S-1/A

As filed with the Securities and Exchange Commission on January 4, 2011

Registration No. 333-170215

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

PRE-EFFECTIVE AMENDMENT NO. 2 TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Fraternity Community Bancorp, Inc.

Fraternity Federal Savings and Loan Association 401(k) Plan

(Exact name of registrant as specified in its charter)

Maryland	6035	27-3683448
State or other jurisdiction of incorporation or organization	(Primary Standard Industrial Classification Code Number)	(IRS Employer Identification Number)

764 Washington Boulevard

Baltimore, Maryland 21230

(410) 539-1313

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Thomas K. Sterner

Chairman of the Board, Chief Executive Officer and Chief Financial Officer

Fraternity Community Bancorp, Inc.

764 Washington Boulevard

Baltimore, Maryland 21230

(410) 539-1313

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

Copies to:

Gary R. Bronstein, Esq. Joel E. Rappoport, Esq.	Matthew Dyckman, Esq. SNR Denton US LLP
Kilpatrick Stockton LLP	1301 K Street, NW
607 14th Street, NW, Suite 900	Suite 600, East Tower
Washington, DC 20005	Washington, DC 20005
(202) 508-5800	(202) 408-6400

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:    x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Calculation of Registration Fee

Title of each class of securities to be registered	Amount to be registered	Proposed maximum offering price per unit	Proposed maximum Aggregate offering price(1)	Amount of registration fee
Common Stock, $0.01 par value	1,587,000 shares	$10.00	$15,870,000	(2)
Participation Interests	(3)	—	(3)	(4)

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Regulation 457(o) under the Securities Act.

(2) A registration fee of $1,132.00 was paid with the initial filing of the Form S-1 Registration Statement on October 29, 2010.

(3) In addition, pursuant to Rule 416(c) under the Securities Act, this registration statement also covers an indeterminate amount of interests to be offered or sold pursuant to the employee benefit plan described herein.

(4) The securities of Fraternity Community Bancorp, Inc. to be purchased by the Fraternity Federal Savings and Loan Association 401(k) Plan are included in the common stock. Accordingly, no separate fee is required for the participation interests pursuant to Rule 457(h)(2) of the Securities Act.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION

401(k) PLAN

AND

OFFERING OF PARTICIPATION INTERESTS

IN UP TO 214,200 SHARES OF

FRATERNITY COMMUNITY BANCORP, INC.

COMMON STOCK ($.01 PAR VALUE)

This prospectus supplement relates to the offer and sale to participants in the Fraternity Federal Savings and Loan Association 401(k) Plan (the “401(k) Plan”) of participation interests in shares of common stock of Fraternity Community Bancorp, Inc. (“Fraternity Community Bancorp”) in connection with the Fraternity Community Bancorp initial public offering.

401(k) Plan participants may direct Thomas K. Sterner and Richard C. Schultze (collectively referred to herein as the “Fraternity Community Bancorp Stock Fund Trustee”), to use their account balances to subscribe for and purchase shares of Fraternity Community Bancorp common stock through the new Fraternity Community Bancorp Stock Fund in the 401(k) Plan. Based upon the value of the 401(k) plan assets as of December 14, 2010, the Fraternity Community Bancorp Stock Fund Trustee may subscribe for up to 214,200 shares of Fraternity Community Bancorp common stock at a purchase price of $10.00 per share. This prospectus supplement relates to the election of 401(k) Plan participants to direct the Fraternity Community Bancorp Stock Fund Trustee to invest all or a portion of their 401(k) Plan account balances in Fraternity Community Bancorp common stock through the new Fraternity Community Bancorp Stock Fund.

The Fraternity Community Bancorp prospectus dated                 , 2011, which we have attached to this prospectus supplement, includes detailed information regarding the offering of shares of Fraternity Community Bancorp common stock and the financial condition, results of operations and business of Fraternity Federal Savings and Loan Association (“Fraternity Federal”). This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.

Please refer to “Risk Factors” beginning on page      of the prospectus.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, nor any other state or federal agency or any state securities commission, has approved or disapproved these securities. Any representation to the contrary is a criminal offense.

These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This prospectus supplement may be used only in connection with offers and sales by Fraternity Community Bancorp of participation interests or shares of common stock under the 401(k) Plan in the offering. No one may use this prospectus supplement to re-offer or resell interests or shares of common stock acquired through the 401(k) Plan.

