SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d) FOR THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-24100
HMN FINANCIAL, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 41-1777397
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
101 North Broadway, Spring Valley, Minnesota 55975-0231
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code:
(507) 346-7345
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's common stock
as of the latest practicable date.
Class Outstanding at November 1, 1996
Common stock, .01 par value 4,666,782
This Form 10-Q consists of 90 pages.
The exhibit index is on page 19.
1
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<PAGE>
HMN FINANCIAL, INC.
CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1: Financial Statements (unaudited)
Consolidated Balance Sheets at
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income for the
Three Months Ended and Nine Months Ended
September 30, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity
for the Nine Month Period Ended September 30, 1996 5
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-10
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 17
Item 2: Changes in Securities 17
Item 3: Defaults Upon Senior Securities 17
Item 4: Submission of Matters to a Vote of Security Holders 17
Item 5: Other Information 17
Item 6: Exhibits and Reports on Form 8-K 17
Signatures 18
2
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
ASSETS 1996 1995
-----------------------------------
<S> <C> <C>
Cash and cash equivalents $ 17,396,371 4,334,694
Securities available for sale:
Mortgage-backed and related securities
(amortized cost $137,847,323 and
$158,517,548) 135,191,304 158,416,201
Other marketable securities
(amortized cost $53,015,288 and
$32,247,959) 52,515,628 31,903,566
------------- -------------
187,706,932 190,319,767
------------- -------------
Securities held to maturity:
Mortgage-backed and related securities
(estimated market value $2,461,365
and $13,931,879) 2,337,548 13,744,063
Other marketable securities
(estimated market value $999,250
and $3,224,263) 999,530 3,227,729
------------- -------------
3,337,078 16,971,792
------------- -------------
Loans receivable, net 343,735,917 314,850,684
Federal Home Loan Bank stock, at cost 5,198,800 3,801,900
Real estate, net 0 279,851
Premises and equipment, net 3,544,053 3,645,536
Accrued interest receivable 3,284,857 3,381,507
Deferred income taxes 352,667 0
Prepaid expenses and other assets 828,617 362,928
------------- -------------
Total assets $ 565,385,292 537,948,659
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 363,963,098 373,539,468
Federal Home Loan Bank advances 101,832,555 68,876,978
Accrued interest payable 1,520,976 1,562,347
Advance payments by borrowers for
taxes and insurance 745,028 550,990
Accrued expenses and other liabilities 13,655,034 1,732,193
------------- -------------
Total liabilities 481,716,691 446,261,976
------------- -------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock: authorized
500,000 shares; issued and
outstanding none 0 0
Common stock ($.01 par value):
authorized 7,000,000 shares;
issued 6,085,775 shares 60,858 60,858
Additional paid-in capital 59,392,608 59,285,581
Retained earnings, subject to
certain restrictions 53,346,286 50,371,038
Net unrealized loss on securities
available for sale (1,878,639) (265,358)
Unearned employee stock ownership
plan shares (5,037,910) (5,336,150)
Unearned compensation restricted
stock awards (850,463) (1,050,305)
Treasury stock, at cost 1,412,085
and 783,850 shares (21,364,139) (11,378,981)
------------- -------------
Total stockholders' equity 83,668,601 91,686,683
------------- -------------
Total liabilities and
stockholders' equity $ 565,385,292 537,948,659
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<PAGE>
<TABLE>
<CAPTION>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------------------- -----------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $6,461,279 6,009,885 19,009,335 17,192,535
Securities available for sale:
Mortgage-backed and related2,429,330 2,489,073 7,730,690 7,744,628
Other marketable 669,964 875,861 1,655,705 2,253,239
Securities held to maturity:
Mortgage-backed and related 196,050 204,919 719,827 497,746
Other marketable 14,250 82,975 90,103 333,938
Cash equivalents 149,819 76,124 315,623 348,635
Other 93,823 65,702 232,453 178,070
---------- ---------- ---------- ----------
Total interest income 10,014,515 9,804,539 29,753,736 28,548,791
========== ========== ========== ==========
Interest expense:
Deposits 4,741,907 4,786,359 14,281,156 13,703,586
Federal Home Loan Bank
advances 1,449,492 1,086,272 3,739,015 2,947,048
---------- ---------- ---------- ----------
Total interest expense 6,191,399 5,872,631 18,020,171 16,650,634
---------- ---------- ---------- ----------
Net interest income 3,823,116 3,931,908 11,733,565 11,898,157
Provision for loan losses 75,000 75,000 225,000 225,000
---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses 3,748,116 3,856,908 11,508,565 11,673,157
---------- ---------- ---------- ----------
Non-interest income:
Fees and service charges 94,817 89,192 254,188 242,325
Securities gains, net 192,761 148,152 961,798 136,284
Gain on sales of loans 9,896 22,391 16,980 99,341
Other 114,957 32,528 365,879 99,394
---------- ---------- ---------- ----------
Total non-interest income 412,431 292,263 1,598,845 577,344
---------- ---------- ---------- ----------
Non-interest expense:
Compensation and benefits 1,175,725 1,108,509 3,380,843 3,046,330
Occupancy 203,071 191,718 595,216 557,575
Federal deposit insurance
premiums 212,020 205,806 636,676 602,753
SAIF assessment 2,351,563 0 2,351,563 0
Advertising 77,696 74,408 229,735 212,546
Data processing 118,949 115,520 368,145 359,202
Other 255,808 210,736 799,710 776,956
---------- ---------- ---------- ----------
Total non-interest expense 4,394,832 1,906,697 8,361,888 5,555,362
---------- ---------- ---------- ----------
Income (loss) before
income taxes (234,285) 2,242,474 4,745,522 6,695,139
Income tax (benefit) expense (89,758) 828,380 1,770,274 2,512,148
---------- ---------- ---------- ----------
Net income (loss) $ (144,527) 1,414,094 2,975,248 4,182,991
========== ========== ========== ==========
Earnings (loss) per common
share and common share
equivalents $ (0.03) 0.28 0.66 0.79
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<PAGE>
<TABLE>
<CAPTION>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Nine Month Period Ended September 30, 1996
(unaudited)
Net
Unrealized
(Loss) on
Additional Securities
Common Paid-in Retained Available
Stock Capital Earnings for Sale
------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $60,858 59,285,581 50,371,038 (265,358)
Net income 2,975,248
Change in unrealized
loss on securities
available for sale (1,613,281)
Treasury stock
purchases.
Stock options exercised (2,047)
Restricted stock
awards cancelled (808)
Amortization of
restricted stock awards
Restricted stock awards tax
benefit in excess of basis 13,677
Earned employee stock
ownership plan shares 96,205
------- ---------- ---------- ----------
Balance, September 30, 1996 $60,858 59,392,608 53,346,286 (1,878,639)
======= ========== ========== ==========
<CAPTION>
Unearned
Shares
Employee Unearned
Stock Compensation Total
Ownership Restricted Treasury Stockholders'
Plan Stock Awards Stock Equity
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31,
1995 (5,336,150) (1,050,305) (11,378,981) 91,686,683
Net income 2,975,248
Change in unrealized
loss on securities
available for sale (1,613,281)
Treasury stock purchases (9,966,878) (9,966,878)
Stock options exercised 6,880 4,833
Restricted stock
awards cancelled 25,968 (25,160) 0
Amortization of
restricted stock awards 173,874 173,874
Restricted stock awards tax
benefit in excess of basis 13,677
Earned employee stock
ownership plan shares 298,240 394,445
---------- ----------- ----------- ----------
Balance, September 30,
1996 (5,037,910) (850,463) (21,364,139) 83,668,601
========== =========== =========== ==========
</TABLE>
See accompanying note to consolidated financial statements.
5
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<PAGE>
<TABLE>
<CAPTION>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1996 1995
-------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,975,248 4,182,991
Adjustments to reconcile net income
to cash provided by operating activities:
Provision for loan losses 225,000 225,000
Depreciation 277,043 262,476
Amortization of (discounts) premiums, net (49,327) (62,499)
Amortization of deferred loan fees (334,698) (473,471)
Provision for deferred income taxes 190,224 281,906
Securities gains, net (961,798) (136,284)
Gain on sales of real estate (46,625) (5,958)
Gain on sales of loans (16,980) (99,341)
Proceeds from sales of loans originated for sale 943,096 0
Amortization of restricted stock awards 173,874 58,350
Amortization of unearned ESOP shares 298,240 307,280
SAIF assessment 2,351,563 0
Earned employee stock ownership shares
priced above original cost 96,205 60,729
Decrease (increase) in accrued interest receivable 96,650 (13,630)
Increase (decrease) in accrued interest payable (41,371) 730,711
Increase in other assets (81,461) (167,178)
Decrease in other liabilities (874,954) (368,598)
Other, net (54,335) (26,237)
---------- ----------
Net cash provided by operating activities 5,165,594 4,756,247
---------- ----------
Cash flows from investing activities:
Proceeds from sales of securities available
for sale 78,362,250 55,062,598
Principal collected on securities available
for sale 13,375,740 12,435,728
Proceeds collected on maturity of securities
available for sale 5,500,000 8,615,000
Purchases of securities available for sale (81,008,115) (69,436,467)
Principal collected on securities held to
maturity 1,336,500 693,948
Proceeds collected on maturity of securities
held to maturity 12,652,343 4,000,000
Purchase of securities held to maturity (709,765) (7,589,887)
Proceeds from sales of loans receivable 154,612 4,049,249
Purchase of Federal Home Loan Bank stock (1,396,900) (685,100)
Net increase in loans receivable (34,186,011) (34,981,518)
Proceeds from sale of real estate 379,789 110,929
Purchases of premises and equipment (175,560) (432,571)
---------- ----------
Net cash used by investing activities (5,715,117) (28,158,091)
---------- ----------
Cash flows from financing activities:
(Decrease) increase in deposits (9,576,370) 13,021,181
Purchase of treasury stock (9,966,878) (9,656,542)
Treasury stock options exercised 4,833 0
Proceeds from Federal Home Loan Bank advances 108,800,000 58,350,000
Repayment of Federal Home Loan Bank advances (75,844,423) (41,436,085)
Increase in advance payments by borrowers
for taxes and insurance 194,038 256,824
---------- ----------
Net cash provided by financing activities1 13,611,200 20,535,378
---------- ----------
Increase (decrease) in cash and cash equivalents 13,061,677 (2,866,466)
Cash and cash equivalents, beginning of period 4,334,694 12,097,156
---------- ----------
Cash and cash equivalents, end of period $ 17,396,371 9,230,690
========== ==========
Supplemental cash flow disclosures:
Cash paid for interest $ 18,061,542 15,919,923
Cash paid for income taxes 2,725,433 2,344,755
Supplemental noncash flow disclosures:
Loans securitized and transferred to
securities available for sale $ 15,419,810 0
Loans purchased with liability due to broker 11,000,000 0
Transfer of loans to real estate 168,187 413,853
Transfer of real estate to loans 161,953 0
Securities purchased with liability due to broker 0 1,120,250
Securities sold with asset due from broker 384,228 0
</TABLE>
See accompanying notes to consolidated financial statements.
6
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<PAGE>
HMN FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
September 30, 1996 and 1995
(1) HMN FINANCIAL, INC.
HMN Financial, Inc. (HMN) was incorporated under the laws of the State of
Delaware for the purpose of becoming the savings and loan holding company
of Home Federal Savings Bank (the Bank) in connection with the Bank's
conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank, pursuant to its Plan of Conversion.
The consolidated financial statements included herein are for HMN,
Security Finance Corporation (SFC), HMN Mortgage Services, Inc., the Bank
and the Bank's wholly owned subsidiary, Osterud Insurance Agency, Inc..
During 1995 the Bank owned 100% of the outstanding shares of SFC. On
December 29, 1995 the Bank sold all its outstanding shares of common stock
in SFC to HMN at SFC's fair value. All significant intercompany accounts
and transactions have been eliminated in consolidation.
(2) BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and therefore, do not
include all disclosures necessary for a complete presentation of the
consolidated balance sheets, consolidated statements of income,
consolidated statements of stockholders' equity and consolidated
statements of cash flows in conformity with generally accepted accounting
principles. The information under the heading "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" is written
with the presumption that the users of the interim financial statements
have read or have access to the most recent Annual Report on Form 10-K of
HMN Financial, Inc., which contains the latest audited financial
statements and notes thereto, together with "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" as of December
31, 1995 and for the year then ended. All adjustments consisting of only
normal recurring adjustments which are, in the opinion of management,
necessary for the fair presentation of the interim financial statements
have been included and all significant intercompany accounts and
transactions have been eliminated in consolidation. The statements of
income for the three month and nine month periods ended September 30, 1996
are not necessarily indicative of the results which may be expected for
the entire year.
Certain amounts in the consolidated financial statements for prior periods
have been reclassified to conform with the current period presentation.
7
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<PAGE>
(3) NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, ACCOUNTING
FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES which provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment 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. Under
the financial-components approach, after a transfer of financial assets,
an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-
components approach focuses on the assets and liabilities that exist after
the transfer. Many of these assets and liabilities are components of
financial assets that existed prior to the transfer. If a transfer does
not meet the criteria for a sale, the transfer is accounted for as a
secured borrowing with pledge of collateral. SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and must be applied
prospectively. The effect of adopting SFAS No. 125 on January 1, 1997 is
not anticipated to have a material impact on HMN's financial condition or
the results of its operations.
(4) EARNINGS PER SHARE
Earnings per common share and common share equivalent for the three months
ended September 30, 1996 and 1995 were computed by dividing net income
(loss) for each period ($(144,527) and $1,414,094, respectively) by the
weighted average common shares and common share equivalents outstanding
(4,185,867 and 5,125,856, respectively) during each period. Earnings per
common share and common share equivalent for the nine months ended
September 30, 1996 and 1995 were computed by dividing net income for each
period ($2,975,248 and $4,182,991, respectively) by the weighted average
common shares and common share equivalents outstanding (4,509,942 and
5,273,428, respectively) during each period.
(5) SAIF ASSESSMENT
On September 30, 1996, President Clinton signed the Savings Association
Insurance Fund (SAIF) legislation which assessed a one time charge of
$2,351,563 to the Bank in order to recapitalize the SAIF. The impact of
the assessment was to reduce earnings by approximately $1.5 million after
tax.
8
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(6) REGULATORY CAPITAL REQUIREMENTS
At September 30, 1996, the Bank met each of the three current minimum
regulatory capital requirements. The following table summarizes the
Bank's regulatory capital position at September 30, 1996:
<TABLE>
<CAPTION>
Amount Percent<F1>
(Dollars in Thousands)
<S> <C> <C>
Tangible Capital:
Actual $60,603 11.13%
Required 8,165 1.50
------- -----
Excess $52,438 9.63%
======= =====
Core Capital:
Actual $60,603 11.13%
Required<F2> 16,329 3.00
------- -----
Excess $44,274 8.13%
======= =====
Risk-Based Capital:
Actual $62,868 27.52%
Required<F3><F4> 18,273 8.00
------- -----
Excess $44,595 19.52%
======= =====
- ----------------------------
<FN>
<F1> Tangible and core capital levels are shown as a percentage of total
adjusted assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
<F2> In April 1991, the OTS proposed a core capital requirement for savings
associations comparable to the requirement for national banks that became
effective on December 31, 1990. This core capital ratio is 3% of total
adjusted assets for thrifts that receive the highest supervisory rating
for safety and soundness ("CAMEL" rating), with a 4% to 5% core capital
requirement for all other thrifts.
<F3> Calculated based on the OTS requirement of 8% of risk-weighted assets.
<F4> Beginning March 31, 1995, a savings institution whose interest rate
risk("IRR") exposure (as calculated under OTS guidelines) exceeds 2% of
total assets may be required to deduct an IRR component in calculating its
total capital for purposes of determining whether it meets the risk-based
capital requirement. The IRR component is an amount equal to one-half of
the difference between measured IRR and 2%, multiplied by the estimated
economic value of its total assets. Based on the Bank's interest rate
risk position at June 30, 1996, the latest date for which such information
is available, this rule would require an $8.0 million deduction from the
Bank's capital for purposes of calculating risk-based capital. The OTS
currently does not require the IRR component to be deducted from the risk-
based capital calculation but may require the deduction in accessing the
Bank's individual capital requirements at some time in the future.
</FN>
9
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<PAGE>
(7) STOCKHOLDERS' EQUITY AND STOCK CONVERSION
HMN was incorporated for the purpose of becoming the savings and loan
holding company of the Bank in connection with the Bank's conversion from
a federally chartered mutual savings bank to a federally chartered stock
savings bank, pursuant to a Plan of Conversion adopted on February 10,
1994. HMN commenced on May 23, 1994, a Subscription and Community
Offering (the Offering) of its shares in connection with the conversion of
the Bank. The Offering was closed on June 22, 1994, and the conversion
was consummated on June 29, 1994, with the issuance of 6,085,775 shares of
HMN's common stock at a price of $10 per share. Total proceeds from the
conversion of $59,178,342 net of costs relating to the conversion of
$1,679,408, have been recorded as common stock and additional paid-in
capital. HMN received all of the capital stock of the Bank in exchange
for 50% of the net proceeds of the conversion.
During the first nine months of 1996, with Board authorization and
approval from the Office of Thrift Supervision (OTS), HMN purchased a
total of 626,785 shares of its common stock in the open market for
$9,966,878. All shares were placed in treasury stock. On October 3,
1996, HMN announced its intention to repurchase 467,334 shares of its
stock in the open market during the next 12 month period.
10
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<PAGE>
HMN FINANCIAL, INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
HMN's net income is dependent primarily on its net interest income, which
is the difference between interest earned on its loans and investments and
the interest paid on interest-bearing liabilities. Net interest income is
determined by (i) the difference between the yield earned on interest-
earning assets and rates paid on interest-bearing liabilities (interest
rate spread) and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. HMN's interest rate spread is affected by
regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. Net interest margin is calculated
by dividing net interest income by the average interest-earning assets and
is normally expressed as a percentage. Net interest income and net
interest margin are affected by changes in interest rates, the volume and
the mix of interest-earning assets and interest-bearing liabilities, and
the level of non-performing assets. HMN's net income is also affected by
the generation of non-interest income, which primarily consists of gains
from the sale of securities, fees and service charges. In addition, net
income is affected by the level of operating expenses and establishment of
a provision for loan losses.
The operations of financial institutions, including the Bank, are
significantly affected by prevailing economic conditions, competition and
the monetary and fiscal policies of governmental agencies. Lending
activities are influenced by the demand for and supply of housing,
competition among lenders, the level of interest rates and the
availability of funds. Deposit flows and costs of funds are influenced by
prevailing market rates of interest primarily on competing investments,
account maturities and the levels of personal income and savings in the
market area of the Bank.
NET INCOME (LOSS)
HMN's net loss for the third quarter of 1996 was $(145,000), or $(0.03)
per share, compared to net income for the same quarter of 1995 of $1.4
million, or $0.28 per share. Net income decreased by $1.6 million, or
110%, principally due to the passage of the Savings Association Insurance
Fund (SAIF) legislation which assessed a one time charge of $2.4 million
to the Bank in order to recapitalize the SAIF. The total SAIF assessment
was charged to earnings in the third quarter of 1996 and reduced the
quarterly earnings by $1.5 million after tax, or $0.34 per share. Net
income for the nine month period ended September 30, 1996 was $3.0
million, or $0.66 per share compared to the same period of 1995 of $4.2
million, or $0.79 per share. Net income for the nine month period
decreased by $1.2 million, or 28.9%, and was principally due to the SAIF
assessment which reduced earnings for the nine month period by $1.5
million after tax, or $0.32 per share. The impact of the SAIF assessment
was partially offset by an increase of $1.0 million in other non-interest
income and was partially offset by an increase of $455,000 in non-interest
expense and a decrease of $165,000 in net interest income.
