 Limitation Year: Shall be the 12 consecutive month period which is the same
as the Plan Year.
1.32 Master Employer Directed Account: Refers to the account option as described
in Article 6, which means those contributions which are directed by the
Employer.
1.33 Non-Highly Compensated Employee: An Employee of the Employer who is neither
a Highly Compensated Employee nor a Family Member.
1.34 Normal Retirement Age: The age selected in the Adoption Agreement. If the
Employer enforces a mandatory retirement age, the Normal Retirement Age is the
lesser of that mandatory age or the age specified in the Adoption Agreement.
Notwithstanding the vesting schedule elected by the Employer in the Adoption
Agreement, a Participant's right to his or her Account Balance must be
nonforfeitable upon the attainment of Normal Retirement Age.
1.35 Owner-Employee: An individual who is a sole proprietor, or who is a partner
owning more than 10 percent of either the capital or profits interest of the
partnership.
1.36 Participant: Every Employee who shall have become a Participant pursuant to
Article II hereof and whose participation shall not have been terminated
pursuant to such Article.
1.37 Participant Elective Deferral Account: Pursuant to Employee election, the
value of Employee Elective Deferrals may be held in either an Employee directed
Account or Master Employer Directed Account (as defined in this Article). Each
Employee's proportionate share in the Elective Deferral Account shall be
accounted for separately.
1.38 Period of Service: Under elapsed Time, the period of time commencing on the
date on which an Employee is first credited with an Hour of Service or, if
applicable, the first date following a Period of Severance on which an Employee
is credited with an Hour of Service and ending on the next following Severance
Date.
1.39 Plan: The Plan for the Employees of the Employer as it may from time to
time hereafter be amended, which is established by the Adoption Agreement.
1.40 Plan Administrator: The Employer.
1.41 Plan Year: A 12 consecutive month period designated by the Employer in the
Adoption Agreement.
1.42 Present Value: For purposes of establishing Present Value to compute the
Top-Heavy Ratio, any benefit shall be discounted only for mortality and interest
as specified in the Adoption Agreement.
1.43 Qualified Matching Contributions: Subject to Article XIII, Matching
Contributions made by the Employer to the Plan, pursuant to Code Section 401(m),
which are subject to the distribution and nonforfeitability requirements under
section 401(k) of the Code when made.
1.44 Qualified Nonelective Contributions: Contributions (other than Matching
Contributions or Qualified Matching Contributions) made by the Employer and
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allocated to Participant's accounts, that the Participant may not elect to
receive in cash until distributed from the Plan, that are 100 percent vested and
nonforfeitable when made; and that are not distributable under the terms of the
Plan to Participants or their Beneficiaries pursuant to Article XIII.
1.45 Rollover Account: Shall mean the separate account maintained pursuant to
Article XIX hereof for receipt of any Rollover Contributions made to the
Participant and the income, expenses, gains, and losses attributable thereto.
1.46 Rollover Contributions: Shall mean contributions made to the Trust by
Participants in accordance with Article XIX hereof and sections 402(a)(5),
402(a)(7), 403(a)(4) and 408(d)(3) of the Internal Revenue Code.
1.47 Self-Employed Individual: An individual who has Earned Income for the
taxable year from the trade or business for which the Plan is established. A;
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.
1.48 Severance Date: Under Elapsed Time the earlier of (i) the date an Employee
terminated, is discharged, retires, or dies, or (ii) the first anniversary of
the date an Employee is absent from the employ of the Employer for any reason
other than an approved leave of absence granted in writing by the Employer,
according to a uniform rule applied without discrimination, provided the
Employee returns to the employ of the Employer upon completion of the leave.
Notwithstanding the foregoing, an Employee who terminates Service to enter the
military service of the United States shall not suffer a Severance Date as of
such date provided (i) such Employee's employment rights are protected by
Federal law and (ii) such Employee returns to employment with the Employer
within the period required by law for preservation of his rights. Under such
circumstances, an Employee shall receive credit for Service for his earlier
period of absence. If the Employee does not return to Service within the time
prescribed by law, then the date he terminated employment shall be his Severance
Date.
1.49 Shareholder Employee: Any person owning more than five percent of the stock
of a subchapter S corporation as defined in section 1361 of the Internal Revenue
Code.
1.50 Sponsoring Company: The Employer named in the Adoption Agreement, that
establishes or maintains the Plan; any affiliated Employer, any other
organization which has adopted the Plan with the consent of such establishing
Employer; and any successor of such Employer which under written agreement,
assumes the obligation of the Plan.
1.51 Straight Life Annuity: Straight Life Annuity means an annuity payable in
equal installments for the life of the Participant that terminates upon the
Participant's death.
1.52 Trust: The Trust established under the Plan as it may from time to time
hereafter be amended.
1.53 Trustee: Delaware Charter Guarantee & Trust Company or any successor
thereto and any other entity chosen by the Sponsoring Company.
1.54 Valuation Date: For purposes of the Top-Heavy provisions under Article IV,
the last day of each Plan Year as of which account balances or accrued benefits
are valued for purpose of calculating the Top-Heavy Ratio. For all other
purposes under the Plan, the last day of each calendar quarter or any other
date, as determined by the Plan Administrator, and for self-directed plans any
date that is closer to the event requiring valuation of any investment fund
shares credited to a Participant's Account Balance under the Plan.
1.55 Year of Service: A Year of Service is a 12 consecutive month period
(computation period) during which the Employee completes at least 1,000 Hours of
Service.
1.56 Sponsor: Delaware Charter Guarantee & Trust Company, or any successor
thereto.
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1.57 Taxable Wage Base: Taxable Wage Base is the contribution and benefit base
under section 230 of the Social Security Act as of the beginning of the Plan
Year.
ARTICLE II
PARTICIPATION IN THE PLAN
2.1 Eligibility to Participate: Each Employee satisfying the eligibility
requirements set forth in the Adoption Agreement is eligible to participate on
the earliest Entry Date as defined in Article 1.23 of the Plan.
2.2 Notification to Eligible Employees: An eligible Employee shall be notified
(by the Employer) of their eligibility to participate. All Eligible Employees
will be considered Participants according to the provisions of Article 2.1. In
no event shall any Eligible Employee be permitted to voluntarily elect not to
participate under this Plan. Notwithstanding the foregoing, an Eligible Employee
may elect zero percentage as the percentage of Elective Deferrals under the Plan
pursuant to Article 5.1. Further, no contributions or benefits (other than
Matching Contributions or Qualified Matching Contributions) may be conditioned
upon an Employee's Elective Deferrals.
2.3 For purposes of determining eligibility to participate in the Plan, as
selected by the Employer on the Adoption Agreement, the Plan shall or shall not
apply any Break in Service rule. If the Employer selects the option to not apply
any Break in Service rule, the special conditions under Article 2.13 become
operative and supersede any other conflicting provision under this Article II.
In the event a Participant is no longer a member of an eligible class of
Employees and becomes ineligible to participate, but has not incurred a Break in
Service, such Employee will participate immediately upon returning to an
eligible class of Employees. If such Participant incurs a Break in Service,
eligibility will be determined under the Break in Service rules of the Plan.
In the event an Employee who is not a member of the eligible class of employees
becomes a member of the eligible class, such Employee will participate
immediately if he/she has satisfied the minimum age and service requirements and
would have otherwise previously become a Participant.
2.4 Crediting Service for Initial Eligibility: For purposes of participation
under Article 2.1 the Plan shall take into account all of an Employee's Years of
Service with the Employer. Year of Service shall mean a twelve (12) consecutive
month period during which the Employee completes not less than one thousand
(1,000) Hours of Service, measured from the beginning of the first twelve (12)
month period from the Employment Commencement Date. If the Employee does not
complete one thousand (1,000) Hours of Service during the twelve (12) month
period commencing with the Employment Commencement Date, the Plan shall measure
the twelve (12) month period from the first day of the Plan Year which includes
the first anniversary of the Employment Commencement Date regardless of whether
the Employee is entitled to be credited with 1,000 Hours of Service during the
initial eligibility computation period. The Plan shall measure any subsequent
twelve (12) month period necessary for a determination of a Year of Service for
participation by reference to succeeding Plan Years. Employment Commencement
Date means the date on which the Employee first performs an Hour of Service for
the Employer. An Employee who is credited with 1,000 Hours of Service in both
the initial eligibility computation period and the first Plan Year which
commences prior to the first anniversary of his Employment Commencement Date
will be credited with two Years of Service for purposes of eligibility to
participate.
If the Employer has elected in the Adoption Agreement to credit Service based on
the elapsed time method, then, for purposes of initial eligibility, Service
shall be measured from the date on which the Employee is first credited with an
Hour of Service and ending with the anniversary of such date. A Period of
Service shall include any Period of Severance of less than 12 consecutive
months.
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2.5 Re-employment after a Break in Service: In the case of any Participant who
has a 1-year Break in Service, years of eligibility service before such break
will not be taken into account until the Employee has completed a Year of
Service after returning to employment.
Such Year of Service will be measured by the 12 consecutive month period
beginning on an Employee's Re-employment Commencement Date, and, if necessary,
Plans Years beginning with the Plan Year which includes the first anniversary of
the Re-employment Commencement Date.
The Re-employment Commencement Date is the first day on which the Employee is
credited with an Hour of Service for the performance of duties after the first
Eligibility Computation Period in which the Employee incurs a 1-year Break in
Service.
If a former Participant completes a Year of Service in accordance with this
provision, his or her participation will be reinstated as of the Re-employment
Commencement Date.
2.6 Service Counted toward Eligibility: All Years of Service with the Employer
are counted toward eligibility except for the following:
(a) If an Employee has a 1-year Break in Service before satisfying the
Plan's requirement for eligibility, service before such break will not
be taken into account.
The above provision is restricted to plans requiring more than one Year of
Service for participation and which provide full and immediate vesting.
(b) In the case of a Participant who does not have any nonforfeitable
right to the Account Balance derived from Employer contributions, Years
of Service before a period of consecutive 1-year Breaks in Service will
not be taken into account in computing eligibility service if the
number of consecutive 1-year Breaks in Service equals or exceed the
greater of 5 or the aggregate number of Years of Service before such a
break. Such aggregate number of Years of Service will not include any
Years of Service disregarded under the preceding sentence by reason of
prior Breaks in Service.
2.7 Participation of a Vested Participant After a Break in Service: A former
Participant will become a Participant immediately upon returning to the employ
of the Employer if such former Participant has a nonforfeitable right to all or
a portion of the Account Balance derived from Employer contributions at the time
of termination from service.
2.8 Participation of a Nonvested Participant After a Break in Service: A former
Participant who did not have a nonforfeitable right to any portion of the
Account Balance derived from Employer contributions 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 5 or the aggregate number of Years of Service before such breaks in service.
If such former Participant's Years of Service before termination from service
may not be disregarded pursuant to the preceding sentence, such former
Participant shall participate immediately upon re-employment.
2.9 Omission of Eligible Employee: If, in any Plan Year, any Employee who should
be included as a Participant in the Plan is erroneously omitted and discovery of
such omission is not made until after a discretionary profit sharing
contribution by the Employer for the year has been made, the Employer shall make
a subsequent contribution with respect to the omitted Employee in the amount
which the said Employer would have contributed with respect to him had he not
been omitted. Such contribution shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code. It shall be the sole responsibility of the Employer to take any and
all actions as required by this Article 2.9.
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2.10 Inclusion of Ineligible Employee: If, in any Plan Year, any person who
should not have been included and discovery of such incorrect inclusion is not
made until after a discretionary profit sharing contribution for the year has
been made, the Employer shall not be entitled to recover the contribution made
with respect to the ineligible person regardless of whether or not a deduction
is allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a Forfeiture
for the Plan Year in which the discovery is made. It shall be the sole
responsibility of the Employer to take any and all actions as required by this
Article 2.10.
2.11 Special Conditions for Plans not Applying a Break in Service Rule only: A
Participant whose employment terminates shall re-enter the Plan as a Participant
on the date of his re-employment. An Employee who has satisfied the eligibility
conditions of Article 2.1 but who terminates employment prior to becoming a
Participant shall become a Participant in the Plan on the date of his
re-employment. Any other Employee whose employment terminates and who is
subsequently re-employed shall become a Participant in accordance with the
provisions of Article 2.1 and 2.3.
ARTICLE III
LIMITATION ON ALLOCATION
3.1 If the Participant does not participate in, and has never participated in,
another qualified plan or a Welfare Benefit fund, as defined in section 419(e)
of the Code, maintained by the adopting Employer or an individual Medical
Account, as defined in section 415(l)(2) or the Code, maintained by the
Employer, or a simplified employee pension, as defined in section 408(k) of the
Code, maintained by the Employer, which provides an Annual Addition as defined
in Article 3.12, the amount of Annual Additions which may be credited to the
Participant's account for any Limitation Year will not exceed the lesser of the
Maximum Permissible Amount or any other limitation contained in this Plan. If
the Employer contribution that would otherwise be contributed or allocated to
the Participant's account would cause the Annual Additions for the Limitation
Year to exceed the Maximum Permissible Amount, the amount contributed or
allocated will be reduced so that the Annual Additions for the Limitation Year
will equal the Maximum Permissible Amount.
3.2 Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for a
Participant on the basis of a reasonable estimation of the Participant's
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situated.
3.3 As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year will be determined
on the basis of the Participant's actual Compensation for the
Limitation Year.
3.4 If pursuant to Article 3.3 or as a result of the allocation of forfeitures,
there is an excess amount, the excess will be disposed of as follows:
(a) Any nondeductible Voluntary Employee Contributions, to the extent
they would reduce the excess amount, will be returned to the
Participant;
(b) Any elective Deferrals and earning attributable hereto, to the
extent they would reduce the excess amount, will be returned to the
Participant;
(c) If, after the application of paragraph (a), an excess amount still
exists, and the Participant is covered by the Plan at the end of the
Limitation Year, the excess amount in the Participant's account will be
used to reduce Employer contributions (including any allocation of
forfeitures) for such Participant in the next Limitation Year, and each
succeeding Limitation Year, if necessary.
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(d) If, after the application of paragraph (a), an excess amount still
exists, and the Participant is not covered by the Plan at the end of
the Limitation Year, the excess amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce future
Employer contributions (including allocation of any forfeitures) for
all remaining Participants in the next Limitation Year and each
succeeding Limitation Year, if necessary.
(e) If a suspense account is in existence at any time during the
Limitation Year pursuant to this Article 3.4, it will not participate
in the allocation of the trust's investment gains and losses. If a
suspense account is in existence at any time during a particular
Limitation Year, all amounts in the suspense account must be allocated
and reallocated to Participants' accounts before any Employer or any
Employee contributions may be made to the Plan for that Limitation
Year. Excess amounts may not be distributed to Participants or former
Participants.
3.5 This Article applies if, in addition to this Plan, the Participant is
covered under another qualified master or prototype defined contribution plan
maintained by the Employer, a welfare benefit fund maintained by the Employer,
or a simplified employee pension maintained by the Employer, that provides an
Annual Addition as defined in Article 3.12 during any Limitation Year. The
Annual Additions which may be credited to a Participant's account under this
Plan for any such Limitation Year will not exceed the Maximum Permissible Amount
reduced by the Annual Additions credited to a Participant's account under the
other qualified master and prototype defined contribution plans, welfare benefit
funds, individual medical accounts, and simplified employee pensions for the
same Limitation Year. If the Annual Additions with respect to the Participant
under other qualified master and prototype defined contribution plans, welfare
benefit funds, individual medical accounts, and simplified employee pensions
maintained by the Employer are less than the Maximum Permissible Amount, and the
Employer contribution that would otherwise be contributed or allocated to the
Participant's account under this Plan would cause the Annual Additions for the
Limitation Year to exceed this limitation, the amount contributed or allocated
will be reduced so that the Annual Additions under all such plans and funds for
the Limitation Year will equal the Maximum Permissible Amount. If the Annual
Additions with respect to the Participant under such other qualified master and
prototype defined contribution plans, welfare benefit funds, individual medical
accounts, and simplified employee pensions in the aggregate are equal to or
greater than the Maximum Permissible Amount, no amount will be contributed or
allocated to the Participant's account under this Plan for the Limitation Year.
3.6 Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for a
Participant in the manner described in Article 3.2.
3.7 As soon as it is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year will be determined
on the basis of the Participant's actual Compensation for the
Limitation Year.
3.8 If, pursuant to Article 3.7, or as a result of the allocation of
forfeitures, a Participant's Annual Additions under this Plan and such other
plans would result in an excess amount for a Limitation Year, the excess amount
will be deemed to consist of the Annual Additions last allocated, except that
Annual Additions attributable to a Welfare Benefit Fund or Individual Medical
Account will be deemed to have been allocated first regardless of the actual
allocation date.
3.9 If an excess amount was allocated to a Participant on an allocation date of
this Plan which coincides with an allocation date of another Plan, the excess
amount attributed to this Plan will be the product of,
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(a) the total excess amount allocated as of such date, times
(b) the ratio of
(1) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under this Plan to
(2) the total Annual Additions allocated to the Participant for the
Limitation Year as of such date under this and all other qualified
defined contribution plans.
3.10 Any excess amount attributed to this Plan will be disposed in the manner
described in Article 3.4.
If the Participant is covered under another qualified defined contribution plan
maintained by the Employer which is not a Master or Prototype Plan, Annual
Additions which may be credited to the Participant's account under this Plan for
any Limitation Year will be limited in accordance with Articles 3.5 through 3.10
as though the other plan were a Master or Prototype Plan unless the Employer
provides other limitations in the Adoption Agreement.
3.11 If the Employer maintains, or at any time maintained, a qualified defined
benefit plan covering any Participant in this Plan, the sum of the Participant's
defined benefit plan fraction and defined contribution plan fraction will not
exceed 1.0 in any Limitation Year. The Annual Additions which may be credited to
the Participant's account under this Plan for any Limitation Year will be
limited in accordance with the Adoption Agreement.
3.12 Annual Additions: The amount allocated to a Participant's account during
the Limitation Year that constitutes:
(a) Employer contributions;
(b) Employee contributions;
(c) Forfeitures; and
(d) Amounts described in sections 415(l)(2) and 419A(d)(3) of the Code.
(e) allocations under a simplified employee pension.
Amounts allocated after March 31, 1984, to an Individual Medical Account, as
defined in section 415(l)(1) of the Code, which is part of a pension or annuity
plan maintained by the Employer, are treated as Annual Additions to a defined
contribution plan. Also, 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 section 419A(d)(3), under a Welfare
Benefit Fund, as defined in section 419(e) or the Code, maintained by the
Employer, are treated as Annual Additions to a defined contribution plan.
For this purpose, any excess amount applied under Articles 3.4 or 3.10 in the
Limitation Year to reduce Employer contributions will be considered Annual
Additions for such Limitation Year.
3.13 Maximum Permissible Amount: The maximum Annual Addition that may be
contributed or allocated to a Participant's account under the Plan for any
Limitation Year shall not exceed the lessor of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25 percent of the Participant's Compensation for the Limitation
Year.
If a short limitation Year is created because of an amendment changing the
Limitation Year to a different 12 consecutive month period, the Maximum
Permissible amount will not exceed the Defined Contribution Dollar Limitation
multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
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3.14 The compensation limitation referred to in Article 3.13(b) shall not apply
to any contribution for medical benefits (within the meaning of section 401(h)
or section 419A(f)(2) of the Code) which is otherwise treated as an Annual
Addition under section 415(l)(1) or 419A(d)(2) of the Code.
3.15 For purposes of Articles 3.12 to 3.14, Defined Contribution Dollar
Limitation shall mean $30,000 or, if greater, one fourth of the defined benefit
dollar limitation set forth in section 415(b)(1) of the Code as in effect for
the Limitation Year.
3.16 Compensation: One of the following as elected by the employer in the
adoption agreement:
(1) Information required to be reported under sections 6041, 6051, and
6052 of the Code (Wages, tips and other compensation as reported on
Form W-2). Compensation is defined as wages within the meaning of
section 3401(a) and all other payments of compensation to an employee
by the employer (in the course of the employer's trade or business) for
which the employer is required to furnish the employee a written
statement under sections 6041(d), 6051(a)(3), and 6052). Compensation
must be determined without regard to any rules under section 3401(a)
that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the
exception for agricultural labor in section 3401(a)(2)).
(2) Section 3401(a) wages. Compensation is defined as wages within the
meaning of section 3401(a) for the purposes of income tax withholding
at the source but determined without regard to any rules that limit the
remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for
agricultural labor in section 3401(a)(2)).
(3) 415 safe-harbor compensation. Compensation is defined as wages,
salaries, and fees for professional services and other amounts received
(without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with
the employer maintaining the plan to the extent that the amounts are
includable in gross income (including, but not limited to, commissions
paid salesmen, compensation for services on the basis of a percentage
of profits, commissions on insurance premiums, tips, bonuses, fringe
benefits, and reimbursements or other expense allowances under a
nonaccountable plan (as described in 1.62-2(c)), and excluding the
following:
(a) Employer contributions to a plan of deferred compensation which are
not includable in the employee's gross income for the taxable year in
which contributed, or employer contributions under a simplified
employee pension plan, or any distributions from a plan of deferred
compensation;
(b) Amounts realized from the exercise of a non-qualified stock option,
or when restricted stock (or property) held by the employee either
becomes freely transferable or is no longer subject to a substantial
risk of forfeiture;
(c) Amounts realized from the sale, exchange, or other disposition of
stock acquired under a qualified stock option; and
(d) Other amounts which received special tax benefits, or contributions
made by the employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in
section 403(b) of the Internal Revenue Code (whether or not the
contributions are actually excludable from the gross income of the
employee) For any Self-Employed
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Individual, Compensation will mean Earned Income.
For limitation years beginning after December 31, 1991, for purposes of applying
the limitations of this article, compensation for a limitation year is the
compensation actually paid or made available in gross income during such
limitation year.
Notwithstanding the preceding sentence, compensation for a participant in a
defined contribution plan who is permanently and totally disabled (as defined in
section 22(e)(3) of the Internal Revenue Code) is the compensation such
participant would have received for the limitation year if the participant had
been paid at the rate of compensation paid immediately before becoming
permanently and totally disabled; such imputed compensation for the disabled
participant may be taken into account only if the participant is not a highly
compensated employee (as defined in section 1.26 of the Plan) and contributions
made on behalf of such participant are nonforfeitable when made.
3.17 Defined Benefit Fraction: A fraction, the numerator of which is the sum of
the Participant's Projected Annual Benefits under all the defined benefit plans
(whether or not terminated) maintained by the Employer, and the denominator of
which is the lesser of 125 percent of the dollar limitation determined for the
Limitation Year under sections 415(b) and (d) of the Code or 140 percent of the
Highest Average Compensation, including any adjustments under section 415(b) of
the Code.
Notwithstanding the above, if the Participant was a Participant as of the first
day of the first Limitation Year beginning after December 31, 1986, in one or
more defined benefit plans maintained by the Employer which were in existence on
May 6, 1986, the denominator of this fraction will not be less than 125 percent
of the sum of the annual benefits under such plans which the Participant had
accrued as of the close of the last Limitation Year beginning before January 1,
1987, disregarding any changes in the terms and conditions of the Plan after May
5, 1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of section 415 for
all limitation years beginning before January 1, 1987.
3.18 Defined Contribution Fraction: A fraction, the numerator of which is the
sum of the Annual Additions to the Participant's account under all the defined
contribution plans (whether or not terminated) maintained by the Employer for
the current and all prior Limitation Years (including the Annual Additions
attributable to the Participant's nondeductible Employee contributions to all
defined benefit plans, whether or not terminated, maintained by the Employer,
and the Annual Additions attributable to all Welfare Benefit Funds, as defined
in section 419(e) of the Code, and Individual Medical Accounts, as defined in
section 415(l)(2) of the Code, maintained by the Employer), and the denominator
of which is the sum of the maximum aggregate amounts for the current and all
prior limitation years of service with the Employer (regardless of whether a
defined contribution plan was maintained by the Employer). The maximum aggregate
amount in any Limitation Year is the lesser of 125 percent of the dollar
limitation determined under sections 415(b) and (d) of the Code in effect under
section 415(c)(1)(A) of the Code or 35 percent of the Participant's Compensation
for such year.
If the Employee was a Participant as of the end of the first day of the first
Limitation Year beginning after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of:
(a) the excess of the sum of the fractions over 1.0 times
(b) the denominator of this fraction, will be permanently subtracted
from the numerator of this fraction. The
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adjustment is calculated using the fractions as they would be computed
as of the end of the last Limitation Year beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the
Plan made after May 6, 1986, but using the section 415 limitation
applicable to the first Limitation Year beginning on or after January
1, 1987.
The annual addition for any Limitation Year beginning before January 1, 1987,
shall not be recomputed to treat all Employee contributions as annual additions.
3.19 Special Rules for Plans Subject to Overall Limitations Under Code Section
415(e).
(a) Recomputation Not Required: The Annual Addition for any Limitation
Year beginning before January 1, 1987, shall not be recomputed to treat
all Employee Contributions as an Annual Addition.
(b) Adjustment of Defined Contribution Plan Fraction: If the Plan
satisfied the applicable requirements of section 415 of the Code as in
effect for all Limitation Years beginning before January 1, 1987, an
amount shall be subtracted from the numerator of the defined
contribution plan fraction (not exceeding such numerator) as prescribed
by the Secretary of the Treasury so that the sum of the defined benefit
plan fraction and defined contribution plan fraction computed under
section 415(e)(1) of the Code does not exceed 1.0 for such Limitation
Year.
3.20 Excess Amount: The excess of the Participant's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
3.21 Highest Average Compensation: The average compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the Plan Year.
3.22 Limitation Year: A calendar year or the 12 consecutive month period elected
by the Employer in the Adoption Agreement. All qualified plans maintained by the
Employer must use the same Limitation Year. If the Limitation Year is amended to
a different 12 consecutive month period, the new Limitation Year must begin on a
date within the Limitation Year in which the amendment is made.
3.23 Projected Annual Benefits: The annual retirement benefit (adjusted to an
actuarially equivalent straight life annuity if such benefits are expressed in a
form other than a Straight Life Annuity or Qualified Joint and Survivor Annuity)
to which the Participant would be entitled under the terms of the Plan assuming:
(a) the Participant will continue employment until Normal Retirement
Age under the Plan (or current age, if later), and
(b) the Participant's compensation for the current Limitation Year and
all other relevant factors used to determine benefits under the Plan
will remain constant for all future Limitation Years.
3.24 Employer: For purposes of the Article, Employer shall mean the Employer
that adopts this Plan, and all members of a controlled group of corporations (as
defined in section 414(b) of the Internal Revenue Code as modified by section
415(h)), all commonly controlled trades or businesses (as defined in section
414(c) as modified by section 415(h)) or affiliated service groups (as defined
in section 414(m)) of which the adopting Employer is a part, and any other
entity required to be aggregated with the Employer pursuant to regulations under
section 414(o) of the Code.
3.25 Master or Prototype Plan: A plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
3.26 Defined Contribution Dollar Limitation: $30,000 or if greater, one-fourth
of the defined benefit dollar limitation set forth in section
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415(b)(1) of the Code as in effect for the Limitation Year.
ARTICLE IV
TOP-HEAVY PROVISION
Note: Provisions of Article IV shall apply only if the Plan is "Top-Heavy" as
defined in Article 4.4.
4.1 If the Plan is or becomes Top-Heavy in any Plan Year beginning after
December 31, 1983, the provisions of Article IV will supersede any conflicting
provisions in the Plan or Adoption Agreement.
4.2 Key Employee: Any Employee or former Employee (and the Beneficiaries of such
Employee) who at any time during the determination period was an officer of the
Employer, if such individual's annual Compensation exceeds 50 percent of the
dollar limitation under section 415(b)(1)(A) of the Code, an owner (or
considered an owner under section 318 of the Code) of one of the 10 largest
interests in the Employer if such individual's Compensation exceeds 100 percent
of such dollar limitation under section 415(c)(1)(A) of the Code, a 5 percent
owner of the Employer, or a 1 percent owner of the Employer who has annual
Compensation of more than $150,000. Annual Compensation means compensation as
defined in Article 3.16 of the Plan, but including amounts contributed by the
Employer pursuant to a salary reduction agreement which are excludable from the
Employee's gross income under section 125, section 402(e)(3), section
402(h)(1)(b), or section 403(b) of the Code.
The determination of who is a Key Employee will be made in accordance with
section 416(i)(1) of the Code and the regulations thereunder. The determination
period for purposes of this Article is the Plan Year containing the
Determination Date and the four (4) preceding Plan Years.
4.3 Non-Key Employee: Any Employee who is not a Key Employee as defined in
Article 4.2.
4.4 Top-Heavy Plan: For any Plan Year beginning after December 31, 1983, this
Plan is Top-Heavy if any of the following conditions exists:
(a) If the Top-Heavy Ratio for this Plan exceeds 60 percent and this
Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group of Plans.
(b) If this Plan is part of a Required Aggregation Group of plans but
not part of a Permissive Aggregation Group and the Top-Heavy Ratio for
the group of plans exceeds 60 percent.
(c) If this Plan is a part of a Required Aggregation Group and part of
a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the
Permissive Aggregation Group exceeds
60 percent.
4.5 Top-Heavy Ratio:
(a) If the Employer maintains one or more defined contribution plans
(including any Simplified Employee Pension Plan) and the Employer has
not maintained any defined benefit plan which during the five (5) year
period ending on the Determination Date(s) has or has had accrued
benefits, the Top-Heavy Ratio for this Plan alone or for the Required
or Permissive Aggregation Group as appropriate, is a fraction, the
numerator of which is the sum of the account balances of all Key
Employees as of the Determination Date(s) (including any part of any
account balance distributed in the five (5) year period ending on the
Determination Date(s)), and the denominator of which is the sum of all
account balances (including any part of any Account Balance distributed
in the five (5) year period ending on the Determination Date(s)), both
computed in accordance with section 416 of the Code and the regulations
thereunder.
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Both the numerator and denominator of the Top-Heavy Ratio are increased
to reflect any contribution not actually made as of the Determination
Date, but which is required to be taken into account on that date under
section 416 of the Code and the regulations thereunder.
(b) If the Employer maintains one or more defined contribution plans
(including any Simplified Employee Pension Plan) and the Employer
maintains or has maintained one or more defined benefit plans which
during the five (5) year period ending on the Determination Date(s) has
or has had any accrued benefits, the Top-Heavy Ratio for any Required
or Permissible Aggregation Group as appropriate is a fraction, the
numerator of which is the sum of account balances under the aggregated
defined contribution plan or plans for all Key Employees, determined in
accordance with (a) above, and the present value of accrued benefits
under the aggregated defined benefit plan or plans for all Key
Employees as of the Determination Date(s), and the denominator of which
is the sum of the account balances under the aggregated defined
contribution plan or plans for all Participants, determined in
accordance with (a) above, and the present value of accrued benefits
under the defined benefit plan or plans for all Participants as of the
Determination Dates, all determined in accordance with section 416 of
the Code and the regulations thereunder. The accrued benefits under a
defined benefit plan in both the numerator and denominator of the
Top-Heavy Ratio are increased for any distribution of an accrued
benefit made in the five (5) year period ending on the Determination
Date.
(c) For purposes of (a) and (b) above, the value of Account Balances
and the present value of accrued benefits will be determined as of the
most recent Valuation Date that falls within or ends with the 12 month
period ending on the Determination Date, except as provided in section
416 of the Code and the regulations thereunder for the first and second
Plan Years of a defined benefit plan. The Account Balances and accrued
benefits of a Participant
(1) who is not a Key Employee but who was a Key Employee in a prior
year, or
(2) who has not been credited with at least one Hour of Service with
any Employer maintaining the Plan at any time during the five (5) year
period ending on the Determination Date will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to which
distributions, rollovers, and transfers are taken into account, will be
made in accordance with section 416 of the Code and the regulations
thereunder. Deductible Employee Contributions will not be taken into
account for purposes of computing the Top-Heavy Ratio. When aggregating
plans, the value of the Account Balances and accrued benefits will be
calculated with reference to the Determination Dates that fall within
the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall be
determined under (i) the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the
Employer, or (ii) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of section 411(b)(1)(C) of the Code.
(d) Permissive Aggregation Group: The Required Aggregation Group of
plans plus any other plan or plans of the Employer which, when
considered as a group with the Required Aggregation Group, would
continue to satisfy the requirements of sections 401(a)(4) and 410 of
the Code.
(e) Required Aggregation Group:
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(1) Each qualified plan of the Employer in which at least one Key
Employee participates or participated at any time during the
determination period (regardless of whether the plan has terminated),
and
(2) Any other qualified plan of the Employer which enables a plan
described in (1) to meet the requirements of sections 401(a)(4) or 410
of the Code.
(f) Determination Date: For any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan Year. For the first Plan Year
of the Plan, the last day of that year.
(g) Present Value: Present value shall be based only on the interest
and mortality rates specified in the Adoption Agreement.
4.6 Minimum Allocation:
(1) Except as otherwise provided in (3) and (4) below, the Employer
Contributions and forfeitures allocated on behalf of any Participant
who is not a Key Employee shall not be less than the lesser of three
percent of such Participant's compensation or in the case where the
Employer has no defined benefit plan which designates this Plan to
satisfy section 401 of the Code, the largest percentage of Employer
Contributions and forfeitures, as a percentage of Key Employee's
compensation as limited by section 401(a)(17) of the code, allocated on
behalf of any Key Employee for that year. The minimum allocation is
determined without regard to any Social Security contribution. This
minimum allocation shall be made even though, under other plan
provisions, the Participant would not otherwise be entitled to receive
an allocation, or would have received a lesser allocation for the year
because of (i) the Participant's failure to complete 1,000 hours of
service (or any equivalent provided in the Plan), or (ii) the
Participant's failure to make mandatory Employee Contributions to the
Plan, or (iii) compensation less than a stated amount. The minimum
allocation required (to the extent required to be nonforfeitable under
section 416(b)) may not be forfeited under section 411(a)(3)(B) or
411(a)(3)(D).
(2) For purposes of computing the minimum allocation, compensation
shall mean compensation as defined in the Adoption Agreement as limited
by section 401(a)(17) of the Code.
(3) The provision in (1) above shall not apply to any Participant who
was not employed by the Employer on the last day of the Plan Year.
(4) The provision in (1) above shall not apply to any Participant to
the extent the Participant is covered under any other Plan or Plans of
the Employer and the Employer has provided in the Adoption Agreement
that the minimum allocation or benefit requirement applicable to
Top-Heavy plans will be met in the other Plan or Plans.
4.7 Compensation Limitation: For any Plan Year in which the Plan is Top-Heavy,
only the first $150,000 (or such larger amount as may be prescribed by the
Secretary or his delegate) of a Participant's annual Compensation shall be taken
into account for purposes of determining Employer contributions under the Plan.