You should rely only on the information contained in this prospectus supplement and the attached prospectus. Neither Fraternity Community Bancorp, Fraternity Federal nor the 401(k) Plan have authorized anyone to provide you with different information.

This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of Fraternity Federal or the 401(k) Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.

The date of this Prospectus Supplement is                 , 2011.

TABLE OF CONTENTS

	Page
THE OFFERING		1
Securities Offered		1
Election to Purchase Fraternity Community Bancorp, Inc. Common Stock in the Stock Offering		1
Value of Participation Interests		2
Method of Directing Transfer		2
Time for Directing Transfer		2
Irrevocability of Transfer Direction		2
Purchase Price of Fraternity Community Bancorp, Inc. Common Stock		3
Nature of a Participant’s Interest in Fraternity Community Bancorp, Inc. Common Stock		3
Voting and Tender Rights of Fraternity Community Bancorp, Inc. Common Stock		3
Future Direction to Purchase Common Stock		3
DESCRIPTION OF THE 401(k) PLAN		4
Introduction		4
Eligibility and Participation		4
Contributions Under the 401(k) Plan		4
Limitations on Contributions		5
Investment Funds		6
Benefits Under the 401(k) Plan		10
Withdrawals and Distributions from the 401(k) Plan		10
ADMINISTRATION OF THE 401(k) PLAN		11
Trustees		11
Reports to 401(k) Plan Participants		11
Plan Administrator		11
Amendment and Termination		12
Merger, Consolidation or Transfer		12
Federal Income Tax Consequences		12
Restrictions on Resale		13
SEC Reporting and Short-Swing Profit Liability		14
Financial Information Regarding Plan Assets		14
LEGAL OPINION		15

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THE OFFERING

Securities Offered

The securities offered in connection with this prospectus supplement are participation interests in the 401(k) Plan. At a purchase price of $10.00 per share, the Fraternity Community Bancorp Stock Fund Trustee may acquire up to 214,200 shares of Fraternity Community Bancorp common stock in the stock offering (the “Stock Offering”) through the new Fraternity Community Bancorp Stock Fund. The interests offered through this prospectus supplement are conditioned on the close of the Stock Offering. Certain subscription rights and purchase limitations also govern your investment in the new Fraternity Community Bancorp Stock Fund in connection with the Stock Offering. See “The Conversion and Stock Offering – Subscription Offering and Subscription Rights” and “– Limitations on Purchases of Shares” in the prospectus attached to this prospectus supplement for further discussion of these subscription rights and purchase limitations.

This prospectus supplement contains information regarding the 401(k) Plan. The attached prospectus contains information regarding the Stock Offering and the financial condition, results of operations and business of Fraternity Federal and its affiliates. The address of the principal executive office of Fraternity Federal is 764 Washington Boulevard, Baltimore, Maryland 21230. The telephone number of Fraternity Federal is (410)  539-1313.

Election to Purchase Fraternity Community Bancorp, Inc. Common Stock in the Stock Offering

In connection with the Stock Offering, Fraternity Federal Savings and Loan Association withdrew from the Pentegra Multi-Employer Defined Contribution Plan for Financial Institutions (“Thrift Plan”) and adopted a single employer 401(k) Plan which allows for the investment in Fraternity Community Bancorp common stock through a new employer stock fund. If you wish to use all or a portion of your 401(k) Plan funds to invest in Fraternity Community Bancorp common stock, you may direct the Fraternity Community Bancorp Stock Fund Trustee to transfer all or a portion of your 401(k) Plan account balance to the Fraternity Community Bancorp Stock Fund. The Fraternity Community Bancorp Stock Fund Trustee will subscribe for Fraternity Community Bancorp common stock offered for sale in the Stock Offering in accordance with your direction. If there is not enough Fraternity Community Bancorp common stock available in the Stock Offering to fill all subscriptions, the common stock will be apportioned and the Fraternity Community Bancorp Stock Fund Trustee may not be able to purchase all of the common stock you requested. If the Stock Offering is oversubscribed and your order is cut back, your 401(k) Plan funds (which are not invested in Fraternity Community Bancorp common stock) will be reinvested in accordance with the investment elections that you have in place for your elective deferrals.