11
<PAGE>
NET INTEREST INCOME
Net interest income was $3.8 million for the third quarter of 1996, a
decrease of $109,000, or 2.8%, compared to $3.9 million for the third
quarter of 1995. HMN has been purchasing its own stock in the open market
at an average price that is less than its current book value. The balance
sheet impact of the stock repurchase program has been to reduce equity and
replace it with additional advances and/or deposit growth. Comparing the
three month period ended September 30, 1996 to the same three month period
in 1995, average interest-earning assets increased by $24.9 million due
primarily to loan purchases and average interest-bearing liabilities
increased by $32.7 million due to additional advances and/or deposit
growth. The changes caused interest income for the three months ended
September 30, 1996, adjusted for interest rate changes, to increase by
$210,000 from the same period in 1995, and interest expense for the three
months ended September 30, 1996, adjusted for interest rate changes, to
increase by $319,000 for the same period in 1995. Net interest income for
the nine months ended September 30, 1996 was $11.7 million, a decrease of
$165,000, or 1.4%, from $11.9 million for the nine months ended September
30, 1995. Comparing the nine month period ended September 30, 1996 to the
same nine month period in 1995, average interest-earning assets increased
by $22.9 million due primarily to loan purchases and average interest-
bearing liabilities increased by $30.3 million due to advances and deposit
growth. As a result of the changes, interest income for the first nine
months of 1996, adjusted for interest rate changes, increased by $1.2
million for the same period in 1995 and interest expense for the first
nine months of 1996, adjusted for interest rate changes, increased by $1.4
million for the same period in 1995.
Net interest margin was 2.77%, 2.98%, 2.97%, 2.94%, and 2.98%,
respectively for the quarters ended September 30, 1996, June 30, 1996,
March 31, 1996, December 31, 1995, and September 30, 1995. Based upon the
current interest rate environment, HMN expects the net interest margin to
decline in at least the near term.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the third quarter of 1996 and 1995 was
$75,000. The provision for loan losses for the nine months ended
September 30, 1996 and 1995 was $225,000. The provision is the result of
management's evaluation of the loan portfolio, a historically low level of
non-performing loans, minimal loan charge off experience, and its
assessment of the general economic conditions in the geographic area where
properties securing the loan portfolio are located. Management's
evaluation did not reveal conditions that would cause it to increase the
provision for loan losses during 1996 compared to 1995. Future economic
conditions and other unknown factors will impact the need for future
provisions for loan losses. As a result, no assurances can be given that
increases in the allowance for loan losses will not be required during
future periods.
During the first nine months of 1996, HMN incurred the following charge-
offs on its loan portfolio:
Commercial $ 61,329
Multi-family residential 87,591
Consumer 1,216
-------
Total $ 150,136
=======
12
<PAGE>
The charge-offs were anticipated and resulted in the removal of the
properties from the loan portfolio.
A reconciliation of HMN's allowance for loan losses is summarized as
follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Balance at January 1, $ 2,190,664 1,893,143
Provision 225,000 225,000
Charge-offs (150,136) (2,612)
Recoveries 57 117
---------- ---------
Balance at September 30, $ 2,265,585 2,115,648
========== =========
</TABLE>
NON-INTEREST INCOME
Non-interest income was $412,000 for the third quarter of 1996, an
increase of $120,000, or 41%, compared to $292,000 for the third quarter
of 1995. The increase was principally due to a $44,000 increase in gain
on the sale of securities, a $35,000 increase in commissions earned on the
sale of uninsured products and a $47,000 increase in other income which
was partially offset by a $12,000 decrease in gain on sale of loans.
During 1996 fixed rate and floating rate collateralized mortgage
obligation securities (CMOs) and other securities were sold in order to
assist in funding the purchase and origination of loans and to change the
interest rate risk profile of the available for sale securities portfolio.
Non-interest income for the nine months ended September 30, 1996 was $1.6
million, an increase of $1.0 million, or 177%, compared to $577,000 for
the nine months ended September 30, 1995. The increase was principally
due to an $826,000 increase in gain on the sale of securities, a $103,000
increase in commissions earned on the sale of uninsured products and a
$163,000 increase in other income which was partially offset by an $82,000
decrease in gain on sale of loans.
NON-INTEREST EXPENSE
Non-interest expense was $4.4 million for the third quarter of 1996, an
increase of $2.5 million, or 130%, from $1.9 million for the third quarter
of 1995. The majority of the increase in non-interest expense between the
two quarters was due to a $2.4 million special one time SAIF assessment.
Compensation and benefits expense increase by $67,000, or 6%, and was the
result of adding new employees and normal merit and salary increases.
Non-interest expense for the nine months ended September 30, 1996 was $8.4
million, an increase of $2.8 million, or 51%, from $5.6 million for the
nine months ended September 30, 1995. The principal cause for the
increase in non-interest expense between the two periods was the SAIF
assessment of $2.4 million. Compensation and benefits expense increased by
$335,000, or 11%, and was the result of adding new employees, normal merit
and salary increases and the impact of awards granted under the
Recognition and Retention Plan adopted in June of 1995.
INCOME TAX EXPENSE
Income tax benefit was $90,000 for the third quarter of 1996, a decrease
of $918,000, or 111%, from $828,000 for the third quarter of 1995 and is
primarily due to a decrease in taxable income related to the SAIF
assessment. Income tax expense for the nine months
13
<PAGE>
ended September 30, 1996 was $1.8 million, a decrease of $742,000, or
30%,from $2.5 million for the same period in 1995 primarily due to the tax
impact of the SAIF assessment.
FINANCIAL CONDITION AND LIQUIDITY
For the nine months ended September 30, 1996 the net cash provided from
operating activities was $5.2 million, net cash used for investing
activities was $5.7 million and net cash provided by financing activities
was $13.6 million. HMN had $78.3 million in proceeds from the sale of
securities and it collected another $27.4 million from principal payments
and the maturity of securities. HMN purchased $81.7 million of securities
during 1996. HMN purchased or originated additional net loans of $34.2
million and had $155,000 of proceeds from the sale of loans. During 1996
deposits decreased by $9.6 million which was offset by net additional
borrowing from the Federal Home Loan Bank (FHLB) of $33.0 million. HMN
also repurchased 626,785 shares of its own common stock for $9.967
million. During October of 1996, HMN announced its intention to
repurchase 467,334 shares of common stock in the open market. The common
stock will be repurchased from the proceeds of the sale of cash
equivalents and/or securities available for sale.
HMN has committed to purchase $11.0 million of single family residential
mortgage loans from a third party broker. It is also required to pay the
$2.4 million special SAIF assessment in November of 1996. Both
obligations will be funded by the sale of cash equivalents and/or
securities available for sale.
HMN has certificates of deposit with outstanding balances of $157.2
million that mature from October of 1996 through September 30, 1997.
Based upon past experience management anticipates that the majority of the
deposits will renew for another term with the Bank. Any deposits which do
not renew will be replaced with deposits from other customers, or funded
with advances from the FHLB, or will be funded through the sale of
securities. Management does not anticipate that it will have a liquidity
problem with the deposit maturities.
CURRENT REGULATORY ENVIRONMENT
Provided the SAIF assessment increases the SAIF to its proper level, the
SAIF insurance premiums for years starting after December 31, 1996 are
anticipated to decrease from the current level of 24 basis points to a
range of 5 to 10 basis points of eligible deposits.
Congress, through its Banking Committee, is studying the viability of the
current thrift charter and the related bank charter to determine if the
thrift charter is actually necessary. The study is also considering the
possibility of making a third charter which would be a combination of the
best elements of both the thrift and bank charters. The committee is
supposed to be presenting its findings to Congress in March or April of
1997. The ultimate outcome of any legislation regarding the thrift
charter will have an impact on HMN, but it is too early to determine the
nature of the impact at this time.
14
<PAGE>
NON-PERFORMING ASSETS
The following table sets forth the amounts and categories of non-
performing assets in the Bank's portfolio at September 30, 1996 and
December 31, 1995.
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans
One-to-four family real estate $ 246 $ 196
Nonresidential real estate 84 85
Commercial business 61 128
Consumer 35 32
---- ----
Total 426 441
---- ----
Restructured loans 0 94
Foreclosed Assets
Real estate:
One-to-four family 0 315
---- ----
Total non-performing assets $ 426 $ 850
==== ====
Total as a percentage of total
assets 0.08 % 0.16 %
==== ====
Total non-performing loans $ 426 $ 535
==== ====
Total as a percentage of total
loans receivable, net 0.12 % 0.17 %
==== ====
</TABLE>
Total non-performing assets at September 30, 1996 were $426,000, a
decrease of $424,000, or 50%, from $850,000 at December 31, 1995. The
decrease was the result of principal payments received as a result of the
sale of properties or loans being brought current through collection
efforts.
ASSET/LIABILITY MANAGEMENT
HMN continues to focus its fixed-rate one-to-four family residential loan
program on loans with contractual terms of 20 years or less. HMN also
originates and purchases adjustable rate mortgages which have initial
fixed rate terms of one to five years and then adjust annually each year
thereafter.
Refer to page 16 for table.
15
PAGE
<PAGE>
The following table sets forth the interest rate sensitivity of HMN's assets
and liabilities at September 30, 1996, using certain assumptions that are
described in more detail below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Maturing or Repricing
- ---------------------------------------------------------------------------
Over 6
6 Months Months to Over 1-3 Over 3-5
(DOLLARS IN THOUSANDS) or Less One Year Years Years
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
Mortgage-backed and
related securities<F1> $ 43,417 5,546 20,445 28,184
Other marketable securities 27,717 7,691 7,713 2,997
Securities held to maturity:
Mortgage-backed and
related securities<F1> 162 247 807 554
Other marketable securities 1,000 0 0 0
Loans receivable, net<F1><F2>
Fixed rate one-to-four
family<F3> 19,043 17,385 57,717 41,055
Adjustable rate
one-to-four family<F3> 20,241 32,883 19,762 21,536
Multi family 6 4 48 0
Fixed rate commercial
real estate 164 139 446 272
Adjustable rate commercial
real estate 6,625 67 0 0
Commercial business 289 153 290 131
Consumer loans 12,121 1,407 2,830 1,293
Federal Home Loan Bank stock 0 0 0 0
Cash equivalents 16,396 0 0 0
-------- ------- --------- --------
Total interest-
earning assets 147,181 65,522 110,058 96,022
-------- ------- --------- --------
Non-interest checking 1,975 0 0 0
NOW accounts 16,355 0 0 0
Passbooks 3,184 2,848 8,687 5,559
Money market accounts 1,833 1,640 5,000 3,200
Certificates 95,067 62,179 122,395 18,459
Federal Home Loan Bank
advances 60,511 5,714 11,608 19,000
-------- ------- -------- --------
Total interest-
bearing liabilities 178,925 72,381 147,690 46,218
-------- ------- -------- --------
Interest-earning assets less
interest-bearing liabilities$(31,744) (6,859) (37,632) 49,804
======== ======= ======== ========
Cumulative interest-rate
sensitivity gap $(31,744) (38,603) (76,235) (26,431)
======== ======= ======== ========
Cumulative interest-rate gap as a
percentage of total assets at
September 30, 1996 (5.61) % (6.83) (13.48) (4.67)
======== ======= ======== ========
Cumulative interest-rate gap as a
percentage of interest-earning assets
at December 31, 1995 (1.07) (7.53)
======== =======
Cumulative interest-rate gap as a
percentage of interest-earning
assets at December 31, 1994 (2.47) (2.26)
======== =======
<CAPTION>
- ---------------------------------------------------------------------------
Over 5 No Stated
(DOLLARS IN THOUSANDS) Years Maturity Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Securities available for sale:
Mortgage-backed and
related securities<F1> 40,255 0 137,847
Other marketable securities 0 6,897 53,015
Securities held to maturity:
Mortgage-backed and
related securities<F1> 568 0 2,338
Other marketable securities 0 0 1,000
Loans receivable, net<F1><F2>
Fixed rate one-to-four family<F3> 83,252 0 218,452
Adjustable rate
one-to-four family<F3> 4,818 0 99,240
Multi family 0 0 58
Fixed rate commercial real estate 512 0 1,533
Adjustable rate commercial
real estate 0 0 6,692
Commercial business 73 0 936
Consumer loans 1,439 0 19,090
Federal Home Loan Bank stock 0 5,199 5,199
Cash equivalents 0 0 16,396
------- ------- -------
Total interest-earning assets 130,917 12,096 561,796
------- ------- -------
Non-interest checking 0 0 1,975
NOW accounts 0 0 16,355
Passbooks 9,884 0 30,162
Money market accounts 5,689 0 17,362
Certificates 9 0 298,109
Federal Home Loan Bank advances 5,000 0 101,833
------- ------ -------
Total interest-bearing
liabilities 20,582 0 465,796
------- ------ -------
Interest-earning assets less
interest-bearing liabilities 110,335 12,096 96,000
======= ====== =======
Cumulative interest-rate
sensitivity gap 83,904 96,000 96,000
======= ====== =======
Cumulative interest-rate gap as a
percentage of total assets at
September 30, 1996 14.84 16.98 16.98%
======= ====== ======
Cumulative interest-rate gap as a
percentage of interest-earning assets
at December 31, 1995
Cumulative interest-rate gap as a
percentage of interest-earning assets
at December 31, 1994
<FN>
<F1> Schedule prepared based upon the earlier of contractual maturity or
repricing date, if applicable, adjusted for scheduled repayments of principal
and projected prepayments of principal based upon experience.
<F2> Loans receivable are presented net of loans in process and deferred loan
fees.
<F3> Construction and development loans are all one-to-four family loans and
therefore have been included in the fixed rate one-to-four family and
adjustable rate one-to-four family lines.
</FN>
16
PAGE
<PAGE>
HMN FINANCIAL, INC.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
Not applicable.
ITEM 3. Defaults Upon Senior Securities.
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
Employees' Savings & Profit Sharing Plan Basic Plan Document - see
Exhibit 10. New plan adopted.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits on page 19 of this report.
(b) Reports on Form 8-K. A current report on Form 8-K, Item 5,
was filed on October 3, 1996, to report the intent to
repurchase up to 10%, or 467,334 shares of HMN's common
stock.
(c) Reports on Form 8-K. A current report on Form 8-K, Item 5,
was filed on October 17, 1996, to report the Company's
third quarter earnings.
17
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMN FINANCIAL, INC.
Registrant
Date: November 14, 1996 /s/ Roger P. Weise
Roger P. Weise,
Chairman and Chief Executive Officer
(Duly Authorized Officer)
Date: November 14, 1996 /s/ James B. Gardner
James B. Gardner,
Executive Vice President
(Chief Financial Officer)
18
PAGE
<PAGE>
HMN FINANCIAL, INC.
INDEX TO EXHIBITS
FOR FORM 10-Q
Exhibit Sequentially
Number Description Numbered Page
- ------ ------------------------------------- -------------
10 Employees' Savings & Profit Sharing Plan Basic 20
Plan Document (Whole plan newly adopted)
11 Computation of Earnings Per Common Share 21
27 Financial Data Schedule 22
19
<PAGE>
</TABLE>
PENTEGRA SERVICES, INC.
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
BASIC PLAN DOCUMENT
4/13/95<PAGE>
TABLE OF CONTENTS
ARTICLE I PURPOSE AND DEFINITIONS
ARTICLE II PARTICIPATION AND MEMBERSHIP
ARTICLE III CONTRIBUTIONS
ARTICLE IV INVESTMENT OF CONTRIBUTIONS
ARTICLE V MEMBERS' ACCOUNTS, UNITS AND VALUATION
ARTICLE VI VESTING OF UNITS
ARTICLE VII WITHDRAWALS AND DISTRIBUTIONS
ARTICLE VIII LOAN PROGRAM
ARTICLE IX ADMINISTRATION OF PLAN AND ALLOCATION OF RESPONSIBILITIES
ARTICLE X MISCELLANEOUS PROVISIONS
ARTICLE XI AMENDMENT AND TERMINATION
TRUSTS ESTABLISHED UNDER THE PLAN
<PAGE>
ARTICLE I
PURPOSE AND DEFINITIONS
SECTION 1.1
This Plan and Trust, as evidenced hereby, and the applicable Adoption Agreement
and Trust Agreement(s), are designed and intended to qualify in form as a
qualified profit sharing plan and trust under the applicable provisions of the
Internal Revenue Code of 1986, as now in effect or hereafter amended, or any
other applicable provisions of law including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended.
SECTION 1.2
The following words and phrases as used in this Plan shall have the following
meanings:
(A) "ACCOUNT" means the Plan account established and maintained in respect of
each Member pursuant to Article V, including the Member's after-tax
amounts, 401(k) amounts, Employer matching, basic, supplemental and
qualified nonelective contribution amounts, rollover amounts and profit
sharing amounts, as elected by the Employer.
(B) "ADOPTION AGREEMENT" means the separate document by which the Employer
has adopted the Plan and specified certain of the terms and provisions
hereof. If any term, provision or definition contained in the Adoption
Agreement is inconsistent with any term, provision or definition
contained herein, the one set forth in the Adoption Agreement shall
govern. The Adoption Agreement shall be incorporated into and form an
integral part of the Plan.
(C) "BENEFICIARY" means the person or persons designated to receive any
amount payable under the Plan upon the death of a Member. Such
designation may be made or changed only by the Member on a form provided
by, and filed with, the TPA prior to his death. If the Member is not
survived by a Spouse and if no Beneficiary is designated, or if the
designated Beneficiary predeceases the Member, then any such amount
payable shall be paid to such Member's estate upon his death.
(D) "BOARD" means the Board of Directors of the Employer adopting the Plan.
(E) "BREAK IN SERVICE" means a Plan Year during which an individual has not
completed more than 500 Hours of Employment, as determined by the Plan
Administrator in accordance with the IRS Regulations. Solely for pur-
poses of determining whether a Break in Service has occurred, an
individual shall be credited with the Hours of Employment which such
individual would have completed but for a maternity or paternity absence,
as determined
1
by the Plan Administrator in accordance with this Paragraph, the Code and
the applicable regulations issued by the DOL and the IRS; provided, how-
ever, that the total Hours of Employment so credited shall not exceed 501
and the individual timely provides the Plan Administrator with such
information as it may require. Hours of Employment credited for a
maternity or paternity absence shall be credited entirely (i) in the Plan
Year in which the absence began if such Hours of Employment are necessary
to prevent a Break in Service in such year, or (ii) in the following Plan
Year. For purposes of this Paragraph, maternity or paternity absence
shall mean an absence from work by reason of the individual's pregnancy,
the birth of the individual's child or the placement of a child with the
individual in connection with the adoption of the child by such
individual, or for purposes of caring for a child for the period
immediately following such birth or placement.
(F) "CODE" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.
(G) "COMMENCEMENT DATE" means the date on which an Employer begins to
participate in the Plan.
(H) "CONTRIBUTION DETERMINATION PERIOD" means the Plan Year, fiscal year, or
calendar or fiscal quarter, as elected by an Employer, upon which
eligibility for and the maximum permissible amount of any Profit Sharing
contribution, as defined in Article III, is determined. Notwithstanding
the foregoing, for purposes of Article VI, Contribution Determination
Period means the Plan Year.
(I) "DISABILITY" means a Member's disability as defined in Article VII,
Section 7.4.
(J) "DOL" means the United States Department of Labor.
(K) "EMPLOYEE" means any person in the Employment of, and who receives
compensation from, the Employer, and any leased employee within the
meaning of Section 414(n)(2) of the Code. Notwithstanding the
foregoing, if such leased employees constitute less than twenty percent
(20%) of the Employer's nonhighly compensated work force within the
meaning of Section 414(n)(5)(C)(ii) of the Code, such leased employees
are not Employees if they are covered by a plan meeting the requirements
of Section 414(n)(5)(B) of the Code.
(L) "EMPLOYER" means the proprietorship, partnership or corporation named in
the Adoption Agreement and any corporation which, together therewith,
constitutes an affiliated service group, any corporation which, together
therewith, constitutes a controlled group of
2
corporations as defined in Section 1563 of the Code, and any other trade
or business (whether incorporated or not) which, together therewith, are
under common control as defined in Section 414(c) of the Code, which have
adopted the Plan.
(M) "EMPLOYMENT" means service with an Employer or with any domestic
subsidiary affiliated or associated with an Employer which is a member of
the same controlled group of corporations (within the meaning of Section
1563(a) of the Code). In accordance with DOL Regulations (Sections
2530.200-2(b) and (c)), service includes (a) periods of vacation, (b)
periods of layoff, (c) periods of absence authorized by an Employer for
sickness, temporary disability or personal reasons and (d) if and to the
extent required by the Military Selective Service Act as amended, or any
other federal law, service in the Armed Forces of the United States.
(N) "ENROLLMENT DATE" means the date on which an Employee becomes a Member as
provided under Article II.
(O) "ERISA" means the Employee Retirement Income Security Act of 1974, as now
in effect or as hereafter amended.