4.8 Minimum Vesting Schedule: For any Plan Year in which this Plan is Top-Heavy,
one of the minimum vesting schedules as elected by the Employer in the Adoption
Agreement will automatically apply to the Plan. The minimum vesting schedule
applies to all benefits within the meaning of section 411(a)(7) of the Code
except those attributable to Employee contributions, including benefits accrued
before the effective date of section 416 and benefits accrued before the Plan
became Top-Heavy. Further, no decrease in a Participant's
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nonforfeitable percentage may occur in the event the Plan's status as Top-Heavy
changes for any Plan Year. However, this Article 4.8 does not apply to the
Account Balances of any Employee who does not have an Hour of Service after the
Plan has initially become Top-Heavy and such Employee's Account Balance
attributable to Employer contributions and forfeitures will be determined
without regard to this Article.
ARTICLE V
CONTRIBUTIONS
5.1 Employee Elective Deferrals: Each Participant may authorize the Employer to
reduce his/her compensation by the percentage indicated on the Adoption
Agreement (in lieu of receiving cash compensation), and to have such amount
deposited in the Participant Elective Deferral Account. Each eligible
Participant shall file a written election form with the Plan Administrator prior
to the date that he/she becomes a Participant specifying the portion of his/her
Compensation that is to be contributed to the Plan as an Elective Deferral. The
election of the Participant shall remain in effect unless a new election is
filed with the Plan Administrator. Any Participant election under this section
5.1 may not be made retroactively. Further, a participant may elect to commence,
modify or terminate Elective Deferrals during the thirty-day (30) period
immediately preceding the Plan's entry Date(s) defined in section 1.23 or such
other times as designated by the Plan Administrator. No Participant shall be
permitted to have Elective Deferrals made under this Plan, or any other
qualified plan maintained by the Employer, during any taxable year, in excess of
the dollar limitation contained in section 402(g) of the code in effect at the
beginning of such taxable year.
5.2 (a) Employer Matching Contributions: For each Eligible Employee who
authorizes Employee Elective Deferrals during the Plan Year, the Employer will
pay over to the Trustee an Employer Matching Contribution as set forth in the
Adoption Agreement. Employer Matching Contributions are subject to the
distribution provisions applicable to Employer Contributions in the underlying
plan document. The Employer Contributions will be considered made for a Plan
Year if made by the date specified in the applicable regulations and allocated
to a Participant's account for the Plan Year.
(b) Employer Qualified Matching Contribution: For each Eligible Employee who
authorizes Employee Elective Deferrals during the Plan Year, the Employer will
pay over to the Trustee an Employer Qualified Matching Contribution as set forth
in the Adoption Agreement. Employer Qualified Matching Contributions are subject
to the distribution and nonforfeitability requirements under section 401(k) of
the Code when made. The Qualified Matching Contributions will be considered made
for a Plan Year if made by the date specified in the applicable regulations and
allocated to a Participant's account for the Plan Year.
5.3 Profit Sharing Formula: If the Profit Sharing Formula is selected in the
Adoption Agreement, for each taxable year of the Employer, the Employer may
contribute to the Plan an amount which for each year, shall be determined at the
sole discretion of the Employer. All profit sharing contributions to the Plan
may be made without regard to current or accumulated earnings or profit of the
Employer for the taxable year or years ending within such year. Although the
Employer may contribute to this Plan irrespective of whether it has net profits,
the Employer intends the Plan to be a profit sharing plan for all purposes of
the Code. Notwithstanding the foregoing however, the Employer's contribution for
any taxable year shall not exceed the maximum amount allowable as a deduction to
the Employer under the provisions of Code Section 404. Contribution for a Plan
year shall be allocated to each eligible Employee who completed a year of
Service During such Plan year. At the election of the Employer on the Adoption
Agreement, an eligible Employee who completed a year of Service may also be
required to be employed on the last day of the Plan year in order to have
contributions allocated under this Article 5.3.
If elected on the Adoption Agreement, Employer contributions and forfeitures may
be integrated
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with social security contributions made on each participant's behalf.
This plan may not provide for permitted disparity if the Employer maintains any
other plan that provides for permitted disparity and benefits any of the same
participants.
Employer contributions for the plan year plus any forfeitures will be allocated
to participants' accounts as follows:
STEP ONE: Contributions and forfeitures will be allocated to each participant's
account in the ratio that each participant's total compensation bears to all
participant's total compensation, but not in excess of 3% of each participant's
compensation.
STEP TWO: Any contributions and forfeiture remaining after the allocation in
Step One will be allocated to each participant's account in the ratio that each
participant's compensation for the plan year in excess of the integration level
bears to the excess compensation of all participants, but not in excess of 3% of
each participant's compensation. For purposes of this Step Two, in the case of
any participant who has exceeded the Cumulative Permitted Disparity Limit
described below, such participant's total compensation for the Plan Year will be
taken into account.
STEP THREE: Any contributions and forfeitures remaining after the allocation in
Step Two will be allocated to each participant's account in the ratio that the
sum of each participant's total compensation and compensation in excess of the
integration level bears to the sum of all participants' total compensation and
compensation in excess of the integration level, but not in excess of the profit
sharing maximum disparity rate. For purposes of this Step Three, in the case of
any Participant who has exceeded the Cumulative Permitted Disparity Limit
described below, two times such participant's total Compensation for the Plan
Year will be taken into account.
STEP FOUR: Any remaining Employer contributions or forfeitures will be allocated
to each participant's account in the ratio that each participant's total
compensation for the plan year bears to all participants' total compensation for
that year.
The integration level shall be equal to the taxable wage base or such lesser
amount elected by the Employer in the Adoption Agreement. The taxable wage base
is the contribution and benefit base in effect under section 230 of the Social
Security Act at the beginning of the plan year.
Compensation shall mean compensation as defined in section 1.12 of the Plan.
Annual overall permitted disparity limit: Notwithstanding the preceding
paragraphs, for any Plan Year this plan benefits any Participant who benefits
under another qualified plan or simplified employee pension, as defined in
section 408(k) of the Code, maintained by the Employer that provides for
permitted disparity (or imputes disparity), Employer contributions and
forfeitures will be allocated to the account of each Participant who either
completes more than 500 Hours of Service during the Plan Year or who is employed
on the last day of the Plan Year in the ratio that such Participant's total
Compensation bears to the total Compensation of all Participants.
Cumulative permitted disparity limit: Effective for Plan years beginning on or
after January 1, 1995, the Cumulative Permitted Disparity Limit for a
participant is 35 total cumulative permitted disparity years. Total cumulative
permitted years means the number of years credited to the Participant for
allocation or accrual purposes under this Plan, any other qualified plan or
simplified employer pension plan (whether or not terminated) ever maintained by
the Employer. For purposes of determining the Participant's cumulative permitted
disparity limit, all years ending in the same calendar year are treated as the
same year. If the Participant has not benefitted under a defined benefit or
target benefit plan for any year beginning on or after January 1, 1994, the
Participant has no cumulative disparity limit.
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5.4 (a) General - The Employer may elect to make Qualified Nonelective
Contributions under the Plan on behalf of Employees as provided in the Adoption
Agreement. Allocation of Qualified Nonelective Contributions shall be made in
the ratio in which each Participant's Compensation for the Plan Year bears to
the total Compensation of all Participants for such Plan Year.
(b) Special - In lieu of distributing Excess Contributions as provided in
Article XI of the Plan, or Excess Aggregate Contributions as provided in Article
XII of the Plan, and to the extent elected by the Employer in the Adoption
Agreement, the Employer may make Special Qualified Nonelective Contributions on
behalf of Non-highly Compensated Employees that are sufficient to satisfy either
the Actual Deferral Percentage test or the Average Contribution Percentage test,
or both, pursuant to regulations under the Code. Allocation of Special Qualified
Nonelective Contributions shall be made to the accounts of only Non-highly
Compensated Participants and shall be made in the ratio in which each
Participant's Compensation for the Plan Year bears to the total Compensation of
all Participants for such Plan Year.
5.5 Transmitting of Contributions: All contributions transmitted to the Trust by
the Employer, shall be accompanied by written instructions from the Employer
specifying the Participants to whose account it is to be credited, the amounts
contributed by the Employer, the amounts of Voluntary Contributions contributed
by each Participant, and any other relevant information required by the Trustee.
The Trustee shall have no right or duty to inquire into the amount for any
contributions, but shall be accountable only for funds actually received by the
Trust.
5.6 Actual Deferral Percentage: For a specified group of Participants for a Plan
Year, the average of the ratios (calculated separately for each Participant in
such group) of:
(a) the amount of Employer contributions actually paid over to the
Trust on behalf of such Participant for the Plan Year to
(b) the Participant's Compensation for such Plan Year (whether or not
the Employee was a Participant for the entire Plan Year). Employer
contributions on behalf of any Participant shall include:
(1) any Elective Deferrals made pursuant to the Participant's deferral
election, including Excess Elective Deferrals, but excluding Elective
Deferrals that are taken into account in the Contribution Percentage
test (provided the ADP test is satisfied both with and without
exclusion of these Elective Deferrals); and
(2) at the election of the Employer, Qualified Nonelective
Contributions and Qualified Matching Contributions. For purposes of
computing Actual Deferral Percentages, an Employee who would be a
Participant but for the failure to make Elective Deferrals shall be
treated as a Participant on whose behalf no Elective Deferrals are
made.
The Actual Deferral Percentage (hereinafter "ADP") for Participants who are
Highly Compensated Employees for each Plan Year and the ADP for Participants who
are Non-highly Compensated Employees for the same Plan Year must satisfy one of
the following tests: (i) The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for Participants who are
Non-highly Compensated Employees for the same Plan Year multiplied by 1.25; or
(ii) The ADP for Participants who are Highly Compensated Employees for the Plan
Year shall not exceed the ADP for Participants who are Non-highly Compensated
Employees for the same Plan Year multiplied by 2.0, provided that the ADP for
Participants who are Highly Compensated Employees does not exceed the ADP for
Participants who are Non-highly Compensated Employees by more than two (2)
percentage points.
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In any Plan Year in which the elections by Eligible Employees would otherwise
cause the Elective Deferral Contribution to fail both of the tests described in
this Article, the Elective Deferral Contributions by Participants who are Highly
Compensated Employees shall be reduced to the extent necessary to satisfy at
least one of the tests.
The Percentage of Elective Deferrals for each Participant who is a Highly
Compensated Employee shall be the lesser of the percentage otherwise applicable
under this Article and Adoption Agreement or the adjusted maximum percentage
determined under this Article.
5.7 Special Rules
(a) The ADP for any Participant who is a Highly Compensated Employee
for the Plan Year and who is eligible to have Elective Deferrals (and
Qualified Nonelective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for purposes
of the ADP test) allocated to his/her accounts under two or more
arrangements described in section 401(k) of the Code, that are
maintained by the Employer shall be determined as if such Elective
Deferrals (and, if applicable, such Qualified Nonelective Contributions
or Qualified Matching Contributions, or both) were made under a single
arrangement. If a Highly Compensated Employee participates in two or
more cash or deferred arrangements that have different Plan Years, all
cash or deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement. Notwithstanding the
foregoing, certain plans shall be treated as separate if mandatorily
disaggregated under regulations under section 401(k) of the Code.
(b) In the event that this Plan satisfies the requirements of sections
401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such sections of the Code only if aggregated with this
Plan, then this Article shall be applied by determining the ADP of
Employees as if all such plans were a single Plan. For Plan Years
beginning after December 31, 1989, plans may be aggregated in order to
satisfy section 401(k) of the Code only if they have the same Plan
Year.
(c) For purposes of determining the ADP of a Participant who is a 5
percent owner or one of the 10 most highly-paid Highly Compensated
Employees, the Elective Deferrals (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if treated
as Elective Deferrals for purposes of the ADP test) and Compensation of
such Participant shall include the Elective Deferrals (and, if
applicable, Qualified Nonelective Contributions and Qualified Matching
Contributions, or both) and Compensation for the Plan Year of Family
Members, (as defined in section 414(q)(6) of the Code). Family Members
with respect to such Highly Compensated Employees, shall be disregarded
as separate Employees in determining the ADP both for Participants who
are Non-highly Compensated Employees and for Participants who are
Highly Compensated Employees.
(d) For purposes of determining the ADP test, Elective Deferrals,
Qualified Non-elective Contributions, and Qualified Matching
Contributions must be made before the last day of the 12 month period
immediately following the Plan Year to which contributions relate.
(e) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified Non-elective
Contributions or Qualified Matching Contributions, or both, used in
such test.
(f) The determination and treatment of the ADP amounts of any
Participant shall
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<PAGE>
satisfy such other requirements as may be prescribed by the Secretary
of the Treasury.
5.8 Hardship Withdrawals of Elective Deferrals: If elected by the Employer on
the Adoption Agreement, a distribution of Elective Deferrals (and earning
thereon accrued as of December 31, 1988) may be made to a Participant in the
event of hardship. For the purpose of this section, hardship is defined as an
immediate and heavy financial need of the Employee where such Employee lacks
other available resources. Hardship distributions are subject to the spousal
consent requirements contained in sections 401(a)(11) and 417 of the Code.
A Participant may withdraw amounts from his/her Elective Deferral Account by
transmitting a written request to the Employer at such times and in such a
manner as shall be prescribed by the Employer subject to the following
provisions:
(a) The following are the only financial needs considered immediate and
heavy:
(1) deductible medical expenses (within the meaning of section 213(d)
of the Code) of the Employee, the Employee's spouse, children, or
dependents;
(2) the purchase (excluding mortgage payments) of a principal residence
for the Employee;
(3) payment of tuition and related education fees for the next 12
months of post-secondary education for the Employee, the Employee's
spouse, children or dependents; or
(4) the need to prevent the eviction of the Employee from, or a
foreclosure on the mortgage of, the Employee's principal residence.
(b) A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
(1) the Employee has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all Plans maintained by
the Employer;
(2) all Plans maintained by the Employer provide that the Employee's
Elective Deferrals (and Employee Contributions) will be suspended for
12 months after the receipt of the hardship distribution;
(3) the distribution is not in excess of the amount of an immediate and
heavy financial need (including amounts necessary to pay any federal,
state or local income taxes or penalties reasonably anticipated to
result from the distribution); and
(4) all plans maintained by the Employer provide that the Employee may
not make elective deferrals for the Employee's taxable year immediately
following the taxable year of the hardship distribution in excess of
the applicable limit under section 402(g) of the Code for such taxable
year less the amount of such Employee's Elective Deferrals for the
taxable year of the hardship distribution.
Only one hardship withdrawal shall be permitted for each Participant during a
twelve (12) month period. The withdrawal shall be paid to the Participant as
soon as administratively feasible after the Participant's written request is
submitted to the Employer and the Participant's account shall be charged
accordingly as of such date. No makeup contributions are permitted.
5.9 Contributions Percentage (For Plans with Employer Matching Contributions):
The Average Contribution Percentage for Participants who are Highly Compensated
Employees for each Plan Year and the Average Contribution Percentage for
Participants who are Non-highly Compensated Employees for the
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same Plan year must satisfy one of the following tests:
(a) The Average Contribution Percentage for Eligible Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the
Average Contribution Percentage for Eligible Participants who are
Non-highly Compensated Employees for the Plan Year multiplied by 1.25;
or
(b) The Average Contribution Percentage of Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Participants who are Non-highly Compensated
Employees during the same Plan Year multiplied by 2, provided that the
Average Contribution Percentage for Participants who are Highly
Compensated Employees does not exceed the Average Contribution
Percentage for Participants who are Non-highly Compensated Employees by
more than two (2) percentage points.
5.10 Definitions:
(a) "Aggregate Limit" shall mean the sum of:
(1) 125 percent of the greater of the ADP of the Non-highly Compensated
Employees for the Plan Year or the ACP of Non-highly Compensated
Employees under the Plan subject to Code Section 401(m) for the Plan
Year beginning with or within the Plan Year of the CODA; and
(2) the lesser of 200 percent or two plus the lesser of such ADP or
ACP.
(3) "Lesser" is substituted for "greater" in "(1)" above, and "greater"
is substituted for "lesser" after "two plus the" in "(2)" if it would
result in a larger Aggregate Limit.
(b) "Average Contribution Percentage" shall mean the average of the
Contribution Percentages of the Eligible Participants in a group.
(c) "Contribution Percentage" shall mean the ratio (expressed as a
percentage) of the Participant's Contribution Percentage. Amounts to
the Participant's compensation for the Plan Year (whether or not the
Employee was a Participant for the entire Plan Year).
(d) "Contribution Percentage Amounts" shall mean the sum of the
Employee Contributions, Matching Contributions, and Qualified Matching
Contributions (to the extent not taken into account for purposes of the
ADP test) made under the Plan on behalf of the participant for the Plan
Year. Such Contribution Percentage Amounts shall not include matching
contributions that are forfeited either to correct Excess Aggregate
contributions or because the contributions to which they relate are
Excess Deferrals, Excess Contributions, or Excess Aggregate
Contributions. If so elected in the Adoption Agreement, the Employer
may include Qualified Nonelective Contributions in the Contribution
Percentage Amounts. The Employer also may elect to use Elective
Deferrals in the Contribution Percentage Amounts so long as the ADP
test is met before the Elective Deferrals are used in the ACP test and
continues to be met following the exclusion of these Elective Deferrals
that are used to meet the ACP test.
(e) "Eligible Participant" shall mean any Employee who is eligible to
make an Employee Contribution, or an Elective Deferral (if the Employer
takes such contributions into account in the calculation of the
Contribution Percentage), or to receive a Matching Contribution
(including forfeitures), or a Qualified Matching Contribution. If an
Employee Contribution is required as a
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condition of Participation in the Plan, any Employee who would be a
Participant in the Plan, if such Employee made such a contribution
shall be treated as an eligible Participant on behalf of whom no
Employee Contributions are made.
(f) "Employee Contribution" shall mean any contribution made to the
Plan by or on behalf of a Participant that is included in the
Participant's gross income in the year in which made and that is
maintained under a separate account to which earnings and losses are
allocated.
(g) "Matching Contribution" shall mean an Employer contribution made to
this or any other defined contribution plan on behalf of a Participant
on account of an Employee Contribution made by such Participant, or on
account of a Participant's Elective Deferral, under a Plan maintained
by the Employer.
5.11 Special Rules:
(a) Multiple Use: If one or more Highly Compensated Employees participate in
both a CODA and a plan subject to the ACP test maintained by the Employer and
the sum of the ADP and ACP of those Highly Compensated Employees subject to
either or both test exceeds the Aggregate Limit, then the ACP of those Highly
Compensated Employees who also participate in a CODA will be reduced (beginning
with such Highly Compensated Employee whose ACP is the highest) so that the
limit is not exceeded. The amount by which each Highly Compensated Employee's
Contribution Percentage Amounts is reduced shall be treated as an Excess
Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees are
determined after any corrections required to meet the ADP and ACP test. Multiple
use does not occur if both the ADP and ACP of the Highly Compensated Employees
does not exceed 1.25 multiplied by the ADP and ACP of the Non-highly Compensated
Employees.
(b) For purposes of this section, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible to have
Contribution Percentage Amounts allocated to his or her account under two or
more plans described in section 410(a) of the Code, or arrangements described in
section 401(k) of the Code that are maintained by the Employer, shall be
determined as if the total of such Contribution Percentage Amounts was made
under each plan. If a Highly Compensated Employee participates in two or more
cash or deferred arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar year shall be
treated as a single arrangement. Notwithstanding the foregoing, certain plans
shall be treated as separate if mandatorily disaggregated under regulations
under section 401(m) of the Code.
(c) In the event that this Plan satisfies the requirements of sections 401(m),
401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of such sections of the
Code only if aggregated with this Plan, then this section shall be applied by
determining the Contribution Percentage of Employees as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy section 401(m) of the Code only if they have the
same Plan Year.
(d) For purposes of determining the Contribution Percentage of a Participant who
is a five percent owner or one of the ten most highly paid Highly Compensated
Employees, the Contribution Percentage Amounts and Compensation of such
Participant shall include the Contribution Percentage Amounts and Compensation
for the Plan Year of Family Members (as defined in section 414(q)(6) of the
Code). Family Members, with respect to Highly Compensated Employees, shall be
disregarded as separate Employees in determining the Contribution Percentage
both for Participants who are Non-highly Compensated Employees and for
Participants who are Highly Compensated Employees.
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(e) For purposes of determining the Contribution Percentage test, Employee
Contributions are considered to have been made in the Plan Year in which
contributed to the Trust. Matching Contributions and Qualified Non-elective
Contributions will be considered made for a Plan Year if made no later than the
end of the twelve (12) month period beginning on the day after the close of the
Plan Year.
(f) The Employer shall maintain records sufficient to demonstrate satisfaction
of the ACP test and the amount of Qualified Non-elective Contributions or
Qualified Matching Contributions, or both, used in such test.
(g) The determination and treatment of the Contribution Percentage of any
Participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
5.12 Control of Trade or Business by the Owner-Employee: If this Plan provides
contributions or benefits for one or more Owner-Employees who control both the
business for which the Plan is established and one or more other trades of
business, this Plan and the Plan established for other trades or businesses
must, when looked at as a single Plan, satisfy 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 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 trades or businesses which are controlled must be as favorable as
those provided for him/her 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 incorporated trade or business, or
(b) in the case of a partnership, own more than 50 percent of either
the capital interest or the profit interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees, shall be treated as owning an interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employee, are considered to control within the meaning of
the preceding sentence.
5.13 Timing of Contribution: Any contribution of the Employer in respect of any
Plan Year shall be paid to the Trust in one or more installments not later than
the time prescribed by law for filing the Employer's federal income tax returns,
including extensions thereof.
5.14 Forfeitures: Pursuant to the Employer's election on the Adoption Agreement,
forfeitures will be either re-allocated in the ratio that the Compensation of
each Participant bears to that of all Participants or used to reduce Employer
contributions for the next Plan Year.
5.15 Forfeitures-Withdrawal of Employee Contributions: No forfeitures will occur
solely as a result of an Employee's withdrawal of Employee contributions.
5.16 Reinstatement of Benefit: If a benefit is forfeited because the Participant
or Beneficiary cannot be found, such benefit will be reinstated if a claim is
made by the Participant or Beneficiary.
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5.17 No loss of Employee Contributions: In no event, can the Employer terminate
the rights of the Participant or the Participant's Beneficiary to the Account
Balance of the Participant's Voluntary Benefit Account.
5.18 Separate Accounting: The Trustee will maintain a separate account for each
Employee to which will be credited the Employer contributions and earnings
thereon.
5.19 Annual overall permitted disparity limit: Notwithstanding the preceding
paragraphs, for any Plan year this Plan benefits any Participant who benefits
under another qualified plan or simplified employee pension, as defined in
section 408(k) of the Code, maintained by the Employer that provides for
permitted disparity (or imputes disparity), Employer contributions and
forfeitures will be allocated to the account of each Participant who meets the
requirements for receiving an Employer contribution, as listed on the Adoption
Agreement, in the ratio that such Participant's total Compensation bears to the
total Compensation of all Participants.
Cumulative permitted disparity limit: Effective for Plan Years beginning on or
after January 1, 1995, the cumulative permitted disparity limit for a
Participant is 35 total cumulative permitted disparity years. Total cumulative
permitted years means the number of years credited to the Participant for
allocation or accrual purposes under this Plan, any other qualified plan or
simplified employee pension plan (whether or not terminated) ever maintained by
the Employer. For purposes of determining the Participant's cumulative permitted
disparity limit, all years ending in the same calendar year are treated as the
same year. If the Participant has not benefitted under a defined benefit or
target benefit plan for any year beginning on or after January 1, 1994, the
Participant has no cumulative disparity limit.
Compensation shall mean compensation as defined in Article 3.16 of the Plan.
5.20 The provisions of the CODA may be made effective as of the first day of the
Plan Year in which the CODA is adopted. However, under no circumstances may a
salary reduction agreement or other deferral mechanism be adopted retroactively.
5.21 An Employee's eligibility to make Elective Deferrals under CODA may not be
conditioned upon the completion of more than one (1) Year of Service or the
attainment of more than age twenty-one (21). No contributions or benefits (other
than Matching Contributions or Qualified Matching Contributions) may be
conditioned upon an Employee's Elective Deferrals.
ARTICLE VI
PARTICIPANT'S ACCOUNTS
6.1 Master Employer Directed Account: Pursuant to the Employer's election on the
Adoption Agreement to establish a Master Employer Directed Account, the Trustee
shall set up a single Master Employer Directed Account with subaccounting for
each Participant. The contributions for the year shall be credited to the
account at the time the contribution is made, but in any event not later than
2-1/2 months after the end of the Plan Year (or the date of the Employer tax
filing) with respect to which contribution is made or such other times as
provided in the applicable regulations under the Code.
6.2 Employee Directed Account: Pursuant to the Employer's election on the
Adoption Agreement to establish Employee Directed Accounts, the Trustee shall
set up an Employee Directed Account for each Participant. The contributions for
the year shall be allocated to the Employee Directed Accounts at the time the
contribution is made, not later than 2 1/2 months (or the date of the Employer
tax filing) following the end of the Plan Year with respect to which the
contribution is made or such other time as provided in the applicable
regulations under the Code.
6.3 Establishment of Participant Accounts, Employer Matching Account, and
Employer Optional Contribution Accounts: The amount deferred by Participant
under Article V shall be turned over to the Trustee to be held in the Employee
Directed Account or Master Employer Directed Account(s) for the Participant
called a Participant
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Cash Deferral Account. The amount deferred by each Participant shall always be
nonforfeitable The Amount contributed, if any, by the Employer on behalf of each
Participant will be turned over to the Trustee to be held in an account(s) or
subaccounts for the Participant called an Employer Matching Account or Employer
Optional Contributions Account.
Contributions by each Participant shall be allocated to an individual or
subaccount established for him/her when such contributions are made
Contributions by the Employee shall be made no later than 30 days after the Plan
Year or such other time as provided in the applicable regulations under the
Code.
6.4 Computing Vested Interest:
(a) Except as noted in the Adoption Agreement, all Years of Service
shall be included for determining vested interest.
(b) For purposes of computing an Employee's non-forfeitable right to
the Account Balance derived from Employer contributions, Years of
Service and Breaks in Service will be measured by the Plan Year.
6.5 Vested Break in Service:
(a) 1 Year Holdout: In the case of a Participant who has incurred a
one-year Break in Service, Years of Service before such break will not
be taken into account until the Participant has completed a Year of
Service after such Break in Service.
(b) Vesting in Pre-Break and Post-Break Account: In the case of a
Participant who has five (5) or more consecutive one-year Breaks in
Service, all service after such Breaks in Service will be disregarded
for the purpose of vesting the Employer-derived Account Balance that
accrued before such Breaks in Service.
Such Participant's pre-break will count in vesting for the post-break
Employer-derived accrued benefit only if either:
(1) such Participant has any nonforfeitable interest in the accrued
benefit attributable to the Employer contributions at the time of
separation from service, or
(2) upon returning to service the number of consecutive one-year Breaks
in Service is less than the number of years of Service.
Separate accounts will be maintained for the Participant's pre-break
and post-break Employer-derived Account Balance Both accounts will
share in the earnings and losses of the fund.
(c) Vesting Break in Service - Rule of Parity: In the case of a
Participant who has five or more consecutive one-year Breaks in
Service, the Participant's pre-break service will count in vesting of
the Employer-derived accrued benefit only if either:
(1) such Participant has any nonforfeitable interest in the accrued
benefit attributable to the Employer contributions at the time of
separation from service, or
(2) upon returning to service the number of consecutive one-year Breaks
in Service is less than the number of years of Service.
(d) In order to determine the vested interest of a Participant after a
Break in Service, the following shall apply:
(1) If the Employer has elected in the Adoption Agreement to credit
Service based on Elapsed Time, then, for purposes of the vesting
schedule selected in the Adoption Agreement, the
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crediting of Service shall be subject to the following:
(a) If a Participant who has voluntarily terminated employment or has
been discharged by the Employer returns to employment and is credited
with an Hour of Service on or before incurring a Period of Severance
(consisting of less than 12 consecutive months), the Participant will
receive credit for the time elapsed during such absence;
(b) If a Participant is absent for a reason other than termination or
discharge and then voluntarily terminates or is discharged, the date on
which the Participant must first be credited with an Hour of Service to
receive credit for the time elapsed during such absence is the first
anniversary of the first day of absence;
(c) If a Participant has a Period of Severance of five (5) years or
more, then Service after such Period of Severance shall not be taken
into account for purposes of determining the nonforfeitable percentage
of the Participant's Accrued Benefit derived from Employer
Contributions which accrued prior to such Period of Severance.
(2) If the Employer has elected in the Adoption Agreement to credit
Service based on Hours of Service and Years of Service, then, for
purposes of the vesting schedule selected in the Adoption Agreement,
the crediting of Service shall be determined as follows:
(a) In the case of a participant who has five (5) consecutive one-year
Breaks in Service, all years of Service after such breaks in Service
shall be disregarded for purposes of determining the participant's
Vested Accrued Benefit derived from Employer Contributions which
accrued before such breaks, but both pre-break and post-breaks Service
shall count for purposes of determining the Participant's vested
Accrued Benefit derived from Employer Contributions accruing after such
breaks. Both accounts shall share in the earnings and losses of the
Trust;
(b) In the case of a Participant who does not have five (5) consecutive
one-year Breaks in Service, both the pre-break and post-break Service
shall count in determining both the Participant's pre-break and
post-break Vested Accrued Benefit derived from Employer Contributions.
6.6 Vesting on Distribution Before Break in Service.
(a) If an Employee terminates service, and the value of the Employee's
vested Account Balance derived from Employer and Employee contributions
is not greater then $3,500, the Employee will receive a distribution of
the value of the entire vested portion of such Account Balance and the
nonvested portion will be treated as a forfeiture. For purposes of this
Article, if the value of an Employee's vested Account Balance is zero,
the Employee shall be deemed to have received a distribution of such
vested Account Balance. A Participant's vested Account Balance shall
not include accumulated deductible employee contributions within the
meaning of section 72(o)(5)(B) of the Code for Plan Years beginning
prior to January 1, 1989.
(b) If an Employee terminates service, and elects (with his or her
spouse's consent) to receive the value of the Employee's vested Account
Balance, the nonvested portion will be treated as a forfeiture. If the
Employee elects to have distributed less than the entire vested portion
of the Account Balance derived from Employer contributions, the part of
the nonvested portion of such account that will be treated as a
forfeiture is the total nonvested portion multiplied by a
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fraction, the numerator of which is the amount of the distribution
attributable to Employer contributions and the denominator of which is
the total value of the vested Employer-derived Account Balance.
(c) If an Employee receives or is deemed to receive a distribution
pursuant to this Article and the Employee resumes employment covered
under this Plan, the Employee's Employer-derived Account Balance will
be restored to the amount on the date of the distribution, if the
Employee repays to the Plan the full amount of the distribution
attributable to Employer contributions before the earlier of five (5)
years after the first date on which the Participant is subsequently
re-employed by the Employer or the date the Participant incurs five (5)
consecutive one-year Breaks in Service following the date of the
distribution. If an Employee is deemed to receive a distribution
pursuant to this Article, and the Employee resumes employment covered
under this Plan before the date the Participant incurs five (5)
consecutive one-year Breaks in Service, upon the reemployment of such
Employee, the Employer-derived Account Balance of the Employee will be
restored to the amount on the date of such deemed distribution.
(d) If the value of a Participant's vested Account Balance derived from
Employer and Employee contributions exceeds (or at the time of any
prior distribution exceeded) $3,500, and the Account Balance is
immediately distributable, the Participant and the Participant's spouse
(or where either the Participant or the spouse has dies, the survivor)
must consent to any distribution of such Account Balance The consent of
the Participant and the Participant's spouse shall be obtained in
writing within the 90-day period ending on the Annuity Starting Date.
The Annuity Starting Date is the first day of the first period for
which an amount is paid in an annuity or any other form. The Plan
Administrator shall notify the Participant and the Participant's spouse
of the right to defer any distribution until the Participant's Account
Balance is no longer immediately distributable. Such 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 that would satisfy the notice
requirements of Code Section 417(a)(3), and shall be provided no less
than 30 days and no more than 90 days prior to the Annuity Starting
Date. However, distribution may commence less than 30 days after the
notice described in the preceding sentence is given, provided the
distribution is one to which sections 401(a)(11) and 417 of the
Internal Revenue Code do not apply, the Plan Administrator clearly
informs the Participant that the Participant has a right to a period of
at least 30 days after receiving the notice to consider the decision of
whether or not to elect a distribution option, (and, if applicable, a
particular distribution option), and the Participant, after receiving
the notice, affirmatively elects a distribution.
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 Account Balance is immediately distributable. (Furthermore, if
payment in the form of a Qualified Joint and Survivor Annuity is not required
with respect to the Participant pursuant to Article XX of the Plan, only the
Participant need to consent to the distribution of an Account Balance that is
immediately distributable.) Neither the consent of the Participant nor the
Participant's spouse shall be required to the extent that a distribution is
required to satisfy section 401(a)(9) or section 415 of the Code. In addition,
upon termination of this Plan if the Plan does not offer an annuity option
(purchased from a commercial provider), and if the Employer or any entity within
the
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same controlled group as the Employer does not maintain another defined
contribution (other than an employee stock ownership plan as defined in section
4975(e)(7) of the Code), the Participant's Account Balance will, without the
Participant's consent be distributed to the Participant. However, if any entity
within the same controlled group as the Employer maintains another defined
contribution plan (other than an Employee Stock Ownership Plan as defined in
section 4975(e)(7) of the Code), then the Participant's Account Balance will be
transferred, without the Participant's consent, to the other plan if the
Participant does not consent to an immediate distribution.
An Account Balance is immediately distributable if any part of the Account
Balance could be distributed to the Participant (or surviving spouse) before the
Participant attains (or would have attained if not deceased), the later of
Normal Retirement Age or age 62. For purposes of determining the applicability
of the foregoing consent requirements to distributions made before the first day
of the first Plan Year beginning after December 31, 1988, the Participant's
vested Account Balance shall not include amounts attributable to accumulated
deductible employee contributions within the meaning of section 72(o)(5)(B) of
the Code.
ARTICLE VII
VALUATION
7.1 Valuations: The assets of the Plan will be valued annually at fair market
value as of the last day of the Plan Year. On such date, the earnings and losses
of the Plan will be allocated to each Participant's account in the ratio that
such Account Balance bears to all account balances. Such Valuations may consist
of copies of regularly issued broker-dealer statements, copies of insurance
company summary account statements and copies of account statements representing
other lawful trust investment administratively acceptable to the Trustee,
including, but not limited to mutual fund statements. For purposes of this
Article, the Trustee's determination shall be final and conclusive.
7.2 Allocation: Net income or net loss shall be ascertained by the Employer or
agent and shall mean the profits (from sales of assets) and income actually
realized and received less any losses and expenses actually incurred and paid
plus any net increases or minus any net decreases in the value of the assets
even though not actually realized or received or incurred and paid; provided
that in valuing the assets of each Participant's Account in the Trust, expenses
of liquidation shall be considered.
A Participant's Account Balance shall be adjusted as of each Valuation Date, in
accordance with this Article, based on the performance of the investment fund or
funds selected by the Participant. Any adjustment of Account Balances for
appreciation or depreciation of an investment fund shall be deemed to have been
made as of the Valuation Date on which the adjustment relates, notwithstanding
they are actually made as of a later date.