All 401(k) Plan participants are permitted to direct a transfer of all or a portion of their account balances in the 401(k) Plan into the Fraternity Community Bancorp Stock Fund. However, transfer directions are subject to subscription rights and purchase priorities. See “Summary – The Offering – Persons Who May Order Stock in the Offering” in the attached prospectus. Fraternity Community Bancorp has granted rights to subscribe for shares of Fraternity Community Bancorp common stock to the following persons in the following order of priority: (1) persons with $50 or more on deposit at Fraternity Federal as of the close of business on June 30, 2009; (2) persons with $50 or more on deposit at Fraternity Federal as of the close of business on                     , 20__; and (3) except for persons eligible to subscribe for shares under categories 1 and 3, Fraternity Federal’s depositors as of the close of business on                     , 20        , who were not able to subscribe for shares of Fraternity Community Bancorp common stock under categories 1 and 2. If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of Fraternity Community Bancorp common stock in the Stock Offering and you may use your account balance in the 401(k) Plan to subscribe for shares of Fraternity Community Bancorp common stock through the Fraternity Community Bancorp Stock Fund.

S-1

The limitations on the total amount of Fraternity Community Bancorp common stock that you may purchase in the Stock Offering, as described in the prospectus (see “The Conversion and Stock Offering – Limitations on Purchases of Shares”), will be calculated based on the aggregate amount that you subscribed for: (a) through your 401(k) Plan account and (b) through your sources of funds outside of the 401(k) Plan. Whether you place an order through the 401(k) Plan, outside the 401(k) Plan, or both, the number of shares of Fraternity Community Bancorp common stock, if any, that you receive will be determined based on the total number of subscriptions, your purchase priority and the allocation priorities described in the prospectus. If, as a result of the calculation, you are allocated insufficient shares to fill all of your orders, available shares will be allocated between orders on a pro rata basis.

Value of Participation Interests

As of December 14, 2010, the market value of the plan assets equaled approximately $2,142,000. The Plan Administrator has distributed quarterly statements to each participant reflecting the value of his or her beneficial interest in the plan as of September 30, 2010. The value of the plan assets represents past contributions made to the plan on your behalf, plus or minus earnings or losses on the contributions, less previous withdrawals.

Method of Directing Transfer

In order to facilitate your investment in the Fraternity Community Bancorp Stock Fund in connection with the Stock Offering, you must complete, sign and submit the blue form included with this prospectus supplement (the “Investment Form”). If you do not wish to invest in the Fraternity Community Bancorp Stock Fund at this time, you do not need to take any action. The minimum investment in the Fraternity Community Bancorp Stock Fund during the Stock Offering is $250 and the maximum individual investment is $400,000.

Time for Directing Transfer

The deadline to submit your Investment Form to Celeste Tolson in the Human Resources Department is 12:00 noon, local time, on             , 2011, unless extended by Fraternity Federal. If you have any questions regarding the Fraternity Community Bancorp Stock Fund, you can call Celeste Tolson at (410) 539-1313 ext. 111.

Irrevocability of Transfer Direction

Once you have submitted your Investment Form, you cannot change your direction to transfer amounts credited to your account in the 401(k) Plan to the Fraternity Community Bancorp Stock Fund. Following the closing of the Stock Offering and the initial purchase of shares in the Fraternity Community Bancorp Stock Fund, you will again have complete access to any funds you directed towards the purchase of shares of Fraternity Community Bancorp common stock in the Stock Offering. Special restrictions may apply to transfers directed to and from the Fraternity Community Bancorp Stock Fund by participants who are subject to Section 16(b) of the Securities Exchange Act of 1934, as amended. See “SEC Reporting and Short-Swing Profit Liability” below.

S-2

Purchase Price of Fraternity Community Bancorp, Inc. Common Stock

The Fraternity Community Bancorp Stock Fund Trustee will use the funds transferred to the Fraternity Community Bancorp Stock Fund to purchase shares of Fraternity Community Bancorp common stock in the Stock Offering. The Fraternity Community Bancorp Stock Fund Trustee will pay the same price for shares of Fraternity Community Bancorp common stock as all other persons who purchase shares of Fraternity Community Bancorp common stock in the Stock Offering. If there is not enough common stock available in the Stock Offering to fill all subscriptions, the common stock will be apportioned and the Trustee may not be able to purchase all of the common stock you requested. If the Stock Offering is oversubscribed and your order is cut back, your 401(k) Plan funds (which are not invested in Fraternity Community Bancorp common stock) will be reinvested in accordance with the investment elections that you have in place for your elective deferrals.