(P) "FIDUCIARY" means any person who (i) exercises any discretionary
authority or control with respect to the management of the Plan or
control with respect to the management or disposition of the assets
thereof, (ii) renders any investment advice for a fee or other
compensation, direct or indirect, with respect to any moneys or other
property of the Plan, or has any discretionary authority or
responsibility to do so, or (iii) has any discretionary authority or
responsibility in the administration of the Plan, including any other
persons (other than trustees) designated by any Named Fiduciary to carry
out fiduciary responsibilities, except to the extent otherwise provided
by ERISA.
(Q) "HIGHLY COMPENSATED EMPLOYEE" or "HIGHLY COMPENSATED MEMBER" means an
Employee or Member who is employed during the determination year and who
during the look-back year: (i) received compensation from the Employer
in excess of $75,000 (as adjusted pursuant to Section 415(d) of the
Code); (ii) 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 as defined in Section 414(q) of the
Code; or (iii) 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: (i) employees who are both
described in the preceding sentence if the term "determination year" is
substituted for the term "look-back year" and are among the 100 employees
who received the most
3
compensation from the Employer during the determination year; and (ii)
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 (iii) 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 twelve-month period immediately preceding the
determination year.
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 Employee 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 Paragraph, 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 the compensation that is considered, will be made in accordance with
Section 414(q) of the Code and the IRS Regulations thereunder.
(R) "HOUR OF EMPLOYMENT" means each hour during which an Employee performs
service (or is treated as performing service as required by law) for the
Employer and, except in the case of military service, for which he is
directly or indirectly paid, or entitled to payment, by the Employer
(including any back pay irrespective of mitigation of damages), all as
determined in accordance with applicable DOL Regulations.
(S) "INVESTMENT MANAGER" means any Fiduciary other than a Trustee or Named
Fiduciary who (i) has the power to manage, acquire or dispose of any
asset of the Plan; (ii) is (a) registered as an investment advisor under
the Investment Advisors Act of 1940; (b) is a bank, as defined in such
Act, or (c) is an insurance company qualified to perform the services
described in clause (i) hereof under the laws of more than one state of
the United States; and (iii) has acknowledged in writing that he is a
Fiduciary with respect to the Plan.
(T) "IRS" means the United States Internal Revenue Service.
(U) "LEAVE OF ABSENCE" means an absence authorized by an Employee's Employer
and approved by the Plan Administrator, on a uniform basis, in accordance
with Article X.
(V) "MEMBER" means an Employee enrolled in the membership of the Plan under
Article II.
(W) "MONTH" means any calendar month.
(X) "NAMED FIDUCIARY" means the Fiduciary or Fiduciaries named herein or in
the Adoption Agreement who jointly or severally have the authority to
control and manage the operation and administration of the Plan.
(Y) "NORMAL RETIREMENT AGE" means the Member's sixty-fifth (65th) birthday
unless otherwise specified in the Adoption Agreement.
(Z) "PLAN" means the Employees' Savings & Profit Sharing Plan as evidenced by
this document, the applicable Adoption Agreement and all subsequent
amendments thereto.
(AA) "PLAN ADMINISTRATOR" means the Named Fiduciary or, as designated by such
Named Fiduciary and approved by the Board in accordance with Article IX,
any officer or Employee of the Employer.
(BB) "PLAN YEAR" means a 12-month period ending December 31.
(CC) "REGULATIONS" means the applicable regulations issued under the Code,
ERISA or other applicable law, by the IRS, the DOL or any other
governmental authority and any proposed or temporary regulations or rules
promulgated by such authorities pending the issuance of such regulations.
(DD) "SALARY" means regular basic monthly salary or wages, exclusive of
special payments such as overtime, bonuses, fees, deferred compensation
(other than pre-tax elective deferrals pursuant to a Member's election
under Article III), severance payments, and contributions by the Employer
under this or any other plan (other than before-tax contributions made on
behalf of a Member under a Code Section 125 cafeteria plan, unless the
Employer specifically elects to exclude such contributions). Commissions
shall be included at the Employer's option within such limits, if any, as
may be set by the Employer in the Adoption Agreement and applied
uniformly to all its commissioned
5
Employees. In addition, Salary may also include, at the Employer's
option, special payments such as (i) overtime or (ii) overtime plus
bonuses. As an alternative to the foregoing definition, at the
Employer's option, Salary may be defined to include total taxable
compensation reported on the Member's IRS Form W-2, plus deferrals, if
any, pursuant to Section 401(k) of the Code and pursuant to Section 125
of the Code (unless the Employer specifically elects to exclude such
Section 125 deferrals), but excluding compensation deferred from previous
years. In no event may a Member's Salary for any Plan Year exceed for
purposes of the Plan $150,000 (adjusted for cost of living to the extent
permitted by the Code and the IRS Regulations).
(EE) "SOCIAL SECURITY TAXABLE WAGE BASE" means the contribution and benefit
base attributable to the OASDI portion of Social Security employment
taxes under Section 230 of the Social Security Act (42 U.S.C. Section
430) in effect on the first day of each Plan Year.
(FF) "SPOUSE" or "SURVIVING SPOUSE" means the individual to whom a Member or
former Member was married on the date such Member withdraws his Account,
or if such Member has not withdrawn his Account, the individual to whom
the Member or former Member was married on the date of his death.
(GG) "THIRD PARTY ADMINISTRATOR" or "TPA" means Pentegra Services, Inc., a
non-fiduciary provider of administrative services appointed and directed
by the Plan Administrator or the Named Fiduciary either jointly or
severally.
(HH) "TRUST" means the Trust or Trusts established and maintained pursuant to
the terms and provisions of this document and any separately maintained
Trust Agreement or Agreements.
(II) "TRUSTEE" generally means the person, persons or other entities
designated by the Employer or its Board as the Trustee or Trustees hereof
and specified as such in the Adoption Agreement and any separately
maintained Trust Agreement or Agreements.
(JJ) "TRUST AGREEMENT" means the separate document by which the Employer or
its Board has appointed a Trustee of the Plan, specified the terms and
conditions of such appointment and any fees associated therewith.
(KK) "TRUST FUND" means the Trust Fund or Funds established by the Trust
Agreement or Agreements.
(LL) "UNIT" means the unit of measure described in Article V of a Member's
proportionate interest in the available Investment Funds (as defined in
Article IV).
6
(MM) "VALUATION DATE" means the last business day of any month for the
Trustee, except that in the event the underlying portfolio(s) of any
Investment Fund cannot be valued on such date, the Valuation Date for
such Investment Fund shall be the next subsequent date on which the
underlying portfolio(s) can be valued. Valuations shall be made as of
the close of business on such Valuation Date(s).
(NN) "YEAR OF EMPLOYMENT" means a 12-month period of Employment.
(OO) "YEAR OF SERVICE" means any Plan Year during which an individual
completed at least 1,000 Hours of Employment, or satisfied any
alternative requirement, as determined by the Plan Administrator in
accordance with any applicable Regulations issued by the DOL and the IRS.
SECTION 1.3
The masculine pronoun wherever used shall include the feminine pronoun.
7
<PAGE>
ARTICLE II
PARTICIPATION AND MEMBERSHIP
SECTION 2.1 ELIGIBILITY REQUIREMENTS
------------------------
The Employer may establish as a requirement for eligibility in the Plan (i)
the completion of any number of months not to exceed 12 consecutive months, or
(ii) the completion of one or two 12-consecutive-month periods, and/or (iii) if
the Employer so elects, it may adopt a minimum age requirement of age 21. Such
election shall be made and reflected on the Adoption Agreement. The
eligibility requirement(s) designated by the Employer shall apply uniformly to
all Plan features elected by the Employer. Notwithstanding the foregoing, in
the case of an Employer that adopts the 401(k) feature under Section 3.9, the
eligibility requirements under such feature and any other Plan feature adopted
by the Employer shall be identical and shall not exceed the period described in
clause (i) above, and, at the election of the Employer, attainment of age 21 as
described in clause (iii) above.
Where an Employer designates a one or two 12-consecutive-month eligibility
waiting period, an Employee must complete at least 1,000 Hours of Employment
during each 12-consecutive-month period (measured from his date of Employment
and each anniversary thereafter). Where an Employer designates an eligibility
waiting period of less than 12 months, an Employee must, for purposes of
eligibility, complete a required number of hours (measured from his date of
Employment and each anniversary thereafter) which is arrived at by multiplying
the number of months of the eligibility waiting period requirement by 83 1/3.
SECTION 2.2 EXCLUSION OF CERTAIN EMPLOYEES
------------------------------
To the extent provided in the Adoption Agreement, the following Employees may
be excluded from participation in the Plan:
(i) Employees not meeting the age and service requirements;
(ii) Employees who are included in a unit of Employees covered by a
collective bargaining agreement between the Employee representatives
and one or more Employers if there is evidence that retirement
benefits were the subject of good faith bargaining between such
Employee representatives and such Employer(s). For this purpose, the
term "Employee representative" does not include any organization
where more than one-half of the membership is comprised of owners,
officers and executives of the Employer;
(iii) Employees who are nonresident aliens and who receive no earned income
from the Employer which constitutes income from sources within the
United States; and
8
(iv) Employees described in Section 2.4 or included in any other
ineligible job classifications set forth in the Adoption Agreement.
SECTION 2.3 WAIVER OF ELIGIBILITY REQUIREMENTS
----------------------------------
The Employer, at its election, may waive the eligibility requirement(s) for
participation specified above for (i) all Employees, or (ii) all those employed
on or up to 12 months after its Commencement Date under the Plan. Subject to
the requirements of the Code, the eligibility waiting period shall be deemed to
have been satisfied for an Employee who was previously a Member of the Plan.
All Employees whose Employment commences after the expiration date of the
Employer's waiver of the eligibility requirement(s), if any, shall be enrolled
in the Plan in accordance with the eligibility requirement(s) specified in the
Adoption Agreement.
SECTION 2.4 EXCLUSION OF NON-SALARIED EMPLOYEES
-----------------------------------
The Employer, at its election, may exclude non-salaried (hourly paid) Employees
from participation in the Plan, regardless of the number of Hours of Employment
such Employees complete in any Plan Year. Notwithstanding the foregoing, for
purposes of this Section and all purposes under the Plan, a non-salaried
Employee that is hired following the adoption date of the Plan by the Employer,
but prior to the adoption of this exclusion by the Employer, shall continue to
be deemed to be an Employee and will continue to receive benefits on the same
basis as a salaried Member, despite classification as a non-salaried Employee.
SECTION 2.5 COMMENCEMENT OF PARTICIPATION
-----------------------------
Every eligible Employee (other than non-salaried or such other Employees who,
at the election of the Employer, are excluded from participation) shall
commence participation in the Plan on the later of:
(1) The Employer's Commencement Date, or
(2) The first day of the month or calendar quarter (as designated by the
Employer in the Adoption Agreement) coinciding with or next fol-
lowing his satisfaction of the eligibility requirements as specified
in the Adoption Agreement.
The date that participation commences shall be hereinafter referred to as his
Enrollment Date. Notwithstanding the above, no Employee shall under any
circumstances become a Member unless and until his enrollment application is
filed with, and accepted by, the Plan Administrator. The Plan
9
Administrator shall notify each Employee of his eligibility for membership in
the Plan and shall furnish him with an enrollment application in order that he
may elect to make or receive contributions on his behalf under Article III at
the earliest possible date consonant with this Article.
If an Employee fails to complete the enrollment form furnished to him, the Plan
Administrator shall do so on his behalf. In the event the Plan Administrator
processes the enrollment form on behalf of the Employee, the Employee shall be
deemed to have elected not to make any contributions and/or elective deferrals
under the Plan, if applicable.
SECTION 2.6 TERMINATION OF PARTICIPATION
----------------------------
Membership under all features and provisions of the Plan shall terminate upon
the earlier of (a) a Member's termination of Employment and payment to him of
his entire vested interest, or (b) his death.
10
<PAGE>
ARTICLE III
CONTRIBUTIONS
SECTION 3.1 CONTRIBUTIONS BY MEMBERS
------------------------
If the Adoption Agreement so provides, each Member may elect to make monthly
non-deductible, after-tax contributions under the Plan, based on increments of
1% of his Salary, provided the amount thereof, when aggregated with the amount
of any pre-tax effective deferrals, does not exceed the limit established by
the Employer in the Adoption Agreement. All such after-tax contributions shall
be separately accounted for, nonforfeitable and distributed with and in
addition to any other benefit to which the Member is entitled hereunder. A
Member may change his contribution rate as designated in the Adoption
Agreement, but reduced or suspended contributions may not subsequently be made
up.
SECTION 3.2 ELECTIVE DEFERRALS BY MEMBERS
-----------------------------
If the Adoption Agreement so provides, each Member may elect to make monthly
pre-tax elective deferrals (401(k) deferrals) under the Plan, based on
increments of 1% of his Salary, provided the amount thereof, when aggregated
with the amount of any after-tax contributions, does not exceed the limit
established by the Employer in the Adoption Agreement. All such 401(k)
deferrals shall be separately accounted for, nonforfeitable and distributed
under the terms and conditions described under Article VII with and in addition
to any other benefit to which the Member is entitled hereunder. A Member may
change his 401(k) deferral rate or suspend his 401(k) deferrals as designated
in the Adoption Agreement, but reduced or suspended deferrals may not
subsequently be made up.
Notwithstanding any other provision of the Plan, no Member may make 401(k)
deferrals during any Plan Year in excess of $7,000 multiplied by the adjustment
factor as provided by the Secretary of the Treasury. The adjustment factor
shall mean the cost of living adjustment factor prescribed by the Secretary of
the Treasury under Section 402(g)(5) of the Code for years beginning after
December 31, 1987, as applied to such items and in such manner as the Secretary
shall provide. In the event that the aggregate amount of such 401(k) deferrals
for a Member exceeds the limitation in the previous sentence, the amount of
such excess, increased by any income and decreased by any losses attributable
thereto, shall be refunded to such Member no later than the April 15 of the
Plan Year following the Plan Year for which the 401(k) deferrals were made. If
Member also participates, in any Plan Year, in any other plans subject to the
limitations set forth in Section 402(g) of the Code and has made excess 401(k)
deferrals under this Plan when combined with the other plans subject to such
limits, to the extent the Member, in writing submitted to the TPA no later than
the March 1 of the Plan Year following the Plan Year for which
11
the 401(k) deferrals were made, designates any 401(k) deferrals under this Plan
as excess deferrals, the amount of such designated excess, increased by any
income and decreased by any losses attributable thereto, shall be refunded to
the Member no later than the April 15 of the Plan Year following the Plan Year
for which the 401(k) deferrals were made.
SECTION 3.3 TRANSFER OF FUNDS AND ROLLOVER CONTRIBUTIONS BY MEMBERS
-------------------------------------------------------
Each Member may elect to make, directly or indirectly, a rollover contribution
to the Plan of amounts held on his behalf in (i) an employee benefit plan
qualified under Section 401(a) of the Code, or (ii) an individual retirement
account or annuity as described in Section 408(d)(3) of the Code. All such
amounts shall be certified in form and substance satisfactory to the Plan
Administrator by the Member as being all or part of an "eligible rollover
distribution" or a "rollover contribution" within the meaning of Section
402(c)(4) or Section 408(d)(3), respectively, of the Code. Such rollover
amounts, along with the earnings related thereto, will be accounted for
separately from any other amounts in the Member's Account. A Member shall have
a nonforfeitable vested interest in all such rollover amounts.
The Employer may, at its option, permit Employees who have not satisfied the
eligibility requirements designated in the Adoption Agreement to make a
rollover contribution to the Plan.
The Trustee of the Plan may also accept a direct transfer of funds, which meets
the requirements of Section 1.411(d)-4 of the IRS Regulations, from a plan
which the Trustee reasonably believes to be qualified under Section 401(a) of
the Code in which an Employee was, is, or will become, as the case may be, a
participant. If the funds so directly transferred are transferred from a
retirement plan subject to Code Section 401(a)(11), then such funds shall be
accounted for separately and any subsequent distribution of those funds, and
earnings thereon, shall be subject to the provisions of Section 7.3 which are
applicable when an Employer elects to provide an annuity option under the Plan.
SECTION 3.4 EMPLOYER CONTRIBUTIONS - GENERAL
--------------------------------
The Employer may elect to make regular or discretionary contributions under the
Plan. Such Employer contributions may be in the form of (i) matching
contributions, (ii) basic contributions, and/or (iii) profit sharing
contributions as designated by the Employer in the Adoption Agreement and/or
(i) supplemental contributions and/or (ii) qualified nonelective contributions
as permitted under the Plan. Each such contribution type shall be separately
accounted for by the TPA.
12
<PAGE>
SECTION 3.5 EMPLOYER MATCHING CONTRIBUTIONS
-------------------------------
The Employer may elect to make regular matching contributions under the Plan.
Such matching contributions on behalf of any Member shall be conditioned upon
the Member making after-tax contributions under Section 3.1 and/or 401(k)
deferrals under Sections 3.2 and 3.9.
If so adopted, the Employer shall contribute monthly under the Plan on behalf
of each of its Members an amount equal to a percentage (as specified by the
Employer in the Adoption Agreement) of the Member's after-tax contributions
and/or 401(k) deferrals not in excess of a maximum percentage as specified by
the Employer in the Adoption Agreement (in increments of 1%) of his Salary for
such month. The percentage elected by the Employer shall be based on 5%
increments not to exceed 200% or in accordance with one of the schedules of
matching contribution formulas listed below, and must be uniformly applicable
to all Members.
Years of Employment Matching %
Formula Step 1 Less than 3 50%
At least 3 but less than 5 75%
5 or more 100%
Formula Step 2 Less than 3 100%
At least 3 but less than 5 150%
5 or more 200%
SECTION 3.6 EMPLOYER BASIC CONTRIBUTIONS
----------------------------
The Employer may elect to make regular basic contributions under the Plan.
Such basic contributions on behalf of any Member shall not be conditioned upon
the Member making after-tax contributions and/or (401(k) deferrals under this
Article III. If so adopted, the Employer shall contribute monthly under the
Plan on behalf of each Member (as specified by the Employer in the Adoption
Agreement) an amount equal to a percentage not to exceed 15% (as specified by
the Employer in the Adoption Agreement) in increments of 1% of the Member's
Salary for such month. The percentage elected by the Employer shall be
uniformly applicable to all Members. The Employer may elect to restrict the
allocation of such basic contribution to those Members who were employed with
the Employer on the last day of the month for which the basic contribution is
made.
SECTION 3.7 SUPPLEMENTAL CONTRIBUTIONS BY EMPLOYER
--------------------------------------
An Employer may, at its option, make a supplemental contribution under Formula
(1) or (2) below:
13
FORMULA (1) A uniform percentage (as specified by the Employer) of each
Member's contributions which were received by the Plan during
the Plan Year with respect to which the supplemental
contribution relates. If the Employer elects to make such a
supplemental contribution, it shall be made on or before the
last day of February in the Plan Year following the Plan Year
described in the preceding sentence on behalf of all those
Members who were employed with the Employer on the last working
day of the Plan Year with respect to which the supplemental
contribution relates.
FORMULA (2) A uniform dollar amount per Member or a uniform percentage of
each Member's Salary for the Plan Year (or, at the election of
the Employer, the Employer's fiscal year) to which the
supplemental contribution relates. If the Employer elects to
make such a supplemental contribution, it shall be made on or
before the last day of the second month in the Plan Year (or the
fiscal year) following the Plan Year (or the fiscal year)
described in the preceding sentence on behalf of all those
Members who were employed with the Employer on the last working
day of the Plan Year (or the fiscal year) to which the
supplemental contribution relates. The percentage contributed
under this Formula (2) shall be limited in accordance with the
Employer's matching formula and basic contribution rate, if any,
under this Article such that the sum of the Employer's Formula
(2) supplemental contribution plus all other Employer
contributions under this Article shall not exceed 15% of Salary
for such year.
SECTION 3.8 THE PROFIT SHARING FEATURE
--------------------------
An Employer may, at its option, adopt the Profit Sharing Feature as described
herein, subject to any other provisions of the Plan, where applicable. This
Feature may be adopted either in lieu of, or in addition to, any other Plan
Feature contained in this Article III. The Profit Sharing Feature is designed
to provide the Employer a means by which to provide discretionary contributions
on behalf of Employees eligible under the Plan.
If this Profit Sharing Feature is adopted, the Employer may contribute on
behalf of each of its eligible Members, on an annual (or at the election of the
Employer, quarterly) basis for any Plan Year or fiscal year of the Employer (as
the Employer shall elect), a discretionary amount not to exceed the maximum
amount allowable as a deduction to the Employer under the provisions of Section
404 of the Code, and further subject to the provisions of Article X.