7.3 Accounting for the Allocations: The Trustee may establish accounting
procedures for the purpose of making allocations, valuations, and adjustments to
the Participant's Accounts provided for in this Article. From time to time, the
Trustee may modify its accounting procedures for the purpose of achieving
equitable and nondiscriminatory allocations among the Accounts of Participants
in accordance with the general concepts of the Plan and the provisions of this
Article.
7.4 Additional Employer Contributions: If, with respect to any Plan Year, any
Participant's Account is credited with an incorrect amount of Employer
Contributionsor earnings to which such Participant is entitled under the Plan,
or if an error is made with respect to the investment of the assets of the Trust
Fund, which error results in an incorrect amount being credited to a
Participant's Account, remedial action may be taken in accordance with this
paragraph In such event, the Plan may adjust such account balances which would
have existed had no such error been made Further, the Employer may make
additional contributions to the Account of
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any affected participant to place the affected Participant's Account in the
position that would have existed if the error had not been made. Any Account
adjustments or additional contributions made under this section of the Plan
shall be made on a uniform and non-discriminatory basis.
ARTICLE VIII
INVESTMENTS
8.1 Employee Directed Accounts: Pursuant to the Participant's direction or the
direction of their designated Agent, the Trustee shall invest and reinvest all
or any part of the Participant's Employee Directed Account, and/or Voluntary
Benefit Account in:
(a) securities obtainable through a stockbroker selected by the
Employer and approved by the Trustee either "over the counter" or on a
recognized exchange. This Plan allows the acquisition or holding of
qualifying Employer securities or qualifying Employer real property
which are administratively acceptable to the Trustee,
(b) life insurance, endowment, or annuity contracts,
(c) limited partnership investments (value of such limited partnerships
cannot exceed the vested value of the Participant's Employee Directed
Account),
(d) other lawful trust investments, which are administratively
acceptable to the Trustee,
(e) any combination of the above, without any duty to diversify.
Identification of an investment as administratively acceptable or not
administratively acceptable does not constitute a determination by the
Trustee of the prudence or advisability of the investment nor does the
Trustee provide investment advice, recommend, or evaluate the merits or
suitability of any investment.
The Plan Administrator may adopt rules applied on an equitable and
nondiscriminatory basis regarding the transfer of assets to and/or from any
investment funds selected by the Participant. All investment transfers of assets
must be initiated by a written election submitted by the Participant to the Plan
Administrator. The Plan Administrator shall direct the Trustee to transfer
moneys or other property from the appropriate investment fund(s) to the other
investment fund(s). Such transfer shall be processed in accordance with uniform
rules therefore established by the Plan Administrator, as soon as
administratively feasible after the Participant's written request is submitted
to the Plan Administrator.
8.2 Master Employer Directed Account: Pursuant to the direction of the Employer
indicated on the Adoption Agreement or the Employer's designated Agent, the
Trustee shall invest and reinvest all or any part of the Trust Fund in:
(a) securities obtainable through the brokerage firm named in the
Adoption Agreement (or any other stockbroker selected by the Employer
and approved by the Trustee) either "over the counter" or on a
recognized exchange. This Plan allows the acquisition or holding of
qualifying Employer securities or qualifying Employer real property
which are administratively acceptable to the Trustee,
(b) life insurance endowment or annuity contracts,
(c) other lawful trust investments, which are administratively
acceptable to the Trustee, or
(d) any combination of the above. Identification of an investment as
administratively acceptable or not administratively acceptable does not
constitute a determination by the Trustee
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of the prudence or advisability of the investment nor does the Trustee
provide investment advice, recommend, or evaluate the merits or
suitability of any investment.
8.3 Investment of Voluntary Benefit Account: The accounting of all Voluntary
Benefit Accounts shall be kept separate from Employee Directed Account or Master
Employer Directed Account. The investment of Voluntary Benefit Account shall be
directed by the Participant in accordance with Article 8.1 above, if applicable.
ARTICLE IX
VOLUNTARY CONTRIBUTIONS
9.1 Right to Make Voluntary Contributions: Each Employee who is a Participant
and who renders service during the year, may elect to make Voluntary
Contributions hereunder, if the right to make such contributions is indicated on
the Adoption Agreement. Such contributions shall be credited by the Trustee when
received to a separate Voluntary Benefit Account maintained for the Participant
in the Trust.
9.2 Amount of Voluntary Contributions: The Participant will, in no event, be
permitted to make Voluntary Contributions which, in the aggregate, exceed 10
percent of his/her Compensation while a Participant in this Plan or any other
Plan of the Employer qualified under Section 401(a) of the Internal Revenue
Code. However, regardless of the 10 percent limitation referenced above, the
amount of Voluntary Contributions the Participant is permitted to make will be
subject to the Average Contribution Percentage test described in Article 5.9.
9.3 Election to Make Voluntary Contribution: A Participant shall elect to make
Voluntary Contributions in any manner approved by the Employer which is
consistent with the orderly administration of the Plan. The percentage of amount
specified in the election shall be withheld by the Employer from the paychecks
of each such electing Participant and turned over to the Trustee. The election
may be revoked in any manner determined by the Employer. A subsequent election
to contribute or a change in the basis of contribution may be made only as
provided for in an original election. The Employer may, from time to time,
permit Participants to make Voluntary Contributions other than withholding
Voluntary Contributions and earnings therein will be nonforfeitable at all
times.
9.4 Benefits Payable from Voluntary Contributions: Each Participant shall have a
fully vested and nonforfeitable right to his/her Voluntary Benefit Account. The
Account Balance shall be paid to the Participant upon retirement, death,
disability, or other termination of Employment in the form prescribed by in
Article XIV.
9.5 Withdrawals from Voluntary Benefit Account: With no less than 90 days
advance notice to the Employer effective when delivered to the Employer, a
Participant may withdraw all or any portion of his Voluntary Contribution
Account and the actual earnings thereon. If the Plan maintains sub-accounts with
respect to Voluntary Contributions (and earnings thereon) which were made on or
before a specified date, a Participant shall be permitted to designate which
sub-account shall be the source of his withdrawal. The amount of the withdrawal
shall not exceed the lesser of:
(a) the aggregate amount of such contributions but not including any
earnings (including capital appreciation) thereon; or
(b) the value of the Participant's Voluntary Benefit Account.
The notice required by this Article shall be in writing and shall specify the
amount to be withdrawn in percentage of total Account Balance as of the
effective date of the notice or shall be given in some other suitable manner.
Such notice shall not be revocable or amendable after delivery to the Employer;
provided, however, that it shall be revoked automatically upon retirement,
termination of employment for reason of disability or otherwise, or death of the
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Participant prior to its effective date. The amount withdrawn shall be paid by
the Trustee in cash, or in kind, as permissible by the Plan, to the withdrawing
Participant and shall be charged to the Participant's Voluntary Benefit Account
as the date of withdrawal. Notwithstanding any other condition set forth in this
Article, a Participant must obtain the consent of his or her spouse, if any,
within the 90 day period prior to any withdrawal from the Participant's
Voluntary Benefit Account.
9.6 The Plan will not allow or accept deductible employee contributions. In
addition, deductible contributions may not be transferred/rolled over to this
plan.
ARTICLE X
DISTRIBUTION OF EXCESS DEFERRALS
10.1 A Participant may assign to this Plan any Excess Elective Deferrals made
during a taxable year of the Participant by notifying the Plan Administrator on
or before the date specified in Article 10.3 of the amount of the Excess
Elective Deferrals to be assigned to the Plan. Notwithstanding any other
provision of the Plan, Excess Elective Deferrals, plus any income and minus any
loss allocable thereto, shall be distributed no later than April 15 to any
Participant to whose account Excess Elective Deferrals were assigned for the
preceding year and who claims excess Elective Deferrals for such taxable year. A
participant is deemed to notify the Plan Administrator of any Excess Elective
Deferrals that arise by taking into account only those Elective Deferrals made
to this Plan and any other plans of the Employer.
10.2 Definitions:
(a) "Elective Deferrals" for purposes of this Article shall mean any
Employer contributions made to the Plan at the election of the
Participant, in lieu of cash compensation, and shall include
contributions made pursuant to a salary reduction agreement or other
deferral mechanism. With respect to any taxable year, a Participant's
Elective Deferral is the sum of all Employer contributions made on
behalf of such Participant pursuant to an election to defer under any
qualified CODA as described in section 401(k) of the Code, any
simplified, simplified Employee pension cash or deferred arrangement as
described in Section 402(h)(1)(B), any eligible deferred compensation
plan under Section 457, any plan as described under Code Section
501(c)(18), and any Employer contributions made on the behalf of a
Participant for the purchase of an annuity contract under Section
403(b) pursuant to a salary reduction agreement. Elective deferrals
shall not include any deferrals properly distributed as excess annual
additions.
(b) "Excess Elective Deferrals" shall mean those Elective Deferrals
that are includable in a Participant's gross income under section
402(g) of the Code to the extent such Participant's Elective Deferrals
for a taxable year exceed the dollar limitation under such Code
section. Excess Elective Deferrals shall be treated as Annual Additions
under the Plan, unless such amounts are distributed no later than the
first April 15 following the close of the Participant's taxable year.
10.3 Claims: The Participant's claim shall be in writing; shall be submitted to
the Plan Administrator no later than March 1; shall specify the Participant's
Excess Deferral Amount for the preceding calendar year; and shall be accompanied
by the Participant's written statement that if such amounts are not distributed,
such Excess Deferral Amounts, when added to amounts deferred under other plans
or arrangements described in sections 401(k), 408(k) or 403(b) of the Code,
exceeds the limit imposed on the Participant by section 402(g) of the Code for
the year in which the deferral occurred.
10.4 Determination of Income or Loss: Excess Elective Deferrals shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess Elective Deferrals is the sum of:
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(a) income or loss allocable to the Participant's Elective Deferral
account for the taxable year multiplied by a fraction, the numerator of
which is such Participant's Excess Elective Deferrals for the year and
the denominator is the Participant's account balance attributable to
Elective Deferrals without regard to any income or loss occurring
during such taxable year; and
(b) ten percent of the amount determined under (a) multiplied by the
number of whole calendar months between the end of the Participant's
taxable year and the date of distribution, counting the month of
distribution if distribution occurs after the 15th of such month.
ARTICLE XI
DISTRIBUTION OF EXCESS CONTRIBUTIONS
11.1 Notwithstanding any other provision of this Plan, Excess Contributions,
plus any income and minus any loss allocable thereto, shall be distributed no
later than the last day of each Plan Year to Participants to whose accounts such
Excess Contributions were allocated for the preceding Plan Year. If such excess
amounts are distributed more than 2 1/2 months after the last day of the Plan
Year in which such excess amounts arose, a ten (10) percent excise tax will be
imposed on the Employer maintaining the Plan with respect to such amounts. Such
distributions shall be made to Highly Compensated Employees on the basis of the
respective portions of the Excess Contributions attributable to each of such
employees. Excess Contributions shall be allocated to Participants who are
subject to the family member aggregation rules of section 414(q)(6) of the Code
among the family members in proportion to the Elective Deferrals (and amounts
treated as Elective Deferrals) of each family member that is combined to
determine the combined Actual Deferral Percentage. Excess Contributions
(including amounts recharacterized) shall be treated as Annual Additions under
the Plan.
11.2 Excess Contributions shall mean, with respect to any Plan Year, the excess
of:
(a) The aggregate amount of Employer contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such
Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of the ADPs, beginning with the highest
of such percentages).
11.3 Determination of Income or Loss: The Excess Contributions shall be adjusted
for income or loss up to the date of distribution. The income or loss allocable
to Excess Contributions is the sum of:
(a) income or loss allocable to the Participant's Elective Deferral
Account (and, if applicable, the Qualified Non-elective Contribution
Account or the Qualified Matching Contributions Account or both) for
the Plan Year multiplied by a fraction, the numerator of which is such
Participant's Excess Contributions for the year and the denominator is
the Participant's Account Balance attributable to Elective Deferrals
(and Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, if any of such contributions are included in
the ADP test) without regard to any income or loss occurring during
such Plan Year; and
(b) ten percent of the amount determined under (a) multiplied by the
number of whole calendar months between the end of the Plan Year and
the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
11.4 Accounting for Excess Contributions: Excess Contributions shall be
distributed from
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the Participant's Elective Deferral Account and Qualified Matching Contribution
Account (if applicable) in proportion to the Participant's Elective Deferrals
and Qualified Matching Contributions (to the extent used in the ADP test) for
the Plan Year. Excess Contributions shall be distributed from the Participant's
Qualified Non-elective Contribution Account only to the extent that such Excess
Contributions exceed the balance in the Participant's Elective Deferral Account
and Qualified Matching Contribution Account.
11.5 Recharacterization: If the Employer has elected on the Adoption Agreement
to allow Participants to make Voluntary Contributions, a Participant may treat
his or her Excess Contributions as an amount distributed to the Participant and
then contributed by the Participant to the Plan. Recharacterized amounts will
remain nonforfeitable and subject to the same distribution requirements as
Elective Deferrals. Amounts may not be recharacterized by a Highly Compensated
Employee to the extent that such amount in combination with other Employee
Contributions made by the Employee would exceed any stated limit under the Plan
on Employee Contributions.
Recharacterization must occur no later than 2 1/2 months after the last day of
the Plan Year in which such Excess Contributions arose and is deemed to occur no
earlier than the date the last Highly Compensated Employee is informed in
writing of the amount recharacterized and the consequences thereof.
Recharacterized amounts will be taxable to the Participant for the Participant's
tax year in which the Participant would have received them in cash.
ARTICLE XII
DISTRIBUTION OF EXCESS
AGGREGATE CONTRIBUTIONS
12.1 Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall be
forfeited, if forfeitable, or if not forfeitable, distributed no later than the
last day of each Plan Year to Participants to whose accounts such Excess
Aggregate Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions of Participants who are subject to the family member
aggregation rules shall be allocated among the family members in proportion to
the Employee and Matching Contributions (or amount treated as Matching
Contributions) of each family member that is combined to determine the combine
ACP. If such Excess Aggregate Contributions are distributed more than 2 1/2
months after the last day of the Plan Year in which such excess amounts arose, a
ten (10) percent excise tax will be imposed on the Employer maintaining the Plan
with respect to those amounts. Excess Aggregate Contributions shall be treated
as Annual Additions under the Plan.
12.2 Excess Aggregate Contributions shall mean, with respect to any Plan Year,
the excess of:
(a) The aggregate Contribution Percentage Amounts taken into account in
computing the numerator of the Contribution Percentage actually made on
behalf of Highly Compensated Employees for such Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted by the
Average Contribution Percentage test (determined by reducing
contributions made on behalf of Highly Compensated Employees in order
of their contribution percentages beginning with the highest of such
percentages). Such determination shall be made after first determining
Excess Elective Deferrals pursuant to Article X and then determining
Excess Contributions pursuant to Article XI.
12.3 Determination of Income or Loss: Excess Aggregate Contributions shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess Aggregate Contributions is the sum of:
(a) income or loss allocable to the Participant's Employee Contribution
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Account, Matching Contribution Account, Qualified Matching Contribution
Account (if any, and if all amounts therein are not used in the ADP
test) and, if applicable, Qualified Non-elective Contribution Account
and Elective Deferral Account for the Plan Year multiplied by a
fraction, the numerator of which is such Participant's Excess Aggregate
Contributions for the year and the denominator is the Participant's
Account Balance(s) attributable to Contribution Percentage Amounts
without regard to any income or loss occurring during such Plan Year;
and
(b) ten percent of the amount determined under (a) multiplied by the
number of whole calendar months between the end of the Plan Year and
the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
12.4 Accounting for Excess Aggregate Contributions: Excess Aggregate
Contributions shall be distributed from the Participant's Employee Contribution
Account, and forfeited if otherwise forfeitable under the terms of the Plan (or,
if not forfeitable, distributed) from the Participant's Matching Contribution
Account in proportion to the Participant's Employee Contributions and Matching
Contributions for the Plan Year.
12.5 Allocation of Forfeitures:
Forfeitures of Excess Aggregate Contributions: Forfeitures of Excess Aggregate
Contributions may either be reallocated to the accounts of Non-highly
Compensated Employees or applied to reduce employer contributions, as designated
by the employer in the Adoption Agreement.
Notwithstanding the foregoing, no forfeitures arising under this Article shall
be allocated to the account of any Highly Compensated Employee.
ARTICLE XIII
DISTRIBUTION REQUIREMENTS
13.1 Elective Deferrals, Qualified Non-elective Contributions, and Qualified
Matching Contributions, and income allocable to each are not distributable to a
Participant or his or her Beneficiary or Beneficiaries in accordance with such
Participant's or Beneficiary or Beneficiaries election, earlier than upon
separation from service, death, or disability. Such amounts may also be
distributed upon:
(a) Termination of the Plan without the establishment of another
defined contribution plan, other than an employee stock ownership plan
(as defined in section 4975(e) or section 409 of the Code) or a
simplified employee pension plan as defined in section 408(k).
(b) The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of section
409(d)(2) of the Code) used in a trade or business of such corporation
if such corporation continues to maintain this Plan after the
disposition, but only with respect to Employees who continue employment
with the corporation acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of section
409(d)(3) of the Code) if such corporation continues to maintain this
Plan, but only with respect to Employees who continue employment with
such subsidiary.
(d) The attainment of age 59 1/2 in the case of a profit sharing plan.
(e) The hardship of the Participant as described in Article 5.8.
(f) All distributions that may be made pursuant to one or more of the
foregoing distributable events are subject to the
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spousal and participant consent requirements (if applicable) contained
in sections 401(a)(11) and 417 of the Code. In addition, distributions
after March 31, 1988, that are triggered by any of the first three
events enumerated above must be made in a lump sum.
ARTICLE XIV
OTHER DISTRIBUTION REQUIREMENTS
14.1 Subject to Article XX, Joint and Survivor Annuity Requirements (if
applicable), the requirements of this Article shall apply to any distribution of
a Participant's Account Balance and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the provisions of this
Article apply to calendar years beginning after December 31, 1984. All
distributions required under this Article shall be determined and made in
accordance with the proposed regulations under section 401(a)(9), including the
minimum distribution incidental benefit requirement of section 401(a)(9)-2 of
the proposed regulations.
14.2 Distribution Options: The Employer has the sole responsibility to select
the distribution options under the Adoption Agreement. In no event shall a
participant be entitled to a distribution option under this Article 14.2 unless
that option has been selected by the Employer on the Adoption Agreement. A
Participant who ceases to be an Employee for any reason shall be entitled to
receive his nonforfeitable portion of his Account Balance. A Participant's
Beneficiary shall be entitled to receive the Participant's Account Balance, as
provided under Article 14.4, in the event of the participant's death. Subject to
the requirements of Article 6.6(d) if the Participant's Vested Account Balance
exceeds $3,500, a Participant or Beneficiary who is entitled to payment under
this Article may elect one of the following options:
(a) To receive a lump sum payment equal to the nonforfeitable portion
of the Participant's Account Balance determined as of the Valuation
Date immediately following the date he ceases to be an Employee. Such
payment shall commence as soon as administratively feasible following
the date the Participant ceases to be an Employee. The payment shall be
equal to the Participant's Account Balance as of such Valuation Date
plus deposits and less withdrawals to the Participant's account since
such Valuation Date. Notwithstanding the foregoing, for purposes of
determining the Participant's Account Balance, if appropriate, the
Account Balance shall reflect any appreciation or depreciation of an
investment fund (selected by the Participant) and shall be deemed to
have been made as of the Valuation Date on which the adjustments
relate, notwithstanding they are actually made as of a later date;
(b) To receive a lump sum payment equal to the nonforfeitable portion
of the Participant's Account Balance, as of any Valuation Date
specified under paragraph (a) above, as requested by the Participant
but not beyond the required Beginning Date.
Such payment shall commence as soon as administratively feasible after
the Participant's written request. The payment shall be equal to the
nonforfeitable portion of the Participant's Account Balance as of such
Valuation Date, plus deposits and less withdrawals to the Participant's
accounts since such Valuation Date.
Notwithstanding the foregoing, for purposes of determining the
Participant's Account Balance, if appropriate, the Account Balance
shall reflect any appreciation or depreciation of an investment fund
(selected by the Participant) and shall be deemed to have been made as
of the Valuation Date on which the adjustments relate, notwithstanding
they are actually made as of a later date.
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(c) To receive substantially equal installments in a frequency selected
by the Participant (but limited to monthly, quarterly, semi-annually,
or annually) over a designated period not to exceed ten years. Initial
payment shall be made as soon as administratively feasible following
the Participant's written request. Subject to Article 14.8, payments
shall continue to the Participant's Beneficiary after his death until
his entire Account Balance has been distributed. A Participant (or
Beneficiary in the event of death) may elect to receive the unpaid
Account Balance in a lump sum payment as of any future Valuation Date
by submitting a written request to the Plan Administrator.
Notwithstanding any contrary provision of this Plan, the distribution
option under this paragraph (c) is available only to Participants who
cease to be an Employee due to Retirement (Early or Normal), Death, or
Disability.
(d) To receive an annuity for the life of the Participant, if the
Participant is unmarried, or a Joint and Survivor Annuity, if the
Participant is married, subject to the requirements of Article XX.
(e) To receive a life annuity with minimum payments guaranteed (period
certain) under which benefit payments will commence on the
Participant's actual retirement date and continue during his lifetime
with the stipulation that if the minimum number of payments (as
selected on the Adoption Agreement) have not been received prior to the
Participant's death, payments in the same amount will be continued to a
designated Beneficiary until the total number of benefit payments
received by the Participant and/or his Beneficiary equals the minimum
number selected.
14.3 Participant's Distribution Election: The Plan Administrator shall advise
the Participant (or Beneficiary in the event of death) of his payment options.
The Participant (or Beneficiary in the event of death) shall, prior to the
commencement of benefit payments, instruct the Plan Administrator in writing how
payment is to be made as permitted under Article 14.2. An election may be
revoked and a new election may be filed in writing with the Plan Administrator
any time prior to the commencement of benefits.
If a distribution is one to which sections 401(a)(11) and 417 of the Internal
Revenue Code do not apply, such distribution may commence less than 30 days
after the notice required under section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(1) the Plan Administrator clearly informs the Member that the Member
has a right to a period of at least 30 days after receiving the notice
to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option), and
(2) the Member, after receiving the notice, affirmatively elects a
distribution.
14.4 Limits on Settlement Options: In order to satisfy the minimum distribution
requirements under Code Section 401(a)(9) only, the following restrictions
apply. As of the first distribution calendar year, distributions, if not made in
a lump sum, may only be made over one of the following periods:
(a) the life of the Participant;
(b) the life of the Participant and a designated Beneficiary;
(c) a period certain not extending beyond the life expectancy of the
Participant; or
(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated Beneficiary.
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Under an installment distribution listed above, the Participant or Beneficiary,
at any time, may elect to accelerate the payment of all, or any portion of the
Participant's unpaid nonforfeitable Account Value, subject to the requirements
of Article XX.
14.5 Determination of Amount to be Distributed Each Year: If the Participant's
interest is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the Required Beginning Date.
(a) Unless the Participant elects in writing to defer distribution of
benefits otherwise payable under this Article XIV, distribution of
benefits must commence as described in Article 14.5(b). Notwithstanding
the foregoing, the commencement of benefits may not be deferred beyond
the Required Beginning Date. In addition, the failure of a Participant
and spouse (if applicable and if required) to consent to distribution
while a benefit is immediately distributable, within the meaning of
Article 6.6 of the Plan, shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy this
Article 14.5.
(b) Distribution of benefits will begin no later than the 60th day
after the latest of the close of the Plan Year in which:
(1) the Participant attains age 65 (or Normal Retirement Age if
earlier);
(2) occurs the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or
(3) the Participant terminates service with the Employer.
(c) Disability: If a Participant becomes disabled prior to receipt of
any benefits, he/she shall become 100% vested in his/her Account
Balances. Disability is defined in Article 1.13.
(d) Withdrawals on or after Age 59 1/2: A Participant may apply in
writing to the Plan Administrator for a withdrawal from the Elective
Deferral account maintained by the Trustee. Such withdrawal shall be
based on the value of the Participant's Elective Deferral Account as of
the Valuation Date immediately preceding, as adjusted for deposits,
withdrawals, transfers, and any appreciation or depreciation of the
investment fund(s) (selected by the Participant). Notwithstanding the
foregoing, as allowed under the Adoption Agreement, a Participant may
withdraw contributions from any account maintained by the Trustee on
his behalf under the Plan provided he has attained age 59 1/2 and is
100% vested in all accounts.
14.6 Individual Account:
(a) If a Participant's benefit is to be distributed over (1) a period
not extending beyond the life expectancy of the Participant or the
joint life and last survivor expectancy of the Participant and the
Participant's designated Beneficiary or (2) a period not extending
beyond the life expectancy of the designated Beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first Distribution Calendar Year, must at least
equal the quotient obtained by dividing the Participant's benefit by
applicable life expectancy.
(b) For calendar years beginning before January 1, 1989, if the
Participant's spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least 50% of the present
value of the amount available for distribution is paid within the life
expectancy of the Participant.
(c) For calendar years beginning after December 31, 1988, the amount to
be distributed each year, beginning with
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distributions for the first Distribution Calendar Year shall not be
less than the quotient obtained by dividing the Participant's benefit
by the lesser of:
(1) the applicable life expectancy or
(2) if the Participant's spouse is not the designated Beneficiary, the
applicable divisor determined from the table set forth in Q&A-4 of
section 1.401(a)(9)-2 of the proposed Regulations. Distributions after
the death of the Participant shall be distributed using the applicable
life expectancy in Article 14.6(a) above as the relevant divisor
without regard to proposed regulations section 1.401(a)(9)-2.
(d) The minimum distribution required for the Participant's first
Distribution Calendar Year must be made on or before the Participant's
Required Beginning Date. The minimum distribution for other calendar
years, including the minimum distribution for the Distribution Calendar
Year in which the Employee's required Beginning Date occurs, must be
made on or before December 31 of that Distribution Calendar Year.
14.7 Other Forms: If the Participant's benefit is distributed in the form of an
annuity purchased from an insurance company, distributions thereunder shall be
made in accordance with the requirements of section 401(a)(9) of the Code and
the proposed regulations thereunder.
14.8 Death Distribution Provisions:
(a) Distribution beginning before death: If the Participant dies after
distribution of his or her interest has begun, the remaining portion of
such interest will continue to be distributed at least as rapidly as
under the method of distribution being used prior to the Participant's
death.
(b) Distribution beginning after death: If the Participant dies before
distribution of his or her interest begins, distribution of the
Participant's entire interest shall be completed by December 31 of the
calendar year containing the fifth anniversary of the Participant's
death except to the extent that an election is made to receive
distributions in accordance with (1) or (2) below:
(1) if any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made over the life or over
a period certain not greater than the life expectancy of the designated
Beneficiary commencing on or before December 31 of the calendar year
immediately following the calendar year in which the Participant died;
(2) if the designated Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in accordance with
(1) above shall not be earlier than the later of (i) December 31 of the
calendar year immediately following the calendar year in which the
Participant dies and (ii) December 31 of the calendar year in which the
Participant would have attained age 70 1/2.
If the Participant has not made an election pursuant to this Article
14.8(b) by the time of his or her death, 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 under this Article, or (ii) December 31 of
the calendar year which contains the fifth 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
anniversary of the Participant's death.
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(c) For purposes of Article 14.8(b), if the surviving spouse dies after
the Participant, but before payments to such spouse begin, the
provisions of Article 14.8(b), with the exception of paragraph (2)
therein, shall be applied as if the surviving spouse were the
Participant.
(d) For purposes of this Article 14.8(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.
(e) For the purposes of this Article 14.8(b), distribution of a
Participant's interest is considered to begin on the Participant's
Required Beginning Date (or, if Article 14.8(b) above is applicable,
the date distribution is required to begin to the surviving spouse
pursuant to Article 14.8(b) above). If distribution in the form of an
annuity described in Article 14.7 above irrevocably commences to the
Participant before the Required Beginning Date, the date distribution
is considered to begin is the date distribution actually commences.
14.9 Definitions:
(a) Applicable Life Expectancy: The life expectancy (or joint and last
survivor expectancy) 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
reduced by one for each calendar year which has elapsed since the date
life expectancy was first calculated. If life expectancy is being
recalculated, the applicable life expectancy shall be the life
expectancy as so recalculated. The applicable calendar year shall be
the first Distribution Calendar Year, and if life expectancy is being
recalculated such succeeding calendar year. If annuity payments
commence in accordance with Article 14.7 before the Required Beginning
Date, the application calendar year is the year such payments commence.
If distribution is in the form of an immediate annuity purchased after
the Participant's death with the Participant's remaining interest, the
applicable calendar year is the year of purchase.
(b) Designated Beneficiary: The individual who is designated as the
beneficiary under the Plan in accordance with section 401(a)(9) and the
regulations thereunder.
(c) Distribution Calendar: Year 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 Article 14.8 above.
(d) Life Expectancy: Life expectancy and joint and last survivor
expectancy are computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in the case of
distributions described in Article 14.8(b) above), by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the Participant (or spouse) and shall apply
to all subsequent years. The life expectancy of a nonspouse Beneficiary may not
be recalculated.
14.10 Participant's Benefit:
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(a) The Account Balance as of the last Valuation Date in the calendar
year immediately preceding the Distribution Calendar Year (valuation
calendar year) increased by the amount of any contributions or
forfeitures allocated to the Account Balance as of dates in the
valuation calendar year after the Valuation Date and decreased by
distributions made in the valuation calendar year after the Valuation
Date.
(b) Exception for second Distribution Calendar Year: For purposes of
paragraph (a) above, if any portion of the minimum distribution for the
first Distribution Calendar Year is made in the second Distribution
Calendar Year shall be treated as if it had been made in the
immediately preceding Distribution Calendar Year.
14.11 Required Beginning Date:
(a) General Rule: The entire interest of a Participant must be
distributed or begin to be distributed no later than the Participant's
Required Beginning Date. The Required Beginning Date of a Participant
is the first day of April of the calendar year in which the Participant
attains age 70 1/2.
(b) Transitional Rules: The Required Beginning Date of a Participant
who attains age 70 1/2 before January 1, 1988, shall be determined in
accordance with (1) or (2) below:
(1) Non-5 percent Owners: The Required Beginning Date of a Participant
who is not a 5-percent owner is the first day of April of the calendar
year following the calendar year in which the later of retirement or
attainment of age 70 1/2 occurs.
(2) 5-percent Owners: The Required Beginning Date of a Participant who
is a 5-percent owner during any year beginning after December 31, 1979,
is the first day of April following the later of (i) the calendar year
in which the Participant attains age 70 1/2, or (ii) the earlier of the
calendar year with or within which ends the plan year in which the
Participant becomes a 5-percent Owner, or the calendar year in which
the Participant retires.
The Required Beginning Date of a Participant who is not a 5-percent
owner who attains age 70 1/2 during 1988 and who has not retired as of
January 1, 1989, is April 1, 1990.
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 Article 6.6 of the Plan, shall be
deemed to be an election to defer commencement of payment of any
benefit sufficient to satisfy this Article.
(c) 5-percent Owner: A Participant is treated as a 5-percent owner for
purposes of this Article if such Participant is a 5-percent Owner as
defined in section 416(i) of the Code (determined in accordance with
section 416 but without regard to whether the Plan is Top-Heavy) at any
time during the Plan Year ending with or within the calendar year in
which such owner attains age 66 1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under this
Article, they must continue to be distributed, even if the Participant
ceases to be a 5-percent owner in a subsequent year.
14.12 Transitional Rules:
(a) Notwithstanding the other requirements of this Article and subject
to the requirements of Article XX, Joint and Survivor Annuity
Requirements, distribution on behalf of any Employee, including a
5-percent owner, may be
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made in accordance with all of the following requirements (regardless
of when such distribution commences).
(1) The distribution by the Plan is one which would not have
disqualified such trust under section 401(a)(9) of the Internal Revenue
Code as in effect prior to amendment by the Deficit Reduction Act of
1984.
(2) The distribution is in accordance with a method of distribution
designated by the Employee whose interest in the Plan is being
distributed or, if the Employee is deceased, by a Beneficiary of such
Employee.
(3) Such designation was in writing, was signed by the Employee or the
Beneficiary, and was made before January 1, 1984.
(4) The Employee had accrued a benefit under the Plan as of December
31, 1983.
(5) 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.
(b) 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.
(c) 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 Articles 14.12(a)(1) and
(5).
(d) If a designation is revoked, any subsequent distribution must
satisfy the requirements of section 401(a)(9) of the Code and the
proposed regulations thereunder. If a designation is revoked subsequent
to the date distributions are required to begin, the Plan must
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
section 401(a)(9) of the Code and the proposed regulations thereunder,
but for the section 242(b)(2) election. For calendar years beginning
after December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in section 1.401(a)(9)-2
of the Income Tax Regulations Any changes in the designation will be
considered to be a revocation of the designation. However, the mere
substitution or addition of another Beneficiary (one not named in the
designation) under the designation will not be considered to be a
revocation of the designation, so long as such substitution or addition
does not alter the period over which distributions are to be made under
the designation, directly or indirectly (for example, by altering the
relevant measuring life). In the case in which an amount is transferred
or rolled over from one plan to another plan, the rules in Q&A J-3
shall apply.
14.13 If the value of the Employee's vested account balance derived from the
Employer and Employee contributions (other than Accumulated Deductible Employee
Contributions) exceeds $3,500, the Employee (and his or her spouse) must consent
to any distribution from such account balance. This Article 14.13 shall apply
only if the Employer has selected the Qualified Joint and Survivor
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Annuity distribution option on the Adoption Agreement.
ARTICLE XV
LIFE INSURANCE
15.1 The Trustee, if the Plan is trusted, or custodian, if the Plan has a
custodial account, shall apply for and will be the owner of any insurance
contract purchased under the terms of this Plan. The insurance contract(s) must
provide that proceeds will be payable to the Trustee (or custodian, if
applicable), however the Trustee (or custodian) shall be required to pay over
all proceeds of the contract(s) to the Participant's designated beneficiary in
accordance with the distribution provisions of this Plan. A Participant's spouse
will be the designated beneficiary of the proceeds in all circumstances unless a
qualified election has been made in accordance with Article XX, Joint and
Survivor Annuity Requirements, if applicable. Under no circumstances shall the
trust (or custodial account) retain any part of the proceeds. In the event of
any conflict between the terms of this Plan and the terms of any insurance
contract purchased hereunder, the Plan provisions shall control.
15.2 Purchase of Life Insurance Policy-Earmarked Account: Each Participant shall
have the right to direct the Trustee to procure one or more Life Insurance
Policies on their life, provided the Trustee does not object to the form
thereof. Any death benefit payable under any contract prior to the insured
Participant's termination of employment shall be paid to the Trustee for
distribution to the Beneficiary or Beneficiaries of the Participant under
Article XIV hereof.