Nature of a Participant’s Interest in Fraternity Community Bancorp, Inc. Common Stock

All shares of Fraternity Community Bancorp common stock purchased through the Fraternity Community Bancorp Stock Fund will be registered in the name of the 401(k) Plan. The Fraternity Community Bancorp Stock Fund Trustee will credit the shares of Fraternity Community Bancorp common stock acquired at your direction in the Stock Offering to your account in the 401(k) Plan. Therefore, the investment designations of other 401(k) Plan participants should not affect earnings on your 401(k) Plan account.

Voting and Tender Rights of Fraternity Community Bancorp, Inc. Common Stock

The Fraternity Community Bancorp Stock Fund Trustee will exercise voting and tender rights attributable to all Fraternity Community Bancorp common stock held in the Fraternity Community Bancorp Stock Fund, as directed by participants with interests in the Fraternity Community Bancorp Stock Fund. With respect to each matter as to which holders of Fraternity Community Bancorp common stock have a right to vote, you will have voting instruction rights that reflect your proportionate interest in the Fraternity Community Bancorp Stock Fund. The number of shares of Fraternity Community Bancorp common stock held in the Fraternity Community Bancorp Stock Fund voted for and against each matter will be proportionate to the number of voting instruction rights exercised. If there is a tender offer for Fraternity Community Bancorp common stock, the 401(k) Plan allots each participant a number of tender instruction rights reflecting the participant’s proportionate interest in the Fraternity Community Bancorp Stock Fund. The percentage of shares of Fraternity Community Bancorp common stock held in the Fraternity Community Bancorp Stock Fund that will be tendered will be the same as the percentage of the total number of tender instruction rights exercised in favor of the tender offer. The remaining shares of Fraternity Community Bancorp common stock held in the Fraternity Community Bancorp Stock Fund will not be tendered.

Future Direction to Purchase Common Stock

You will be able to invest in the Fraternity Community Bancorp Stock Fund after the Stock Offering by accessing your account via the Internet and directing the trustee to invest your future contributions or your account balance in the 401(k) Plan into the Fraternity Community Bancorp Stock Fund. After the Stock Offering, to the extent that shares of common stock are available, the Trustee of the 401(k) Plan will acquire common stock of Fraternity Community Bancorp at your election in open market transactions at the prevailing price. Special restrictions may apply to transfers directed to and from the Fraternity Community Bancorp Stock Fund by the participants who are subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, relating to the purchase and sale of securities by officers, directors and principal shareholders of Fraternity Community Bancorp. In addition, if you are an officer of Fraternity Federal that is restricted by the Office of Thrift Supervision from selling shares acquired in the Stock Offering for one year, the shares you purchased in the Stock Offering will not be tradable for one year.

S-3

DESCRIPTION OF THE 401(k) PLAN

Introduction

Fraternity Federal originally adopted the Thrift Plan effective                             . In connection with the Stock Offering, Fraternity Federal withdrew from the Thrift Plan and adopted a single employer plan that permits the establishment of an employer stock fund. The new plan is effective January 1, 2011. All participant account balances from the Thrift Plan will be transferred to the new 401(k) Plan as of the January 1, 2011 effective date. Fraternity Federal intends for the 401(k) Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Fraternity Federal may change the 401(k) Plan from time to time in the future to ensure continued compliance with these laws. Fraternity Federal may also amend the 401(k) Plan from time to time in the future to add, modify, or eliminate certain features of the plan, as it sees fit. Federal law provides you with various rights and protections as a participant in the 401(k) Plan, which is governed by ERISA. However, the Pension Benefit Guaranty Corporation does not guarantee your benefits under the 401(k) Plan.

Reference to Full Text of the Plan. The following portions of this prospectus supplement summarize the material provisions of the 401(k) Plan. Fraternity Federal qualifies this summary in its entirety by reference to the full text of the 401(k) Plan. You may obtain copies of the 401(k) Plan document, including any amendments to the plan and a summary plan description, by contacting [            ] at (    )             -            . You should carefully read the 401(k) Plan documents to understand your rights and obligations under the 401(k) Plan.