14
<PAGE>
Any such profit sharing contribution must be received by the Trustee on or
before the last business day of the second month following the close of the
Contribution Determination Period on behalf of all those Members who are
entitled to an allocation of such profit sharing contribution as set forth in
the Adoption Agreement. For purposes of making the allocations described in
this paragraph, a Member who is on a Type 1 non-military Leave of Absence (as
defined in Sections 1.2(U) and 10.8(B)(1)) or a Type 4 military Leave of
Absence (as defined in Sections 1.2(U) and 10.8(B)(4)) shall be treated as if
he were a Member who was an Employee in Employment on the last day of such
Contribution Determination Period.
Profit sharing contributions shall be allocated to each Member's Account for
the Contribution Determination Period at the election of the Employer, in
accordance with one of the following options:
Profit Sharing Formula 1 - In the same ratio as each Member's Salary during
such Contribution Determination Period bears to
the total of such Salary of all Members.
Profit Sharing Formula 2 - In the same ratio as each Member's Salary for the
portion of the Contribution Determination Period
during which the Member satisfied the Employer's
eligibility requirement(s) bears to the total of
such Salary of all Members.
The Employer may integrate the Profit Sharing Feature with Social Security in
accordance with the following provision. The annual (or quarterly, if
applicable) profit sharing contributions for any Contribution Determination
Period (which period shall include, for the purposes of the following maximum
integration levels provided hereunder where the Employer has elected quarterly
allocations of contributions, the four quarters of a Plan Year or fiscal year)
shall be allocated to each Member's Account at the election of the Employer, in
accordance with one of the following options:
Profit Sharing Formula 3 - In a uniform percentage (as specified by the
Employer in the Adoption Agreement) of each Mem-
ber's Salary during the Contribution
Determination Period up to the Social Security
Taxable Wage Base for such Contribution
Determination Period (the "Base Contribution
Percentage"), plus a uniform percentage (as
specified by the Employer in the Adoption
Agreement) of each Member's Salary for the
Contribution Determination Period in excess of
the Social Security Taxable Wage Base for such
Contribution Determination Period (the "Excess
Contribution Percentage").
15
Profit Sharing Formula 4 - In a uniform percentage (as specified by the
Employer in the Adoption Agreement) of each
Member's Salary for the portion of the
Contribution Determination Period during which
the Member satisfied the Employer's eligibility
requirement(s), if any, up to the Base
Contribution Percentage for such Contribution
Determination Period, plus a uniform percentage
(as specified by the Employer in the Adoption
Agreement) of each Member's Salary for the
portion of the Contribution Determination Period
during which the Member satisfied the Employer's
eligibility requirement(s), equal to the Excess
Contribution Percentage.
The Excess Contribution Percentage described in Profit Sharing Formulas 3 and 4
above may not exceed the lesser of (i) the Base Contribution Percentage, or
(ii) the greater of (1) 5.7% or (2) the percentage equal to the portion of the
Code Section 3111(a) tax imposed on employers under the Federal Insurance
Contributions Act (as in effect as of the beginning of the Plan Year) which is
attributable to old-age insurance. For purposes of this Subparagraph,
'compensation' as defined in Section 414(s) of the Code shall be substituted
for 'Salary' in determining the Excess Contribution Percentage and the Base
Contribution Percentage.
Notwithstanding the foregoing, the Employer may not adopt the Social Security
integration options provided above if any other integrated defined contribution
or defined benefit plan is maintained by the Employer during any Contribution
Determination Period.
SECTION 3.9 THE 401(K) FEATURE
------------------
The Employer may, at its option, adopt the 401(k) Feature described hereunder
and in Section 3.2 above for the exclusive purpose of permitting its Members to
make 401(k) deferrals to the Plan.
The Employer may make, apart from any matching contributions it may elect to
make, Employer qualified nonelective contributions as defined in Section
1.401(k)-1(g)(13) of the Regulations. The amount of such contributions shall
not exceed 15% of the Salary of all Members eligible to share in the allocation
when combined with all Employer contributions (including 401(k) elective
deferrals) to the Plan for such Plan Year. Allocation of such contributions
shall be made, at the election of the Employer, to the accounts of (i) all
Members, or (ii) only Members who are not Highly Compensated Employees.
Allocation of such contributions shall be made, at the election of the
Employer, in the ratio (i) which each eligible Member's Salary for the Plan
Year bears to the total Salary of all eligible Members for such Plan Year, or
(ii) which each eligible Member's Salary not in excess of a fixed dollar amount
specified by the Employer for the Plan Year bears to the total Salary of all
eligible Members taking into account Salary for each such Member not in excess
of
16
the specified dollar amount. Notwithstanding any provision of the Plan to the
contrary, such contributions shall be subject to the same vesting requirements
and distribution restrictions as Members' 401(k) deferrals and shall not be
conditioned on any election or contribution of the Member under the 401(k)
feature. Any such contributions must be made on or before the last day of the
February after the Plan Year to which the contribution relates. Further, for
purposes of the actual deferral percentage or actual contribution percentage
tests described below, the Employer may apply (in accordance with applicable
Regulations) all or any portion of the Employer qualified nonelective
contributions for the Plan Year toward the satisfaction of the actual deferral
percentage test. Any remaining Employer qualified nonelective contributions
not utilized to satisfy the actual deferral percentage test may be applied (in
accordance with applicable Regulations) to satisfy the actual contribution
percentage test.
Notwithstanding any other provision of this 401(k) Feature, the actual deferral
percentages for the Plan Year for Highly Compensated Employees shall not exceed
the greater of the following actual deferral percentages: (a) the actual
deferral percentage for such Plan Year of those Employees who are not Highly
Compensated Employees multiplied by 1.25; or (b) the actual deferral percentage
for the Plan Year of those Employees who are not Highly Compensated Employees
multiplied by 2.0, provided that the actual deferral percentage for the Highly
Compensated Employees does not exceed the actual deferral percentage for such
other Employees by more than 2 percentage points. This determination shall be
made in accordance with the procedure described in Section 3.10 below.
SECTION 3.10 DETERMINING THE ACTUAL DEFERRAL PERCENTAGES
-------------------------------------------
For purposes of this 401(k) Feature, the "actual deferral percentage" for a
Plan Year means, for each specified group of Employees, the average of the
ratios (calculated separately for each Employee in such group) of (a) the
amount of 401(k) deferrals (including, as provided in Section 3.9, any Employer
qualified nonelective contributions) made to the Member's account for the Plan
Year, to (b) the amount of the Member's compensation (as defined in Section
414(s) of the Code) for the Plan Year or, alternatively, where specifically
elected by the Employer, for only that part of the Plan Year during which the
Member was eligible to participate in the Plan. An Employee's actual deferral
percentage shall be zero if no 401(k) deferral (or, as provided in Section 3.9,
Employer qualified nonelective contribution) is made on his behalf for such
Plan Year. If the Plan and one or more other plans which include cash or
deferred arrangements are considered as one plan for purposes of Sections
401(a)(4) and 410(b) of the Code, the cash or deferred arrangements included in
such plans shall be treated as one arrangement for purposes of this 401(k)
Feature.
<PAGE>
For purposes of determining the actual deferral percentage of a Member who is a
Highly Compensated Employee subject to the family aggregation rules of Section
414(q)(6) of the Code because such Employee is either a five-percent owner or
one of the ten most Highly Compensated Employees as described in Section
414(q)(6) of the Code, the 401(k) deferrals, contributions and compensation (as
defined in Section 414(s) of the Code) of such Member shall include 401(k)
deferrals, contributions and compensation (as defined in Section 414(s) of the
Code) of "family members", within the meaning of Section 414(q)(6) of the Code,
and such "family members" shall not be considered as separate Employees in
determining actual deferral percentages.
The TPA shall determine as of the end of the Plan Year whether one of the
actual deferral percentage tests specified in Section 3.9 above is satisfied
for such Plan Year. This determination shall be made after first determining
the treatment of excess deferrals within the meaning of Section 402(g) of the
Code under Section 3.2 above. In the event that neither of such actual
deferral percentage tests is satisfied, the TPA shall, to the extent
permissible under the Code and the IRS Regulations, refund the excess
contributions for the Plan Year in the following order of priority: by (i)
refunding such amounts deferred by the Member which were not matched by his
Employer (and any earnings and losses allocable thereto), and (ii) refunding
amounts deferred for such Plan Year by the Member (and any earnings and losses
allocable thereto), and, solely to the extent permitted under the Code and
applicable IRS Regulations, distributing to the Member amounts contributed for
such Plan Year by the Employer with respect to the Member's 401(k) deferrals
that are returned pursuant to this Paragraph (and any earnings and losses
allocable thereto).
The distribution of such excess contributions shall be made to Highly
Compensated Members to the extent practicable before the 15th day of the third
month immediately following the Plan Year for which such excess contributions
were made, but in no event later than the end of the Plan Year following such
Plan Year or, in the case of the termination of the Plan in accordance with
Article XI, no later than the end of the twelve-month period immediately
following the date of such termination.
For purposes of this 401(k) Feature, "excess contributions" means, with respect
to any Plan Year, the excess of the aggregate amount of 401(k) deferrals (and
any earnings and losses allocable thereto) made to the accounts of Highly
Compensated Members for such Plan Year, over the maximum amount of such
deferrals that could be made by such Members without violating the requirements
described above, determined by reducing 401(k) deferrals made by or on behalf
of Highly Compensated Members in order of the actual deferral percentages
beginning with the highest of such percentages.
18<PAGE>
SECTION 3.11 DETERMINING THE ACTUAL CONTRIBUTION PERCENTAGES
-----------------------------------------------
Notwithstanding any other provision of this Section 3.11, the actual
contribution percentage for the Plan Year for Highly Compensated Employees
shall not exceed the greater of the following actual contribution percentages:
(a) the actual contribution percentage for such Plan Year of those Employees
who are not Highly Compensated Employees multiplied by 1.25, or (b) the actual
contribution percentage for the Plan Year of those Employees who are not Highly
Compensated Employees multiplied by 2.0, provided that the actual contribution
percentage for the Highly Compensated Employees does not exceed the actual
contribution percentage for such other Employees by more than 2 percentage
points. For purposes of this Article III, the "actual contribution percentage"
for a Plan Year means, for each specified group of Employees, the average of
the ratios (calculated separately for each Employee in such group) of (A) the
sum of (i) Member after-tax contributions credited to his Account for the Plan
Year, (ii) Employer matching contributions and/or supplemental contributions
under Formula 1 credited to his Account as described in this Article for the
Plan Year, and (iii) in accordance with and to the extent permitted by the IRS
Regulations, 401(k) deferrals (and, as provided in Section 3.9, any Employer
qualified nonelective contributions) credited to his Account, to (B) the amount
of the Member's compensation (as defined in Section 414(s) of the Code) for the
Plan Year or, alternatively, where specifically elected by the Employer, for
only that part of the Plan Year during which the Member was eligible to
participate in the Plan. An Employee's actual contribution percentage shall be
zero if no such contributions are made on his behalf for such Plan Year.
The actual contribution percentage taken into account for any Highly
Compensated Employee who is eligible to make Member contributions or receive
Employer matching contributions under two or more plans described in Section
401(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 all such contributions
were made under a single plan. For purposes of determining the actual
contribution percentage of a Member who is a Highly Compensated Employee
subject to the family aggregation rules of Section 414(q)(6) of the Code
because such Member is either a five-percent owner or one of the ten most
Highly Compensated Employees as described in Section 414(q)(6) of the Code, the
Employer matching contributions and Member contributions and compensation (as
defined in Section 414(s) of the Code) of such Member shall include the
Employer matching and Member contributions and compensation (as defined in
Section 414(s) of the Code) of "family members," within the meaning of Section
414(q)(6) of the Code, and such "family members" shall not be considered as
separate Employees in determining actual contribution percentages.
The TPA shall determine as of the end of the Plan Year whether one of the
actual contribution percentage tests specified above is satisfied for such Plan
Year. This determination shall be made after first determining the treatment
of excess deferrals within the meaning of Section 402(g) of
19
the Code under Section 3.2 above and then determining the treatment of excess
contributions under Section 3.10 above. In the event that neither of the
actual contribution percentage tests is satisfied, the TPA shall refund the
excess aggregate contributions in the manner described below.
For purposes of this Article III, "excess aggregate contributions" means, with
respect to any Plan Year and with respect to any Member, the excess of the
aggregate amount of contributions (and any earnings and losses allocable
thereto) made as (i) Member after-tax contributions credited to his Account for
the Plan Year, (ii) Employer matching contributions and/or supplemental
contributions under Formula 1 credited to his Account as described in this
Article for the Plan Year, and (iii) in accordance with and to the extent
permitted by the IRS Regulations, 401(k) deferrals (and, as provided in Section
3.9, any Employer qualified nonelective contributions) credited to his Account
(if the Plan Administrator elects to take into account such deferrals and
contributions when calculating the actual contribution percentage) of Highly
Compensated Members for such Plan Year, over the maximum amount of such
contributions that could be made as Employer contributions, Member
contributions and 401(k) deferrals of such Members without violating the
requirements of any Subparagraph of this Section 3.11.
If the TPA is required to refund excess aggregate contributions for any Highly
Compensated Member for a Plan Year in order to satisfy the requirements of any
Subparagraph above, then the refund of such excess aggregate contributions
shall be made with respect to such Highly Compensated Members to the extent
practicable before the 15th day of the third month immediately following the
Plan Year for which such excess aggregate contributions were made, but in no
event later than the end of the Plan Year following such Plan Year or, in the
case of the termination of the Plan in accordance with Article XI, no later
than the end of the twelve-month period immediately following the date of such
termination.
For each such Member, the amounts so refunded shall be made in the following
order of priority: (i) to the extent that the amounts contributed by the
Member on an after-tax basis for such Plan Year exceed the highest rate of such
contributions with respect to which amounts were contributed by the Employer,
by refunding such amounts contributed by the Member which were not matched by
his Employer (and any earnings and losses allocable thereto) and (ii) by
refunding amounts contributed for such Plan Year by the Member which were
matched by his Employer (and any earnings and losses allocable thereto) and,
solely to the extent permitted under the Code and applicable IRS Regulations,
distributing to the Member amounts contributed for such Plan Year by the
Employer with respect to the amounts so returned (and any earnings and losses
allocable thereto). All such distributions shall be made to, or shall be with
respect to, Highly Compensated Members on the basis of the respective portions
of such amounts attributable to each such Highly Compensated Member.
20
SECTION 3.12 THE AGGREGATE LIMIT TEST
------------------------
Notwithstanding any other provision of the Plan, the sum of the actual deferral
percentage and the actual contribution percentage determined in accordance with
the procedures described above of those Employees who are Highly Compensated
Employees may not exceed the aggregate limit as determined below.
For purposes of this Article III, the "aggregate limit" for a Plan Year is the
greater of:
(1) The sum of:
(a) 1.25 times the greater of the relevant actual deferral percentage or
the relevant actual contribution percentage, and
(b) Two percentage points plus the lesser of the relevant actual
deferral percentage or the relevant actual contribution percentage.
In no event, however, shall this amount exceed twice the lesser of
the relevant actual deferral percentage or the relevant actual
contribution percentage; or
(2) The sum of:
(a) 1.25 times the lesser of the relevant actual deferral percentage or
the relevant actual contribution percentage, and
(b) Two percentage points plus the greater of the relevant actual
deferral percentage or the relevant actual contribution percentage.
In no event, however, shall this amount exceed twice the greater of
the relevant actual deferral percentage or the relevant actual
contribution percentage; provided, however, that if a less
restrictive limitation is prescribed by the IRS, such limitation
shall be used in lieu of the foregoing. The relevant actual
deferral percentage and relevant actual contribution percentage are
defined in accordance with the Code and the IRS Regulations.
The TPA shall determine as of the end of the Plan Year whether the aggregate
limit has been exceeded. This determination shall be made after first
determining the treatment of excess deferrals within the meaning of Section
402(g) of the Code under Section 3.2 above, then determining the treatment of
excess contributions under Section 3.10 above, and then determining the treat-
ment of excess aggregate contributions under this Article III. In the event
that the aggregate limit is exceeded, the actual contribution percentage of
those Employees who are Highly Compensated Employees shall be reduced in the
same manner as described in Section 3.11 of this Article until the aggregate
limit is no longer exceeded, unless the TPA designates, in lieu of the
reduction of the actual contribution percentage a reduction in the actual
deferral percentage of those Employees
21
who are Highly Compensated Employees, which reduction shall occur in the same
manner as described in Section 3.10 of this Article until the aggregate limit
is no longer exceeded. Notwithstanding the provisions of Sections 3.2 and 3.10
above, the amount of excess contributions to be distributed, with respect to a
Member for a Plan Year, shall be reduced by any excess deferrals distributed to
such Member for such Plan Year.
SECTION 3.13 REMITTANCE OF CONTRIBUTIONS
---------------------------
The contributions of both the Employer and the Plan Members shall be recorded
by the Employer and remitted to the TPA for transmittal to the Trustee or
custodian or directly to the Trustee or custodian so that the Trustee or
custodian shall be in receipt thereof by the 15th day of the month next
following the month in respect of which such contributions are payable. Such
amounts shall be used to provide additional Units pursuant to Article V. Any
contributions received by the Trustee or custodian on the first working day of
a month shall be deemed to have been received on the last working day of the
immediately preceding month. Working day shall be defined as any day regular
mail is delivered by the United States Postal Service.
22
<PAGE>
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
SECTION 4.1 INVESTMENT BY TRUSTEE OR CUSTODIAN
----------------------------------
All contributions to the Plan shall, upon receipt by the TPA, be delivered to
the Trustee or custodian to be held in the Trust Fund and invested and
distributed by the Trustee or custodian in accordance with the provisions of
the Plan and Trust Agreement. The Trust Fund shall consist of one or more of
the Investment Funds designated by the Employer in the Adoption Agreement.
With the exception of the Employer Stock Fund, the Trustee may in its
discretion invest any amounts held by it in any Investment Fund in any
commingled or group trust fund described in Section 401(a) of the Code and
exempt under Section 501(a) of the Code or in any common trust fund exempt
under Section 584 of the Code, provided that such trust fund satisfies any
requirements of the Plan applicable to such Investment Funds. To the extent
that the Investment Funds are at any time invested in any commingled, group or
common trust fund, the declaration of trust or other instrument pertaining to
such fund and any amendments thereto are hereby adopted as part of the Plan.
The Employer will designate in the Adoption Agreement which of the Investment
Funds described therein will be made available to Members and the terms and
conditions under which such Funds will operate with respect to employee
direction of allocations to and among such designated Funds and the types of
contributions and/or deferrals eligible for investment therein.
SECTION 4.2 MEMBER DIRECTED INVESTMENTS
---------------------------
To the extent permitted by the Employer as set forth in the Adoption Agreement,
each Member shall direct in writing that his contributions and deferrals, if
any, and the contributions made by the Employer on his behalf shall be invested
(a) entirely in any one of the Investment Funds made available by the Employer,
or (b) among the available Investment Funds in any combination of multiples of
1%. If a Member has made any Rollover contributions in accordance with Article
III, Section 3.3, such Member may elect to apply separate investment directions
to such rollover amounts. Any such investment direction shall be followed by
the TPA until changed. Subject to the provisions of the following paragraphs
of this Section, as designated in the Adoption Agreement, a Member may change
his investment direction as to future contributions and also as to the value of
his accumulated Units in each of the available Investment Funds by filing
written notice with the TPA. Such directed change(s) will become effective
upon the Valuation Date coinciding with or next following the date which his
notice was received by the TPA or as soon as administratively practicable
thereafter. If the Adoption Agreement provides for Member directed
23
investments, and if a Member does not make a written designation of an
Investment Fund or Funds, the Employer or its designee shall direct the Trustee
to invest all amounts held or received on account of the such Member in the
Investment Fund which in the opinion of the Employer best protects principal.
Except as otherwise provided below, a Member may not direct a transfer from the
Stable Value Fund to the Government Money Market Fund and/or the Bond Index
Fund. A Member may direct a transfer from the 500 Stock Index Fund, the Midcap
400 Stock Index Fund, and/or the Employer Stock Fund to the Government Money
Market Fund and/or the Bond Index Fund provided that amounts previously
transferred from the Stable Value Fund to the 500 Stock Index Fund, the Midcap
400 Stock Index Fund or the Employer Stock Fund remain in such Funds for a
period of three months prior to being transferred to the Government Money
Market Fund or the Bond Index Fund.