Such designation of Beneficiary shall be consistent with the rules and
regulations of the Insurer issuing the Policy and subject to Article 15.1. The
premium thereof shall be charged to the extent thereof to the Insured
Participant's Employee Directed Account. In addition, for any married
Participant, the Participant's Spouse is the Beneficiary of any insurance of the
Participant's life purchased by Employer Contributions of forfeitures allocated
to the Participant's account.
15.3 Purchase of Annuity Contracts-Master Account: The Employer shall have the
right to direct the Trustee to procure one or more Investment Annuity Contract
(not a Life Annuity) providing benefits in a form permitted
by the Plan.
15.4 Purchase of Annuity Contracts-Earmarked Account: Each Participant shall
have the right to direct the Trustee to procure one or more Investment Annuity
Contracts (not a Life Annuity) providing benefits in a form permitted by the
Plan.
15.5 Allocation of Insurance Dividends and Credit: Any dividends or credits
earned on insurance contracts will be allocated to the Participant's account
derived from Employer contributions for whose benefit the contract is held.
15.6 Limitation of Insurance Premiums:
(a) Ordinary Life - For purposes of this incidental insurance
provision, ordinary life insurance contracts are contracts with both
non-decreasing death benefits and non-increasing premiums. If such
contracts are purchased, less then 1/2 of the aggregate Employer
Contributions allocated to any Participant will be used to pay the
premiums attributable to them.
(b) Term and Universal Life - No more than 1/4 of the aggregate
Employer contributions allocated to any Participant will be used to pay
the premiums on term life insurance contracts, universal life insurance
contracts, and all other life insurance contracts which are not
ordinary life.
(c) Combination - The sum of 1/2 of the ordinary life insurance
premiums and all other Life Insurance premiums will not exceed 1/4 of
the aggregate Employer contributions allocated to any Participant.
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15.7 The Life Insurance Policy premium shall be paid through an Automatic
Premium Loan provision, if applicable, or, if there is not sufficient cash
value, canceled.
15.8 Borrowing to Pay Premiums: If, for any reason, there is insufficient cash
in a Participant's Employee Directed Account or Master Employer Directed Account
to pay such premiums on a Life Insurance Policy, the Trustee, acting upon the
request of the Employer shall borrow the amount necessary to pay such premiums
on a Life Insurance Policy, using the cash value of the insurance policy as a
security, or shall liquidate assets held for the Participant in the
Participant's Employee Directed Account or Master Employer Directed Account if
the cash value of the insurance policy is not sufficient to pay such premiums.
Amounts borrowed shall be repaid by application of earnings and contributions to
the Employee Directed Account or Master Account of such Participants insured by
such policy. In the absence of the Trustee's direction to borrow against the
policy or to liquidate assets to pay premiums, the Life Insurance Policy, if
there is not sufficient cash value, will be canceled.
15.9 Responsibility of Trustee: If the Trustee is instructed in writing to
allocate a part of a contribution for the payment of insurance premiums, its
sole responsibility shall be to pay the premiums to the Insurer in accordance
with the instructions, and its liability for a mistake or omission shall be
limited to the amount of the premium involved. In all respects involving
insurance premiums, the Trustee shall be deemed the agent of the Trust and in no
event shall be deemed the agent of the Insurer. The Trustee shall have no
liability with respect to money transferred to an Insurer pursuant to such
instruction, and the Trustee shall not be responsible for the validity of any
Life Insurance Policy. Anything else herein to the Contract notwithstanding, in
no event shall the Trustee be responsible for the remitting to the Insurer any
premium or for taking any other action before the end of the seventh (7th) full
business day following its receipt of the contributions, authorizations,
direction, or information which enable it to make such payment or take such
action.
15.10 Non-transferability of Annuities: Any Annuity contract distributed must be
nontransferable.
15.11 Subject to Article XX, the contracts on a Participant's life will be
converted to cash or an annuity or distributed to the Participant upon
commencement of benefits.
ARTICLE XVI
AMENDMENT OF THE PLAN AND TRUST
16.1 Amendment of Plan by Sponsor: Each Employer who adopts this Plan, delegates
to the Sponsor the power to amend the Plan (including retroactive amendment).
The Sponsor will submit a copy of the amendment to each Employer, after first
having received a ruling or determination from the Internal Revenue Service that
the Plan, as amended, qualified under section 401 of the Internal Revenue Code.
Each Employer shall be deemed to have consented to any such amendment.
16.2 Amendment by Employer of Adoption Agreement: The Employer may amend the
Plan by selecting another option made available on the Adoption Agreement by
submitting to the Trustee:
(a) if applicable, a certified copy of the appropriate resolution
effecting or authorizing such amendment, and
(b) a copy of such amended Adoption Agreement.
16.3 Restrictions on Amendments: No amendment shall be effective that would
cause or permit any part of the assets in the Trust to be diverted to purposes
other than the exclusive benefit of Participants or their Beneficiaries, or as
would cause or permit any portion of such assets to revert to or become the
property of the Employer.
16.4 Amendment of Vesting Schedule: If the Plan's vesting schedule is amended,
or the Plan
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is amended in any way that directly or indirectly affects the computation of the
Participant's nonforfeitable percentage or if the Plan is deemed amended by an
automatic change to or from 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 the
nonforfeitable percentage computed under the Plan without regard to such
amendment or change. For Participants who do not have at least one (1) 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:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the
amendment by the Employer or Plan Administrator.
16.5 Miscellaneous Amendments: No amendment to the Plan shall be effective to
the extent that it has the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's Account Balance may be
reduced to the extent permitted under section 412(c)(8) of the Code. For
purposes of this Article 16.5, a Plan amendment which has the effect of
decreasing a Participant's Account Balance or eliminating an optional form of
benefit, with respect to benefits attributable to service before the amendment
shall be treated as reducing an accrued benefit. Furthermore, if the vesting
schedule of a Plan is amended, in the case of an Employee who is a Participant
as of the later of the date such amendment is adopted or the date it becomes
effective, the nonforfeitable percentage (determined as of such date) of such
Employee's right to his Employer-derived accrued benefit will not be less than
his percentage computed under the Plan without regard to such amendment.
The Employer may:
(a) change the choice of options in the Adoption Agreement;
(b) add overriding language in the Adoption Agreement when such
language is necessary to satisfy section 415 or section 416 of the Code
because of the required aggregation of multiple plans; and
(c) add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause
the Plan to be treated as individually designed. An Employer that
amends the Plan for any other reason will no longer participate in this
Prototype Plan and will be considered to have an individually designed
plan. The amendment should address the classification of Participants
the amendment or termination will affect, the benefits affected, the
impetus for the benefit modification, and the person or persons
authorized to implement this amendment.
ARTICLE XVII
DISCONTINUANCE OF CONTRIBUTIONS
AND TERMINATION OF THE PLAN
17.1 Employer's Intent: The Employer has established the Plan with the bonafide
intention and expectation that from year to year it will be able to and will
deem it advisable to make its contributions and to permit Employee contributions
as herein provided.
17.2 Right of Employer to Terminate the Plan: The Employer may terminate the
Plan by appropriate action. A certified copy of such instrument or instruments
embodying such
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action shall be delivered to the Trustee, as soon as possible thereafter. After
the date of termination of the Plan, the Employer shall make no further
contributions under the Plan. In the event the Plan is terminated the assets
will be distributed as soon as administratively feasible.
17.3 Effect of Termination or Partial Termination of the Plan: Upon the
termination or partial termination of the Plan, the rights of each Participant
to the amount in his/her account(s) on the date of such termination or partial
termination shall be vested and nonforfeitable.
In the event of complete discontinuance of contributions under this Plan, the
Account Balance(s) will also be vested and nonforfeitable.
17.4 Merger or Consolidation: In the case of any merger or consolidation of the
Employer's Plan with or transfer of assets or liabilities of the Employer's Plan
to any other plan, each Participant in the Employer's Plan shall be entitled to
receive a benefit immediately after the merger, consolidation, or transfer (if
the Plan then terminated) which is equal to greater than the benefit the
Participant would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated).
17.5 Use of Trust Assets: It shall be impossible for any part of the corpus or
income of the Trust to be used for or diverted to purposes other than for the
exclusive benefit of the Employees or their Beneficiaries; payment of the
administration expenses of the Trust from its corpus is permissible.
ARTICLE XVIII
TRUSTEE
18.1 Receipt of Funds: All contributions under the Plan shall be paid to the
Trustee under a Trust Agreement entered into for such purpose. The Trustee, or
their agent, shall maintain such records as may be necessary for the proper
administration of the Trust and shall file an accounting with the Employer after
the close of each year. Such accounting, valuating the assets at fair market
value for the Employer, may consist of regularly issued broker-dealer
statements, copies of insurance company summary account statements, and copies
of account statements, representing other lawful trust investments including but
not limited to mutual fund statements which are supplied to the Trustee and the
Employer. The Trustee shall not be obligated to take any action on the Master
Employer Directed Account(s) or Employee Directed Account(s) except upon the
written instructions of the Employer and shall have no obligation to inquire
into the propriety of any such written instruction and shall be fully protected
in acting in accordance with such instruction.
18.2 Agent: The Trustee may designate an administrative agent or agents to act
on its behalf in connection with the administration of this Plan in accordance
with the Trust Agreement The administrative agent shall furnish to the Trustee
any information required by the Plan or the Internal Revenue Code. The Trustee
and any other agents shall be fully protected in relying on the content of any
account statements provided in connection with the administration of this Plan
in accordance with the Trust Agreement.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
19.1 Plan not a Contract: The adoption and maintenance of the Plan shall not be
deemed to constitute a contract between the Employer and any Employee or to be a
consideration for or inducement or condition of the employment of any person.
Nothing herein contained shall be deemed to give the Employee the right to be
retained in the employ of the Employer or to interfere with the right of the
Employer to discharge any Employee at any time, nor shall it be deemed to give
the Employer the right to require an Employee to remain in its employ nor shall
it interfere with the Employee's right to terminate his employment at any time.
19.2 No benefit or interest available hereunder will be subject to assignment or
alienation,
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either voluntarily or involuntarily. The preceding sentence 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, as defined in
section 414(p) of the Code, or any Domestic Relations Order entered before
January 1, 1985.
Nothing contained in this Plan shall prevent the Trustee, in accordance with the
written direction of the Plan Administrator, from complying with the provisions
of a Qualified Domestic Relations Order, as defined in Code Section 414(p). This
Plan specifically permits distribution to an alternate payee under a Qualified
Domestic Relations Order at any time, irrespective of whether the Participant
has attained his Earliest Retirement Age (as defined under Code Section 414(p))
under the Plan. A distribution to an alternate payee prior to the Participant's
attainment of Earliest Retirement Age is available only if the order specified
distribution at that time or permits an agreement between the Plan and the
alternate payee consents to any distribution occurring prior to the
Participant's attainment of Earliest Retirement Age. Nothing in this Article
19.2 shall permit a Participant a right to receive a distribution at a time
otherwise not permitted under the Plan nor shall it permit the alternate payee
to receive a form of payment not permitted under the Plan.
19.3 Whereabouts of Participant/Beneficiary Unknown: If the Trustee is unable to
make a payment to a Participant/Beneficiary hereunder within six months after
any such payment is due, because the Trustee cannot ascertain the whereabouts or
the identity of the Participant/ Beneficiary and such Participant/Beneficiary
has not made written claim for such payment before the expiration of said six
month period, then such amounts shall be forfeited and shall be either
reallocated or used to reduce Employer Contributions in the next Plan Year, as
selected by the Employer on the Adoption Agreement. Notwithstanding the
foregoing, if any such Participant/Beneficiary makes a written claim after
forfeiture has occurred under this Section, the payment amount again becomes due
in full to such Participant/Beneficiary.
19.4 Loans: The Employer must establish and communicate to all Participants and
Beneficiaries a written loan policy to facilitate proper administration of plan
loans. The Employer authorizes the Trustee to make loans in accordance with such
policy.
(a) Loans shall be made available to all Participants and Beneficiaries
on a reasonably equivalent basis. Loans shall not be made available to
highly compensated Employees (as defined in Article 1.26 of the Plan)
in an amount greater than the amount made available to other Employees.
(b) Loans must be adequately secured, bear a reasonable interest rate,
and be repaid on at least an equal quarterly basis All loans shall be
treated as an earmarked investment equal to the value of the
outstanding loan balance In such event, the Account Balance of such
Participant, for purposes of Article 7.2, shall be reduced by an amount
equal to the outstanding loan and shall be increased by repayments of
principal and interest thereon.
(c) No Participant loan shall exceed 50% of the present value of the
Participant's vested Account Balance.
(d) A Participant must obtain the consent of his or her spouse, if any,
to use the Account Balance as security for the loan. Spousal consent
shall be obtained no earlier than the beginning of the 90 day period
that ends on the date on which the loan is to be so secured. The
consent must be in writing, must acknowledge the effect of the loan,
and must be witnessed by a plan representative or notary public. Such
consent shall thereafter be binding with respect to the consenting
spouse or any subsequent spouse with respect to that loan. A new
consent shall be required if
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the Account Balance is used for renegotiation, extension, renewal, or
other revision of the loan.
If a valid spousal consent has been obtained in accordance with this
Article 19.4(d), then notwithstanding any other provision of this Plan,
the portion of the Participant's vested Account Balance used as a
security interest held by the Plan by reason of a loan outstanding to
the Participant shall be taken into account for purposes of determining
the amount of the Account Balance payable at the time of death or
distribution, but only if the reduction is used as repayment of the
loan. If less than 100% of the Participant's vested Account Balance
(determined without regard to the preceding sentence) is payable to the
surviving spouse, then the Account Balance shall be adjusted by first
reducing the vested Account Balance by the amount of the security used
as a repayment of the loan, and then determining the benefit payable to
the surviving spouse.
Notwithstanding the foregoing, no spousal consent is required for the
use of the Account Balance as security for a Plan loan to a Participant
under a safe harbor profit sharing plan not subject to Code Section
401(a)(11) and if the distribution would not otherwise require spousal
consent under Code Section 417(a)(2)(B).
(e) In the event of default, foreclosures on the note and attachment of
security will not occur until a distributable event occurs in the Plan.
(f) No loans will be made to any Shareholder-Employee or Owner-Employee
For purposes of this requirement, a Shareholder-Employee means an
Employee or officer of an electing small business (Subchapter S)
corporation who owns (or is considered as owning within the meaning of
section 318(a)(1) of the Code), on any day during the taxable year of
such corporation, more than five (5) percent of the outstanding stock
of the corporation.
(g) No loan to any Participant or Beneficiary can be made to the extent
that such loan when added to the outstanding balance of all other loans
to the Participant or Beneficiary would exceed the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest outstanding
balance of loans during the one year period ending on the day before
the loan is made, over the outstanding balance of loans from the Plan
on the date the loan is made, or
(2) one-half the present value of the Participant's vested Account
Balance. For the purpose of the above limitation, all loans from all
plans of the Employer and other members of a group of Employers
described in sections 414(b), 414(c), and 414(m) and (o) of the Code
are aggregated. Furthermore, any loan shall by its terms require that
repayment (principal and interest) be amortized in level payments, not
less frequently than quarterly, over a period not extending beyond five
years from the date of the loan, unless such loan is used to acquire a
dwelling unit which within a reasonable time (determined at the time
the loan is made) will be used as the principal residence of the
Participant. 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, will
be treated as a loan under this Article 19.4.
19.5 The corpus or income of the Trust may not be diverted to or used for other
than the exclusive benefit of the Participants or their Beneficiaries.
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Any contribution made by the Employer because of a mistake of fact must be
returned to the Employer within one year of the contribution.
In the event that the Commissioner of Internal Revenue determines that the Plan
is not initially qualified under the Internal Revenue Code, any contribution
made incident to that initial qualification by the Employer must be returned to
the Employer within one year after the date the initial qualification is denied,
but only if the application for the qualification is made by the time prescribed
by law for filing the Employer's return for the taxable year in which the Plan
is adopted, or such later date as the Secretary of the Treasury may prescribe.
In the event the deduction of a contribution made by the Employer is disallowed
under section 404 of the Code, such contribution (to the extent disallowed) must
be returned to the Employer within one year of the disallowance of the
deduction.
19.6 Failure of Qualification: If the Employer's Plan fails to attain or retain
qualification, such Plan will no longer participate in this Prototype Plan and
will be considered an individually designed plan. If the Employer's Plan fails
to attain or retain qualification, the funds of such Plan will be removed from
the Trust as soon as administratively feasible.
19.7 Controlled Groups: Except as provided in Article III, all Employees of all
corporations which are members of a controlled group of corporations (as defined
in section 414(b) of the Code) and all Employees of all trades or businesses
(whether or not incorporated) which are under common control (as defined in
section 414(c)), will be treated as employed by a single Employer.
19.8 Affiliated Service Groups: All Employees of all members of an Affiliated
Service Group (as defined in section 414(m) of the Code) will be treated as
employed by a single Employer.
19.9 Leased Employee: Shall be an any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or the
recipient and related persons determined in accordance with section 414(n)(6) of
the Code) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by Employees in the
business field of the recipient Employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient Employer shall be treated as provided by the
recipient Employer.
A leased Employee shall not be considered an Employee of the recipient if:
(a) such Employee is covered by a money purchase pension plan
providing:
(1) a nonintegrated Employer contribution rate of at least 10 percent
of compensation, as defined in section 415(c)(3) of the Code, but
including amounts contributed pursuant to a salary reduction agreement
which area excludable from the Employee's gross income under section
125, section 402(e)(3), section 402(h)(1)(B) or section 403(b) of the
Code,
(2) immediate participation, and
(3) full and immediate vesting, and
(b) Leased Employees do not constitute more than 20 percent of the
recipient's non-highly compensated work force.
19.10 Crediting Service with Predecessor Employer: If the Employer maintains the
plan of a Predecessor Employer, service with such Employer will be treated as
service for the Employer.
19.11 Rollover: An Employee who was a Participant in any other qualified pension
or profit sharing plan may, within sixty (60) days after the receipt of a lump
sum or plan
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termination distribution from such Plan, rollover such funds to this Plan, or
such Funds may be transferred directly to this Plan. Notwithstanding the
foregoing, this Plan shall not accept any direct or indirect transfers (as that
term is defined or interpreted under Code Section 401(a)(31) and the Regulations
thereunder) from a defined benefit plan, money purchase plan (including a target
benefit plan), stock bonus plan, or profit sharing plan which otherwise would
have provided for a life annuity form of payment to the Participant.
If a rollover or transfer is made by or on behalf of a Covered Employee who has
not yet become a Participant, his rollover or transfer account shall constitute
his entire Accrued Benefit (and his sole interest in the Plan) and he shall not
be considered to be a Participant for any other purpose of the Plan until he
meets the eligibility requirements specified in the Adoption Agreement.
An Employee may transfer his/her Individual Retirement Account Rollover Assets
(IRA Rollover Assets) to this Plan if the following conditions are satisfied:
(a) The assets comprising the IRA Rollover consist solely of those
assets (including any appreciation thereon) which the Employee received
from a qualified pension or profit sharing plan in which he/she was a
Participant;
(b) The IRA Rollover assets are transferred/rolled over either directly
to this plan or within sixty (60) days after such time as the Employee
receives a distribution from his/her IRA Rollover Plan;
(c) At the time of making the rollover contribution, the Employee shall
acknowledge in writing in a form satisfactory to the Trustee, that the
rollover contribution complies with the conditions set forth in this
Article;
(d) A separate account shall be maintained for any Rollover
contribution deposited by the Participant into this Plan pursuant to
Article 1.46. (A Participant shall always have a 100% nonforfeitable
interest at all time in his rollover account.)
(e) With no less than 90 days advance notice to the Employer, effective
when delivered to the Employer, a Participant may elect to withdraw all
or any portion of his Rollover Account. The notice required by this
Article shall be in writing and shall specify the amount to be
withdrawn. The amount withdrawn shall be paid by the Trustee, as soon
as administratively feasible, to the Participant and shall be charged
to the Participant's Rollover Account as of the date of withdrawal.
(f) Direct Rollover.
(1) Applicability: This Section applies to distributions made on or
after January 1, 1993. Notwithstanding any provision of the plan to the
contrary that would otherwise limit a distributee's election under this
Article, a distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an
eligible rollover distribution paid directly to an eligible retirement
plan specified by the distributee in a direct rollover.
(2) Definitions.
(a) Eligible Rollover Distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit
of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint lives (or
joint life expectancies) of the distributee and the distributee's
designated Beneficiary, or for a specified period of ten years or
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more; any distribution to the extent such distribution is required
under section 401(a)(9) of the Code; and the portion of any
distribution that is not includable in gross income (determined without
regard to the exclusion of net unrealized appreciation with respect to
Employer securities).
(b) 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 Plan 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.
(c) 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 retirement order, as
described in section 414(p) of the Code, are distributee with regard to
the interest or the spouse or former spouse.
(d) Direct Rollover: A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
19.12 Plan Enforced by Employer: The Plan shall be administered by the Employer,
who shall have the sole authority to enforce the Plan and the Trust on behalf of
any and all persons having or claiming any interest under the Plan and shall be
responsible for the operation of the Plan in accordance with its terms. The
Employer shall act through one or more authorized Employees, Officers, or
Agents, as directed by the Employer in writing. The Employer shall determine by
rules of uniform application all questions arising out of the administration,
interpretation, and application of the Plan, which determinations shall be
conclusive and binding on all persons.
19.13 Taxes: Any income taxes or other taxes of any kind whatsoever that may be
levied or assessed upon or in respect of the assets of the Plan, or the income
arising therefrom, any transfer taxes incurred by the Trustee in the performance
of its duties, including fees for legal services, rendered to the Trustee and
the Trustee's compensation, shall be paid and charged as provided in the Trust
Agreement.
19.14 Agreements by Employee: It is a condition of this Plan and Trust Agreement
that each Employee, by participating herein, expressly agrees to look solely to
the assets of the Trust for the payment of any benefit to which the Employee is
entitled under the Plan.
19.15 Applicable Law: This Plan shall be construed in accordance with the laws
of the State of Delaware to the extent not superseded by Federal Law.
19.16 Claim Procedure: Any Participant or Beneficiary who is entitled to a
payment of a benefit for which provision is made in this Plan shall file a
written claim with the Plan Administrator on such forms as shall be furnished to
him by the Plan Administrator and shall furnish such evidence of entitlement to
benefits as the Plan Administrator may reasonably require. The Plan
Administrator shall notify the Participant or Beneficiary in writing as to the
amount of benefit to which he is entitled, the duration of such benefit, the
time the benefit is to commence, and other pertinent information concerning his
benefit. If a claim for benefit is denied by the Plan Administrator, in whole or
in part, the Plan Administrator shall provide adequate notice in writing to the
Participant or Beneficiary whose claim for benefit has been denied within ninety
(90) days after receipt of the claim unless special circumstances require an
extension of time for processing the claim. If such an extension of
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time for processing is required, written notice indicating the special
circumstances and the date by which a final decision is expected to be rendered
shall be furnished to the Participant or Beneficiary. In no event shall the
period of extension exceed one hundred eighty (180) days after receipt of the
claim. The notice of denial of the claim shall set forth (a) the specific reason
or reasons for the denial; (b) specific reference to pertinent Plan provisions
on which the denial is based; (c) a description of any additional material or
information necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary; and (d) a statement that any
appeal of the denial must be made by giving to the Plan Administrator, within
sixty (60) days after receipt of the notice of the denial, written notice of
such appeal, such notice to include a full description of the pertinent issues
and basis of the claim. The Participant or Beneficiary (or his duly authorized
representative) may review pertinent documents and submit issues and comments in
writing to the Plan Administrator. If the Participant or Beneficiary fails to
appeal such action to the Plan Administrator in writing within the prescribed
period of time, the Plan Administrator's adverse determination shall be final,
binding, and conclusive.
19.17 Appeal: If the Plan Administrator receives from a Participant or a
Beneficiary, within the prescribed period of time, a notice of an appeal of the
denial of a claim for benefit, such notice and all relevant materials shall
immediately be submitted to the Employer. The Employer may hold a hearing or
otherwise ascertain such facts as it deems necessary and shall render a decision
which shall be binding upon both parties. The decision of the Employer shall be
made within sixty (60) days after the receipt by the Plan Administrator of the
notice of appeal, unless special circumstances require an extension of time for
processing, in which case a decision of the Employer shall be rendered as soon
as possible but not later than one hundred twenty (120) days after receipt of
the request for review. If such an extension of time is required, written notice
of the extension of time is required, written notice of the extension shall be
furnished to the claimant prior to the commencement of the extension. The
decision of the Employer shall be in writing, shall include specific reasons for
the decision, written in a manner calculated to be understood by the claimant,
as well as specific references to the pertinent Plan provisions on which the
decision is based and shall be promptly furnished to the claimant.
19.18 Persons Dealing with Trustee Protected: No person dealing with the Trustee
shall be required or entitled to see to the application of any money paid or
property delivered to the Trustee, or determine whether or not the Trustee is
acting pursuant to the authorities granted to the Trustee hereunder or to
authorizations or directions herein required. The certificate of the Trustee
that the Trustee is acting in accordance with the Plan shall protect any person
relying thereon.
19.19 Protection of the Insurer: An Insurer shall not be responsible for the
validity of the Plan or Trust and shall have no responsibility for action taken
or not taken by the Trustee, for determining the propriety of accepting premium
payments or other contributions, for making payments in accordance with the
direction of the Trustee, or for the application of such payments. The Insurer
shall be fully protected in dealing with any representative of the Employer or
any one of a group of individuals acting as Trustee. Until written notice of a
change of Trustee has been received by an Insurer at its home office, the
Insurer shall be fully protected in dealing with any party acting as Trustee
according to the latest information received by the Insurer at its home office.
19.20 No Responsibility for Act of Insurer: Neither the Employer, the Plan
Administrator, nor the Trustee shall be responsible for any of the following,
nor shall they be liable for instituting action in connection with:
(a) the validity of policies or policy provisions;
(b) failure or refusal by the Insurer to provide benefits under a
policy;
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(c) an act by a person which may render a policy invalid or
unenforceable; or
(d) inability to perform or delay in performing an act, which inability
or delay is occasioned by a provision of a policy or a restriction
imposed by the Insurer.
19.21 Plan Rules: The Plan Administrator may adopt Plan Rules for the
administration and interpretation of the Plan. These Rules may be changed from
time to time. The Plan Rules shall consist of the Rules set forth in this
document, in administrative forms adopted by the Plan Administrator, or in
written or oral policy decisions or interpretations made by the Plan
Administrator. The Employer may require a Participant or Beneficiary to file
with the Plan Administrator an application for a benefit and all other forms
approved by the Plan Administrator and to furnish all pertinent information
requested by the Plan Administrator. The Plan Administrator may rely upon all
such information so furnished it, including a Participant's or Beneficiary's
current mailing address. Any communication, statement or notice addressed to a
Participant or Beneficiary at his last post office address filed with the Plan
Administrator, or as shown on the records of the Employer, binds the Participant
or Beneficiary for all purposes under this Plan.
ARTICLE XX
JOINT AND SURVIVOR ANNUITY
REQUIREMENT
20.1 The provisions of this Article shall apply to any Participant who is
credited with at least one Hour of Service with the Employer on or after August
23, 1984, and such other Participants as provided in Article 20.6.
20.2 Qualified Joint and Survivor Annuity: Unless an optional form of benefit is
selected pursuant to a Qualified Election within the 90-day period ending on the
Annuity Starting Date, a married Participant's Vested Account Balance will be
paid in the form of a Qualified Joint and Survivor Annuity and an unmarried
Participant's Vested Account Balance will be paid in the form of a life annuity.
The Participant may elect to have such annuity distributed upon attainment of
the earliest retirement age under the Plan.
20.3 Qualified Preretirement Survivor Annuity: Unless an optional form of
benefit has been selected within the election period pursuant to a Qualified
Election, if a Participant dies before benefits have commenced, then the
Participant's Vested Account Balance shall be applied toward the purchase of an
annuity for the life of the surviving spouse. The surviving spouse may elect to
have such annuity distributed within a reasonable period after the Participant's
death.
20.4 Definitions:
(a) Election Period: The period which begins on the first day of the
Plan Year in which the Participant attains age 35 and ends on the date
of the Participant's death. If a Participant separates from service
prior to the first day of the Plan Year in which age 35 is attained,
with respect to the Account Balance as of the date of separation, the
election period shall begin on the date of separation.
A Participant who will not yet attain age 35 as of the end of any
current Plan Year may make a special qualified election to waive the
Qualified Preretirement 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 35. Such election shall not be
valid unless the Participant receives a written explanation of the
Qualified Preretirement Survivor Annuity in such terms as are
comparable to the explanation required under Article 20.5. Qualified
Preretirement Survivor Annuity coverage will be automatically
reinstated as of the first day of the Plan Year in which the
Participant attains age 35. Any new waiver on or after such date shall
be subject to the full requirements of this Article.
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(b) Qualified Election: A waiver of a Qualified Joint and Survivor
Annuity or a Qualified Preretirement Survivor Annuity Any waiver of a
Qualified Joint and Survivor Annuity or a Qualified Preretirement
Survivor Annuity shall not be effective unless:
(1) the Participant's spouse consents in writing to the election;
(2) the election designates a specific Beneficiary, including any class
of Beneficiaries or any contingent Beneficiaries, which may not be
changed without spousal consent (or the spouse expressly permits
designations by the Participant without any further spousal consent);
(3) The spouses consent acknowledges the effect of the election; and
(4) The spouse's consent is witnessed by a Plan representative or
notary public. Additionally, a Participant's waiver of the Qualified
Joint and Survivor Annuity shall not be effective unless the election
designates a form of benefit payment which may not be changed without
spousal consent (or the spouse expressly permits designations by the
Participant without any further spousal consent). If it is established
to the satisfaction of a Plan representative that there is no spouse or
that the spouse cannot be located, a waiver will be deemed a Qualified
Election.
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. A revocation of a prior waiver may be made by a
Participant without the consent of the spouse at any time before the
commencement of benefits. No consent obtained under this provision
shall be valid unless the Participant has received notice as provided
in Article 20.5 below.
(c) Qualified Joint and Survivor Annuity: An immediate annuity for the
life of the Participant with a Survivor Annuity for the life of the
spouse which is not less than 50 percent and not more than 100 percent
of the amount of the annuity which is payable during the joint lives of
the Participant and the spouse and which is the amount of the benefit
which can be purchased with the Participant's Vested Account Balance.
The percentage of the survivor annuity under the Plan shall be 50
percent (unless a different percentage is elected by the Participant).
(d) Spouse (Surviving Spouse): 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 section 414(p) of the Code.
(e) Annuity Starting Date: The first day of the first period for which
an amount is paid as an annuity or any other form.
(f) Vested Account Balance: The aggregate value of the Participant's
Vested Account balances derived from Employer and Employee
contributions (including rollovers), whether vested before or upon
death, including the proceeds of insurance contracts, if any, on the
Participant's life The provisions of this Article shall apply to a
Participant who is vested in amounts attributable to
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Employer contributions, Employee contributions (or both) at the time of
death or distribution.
(g) Earliest Retirement Age: The earliest date on which, under the
Plan, the Participant could elect to receive retirement benefits.
20.5 Notice Requirements:
(a) In the case of a Qualified Joint and Survivor Annuity as described
in Article 20.2, the Plan Administrator shall no less than 30 days and
no more than 90 days prior to the Annuity Starting Date provide each
Participant, a written explanation of:
(1) the terms and conditions of a Qualified Joint and Survivor Annuity;
(2) the Participant's right to make and the effect of an election to
waive the Qualified Joint and Survivor Annuity form of benefit;
(3) the rights of a Participant's spouse; and
(4) the right to make, and the effect of, a revocation of a previous
election to waive, the Qualified Joint and Survivor Annuity.
(b) In the case of a Qualified Preretirement Survivor Annuity as
described in Article 20.3, the Plan Administrator shall provide each
Participant within the applicable period for such Participant, a
written explanation of the Qualified Preretirement Survivor Annuity in
such terms and in such a manner as would be comparable to the
explanation provided for meeting the requirements of Article 20.5(a)
applicable to a Qualified Joint and Survivor Annuity.
The applicable period for a Participant is whichever of the following
periods ends last:
(1) the period beginning with the first day of the Plan Year in which
the Participant attains age 32 and ending with the close of the Plan
Year preceding the Plan Year in which the Participant attains age 35;
(2) a reasonable period ending after the individual becomes a
Participant;
(3) a reasonable period ending after Article 20.5(c) ceases to apply to
the Participant;
(4) a reasonable period ending after this Article first applies to the
Participant. Notwithstanding the foregoing, notice must be provided
within a reasonable period ending after separation from service in the
case of a Participant who separates from service before attaining age
35.
For purposes of applying the preceding paragraph, a reasonable period
ending after the enumerated events described in (2), (3), and (4) is
the end of the two-year period beginning one year prior to the date the
applicable event occurs, and ending one year after the date. In the
case of a Participant who separates from service before the Plan Year
in which age 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.
(c) Notwithstanding the other requirement of this Article XX, the
respective notices prescribed by this Article need not be given to a
Participant if:
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(1) the Plan "fully subsidizes" the costs of a Qualified Joint and
Survivor Annuity or Qualified Preretirement Survivor Annuity, and
(2) the Plan does not allow the Participant to waive the Qualified
Joint and Survivor Annuity or Qualified Preretirement Survivor Annuity
and does not allow a married Participant to designate a nonspouse
Beneficiary. For purposes of this Article 20.5(c), a Plan fully
subsidizes the costs of a benefit if no increase in cost, or decrease
in benefits to the Participant may result from the Participant's
failure to elect another benefit.
(d) Special Rule for Profit Sharing Plans: This Article 20.5(d) applies
to a profit sharing plan if the following two conditions are met:
(1) the Participant cannot or does not elect payments in the form of a
life annuity, and
(2) on the death of the Participant, the Participant's Vested Account
Balance (reduced by any outstanding loans which are secured by the
Participant's Account Balance) will be paid to the Participant's
Surviving Spouse, but if there is no Surviving Spouse, or, if the
Surviving Spouse has already consented in manner conforming to a
qualified election, then to the Participant's designated Beneficiary.
The Surviving Spouse may elect to have distribution of the vested
Account Balance commence within the 90-day period following the date of
the Participant's death. The Account Balance shall be adjusted for
gains or losses occurring after the Participant's death in accordance
with the provisions of the Plan governing the adjustment of Account
Balances for other types of distributions. However, this Article
20.5(d) shall not be operative with respect to the Participant if it is
determined that this Profit Sharing Plan is a direct or indirect
transferee of a defined benefit plan, money purchase plan (including a
target benefit plan), stock bonus, or profit sharing plan which is
subject to the survivor annuity requirement of section 401(a)(11) and
section 417 of the Code.
This Article shall also apply to any distribution, made on or after the
first day of the first Plan Year beginning after December 31, 1988,
from or under a separate account attributable solely to accumulated
deductible employee contributions, as defined in section 72(o)(5)(B) of
the Code, and maintained on behalf of a Participant in a money purchase
pension plan, (including a target benefit plan) if the enumerated
conditions listed in the preceding paragraph exist.