Eligibility and Participation

Employees may begin participating in the 401(k) Plan on the first day of the month coinciding with or next following the date the employee completes at least 1,000 hours of service in a 12 consecutive month period.

As of September 30, 2010,              of the              eligible employees of Fraternity Federal actively participated in the Thrift Plan.

Contributions Under the 401(k) Plan

Employee Pre-Tax Salary Deferrals. Subject to certain Internal Revenue Service limitations, the 401(k) Plan permits you to make pre-tax salary deferrals each payroll period of up to 50% of your compensation. Compensation is defined for purposes of the 401(k) Plan as each participant’s Box 1, Form W-2 compensation. In addition to pre-tax salary deferrals, you may make “catch up” contributions if you are currently age 50 or will be 50 before the end of the calendar year.

S-4

Fraternity Federal Matching Contributions. The 401(k) Plan provides that Fraternity Federal will make matching contributions on behalf of each eligible participant with respect to each eligible participant’s elective deferrals. If you elect to defer funds into the 401(k) Plan, Fraternity Federal will match your contributions as follows:

Employee Deferral Rate (% of Compensation)	Employer Matching Contribution
1.0%	1.0%
2.0%	2.0%
3.0%	3.0%
4.0%	4.0%
5.0%	4.5%
6.0%	5.0%

Fraternity Federal will make matching contributions equal to 100% of the participant’s deferrals, not to exceed 4% of the participant’s compensation, plus 50% of the next 2% of the participant’s elective contributions.

Rollover Contributions. Fraternity Federal allows employees who receive a distribution from a previous employer’s tax-qualified employee benefit plan to deposit that distribution into a Rollover Contribution account under the 401(k) Plan, provided the rollover contribution satisfies IRS requirements. For additional information on Rollover Contributions see the Summary Plan Description for the 401(k) Plan.

Limitations on Contributions

Limitation on Employee Salary Deferrals. By law, your total deferrals under the 401(k) Plan, together with similar plans, may not exceed $16,500 for 2011. Eligible employees who are age 50 and over may also make additional “catch-up” contributions to the plan, up to a maximum of $5,500 for 2011. The Internal Revenue Service periodically increases these limitations. An eligible participant who exceeds these limitations must include any excess deferrals in gross income for federal income tax purposes in the year of deferral. In addition, the participant must pay federal income taxes on any excess deferrals when distributed by the 401(k) Plan to the participant, unless the plan distributes the excess deferrals and any related income no later than the first April 15th following the close of the taxable year in which the participant made the excess deferrals. Any income on excess deferrals distributed before such date is treated, for federal income tax purposes, as earned and received by the participant in the taxable year of the distribution.

Limitation on Annual Additions and Benefits. As required by the Internal Revenue Code, the 401(k) Plan provides that the total amount of contributions and forfeitures (annual additions) credited to a participant during any year under all defined contribution plans of Fraternity Federal (including the 401(k) Plan and the proposed Fraternity Federal Employee Stock Ownership Plan) may not exceed the lesser of 100% of the participant’s annual compensation or $49,000 for 2011.

Limitation on Plan Contributions for Highly Compensated Employees. Special provisions of the Internal Revenue Code limit the amount of pre-tax and matching contributions that may be made to the 401(k) Plan in any year on behalf of highly compensated employees, in relation to the amount of pre-tax and matching contributions made by or on behalf of all other employees eligible to participate in the 401(k) Plan. If pre-tax and matching contributions exceed these limitations, the plan must adjust the contribution levels for highly compensated employees.

S-5

In general, a highly compensated employee includes any employee who (1) was a 5% owner of the sponsoring employer at any time during the year or the preceding year, or (2) had compensation for the preceding year in excess of $110,000 and, if the sponsoring employer so elects, was in the top 20% of employees by compensation for such year.

The foregoing dollar amounts are for 2010.

Investment Funds

Prior to January 1, 2011, participant retirement funds were invested in the following investment vehicles through the Thrift Plan.