SECTION 4.3 EMPLOYER SECURITIES
-------------------
If the Employer so elects in the Adoption Agreement, the Employer and/or
Members may direct that contributions will be invested in Qualifying Employer
Securities (within the meaning of Section 407(d)(5) of ERISA) through the
Employer Stock Fund.
24
<PAGE>
ARTICLE V
MEMBERS' ACCOUNTS, UNITS AND VALUATION
The TPA shall establish and maintain an Account for each Member showing his
interests in the available Investment Funds, as designated by the Employer in
the Adoption Agreement. The interest in each Investment Fund shall be
represented by Units.
As of each Valuation Date, the value of a Unit in each Investment Fund shall be
determined by dividing (a) the sum of the net assets at market value determined
by the Trustee by (b) the total number of outstanding Units.
The number of additional Units to be credited to a Member's interest in each
available Investment Fund, as of any Valuation Date, shall be determined by
dividing (a) that portion of the aggregate contributions and/or deferrals by
and on behalf of the Member which was directed to be invested in such
Investment Fund and received by the Trustee during the month in which such
Valuation Date occurs by (b) the Unit value of such Investment Fund as of the
next Valuation Date. For purposes of the preceding sentence, in valuing a
Member's Account, contributions and/or deferrals of both Members and the
Employer which have been reported and received by the TPA on the first working
day of a month shall be deemed to have been received on the last working day of
the immediately preceding month. Working day shall be defined as any day
regular mail is delivered by the United States Postal Service.
The value of a Member's Account may be determined as of any Valuation Date by
multiplying the number of Units to his credit in each available Investment Fund
by that Investment Fund's Unit Value on such date and aggregating the results.
<PAGE>
ARTICLE VI
VESTING OF UNITS
SECTION 6.1 VESTING OF MEMBER CONTRIBUTIONS AND/OR DEFERRALS
------------------------------------------------
All Units credited to a Member's Account based on after-tax contributions
and/or 401(k) deferrals made by the Member and any earnings related thereto
(including any rollover contributions allocated to a Member's Account under the
Plan and any earnings thereon) and, as provided in Section 3.9, Employer
qualified nonelective contributions made on behalf of such Member shall be
immediately and fully vested in him at all times.
SECTION 6.2 VESTING OF EMPLOYER CONTRIBUTIONS
---------------------------------
The Employer may, at its option, elect one of the available vesting schedules
described herein for each of the employer contribution types applicable to the
Plan as designated in the Adoption Agreement.
SCHEDULE 1: All applicable Units shall immediately and fully vest. If the
eligibility requirement(s) selected by the Employer under
Article II require(s) that an Employee complete a period of
Employment which is longer than 12 consecutive months, this
vesting Schedule 1 shall be automatically applicable.
SCHEDULE 2: All applicable Units shall become nonforfeitable and fully
vested in accordance with the schedule set forth below:
COMPLETED VESTED
YEARS OF EMPLOYMENT PERCENTAGE
------------------- ----------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
SCHEDULE 3: All applicable Units shall become nonforfeitable and fully
vested in accordance with the schedule set forth below:
26
<PAGE>
COMPLETED VESTED
YEARS OF EMPLOYMENT PERCENTAGE
------------------- ----------
Less than 5 0%
5 or more 100%
SCHEDULE 4: All applicable Units shall become nonforfeitable and fully
vested in accordance with the schedule set forth below:
COMPLETED VESTED
YEARS OF EMPLOYMENT PERCENTAGE
------------------- ----------
Less than 3 0%
3 or more 100%
SCHEDULE 5: All applicable Units shall become nonforfeitable and fully
vested in accordance with the schedule set forth below:
COMPLETED VESTED
YEARS OF EMPLOYMENT PERCENTAGE
------------------- ----------
Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 or more 100%
SCHEDULE 6: All applicable Units shall become nonforfeitable and fully
vested in accordance with the schedule set forth below:
COMPLETED VESTED
YEARS OF EMPLOYMENT PERCENTAGE
------------------- ----------
Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
SCHEDULE 7: All applicable Units shall become nonforfeitable and fully
vested in accordance with the schedule set forth in the Adoption
Agreement created by the Employer in accordance with applicable
law.
27
Notwithstanding the vesting schedules above, a Member's interest in his Account
shall become 100% vested in the event that (i) the Member dies while in active
Employment and the TPA has received notification of death, (ii) the Member has
been approved for Disability, pursuant to the provisions of Article VII, and
the TPA has received notification of Disability, or (iii) the Member has
attained Normal Retirement Age.
Except as otherwise provided hereunder, in the event that the Employer adopts
the Plan as a successor plan to another defined contribution plan qualified
under Sections 401(a) and 501(a) of the Code, or in the event that the Employer
changes or amends a vesting schedule adopted under this Article, any Member who
was covered under such predecessor plan or, in the case of a change or
amendment to the vesting schedule, any Member who has completed at least 3
Years of Employment with the Employer may elect to have the nonforfeitable
percentage of the portion of his Account which is subject to such vesting
schedule computed under such predecessor plan's vesting provisions, or computed
without regard to such change or amendment (a "Vesting Election"). Any Vesting
Election made under this Subparagraph shall be made by notifying the TPA in
writing within the election period hereinafter described. The election period
shall begin on the date such amendment is adopted or the date such change is
effective, or the date the Plan which serves as a successor plan is adopted or
effective, as the case may be, and shall end no earlier than the latest of the
following dates: (i) the date which is 60 days after the day such amendment is
adopted; (ii) the date which is 60 days after the day such amendment or change
becomes effective; (iii) the date which is 60 days after the day the Member is
given written notice of such amendment or change by the TPA; (iv) the date
which is 60 days after the day the Plan is adopted by the Employer or becomes
effective; or (v) the date which is 60 days after the day the Member is given
written notice that the Plan has been designated as a successor plan. Any
election made pursuant to this Subparagraph shall be irrevocable.
To the extent permitted under the Code and Regulations, the Employer may, at
its option, elect to treat all Members who are eligible to make a Vesting
Election as having made such Vesting Election. Furthermore, subject to the
requirements of the applicable Regulations, the Employer may elect to treat all
Members, who were employed by the Employer on or before the effective date of
the change or amendment, as subject to the prior vesting schedule, provided
such prior schedule is more favorable.
SECTION 6.3 FORFEITURES
-----------
If a Member who was partially vested in his Account on the date of his
termination of Employment returns to Employment, his Years of Employment prior
to the Break(s) in Service shall be included in determining future vesting and,
if he returns before incurring 5 consecutive one year Breaks in Service, any
Units forfeited from his Account shall be restored to his Account, including
all interest
28
accrued during the intervening period; provided, however, that if such a Member
has received a distribution pursuant to Article VII, his Account Units shall
not be restored unless he repays the full amount distributed to him to the Plan
before the earlier of (i) 5 years after the first date on which the Member is
subsequently reemployed by the Employer, or (ii) the close of the first period
of 5 consecutive one-year Breaks in Service commencing after the withdrawal.
The Units restored to the Member's Account will be valued on the Valuation
Date coinciding with or next following the later of (i) the date the Employee
is rehired, or (ii) the date a new enrollment application is received by the
TPA. If a Member terminates Employment without any vested interest in his
Account, he shall (i) immediately be deemed to have received a total
distribution of his Account and (ii) thereupon forfeit his entire Account;
provided that if such Member returns to Employment before the number of
consecutive one-year Breaks in Service equals or exceeds the greater of (i) 5,
or (ii) the aggregate number of the Member's Years of Service prior to such
Break in Service, his Account shall be restored in the same manner as if such
Member had been partially vested at the time of his termination of Employment,
and his Years of Employment prior to incurring the first Break in Service shall
be included in any subsequent determination of his vesting service.
Forfeited amounts, as defined in the preceding paragraph, shall be made
available to the Employer, through transfer from the Member's Account to the
Employer Credit Account, upon: (1) if the Member had a vested interest in his
Account at his termination of Employment, the earlier of (i) the date as of
which the Member receives a distribution of his entire vested interest in his
Account or (ii) the date upon which the Member incurs 5 consecutive one-year
Breaks in Service, or (2) the date of the Member's termination of Employment,
if the Member then has no vested interest in his Account. Once so transferred,
such amounts shall be used at the option of the Employer to (i) reduce
administrative expenses for that Contribution Determination Period, (ii) offset
any contributions to be made by the Employer for that Contribution
Determination Period or (iii) be allocated to all eligible Members deemed to be
employed as of the last day of the Contribution Determination Period. The
Employer Credit Account, referenced in this Subparagraph, shall be maintained
to receive, in addition to the forfeitures described above, (i) contributions
in excess of the limitations contained in Section 415 of the Code and (ii)
Employer contributions made in advance of the date allocable to Members, if
any.
29<PAGE>
ARTICLE VII
WITHDRAWALS AND DISTRIBUTIONS
SECTION 7.1 GENERAL PROVISIONS
------------------
The Employer will define in the Adoption Agreement the terms and conditions
under which withdrawals and distributions will be permitted under the Plan.
All payments in respect of a Member's Account shall be made in cash from the
Trust Fund and in accordance with the provisions of this Article or Article XI.
The amount of payment will be determined in accordance with the Unit values on
the Valuation Date coinciding with or next following the date proper notice is
filed with the TPA, unless following such Valuation Date a decrease in the Unit
values of the Member's investment in any of the available Investment Funds
occurs prior to the date such Units of the Member are redeemed in which case
that part of the payment which must be provided through the sale of existing
Units shall equal the value of such Units determined on the date of redemption
which date shall occur as soon as administratively practicable on or following
the Valuation Date such proper notice is filed with the TPA. The redemption
date Unit value with respect to a Member's investment in any of the available
Investment Funds shall equal the value of a Unit in such Investment Fund, as
determined in accordance with the valuation method applicable to Unit
investments in such Investment Fund on the date the Member's investment is
redeemed.
Except where otherwise specified, payments provided under this Article will be
made in a lump sum as soon as practicable after such Valuation Date or date of
redemption, as may be applicable, subject to any applicable restriction on
redemption imposed on amounts invested in any of the available Investment
Funds.
Any partial withdrawal shall be deemed to come:
- - First from the Member's after-tax contributions made prior to January 1,
1987.
- - Next from the Member's after-tax contributions made after December 31, 1986
plus earnings on all of the Member's after-tax contributions.
- - Next from the Member's rollover contributions plus earnings thereon.
- - Next from the Employer matching contributions plus earnings thereon.
- - Next from the Employer supplemental contributions plus earnings thereon.
- - Next from the Employer basic contributions plus earnings thereon.
- - Next from the Member's 401(k) deferrals plus earnings thereon.
30
- - Next from the Employer qualified nonelective contributions plus earnings
thereon.
- - Next from the Employer profit sharing contributions plus earnings thereon.
SECTION 7.2 WITHDRAWALS WHILE EMPLOYED
--------------------------
The Employer may, at its option, permit Members to make withdrawals from one or
more of the portions of their Accounts while employed by the Employer, as
designated in the Adoption Agreement, under the terms and provisions described
herein.
VOLUNTARY WITHDRAWALS - To the extent permitted by the Employer as specified in
the Adoption Agreement, a Member may voluntarily withdraw some or all of his
Account (other than his 401(k) deferrals and Employer qualified nonelective
contributions treated as 401(k) deferrals except as hereinafter permitted)
while in Employment by filing a notice of withdrawal with the TPA; provided,
however, that in the event his Employer has elected to provide annuity options
under Section 7.3, no withdrawals may be made from a married Member's Account
without the written consent of such Member's Spouse (which consent shall be
subject to the procedures set forth in Section 7.3). Only one in-service
withdrawal may be made in any Plan Year from each of the rollover amount of the
Member's Account and the remainder of the Member's Account. This restriction
shall not, however, apply to a withdrawal under this Section in conjunction
with a hardship withdrawal.
Notwithstanding the foregoing paragraph, a Member may not withdraw any
matching, basic, supplemental, profit sharing or qualified nonelective
contributions made by the Employer under Article III unless (i) the Member has
completed 60 months of participation in the Plan; (ii) the withdrawal occurs at
least 24 months after such contributions were made by the Employer; (iii) the
Employer terminates the Plan without establishing a qualified successor plan;
or (iv) the Member dies, is disabled, retires, attains age 59 1/2 or terminates
Employment. For purposes of the preceding requirements, if the Member's
Account includes amounts which have been transferred from a defined
contribution plan established prior to the adoption of the Plan by the
Employer, the period of time during which amounts were held on behalf of such
Member and the periods of participation of such Member under such defined
contribution plan shall be taken into account.
HARDSHIP WITHDRAWALS - If designated by the Employer in the Adoption Agreement,
a Member may make a withdrawal of his 401(k) deferrals, Employer qualified
nonelective contributions which are treated as elective deferrals, and any
earnings credited thereto prior to January 1, 1989, prior to attaining age
59 1/2, provided that the withdrawal is solely on account of an immediate and
heavy financial need and is necessary to satisfy such financial need. For the
purposes of this Article, the term "immediate and heavy financial need" shall
be limited to the need of funds for (i) the payment
31
of medical expenses (described in Section 213(d) of the Code) incurred by the
Member, the Member's Spouse, or any of the Member's dependents (as defined in
Section 152 of the Code), (ii) the payment of tuition and room and board for
the next 12 months of post-secondary education of the Member, the Member's
Spouse, the Member's children, or any of the Member's dependents (as defined in
Section 152 of the Code), (iii) the purchase (excluding mortgage payments) of a
principal residence for the Member, or (iv) the prevention of eviction of the
Member from his principal residence or the prevention of foreclosure on the
mortgage of the Member's principal residence. For purposes of this Article, a
distribution generally may be treated as "necessary to satisfy a financial
need" if the Plan Administrator reasonably relies upon the Member's written
representation that the need cannot be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by reasonable liquidation of the
Member's available assets, to the extent such liquidation would not itself
cause an immediate and heavy financial need, (iii) by cessation of Member
contributions and/or deferrals pursuant to Article III of the Plan, to the
extent such contributions and/or deferrals are permitted by the Employer, or
(iv) by other distributions or nontaxable (at the time of the loan) loans from
plans maintained by the Employer or by any other employer, or by borrowing from
commercial sources on reasonable commercial terms. The amount of any
withdrawal pursuant to this Article shall not exceed the amount required to
meet the demonstrated financial hardship, including any amounts necessary to
pay any federal income taxes and penalties reasonably anticipated to result
from the distribution as certified to the Plan Administrator by the Member.
Notwithstanding the foregoing, no amounts may be withdrawn on account of
hardship pursuant to this Article prior to a Member's withdrawal of his other
available Plan assets without regard to any other withdrawal restrictions
adopted by the Employer.
SECTION 7.3 DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT
--------------------------------------------
In accordance with the provisions for distributions designated by the Employer
in the Adoption
Agreement, a Member who terminates Employment with the Employer may request a
distribution of his Account at any time thereafter up to attainment of age
70 1/2.
Except as otherwise provided, only one distribution under this Section 7.3 may
be made in any Plan Year and any amounts paid under this Article may not be
returned to the Plan.
Any distribution made under this Section 7.3 requires that a Request for
Distribution be filed with the TPA. If a Member does not file such a Request,
the value of his Account will be paid to him as soon as practicable after his
attainment of age 70 1/2, but in no event shall payment commence later than
April 1 of the calendar year following the calendar year in which the Member
attains age 70 1/2 unless otherwise provided by law.
LUMP SUM PAYMENTS - A Member may request a distribution of all or a part of his
Account no more
32
frequently than once per calendar year by filing the proper Request for
Distribution with the TPA. In the event the Employer has elected to provide an
annuity option under the Plan, no distributions may be made from a married
Member's Account without the written consent of such married Member's spouse
(which consent shall be subject to the procedures set forth below).
INSTALLMENT PAYMENTS - To the extent designated by the Employer in the Adoption
Agreement and in lieu of any lump sum payment of his total Account, a Member
who has terminated his Employment may elect in his Request for Distribution to
be paid in up to 20 annual installments, provided that a Member shall not be
permitted to elect an installment period in excess of his remaining life
expectancy and if a Member attempts such an election, the TPA shall deem him to
have elected the installment period with the next lowest multiple within the
Member's remaining life expectancy. The amount of each installment will be
equal to the value of the total Units in the Member's Account, multiplied by a
fraction, the numerator of which is one and the denominator of which is the
number of remaining annual installments including the one then being paid, so
that at the end of the installment period so elected, the total Account will be
liquidated. The value of the Units will be determined in accordance with the
Unit values on the Valuation Date on or next following the TPA's receipt of his
Request for Distribution and on each anniversary thereafter subject to
applicable Regulations under Code Section 401(a)(9). Payment will be made as
soon as practicable after each such Valuation Date, but in no event shall
payment commence later than April 1 of the calendar year following the calendar
year in which the Member attains age 70 1/2 subject to the procedure for making
such distributions described below. The election of installments hereunder may
not be subsequently changed by the Member, except that upon written notice to
the TPA, the Member may withdraw the balance of the Units in his Account in a
lump sum at any time, notwithstanding the fact that the Member previously
received a distribution in the same calendar year.
ANNUITY PAYMENTS - The Employer may, at its option, elect to provide an annuity
option under the Plan. To the extent so designated by the Employer in the
Adoption Agreement and in lieu of any lump sum payment of his total Account, a
Member who has terminated his Employment may elect in his Request for
Distribution to have the value of his total Account be paid as an annuity
secured for the Member by the Plan Administrator through a Group Annuity
Contract adopted by the Plan. In the event the Employer elects to provide the
annuity option, the following provisions shall apply:
UNMARRIED MEMBERS -Any unmarried Member who has terminated his Employment may
elect, in lieu of any other available payment option, to receive a benefit
payable by purchase of a single premium contract providing for (i) a single
life annuity for the life of the Member or (ii) an annuity for the life of the
Member and, if the Member dies leaving a designated Beneficiary, a 50% survivor
annuity for the life of such designated Beneficiary.
33
MARRIED MEMBERS - Except as otherwise provided below, (i) any married Member
who has terminated his Employment shall receive a benefit payable by purchase
of a single premium contract providing for a Qualified Joint and Survivor
Annuity, as defined below, and (ii) the Surviving Spouse of any married Member
who dies prior to the date payment of his benefit commences shall be entitled
to a Preretirement Survivor Annuity, as defined below. Notwithstanding the
foregoing, any such married Member may elect to receive his benefit in any
other available form, and may waive the Preretirement Survivor Annuity, in
accordance with the spousal consent requirements described herein.
For purposes of this Section 7.3, the term "Qualified Joint and Survivor
Annuity" means a benefit providing an annuity for the life of the Member,
ending with the payment due on the last day of the month coinciding with or
preceding the date of his death, and, if the Member dies leaving a Surviving
Spouse, a survivor annuity for the life of such Surviving Spouse equal to one-
half of the annuity payable for the life of the Member under his Qualified
Joint and Survivor Annuity, commencing on the last day of the month following
the date of the Member's death and ending with the payment due on the first day
of the month coinciding with or preceding the date of such Surviving Spouse's
death.
For purposes of this Section 7.3, the term "Preretirement Survivor Annuity"
means a benefit providing for payment of 50% of the Member's Account balance as
of the Valuation Date coinciding with or preceding the date of his death.
Payment of a Preretirement Survivor Annuity shall commence in the month
following the month in which the Member dies or as soon as practicable
thereafter; provided, however, that to the extent required by law, if the value
of the amount used to purchase a Preretirement Survivor Annuity exceeds $3,500,
then payment of the Preretirement Survivor Annuity shall not commence prior to
the date the Member reached (or would have reached, had he lived) Normal
Retirement Age without the written consent of the Member's Surviving Spouse.
Absence of any required consent will result in a deferral of payment of the
Preretirement Survivor Annuity to the month following the month in which occurs
the earlier of (i) the date the required consent is received by the TPA or (ii)
the date the Member would have reached Normal Retirement Age had he lived.
The TPA shall furnish or cause to be furnished, to each married Member with an
Account subject to this Section 7.3, explanations of the Qualified Joint and
Survivor Annuity and Preretirement Survivor Annuity. A Member may, with the
written consent of his Spouse (unless the TPA makes a written determination in
accordance with the Code and the Regulations that no such consent is required),
elect in writing (i) to receive his benefit in a single lump sum payment within
the 90-day period ending on the date payment of his benefit commences; and (ii)
to waive the Preretirement Survivor Annuity within the period beginning on the
first day of the Plan Year in which the Member attains age 35 and ending on the
date of his death. Any election made pursuant to this
34
Subparagraph may be revoked by a Member, without spousal consent, at any time
within which such election could have been made. Such an election or
revocation must be made in accordance with procedures developed by the TPA and
shall be notarized.