The Participant may waive the spousal death benefit described in this
Article at any time provided that no such waiver shall be effective
unless it satisfies the conditions described in Article 20.4(b) (other
than the notification requirement referred to therein) that would apply
to the Participant's waiver of the Qualified Preretirement Survivor
Annuity.
For purposes of this Article 20.5(d), Vested Account Balance shall
mean, in the case of a money purchase pension plan or a target benefit
plan, the Participant's separate account balance attributable solely to
accumulated deductible Employee contributions within the meaning of
section 72 (o)(5)(B) of the Code. In the case of profit sharing plan,
Vested Account Balance shall have the same meaning as provided in
Article 20.4(f).
In addition, this Article shall not apply unless the Participant's
spouse is the Beneficiary of any insurance on the Participant's life
purchased by Employer contributions of forfeitures allocated to the
Participant's account.
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If this Article is operative, then except to the extent otherwise provided in
Article 20.6, the other provisions of this Article shall be inoperative.
20.6 Transitional Rules
(a) Any living Participant not receiving benefits on August 23, 1984,
who would otherwise not receive the benefits prescribed by the previous
provisions of this Article must be given the opportunity to elect to
have the prior provisions 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 10 years of vesting service when he
or she separated from service.
(b) 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 his or her
benefits paid in accordance with Article 20.6(d).
(c) The respective opportunities to elect (as described in Sections (a)
and (b) 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.
(d) Any Participant who has elected pursuant to Article 20.6(b) and any
Participant who does not elect under Article 20.6(a) or who meets the
requirements of Article 20.6(a) except that such Participant does not
have at least 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:
(1) Automatic Joint and Survivor Annuity. If benefits in the form of a
life annuity become payable to a married Participant who (i) begins to
receive payments under the Plan on or after Normal Retirement Age; or
(ii) dies on or after Normal Retirement Age while still working for the
Employer; or (iii) begins to receive payments on or after the Qualified
Early Retirement Age; or (iv) separates from service on or after
attaining Normal Retirement Age (or the Qualified Early Retirement Age)
and after satisfying the eligibility requirements for the payments 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
Participant has elected otherwise during the election period. The
election period must begin at least six (6) months before the
Participant attains Qualified Early Retirement Age and ends not more
than 90 days before the commencement of benefits. Any election
hereunder will be in writing and may be changed by the Participant at
any time.
(2) 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 Surviving Spouse under the Qualified
Joint and Survivor Annuity if the Participant had retired on the day
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
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attains the Qualified Early Retirement Age, or (ii) the date on which
participation begins, and ends on the date the Participant terminates
employment.
(3) For purposes of this Article 20.6 Qualified Early Retirement Age is
the latest of (a) the earliest date under the Plan, on which the
Participant may elect to receive retirement benefits; (b) the first day
of the 120th month beginning before the Participant reaches normal
retirement age; or (c) the date the Participant begins participation.
Qualified Joint and Survivor Annuity is an annuity for the life of the
Participant with survivor annuity for the life of the spouse described
in Article 20.4(c).
TRUST AGREEMENT
Delaware Charter Guarantee & Trust Company, hereinafter referred to as the
"Trustee", does hereby establish the following Trust to be used in connection
with its 401(k) Retirement/Savings Plan. All of the definitions in Article I of
the aforesaid Plan and all of the provisions of that Plan relating to the
Trustee are hereby incorporated by reference.
The Trustee hereby agrees that, upon the execution by an Employer of an Adoption
Agreement acceptable to the Trustee, such Employer shall be deemed to have
adopted this Trust Agreement as its Trust Agreement with the Trustee, upon the
following terms and conditions:
FIRST: The Trustee and/or their agent shall receive any contributions paid to it
in cash or by check - from an Employer. All contributions so received together
with the income therefrom and any other increment thereon (hereinafter referred
to as the "Trust Fund") shall be held, managed, and administered by the Trustee
pursuant to the terms of this Agreement without distinction between principal
and income and without liability for the payment of interest thereon. The
Trustee shall not be responsible for the collection of any contributions under
the Plan and shall be under no duty to determine whether the amount of any
contribution is in accordance with the Plan.
SECOND: Subject to the provisions of Article Three hereof, the Trustee shall,
from time to time on the written directions of the Employer in accordance with
the provisions of the Plan, make distributions out of the Trust Fund to such
persons, in such manner, in such amounts, and for such purposes, as may be
specified in such directions.
The Trustee shall be under no liability for any distribution made by it pursuant
to any such written direction and shall be under no duty to make inquiries as to
whether any such distribution is made in accordance with the provisions of the
Plan.
THIRD: Notwithstanding anything to the contrary contained in this Agreement, or
in any amendment thereto, no part of the Trust Fund, other than such part as is
required to pay taxes and administration expenses, shall be used for, or
diverted to, purposes other than for the exclusive benefit of the Participants
under the Plan, their Beneficiaries or estates.
FOURTH: The Trustee shall have the following powers and authority in the
administration of the Trust:
(a) Pursuant to the Employer's Participant's or Agent's directions
(whichever is applicable), to invest and reinvest all or any part of
the Trust Fund in:
(1) Securities obtainable through the brokerage firm selected by the
Employer and approved by the Trustee "over the counter" or on a
recognized exchange. Pursuant to section 407(d)(3)(B) of the Employee
Retirement Income Security Act of 1974 (ERISA), this Plan allows for
the acquisition or holding of qualifying Employer securities or
qualifying Employer real property which are administratively acceptable
to the Trustee subject to the same limitation
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concerning the determination of administrative feasibility as described
in item two below,
(2) Other lawful trust investments which are administratively
acceptable to the Trustee Identification of an investment as
administratively acceptable or not administrative acceptable does not
constitute a determination by the Trustee of the prudence or
advisability of the investment nor does the Trustee provide investment
advice, recommend, or evaluate the merits or suitability of any
investment,
(3) Life insurance, endowment, or annuity or
(4) Any combination of the above, without any duty to diversify and
without regard whether such property is authorized by the laws of any
jurisdiction for trust investment;
(b) To exercise, assign, or otherwise dispose of all rights,
privileges, options, and elections contained in any life insurance,
endowment, or annuity contract held by the Trustee;
(c) To hold part or all of the Trust Fund uninvested or, pursuant to
the directions of the Employer, Participant, or Agent (whichever is
applicable), to place the same in a savings account with a bank
approved by the Trustee or in a money market mutual fund;
(d) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation;
(e) To vote in person or by proxy upon securities held by the Trustee
and to delegate its discretionary powers;
(f) Pursuant to the Employer's, Participant's, or their Agent's
directions (whichever is applicable), to write covered listed call
options against existing positions and to liquidate or close out such
option contracts and the purchase of put options on existing long
positions (the same securities cannot be used to simultaneously cover
more than one position), to exercise conversion privileges or rights to
subscribe for additional securities and to make payments therefore;
(g) To consent to or participate in dissolutions, re-organizations,
consolidations, mergers, sales, leases, mortgages, transfers, or other
changes affecting securities held by the Trustee;
(h) To leave any securities or cash for safekeeping or on deposit, with
or without interest, with such banks, brokers, and other custodians as
the Trustee may select, and to hold any securities in bearer from or in
the name of banks, brokers, and other custodians or in the name of the
Trustee without qualification or description or in the name of any
nominee; and
(i) To invest contributions for Participants through the facilities of
the brokerage firm named on the Adoption Agreement (or equivalent
facilities whereby the Employer, Participant, or Agent deals with the
income or assets of a plan maintained by any other stockbroker selected
by the Employer and approved by the Trustee);
To make, execute, and deliver, as Trustee any and all contracts,
waivers, releases, or other instruments in writing necessary or proper
for the exercise of any of the foregoing powers.
(j) The brokerage firm named in the Adoption Agreement is designated by
the Employer, Agent, or each Participant (whichever is applicable) with
authority to provide the Trustee with instructions, via confirmations,
or otherwise, implementing their directions, either directly or through
their Employer, to the
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brokerage firm to purchase and sell securities for their accounts.
Prior to the entry of any orders to purchase or sell securities in such
account, the Employer, Agent, or Participant (whichever is applicable)
shall approve beforehand all such orders and direct the brokerage firm
either directly or through their Employer, to implement their
instructions. The Trustee shall honor trades within such account(s)
without obligation to verify prior authorizations of such trades. The
brokerage firm shall receive advices of available cash in such
account(s) and shall forward confirmation of purchases and sales to the
Trustee and Employer, Participant, or Agent, (whichever is applicable).
Selling short and executing purchases in an amount greater than
available cash are prohibited transactions. All investments outside of
such brokerage account(s) with the brokerage firm shall be accompanied
by written instructions.
FIFTH: Notwithstanding anything to the contrary contained in this Agreement, the
Trustee shall not make any investment or dispose of any investment held in the
Trust Fund, except upon the direction of the Employer or the Participant or
their Investment Manager.
In accordance with section 404(c) under the Pension Reform Act of 1974 and
should a Participant exercise control over the assets in this Plan which may
provide, if application for individual accounts, such Participant or his/her
Beneficiary shall not be deemed to be a fiduciary by reason of such exercise,
and no person who is otherwise a fiduciary shall be liable under this Plan for
any loss, or by reason of any breach, which results from such Participant's
exercise of control.
The Employer or Participant (whichever is applicable) may appoint in writing an
Investment Manager or Managers to manage (including power to acquire and dispose
of) any of the assets of the Plan.
Any such Investment Manager shall be registered as an investment advisor under
the Investment Advisors Act of 1940. If investment of the Trust Fund is to be
directed by an Investment Manager, the Employer, or Participant shall deliver to
the Trustee a copy of the instruments appointing the Investment Manager and
evidencing the Investment Manager's acceptance of such appointment, an
acknowledgment by the Investment Manager that it is a fiduciary of the Plan, and
a certificate evidencing the Investment Manger's current registration under said
Act. The Trustee shall be fully protected in relying upon such instruments and
certificate until otherwise notified in writing by the Employer and/or
Participant.
The Trustee shall follow the directions of the Employer or Investment Manager
regarding the investment and re-investment of the Participant's or Employer's
Account in the Trust Fund, or such portion thereof as shall be under management
by the Investment Manager. The Trustee shall be under no duty or obligation to
review any investment to be acquired, held, or disposed of pursuant to such
directions nor to make any recommendations with respect to the disposition or
continued retention of any such investment or the exercise or non-exercise of
the powers. Therefore and in accordance with Section 405(d)(2) under the Pension
Reform Act, the Trustee shall have no liability or responsibility for acting or
not acting pursuant to the direction of, or failing to act in the absence of any
direction from, the Employer or Investment Manager, unless the Trustee knows
that by such action or failure to act it would be itself committing or
participating in a breach of fiduciary duty by the Employer or the Investment
Manager of failing to act in the absence of any such direction.
The Employer or Investment Manager at any time and from time to time may issue
orders for the purchase or sale of securities directly to a broker; and in order
to facilitate such transaction, the Trustee upon request shall execute and
deliver appropriate trading authorizations. Written notification of the issuance
of each such order shall be given
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<PAGE>
promptly to the Trustee by the Employer or Investment Manager, and the execution
of each such order shall be confirmed by written advice via confirms or
otherwise to the Trustee by the broker.
In the event that an Employer or Investment Manager should resign or be removed,
the Employer or Participant shall manage the investments pursuant to this
Agreement unless and until the Trustee shall be notified of the appointment of
another Investment Manager with respect thereto as provided in this Article.
The Trustee shall be under no duty to question any such direction of the
Employer, the Participant, or their Agent, to review any securities or other
property held in the Trust Fund, or to make suggestions to the Employer,
Participant, or their Agent with respect to the investment, retention, or
disposition of any assets held in the Trust Fund.
The Trustee shall be under no liability for any loss of any kind which may
result by reason of any action taken by it in accordance with any such direction
of the Employer, Participant, or their Agent or by reason for any failure to act
because of the absence of any such direction.
Notwithstanding anything herein contained to the contrary, the Trustee shall not
engage, either directly, or indirectly, in any "prohibited transactions" which
shall mean:
(a) sale or exchange, or leasing of any property between a plan and a
disqualified person;
(b) lending of money or other extension of credit between a plan and a
disqualified person;
(c) furnishing of goods, services, or facilities between a plan and
disqualified person;
(d) transfer to, or use by, or for the benefit of, a disqualified
person of the income or assets of a plan;
(e) act by a disqualified person who is a fiduciary in his/her own
interest or his/her own account; or
(f) receipt for any consideration for his/her own personal account by
any disqualified person who is a fiduciary from any party dealing with
the Plan in connection with a transaction involving income or assets of
the Plan.
The surviving spouse and/or Beneficiary shall be bound by this Trust Agreement
regarding investments and administration of their interest Provided, however,
should the Beneficiary be a minor or in the discretion of the Trustee of unsound
mind, the Trustee will liquidate the interest of such Beneficiary and hold such
interest in an interest bearing account or money market mutual fund until
distributed.
SIXTH: The Trustee shall be paid such reasonable compensation as shall from time
to time be communicated to the Employer by the Trustee, and such compensation
shall be chargeable to the Employer. The Employer hereby covenants and agrees to
pay the same.
The Trustee shall charge against the Employer any taxes paid by it which may be
imposed upon the Trust Fund or the income thereof or upon or with respect to the
interest of any person therein which the Trustee is required to pay, as well as
all expenses of administration of the Trust and the Trust and the Employer
hereby covenants and agrees to pay the same.
In the event the Employer shall at any time fail to pay the Trustee's
compensation, taxes, and expenses, within a reasonable time after demand for
such payment has been made by the Trustee on the Employer, the Trustee will
charge the Employer's Trust Fund such fees, taxes, and expenses and may
liquidate such assets of the fund for such purposes as in its sole discretion it
shall determine. Notwithstanding the provisions of Article SECOND and the first
paragraph of Article FIFTH hereof, all payments under this Article SIXTH and the
liquidation of assets to obtain funds therefore may be made without the
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approval or direction of the Employer. If the Trust Fund is not sufficient to
satisfy these fees, taxes, and expenses, then the Trustee will charge the
Employer for such unpaid fees, taxes, and expenses.
SEVENTH: All contributions made by or on behalf of each Participant and all
investments made with such contributions and the earnings thereon shall be
credited to an account maintained for him/her by the Trustee. Such account shall
reflect the amounts contributed for the Participant by the Employer and the
amounts contributed by the Participant by the Employer and the amounts
contributed as voluntary contributions. With respect to investments of
contributions and the earnings thereon the account maintained by the Trustee may
consist of copies of regularly issued broker statements to the Trustee.
Within 90 days from the close of each Plan Year, the Trustee or their agent
shall render an accounting, valuing the assets at fair market value to the
Employer which accounting may consist of copies of regularly issued
broker-dealer statements to the Trustee and copies of insurance company summary
account statements supplied to the Trustee In the absence of the filing in
writing with the Trustee by the Employer of exceptions or objections to any such
accounting within sixty (60) days after the mailing of such accounting, the
Employer shall be deemed to have approved such accounting; and in such case, or
upon the written approval of the Employer of any such accounting, the Trustee
shall be released, relieved, and discharged with respect to all matters and
things set forth in such accounting as though such accounting had been settled
by the decree of a court of competent jurisdiction. No person other than the
Employer may require an accounting or bring any action against the Trustee with
respect to the trust or its actions as Trustee.
The Trustee shall have the right at any time to apply to a court of competent
jurisdiction for judicial settlement of its accounts or for determination of any
questions of constructions which may arise or for instructions. The only
necessary party defendant to such action shall be the Employer except that the
Trustee may, if it so elects, bring in as party defendant any other person or
persons.
EIGHTH: The Trustee shall be fully protected in acting upon any instrument,
certificate, or paper believed by it to be genuine and to be signed or presented
by the proper person or person, and the Trustee shall be under no duty to make
any investigation or inquiry as to any statement contained in any such writing
but may accept the same as conclusive evidence of the truth and accuracy of the
statements therein contained.
The Trustee shall be under no duty to question any direction of any Employer,
Participant, or Investment Manager with respect to investments, to review any
securities or other property held in trust or to make suggestions to the
Employer, Participant, or Investment Manager with respect to investments and the
Trustee will not be liable for any loss which may result by reason of
investments made by it in accordance with directions of an Employer,
Participant, or Investment Manager.
The Trustee shall not be responsible for financial losses incident to errors,
mistakes, or omissions caused by banks, brokers, stockbrokers, or other
custodians as the Trustee may select with whom any part of the Trust Fund,
principal or income, has been left and the Trustee will not be liable for any
loss which may result therefrom or the failure of such banks, brokers,
stockbrokers, or other custodians to comply with the direction of the Trustee
provided that the Trustee shall not be negligent in the appointment of such
banks, brokers, stockbrokers, and other custodians.
Whenever the service of a stockbroker or a dealer are required, the Trustee
shall engage the brokerage firm named on the Adoption Agreement provided;
however, the Trustee may in its discretion appoint another stockbroker or dealer
selected by the Employer to handle investments in securities under the Plan.
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The Trustee shall not be liable for the proper application of any part of the
Trust Fund if distributions are made in accordance with the written directions
of the Employer as herein provided nor shall the Trustee be responsible for the
adequacy of the Trust Fund to meet and discharge any and all distributions and
liabilities under the Plan. All persons dealing with the Trustee are released
from inquiry into the decision or authority of the Trustee and from seeing to
the application of any moneys, securities, or other property paid or delivered
to the Trustee.
Neither the Trustee, or any agent named hereunder, nor the Employer shall be
liable hereunder in any respect except for their own negligence or willful
misconduct.
NINTH: The Trustee may resign at any time upon sixty days notice to the
Employer. The Trustee may be removed at any time by the Employer upon thirty
days written notice to the Trustee. Upon resignation or removal of the Trustee,
the Employer shall appoint a successor Trustee which shall have the same powers
and duties as are conferred upon the Trustee hereunder, and in default thereof,
such successor Trustee may be appointed by a court of competent jurisdiction.
Upon the delivery by the resigning or removed Trustee to its successor Trustee
of all property of the Trust Fund, less such reasonable amount as it shall deem
necessary to provide for its expenses, compensation, and any taxes or advances
chargeable or payable out of the Trust Fund, the successor Trustee shall
thereupon have the same powers and duties as are conferred upon the Trustee. No
successor Trustee shall have any obligation or liability with respect to the
acts or omissions of its predecessors.
The actual appointment of a successor Trustee to whom the Trust assets may be
transferred must be fulfilled before the resignation or removal of the Trustee
shall become effective. The transfer of the trust assets shall be made
coincidentally with an accounting by the resigned or removed Trustee and shall
endorse, transfer, convey, and deliver to the successor Trustee all of the fund,
securities, or other property then held by it under the Trust, together with
such records as may be reasonably required in order that the successor Trustee
may properly administer the Trust.
The Employer shall substitute a bank as Trustee or Custodian of the insurance
contracts if the Employer is notified by the Internal Revenue Service that such
substitution is required because holder of the contract is not keeping such
records, or making such returns, or rendering such statements as are required by
law.
TENTH: This Agreement and the Trust created hereby will be terminated in the
case of complete distribution of the Trust Fund pursuant to Article XVII of the
Plan.
ELEVENTH: This Agreement and the Trust created hereby shall be construed,
regulated, and administered under the laws of the State of Delaware, and any
court accounting shall be in the courts of that State only.
All contributions to the Trustee shall be deemed to take place in the State in
which the principal place of business of the Trustee is located.
TWELFTH: This Agreement may be executed in any number of counterparts, each one
of which shall be deemed to be the original although the others shall not be
produced.
Non-Standardized 401(k) Plan
67
1997 ANNUAL REPORT
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*BANK HEADQUARTERS
Corporate Offices
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7111 Valley Green Road
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Main Office
Prime Bank
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Philadelphia, PA 19111
*BRANCHES
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Media
Please see inside back cover for a full listing of our branch location
addresses.
Prime's corporate office, main office, and 24 branches, located throughout the
five-county Delaware Valley area, are easily accessible. The Bank's branch
network is strategically positioned for continued commercial market penetration.
<PAGE>
RELATIONSHIPS
[Photos]
GROWTH
stability
[Photos]
people
business
[Photos]
SERVICE
<PAGE>
PRIME BANCORP, INC.
FINANCIAL HIGHLIGHTS
1996
(Dollars in thousands, except per share data) 1997 (See note below)
- -------------------------------------------------------------------------------
Net income $ 10,519 $ 4,017
Basic earnings per share 1.95 0.77
Diluted earnings per share 1.91 0.74
Dividends declared per share 0.70 0.68
At Year End
Assets 953,425 926,071
Loans receivable, net 630,848 616,893
Deposits 694,444 736,642
Shareholders' equity 79,864 70,516
Book value per share 14.67 13.33
Selected Ratios
Return on average assets 1.13% 0.46%
Return on average shareholders' equity 13.97% 5.70%
Ratio of equity to assets 8.38% 7.61%
Ratio of non-performing assets to total assets 0.42% 0.92%
Note: The 1996 results, as presented above, include a one time FDIC assessment
of $2.71 million ($1.66 million after taxes) and $2.26 million ($1.70
million after taxes) for restructuring charges associated with the
acquisition of First Sterling Bancorp.
2
<PAGE>
MARCH, 1998
[Photos]
James J. Lynch
President & C.E.O.
[Photo]
RELATIONSHIPS
GROWTH
stability
people
SERVICE
DEAR SHAREHOLDER:
"Quality growth" is the best phrase to describe Prime's 1997 performance. Our
commercial relationships grew as evidenced by increased commercial loans and
demand deposits.
Our shareholder returns grew as evidenced by an increase in Prime's return on
average equity and by a near 12% increase in the Company's cash dividend. We
also grew geographically as we completed our merger with First Sterling Bank.
Lastly, the market's perception of Prime as a premier commercial bank grew
through our conversion to a commercial bank during 1997.
In a regional banking market laced with huge takeovers and unprecedented
dislocation of employees and customers, Prime is carving its niche. We are
focused on, and dedicated to, serving Philadelphia regional bank customers. We
are truly the alternative to the larger banks. A mid-size bank with large-bank
capabilities and neighborhood bank service, Prime is stable, bigger, and
stronger than ever before. And, we believe Prime's growth story will continue.
We are also pleased with certain initiatives we have put in place to assist
us in our goal to be the premier banking company in the Philadelphia region.
Late in 1997 and continuing throughout 1998 we are undergoing a bank-wide
quality service training program. In addition, we have made several strategic
staff additions that will position our management team for further growth with
increased competence.
3
<PAGE>
Prime's Bala Cynwyd Branch is one of five new branches acquired through the
merger with First Sterling Bancorp. The merger gave Prime access to the western
suburban market.
BY THE BEGINNING OF THE SECOND QUARTER WE WERE ALREADY STARTING TO SEE THE MANY
BENEFITS OF THE CONSOLIDATION.
Discussion of
1997 Financial Results
Prime reported net income of $10.5 million or $1.91 per diluted share for the
year ended December 31, 1997. In 1996, net income of $4.0 million or $.74 per
diluted share was reported. These amounts included charges of $5.0 million in
1996 (before the effect of income taxes) related to a special FDIC assessment
and restructuring charges associated with the acquisition of First Sterling
Bancorp. In the absence of these charges, 1996 net income would have amounted to
$7.4 million ($1.36 a share). The comparable amount for 1997 indicates a 42%
improvement to $10.5 million ($1.91 a share).
As a result of increasing commercial relationships, Prime has improved
margins through loan growth and favorable deposit mix changes. The 1997 net
interest margin of 4.27% on average earning assets of $877 million compares to
4.06% in 1996 on average earning assets of $809 million. Consequently, net
interest income for 1997 amounted to $37.1 million compared to $32.5 million in
1996, an increase of 14%.
Commercial and construction loans now represent 55% of Prime's loan
outstandings compared to 44% in 1996. Total loans at the end of 1997 were $639
million. The Bank also enhanced its reserve and loan coverage positions as the
allowance for loan losses at the end of 1997 totaled $8.5 million which was 283%
of non-performing loans and 214% of non-performing assets.
Non-interest income for the year totaled $4.9 million. This compares to $3.2
million for 1996.
Operating expenses in 1997 were 8% higher than in 1996, excluding the
adjustments mentioned above, due primarily to the higher salary and benefit
costs associated with the Bank's expanded commercial banking activities.
Successful Merger Completion
One of our major accomplishments in 1997 was the successful completion of the
merger with First Sterling Bank. During the first 120 days of 1997, we united
the operating systems of the two banks, as well as integrated and improved all
products and pricing. Accomplishing this in such a short time frame has given us
added confidence in our ability to assimilate future acquisitions.
We combined and restructured the two staffs into one team. We are proud to
report that the new business produced by the combined organization has supported
a net increase in the number of people employed.
Through the consolidation, we significantly enhanced the Bank's franchise
value. By the beginning of the second quarter we were already starting to see
the many benefits of the consolidation. The merger brought Prime five additional
branches, entrance into the valuable western suburban segment of the
Philadelphia-area market, and the added expertise of the First Sterling team of
bankers.
By the start of the fourth quarter, the former First Sterling branches
displayed new Prime Bank signs supporting the Bank's new look and image.
Completing the name change was the final step in a smooth transition. We begin
1998 as a unified organization focused on growing our market share by providing
quality service to both our business and retail customers.
Conversion To Commercial Bank Status
Another important accomplishment in 1997 was Prime's official conversion from a
thrift to a commercial bank. All federal and state banking regulatory approvals
were received and, as a result, Prime Bank is now a state-chartered commercial
bank and member of the Federal Reserve.
4
<PAGE>
William H. Bromley, Executive V.P. (left) and James E. Kelly, Executive V.P. &
C.F.O. are dedicated to Prime's commercial banking strategy and look forward to
growing Prime into the 21st Century.
[Photos]
We are pleased to be the first mid-size Philadelphia regional thrift to
convert to commercial bank status. The conversion sends the message that Prime
is a commercial bank in terms of service and performance. With this
accomplished, and following our strategic plan, we are already benefiting from a
more diversified balance sheet, lower costs, better margins, streamlined
regulatory review, and improved market perception.
In addition, Prime Bancorp, Inc. has changed its NASDAQ ticker symbol to
PBNK. This better communicates to investors the fact that Prime is now a
commercial bank holding company.
Quality Products And Services
Prime also grew during 1997 in terms of product enhancements and services. While
carefully analyzing how well our products and services meet our customers'
needs, we also closely monitor their costs and the fee income they generate for
the Bank. We regularly consider changes and additions to what we offer,
introducing improvements as our customers' needs dictate.
Underscoring our commitment to our business customers, our cash management
and lock box programs were improved in 1997. We also brought the convenience of
PC banking service to our business customers through PrimeLink. In the area of
alternative financial products, such as investment and insurance products, Prime
continued to analyze options and study how to best take advantage of
opportunities in these areas of the market.
As part of our ongoing effort to bring easily accessible, timely and
accurate information to all of our customers, we successfully introduced
PrimeAccess24(sm), a fully-automated, 24-hour, customer service telephone access
system. During the month of December we received 36,000 calls through our
automated system. Our customers may now choose to use this time-saving system.
Or, they may still opt to speak directly with any of our bank specialists and
are welcome to do so. We also brought the number of Prime branches to 24 through
the opening of a Plymouth Meeting branch during the fourth quarter.
Growth Of Loans And Deposits
Commercial business and real estate loans grew significantly in 1997. We changed
the focus of our residential mortgage banking operation from portfolio lending
to originating and selling residential mortgages. Checking account deposits grew
at an unprecedented rate reflecting our success in penetrating the business
market niche.
Our People Make A Difference
Without the conscientious people at Prime, none of these many accomplishments
would be possible. To our board members and our dedicated staff, I want to
express my special thanks for a job well done.
At the end of 1997 we welcomed James E. Kelly to Prime as Executive Vice
President and Chief Financial Officer. An accomplished financial executive with
more than 20 years of Delaware Valley banking experience, including five years
as Corporate Controller and Senior Vice President of Finance for Midlantic
Corporation, Jim is a valuable addition to our senior executive staff. His
expertise nicely complements that of William H. Bromley, founder and former
President of First Sterling, who began serving as Prime's Executive Vice
President at the beginning of 1997. I strongly believe that we now have the best
banking executive management team in the Philadelphia region.
Prime is committed to employee training and the quest for reaching an even
higher level of customer service excellence. To this end, we kicked off our
5
<PAGE>
[Photo]
WE ARE CREATING OUR MARKET NICHE AS THE PREMIER COMMERCIAL BANK IN THE DELAWARE
VALLEY.
bank-wide customer service training initiative at the beginning of the fourth
quarter. Our program focuses on continuously building the quality of service and
overall performance of our organization.
Focusing On Core Business
We are creating our market niche as the premier commercial bank in the Delaware
Valley. We are the bank that is ready and willing to take care of customers who
want the personal, quality service that they can't find today at other banks.
Many banks are working very hard to provide their customers with every type
of financial product imaginable, including those traditionally offered by stock
brokerage firms and insurance companies. Although we are exploring the merits of
offering some alternative products, we are steadfastly focused on our core
business -- growing deposits and quality loans while providing the highest
quality customer service possible. And, we are, and will remain, a
Philadelphia-area bank.
A Growing Part Of Our Community
As always, Prime is committed to serving our community and its people. We will
continue to pledge our support to our annual, company-wide United Way Campaign
and our award-winning anti-graffiti campaign. Prime provides a truck and a crew
dedicated exclusively to fighting graffiti in our five-county area.
Recently, Prime joined forces with the Berean Federal Savings Bank, the
nation's oldest continually operating African-American savings bank, to provide
additional capital for mortgage loans. The Bank has also allied with the
American Cancer Society and our local universities' Big Five Basketball Program
to support "Coaches vs. Cancer."
Continuing The Growth Story
Looking ahead, we plan to continue Prime's steady, strategic growth through
internal expansion and careful acquisition. We expect to complete plans to open
two new Prime branches in late 1998 or early next year.
We will work to implement what we learn from our customer service training
initiative. Prime will continue to hire and retain the most experienced,
talented, dedicated people. And, we will add and explore new technologies when
appropriate.
We also plan to expand through the acquisition of first-rate, community
banks. Through Prime's strategic partnering with other banks, we can gather
additional market share and talented professionals. We intend to take a
methodical approach to selecting acquisition candidates. We don't want to grow
for the sake of growth alone. We want to grow in value, as well as size, without
compromising our ability to provide the personalized, quality service that makes
Prime the region's leading bank for personal service.
As we become the Delaware Valley's premier commercial bank, we are "primed"
and ready to meet the challenges ahead. We will remain focused, while continuing
to add value. The opportunities for Prime look great.
As always, we thank you, our shareholders and our customers, for your
continued confidence and support.
Sincerely,
/s/ Signature
James J. Lynch
President & C.E.O.
6
<PAGE>
[Photos]
New Prime Bank signs, like this one, displaying the Bank's new look and image
have been hung at all former First Sterling branches. This change was the final
step in a smooth merger transition.
Special Thanks To Two
Retiring Board Members
The diligent work of our distinguished board members is a big part of Prime's
success. Their valuable expertise significantly impacts the planning and
implementation of the Bank's strategic plans. At this time, we'd like to
recognize the vital contributions of two Prime Bancorp board members as they
leave the board to enjoy retirement.
Joseph G. Markmann, CPA
Mr. Markmann is an Associate Professor of Accounting & the former Chairman of
the Accounting Department of LaSalle University. He has been honored by the
naming of the Joseph G. Markmann Accounting Alumni Endowed Chair at LaSalle. Mr.
Markmann has been a member of the board of directors since Prime was formed in
1988. In 1987, he was a board member of the Cheltenham Federal Savings and Loan
Association board which was Prime's predecessor. We thank him for 11 years of
valuable advice and diligent service.
Arthur L. Powell
Although Mr. Powell only became a Prime Bancorp board member this year, he has
been a member of the First Sterling Bancorp board since 1988. President of
Kravco, Inc., a real estate development company which specializes in large
shopping malls, Mr. Powell served on Prime's Community Reinvestment Act
Committee and the Audit Committee. His insights and expertise have been most
appreciated.
Prime Is Helping To Fight Cancer
Prime has teamed up with the American Cancer Society (Southeast PA Region) to
support the American Cancer Society "Coaches vs. Cancer" Big Five Basketball
Program. Prime is working closely with the coaches of Penn, Drexel, Villanova,
St. Joe's, LaSalle, and Temple Universities to raise money for important cancer
research, education, and patient services. According to Prime Bank C.E.O. James
J. Lynch, "This is an extremely worthwhile effort and Prime is pleased and proud
to be a part of it. Fighting this deadly disease is a way that we can help each
and every member of our community, as well as generations to come."
Jim Lynch, Prime Bank C.E.O., (center) with local university basketball coaches.
(Left to right) Fran Dunphy, University of Pennsylvania; Bill Herrion, Drexel
University; John Chaney, Temple University; Phil Martelli, Saint Joseph's
University; Speedy Morris, LaSalle University; and Steve Lappas, Villanova
University.
[Photo]
7
<PAGE>
Marcia C. Gallagher, Branch Manager, Devon works closely with customers to
achieve the highest level of customer contact and quality service.
(Left to right) Carol A. Chartrand, VP-Cash Management; Timothy J. Abell, Sr.
V.P.-Commercial Lending; Jan M. Smith, Sr. V.P.-Branch Management; and Steven H.
Santini, V.P.-Credit Policy and Administration meet regularly to discuss
commercial lending and cash management opportunities throughout Prime's branch
network.
(Left to right.) Gregory J. Webster, Sr. V.P.-Commercial Real Estate
Lending/Construction; Scott R. Gamble, V.P. Commercial Lending; and Steven C.
McGilvery, Sr. V.P. Commercial Lending work together to increase Prime's
commercial real estate loan portfolio.
RELATIONSHIPS
[Photos]
GROWTH
Relationship Banking
It's Our People That Make
The Difference
Customers want a banker they can count on. They want someone who understands
their needs, knows their business, and has the ability to get things done.
That's why Prime has assembled the best team of banking professionals in the
Region. Prime bankers build lasting relationships. And, they work to earn those
relationships every day.
An Expanded Commercial
Banking Team
Our commercial banking team has been expanded and enhanced by the hiring of
highly experienced, commercial banking talent. Many of our team members once
worked for big banks and became tired of big-bank bureaucracy and instability.
They came to Prime because they want to build valued customer relationships.
Now, they have both the ability and the authority to get the job done and are
true believers in Prime's "high-touch" approach to quality service.
In a turbulent local banking environment, Prime is carving a niche for quality
bankers and displaced customers. Our customers benefit from "big bank" expertise
and "neighborhood bank" service. Through Prime's 24-branch network, there is
constant interaction and exchange of ideas to develop commercial banking
opportunities. Commercial loans, real estate loans, cash management and lock box
programs, as well as alternative financing products, such as investment and
insurance products, are available for Prime customers.
Emphasizing Commercial
Banking Into The Next Century
Prime was the first mid-size bank in the Region to convert from a thrift to a
commercial bank. We took this step because we believe Prime's continued and
growing future success lies in commercial banking. Although we intend to remain
responsive to all customers -- commercial, consumer, and government -- our
emphasis is clearly focused on serving the special needs of our business
customers.
Currently 55% of Prime's loan portfolio is based in commercial assets. By the
year 2000, we plan to raise that number to 75%. Our top-executives and team of
talented commercial lenders have what it takes to make Prime the commercial
banking alternative for Delaware Valley businesses. We plan to take advantage of
every opportunity and do whatever it takes to get the job done.
8
<PAGE>
[Photo]
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
As indicated by earnings performance and the completion of certain operating
goals discussed below, 1997 was a very productive year for Prime Bancorp, Inc.
("Prime or the Company"). Net income at $10.5 million was the highest total in
the Company's history and the resulting 14% return on average shareholders'
equity represented a substantial increase from prior years. Commercial
relationships continued to grow as the mix of loans outstanding increased from
44% commercial to 55% in 1997. Commercial deposits also increased as evidenced
by higher levels of demand deposits. The continued movement to a better mix of
earning assets also resulted in improved margins, the net interest yield on
earning assets.
Other events affecting the Company in 1997 included the consolidation of
computer, check processing and other operations of First Sterling Bank, acquired
in 1996. Early in the fall, the former First Sterling Bank and the Company's
largest subsidiary, Prime Bank (the "Bank"), were merged to form one commercial
bank operating under the Prime Bank name. Also in 1997, the Company opened its
24th branch at a convenient location in Plymouth Meeting.
EARNINGS
The Company reported net income for the year of $10.5 million or $1.91 a share
which was 42% above the adjusted $7.4 million ($1.36 a share) reported for 1996
before the effects of a special FDIC premium assessment and the restructuring
charges associated with the 1996 merger with First Sterling Bancorp ("the
adjustments"). Including the adjustments, income for 1996 was $4.0 million or
$.74 a share. 1995 net income was $7.5 million or $1.39 a share. All earnings
per share computations have been restated as required by Statement of Financial
Accounting Standards ("SFAS") No. 128.
[Chart]
dollars in millions
Net Income
as reported as adjusted
1995 7.5
1996 4.0 7.4
1997 10.5
Returns on average assets (ROA) and average equity (ROE) both improved. The
ROA in 1997 was 1.13% compared to .46% for 1996 (.85% excluding the
adjustments). ROE was 14.0% compared to 5.70% in 1996 (10.5% excluding the
adjustments).
9
<PAGE>
NET INTEREST INCOME
Partly contributing to the Company's improved operating results were improved
margins resulting from loan growth and favorable deposit mix changes largely due
to increased focus on commercial relationships. Net interest income for 1997
amounted to $37 million, an increase of 14% over the $33 million in 1996 which
was 14% over 1995's total of $28 million. In addition to the improved mix of
loans and deposits, higher volumes added to average earning assets which
increased by 8% from $809 million to $877 million.
[Chart]
dollars in millions
Net Interest Income
1995 28.4
1996 32.5
1997 37.1
Prime's net interest margin improved to 4.27% in 1997 from 4.06% in 1996
and 1995. Most of the increase in 1997 was the result of improved loan mix and
reduced deposit costs.
A more detailed analysis of the mix of assets and liabilities and their
related interest rates is presented on pages 15 and 16.
NON-INTEREST INCOME
Non-interest income for the year amounted to $4.9 million including $1.2 million
in net gains on asset sales, part of which is reported as mortgage banking
activities. Included in these asset sales were mortgage loans sold as part of
the Company's strategy to originate residential loans for our customers but sell
the subsequent loan receivable into the secondary markets.
[Chart]
dollars in millions
Non-Interest Income
1995 3.4
1996 3.2
1997 4.9
Non-interest income in 1996 amounted to $3.2 million, of which gains on
asset sales amounted to $401 thousand. This was a slight decrease from the $3.4
million in 1995. Income from fees and service charges showed a significant
increase in 1997 to $2.4 million from $1.9 million in 1996 and $1.8 million in
1995. This was primarily due to higher pricing and the larger volume of
deposits.
For the Years
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Fees and service charges $ 2,433 $ 1,864 $ 1,820
Gain (loss) on sale of:
Securitization and sale of mortgages 606 -- --
Investment securities 135 288 448
Real estate owned 33 14 (44)
Mortgage banking activities 561 294 509
Other 1,102 761 710
- --------------------------------------------------------------------------------
$ 4,870 $ 3,221 $ 3,443
- --------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Non-interest expenses of $23 million in 1997 were 8% or $1.8 million higher than
in 1996, excluding the adjustments that were part of 1996 results.
[Chart]
dollars in millions
Non-Interest Expense
as reported as adjusted
1995 18.9
1996 26.0 21.0
1997 22.8
Higher salary and benefit costs accounted for $1.0 million or over half of
the expense increase and are largely a consequence of the Company's expanded
commercial banking activities. Occupancy and equipment expenses increased to
$5.6 million in 1997 from $5.0 in 1996 mainly due to technology enhancements and
the first full year of costs for certain operating facilities. Other expenses
increased from $4.8 million to $5.4 million primarily due to increased printing
and supply costs necessitated by the conversion to a commercial bank and
increased expenses associated with real estate owned. The overall increase was
partly offset by a decrease in regular FDIC insurance premiums from $.8 million
to $.4 million. The Company's efficiency ratio has shown steady improvement from
60% in 1995 to 59% in 1996 and 55% in 1997.
For the Years
- -----------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------
Salaries & benefits $11,436 $10,437 $9,065
Occupancy & equipment 5,584 4,985 3,825
FDIC insurance 365 753 1,008
FDIC special assessment -- 2,713 --
Restructuring charges -- 2,260 --
Other 5,371 4,847 5,032
- -----------------------------------------------------------
$22,756 $25,995 $18,930
- -----------------------------------------------------------
10
<PAGE>
BALANCE SHEET REVIEW
Prime's total assets grew 3% from $926 million at December 31, 1996 to $953
million at December 31,1997. Total assets at December 31, 1996 increased $106
million or 13% above the $820 million reported as of December 31, 1995.
Management's efforts to seek only the most cost effective funding sources
resulted in reduced levels of relatively high cost deposits. Consequently, total
assets grew by only 3% despite the growth in commercial assets. Marginal
yielding short term assets were allowed to mature and residential mortgage
assets also declined. Balance sheet changes are summarized in the following
table (dollars in millions):
Balances at December 31,
- -----------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------
Loans (net) $634.0 $616.9 $503.8
Investments (all) 251.9 239.5 259.3
Non-earning assets 67.5 69.7 56.9
- -----------------------------------------------------------
Total assets $953.4 $926.1 $820.0
- -----------------------------------------------------------
Deposits $694.4 $ 736.6 $644.3
Borrowings 172.7 110.4 97.7
Other liabilities 6.4 8.6 8.7
Equity 79.9 70.5 69.3
- -----------------------------------------------------------
Total liabilities and equity $953.4 $926.1 $820.0
- -----------------------------------------------------------
LOANS
While there was only a slight increase in the overall balance of loans, there
was a significant shift in the mix. The increased focus on commercial
relationships resulted in an increase in commercial and commercial real estate
loans of $75 million or 27% in 1997 to $351 million from $276 million at the end
of 1996. This increase was partly offset by management's decision to reduce the
mortgage portfolio by securitizing and selling some of the mortgages in the
portfolio and selling most new originations into the secondary markets.
Residential mortgages declined from $246 million to $183 million at the end of
1997.
INVESTMENTS
Investments grew $12 million, or approximately 5% from, $239.5 million at the
end of 1996 to $251.9 million at the end of 1997. The structure of the overall
portfolio is intended to provide flexibility for the Company's overall
management of balance sheet risks, particularly interest rate risk.
DEPOSITS
Deposits decreased from $736.6 million at December 31,1996 to $694.4 million at
December 31, 1997. This was primarily the result of a decision to eliminate
certain sources of funding that were relatively expensive. Consequently, time
deposits decreased $64.9 million. However, core demand and savings deposits
increased $22.7 million as the Company emphasized relationship banking.
BORROWINGS
Borrowings increased $62.3 million or 56% from year end 1996 to year end 1997
primarily due to increases in customer repurchase agreements and FHLB
borrowings. $23.6 million of the increase was in repurchase agreements with
Prime customers; these relationships increased from $47.5 million to $71.1
million. This is consistent with the increased commercial focus adopted by the
Company. Similar agreements at the end of 1995 were $21.9 million. The Company
also took advantage of favorable borrowing rates at the Federal Home Loan Bank
of Pittsburgh to increase these borrowings by $23 million.
11
<PAGE>
[Photo]
BANKING RISKS
YEAR 2000 RISK
The Company is aware of the complex issues involving computer systems and the
risk of errors when record dates change to 01/01/00 on January 1, 2000. Systems
that do not properly recognize date sensitive information could generate
erroneous data or cause a system to fail. The Company is utilizing both internal
and external resources to identify, correct or reprogram, and test the systems
for year 2000 compliance. An impact study has been completed by an outside
consultant and their recommendations are already being implemented. It is
anticipated that all reprogramming efforts or new programs will be complete, or
in place, and substantially tested by December 31, 1998. To date, confirmations
have been received from the Company's primary processing vendors that they are
either year 2000 compliant or have plans to be in compliance by early 1998.
While management has been unable, so far, to put an exact figure on the year
2000 compliance expense and related potential effect on the Company's earnings,
it is currently estimated that expenditures will exceed $1.0 million but are
likely to be less than $2.0 million. Most of these expenditures (i.e., purchase
of new software) will be capitalized and amortized over a number of years. There
should not be a material effect on any year's earnings.
CREDIT RISK
Credit risk exists in financial instruments such as loans and leases,
investments and off-balance sheet instruments including loan commitments,
letters of credit and derivative instruments. The objective of credit risk
management is to reduce the risk of loss if a party to a contract fails to
perform according to the terms of a transaction. Essential to this process are
thorough underwriting practices regarding new commitments, active monitoring of
all portfolios and the early identification of potential problems and their
prompt resolution.
The Company manages credit risk by maintaining a well-diversified credit
portfolio and by adhering to its board approved credit policies. All loan
approvals are made by at least two experienced banking officers. The level of
officer approvals required is determined by the dollar amount and risk
characteristics of the credit extension. The credit process also includes the
review of approved and renewed loan relationships over $1 million by a committee
of directors.
Credit quality is continually assessed through the review and assignment of
a numerical grade to substantially all extensions of credit in the commercial
and commercial real estate portfolios. Lending officers have the primary
responsibility for monitoring their portfolios, identifying emerging problem
loans and recommending changes in quality ratings. The Loan Review Department
provides an independent assessment of these credit ratings, credit quality and
the credit management process. Loan review findings are regularly reported to
the audit committee of the board of directors. When signs of serious credit
weaknesses are detected, the Loan Workout Department is utilized to minimize
loss exposure.
LOAN PORTFOLIO COMPOSITION
The loan portfolio increased from $624.1 million at December 31, 1996 to $639.3
million at December 31, 1997. Loan growth was centered in the commercial and
commercial real estate loan portfolios. Consumer loans grew slightly while
residential mortgage loans declined significantly. The change in composition of
the loan portfolio was a direct result of management's efforts to improve
overall yields while continuing to manage risk through the origination of high
quality commercial and real estate loans.
NON-PERFORMING ASSETS
Non-performing assets declined during 1997 as a result of collection efforts and
charge-offs. Total non-performing assets decreased from $8.5 million at December
31, 1996 to $4.0 million at December 31, 1997. Non-accrual loans, a large
component of non-performing assets, fell by $4.2 million to $3.0 million during
the twelve month period.
12
<PAGE>
The allowance for loan losses was $8.5 million at December 31, 1997, or
1.33% of total loans, compared with $7.2 million, or 1.15% of total loans at
December 31, 1996. The increase in the allowance reflects significant commercial
and commercial real estate loan growth. Non-performing assets declined during
1997 as a result of collection efforts and charge-offs. Total non-performing
assets decreased from $8.5 million at December 31, 1996 to $4.0 million at
December 31, 1997. Non-accrual loans, a large component of non-performing
assets, fell by $4.2 million to $3.0 million during the twelve month period.
The allowance for loan losses is based on a periodic evaluation of the loan
portfolio and is maintained at a level that management considers adequate to
absorb estimated potential losses. Management considers a variety of factors,
and recognizes the inherent risk of loss that always exists in the lending
process. Management uses a disciplined methodology to estimate the appropriate
level of allowance for loan losses. This methodology includes an evaluation of
loss potential from individual problem credits, as well as anticipated specific
and general economic factors that may adversely affect collectibility.
Management's determination of the adequacy of the allowance is based on
periodic evaluations of the credit portfolio. This evaluation is inherently
subjective as it requires material estimates, including, among others, the
amounts and timing of expected future cash flows on impaired loans, estimated
losses on consumer loans and residential mortgages, and general amounts for
historical loss experience, economic conditions, uncertainties in estimating
losses and inherent risks in the various credit portfolios, all of which may be
susceptible to significant change. Pursuant to SFAS 114, "Accounting by
Creditors for Impairment of a Loan," as amended, impaired loans, consisting of
nonaccrual and restructured commercial and commercial real estate loans, are
considered in the methodology for determining the allowance for credit losses.
Impaired loans are generally evaluated based on the present value of expected
future cash flows or the fair value of the underlying collateral if principal
repayment is expected to come from the sale or operation of such collateral.
CHARGE-OFFS
Net charge-offs totaled $2.2 million in 1997, a decrease of $554 thousand from
1996. The decrease was primarily due to lower commercial and commercial real
estate charge-offs but was partially offset by higher credit card and indirect
auto loan charge-offs. Approximately 33% of total net charge-offs were centered
in the credit card and indirect auto loan portfolios. The Company does not
anticipate a significant decrease in credit card losses in 1998. The Company
exited the indirect auto business in the third quarter of 1997 but does not
anticipate a significant change in charge-off rates in 1998.
The following table provides key asset quality trends (dollars in thousands).
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net charge-offs $2,159 $2,713 $1,114 $1,132 $941
Net charge-offs as % of loans 0.34% 0.43% 0.22% 0.25% 0.23%
Non-performing loans $3,003 $7,084 $4,838 $6,968 $6,740
Allowance as % of non-performing loans 282.55% 83.25% 84.07% 87.07% 83.16%
Non-performing assets $3,961 $8,509 $5,755 $7,291 $7,133
Non-performing assets as % of assets 0.42% 0.91% 0.64% 0.99% 1.19%
Allowance for loan losses $8,485 $7,206 $6,082 $6,067 $5,605
Allowance as % loans 1.33% 1.15% 1.20% 1.35% 1.36%
Allowance as % non-performing assets 214.21% 84.69% 105.68% 83.21% 78.58%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Statistics do not include the impact of a condominium project which was
acquired by a deed in lieu of foreclosure in 1995 and classified as land
acquired for development and resale. The balance of the condominium project as
of December 31, 1997, 1996, and 1995 was $5.9 million, $8.9 million and $10.1
million, respectively. Non-performing assets, and the ratio of non-performing
assets as a percentage of assets would have been $9.9 million and 1.04% in 1997,
$17.4 million and 1.88% in 1996, and $15.9 million and 1.93% in 1995.
INTEREST RATE RISK
The risk of losses from adverse interest rate changes is monitored by evaluating
the impact, if any, on the Company's net interest income under a variety of rate
assumptions. This evaluation monitors the degree of interest sensitivity to rate
changes. Management attempts to limit the projected negative impact of interest
rate changes on its income. Consequently, if the Company's internal analysis
would suggest that a reasonably possible rate projection would result in a
significant loss of net interest income (generally about 5% or more), it would
act to mitigate this potential future risk. The steps to mitigate possible
interest rate risk include changing the mix of assets and their scheduled
maturities. Among the assets most likely for these changes are investment
securities available for sale and short-term money market investments. Changing
the composition and maturity of certain liabilities is also an alternative
management may consider as is the option of using derivative financial
instruments to adjust a given interest sensitivity position.
In 1997 the Company did not engage in trading account activities and has no
current plans to do so. Trading account activities include security positions,
generally held for only short terms, that are primarily intended to generate
short-term profits.
13
<PAGE>
GAP ANALYSIS
- --------------------------------------------------------------------------------
December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
3 Mo More 3 Mo More 6 Mo More 1 Yr More 3 Yr More 5 Yr More
or less thru 6 Mo thru 1 Yr thru 3 Yr thru 5 Yr thru 10 Yr 10 Yr Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Loans $ 293,068 $ 36,112 $ 42,381 $ 99,537 $ 84,978 $ 57,083 $ 26,400 $ 639,559
Investments 64,025 15,393 34,398 77,991 31,749 8,985 1,175 233,716
Interest bearing deposits 18,161 -- -- -- -- -- -- 18,161
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 375,254 51,505 76,779 177,528 116,727 66,068 27,575 891,436
- ------------------------------------------------------------------------------------------------------------------------------------
Non-accruing loans 299 601 601 751 751 -- -- 3,003
Real estate owned 287 287 287 96 -- -- -- 957
Allowance for loan losses -- (849) (1,697) (2,546) (3,393) -- -- (8,485)
Other assets -- -- -- -- -- -- 66,514 66,514
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 375,840 $ 51,544 $ 75,970 $ 175,829 $ 114,085 $ 66,068 $ 94,089 $ 953,425
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES & EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits $ 305,820 $ 62,520 $ 43,927 $ 50,062 $ 228,442 $ 3,533 $ 140 $ 694,444
Borrowings 92,286 7,202 761 30,503 42,000 -- -- 172,752
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 398,106 69,722 44,688 80,565 270,442 3,533 140 867,196
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities -- -- -- -- -- -- 6,365 6,365
Equity -- -- -- -- -- -- 79,864 79,864
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 398,106 $ 69,722 $ 44,688 $ 80,565 $ 270,442 $ 3,533 $ 86,369 $ 953,425
- ------------------------------------------------------------------------------------------------------------------------------------
GAP $ (22,852) $ (18,217) $ 32,091 $ 96,963 $(153,715) $ 62,535 $ 27,435 $ 24,240
Cumulative GAP $ (22,852) $ (41,069) $ (8,978) $ 87,985 $ (65,730) $ (3,195) $ 24,240
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table shows the Company's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity, and
the instruments' fair values at December 31, 1997.
<TABLE>
<CAPTION>
Expected Maturity/Principal Repayment December 31,
- -----------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 Thereafter Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Loans $370,894 $ 54,772 $ 44,765 $ 46,642 $ 38,336 $ 84,150 $639,559
Investments 71,428 58,940 24,914 19,899 16,008 42,527 233,716
Interest-bearing deposits 18,161 -- -- -- -- -- 18,161
- -----------------------------------------------------------------------------------------------------------------------
Total $460,483 $113,712 $ 69,679 $ 66,541 $ 54,344 $126,677 $891,436
- -----------------------------------------------------------------------------------------------------------------------
Interest-sensitive liabilities:
Savings, NOW, money market deposit $139,253 $ -- $ -- $215,724 $ -- $ -- $354,977
Certificates of deposit 273,014 34,068 15,994 6,887 5,831 3,673 339,467
Borrowings 100,249 30,503 -- -- 42,000 -- 172,752
- -----------------------------------------------------------------------------------------------------------------------
Total $512,516 $ 64,571 $ 15,994 $222,611 $ 47,831 $ 3,673 $867,196
- -----------------------------------------------------------------------------------------------------------------------
Total Average Interest Rate Fair Value
- ------------------------------------------------------------------------------------------------
Assets
Loans $639,559 8.89% 639,140
Investments 233,716 6.45% 233,872
Interest-bearing deposits 18,161 5.50% 18,161
- ------------------------------------------------------------------------------------------------
$891,436 8.18% $891,173
- ------------------------------------------------------------------------------------------------
Liabilities
Savings, NOW, money market deposit $354,977 1.73% $354,977
Certificates of deposit 339,467 5.51% 340,836
Borrowings 172,752 5.32% 173,102
- ------------------------------------------------------------------------------------------------
$867,196 3.92% $868,915
- ------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES
- -------------------------------------------------------------------------------------
(Dollars in thousands)
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
Balance Inc./Exp. Yield Balance Inc./Exp. Yield Balance Inc./Exp. Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)(2)
Commercial &
commercial
real estate $316,006 $29,663 9.39% $250,334 $23,104 9.23% $218,430 $19,999 9.16%
Consumer 104,375 9,853 9.44% 87,163 7,789 8.94% 66,967 6,068 9.06%
Residential mortgage 206,631 15,807 7.65% 221,952 18,569 8.37% 195,633 16,983 8.68%
- ------------------------------------------------------------------------------------------------------------------------------------
627,012 55,323 8.82% 559,449 49,462 8.84% 481,030 43,050 8.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities(3) 241,824 15,734 6.51% 241,489 16,207 6.71% 218,913 15,583 7.12%
Interest-bearing
deposits 8,313 607 7.30% 8,485 295 3.48% 8,278 646 7.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest
earning assets 877,149 71,664 8.17% 809,423 65,964 8.15% 708,221 59,279 8.37%
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for
loan losses (8,393) -- -- (6,421) -- -- (6,075) -- --
Non-interest
earning assets 64,988 -- -- 63,500 -- -- 55,453 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $933,744 $71,664 -- $866,502 $65,964 -- $757,599 $59,279 --
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Passbook/statement $ 62,396 $ 1,169 1.87% $ 63,827 1,338 2.10% $ 65,157 $ 1,353 2.08%
Money market 126,568 4,313 3.41% 120,817 4,334 3.59% 105,923 3,919 3.70%
Commercial checking 98,721 281 0.28% 73,627 578 0.79% 56,100 510 0.91%
N.O.W. accounts 39,389 247 0.63% 40,720 782 1.92% 36,444 737 2.02%
Time deposits 381,129 20,496 5.38% 371,773 19,679 5.29% 333,791 18,747 5.62%
- ------------------------------------------------------------------------------------------------------------------------------------
708,203 26,506 3.74% 670,764 26,711 3.98% 597,415 25,266 4.23%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLB advances and
other borrowings 143,421 7,726 5.39% 116,289 6,429 5.53% 88,769 5,291 5.96%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 851,624 34,232 4.02% 787,053 33,140 4.21% 686,184 30,557 4.45%
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 6,810 -- -- 8,977 -- -- 8,616 -- --
Shareholders' equity 75,310 -- -- 70,472 -- -- 62,799 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $933,744 $34,232 $866,502 $33,140 $757,599 $30,557
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/
interest rate spread $37,432 4.15% $32,824 3.94% $28,722 3.92%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest earning
assets/net yield on
interest-earning assets $ 25,525 4.27% $ 22,370 4.06% $ 22,037 4.06%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest earning assets
to interest-bearing
liabilities 103% 103% 103%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Non-accrual loans and loans held for sale are included in loans.
(2) Yields on loans include income from origination fees, net of direct costs.
(3) Interest income is calculated on a tax equivalent basis.
</TABLE>
15
<PAGE>
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (1) changes in volume (changes in average
volume multiplied by the prior year's rate), and (2) changes in rate (changes in
rate multiplied by the prior year's volume). The difference in the rate/volume
is allocated on a pro-rata basis to the change in rate variance and the change
in volume variance.
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1996 vs. 1997 1995 vs. 1996
- ---------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
- ---------------------------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loan portfolio
Commercial & commercial real estate $5,992 $567 $6,559 $3,040 $66 $3,106
Consumer 1,539 525 2,064 1,830 (109) 1,721
Residential mortgage (1,282) (1,480) (2,762) 2,284 (698) 1,586
- ---------------------------------------------------------------------------------------------------------------------------
6,249 (388) 5,861 7,154 (741) 6,413
- ---------------------------------------------------------------------------------------------------------------------------
Investments 22 (495) (473) 1,607 (984) 623
Interest earning deposits (6) 318 312 16 (367) (351)
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 6,265 (565) 5,700 8,777 (2,092) 6,685
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense:
Passbook/statement (30) (139) (169) (28) 13 (15)
Money market 206 (227) (21) 551 (136) 415
Commercial checking 198 (495) (297) 159 (91) 68
N.O.W. checking (26) (509) (535) 86 (41) 45
Time deposits 495 (322) 817 2,135 (1,203) 932
- ---------------------------------------------------------------------------------------------------------------------------
843 (1,048) (205) 2,903 (1,458) 1,445
- ---------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank
advances and other borrowings 1,500 (203) 1,297 1,640 (502) 1,138
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,343 (1,251) 1,092 4,543 (1,960) 2,583
- ---------------------------------------------------------------------------------------------------------------------------
Change in net interest income $3,922 $686 $4,608 $4,234 $(132) $4,102
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
LIQUIDITY RISK
The management process in this regard is to preserve stable, reliable and cost
effective sources of cash to fund loan growth as well as unexpected outflows of
deposits or other liabilities. As part of our liquidity management, we seek to
avoid concentrations in a limited number of liability sources and minimize
reliance on volatile large liabilities. The table below summaries Prime
Bancorp's funding profile at December 31, 1997.
From the table below, management concludes that 88.4% of its funding is
from core, local relationships. In addition to the above, the Company has access
to certain capital markets and can use funding vehicles such as securitizations
or large dollar liabilities. Core deposits, however, remain the Company's main
source of liquidity. Accordingly, branch development, including possible branch
expansion is always a planning consideration.
% of Total
Product Category Funding
- -------------------------------------------------
Transaction accounts 41.0%
Time deposits 39.2%
Customer repurchase agreements 8.2%
Other repurchase agreements 2.4%
Other borrowings 9.2%
- -------------------------------------------------
100.0%
- -------------------------------------------------
16
<PAGE>
FINANCIAL CONDITION DATA
(Dollars in thousands)
<TABLE>
<CAPTION>
As of December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $953,425 $926,071 $819,961 $739,231 $598,858
Loans receivable, net 630,848 616,893 497,034 441,401 403,693
Investment securities and interest-bearing deposits 251,877 239,497 259,328 117,193 156,199
Land acquired for development and resale 5,925 8,858 10,405 694 838
Deposits 694,444 736,642 644,306 585,066 491,163
Advances from Federal Home Loan Bank of Pittsburgh 79,550 37,598 37,646 24,694 23,000
Other borrowed money 91,486 70,685 57,622 56,525 18,644
Shareholders' equity 79,864 70,516 69,279 57,369 58,629
Offices open 24 23 22 20 16
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996(2) 1995 1994 1993(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 1.13% 0.46% 0.97% 1.02% 1.38%
Return on average equity 13.97% 5.70% 11.89% 11.57% 13.88%
Average equity to average assets 8.07% 8.13% 8.29% 8.80% 9.93%
Book value per share $14.67 $13.33 $13.15 $11.19 $11.70
Dividends per share $0.70 $0.68 $0.62 $0.54 $0.50
Dividend payout ratio 36.65% 91.89% 44.93% 42.86% 39.37%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the cumulative effect on prior years of a change in accounting
principle.
(2) Includes a one time FDIC special insurance assessment of $2.71 million
($1.66 million net of taxes) and restructuring charges of $2.66 million
($1.70 million net of taxes). Excluding these adjustments, return on assets,
return on average equity, and average equity to average assets, would have
been .85%, 10.48%, and 7.98% for the twelve months ended December 31, 1996,
respectively.
OPERATING DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $71,364 $65,664 $58,979 $47,068 $41,953
Interest expense 34,232 33,140 30,557 21,280 18,283
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 37,132 32,524 28,422 25,788 23,670
Provision for loan losses 3,438 3,837 1,129 1,594 2,160
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 33,694 28,687 27,293 24,194 21,510
Fees and service charges and other income 3,535 2,625 2,530 2,398 2,209
Gain (loss) on sale of:
Securitization and sale of mortgages 606 -- -- -- --
Investment securities, net 135 288 448 (285) 269
Real estate owned 33 14 (44) (17) (26)
Mortgage banking activities 561 294 509 81 148
Non-interest expense 22,756 25,995 18,930 16,034 13,593
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes and effect of cumulative
change in accounting principle 15,808 5,913 11,806 10,337 10,517
Income tax expense 5,289 1,896 4,337 3,625 3,939
- ---------------------------------------------------------------------------------------------------------------------------
Income before effect of cumulative change
in accounting principle 10,519 4,017 7,469 6,712 6,578
Cumulative effect on prior years of change in tax
accounting method -- -- -- -- 1,055
- ---------------------------------------------------------------------------------------------------------------------------
Net income $10,519 $4,017 $7,469 $6,712 $7,633
- ---------------------------------------------------------------------------------------------------------------------------
Dividends declared $3,791 $2,811 $2,351 $1,949 $1,821
- ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share (1) $1.91 $0.74 $1.39 $1.26 $1.27
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Earnings per share have been adjusted to reflect stock dividends.
17
<PAGE>
CONSOLIDATED SUMMARY OF QUARTERLY EARNINGS
The following quarterly financial information for the years ended December 31,
1997 and 1996 is unaudited. However, in the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for the periods, are reflected in
conformity with generally accepted accounting principles. Results of operations
for the periods presented are not necessarily indicative of the results for the
entire year or for any other interim period.
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $17,129 $17,590 $18,319 $18,326 $15,345 $16,219 $16,989 $17,111
Interest expense 8,411 8,555 8,729 8,537 7,851 8,078 8,589 8,622
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 8,718 9,035 9,590 9,789 7,494 8,141 8,400 8,489
Provision for loan losses 845 873 856 864 363 472 537 2,465
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 7,873 8,162 8,734 8,925 7,131 7,669 7,863 6,024
Non-interest income 1,241 1,394 1,163 1,072 970 849 672 730
Non-interest expense 5,567 5,867 5,708 5,614 4,913 5,121 7,934(1) 8,027(2)
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 3,547 3,689 4,189 4,383 3,188 3,397 601 (1,273)
Income taxes 1,232 1,173 1,419 1,465 1,092 1,191 114(1) (501)(2)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $2,315 $2,516 $2,770 $2,918 $2,096 $2,206 $487 $(772)
- ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $0.43 $0.46 $0.50 $0.52 $0.39 $0.41 $0.09 $(0.14)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes a one-time FDIC Special Insurance Assessment of $2.71 million or
$1.66 million net of taxes.
(2) Includes restructuring charges of $2.26 million or $1.70 million net of
taxes.
18
<PAGE>
MARKET INFORMATION
The Company's common stock is traded on the NASDAQ National Market System under
the symbol "PBNK." On February 1, 1998 there were 5,444,260 shares of common
stock issued and outstanding, which were held by approximately 2,600
shareholders. The following table shows the high and low closing sale prices for
the common stock, as quoted on the NASDAQ National Market System, and the
dividends declared per share, for the periods indicated.
Dividends
Declared
For The Quarter Ended High Low (Per Share)
- --------------------------------------------------------------
March 31, 1995 $17.27 $16.14 $.15
June 30, 1995 16.36 15.68 .15
September 30, 1995 19.09 18.18 .15
December 31, 1995 20.88 18.00 .17
- --------------------------------------------------------------
March 31, 1996 $18.25 $17.75 $.17
June 30, 1996 18.75 18.00 .17
September 30, 1996 19.50 18.75 .17
December 31, 1996 20.50 18.75 .17
- --------------------------------------------------------------
March 31, 1997 $23.75 $19.75 $.17
June 30, 1997 25.25 20.50 .17
September 30, 1997 27.50 23.88 .17
December 31, 1997 37.25 27.50 .19
- --------------------------------------------------------------
The listed market makers for Prime's stock are:
Janney Montgomery Scott, Inc.
Ryan Beck & Co., Inc.
Legg Mason Wood Walker, Inc.
Sandler O'Neill & Partners
F. J. Morrissey & Co., Inc.
Wheat First Securities Inc.
The Board of Directors of the Company, on December 20, 1995, declared a
special 10% stock dividend to shareholders which was paid on February 1, 1996 to
shareholders of record on January 2, 1996. The trading information shown to the
left has been adjusted to reflect this stock dividend.
It is the Company's current policy to pay quarterly cash dividends. Future
cash dividends will be subject to determination and declaration by the Board of
Directors, which will take into account the Company's financial condition,
results of operations, industry standards, economic conditions, and regulatory
and tax considerations. Funds for the payment of the dividends by the Company
are generally obtained from the Bank. The amount of dividends that may be
declared or paid by the Bank are subject to certain restrictions.