Notwithstanding the preceding provisions of this Section 7.3, any benefit of
$3,500, subject to the limits of Article X, or less, shall be paid in cash in a
lump sum in full settlement of the Plan's liability therefor; provided,
however, that in the case of a married Member, no such lump sum payment shall
be made after benefits have commenced without the consent of the Member and his
Spouse or, if the Member has died, the Member's Surviving Spouse. Furthermore,
if the value of the benefit payable to a Member or his Surviving Spouse is
greater than $3,500 and the Member has or had not reached his Normal Retirement
Age, then to the extent required by law, unless the Member (and, if the Member
is married and his benefit is to be paid in a form other than a Qualified Joint
and Survivor Annuity, his Spouse, or, if the Member was married, his Surviving
Spouse) consents in writing to an immediate distribution of such benefit, his
benefit shall continue to be held in the Trust until a date following the
earlier of (i) the date of the TPA's receipt of all required consents or (ii)
the date the Member reaches his earliest possible Normal Retirement Age under
the Plan (or would have reached such date had he lived), and thereafter shall
be paid in accordance with this Section 7.3.
Solely to the extent required under applicable law and regulations, and
notwithstanding any provisions of the Plan to the contrary that would otherwise
limit a Distributee's election under this Subparagraph, a Distributee may
elect, at the time and in the manner prescribed by the TPA, to have any portion
of an Eligible Rollover Distribution paid directly to an Eligible Retirement
Plan specified by the Distributee in a Direct Rollover. For purposes of this
Subparagraph, the following terms shall have the following meanings:
ELIGIBLE ROLLOVER DISTRIBUTION - Any distribution of all or any portion of
the balance to the credit of the Distributee, except that an Eligible
Rollover Distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Distributee or the
joint lives (or joint life expectancies) of the Distributee and the
Distributee's designated beneficiary, or for a specified period of ten years
or more; any distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any distribution that is
not includable in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
ELIGIBLE RETIREMENT PLAN - An individual retirement account described in
Section 408(a) of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in Section 403(a) of
the Code, or a qualified trust described in Section 401(a) of the
35
Code, that accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to a Surviving
Spouse, an Eligible Retirement Plan is an individual retirement account or an
individual retirement annuity.
DISTRIBUTEE - A Distributee may be (i) an Employee, (ii) a former Employee,
(iii) an Employee's Surviving Spouse, (iv) a former Employee's Surviving
Spouse, (v) an Employee's Spouse or former Spouse who is an alternate payee
under a qualified domestic relations order, as defined in Section 414(p) of
the Code, or (vi) a former Employee's Spouse or former Spouse who is an
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, with respect to the interest of the Spouse or
former Spouse.
DIRECT ROLLOVER - A payment by the Plan to the Eligible Retirement Plan
specified by the Distributee.
SECTION 7.4 DISTRIBUTIONS DUE TO DISABILITY
-------------------------------
A Member who is separated from Employment by reason of a disability which is
expected to last in excess of 12 consecutive months and who is either (i)
eligible for, or is receiving, disability insurance benefits under the Federal
Social Security Act or (ii) approved for disability under the provisions of any
other benefit program or policy maintained by the Employer, which policy or
program is applied on a uniform and nondiscriminatory basis to all Employees of
the Employer, shall be deemed to be disabled for all purposes under the Plan.
The Plan Administrator shall determine whether a Member is disabled in
accordance with the terms of the immediately preceding paragraph; provided,
however, approval of Disability is conditioned upon notice to the Plan
Administrator of such Member's Disability within 13 months of the Member's
separation from Employment. The notice of Disability shall include a
certification that the Member meets one or more of the criteria listed above.
Upon determination of Disability, a Member may withdraw his total Account
balance under the Plan and have such amounts paid to him in accordance with the
applicable provisions of this Article VII, as designated by the Employer. If a
disabled Member becomes reemployed subsequent to withdrawal of some or all of
his Account balance, such Member may not repay to the Plan any such withdrawn
amounts.
SECTION 7.5 DISTRIBUTIONS DUE TO DEATH
--------------------------
Subject to the provisions of Section 7.3 above, if a married Member dies, his
Spouse, as Beneficiary, will receive a death benefit equal to the value of the
Member's Account determined on the Valuation Date on or next following the
TPA's receipt of notice that such Member died;
36
provided, however, that if such Member's Spouse had consented in writing to the
designation of a different Beneficiary, the Member's Account will be paid to
such designated Beneficiary. Such nonspousal designation may be revoked by the
Member without spousal consent at any time prior to the Member's death. If a
Member is not married at the time of his death, his Account will be paid to his
designated Beneficiary.
A Member may elect that upon his death, his Beneficiary, pursuant to this
Section 7.5, may receive, in lieu of any lump sum payment, payment in 5 annual
installments (10 if the Spouse is the Beneficiary, provided that the Spouse's
remaining life expectancy is at least 10 years) whereby the value of 1/5th of
such Member's Units (or 1/10th in the case of a spousal Beneficiary, provided
that the Spouse's remaining life expectancy is at least 10 years) in each
available Investment Fund will be determined in accordance with the Unit values
on the Valuation Date on or next following the TPA's receipt of notice of the
Member's death and on each anniversary of such Valuation Date. Payment will be
made as soon as practicable after each Valuation Date until the Member's
Account is exhausted. Such election may be filed at any time with the Plan
Administrator prior to the Member's death and may not be changed or revoked
after such Member's death. If such an election is not in effect at the time of
the Member's death, his Beneficiary (including any spousal Beneficiary) may
elect to receive distributions in accordance with this Article, except that any
balance remaining in the deceased Member's Account must be distributed on or
before the December 31 of the calendar year which contains the 5th anniversary
(the 10th anniversary in the case of a spousal Beneficiary, provided that the
Spouse's remaining life expectancy is at least 10 years) of the Member's death.
Notwithstanding the foregoing, payment of a Member's Account shall commence not
later than the December 31 of the calendar year immediately following the
calendar year in which the Member died or, in the event such Beneficiary is the
Member's Surviving Spouse, on or before the December 31 of the calendar year in
which such Member would have attained age 70 1/2, if later (or, in either
case, on any later date prescribed by the IRS Regulations). If, upon the
Spouse's or Beneficiary's death, there is still a balance in the Account, the
value of the remaining Units will be paid in a lump sum to such Spouse's or
Beneficiary's estate.
SECTION 7.6 MINIMUM REQUIRED DISTRIBUTIONS
------------------------------
In no event may payment of a Member's Account begin later than April 1 of the
year following the calendar year in which a Member attains age 70 1/2; provided,
however, if a Member attained age 70 1/2 prior to January 1, 1988, except as
otherwise provided below, any benefit payable to such Member shall commence no
later than the April 1 of the calendar year following the later of (i) the
calendar year in which the Member attains age 70 1/2 or (ii) the calendar year
in which the Member retires. Such benefit shall be paid, in accordance with
the Regulations, over a period not extending beyond the life expectancy of
such Member. Life expectancy for purposes of this Section shall
37
not be recalculated annualy in accordance with the Regulations.
If a Member who is a 5% owner attained age 70 1/2 before January 1, 1988, any
benefit payable to such Member shall commence no later than the April 1 of the
calendar year following the later of (i) the calendar year in which the Member
attains age 70 1/2 or (ii) the earlier of (a) the calendar year within which the
Member becomes a 5% owner or (b) the calendar year in which the Member retires.
For purposes of the preceding sentence, 5% owner shall mean a 5% owner of such
Member's Employer as defined in Section 416(i) of the Code at any time during
the Plan Year in which such owner attains age 66 1/2 or any subsequent Plan
Year. Distributions must continue to such Member even if such Member
ceases to own more than 5% of the Employer in a subsequent year.
38
<PAGE>
ARTICLE VIII
LOAN PROGRAM
SECTION 8.1 GENERAL PROVISIONS
------------------
An Employer may, at its option, make available the loan program described
herein for any Member (and, if applicable under Section 8.8 of this Article,
any Beneficiary), subject to applicable law. The Employer shall so designate
its adoption of the loan program and the terms and provisions of its operation
in the Adoption Agreement. In the event that the Employer has elected to
provide an annuity option under Article VII or amounts are transferred to the
Plan from a retirement plan subject to Section 401(a)(11) of the Code, no loans
may be made from a married Member's Account without the written consent of such
Member's Spouse (in accordance with the spousal consent rules set forth under
Section 7.3). In the event the Employer elects to permit loans to be made from
rollover contributions and earnings thereon, as designated in the Adoption
Agreement, loans shall be available from the Accounts of any Employees of the
Employer who have not yet become Members. Only one loan may be made to a
Member in the Plan Year.
SECTION 8.2 LOAN APPLICATION
----------------
Subject to the restrictions described in the paragraph immediately following, a
Member in Employment may borrow from his Account in each of the available
Investment Funds by filing a loan application with the TPA. Such application
(hereinafter referred to as a "completed application") shall (i) specify the
terms pursuant to which the loan is requested to be made and (ii) provide such
information and documentation as the TPA shall require, including a note, duly
executed by the Member, granting a security interest of an amount not greater
than 50% of his vested Account, to secure the loan. With respect to such
Member, the completed application shall authorize the repayment of the loan
through payroll deductions. Such loan will become effective upon the Valuation
Date coinciding with or next following the date on which his completed
application and other required documents were submitted, subject to the same
conditions with respect to the amount to be transferred under this Section
which are specified in the Plan procedures for determining the amount of
payments made under Article VII of the Plan.
The Employer shall establish standards in accordance with the Code and ERISA
which shall be uniformly applicable to all Members eligible to borrow from
their interests in the Trust Fund similarly situated and shall govern the TPA's
approval or disapproval of completed applications. The terms for each loan
shall be set solely in accordance with such standards.
39
<PAGE>
The TPA shall, in accordance with the established standards, review and approve
or disapprove a completed application as soon as practicable after its receipt
thereof, and shall promptly notify the applying Member of such approval or
disapproval. Notwithstanding the foregoing, the TPA may defer its review of a
completed application, or defer payment of the proceeds of an approved loan, if
the proceeds of the loan would otherwise be paid during the period commencing
on December 1 and ending on the following January 31.
Subject to the preceding paragraph and Section 8.6, upon approval of a
completed application, the TPA shall cause payment of the loan to be made from
the available Investment Fund(s) in the same proportion that the designated
portion of the Member's Account is invested at the time of the loan, and the
relevant portion of the Member's interest in such Investment Fund(s) shall be
cancelled and shall be transferred in cash to the Member. The TPA shall
maintain sufficient records regarding such amounts to permit an accurate
crediting of repayments of the loan.
SECTION 8.3 PERMITTED LOAN AMOUNT
---------------------
The amount of each loan may not be less than $1,000 nor more than the maximum
amount as described below. The maximum amount available for loan under the
Plan (when added to the outstanding balance of all other loans from the Plan to
the borrowing Member) shall not exceed the lesser of: (a) $50,000 reduced by
the excess (if any) of (i) the highest outstanding loan balance attributable to
the Account of the Member requesting the loan from the Plan during the one-year
period ending on the day preceding the date of the loan, over (ii) the
outstanding balance of all other loans from the Plan to the Member on the date
of the loan, or (b) 50% of the value of the Member's vested portion of his
Account available for borrowing as of the Valuation Date on or next following
the date on which the TPA receives the completed application for the loan and
all other required documents. The maximum amount available for a loan for
purposes of item (b) of the preceding sentence shall be determined by valuing
the Member's interest in that portion of his Account from which the loan will
be deducted as of the applicable Valuation Date. In determining the maximum
amount that a Member may borrow, all vested assets of his Account, regardless
of whether any particular portion of his Account is actually available for the
loan, will be taken into consideration, provided that, where the Employer has
not elected to make a Member's entire Account available for loans, in no event
shall the amount of the loan exceed the value of such portion of the Member's
Account from which loans are permissible.
SECTION 8.4 SOURCE OF FUNDS FOR LOAN
------------------------
The amount of the loan will be deducted from the Member's Account in the
available Investment Funds in accordance with Section 8.2 of this Article and
the Plan procedures for determining the amount of payments made under Article
VII. Loans shall be deemed to come (to the extent the
40
Employer permits Members to take loans from one or more of the portions of
their Accounts, as designated in the Adoption Agreement):
- - First from the Employer profit sharing contributions plus earnings thereon.
- - Next from the Employer qualified nonelective contributions plus earnings
thereon.
- - Next from the Member's 401(k) deferrals plus earnings thereon.
- - Next from the Employer basic contributions plus earnings thereon.
- - Next from the Employer supplemental contributions plus earnings thereon.
- - Next from the Employer matching contributions plus earnings thereon.
- - Next from the Member's rollover contributions plus earnings thereon.
- - Next from the Member's after-tax contributions made after December 31,1986
plus earnings on all of the Member's after-tax contributions.
- - Next from the Member's after-tax contributions made prior to January 1,1987.
SECTION 8.5 CONDITIONS OF LOAN
------------------
Each loan to a Member under the Plan shall be repaid in level monthly amounts
through regular payroll deductions after the effective date of the loan, and
continuing thereafter with each payroll. Except as otherwise required by the
Code and the IRS Regulations, each loan shall have a repayment period of not
less than 12 months and not in excess of 60 months, unless the purpose of the
loan is for the purchase of a primary residence, in which case the loan may be
for not more than 180 months.
The rate of interest for the term of the loan will be established as of the
loan date, and will be the Barron's Prime Rate (base rate) plus 1% as published
on the last Saturday of the preceding month, or such other rate as may be
required by applicable law and determined by reference to the prevailing
interest rate charged by commercial lenders under similar circumstances. The
applicable rate would then be in effect through the last business day of the
month.
Repayment of all loans under the Plan shall be secured by 50% of the Member's
vested interest in his Account, determined as of the origination of such loan.
41
<PAGE>
SECTION 8.6 CREDITING OF REPAYMENT
----------------------
Upon lending any amount to a Member, the TPA shall establish and maintain a
loan receivable account with respect to, and for the term of, the loan. The
allocations described in this Section shall be made from the loan receivable
account. Upon receipt of each monthly installment payment and the crediting
thereof to the Member's loan receivable account, there shall be allocated to
the Member's Account in the available Investment Funds, in accordance with his
most recent investment instructions, the principal portion of the installment
payment plus that portion of the interest equal to the rate determined in
Section 8.5 of this Article, less 2%. The unpaid balance owed by a Member on a
loan under the Plan shall not reduce the amount credited to his Account.
However, from the time of payment of the proceeds of the loan to the Member,
such Account shall be deemed invested, to the extent of such unpaid balance, in
such loan until the complete repayment thereof or distribution from such
Account. Any loan repayment shall first be deemed allocable to the portions of
the Member's Account on the basis of a reverse ordering of the manner in which
the loan was originally distributed to the Member.
SECTION 8.7 CESSATION OF PAYMENTS ON LOAN
-----------------------------
If a Member, while employed, fails to make a monthly installment payment when
due, as specified in the completed application, subject to applicable law, he
will be deemed to have received a distribution of the outstanding balance of
the loan. If such default occurs after the first 12 monthly payments of the
loan have been satisfied, the Member may pay the outstanding balance, including
accrued interest from the due date, within 60 days of the due date of the last
monthly installment payment, in which case no such distribution will be deemed
to have occurred. Subject to applicable law, notwithstanding the foregoing, a
Member that borrows any of his 401(k) deferrals and any of the earnings
attributable thereto may not cease to make monthly installment payments while
employed and receiving a Salary from the Employer.
Except as provided below, upon a Member's termination of Employment, death or
Disability, or the Employer's termination of the Plan, no further monthly
installment payments may be made. Unless the outstanding balance, including
accrued interest from the due date, is paid within 60 days of the date of such
occurrence, the Member will be deemed to have received a distribution of the
outstanding balance of the loan including accrued interest from the due date.
SECTION 8.8 LOANS TO FORMER MEMBERS
-----------------------
Notwithstanding any other provisions of this Article VIII, a member who
terminates Employment for any reason shall be permitted to continue making
scheduled repayments with respect to any loan balance outstanding at the time
he becomes a terminated Member. In addition, a terminated Member may elect to
initiate a new loan from his Account, subject to the conditions otherwise
42
described in this Article VIII. If any terminated Member who continues to make
repayments or who borrows from his Account pursuant to this Section 8.8 fails
to make a scheduled monthly installment payment within 60 days of the scheduled
payment date, he will be deemed to have received a distribution of the
outstanding balance of the loan.
43
<PAGE>
ARTICLE IX
ADMINISTRATION OF PLAN AND ALLOCATION OF RESPONSIBILITIES
SECTION 9.1 FIDUCIARIES
-----------
The following persons are Fiduciaries under the Plan.
a) The Trustee,
b) The Employer,
c) The Plan Administrator or committee, appointed by the Employer pursuant to
this Article IX of the Plan and designated as the "Named Fiduciary" of the
Plan and the Plan Administrator, and
d) Any Investment Manager appointed by the Employer as provided in Section
9.4.
Each of said Fiduciaries shall be bonded to the extent required by ERISA.
The TPA is not intended to have the authority or responsibilities which would
cause it to be considered a Fiduciary with respect to the Plan unless the TPA
otherwise agrees to accept such authority or responsibilities in a service
agreement or otherwise in writing.
SECTION 9.2 ALLOCATION OF RESPONSIBILITIES AMONG THE FIDUCIARIES
----------------------------------------------------
a) The Trustee
-----------
The Employer shall enter into one or more Trust Agreements with a Trustee or
Trustees selected by the Employer. The Trust established under any such
agreement shall be a part of the Plan and shall provide that all funds
received by the Trustee as contributions under the Plan and the income
therefrom (other than such part as is necessary to pay the expenses and
charges referred to in Paragraph (b) of this Section) shall be held in the
Trust Fund for the exclusive benefit of the Members or their Beneficiaries,
and managed, invested and reinvested and distributed by the Trustee in
accordance with the Plan. Sums received for investment may be invested (i)
wholly or partly through the medium of any common, collective or commingled
trust fund maintained by a bank or other financial institution and which is
qualified under Sections 401(a) and 501(a) of the Code and constitutes a part
of the Plan; (ii) wholly or partly through the medium of a group annuity or
other type of contract issued by an insurance company and constituting a part
of the Plan, and utilizing, under any such contract,
44
general, commingled or individual investment accounts; or (iii) wholly or
partly in securities issued by an investment company registered under the
Investment Company Act of 1940. Subject to the provisions of Article XI, the
Employer may from time to time and without the consent of any Member or
Beneficiary (a) amend the Trust Agreement or any such insurance contract in
such manner as the Employer may deem necessary or desirable to carry out the
Plan, (b) remove the Trustee and designate a successor Trustee upon such
removal or upon the resignation of the Trustee, and (c) provide for an
alternate funding agency under the Plan. The Trustee shall make payments
under the Plan only to the extent, in the amounts, in the manner, at the
time, and to the persons as shall from time to time be set forth and
designated in written authorizations from the Plan Administrator or TPA.
The Trustee shall from time to time charge against and pay out of the Trust
Fund taxes of any and all kinds whatsoever which are levied or assessed upon
or become payable in respect of such Fund, the income or any property forming
a part thereof, or any security transaction pertaining thereto. To the
extent not paid by the Employer, the Trustee shall also charge against and
pay out of the Trust Fund other expenses incurred by the Trustee in the
performance of its duties under the Trust, the expenses incurred by the TPA
in the performance of its duties under the Plan (including reasonable
compensation for agents and cost of services rendered in respect of the
Plan), such compensation of the Trustee as may be agreed upon from time to
time between the Employer and the Trustee, and all other proper charges and
disbursements of the Trustee or the Employer.
b) THE EMPLOYER
------------
The Employer shall be responsible for all functions assigned or reserved to
it under the Plan and any related Trust Agreement. Any authority so assigned
or reserved to the Employer, other than responsibilities assigned to the Plan
Administrator, shall be exercised by resolution of the Employer's Board of
Directors and shall become effective with respect to the Trustee upon written
notice to the Trustee signed by the duly authorized officer of the Board
advising the Trustee of such exercise. By way of illustration and not by
limitation, the Employer shall have authority and responsibility:
(1) to amend the Plan;
(2) to merge and consolidate the Plan with all or part of the assets or
liabilities of any other plan;
(3) to appoint, remove and replace the Trustee and the Plan Administrator
and to monitor their performances;
45
(4) to appoint, remove and replace one or more Investment Managers, or to
refrain from such appointments, and to monitor their performances;
(5) to communicate such information to the Plan Administrator, TPA,
Trustee and Investment Managers as they may need for the proper
performance of their duties; and
(6) to perform such additional duties as are imposed by law.