19
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $23,068 $29,161
Interest-bearing deposits 18,161 2,703
Federal funds sold -- 600
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 41,229 32,464
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities (market value of $118,848 and $110,874) 117,988 110,766
Investment securities available for sale, at market value 115,728 125,428
Loans receivable 639,333 624,099
Allowance for loan losses (8,485) (7,206)
- ---------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 630,848 616,893
- ---------------------------------------------------------------------------------------------------------------------------
Loans held for sale 3,229 49
Accrued interest receivable 7,429 6,826
Real estate owned 957 1,335
Land acquired for development and resale 5,925 8,858
Property and equipment, net 10,023 10,291
Other assets 20,069 13,161
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $953,425 $926,071
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Liabilities:
Deposits $694,444 $736,642
Repurchase agreements 91,486 51,685
Borrowings from Federal Home Loan Bank of Pittsburgh 79,550 56,598
Advance payments by borrowers for taxes and insurance 1,716 2,104
Other liabilities 6,365 8,526
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 873,561 855,555
- ---------------------------------------------------------------------------------------------------------------------------
Commitments & contingencies (Note 14)
Shareholders' equity:
Serial preferred, $1 par value; 2,000,000 shares authorized unissued -- --
Common stock, $1 par value; 13,000,000 shares authorized and 5,444,266 and 5,291,157
shares issued and outstanding 5,444 5,291
Additional paid-in capital 39,096 37,390
Retained earnings 35,884 29,156
Valuation adjustment for debt securities, net of taxes (560) (1,321)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 79,864 70,516
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $953,425 $926,071
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except for share data)
<TABLE>
<CAPTION>
Years Ended December 31,
- --------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $55,323 $49,462 $43,050
Investment securities 15,434 15,907 15,283
Interest-bearing deposits 607 295 646
- --------------------------------------------------------------------------------------------------
Total interest income 71,364 65,664 58,979
- --------------------------------------------------------------------------------------------------
Interest expense:
Deposits 26,506 26,711 25,266
Short-term borrowings 7,422 5,272 3,534
Long-term borrowings 304 1,157 1,757
- --------------------------------------------------------------------------------------------------
Total interest expense 34,232 33,140 30,557
- --------------------------------------------------------------------------------------------------
Net interest income 37,132 32,524 28,422
- --------------------------------------------------------------------------------------------------
Provision for loan losses 3,438 3,837 1,129
Net interest income after provision for loan losses 33,694 28,687 27,293
- --------------------------------------------------------------------------------------------------
Non-interest income:
Fees and service charges 2,433 1,864 1,820
Gain (loss) on sale of:
Securitization and sale of mortgages 606 -- --
Investment securities, net 135 288 448
Real estate owned 33 14 (44)
Mortgage banking activities 561 294 509
Other 1,102 761 710
- --------------------------------------------------------------------------------------------------
Total non-interest income 4,870 3,221 3,443
- --------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 11,436 10,437 9,065
Occupancy and equipment 5,584 4,985 3,825
Federal insurance premiums 365 753 1,008
FDIC special insurance assessment -- 2,713 --
Restructuring and other merger related expenses -- 2,260 --
Other 5,371 4,847 5,032
- --------------------------------------------------------------------------------------------------
Total non-interest expense 22,756 25,995 18,930
- --------------------------------------------------------------------------------------------------
Income before income taxes 15,808 5,913 11,806
Income taxes 5,289 1,896 4,337
- --------------------------------------------------------------------------------------------------
Net income $10,519 $4,017 $7,469
- --------------------------------------------------------------------------------------------------
Earnings per share:
Basic $1.95 $0.77 $1.43
Diluted 1.91 0.74 1.39
Weighted average number of shares outstanding:
Basic 5,401,444 5,240,682 5,220,789
Diluted 5,494,009 5,411,731 5,388,491
Dividends declared per share $0.70 $0.68 $0.62
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Valuation
Adjustment
for Debt
Additional Securities,
Common Paid-in Retained Net of Shareholders'
Stock Capital Earnings Taxes Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $5,270 $37,204 $22,832 $(7,084) $58,222
Dividends declared ($.62 per common share) -- -- (2,351) -- (2,351)
Valuation adjustment for debt securities, net of taxes -- -- -- 5,939 5,939
Net income -- -- 7,469 -- 7,469
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,270 37,204 27,950 (1,145) 69,279
Stock options exercised 21 112 -- -- 133
Tax benefit associated with exercise of stock options -- 74 -- -- 74
Dividends declared ($.68 per common share) -- -- (2,811) -- (2,811)
Valuation adjustment for debt securities, net of taxes -- -- -- (176) (176)
Net income -- -- 4,017 -- 4,017
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,291 37,390 29,156 (1,321) 70,516
Stock options exercised 153 997 -- -- 1,150
Tax benefit associated with exercise of stock options -- 709 -- -- 709
Dividends declared ($.70 per common share) -- -- (3,791) -- (3,791)
Valuation adjustment for debt securities, net of taxes -- -- -- 761 761
Net income -- -- 10,519 -- 10,519
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $5,444 $39,096 $35,884 $(560) $79,864
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $10,519 $4,017 $7,469
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization of intangibles 2,462 2,443 1,887
(Gain) loss on sale of:
Loans held for sale (418) (99) (68)
Investment securities (741) (288) (448)
Real estate owned (33) (14) 44
Provision for loan losses 3,438 3,837 1,129
(Increase) decrease in other assets and accrued interest receivable (7,023) (1,565) 261
Decrease in other liabilities (2,284) (462) (4,798)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 5,920 7,869 5,476
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of investment securities (44,682) (35,314) (49,549)
Maturities of investment securities 25,212 23,029 15,427
Sales of investment securities 12,285 -- --
Purchases of investment securities available for sale (54,165) (63,087) (84,848)
Maturities of investment securities available for sale 32,882 24,333 13,630
Sales of investment securities available for sale 50,104 40,443 118,343
Loans receivable (36,813) (121,829) (71,816)
Loans held for sale:
Originations, net of repayments (27,839) (7,855) (7,015)
Sales 22,988 9,492 9,742
Increase in land acquired for development and resale (1,831) (1,188) (819)
Purchase of property and equipment (510) (2,077) (1,611)
Proceeds from the sale of land acquired for development and resale 3,443 2,735 520
(Increase) decrease in real estate owned 823 -- (225)
Proceeds from sale of real estate owned 3,299 367 914
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,804) (130,951) (57,307)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in deposits (42,198) 92,336 59,432
Borrowings from the FHLB of Pittsburgh 557,276 46,200 79,602
Repayments of borrowings from the FHLB of Pittsburgh (534,324) (46,248) (66,650)
Increase in other borrowed money 39,801 13,063 2,147
Increase (decrease) in advance payments by borrowers for taxes and insurance (388) (299) 102
Net proceeds from issuance of common stock 1,150 133 --
Cash dividends paid (3,668) (2,529) (2,490)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from financing activities 17,649 102,656 72,143
- ---------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 8,765 (20,426) 20,312
Cash and cash equivalents:
Beginning of year 32,464 52,890 32,578
End of year $41,229 $32,464 $52,890
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $36,011 $33,165 $29,142
Income taxes 2,818 3,100 4,238
Securitization of residential loans 17,798 2,091 --
Transfer of investment securities to held to maturity -- -- 87,035
Transfer of investment securities to available for sale -- -- 38,324
Transfer of loans receivable to loans held for sale -- -- 4,813
Transfer of loans held for sale to loans receivable -- 3,136 --
Transfer of loans receivable to real estate owned 3,711 1,269 849
Benefit associated with the exercise of stock options 709 74 --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
[Photo]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. SUMtMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the significant accounting policies of Prime
Bancorp, Inc. and subsidiaries (the "Company"). The accompanying consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles ("GAAP"), which have been applied on a consistent basis.
BUSINESS
The Company's principal subsidiary is Prime Bank (the "Bank") whose principal
business consists of attracting deposits and obtaining borrowings, then
converting those deposits and borrowings into various types of loans and
investments. These operations are conducted through a branch network in
Southeastern Pennsylvania. The Bank is subject to competition from other
financial institutions and is also subject to the regulations of certain
government agencies and undergoes periodic examinations by those regulatory
authorities.
Prime Bank, a savings bank, merged with First Sterling Bank, a commercial
bank, on October 1, 1997. The Bank operates under the name Prime Bank and
functions as a commercial bank whose deposits are insured by the Bank Insurance
Fund ("BIF") administered by the Federal Deposit Insurance Corporation ("FDIC").
Prior to this, on March 19, 1996 Prime Bank, a federal savings bank,
converted into a Pennsylvania chartered stock savings bank with the legal name,
"Prime Bank, a savings bank." After the conversion, the Bank continued to do
business under the name "Prime Bank" and the Bank's deposits continued to be
insured by the Savings Association Insurance Fund ("SAIF") administered by the
FDIC.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. Certain amounts in prior
years have been reclassified for comparative purposes.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
INVESTMENT SECURITIES
Securities classified as held-to-maturity are those securities in which the
Company has the ability and intent to hold the securities until maturity and are
recorded at cost, adjusted for the amortization of premiums and discounts. All
other securities not included in held-to-maturity are classified as
available-for-sale and are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of shareholders' equity until realized.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
24
<PAGE>
REAL ESTATE OWNED
Real estate acquired in partial or full satisfaction of loans are classified as
Real Estate Owned ("REO"). Prior to transferring a real estate loan to REO, it
is written down to the lower of cost or fair value less costs to sell. This
write-down is charged to the allowance for loan losses. Subsequently, REO is
carried at the lower of fair value less estimated costs to sell or carrying
value.
LAND ACQUIRED FOR
DEVELOPMENT AND RESALE
Land acquired for development and resale represents land and construction in
progress and is carried at the lower of cost or fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method based upon the lesser of
the lease term (where applicable) or the estimated useful lives of the related
property, which range from 5 to 40 years. Maintenance and repairs are expensed
as incurred.
LOANS RECEIVABLE
Interest income is recognized on the accrual basis. Generally, loans are placed
on non-accrual status when the loan becomes past due by 90 days or more as to
principal or interest. After a loan is placed on non-accrual status, any
interest previously accrued but not yet collected is reversed against current
interest income. A loan is returned to accrual status only when the borrower has
brought principal and interest current and full collectibility is reasonably
assured.
Fees earned for servicing loans for others are reported as income when the
related loan payments are collected. Loan servicing costs are charged to expense
as incurred. If the Bank sells loans and continues to service these loans for
the investor, the computation of the gain or loss is adjusted to allow for a
normal servicing fee over the estimated remaining maturities of the loans sold.
Normal servicing fees are based on the minimum servicing rates of the relevant
federally-sponsored market makers or comparable rates for transactions with
other investors. The resulting deferral is amortized as an adjustment of
servicing fee income over a period generally not in excess of seven years.
LOAN IMPAIRMENT
Impaired loans are measured based on the present value of expected future cash
flows, discounted at the loan's effective interest rate, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. All payments received are applied to the principal
balance.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on a periodic evaluation of the loan
portfolio and is maintained at a level that management considers adequate to
absorb estimated potential losses. Management considers a variety of factors,
and recognizes the inherent risk of loss that always exists in the lending
process. Management uses a disciplined methodology to estimate the appropriate
level of allowance for loan losses. This methodology includes an evaluation of
loss potential from individual problem credits, as well as anticipated specific
and general economic factors that may adversely affect collectibility.
Management's determination of the adequacy of the allowance is based on
periodic evaluations of the credit portfolio. This evaluation is inherently
subjective as it requires material estimates, including, among others, the
amounts and timing of expected future cash flows on impaired loans, estimated
losses on consumer loans and residential mortgages, and general amounts for
historical loss experience, economic conditions, uncertainties in estimating
losses and inherent risks in the various credit portfolios, all of which may be
susceptible to significant change. Pursuant to Statement of Financial Accounting
Standard ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended, impaired loans, consisting of nonaccrual and restructured commercial
and commercial real estate loans, are considered in the methodology for
determining the allowance for credit losses. Impaired loans are generally
evaluated based on the present value of expected future cash flows or the fair
value of the underlying collateral if principal repayment is expected to come
from the sale or operation of such collateral.
LOANS HELD FOR SALE
As part of its mortgage banking activities, the Bank sometimes originates and
subsequently sells single family residential mortgage loans which meet the
underwriting and securitization characteristics of certain market makers. Loans
originated for sale are recorded as loans held for sale and are valued at the
lower of aggregate cost or market.
GOODWILL AND OTHER
INTANGIBLE ASSETS
Goodwill is amortized on a straight-line basis over periods ranging from 10 to
15 years. Other intangible assets are amortized using accelerated and
straight-line methods over their respective estimated useful lives. On a
periodic basis, management reviews goodwill and other intangible assets and
evaluates events or changes in circumstances that may indicate impairment in the
carrying amount of these assets. In these instances, the Company measures
impairment on a discounted future cash flow basis.
OFF BALANCE SHEET FINANCIAL INSTRUMENTS (DERIVATIVE CONTRACTS)
The Company uses off-balance sheet financial derivatives as part of the overall
asset/liability management process. Substantially all of these instruments are
used to manage risk related to changes in interest rates. Financial derivatives
primarily consist of interest rate swaps.
Interest rate swaps are agreements with a counterparty to exchange periodic
interest payments calculated on a notional principal amount. Purchased interest
rate caps and floors are agreements where, for a fee, the counterparty agrees to
pay the Company the amount, if any, by which a specified market interest rate is
higher or lower than a rate specified in the contract and applied to a notional
amount.
Interest rate swaps, caps and floors that modify the interest rate
characteristics (such as from fixed to variable, variable to fixed, or one
25
<PAGE>
variable index to another) of designated interest-bearing assets or liabilities
are accounted for under the accrual method. Under this method, the net amount
payable or receivable from the derivative contract is accrued as an adjustment
to interest income or expense of the designated instrument. Premiums on
contracts are deferred and amortized over the life of the agreement as an
adjustment to interest income or interest expense of the designated instruments.
Unamortized premiums are included in other assets.
Changes in fair value of financial derivatives accounted for under the
accrual method are not reflected in the financial results. Realized gains and
losses, except losses on terminated interest rate caps and floors, are deferred
as an adjustment to the carrying amount of the designated instruments and
amortized over the shorter of the remaining original life of the agreements or
the designated instruments.
MORTGAGE SERVICING RIGHTS
The Company recognizes as separate assets, the right to service mortgage loans
based on the fair value of those rights. The carrying value of capitalized
Mortgage Servicing Rights (MSRs) at December 31, 1997 was $730 thousand which
approximated fair value. Fair value was determined by calculating the discounted
present value of estimated expected net future cash flows, considering estimated
prepayments and defaults, projected interest rates and other factors. For
purposes of evaluating and measuring impairment, capitalized MSRs are aggregated
into groups having homogeneous risk characteristics, based on the attributes of
the underlying loans, and are separately valued, using appropriate assumptions
for each risk group. No valuation allowance was required for capitalized MSRs at
December 31, 1997. The MSRs are amortized on an accelerated method over a period
generally not in excess of seven years.
IMPAIRMENT OF LONG-LIVED
ASSETS AND LONG-LIVED ASSETS
TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 125 was effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and was applied prospectively. This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a financial
components approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
Adoption of SFAS No. 125 did not have a material impact on the Company's
financial position, results of operations, or liquidity.
INCOME TAXES
The Company and its wholly owned subsidiaries file a consolidated federal income
tax return. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
CAPITAL
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
prompt corrective action regulations define specific capital categories based on
an institution's capital ratios. The capital categories, in declining order, are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
To be considered "well capitalized," a bank must generally have a leverage
ratio of at least 5%, a Tier 1 risk-based capital ratio of at least 6%, and a
total risk-based capital ratio of at least 10%. A bank holding company must
generally have a primary capital ratio of at least 5.5% and a total capital
ratio of at least 6.0% to be deemed adequately capitalized. The regulatory
capital ratios of the Company and Prime Bank exceed those requirements.
BANK REGULATORY CAPITAL SCHEDULE
Capital
Actual Requirements
Amount Ratio Amount Ratio
- -----------------------------------------------------------------
Tier 1 capital
(to risk-weighted assets) $66,129 10.20% $25,943 4.00%
- -----------------------------------------------------------------
Total capital
(to risk-weighted assets) 74,241 11.45% 51,885 8.00%
- -----------------------------------------------------------------
Total leverage
(to total assets) 66,129 7.32% 36,151 4.00%
- -----------------------------------------------------------------
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
128, Earnings Per Share. SFAS 128, which superseded APB Opinion No. 15 ("APB
15"), Earnings Per Share, specifies the computation, presentation, and
disclosure requirements for earnings per share ("EPS") for entities with
publicly held common stock. It replaced the presentation of primary EPS with
26
<PAGE>
basic EPS which, unlike primary EPS, excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS is computed similarly
to fully diluted EPS under APB 15. The Company adopted SFAS 128 as of December
31, 1997. All prior period EPS amounts have been restated to reflect the
provisions of this statement.
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic
Numerator
Net income available to
common shareholders $ 10,519 $ 4,017 $ 7,469
Demoninator
Weighted average shares
outstanding 5,401,444 5,240,682 5,220,789
- ---------------------------------------------------------------------------------------------------
Basic EPS $ 1.95 $ 0.77 $ 1.43
- ---------------------------------------------------------------------------------------------------
Diluted
Numerator
Net income available to
common shareholders $ 10,519 $ 4,017 $ 7,469
Demoninator
Weighted average shares
outstanding 5,401,444 5,240,682 5,220,789
Plus: dilutive stock options 92,565 171,049 167,702
- ---------------------------------------------------------------------------------------------------
5,494,009 5,411,731 5,388,491
- ---------------------------------------------------------------------------------------------------
Diluted EPS $ 1.91 $ 0.74 $ 1.39
- ---------------------------------------------------------------------------------------------------
</TABLE>
ACCOUNTING STANDARDS
In June 1997, FASB issued SFAS 130, Reporting Comprehensive Income. SFAS 130
establishes standards for reporting and presentation of comprehensive income and
its components in financial statements. The statement is effective for fiscal
years beginning after December 15, 1997. Management does not expect SFAS 130 to
have a material effect on the financial statements of the Company.
In June 1997, FASB issued SFAS 131, Financial Reporting for Segments of a
Business Enterprise. SFAS 131 establishes standards for the reporting,
disclosure and presentation of the Company's operating segments, products and
services, geographic areas, and major customers. SFAS 131 supersedes FASB
Statement No. 14, Financial Reporting for Segments of a Business Enterprise but
retains the requirement to report information about major customers. It amends
FASB Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, to
remove the special disclosure requirements for previously unconsolidated
subsidiaries. This statement is effective for fiscal years beginning after
December 15, 1997. Management does not expect SFAS 131 to have a material effect
on the financial statements of the Company.
STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with the provisions
of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such, compensation expense
is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. On January 1, 1996, the Company
adopted SFAS 123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 also allows
entities to provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS 123.
2. ACQUISITION
On December 31, 1996, the Company acquired First Sterling Bancorp, Inc. ("FSB")
in a transaction structured as a pooling of interests. Each outstanding share of
common stock of FSB was exchanged for one share of the Company. This resulted in
the issuance of approximately 1.66 million shares of Company stock. In
connection with the First Sterling Bancorp, Inc. merger and as required by the
Convertible Subordinated Debentures agreement, at December 31, 1996 the Company
also converted the $1.05 million principal amount of debentures issued in 1990
and 1991 by First Sterling Bancorp, Inc. to 110,510 shares of Prime stock. The
transaction was tax-free to the shareholders for federal income tax purposes.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below.
Years Ended December 31,
- --------------------------------------------------------------
1996 1995
- --------------------------------------------------------------
Net interest income:
Prime Bancorp $23,808 $20,970
First Sterling 8,716 7,452
- --------------------------------------------------------------
Combined $32,524 $28,422
- --------------------------------------------------------------
Net income:
Prime Bancorp $3,265 $5,853
First Sterling 752 1,616
- --------------------------------------------------------------
Combined $4,017 $7,469
- --------------------------------------------------------------
Total assets:
Prime Bancorp $691,422 $607,975
First Sterling 234,649 211,986
- --------------------------------------------------------------
Combined $926,071 $819,961
- --------------------------------------------------------------
Total deposits:
Prime Bancorp $554,237 $476,539
First Sterling 182,405 167,767
- --------------------------------------------------------------
Combined $736,642 $644,306
- --------------------------------------------------------------
Total shareholders' equity:
Prime Bancorp $57,037 $56,247
First Sterling 13,479 13,032
- --------------------------------------------------------------
Combined $70,516 $69,279
- --------------------------------------------------------------
27
<PAGE>
3. STOCK OPTION PLAN
The Company's Incentive Stock Option Plan provides for the grant of stock
options to directors and certain employees of the Company or its subsidiaries.
The option plan is administered by a compensation committee of the board of
directors of the Company. The exercise price under the option plan must be at
least equal to the fair market value of the shares on the date of grant, and no
option may be exercisable after the expiration of ten years from the date it is
granted.
The following table presents stock options outstanding related to the plan:
Weighted-
Average
Exercise Exercise
Price Price Shares
- ---------------------------------------------------------------
January 1, 1995 4.32-14.77 8.27 233,703
Granted 17.95 17.95 93,500
Options Exercised 4.32 4.32 (110)
December 31, 1995 4.32-17.95 11.04 327,093
Granted 17.27-20.50 18.01 161,500
Options Exercised 4.32-14.77 6.39 (20,791)
December 31, 1996 4.32-18.38 13.13 467,802
Granted 29.63-37.25 35.22 49,500
Options Exercised 4.32-17.95 7.51 (153,109)
December 31, 1997 4.32-37.25 19.08 364,193
- ---------------------------------------------------------------
At December 31, 1997, there were additional shares available for grant
under the Plan. The weighted-average fair value of stock options granted during
1997, 1996, and 1995 was $520,000, $872,100, and $556,000 on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1997 - expected dividend yield 2.2%, risk-free interest rate of
5.46%, expected volatility of stock over the expected life of the options of
25.2%, and an expected life of five years; 1996 - expected dividend yield 3.3%,
risk-free interest rate of 5.8%, expected volatility of stock over the expected
life of the options of 13.8%, and an expected life of five years; 1995 -
expected dividend yield 3.4%, risk-free interest rate of 5.5%, expected
volatility of stock over the expected life of the options of 31.2%, and an
expected life of five years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below.
1997 1996 1995
- --------------------------------------------------------------
Net income As reported $10,519 $4,017 $7,469
Pro forma 10,181 3,323 6,913
Diluted earnings
per share As reported $1.91 $0.74 $1.39
Pro forma 1.85 0.61 1.28
- --------------------------------------------------------------
Pro forma net income reflects only options granted in 1997, 1996, and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected over the options' vesting period of two
years and compensation cost for options granted prior to January 1, 1995 is not
considered.
4. INVESTMENT SECURITIES
Investment securities at December 31, 1997 and 1996 were comprised of the
following:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity
- ---------------------------------------------------------------------------------------------------------------------------
State and municipal $6,735 $267 $-- $7,002 $6,739 $63 $(31) $6,771
Mortgage backed securities 106,563 726 (133) 107,156 97,778 478 (402) 97,854
- ---------------------------------------------------------------------------------------------------------------------------
Total debt securities 113,298 993 (133) 114,158 104,517 541 (433) 104,625
Other securities 4,690 -- -- 4,690 6,249 -- -- 6,249
- ---------------------------------------------------------------------------------------------------------------------------
$117,988 $993 $(133) $118,848 $110,766 $541 $(433) $110,874
- ---------------------------------------------------------------------------------------------------------------------------
Available for Sale
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Govt & U.S. Govt agency $64,483 $129 $(39) $64,573 $62,037 $235 $(244) $62,028
Mortgage-backed securities 51,544 135 (824) 50,855 53,269 182 (1,360) 52,091
- ---------------------------------------------------------------------------------------------------------------------------
Total debt securities 116,027 264 (863) 115,428 115,306 417 (1,604) 114,119
Other securities 300 -- -- 300 11,340 -- (31) 11,309
- ---------------------------------------------------------------------------------------------------------------------------
$116,327 $264 $(863) $115,728 $126,646 $417 $(1,635) $125,428
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Gross gains of $294,000, $296,000, and $851,000 and gross losses of
$159,000, $8,000, and $403,000 were realized on sales of investment securities
available for sale for the years ended December 31, 1997, 1996, and 1995,
respectively.
During 1997, the Company sold $12.3 million of investment securities held
to maturity which failed the Federal Financial Institutions Executive Council
sensitivity test and became classified as high risk. The net gain on these sales
was $48,000.
The amortized cost and estimated market value of investment securities at
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Within 1 to 5 to After 10
1 Year 5 Years 10 Years Years Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Held to Maturity
- ---------------------------------------------------------------------------------------------------------------------------
State and municipal $-- $-- $ 6,735 $-- $ 6,735
Mortgage-backed securities 94 2,560 9,166 94,743 106,563
- ---------------------------------------------------------------------------------------------------------------------------
Total debt securities 94 2,560 15,901 94,743 113,298
- ---------------------------------------------------------------------------------------------------------------------------
Fair value $94 $2,567 $16,222 $95,275 $114,158
Weighted-average yield 9.00% 6.01% 5.95% 6.71% 6.68%
- ---------------------------------------------------------------------------------------------------------------------------
Available for Sale
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Govt & U.S. Govt agency $17,992 $35,489 $11,002 $-- $ 64,483
Mortgage-backed securities -- 1,468 571 49,505 51,544
- ---------------------------------------------------------------------------------------------------------------------------
Total debt securities 17,992 36,957 11,573 49,505 116,027
- ---------------------------------------------------------------------------------------------------------------------------
Fair value $18,029 $37,011 $11,577 $48,811 $115,428
Weighted-average yield 5.81% 6.07% 7.23% 6.73% 6.43%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. LOANS RECEIVABLE
Loans receivable at December 31, 1997 and 1996 were comprised of the following:
1997 1996
- --------------------------------------------------------------
First mortgage loans:
Residential:
One to four units $181,375 $235,023
Over four units 932 10,783
Commercial real estate loans 211,395 165,439
- --------------------------------------------------------------
Total first mortgage loans 393,702 411,245
- --------------------------------------------------------------
Other loans:
Commercial 139,989 110,840
Consumer 105,870 102,341
- --------------------------------------------------------------
Total other loans 245,859 213,181
- --------------------------------------------------------------
Total loans 639,561 624,426
- --------------------------------------------------------------
Deferred loan fees (228) (327)
Allowance for possible loan losses (8,485) (7,206)
- --------------------------------------------------------------
Total loans receivable, net $630,848 $616,893
- --------------------------------------------------------------
As of December 31, 1997, 1996, and 1995, the Bank had impaired loans
(non-performing loans) totaling approximately $3,003,000, $7,084,000, and
$4,838,000, all of which had a related allowance for impairment. The allowance
for loan losses on impaired loans totaled $593,000, $707,000, and $345,000 for
those years. The average balance of impaired loans was approximately $5,043,000
for 1997, $6,072,000 for 1996 and $5,903,000 for 1995. Interest income not
accrued for impaired loans for the years ended December 31, 1997, 1996, and 1995
was approximately $292,000, $414,000, and $366,000, respectively.
Substantially all of the Company's loan portfolio is to borrowers located
in southeastern Pennsylvania.
In addition, the Company took a deed in lieu of foreclosure of a
condominium project in 1995. The balance of the condominium project as of
December 31, 1997 and 1996 was $5.9 million and $8.9 million. Such amounts are
classified as land acquired for development and resale.
The following is a summary of the activity in the allowance for loan losses
for the years ended December 31, 1997, 1996, and 1995:
1997 1996 1995
- ------------------------------------------------------------
Balance at beginning of period $7,206 $6,082 $6,067
Provision for loan losses 3,438 3,837 1,129
Recoveries 498 190 338
Losses charged against allowance (2,657) (2,903) (1,452)
- ------------------------------------------------------------
Balance at end of period $8,485 $7,206 $6,082
- ------------------------------------------------------------
The following is an analysis of loans to directors and officers for the
year ended December 31:
1997
- ------------------------------------------------------------
Balance at beginning of period $6,801
Additions 2,182
Repayments 5,625
- ------------------------------------------------------------
Balance at end of period $3,358
- ------------------------------------------------------------
The loans to directors and officers are based upon substantially the same
underwriting criteria as those generally used by the Bank and do not involve
more than the normal risk of collectibility or present other unfavorable
features.
29
<PAGE>
At December 31, 1997, 1996, and 1995, the Bank was servicing loans for
others in the amount of $68,228,000, $34,755,000 and $22,775,000 respectively.
Loan servicing income for those years was $170,000, $87,000, and $57,000,
respectively.
6. PROPERTY AND EQUIPMENT
Property and equipment, less accumulated depreciation and amortization, are
summarized by major classification at December 31, 1997 and 1996 as follows:
1997 1996
- ------------------------------------------------------------
Land $596 $596
Buildings 7,333 7,194
Furniture and equipment 11,229 9,489
Leasehold improvements 1,751 1,716
- ------------------------------------------------------------
20,909 18,995
Less accumulated depreciation
and amortization (10,886) (8,704)
- ------------------------------------------------------------
$10,023 $10,291
- ------------------------------------------------------------
Depreciation expense for the years ended December 31, 1997, 1996, and 1995
was $2,182,000, $1,708,000, and $1,515,000, respectively.
7. DEPOSITS
Deposits at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Interest % of Interest % of
Rate Amount Total Rate Amount Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NOW accounts 0.57% $43,988 6.33% 1.91% $44,444 6.03%
Money market deposit accounts 3.46% 130,959 18.86% 3.30% 130,028 17.65%
Passbook/statement 1.83% 64,297 9.26% 2.05% 63,022 8.56%
Commercial checking accounts -- 115,733 16.67% -- 94,767 12.86%
- ------------------------------------------------------------------------------------------------------------------------
354,977 51.12% 332,261 45.10%
- ------------------------------------------------------------------------------------------------------------------------
IRA accounts 5.60% 58,537 8.43% 5.79% 61,940 8.41%
14 to 31 day certificates 4.31% 612 0.09% 4.88% 227 0.03%
91 day certificate 4.36% 5,489 0.79% 4.96% 7,787 1.06%
Certificates with a $100,000 minimum
balance, 1 to 57 month maturities 5.41% 47,578 6.85% 5.44% 54,074 7.34%
6 month certificates 4.52% 16,890 2.43% 4.48% 74,395 10.10%
8 month certificates 5.19% 15,983 2.30% -- -- --
9 month certificates 4.49% 24,377 3.51% 4.87% 45,358 6.16%
18 month certificates 5.33% 13,210 1.90% 5.13% 9,488 1.29%
12 to 24 month certificates 5.41% 70,929 10.21% 5.01% 45,701 6.20%
30 to 60 month certificates 5.77% 47,889 6.90% 5.63% 81,683 11.09%
72 to 120 month certificates 6.28% 17,655 2.54% 5.95% 12,036 1.63%
180 month certificates callable in 2 years 7.26% 20,318 2.93% 7.30% 11,692 1.59%
- ------------------------------------------------------------------------------------------------------------------------
339,467 48.88% 404,381 54.90%
- ------------------------------------------------------------------------------------------------------------------------
$694,444 100.00% $736,642 100.00%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
A summary of certificates by maturity at December 31, 1997 follows:
Years Ending
December 31, Amount % of Total
- -----------------------------------------------------------
1998 $224,914 66.25%
1999 41,272 12.16%
2000 25,643 7.55%
2001 12,282 3.62%
Thereafter 35,356 10.42%
- -----------------------------------------------------------
$339,467 100.00%
- -----------------------------------------------------------
30
<PAGE>
8. BORROWINGS FROM FEDERAL HOME LOAN BANK OF PITTSBURGH
Under terms of its collateral agreement, the Bank is required to maintain
otherwise unencumbered qualifying assets in an amount of at least as much as
advances from the Federal Home Loan Bank of Pittsburgh. The advances had
maturities and weighted interest rates as follows at December 31, 1997 and 1996:
December 31,
- -------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------
Weighted Weighted
Interest Interest
Maturing Period Amount Rate Amount Rate
- -------------------------------------------------------------------------
1997 $-- -- $34,048 5.82%
1998 7,048 6.03% 7,048 6.04%
1999 502 5.70% 502 5.70%
2000 -- -- 15,000 4.97%
2002 72,000 5.50% -- --
- -------------------------------------------------------------------------
$79,550 5.55% $56,598 5.62%
- -------------------------------------------------------------------------
9. OTHER BORROWED MONEY
Other borrowed money at December 31, 1997, 1996, and 1995 was comprised of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities sold under agreements to repurchase with a weighted average interest rate
of 5.22% in 1997, 4.78% in 1996, and 5.60% in 1995 $91,486 $51,685 $37,622
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank has entered into repurchase agreements with its customers and with
other third parties which are collateralized by securities with a carrying
value, including accrued interest of $94,708,000, $53,450,000, and $49,176,000
at December 31, 1997, 1996, and 1995, respectively. The market value of the
underlying collateral for those years was $94,397,000, $53,688,000, and
$47,456,000. The maximum balance of repurchase agreements outstanding at any
month end during those years was $101,473,000, $124,981,000, and $59,524,000 and
the average balance outstanding was $77,369,000, $59,158,000, and $51,959,000,
respectively.
10. EMPLOYEE BENEFIT PLANS
The Bank has a defined contribution plan pursuant to the provision of 401(k) of
the Internal Revenue Code. The plan covers all employees who meet the age and
service requirements. Prime Bank's plan provides for elective employee
contributions up to 15% of compensation and a 66 2/3% matching Company
contribution limited to 6%. The Bank contributed $199,000, $176,000, and
$241,000 to this plan during the years ended December 1997, 1996, and 1995,
respectively. The Company also has a profit sharing plan. Under this feature,
all eligible employees share in the Company's profit sharing contributions. The
contributions for 1997, 1996, and 1995 were $360,000, $135,000, $134,000,
respectively. 1997 was the first year that the former First Sterling employees
were included in this plan.
The Company does not provide post-retirement benefits nor post-employment
benefits to its employees.
11. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 1997,
1996, and 1995 consisted of the following:
1997 1996 1995
- -----------------------------------------------------------
Current:
State $3 43 $ 297 $ 543
Federal 4,748 1,890 3,720
- -----------------------------------------------------------
5,091 2,187 4,263
Deferred:
Federal 198 (291) 74
- -----------------------------------------------------------
$5,289 $1,896 $4,337
- -----------------------------------------------------------
31
<PAGE>
The provision for income taxes for the years ended
December 31, 1997, 1996, and 1995 differed from the statutory rate due to the
following:
1997 1996 1995
- -----------------------------------------------------------
Pretax income $15,808 $5,913 $11,806
- -----------------------------------------------------------
Tax at statutory rate 5,533 2,010 4,014
Tax exempt interest (160) (127) (119)
State taxes, net of federal
benefit and other 223 196 358
Merger costs -- 222 --
Income tax credits (238) (370) (15)
Other, net (69) (35) 99
- -----------------------------------------------------------
$5,289 $1,896 $4,337
- -----------------------------------------------------------
Deferred income taxes result from temporary differences in recording
certain revenues and expenses for financial reporting purposes. The deferred tax
assets at December 31, 1997, 1996, and 1995 consisted of the following debits
and (credits):
1997 1996 1995
- -----------------------------------------------------------------------
Deferred tax assets
Provision for loan losses $2,870 $2,351 $1,882
Deferred loan fees 177 170 427
Deferred compensation 54 537 514
Valuation adjustment for debt securities 314 811 649
Other, net 283 298 455
- -----------------------------------------------------------------------
Gross deferred tax assets 3,698 4,167 3,927
- -----------------------------------------------------------------------
Deferred tax liabilities
Loss on sale of loans -- 16 23
Deferred loan costs 467 377 268
FDIC insurance premium 57 50 --
Depreciation 32 98 291
Mortgage servicing rights 234 47 --
Other 56 32 31
- -----------------------------------------------------------------------
Gross deferred tax liabilities 846 620 613
- -----------------------------------------------------------------------
Net deferred tax assets $2,852 $3,547 $3,314
- -----------------------------------------------------------------------
Included in the table above is the effect of certain temporary differences
for which no deferred tax expense or benefit was recognized. Such items
consisted primarily of unrealized gains and losses on certain investments in
debt and equity securities accounted for under SFAS 115.
The realizability of deferred tax assets is dependent upon a variety of
factors, including the generation of future taxable income, the existence of
taxes paid and recoverable, the reversal of deferred tax liabilities and tax
planning strategies. Based upon these and other factors, management believes it
is more likely than not that the Company will realize the benefits of these
deferred tax assets.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose information about the fair value of
financial instruments. The limitations on the making of estimates of fair value
are: estimates are made at a specific point in time, based upon, where
available, relevant market prices and information about the financial
instruments. For a substantial portion of the Company's financial instruments,
no quoted market exists. Therefore, estimates of "fair value" are based on a
number of subjective assumptions. Such assumptions include perceived risks
associated with these financial instruments, market rates of discount, and
expected durations. Given the uncertainties associated with these estimates, the
reported "fair values" represent estimates only and, therefore, cannot be
compared to the historical accounting model. Use of different assumptions would
likely result in different "fair value" estimates.
Under SFAS 107, the fair value of deposit accounts with no stated maturity
is equal to their carrying amount. This approach excludes significant benefits
that result from the low-cost funding provided by such deposits.
The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at December 31, 1997:
Cash and Short-Term Investments, Accrued Interest Receivable and Accrued
Interest Payable: Current carrying amounts approximate estimated fair
value.
Securities: Current quoted market prices are used to determine fair value.
Net Loans: The fair value of loans was estimated using a duration method
which approximates the effect of discounting the estimated future cash
flows over the expected repayment periods for loans using rates which
consider credit risk, servicing costs and other relevant factors.
Deposits with no stated maturity: Current carrying amounts approximate
estimated fair value.
Time Deposits: Fair value was estimated using a duration method which
approximates the effect of discounting the estimated future cash flows over
the expected periods using rates which consider alternative borrowing
costs, servicing costs, and other relevant factors.
Other Borrowed Funds: Fair value was estimated using a duration method
which approximates the effect of discounting the estimated cash flows over
the expected periods using rates which consider alternative borrowing
costs.
32
<PAGE>
Off-balance sheet financial instruments: Commitments to extend credit and
standby letters of credit carry current market interest rates if converted
to loans. Because commitments to extend credit and standby letters of
credit, the majority of which carry current interest rates, are generally
unassignable by either the Bank or the borrower, they only have value to
the Bank and the borrower. However, the estimated net amount payable
(receivable) represents the fees currently charged to enter into similar
agreements, taking into account the remaining term of the agreement and the
present credit risk assessment of the counter-party.
The Company enters into derivative instruments primarily to hedge the
interest rate risk associated with various assets and liabilities. Such hedge
instruments generally take the form of interest rate swaps. In part through the
use of these instruments, the Company strives to be essentially insensitive to
changes in interest rates within reasonable ranges (i.e., plus or minus 200
basis points). Such instruments are subject to the same type of credit and
market risk as other financial instruments, and are monitored and controlled in
accordance with the Company's credit and risk management policies.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
(Dollars in millions)
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash $41.2 $41.2 $32.5 $32.5
Investments 233.7 234.6 236.3 236.2
Net loans (A) 634.1 639.1 616.9 618.9
Accrued interest receivable 7.4 7.4 6.8 6.8
Financial Liabilities:
Deposits with no stated maturity 355.0 355.0 332.2 332.2
Time deposits 339.5 340.8 404.4 401.8
Other borrowed funds and FHLB borrowings 171.0 171.4 108.3 108.3
Accrued interest payable 1.8 1.8 3.6 3.6
- -------------------------------------------------------------------------------------------------------------------------
(A) The carrying amount of net loans includes loans receivable, net and loans
held for sale.
</TABLE>
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
Contract or Net Amount Contract or Net Amount
Notional Payable Notional Payable
Amount (Receivable) Amount (Receivable)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Off-balance sheet financial instruments:
Commitments to extend credit $51.0 $0.4 $35.9 $0.3
Standby letters of credit 3.0 -- 1.8 --
Commercial loan commitments 17.9 0.3 34.5 0.5
Loan commitments 2.9 -- 12.3 --
Loans in process for construction loans 63.6 -- 42.1 --
Interest rate swaps (see Note 13) 30.0 (0.6) 20.0 (0.1)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
13. OFF-BALANCE SHEET
FINANCIAL INSTRUMENTS
In addition to the financial assets and liabilities discussed above, Prime's
financial instruments include off-balance sheet items used to manage risks
associated with changes in interest rates from on-balance sheet assets and
liabilities. These contracts are financial derivatives and, in Prime's case,
include interest rate swaps and a variation referred to as a swaption involving
a future change in the swap contract in the event of a specified change in a
rate component. The table below presents the Company's outstanding derivative
contracts as of December 31, 1997.
DERIVATIVE CONTRACTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Next
Notional Stated Optional Receive Pay Market Repricing
Type Amount Maturity Call Date Rate Rate Spread Value Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Swap $5,000 5/6/00 -- 7.01% 6.00% 1.01% $121 1/6/98
Swaption 5,000 7/30/07 7/29/99 7.21% 5.97% 1.24% 18 1/29/98
Swaption 5,000 10/31/11 10/29/98 8.06% 5.96% 2.10% 58 1/29/98
Swaption 5,000 11/21/11 11/19/98 7.63% 5.96% 1.67% 17 1/20/98
Swaption 5,000 12/16/11 12/16/98 7.77% 5.96% 1.81% 39 1/16/98
Swaption 5,000 2/27/12 2/25/99 7.51% 5.96% 1.55% 5 1/26/98
- ---------------------------------------------------------------------------------------------------------------------------
$30,000 $258
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pay rate rates are based on three month Libor and will be reset on the
repricing dates noted above. Optional call dates are at the discretion of the
counterparty to the contract and are likely to be called if general market rates
remain at current levels or decline further.
14. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into financial instruments
which are not recorded in the consolidated financial statements but are required
to meet the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include commitments
to extend credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statement of financial condition. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
The following is a summary of significant commitments and contingent
liabilities:
December 31,
- -----------------------------------------------------------
1997 1996
- -----------------------------------------------------------
Residential mortgage commitments 2,945 12,278
Commercial loan commitments 17,939 34,496
Standby letters of credit 2,955 1,810
Commitments to extend credit 51,023 35,897
Commitments to sell
residential loans 3,229 49
Construction loans in process 63,590 42,104
- -----------------------------------------------------------
The Bank is required to maintain certain average reserve balances as
established by the Federal Reserve Bank Board. The amounts of these reserve
balances for the reserve computation periods which included December 1997 and
1996 were $7,820,000, and $5,890,000, respectively.
Payment of dividends is generally subject to receipt of sufficient
dividends from the Bank and other non-bank subsidiaries of the Company. Dividend
payments by the Bank are subject to limitations imposed by federal and state
laws. Applicable minimum capital and "prompt corrective action" standards
further limit the ability of a bank to pay dividends. Dividends can also be
prohibited under certain circumstances if it is deemed an unsafe or unsound
practice or would leave a bank in an unsafe or unsound condition. Federal
banking regulators have formal and informal policies which provide that insured
bank and bank holding companies should generally pay dividends only out of
current operating earnings, with some exceptions.
In connection with the operation of certain branch offices, the Bank has
entered into operating leases for periods ranging from one to ten years. Total
rental expense for the years ended December 31, 1997, 1996, and 1995 was
$1,342,000, $1,246,000, and $753,000, respectively. Future minimum lease
payments under such operating leases are $1,029,000, $1,029,000, $1,027,000,
$921,000, and $788,000 for the years ended December 31, 1998 through 2002,
respectively.
34
<PAGE>
15. PARENT COMPANY FINANCIAL INFORMATION
Presented below are the parent company only financial statements as of December
31, 1997, and 1996:
PRIME BANCORP, INC.
(Parent company only)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------
1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Assets:
Cash on deposit with subsidiary $635 $99
Investment securities 499 --
Investments in bank
subsidiaries 73,886 64,277
Investments in non-bank
subsidiaries 5,838 6,826
Other assets 1 0
- ---------------------------------------------------------
Total assets $80,859 $71,202
- ---------------------------------------------------------
Liabilities and shareholders' equity:
Liabilities:
Other liabilities $995 $686
- ---------------------------------------------------------
Total liabilities 995 686
- ---------------------------------------------------------
Shareholders' equity:
Common stock 5,444 5,291
Additional paid-in capital 39,096 37,390
Retained earnings 35,324 27,835
- ---------------------------------------------------------
Total shareholders' equity 79,864 70,516
- ---------------------------------------------------------
Total liabilities and
shareholders' equity $80,859 $71,202
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years ended December 31,
- -----------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends and interest
from subsidiary $5,297 $2,109 $3,008
Equity in undistributed
income of subsidiaries 5,296 2,097 4,491
- -----------------------------------------------------------------
10,593 4,206 7,499
Operating expense 74 189 30
- -----------------------------------------------------------------
Net income $10,519 $4,017 $7,469
- -----------------------------------------------------------------
Statements of Cash Flows
Cash flows from operating activities:
Net income $10,519 $4,017 $7,469
Adjustments to reconcile net
income to net cash provided by
operating activities:
Equity in undistributed income of
subsidiaries (5,296) (2,097) (4,491)
Increase (decrease) in other assets (1) -- --
Increase (decrease)
in other liabilities 956 (24) 201
- -----------------------------------------------------------------
Net cash provided by operating
activities 6,178 1,896 3,179
- -----------------------------------------------------------------
Cash flows from investing activities:
Purchase of investment securities (499) -- --
Sale of subsidiary to affiliate 75 -- --
Contribution to subsidiaries (2,700) -- (750)
- -----------------------------------------------------------------
Cash used in investing activities (3,124) -- (750)
- -----------------------------------------------------------------
Cash flows from financing activities:
Stock options exercised 1,150 133 --
Cash dividends paid (3,668) (2,529) (2,490)
- -----------------------------------------------------------------
Net cash used in financing
activities (2,518) (2,396) (2,490)
- -----------------------------------------------------------------
Net increase in cash 536 (500) (61)
Cash and cash equivalents:
Beginning of year 99 599 660
- -----------------------------------------------------------------
End of year $635 $99 $599
- -----------------------------------------------------------------
Supplemental disclosure of cash flow information:
Tax benefit from
exercise of stock options $709 $74 $--
- -----------------------------------------------------------------
</TABLE>
35
<PAGE>
MANAGEMENT'S STATEMENT OF FINANCIAL REPORTING
Management of Prime Bancorp, Inc. is responsible for establishing and
maintaining an effective internal control structure over financial reporting
presented in conformity with both generally accepted accounting principles and
the Federal Financial Institutions Examination Council instructions for
Consolidated Reports of Condition and Income (call report instructions). The
structure contains monitoring mechanisms, and actions are taken to correct
deficiencies identified.
There are inherent limitations in the effectiveness of any internal control
structure, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed the Company's internal control structure over financial
reporting presented in conformity with both generally accepted accounting
principles and call report instructions as of December 31, 1997. This assessment
was based on criteria for effective internal control over financial reporting
described in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes that, as of December 31, 1997, the Company maintained an
effective internal control structure over financial reporting presented in
conformity with both generally accepted accounting principles and call report
instructions.
/s/ James J. Lynch /s/ James E. Kelly
------------------------------- -------------------------
James J. Lynch, President & CEO James E. Kelly, EVP & CFO
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
PRIME BANCORP, INC.:
We have audited the accompanying consolidated statements of financial condition
of Prime Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, shareholders' equity, and cash
flows for the years then ended. We have also audited the accompanying
consolidated statements of income, shareholders' equity, and cash flows of Prime
Bancorp, Inc. and subsidiaries for the year ended December 31, 1995 prior to
their restatement for the 1996 pooling-of-interest transaction described in Note
2 to the consolidated financial statements. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The financial statements of First Sterling
Bancorp, Inc. included in the 1995 restated consolidated financial statements
were audited by other auditors whose report dated February 23, 1996, expressed
an unqualified opinion on those statements. The report of the other auditors has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for First Sterling Bancorp, Inc., is based solely on the report of the
other auditors.
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, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Prime Bancorp, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
We also audited the combination of the accompanying consolidated statements
of income, shareholders' equity and cash flows for the year ended December 31,
1995, after restatement for the 1996 pooling-of-interests; in our opinion, such
statements have been properly combined on the basis described in Note 2 of the
notes to the consolidated financial statements.
/s/ KPMG Peat Marwick LLP
Philadelphia, PA
January 16, 1998
[COOPERS & LYBRAND LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
We have audited the consolidated statements of income, stockholders'
equity, and cash flows of First Sterling Bancorp, Inc. (the "Company") for the
year ended December 31, 1995, that appear in this annual report on Form 10-K,
after having been restated for the 1996 pooling-of-interests transaction in
which Prime Bancorp, Inc. acquired the Company. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of its operations and its cash flows for
the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Baltimore, Maryland
February 23, 1996
37
<PAGE>
LOAN PORTFOLIO HISTORY
- --------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Permanent first
mortgage loans:
One-to four-family $181,375 28.7% $235,023 38.1% $216,163 43.5% $185,409 42.0% $168,345 41.7%
Multi-family 932 0.1% 10,783 1.7% 9,303 1.9% 8,735 2.0% 8,148 2.0%
Commercial 150,411 23.8% 120,841 19.6% 102,958 20.7% 88,767 20.1% 73,726 18.3%
- ------------------------------------------------------------------------------------------------------------------------
Total permanent loans 332,718 52.6% 366,647 59.4% 328,424 66.1% 282,911 64.1% 250,219 62.0%
Allowance for loan
losses (2,811) -0.4% (2,081) -0.2% (1,728) -0.3% (1,856) -0.4% (1,522) -0.4%
- ------------------------------------------------------------------------------------------------------------------------
Total permanent first
mortgage loans, net 329,907 52.2% 364,566 59.2% 326,696 65.8% 281,055 63.7% 248,697 61.6%
- ------------------------------------------------------------------------------------------------------------------------
Total commercial
real estate loans 60,984 9.7% 44,598 7.2% 29,881 6.0% 36,154 8.2% 43,003 10.6%
Allowance for loan
losses (1,130) -0.2% (918) -0.2% (696) -0.1% (1,234) -0.3% (959) -0.2%
- ------------------------------------------------------------------------------------------------------------------------
Total commercial
real estate loans,
net 59,854 9.5% 43,680 7.0% 29,185 5.9% 34,920 7.9% 42,044 10.4%
- ------------------------------------------------------------------------------------------------------------------------
Commercial business
loans 139,989 22.2% 110,840 18.0% 68,777 13.8% 65,045 14.7% 61,863 15.3%
Allowance for loan
losses (1,736) -0.3% (2,251) -0.4% (1,954) -0.5% (1,301) -0.3% (1,740) -0.4%
- ------------------------------------------------------------------------------------------------------------------------
Total commercial
business loans,
net 138,253 21.9% 108,589 17.6% 66,823 13.3% 63,744 14.4% 60,123 14.9%
- ------------------------------------------------------------------------------------------------------------------------
Consumer loans:
Personal/lines of
credit 32,678 5.2% 27,296 4.4% 20,063 4.0% 21,582 4.9% 19,976 4.9%
Second mortgage/
equity 44,248 7.0% 44,229 7.2% 40,618 8.2% 31,492 7.1% 25,829 6.4%
Auto 19,718 3.1% 22,499 3.7% 10,046 2.0% 7,110 1.6% 4,900 1.2%
Education 6,163 1.0% 3,504 0.6% 2,992 0.6% 1,697 0.4% 2,230 0.6%
Home improvement
and other 2,290 0.4% 3,906 0.6% 1,745 0.4% 1,419 0.3% 1,959 0.5%
Savings account 773 0.1% 907 0.1% 1,119 0.2% 1,464 0.3% 1,135 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Total consumer loans 105,870 16.8% 102,341 16.6% 76,583 15.4% 64,764 14.6% 56,029 13.9%
Allowance for loan
losses (1,334) -0.2% (963) -0.2% (1,066) -0.2% (1,035) -0.2% (623) -0.2%
- ------------------------------------------------------------------------------------------------------------------------
Total consumer loans,
net 104,536 16.6% 101,378 16.4% 75,517 15.2% 63,729 14.4% 55,406 13.7%
- ------------------------------------------------------------------------------------------------------------------------
Total unamortized loan
origination fees and
costs (228) 0.0% (327) 0.0% (549) -0.0% (1,406) -0.3% (1,816) -0.4%
Allowance for loan
loss (unallocated) (1,474) -0.2% (993) -0.2% (638) -0.1% (641) -0.1% (761) -0.2%
- ------------------------------------------------------------------------------------------------------------------------
Total loans
receivable, net $630,848 100.0% $616,893 100.0% $497,034 100.0% $441,401 100.0% $403,693 100.0%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NON-ACCRUAL LOANS AND REAL ESTATE OWNED
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Single-family residential $1,170 $1,003 $1,786 $1,859 $1,913
Multi-family Residential and commercial real estate loans -- 3,087 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
1,170 4,090 1,786 1,859 1,913
- ------------------------------------------------------------------------------------------------------------------------
Consumer 380 243 517 2,956 1,698
Commercial loans 1,453 2,751 2,535 2,153 3,129
- ------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans $3,003 $7,084 $4,838 $6,968 $6,740
- ------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans to loans receivable 0.47% 1.14% 0.96% 1.55% 1.64%
- ------------------------------------------------------------------------------------------------------------------------
Total real estate owned 957 1,335 419 323 392
- ------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans and real estate owned to total assets 0.42% 0.91% 0.64% 0.99% 1.19%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
SUMMARY ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $7,206 $6,082 $6,067 $5,605 $4,386
Charge-offs:
Domestic:
Real estate--commercial (606) (813) (17) (197) (201)
Real estate--residential (354) (480) (118) (66) (48)
Commercial business loans (776) (1,119) (1,044) (614) (725)
Consumer (921) (491) (273) (382) (141)
- -------------------------------------------------------------------------------------------------------------------------
(2,657) (2,903) (1,452) (1,259) (1,115)
- -------------------------------------------------------------------------------------------------------------------------
Recoveries
Domestic:
Real estate--commercial 3 11 155 4 --
Real estate--residential 19 20 7 62 23
Commercial business loans 415 61 167 48 109
Consumer 61 98 9 13 42
- -------------------------------------------------------------------------------------------------------------------------
498 190 338 127 174
- -------------------------------------------------------------------------------------------------------------------------
Net charge-offs (2,159) (2,713) (1,114) (1,132) (941)
- -------------------------------------------------------------------------------------------------------------------------
Additions charged to operations 3,438 3,837 1,129 1,594 2,160
- -------------------------------------------------------------------------------------------------------------------------
Balance at the end of period $8,485 $7,206 $6,082 $6,067 $5,605
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs during the period to average loans
outstanding during the period 0.35% 0.49% 0.24% 0.27% 0.24%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
LOANS
LOAN MATURITIES AND INTEREST SENSITIVITY
<TABLE>
<CAPTION>
1 Year 1 Through After 5 Gross
December 31, 1997 or Less 5 Years Years Loans
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial real estate $41,932 $14,806 $4,246 $60,984
Commercial 138,624 80,536 71,240 290,400
- -------------------------------------------------------------------------------------------------------------------------
Total 180,556 95,342 75,486 351,384
- -------------------------------------------------------------------------------------------------------------------------
Loans with predetermined rate 19,204 53,819 45,730 118,753
Loans with floating rate 161,352 41,523 29,756 232,631
- -------------------------------------------------------------------------------------------------------------------------
Total 180,556 95,342 75,486 351,384
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial Loans $3,267 $2,251 $1,954 $1,301 $1,740
Commercial Real Estate 1,130 918 696 1,234 959
Consumer 1,334 963 1,066 1,035 623
Residential Mortgage 1,280 2,081 1,728 1,856 1,522
Unallocated 1,474 993 638 641 761
- -------------------------------------------------------------------------------------------------------------------------
$8,485 $7,206 $6,082 $6,067 $5,605
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
INVESTMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Fair Fair Fair
Cost Value Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------
Held to Maturity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
State and municipal $6,735 $7,002 $6,739 $6,771 $400 $431
U.S. Govt & U.S. Govt Agency 0 0 0 0 11,830 11,971
Mortgage-backed securities 106,563 107,156 97,778 97,854 81,279 82,236
- ------------------------------------------------------------------------------------------------------------------------
Total debt securities 113,298 114,158 104,517 104,625 93,509 94,638
Other securities 4,690 4,690 6,249 6,249 4,491 4,491
- ------------------------------------------------------------------------------------------------------------------------
$117,988 $118,848 $110,766 $110,874 $98,000 $99,129
- ------------------------------------------------------------------------------------------------------------------------
Available for Sale
- ------------------------------------------------------------------------------------------------------------------------
U.S. Govt & U.S. Govt Agency $64,483 $64,573 $62,037 $62,028 $52,961 $53,562
Mortgage-backed securities 51,544 50,855 53,269 52,091 55,570 54,739
- ------------------------------------------------------------------------------------------------------------------------
Total debt securities 116,027 115,428 115,306 114,119 108,531 108,301
Other securities 300 300 11,340 11,309 17,710 17,764
- ------------------------------------------------------------------------------------------------------------------------
$116,327 $115,728 $126,646 $125,428 $126,241 $126,065
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
The following table sets forth deposit accounts in dollar amounts and weighted
average rate on the date indicated.
<TABLE>
<CAPTION>
At December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Passbook/statement $64,297 1.83% $63,022 2.05% $63,315 2.05%
NOW and Super NOW 43,988 0.57% 44,444 1.91% 37,602 1.46%
Money market accounts 130,959 3.46% 130,028 3.30% 113,110 3.69%
Fixed-rate certificates 233,352 5.50% 288,367 5.16% 257,045 5.30%
Jumbo certificates 47,578 5.41% 54,074 5.44% 48,929 5.74%
Individual retirement accounts (1) 58,537 5.60% 61,940 5.79% 64,506 5.87%
Commercial checking accounts (2) 115,733 -- 94,767 -- 59,799 --
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits $694,444 $736,642 $644,306
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Funds in IRA accounts are invested primarily in certificates of deposit.
(2) Non-interest bearing.
DOMESTIC TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth remaining maturities of domestic time deposits of
$100,000 or more.
<TABLE>
<CAPTION>
Other
Jumbo Time
December 31, 1997 C/D Deposits Total
- -----------------------------------------------------------
<S> <C> <C> <C>
Three months or less $22,839 $4,984 $27,823
Over three through six months 18,670 3,929 22,599
Over six through twelve months 5,369 14,430 19,799
Over twelve months 700 12,270 12,970
- -----------------------------------------------------------
Total $47,578 $35,613 $83,191
- -----------------------------------------------------------
</TABLE>
BORROWINGS
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Advances from FHLB of Pittsburgh $79,550 $37,598 $37,646
Repo plus agreements with the
FHLB of Pittsburgh -- 19,000 20,000
Repurchase agreements 91,486 51,685 37,622
- -----------------------------------------------------------
$171,036 $108,283 $95,268
- -----------------------------------------------------------
</TABLE>
40
<PAGE>
PRIME BANCORP, INC. AND PRIME BANK
- --------------------------------------------------------------------------------
Board of Directors
Erwin T. Straw
Chairman of the Board
James J. Lynch
President and
Chief Executive Officer
Frederick G. Betz
President of Fred Betz and Sons, Inc. a custom home building company
William J. Cunningham
Basketball Hall of Famer and former championship winning coach of the
Philadelphia 76ers and former owner and founder of the Miami Heat pro basketball
franchise
Joseph A. Fluehr, III
Corporate Secretary, Funeral Director and owner of Fluehr Funeral Home
Robert A. Fox
President of R.A.F. Industries, a private investment company which acquires and
manages a diversified group of operating companies and venture capital
investments
Ernest Larenz
President of Medicare Management Nursing Homes, Philadelphia, PA
Arthur J. Kania
Principal of Trikan Associates
Joseph G. Markmann, CPA
Associate Professor of Accounting & former Chairman of Accounting Dept. of
LaSalle University
Roy T. Peraino
Former Chairman and Chief Executive Officer of Continental Bancorp and
Continental Bank and former President of Midlantic Corporation
David H. Platt
President of Somerton Springs Golf Shoppes, Driving Ranges, and President of
Sycamore Ridge, Inc. Golf Course
Arthur L. Powell
President of Kravco, Inc., a real estate development company which specializes
in large shopping malls
Prime Bancop and Prime Bank Officers
EXECUTIVE OFFICERS
James J. Lynch*
President and
Chief Executive Officer
William H. Bromley*
Executive Vice President
James E. Kelly*
Executive Vice President and CFO
COMMERCIAL LENDING
Timothy J. Abell
Senior Vice President
Robert J. Mulligan
Vice President
Michael J. Okino
Vice President
Jeff F. Southworth
Vice President
David W. Gill
Assistant Vice President
Brian T. Vesey
Commercial Loan Officer
Scott Gamble
Vice President
Carol A. Chartrand
Vice President -
Cash Management
Michael Prendergast
Vice President
Steven C. McGilvery
Senior Vice President
Thomas F. Gordon
Vice President
Frank Naylor
Vice President
Dorothy A. Hoerr
Assistant Vice President
Grant Conway
Commercial Loan Officer
COMMERCIAL
REAL ESTATE LENDING/CONSTRUCTION
Gregory J. Webster
Senior Vice President
Robert C. Kenney, Jr.
Vice President
Seth L. Mackler*
Vice President and Secretary
Eleanor A. Remolde
Assistant Vice President
Maureen P. Menarde
Real Estate Loan Officer
CONSUMER LENDING
Curt T. Schulmeister
Senior Vice President
Robin Carmody
Assistant Vice President
Joseph E. McNamara
Assistant Vice President
Jane A. Passaglia
Assistant Vice President
Thomas J. Blair
Consumer Loan Officer
RESIDENTIAL MORTGAGE LENDING
Robert T. Strong
Senior Vice President
Brian McGovern
Assistant Vice President
Laura Johnson
Mortgage Loan Officer
CREDIT POLICY AND ADMINISTRATION
Steven H. Santini
Vice President
Christian Schweizer III
Vice President
Bonnie L. Halbreiner
Assistant Vice President
Kenneth W. Hilbert
Assistant Vice President
Carolyn J. Matje
Assistant Vice President
COMPLIANCE AND COMMUNITY INVESTMENT
Doreen M. Berdan
Vice President
OPERATIONAL SERVICES
Dolores M. Lare
Senior Vice President
David R. Forlini
Vice President - Loan Services
Patricia L. Campbell
Loan Documentation Officer
Rita A. Tarr
Vice President - Deposit Services
Darren A. Knox
Vice President -
Information Technology
FINANCE AND ACCOUNTING
Frank H. Reeves*
Senior Vice President
Michael J. Sexton
Vice President
William J. Boyce
Assistant Controller
Antonio A. Pimpinella
Accounting Officer
Marissa R. Hack*
Senior Vice President, Treasurer
Catherine M. Hendrick
Assistant Vice President
BRANCH ADMINISTRATION
Jan M. Smith
Senior Vice President
Maureen Nicholas
Assistant Vice President
SUPPORT SERVICES
Harry E. Dingler, Jr.
Vice President - Human Resources
Peggy R. Grogan
Personnel Officer
Joseph B. Leotta
Vice President
Director of Marketing
John F. Downes
Vice President
* Officers of Prime Bank and Prime Bancorp. All others are officers
of Prime Bank.
41
<PAGE>
Northern Advisory Board
Joseph Sokol (ret.)
Former Vice Chairman
Prime Bancorp & Prime Bank
Dorothy M. Bernhard (ret.)
Former Vice President North East
Federal Savings & Former Prime Bank Director
Robert G. Hess, Esq.
Howland, Hess, Guinan & Torpey
Former Prime Bank Director
Robert G. Stahl (ret.)
Past President of Stahl Chevrolet
Former Prime Bank Director
Marc B. Kaplin, Esq.
Kaplin, Stewart, Meloff, Reiter & Stein
Bruce A. Goodman
Sole Proprietor
Goodman Properties
Bart Blatstein
Vice President
Tower Investments, Inc.
Frank C. Corace
Partner
Valley Forge Asset Management Corp.
Frederick I. Robinson
Chairman & CEO
Keystone Industries
David C. Campbell
President
Equipment For Semi-Conductors, Inc.
Abbie Hoffman
President
Regal Corrugated Box Company, Inc.
Michael Binder
Executive Vice President
Capitol Sign Systems
Alfred J. Beljan
President
Belbold Contracting Corporation
B. Scott Holloway
Vice Chairman
Richmond Foundry, Inc.
Carmen D. Carosella
Vice President & CFO
United Refrigeration, Inc.
Western Advisory Board
Francis J. Grey, CPA
Financial Consultant
Smart & Associates, LLP
Albert R. Riviezzo, Esq.
Partner
Fox, Rothschild, O'Brien & Frankel, LLP
R. Richard Williams
President
Valquip Corporation
James D. Kania
Kania, Lindner, Lasak & Feeney
Former First Sterling Bank Director
Thomas J. Scanlon, Jr.
Director of Sales
BASF Corporation
Former First Sterling Bank Director
Allen Speiser, CPA
Former First Sterling Bank Director
William G. Warden, IV
Vice President
Superior Group, Inc.
Alvin Clay, Ph.D., Dean Emeritus
Villanova University
Frank A. Pension
President
The Pension Company
F. Scott Addis
CEO
Garno & Addis
E. William Ross, Sr.
President
Pelmor Laboratories, Inc.
Frank J. Craparo, M.D.
Abington Perinatal Associates, P.C.
R. Craig Williams, D.M.D.
Main Line Dental Group, P.C.
Deborah S. Kitz, Ph.D.
Abington Surgical Center
William G. Davis
President & CEO
Medstaff, Inc.
David C. Henderson
President
The Henderson Group
Edward Kassab, Esq.
Kassab, Archbold & O'Brien, LLP
G. Guy Smith, Esq.
Harris & Smith
Charles L. Wallace
Vice President
Energy Products Company
Steve P. Pahides
Banking (ret.)
Raymond L. Weinmann
President
The Weinmann Group
Former Prime Bank Director
Paul T. Bartkowski
Assistant Vice President
Valley Forge Asset Management Corp.
42
<PAGE>
Prime Bank Branch Locations
PHILADELPHIA COUNTY
Burholme
1000 Cottman Avenue
Philadelphia, PA 19111-3698
(215) 342-2425
Manager - Ann C. Mozzone,
Banking Officer
Chestnut Hill
8500 Germantown Avenue
Philadelphia, PA 19118-3317
(215) 248-1600
Manager - Missy Dannehower,
Assistant Vice President
18th & JFK
18th & JFK Boulevard
Philadelphia, PA 19103-7421
(215) 972-7072
Manager - Edwin A. Bergin,
Banking Officer
Grant Plaza
1695 Grant Avenue
Philadelphia, PA 19115-3199
(215) 673-9600
Manager - Kimberly A. Erwin,
Banking Officer
Kensington
1841 E. Allegheny Avenue
Philadelphia, PA 19134-3192
(215) 426-9520
Manager - Frances Abel,
Assistant Vice President
Lawndale
6425 Rising Sun Avenue
Philadelphia, PA 19111-5299
(215) 742-5300
Manager - Robert A. Farrer,
Assistant Vice President
Penn Treaty
423 E. Girard Avenue
Philadelphia, PA 19125-3305
(215) 426-3303
Manager - Bridget A. Morsa
Somerton
O'Hanlon Plaza
14425 Bustleton Avenue
Philadelphia, PA 19116-1177
(215) 671-1232
Manager - Karen S. Sica,
Banking Officer
MONTGOMERY COUNTY
Bala Cynwyd
50 Monument Road
Bala Cynwyd, PA 19004-1723
(610) 617-0801
Manager - Linda S. Hodges,
Assistant Vice President
Bryn Mawr
22 North Bryn Mawr Avenue
Bryn Mawr, PA 19010-3304
(610) 520-0444
Manager - Nance J. Markel,
Banking Officer
Horsham
301 Horsham Road
Horsham, PA 19044-2017
(215) 956-9333
Manager - Suzanne B. Shane,
Assistant Vice President
Huntingdon Valley
Bethayres Shopping Center
618 Welsh Road
Huntingdon Valley, PA 19006-6302
(215) 938-7850
Manager - Virginia Fiorentine,
Banking Officer
Jenkintown
The Pavilion
261 Old York Road
Jenkintown, PA 19046-3793
(215) 572-0800
Manager - Lynn Levy Marks,
Assistant Vice President
Montgomeryville
521 Stump Road
North Wales, PA 19454-1516
(215) 368-1160
Manager - Ruth K. Hardin,
Assistant Vice President
Plymouth Meeting
661 W. Germantown Pike
Plymouth Meeting, PA 19462-1033
(610) 397-1600
Manager - Dale Grewal,
Assistant Vice President
Willow Grove
Moreland Plaza
Old York & Moreland Roads
Willow Grove, PA 19090-4194
(215) 659-5404
Manager - Gregory B. Morgan,
Assistant Vice President
BUCKS COUNTY
Fairless Hills
503 S. Oxford Valley Road
Fairless Hills, PA 19030-2612
(215) 943-2200
Manager - Kathryn M. Geissel,
Assistant Vice President
Oxford Valley
195 Bristol Oxford Valley Road
Langhorne, PA 19047-3083
(215) 943-1100
Manager - Kelly A. Colon
Richboro
984 Second Street Pike
Richboro, PA 18954-1527
(215) 322-4400
Manager - Wanda S. Albright,
Assistant Vice President
Southampton
723 Street Road
Southampton, PA 18966-3989
(215) 357-9090
Manager - Donna M. McKenna,
Assistant Vice President
Yardley
10 S. Main Street
Yardley, PA 19067-1511
(215) 493-7285
Manager - Deborah A. Zimmaro,
Assistant Vice President
CHESTER COUNTY
Devon
80 West Lancaster Avenue
Devon, PA 19333-1374
(610) 971-9072
Manager - Marcia C. Gallagher,
Assistant Vice President
DELAWARE COUNTY
St. Davids
558 East Lancaster Avenue
St. Davids, PA 19087-5048
(610) 971-9430
Manager - Debra G. Palochak,
Assistant Vice President
Media
101 W. Baltimore Avenue
Media, PA 19063-3205
(610) 892-2920
Manager - Peter W. Bendistis,
Vice President
43
<PAGE>
44
[LOGO]
SUBSIDIARIES
Name of Subsidiary State of Incorporation
Del-Prime, Inc. Delaware
Del-Prime, Investments, Inc. Delaware
Prime Abstract, Inc. Delaware
6524 Service Corporation Pennsylvania
723 Service Corporation Pennsylvania
NEFA Corporation Pennsylvania
Prime Financial, Inc. Pennsylvania
Rowland Service Corporation Pennsylvania
[COOPERS & LYBRAND LOGO]
The Board of Directors
Prime Bancorp, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-33307) on Form S-8 of Prime Bancorp, Inc. of our report dated February 23,
1996, relating to the consolidated statements of income, stockholders' equity,
and cash flows of First Sterling Bancorp, Inc. for the year ended December 31,
1995, which report is included in the December 31, 1997, annual report on Form
10-K of Prime Bancorp, Inc.
/s/ Coopers & Lybrand L.L.P.
------------------------
Baltimore, Maryland
March 25, 1998
EXHIBIT 23.2
The Board of Directors
Prime Bancorp, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-33307) on Form S-8 of Prime Bancorp, Inc. of our report dated January 16,
1998, relating to the consolidated statements of financial condition of Prime
Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997, which report
appears in the December 31, 1997, annual report on form 10-K of Prime Bancorp,
Inc.
/s/ KPMG Peat Marwick LLP
- -------------------------
Philadelphia, PA
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 23,068
<INT-BEARING-DEPOSITS> 18,161
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 115,728
<INVESTMENTS-CARRYING> 117,988
<INVESTMENTS-MARKET> 118,848
<LOANS> 642,562
<ALLOWANCE> 8,485
<TOTAL-ASSETS> 953,425
<DEPOSITS> 694,444
<SHORT-TERM> 98,534
<LIABILITIES-OTHER> 8,081
<LONG-TERM> 72,502
0
0
<COMMON> 5,444
<OTHER-SE> 74,420
<TOTAL-LIABILITIES-AND-EQUITY> 953,425
<INTEREST-LOAN> 55,323
<INTEREST-INVEST> 15,434
<INTEREST-OTHER> 607
<INTEREST-TOTAL> 71,364
<INTEREST-DEPOSIT> 26,506
<INTEREST-EXPENSE> 7,726
<INTEREST-INCOME-NET> 37,132
<LOAN-LOSSES> 3,438
<SECURITIES-GAINS> 741
<EXPENSE-OTHER> 22,756
<INCOME-PRETAX> 15,808
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<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.91
<YIELD-ACTUAL> 8.17
<LOANS-NON> 3,003
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<ALLOWANCE-DOMESTIC> 7,011
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<ALLOWANCE-UNALLOCATED> 1,474
</TABLE>