Whenever, under the terms of this Plan, the Employer is permitted or required
to do or perform any act, it shall be done and performed by an officer
thereunto duly authorized by its Board of Directors.
c) THE PLAN ADMINISTRATOR
-----------------------
The Plan Administrator shall have responsibility and discretionary authority
to control the operation and administration of the Plan in accordance with
the provisions of Article IX of the Plan, including, without limiting, the
generality of the foregoing:
(1) the determination of eligibility for benefits and the amount and
certification thereof to the Trustee;
(2) the hiring of persons to provide necessary services to the Plan;
(3) the issuance of directions to the Trustee to pay any fees, taxes,
charges or other costs incidental to the operation and management of
the Plan;
(4) the preparation and filing of all reports required to be filed with
respect to the Plan with any governmental agency; and
(5) the compliance with all disclosure requirements imposed by state or
federal law.
d) THE INVESTMENT MANAGER
-----------------------
Any Investment Manager appointed pursuant to Section 9.4 shall have sole
responsibility for the investment of the portion of the assets of the Trust
Fund to be managed and controlled by such Investment Manager. An Investment
Manager may place orders for the purchase and sale of securities directly
with brokers and dealers.
SECTION 9.3 NO JOINT FIDUCIARY RESPONSIBILITIES
-----------------------------------
This Article IX is intended to allocate to each Fiduciary the individual
responsibility for the prudent execution of the functions assigned to him, and
none of such responsibilities or any other
46
responsibilities shall be shared by two or more of such Fiduciaries unless such
sharing is provided by a specific provision of the Plan or any related Trust
Agreement. Whenever one Fiduciary is required to follow the directions of
another Fiduciary, the two Fiduciaries shall not be deemed to have been
assigned a shared responsibility, but the responsibility of the Fiduciary
giving the directions shall be deemed his sole responsibility, and the
responsibility of the Fiduciary receiving those directions shall be to follow
them insofar as such instructions are on their face proper under applicable
law. To the extent that fiduciary responsibilities are allocated to an
Investment Manager, such responsibilities are so allocated solely to such
Investment Manager alone, to be exercised by such Investment Manager alone and
not in conjunction with any other Fiduciary, and the Trustee shall be under no
obligation to manage any asset of the Trust Fund which is subject to the
management of such Investment Manager.
SECTION 9.4 INVESTMENT MANAGER
------------------
The Employer may appoint a qualified Investment Manager or Managers to manage
any portion or all of the assets of the Trust Fund. For the purpose of this
Plan and the related Trust, a "qualified Investment Manager" means an
individual, firm or corporation who has been so appointed by the Employer to
serve as Investment Manager hereunder, and who is and has acknowledged in
writing that he is (a) a Fiduciary with respect to the Plan, (b) bonded as
required by ERISA, and (c) either (i) registered as an investment advisor under
the Investment Advisors Act of 1940, (ii) a bank as defined in said Act, or
(iii) an insurance company qualified to perform investment management services
under the laws of more than one state of the United States.
Any such appointment shall be by a vote of the Board of Directors of the
Employer naming the Investment Manager so appointed and designating the portion
of the assets of the Trust Fund to be managed and controlled by such Investment
Manager. Said vote shall be evidenced by a certificate in writing signed by
the duly authorized officer of the Board and shall become effective on the date
specified in such certificate but not before delivery to the Trustee of a copy
of such certificate, together with a written acknowledgement by such Investment
Manager of the facts specified in the second sentence of this Section.
SECTION 9.5 ADVISOR TO FIDUCIARY
--------------------
A Fiduciary may employ one or more persons to render advice concerning any
responsibility such Fiduciary has under the Plan and related Trust Agreement.
SECTION 9.6 SERVICE IN MULTIPLE CAPACITIES
------------------------------
Any person or group of persons may serve in more than one fiduciary capacity
with respect to the Plan, specifically including service both as Plan
Administrator and as a Trustee of the Trust;
47
provided, however, that no person may serve in a fiduciary capacity who is
precluded from so serving pursuant to Section 411 of ERISA.
SECTION 9.7 APPOINTMENT OF PLAN ADMINISTRATOR
---------------------------------
The Employer shall designate the Plan Administrator in the Adoption Agreement.
The Plan Administrator may be an individual, a committee of two or more
individuals, whether or not, in either such case, the individual or any of such
individuals are Employees of the Employer, a consulting firm or other
independent agent, the Trustee (with its consent), the Board of the Employer,
or the Employer itself. Except as the Employer shall otherwise expressly
determine, the Plan Administrator shall be charged with the full power and
responsibility for administering the Plan in all its details. If no Plan
Administrator has been appointed by the Employer, or if the person designated
as Plan Administrator is not serving as such for any reason, the Employer shall
be deemed to be the Plan Administrator. The Plan Administrator may be removed
by the Employer or may resign by giving written notice to the Employer, and, in
the event of the removal, resignation, death or other termination of service of
the Plan Administrator, the Employer shall, as soon as is practicable, appoint
a successor Plan Administrator, such successor thereafter to have all of the
rights, privileges, duties and obligations of the predecessor Plan
Administrator.
SECTION 9.8 POWERS OF THE PLAN ADMINISTRATOR
--------------------------------
The Plan Administrator is hereby vested with all powers and authority necessary
in order to carry out its duties and responsibilities in connection with the
administration of the Plan as herein provided, and is authorized to make such
rules and regulations as it may deem necessary to carry out the provisions of
the Plan and the Trust Agreement. The Plan Administrator may from time to time
appoint agents to perform such functions involved in the administration of the
Plan as it may deem advisable. The Plan Administrator shall have the
discretionary authority to determine any questions arising in the
administration, interpretation and application of the Plan, including any
questions submitted by the Trustee on a matter necessary for it to properly
discharge its duties; and the decision of the Plan Administrator shall be
conclusive and binding on all persons.
SECTION 9.9 DUTIES OF THE PLAN ADMINISTRATOR
--------------------------------
The Plan Administrator shall keep on file a copy of the Plan and the Trust
Agreement(s), including any subsequent amendments, and all annual reports of
the Trustee(s), and such annual reports or registration statements as may be
required by the laws of the United States, or other jurisdiction, for
examination by Members in the Plan during reasonable business hours. Upon
request by any Member, the Plan Administrator shall furnish him with a
statement of his interest in the Plan as determined by the Plan Administrator
as of the close of the preceding Plan Year.
48
SECTION 9.10 ACTION BY THE PLAN ADMINISTRATOR
--------------------------------
In the event that there shall at any time be two or more persons who constitute
the Plan Administrator, such persons shall act by concurrence of a majority
thereof.
SECTION 9.11 DISCRETIONARY ACTION
--------------------
Wherever, under the provisions of this Plan, the Plan Administrator is given
any discretionary power or powers, such power or powers shall not be exercised
in such manner as to cause any discrimination prohibited by the Code in favor
of or against any Member, Employee or class of Employees. Any discretionary
action taken by the Plan Administrator hereunder shall be consistent with any
prior discretionary action taken by it under similar circumstances and to this
end the Plan Administrator shall keep a record of all discretionary action
taken by it under any provision hereof.
SECTION 9.12 COMPENSATION AND EXPENSES OF PLAN ADMINISTRATOR
-----------------------------------------------
Employees of the Employer shall serve without compensation for services as Plan
Administrator, but all expenses of the Plan Administrator shall be paid by the
Employer. Such expenses shall include any expenses incidental to the
functioning of the Plan, including, but not limited to, attorney's fees,
accounting and clerical charges, and other costs of administering the Plan.
Non-Employee Plan Administrators shall receive such compensation as the
Employer shall determine.
SECTION 9.13 RELIANCE ON OTHERS
------------------
The Plan Administrator and the Employer shall be entitled to rely upon all
valuations, certificates and reports furnished by the Trustee(s), upon all
certificates and reports made by an accountant or actuary selected by the Plan
Administrator and approved by the Employer and upon all opinions given by any
legal counsel selected by the Plan Administrator and approved by the Employer,
and the Plan Administrator and the Employer shall be fully protected in respect
of any action taken or suffered by them in good faith in reliance upon such
Trustee(s), accountant, actuary or counsel and all action so taken or suffered
shall be conclusive upon each of them and upon all Members, retired Members,
and Former Members and their Beneficiaries, and all other persons.
SECTION 9.14 SELF INTEREST
-------------
No person who is the Plan Administrator shall have any right to decide upon any
matter relating solely to himself or to any of his rights or benefits under the
Plan. Any such decision shall be made by another Plan Administrator or the
Employer.
49
<PAGE>
SECTION 9.15 PERSONAL LIABILITY - INDEMNIFICATION
------------------------------------
The Plan Administrator shall not be personally liable by virtue of any
instrument executed by him or on his behalf. Neither the Plan Administrator,
the Employer, nor any of its officers or directors shall be personally liable
for any action or inaction with respect to any duty or responsibility imposed
upon such person by the terms of the Plan unless such action or inaction is
judicially determined to be a breach of that person's fiduciary responsibility
with respect to the Plan under any applicable law. The limitation contained in
the preceding sentence shall not, however, prevent or preclude a compromise
settlement of any controversy involving the Plan, the Plan Administrator, the
Employer, or any of its officers and directors. The Employer may advance money
in connection with questions of liability prior to any final determination of a
question of liability. Any settlement made under this Article IX shall not be
determinative of any breach of fiduciary duty hereunder.
The Employer will indemnify every person who is or was a Plan Administrator,
officer or member of the Board or a person who provides services without
compensation to the Plan for any liability (including reasonable costs of
defense and settlement) arising by reason of any act or omission affecting the
Plan or affecting the Member or Beneficiaries thereof, including, without
limitation, any damages, civil penalty or excise tax imposed pursuant to ERISA;
provided (1) that the act or omission shall have occurred in the course of the
person's service as Plan Administrator, officer of the Employer or member of
the Board or was within the scope of the Employment of any Employee of the
Employer or in connection with a service provided without compensation to the
Plan, (2) that the act or omission be in good faith as determined by the
Employer, whose determination, made in good faith and not arbitrarily or
capriciously, shall be conclusive, and (3) that the Employer's obligation
hereunder shall be offset to the extent of any otherwise applicable insurance
coverage, under a policy maintained by the Employer, or any other person, or
other source of indemnification.
SECTION 9.16 INSURANCE
---------
The Plan Administrator shall have the right to purchase such insurance as it
deems necessary to protect the Plan and the Trustee from loss due to any breach
of fiduciary responsibility by any person. Any premiums due on such insurance
may be paid from Plan assets provided that, if such premiums are so paid, such
policy of insurance must permit recourse by the insurer against the person who
breaches his fiduciary responsibility. Nothing in this Article IX shall
prevent the Plan Administrator or the Employer, at its, or his, own expense,
from providing insurance to any person to cover potential liability of that
person as a result of a breach of fiduciary responsibility, nor shall any
provisions of the Plan preclude the Employer from purchasing from any insurance
company the right of recourse under any policy by such insurance company.
50
SECTION 9.17 CLAIMS PROCEDURES
-----------------
Claims for benefits under the Plan shall be filed with the Plan Administrator
on forms supplied by the Employer. Written notice of the disposition of a
claim shall be furnished to the claimant within 90 days after the application
thereof is filed unless special circumstances require an extension of time for
processing the claim. If such an extension of time is required, written notice
of the extension shall be furnished to the claimant prior to the termination of
said 90-day period, and such notice shall indicate the special circumstances
which make the postponement appropriate.
SECTION 9.18 CLAIMS REVIEW PROCEDURES
------------------------
In the event a claim is denied, the reasons for the denial shall be
specifically set forth in the notice described in this Section 9.18 in language
calculated to be understood by the claimant. Pertinent provisions of the Plan
shall be cited, and, where appropriate, an explanation as to how the claimant
can request further consideration and review of the claim will be provided. In
addition, the claimant shall be furnished with an explanation of the Plan's
claims review procedures. Any Employee, former Employee, or Beneficiary of
either, who has been denied a benefit by a decision of the Plan Administrator
pursuant to Section 9.17 shall be entitled to request the Plan Administrator to
give further consideration to his claim by filing with the Plan Administrator
(on a form which may be obtained from the Plan Administrator) a request for a
hearing. Such request, together with a written statement of the reasons why
the claimant believes his claim should be allowed, shall be filed with the Plan
Administrator no later than 60 days after receipt of the written notification
provided for in Section 9.17. The Plan Administrator shall then conduct a
hearing within the next 60 days, at which the claimant may be represented by an
attorney or any other representative of his choosing and at which the claimant
shall have an opportunity to submit written and oral evidence and arguments in
support of his claim. At the hearing (or prior thereto upon 5 business days'
written notice to the Plan Administrator), the claimant or his representative
shall have an opportunity to review all documents in the possession of the Plan
Administrator which are pertinent to the claim at issue and its disallowance.
A final disposition of the claim shall be made by the Plan Administrator within
60 days of receipt of the appeal unless there has been an extension of 60 days
and shall be communicated in writing to the claimant. Such communication shall
be written in a manner calculated to be understood by the claimant and shall
include specific reasons for the disposition and specific references to the
pertinent Plan provisions on which the disposition is based. For all purposes
under the Plan, such decision on claims (where no review is requested) and
decision on review (where review is requested) shall be final, binding and
conclusive on all interested persons as to participation and benefits
eligibility, the amount of benefits and as to any other matter of fact or
interpretation relating to the Plan.
51
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 GENERAL LIMITATIONS
-------------------
(A) In order that the Plan be maintained as a qualified plan and trust under
the Code, contributions in respect of a Member shall be subject to the
limitations set forth in this Section, notwithstanding any other provision
of the Plan. The contributions in respect of a Member to which this
Section is applicable are his own contributions and/or deferrals and the
Employer's contributions.
For purposes of this Section 10.1, a Member's contributions shall be
determined without regard to any rollover contributions as provided in
Section 402(a)(5) of the Code.
(B) Annual additions to a Member's Account in respect of any Plan Year may not
exceed the limitations set forth in Section 415 of the Code, which are
incorporated herein by reference. For these purposes, "annual additions"
shall have the meaning set forth in Section 415(c)(2) of the Code, as
modified elsewhere in the Code and the Regulations, and the limitation year
shall mean the Plan Year unless any other twelve-consecutive-month period
is designated pursuant to a resolution adopted by the Employer and
designated in the Adoption Agreement. If a Member in the Plan also
participates in any defined benefit plan (as defined in Sections 414(j) and
415(k) of the Code) maintained by the Employer or any of its Affiliates, in
the event that in any Plan Year the sum of the Member's "defined benefit
fraction" (as defined in Section 415(e)(2) of the Code) and the Member's
"defined contribution fraction" (as defined in Section 415(e)(3) of the
Code) exceeds 1.0, the benefit under such defined benefit plan or plans
shall be reduced in accordance with the provisions of that plan or those
plans, so that the sum of such fractions in respect of the Member will not
exceed 1.0. If this reduction does not ensure that the limitation set
forth in this Paragraph (B) is not exceeded, then the annual addition to
any defined contribution plan, other than the Plan, shall be reduced in
accordance with the provisions of that plan but only to the extent
necessary to ensure that such limitation is not exceeded.
(C) In the event that, due to forfeitures, reasonable error in estimating a
Member's compensation, or other limited facts and circumstances, total
contributions and/or deferrals to a Member's Account are found to exceed
the limitations of this Section, the TPA, at the direction of the Plan
Administrator, shall cause contributions made under Article III in excess
of such limitations to be refunded to the affected Member, with earnings
thereon, and shall take appropriate steps to reduce, if necessary, the
Employer contributions made with respect to those returned contributions.
Such refunds shall not be deemed to be withdrawals, loans,
52
or distributions from the Plan. If a Member's annual contributions exceed
the limitations contained in Paragraph (B) of this Section after the
Member's Article III contributions, with earnings thereon, if any, have
been refunded to such Member, any Employer supplemental and/or profit
sharing contribution to be allocated to such Member in respect of any
Contribution Determination Period (including allocations as provided in
this Paragraph) shall instead be allocated to or for the benefit of all
other Members who are Employees in Employment as of the last day of the
Contribution Determination Period as determined under the Adoption
Agreement and allocated in the same proportion that each such Member's
Salary for such Contribution Determination Period bears to the total Salary
for such Contribution Determination Period of all such Members or, the TPA
may, at the election of the Employer, utilize such excess to reduce the
contributions which would otherwise be made for the succeeding Contribution
Determination Period by the Employer. If, with respect to any Contribution
Determination Period, there is an excess profit sharing contribution, and
such excess cannot be fully allocated in accordance with the preceding
sentence because of the limitations prescribed in Paragraph (B) of this
Section, the amount of such excess which cannot be so allocated shall be
allocated to the Employer Credit Account and made available to the Employer
pursuant to the terms of Article VI. The TPA, at the direction of the Plan
Administrator, in accordance with Paragraph (D) of this Section, shall take
whatever additional action may be necessary to assure that contributions to
Members' Accounts meet the requirements of this Section.
(D) In addition to the steps set forth in Paragraph (C) of this Section, the
Employer may from time to time adjust or modify the maximum limitations
applicable to contributions made in respect of a Member under this Section
10.1 as may be required or permitted by the Code or ERISA prior to or
following the date that allocation of any such contributions commences and
shall take appropriate action to reallocate the annual contributions which
would otherwise have been made but for the application of this Section.
(E) Membership in the Plan shall not give any Employee the right to be retained
in the Employment of the Employer and shall not affect the right of the
Employer to discharge any Employee.
(F) Each Member, Spouse and Beneficiary assumes all risk in connection with any
decrease in the market value of the assets of the Trust Fund. Neither the
Employer nor the Trustee guarantees that upon withdrawal, the value of a
Member's Account will be equal to or greater than the amount of the
Member's own deferrals or contributions, or those credited on his behalf in
which the Member has a vested interest, under the Plan.
53
<PAGE>
(G) The establishment, maintenance or crediting of a Member's Account pursuant
to the Plan shall not vest in such Member any right, title or interest in
the Trust Fund except at the times and upon the terms and conditions and to
the extent expressly set forth in the Plan and the Trust Agreement.
(H) The Trust Fund shall be the sole source of payments under the Plan and the
Employer, Plan Administrator and TPA assume no liability or responsibility
for such payments, and each Member, Spouse or Beneficiary who shall claim
the right to any payment under the Plan shall be entitled to look only to
the Trust Fund for such payment.
SECTION 10.2 TOP HEAVY PROVISIONS
--------------------
The Plan will be considered a Top Heavy Plan for any Plan Year if it is
determined to be a Top Heavy Plan as of the last day of the preceding Plan
Year. The provisions of this Section 10.2 shall apply and supersede all other
provisions in the Plan during each Plan Year with respect to which the Plan is
determined to be a Top Heavy Plan.
(A) For purposes of this Section 10.2, the following terms shall have the
meanings set forth below:
(1) "AFFILIATE" shall mean any entity affiliated with the Employer within
the meaning of Section 414(b), 414(c) or 414(m) of the Code, or
pursuant to the IRS Regulations under Section 414(o) of the Code,
except that for purposes of applying the provisions hereof with
respect to the limitation on contributions, Section 415(h) of the
Code shall apply.
(2) "AGGREGATION GROUP" shall mean the group composed of each qualified
retirement plan of the Employer or an Affiliate in which a Key
Employee is a member and each other qualified retirement plan of the
Employer or an Affiliate which enables a plan of the Employer or an
Affiliate in which a Key Employee is a member to satisfy Sections
401(a)(4) or 410 of the Code. In addition, the TPA, at the direction
of the Plan Administrator, may choose to treat any other qualified
retirement plan as a member of the Aggregation Group if such
Aggregation Group will continue to satisfy Sections 401(a)(4) and 410
of the Code with such plan being taken into account.
(3) "KEY EMPLOYEE" shall mean a "Key Employee" as defined in Sections
416(i)(1) and (5) of the Code and the IRS Regulations thereunder.
For purposes of Section 416 of the Code and for purposes of
determining who is a Key Employee, an Employer which is not a
corporation may have "officers" only for Plan Years beginning after
December 31, 1985. For purposes of determining who is a Key Employee
pursuant to this Subparagraph (3), compensation shall have the
meaning prescribed in Section 414(s)
54
of the Code, or to the extent required by the Code or the IRS Regula-
tions, Section 1.415-2(d) of the IRS Regulations.
(4) "NON-KEY EMPLOYEE" shall mean a "Non-Key Employee" as defined in
Section 416(i)(2) of the Code and the IRS Regulations thereunder.
(5) "TOP HEAVY PLAN" shall mean a "Top Heavy Plan" as defined in Section
416(g) of the Code and the IRS Regulations thereunder.
(B) Subject to the provisions of Paragraph (D) below, for each Plan Year that
the Plan is a Top Heavy Plan, the Employer's contribution (including
contributions attributable to salary reduction or similar arrangements)
allocable to each Employee (other than a Key Employee) who has satisfied
the eligibility requirement(s) of Article II, Section 2, and who is in
service at the end of the Plan Year, shall not be less than the lesser of
(i) 3% of such eligible Employee's compensation (as defined in Section
414(s) of the Code or to the extent required by the Code or the IRS
Regulations, Section 1.415-2(d) of the Regulations), or (ii) the percentage
at which Employer contributions for such Plan Year are made and allocated
on behalf of the Key Employee for whom such percentage is the highest. For
the purpose of determining the appropriate percentage under clause (ii),
all defined contribution plans required to be included in an Aggregation
Group shall be treated as one plan. Clause (ii) shall not apply if the
Plan is required to be included in an Aggregation Group which enables a
defined benefit plan also required to be included in said Aggregation Group
to satisfy Sections 401(a)(4) or 410 of the Code.
(C) If the Plan is a Top Heavy Plan for any Plan Year, and the Employer has
elected vesting Schedule 3 or 6 under Article VI, the vested interest of
each Member, who is credited with at least one Hour of Employment on or
after the Plan becomes a Top Heavy Plan, in the Units allocated to his
Account shall not be less than the percentage determined in accordance with
the following schedule:
COMPLETED YEARS OF VESTED
EMPLOYMENT PERCENTAGE
------------------ ----------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
55
<PAGE>
(D) (1) For each Plan Year that the Plan is a Top Heavy Plan, 1.0 shall be
substituted for 1.25 as the multiplicand of the dollar limitation in
determining the denominator of the defined benefit plan fraction and
of the defined contribution plan fraction for purposes of Section
415(e) of the Code.
(2) If, after substituting "90%" for "60%" wherever the latter appears in
Section 416(g) of the Code, the Plan is not determined to be a Top
Heavy Plan, the provisions of Subparagraph (1) of this Paragraph (D)
shall not be applicable if the minimum Employer contribution
allocable to any Member who is a Non-Key Employee as specified in
Paragraph (B) of this Section is determined by substituting "4%" for
3%.
(E) The TPA shall, to the maximum extent permitted by the Code and in
accordance with the IRS Regulations, apply the provisions of this Section
10.2 by taking into account the benefits payable and the contributions made
under any other qualified plan maintained by the Employer, to prevent
inappropriate omissions or required duplication of minimum contributions.
SECTION 10.3 INFORMATION AND COMMUNICATIONS
------------------------------
Each Employer, Member, Spouse and Beneficiary shall be required to furnish the
TPA with such information and data as may be considered necessary by the TPA.
All notices, instructions and other communications with respect to the Plan
shall be in such form as is prescribed from time to time by the TPA, shall be
mailed by first class mail or delivered personally, and shall be deemed to have
been duly given and delivered only upon actual receipt thereof by the TPA. All
information and data submitted by an Employer or a Member, including a Member's
birth date, marital status, salary and circumstances of his Employment and
termination thereof, may be accepted and relied upon by the TPA. All
communications from the Employer or the Trustee to a Member, Spouse or
Beneficiary shall be deemed to have been duly given if mailed by first class
mail to the address of such person as last shown on the records of the Plan.
SECTION 10.4 SMALL ACCOUNT BALANCES
----------------------
Notwithstanding the foregoing provisions of the Plan, if the value of all
portions of a Member's Account under the Plan, when aggregated, is equal to or
exceeds $3,500, then the Account will not be distributed without the consent of
the Member prior to age 65 (at the earliest), but if the aggregate value of all
portions of his Account is less than $3,500, then his Account will be
distributed as soon as practicable following the termination of Employment by
the Member.
<PAGE>
SECTION 10.5 AMOUNTS PAYABLE TO INCOMPETENTS, MINORS OR ESTATES
--------------------------------------------------
If the Plan Administrator shall find that any person to whom any amount is
payable under the Plan is unable to care for his affairs because of illness or
accident, or is a minor, or has died, then any payment due him or his estate
(unless a prior claim therefor has been made by a duly appointed legal
representative) may be paid to his Spouse, relative or any other person deemed
by the Plan Administrator to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete discharge
of the liability of the Trust Fund therefor.
SECTION 10.6 NON-ALIENATION OF AMOUNTS PAYABLE
---------------------------------
Except insofar as may otherwise be required by applicable law, or Article VIII,
or pursuant to the terms of a Qualified Domestic Relations Order, no amount
payable under the Plan shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge or encumbrance of any kind, and any attempt to so alienate shall be
void; nor shall the Trust Fund in any manner be liable for or subject to the
debts or liabilities of any person entitled to any such amount payable; and
further, if for any reason any amount payable under the Plan would not devolve
upon such person entitled thereto, then the Employer, in its discretion, may
terminate his interest and hold or apply such amount for the benefit of such
person or his dependents as it may deem proper. For the purposes of the Plan,
a "Qualified Domestic Relations Order" means any judgment, decree or order
(including approval of a property settlement agreement) which has been
determined by the Plan Administrator, in accordance with procedures established
under the Plan, to constitute a Qualified Domestic Relations Order within the
meaning of Section 414(p)(1) of the Code. No amounts may be withdrawn under
Article VII, and no loans granted under Article VIII, if the TPA has received a
document which may be determined following its receipt to be a Qualified
Domestic Relations Order prior to completion of review of such order by the
Plan Administrator within the time period prescribed for such review by the IRS
Regulations.
SECTION 10.7 UNCLAIMED AMOUNTS PAYABLE
-------------------------
If the TPA cannot ascertain the whereabouts of any person to whom an amount is
payable under the Plan, and if, after 5 years from the date such payment is
due, a notice of such payment due is mailed to the address of such person, as
last shown on the records of the Plan, and within 3 months after such mailing
such person has not filed with the TPA or Plan Administrator written claim
therefor, the Plan Administrator may direct in accordance with ERISA that the
payment (including the amount allocable to the Member's contributions) be
cancelled, and used in abatement of the Plan's administrative expenses,
provided that appropriate provision is made for recrediting the payment if such
person subsequently makes a claim therefor.
SECTION 10.8 LEAVES OF ABSENCE
-----------------
57
(A) If the Employer's personnel policies allow leaves of absence for all
similarly situated Employees on a uniformly available basis under the
circumstances described in Paragraphs (B)(1)-(4) below, then contribution
allocations and vesting service will continue to the extent provided in
Paragraphs (B)(1)-(4).
(B) For purposes of the Plan, there are only four types of approved Leaves of
Absence:
(1) Non-military leave granted to a Member for a period not in excess of
one year during which service is recognized for vesting purposes and
the Member is entitled to share in any supplemental contributions
under Article III or forfeitures under Article VI, if any, on a pro-
rata basis, determined by the Salary earned during the Plan Year or
Contribution Determination Period; or
(2) Non-military leave or layoff granted to a Member for a period not in
excess of one year during which service is recognized for vesting
purposes, but the Member is not entitled to share in any
contributions or forfeitures as defined under (1) above, if any,
during the period of the leave; or
(3) To the extent not otherwise required by applicable law, military or
other governmental service leave granted to a Member from which he
returns directly to the service of the Employer. Under this leave, a
Member may not share in any contributions or forfeitures as defined
under (1) above, if any, during the period of the leave, but vesting
service will continue to accrue; or
(4) To the extent not otherwise required by applicable law, a military
leave granted at the option of the Employer to a Member who is
subject to military service pursuant to an involuntary call-up in the
Reserves of the U.S. Armed Services from which he returns to the
service of the Employer within 90 days of his discharge from such
military service. Under this leave, a Member is entitled to share in
any contributions or forfeitures as defined under (1) above, if any,
and vesting service will continue to accrue. Notwithstanding any
provision of the Plan to the contrary, if a Member has one or more
loans outstanding at the time of this leave, repayments on such
loan(s) may be suspended, if the Member so elects, until such time as
the Member returns to the service of the Employer or the end of the
leave, if earlier.
58
<PAGE>
SECTION 10.9 RETURN OF CONTRIBUTIONS TO EMPLOYER
-----------------------------------
(A) In the case of a contribution that is made by an Employer by reason of a
mistake of fact, the Employer may request the return to it of such
contribution within one year after the payment of the contribution,
provided such refund is made within one year after the payment of the
contribution.
(B) In the case of a contribution made by an Employer or a contribution
otherwise deemed to be an Employer contribution under the Code, such
contribution shall be conditioned upon the deductibility of the
contribution by the Employer under Section 404 of the Code. To the extent
the deduction for such contribution is disallowed, in accordance with IRS
Regulations, the Employer may request the return to it of such contribution
within one year after the disallowance of the deduction.
(C) In the event that the IRS determines that the Plan is not initially
qualified under the 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.
The contributions returned under (A), (B) or (C) above may not include any
gains on such excess contributions, but must be reduced by any losses.
SECTION 10.10 CONTROLLING LAW
---------------
The Plan and all rights thereunder shall be governed by and construed in
accordance with ERISA and the laws of the State of New York.
59
<PAGE>
ARTICLE XI
AMENDMENT & TERMINATION
SECTION 11.1 GENERAL
-------
While the Plan is intended to be permanent, the Plan may be amended or
terminated completely by the Employer at any time at the discretion of its
Board of Directors. Except where necessary to qualify the Plan or to maintain
qualification of the Plan, no amendment shall reduce any interest of a Member
existing prior to such amendment. Subject to the terms of the Adoption
Agreement, written notice of such amendment or termination as resolved by the
Board shall be given to the Trustee, the Plan Administrator and the TPA. Such
notice shall set forth the effective date of the amendment or termination or
cessation of contributions.
SECTION 11.2 TERMINATION OF PLAN AND TRUST
-----------------------------
This Plan and any related Trust Agreement shall in any event terminate whenever
all property held by the Trustee shall have been distributed in accordance with
the terms hereof.
SECTION 11.3 LIQUIDATION OF TRUST ASSETS IN THE EVENT OF TERMINATION
-------------------------------------------------------
In the event that the Employer's Board of Directors shall decide to terminate
the Plan, or, in the event of complete cessation of Employer contributions, the
rights of Members to the amounts standing to their credit in their Accounts
shall be deemed fully vested and the Plan Administrator shall direct the
Trustee to either continue the Trust in full force and effect and continue so
much of the Plan in full force and effect as is necessary to carry out the
orderly distribution of benefits to Members and their Beneficiaries upon
retirement, Disability, death or termination of Employment; or (a) reduce to
cash such part or all of the Plan assets as the Plan Administrator may deem
appropriate; (b) pay the liabilities, if any, of the Plan; (c) value the
remaining assets of the Plan as of the date of notification of termination and
proportionately adjust Members' Account balances; (d) distribute such assets in
cash to the credit of their respective Accounts as of the notification of the
termination date; and (e) distribute all balances which have been segregated
into a separate fund to the persons entitled thereto; provided that no person
in the event of termination shall be required to accept distribution in any
form other than cash.
SECTION 11.4 PARTIAL TERMINATION
-------------------
The Employer may terminate the Plan in part without causing a complete
termination of the Plan. In the event a partial termination occurs, the Plan
Administrator shall determine the portion of the Plan assets attributable to
the Members affected by such partial termination and the provisions of Section
11.3 shall apply with respect to such portion as if it were a separate fund.
60
SECTION 11.5 POWER TO AMEND
--------------
(A) Subject to Section 11.6, the Employer, through its Board of Directors,
shall have the power to amend the Plan in any manner which it deems
desirable, including, but not by way of limitation, the right to change or
modify the method of allocation of such contributions, to change any
provision relating to the distribution of payment, or both, of any of the
assets of the Trust Fund. Further, the Employer may (i) change the choice
of options in the Adoption Agreement; (ii) 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 (iii) add certain model amendments published by the IRS 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, including a waiver of the minimum funding requirement under
Section 412(d) of the Code, will be considered to have an individually
designed plan.
Any amendment shall become effective upon the vote of the Board of
Directors of the Employer, unless such vote of the Board of Directors of
the Employer specifies the effective date of the amendment.
Such effective date of the amendment may be made retroactive to the vote of
the Board of Directors, to the extent permitted by law.
(B) The Employer expressly recognizes the authority of the Sponsor, Pentegra
Services, Inc., to amend the Plan from time to time, except with respect to
elections of the Employer in the Adoption Agreement, and the Employer shall
be deemed to have consented to any such amendment. The Employer shall
receive a written instrument indicating the amendment of the Plan and such
amendment shall become effective as of the date of such instrument. No
such amendment shall in any way impair, reduce or affect any Member's
vested and nonforfeitable rights in the Plan and Trust.
SECTION 11.6 SOLELY FOR BENEFIT OF MEMBERS, TERMINATED MEMBERS AND THEIR
BENEFICIARIES
-------------------------------------------------------------
No changes may be made in the Plan which shall vest in the Employer, directly
or indirectly, any interest, ownership or control in any of the present or
subsequent assets of the Trust Fund.
No part of the funds of the Trust other than such part as may be required to
pay taxes, administration expenses and fees, shall be reduced by any amendment
or be otherwise used for or diverted to purposes other than the exclusive
benefit of Members, retired Members, Former Members, and their Beneficiaries,
except as otherwise provided in Section 10.9 and under applicable law.
61
No amendment shall become effective which reduces the nonforfeitable percentage
of benefit that would be payable to any Member if his Employment were to
terminate and no amendment which modifies the method of determining that
percentage shall be made effective with respect to any Member with at least
three Years of Service unless such member is permitted to elect, within a
reasonable period after the adoption of such amendment, to have that percentage
determined without regard to such amendment.
SECTION 11.7 SUCCESSOR TO BUSINESS OF THE EMPLOYER
-------------------------------------
Unless this Plan and the related Trust Agreement be sooner terminated, a
successor to the business of the Employer by whatever form or manner resulting
may continue the Plan and the related Trust Agreement by executing appropriate
supplementary agreements and such successor shall thereupon succeed to all the
rights, powers and duties of the Employer hereunder. The Employment of any
Employee who has continued in the employ of such successor shall not be deemed
to have terminated or severed for any purpose hereunder if such supplemental
agreement so provides.
SECTION 11.8 MERGER, CONSOLIDATION AND TRANSFER
----------------------------------
The Plan shall not be merged or consolidated, in whole or in part, with any
other plan, nor shall any assets or liabilities of the Plan be transferred to
any other plan unless the benefit that would be payable to any affected Member
under such plan if it terminated immediately after the merger, consolidation or
transfer, is equal to or greater than the benefit that would be payable to the
affected Member under this Plan if it terminated immediately before the merger,
consolidation or transfer.
SECTION 11.9 REVOCABILITY
------------
This Plan is based upon the condition precedent that it shall be approved by
the Internal Revenue Service as qualified under Section 401(a) of the Code and
exempt from taxation under Section 501(a) of the Code. Accordingly,
notwithstanding anything herein to the contrary, if a final ruling shall be
received in writing from the IRS that the Plan does not initially qualify under
the terms of Sections 401(a) and 501(a) of the Code, there shall be no vesting
in any Member of assets contributed by the Employer and held by the Trustee
under the Plan. Upon receipt of notification from the IRS that the Plan fails
to qualify as aforesaid, the Employer reserves the right, at its option, to
either amend the Plan in such manner as may be necessary or advisable so that
the Plan may so qualify, or to withdraw and terminate the Plan.
62
<PAGE>
Upon the event of withdrawal and termination, the Employer shall notify the
Trustee and provide the Trustee with a copy of such ruling and the Trustee
shall transfer and pay over to the Employer all of the net assets contributed
by the Employer pursuant to the Plan which remain after deducting the proper
expense of termination and the Trust Agreement shall thereupon terminate. For
purposes of this Article XI, "final ruling" shall mean either (1) the initial
letter ruling from the District Director in response to the Employer's original
application for such a ruling, or (2) if such letter ruling is unfavorable and
a written appeal is taken or protest filed within 60 days of the date of such
letter ruling, it shall mean the ruling received in response to such appeal or
protest.
If the Plan is terminated, the Plan Administrator shall promptly notify the IRS
and such other appropriate governmental authority as applicable law may
require. Neither the Employer nor its Employees shall make any further
contributions under the Plan after the termination date, except that the
Employer shall remit to the TPA a reasonable administrative fee to be
determined by the TPA for each Member with a balance in his Account to defray
the cost of implementing its termination. Where the Employer has terminated
the Plan pursuant to this Article, the Employer may elect to transfer assets
from the Plan to a successor plan qualified under Section 401(a) of the Code in
which event the Employer shall remit to the TPA an additional administrative
fee to be determined by the TPA to defray the cost of such transfer
transaction.
63
<PAGE>
TRUSTS ESTABLISHED UNDER THE PLAN
Assets of the Plan are held in trust under separate Trust Agreements with the
Trustee or Trustees. Any Eligible Employee or Member may obtain a copy of
these Trust Agreements from the Plan Administrator.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the Plan by
the Employer, the Employer has caused these presents to be executed on its
behalf and its corporate seal to be hereunder affixed as of the day
of , 19 .
ATTEST:
By
Clerk
64
HMN Financial, Inc.
Computation of Earnings Per Common Share
(Unaudited)
<TABLE>
<CAPTION>
Computation of Earnings Per Three Months Ended Nine Months Ended
Common Share for Statements September 30, September 30,
of Operations: 1996 1995 1996 1995
- --------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ (144,527) 1,414,094 2,975,248 4,182,991
---------- ---------- ---------- ----------
Weighted average number
of common share and
common share equivalents:
Weighted average common
shares outstanding 4,185,867 5,104,878 4,474,903 5,266,435
Dilutive effect of stock
option plans after
application of treasury
stock method 20,978 35,039 6,993
---------- ---------- ---------- ----------
4,185,867 5,125,856 4,509,942 5,273,428
---------- ---------- ---------- ----------
Earnings (loss) per common
share and common share
equivalents $ (0.03) 0.28 0.66 0.79
========== ========== ========== ==========
Computation of Fully Diluted
Earnings Per Common Share and
Common Share Equivalent<F1>
- ---------------------------
Net income (loss) $ (144,527) 1,414,094 2,975,248 4,182,991
---------- ---------- ---------- ----------
Weighted average number of
common share and common
share equivalents:
Weighted average common
shares outstanding 4,185,867 5,104,878 4,474,903 5,266,435
Dilutive effect of stock
option plans after
application of treasury
stock method 51,718 41,596 51,718
---------- ---------- ---------- ----------
4,185,867 5,156,596 4,516,499 5,318,153
---------- ---------- ---------- ----------
Earnings (loss) per common
share and common share
equivalents $ (0.03) 0.27 0.66 0.79
========== ========== ========== ==========
<FN>
<F1> This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 of paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 AND
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED AND NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1150
<INT-BEARING-DEPOSITS> 16246
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 187707
<INVESTMENTS-CARRYING> 3337
<INVESTMENTS-MARKET> 3461
<LOANS> 346001
<ALLOWANCE> 2265
<TOTAL-ASSETS> 565385
<DEPOSITS> 363963
<SHORT-TERM> 51029
<LIABILITIES-OTHER> 15921
<LONG-TERM> 50804
0
0
<COMMON> 61
<OTHER-SE> 83608
<TOTAL-LIABILITIES-AND-EQUITY> 565385
<INTEREST-LOAN> 19009
<INTEREST-INVEST> 10513
<INTEREST-OTHER> 232
<INTEREST-TOTAL> 29754
<INTEREST-DEPOSIT> 14281
<INTEREST-EXPENSE> 18020
<INTEREST-INCOME-NET> 11734
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 962
<EXPENSE-OTHER> 8362
<INCOME-PRETAX> 4745
<INCOME-PRE-EXTRAORDINARY> 4745
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2975
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 7.37
<LOANS-NON> 426
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 52
<ALLOWANCE-OPEN> 2190
<CHARGE-OFFS> (150)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2265
<ALLOWANCE-DOMESTIC> 1244
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1021
</TABLE>