	Annual Rates of Return as of December 31,
Fund Name	2009			2008			2007
Target Retirement 2015 Fund		17.11	%		-22.80	%		6.20	%
Target Retirement 2025 Fund		20.75			-28.70			6.60
Target Retirement 2035 Fund		25.83			-34.20			6.80
Target Retirement 2045 Fund		26.35			-34.10			7.50
Income Plus		11.25			-7.60			6.00
Growth & Income		18.22			-20.90			5.90
Growth		25.13			-33.20			5.70
Stable Value Fund		2.19			2.90			3.80
Short Term Investment Fund (money market)		0.19			2.30			4.90
Government Short Term Investment Fund		-0.09			1.90			4.80
Treasury Inflation Protected Securities Fund		10.60			—			—
Long Treasury Index Fund (government bond)		-13.14			23.90			9.20
Aggregate Bond Index Fund		5.49			4.90			6.30
S&P 500 Fund		26.01			-37.30			4.90
S&P Value Stock Fund		20.62			-39.60			1.40
S&P Growth Stock Fund		31.92			-34.80			8.50
S&P Midcap Stock Fund		36.58			-36.50			7.40
Russell 2000 Stock Fund		26.85			-33.80			-2.10
Nasdaq 100 Stock Fund		53.98			-42.00			18.20
US REIT Index Fund		26.77			-39.30			-18.10
International Stock Fund		31.33			-43.60			10.60

S-6

In connection with the conversion from the Thrift Plan to a single employer 401(k) Plan, effective January 1, 2011 participants will be able to invest their retirement funds in the following investment vehicles.

	Annual Rates of Return as of December 31,
Fund Name	2009			2008			2007
SSgA S&P 500 Index Fund		26.71	%		-37.03	%		5.41	%
Invesco Stable Value Trust Fund		2.78			3.46			4.42
SSgA S&P MidCap Index Fund		37.25			-36.14			8.05
SSgA Short Term Investment Fund		0.59			2.67			5.37
SSgA Daily EAFE Index Fund (aka “International Stock Fund”)		31.61			-43.19			11.44
Vanguard Growth Index Fund		36.29			-38.17			12.81
Vanguard Value Index Fund		19.58			-35.83			0.29
SSgA Russell Small Cap Index Fund		26.87			-33.40			-1.55
SSgA NASDAQ 100 Index Fund		54.81			-41.72			18.89
SSgA U.S. REIT Index Fund		27.58			-38.90			-17.50
SSgA Target Retirement Funds:
Target Retirement Income		14.75			-12.89			6.37
Target Retirement 2010 Fund		14.83			-16.75			6.93
Target Retirement 2015 Fund		18.15			-22.17			7.21
Target Retirement 2020 Fund		19.90			-25.24			7.59
Target Retirement 2025 Fund		21.80			-28.06			7.72
Target Retirement 2030 Fund		23.96			-30.94			7.77
Target Retirement 2035 Fund		26.92			-33.62			7.82
Target Retirement 2040 Fund		27.06			-33.69			8.12
Target Retirement 2045 Fund		27.41			-33.55			8.46
Target Retirement 2050 Fund		27.53			-33.54			N/A
SSgA U.S. Bond Index Fund (aka “Aggregate Bond Index Fund”)		6.39			5.57			7.02
SSgA U.S. Government Short Term Investment Fund		0.31			2.31			5.28
SSgA U.S. Inflation Protected Bond Index Fund		11.29			2.36			11.59

As of January 1, 2011, participant retirement funds were invested in the following investment vehicles through the Fraternity Federal 401(k)Plan.

SSgA S&P 500 Index Fund. The Fund seeks to offer broad, low cost exposure to the stocks of large U.S. companies. The Fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the S&P 500 Index^® over the long term.

Invesco Stable Value Trust Fund. The Fund seeks the preservation of principal and to provide interest income reasonably obtained under prevailing market conditions and rates, consistent with seeking to maintain required liquidity.

SSgA S&P MidCap Index Fund. The Fund seeks to offer broad, low cost exposure to the stocks of medium sized U.S. companies. The Fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the S&P MidCap 400 Index^® over the long term.

S-7

SSgA Short Term Investment Fund. The Fund seeks to offer safety of principal and a competitive yield to maximize current income. The Fund is not a “money market fund” registered with the Securities and Exchange Commission, and is not subject to the various rules and limitations that apply to such funds. There can be no assurance that the Fund will maintain a stable net asset value.

SSgA Daily EAFE Index Fund (aka “International Stock Fund”). The Fund seeks to offer broad, low cost exposure to international stocks of companies in the developed markets of Europe, Australasia and Far East Asia. The Fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the MSCI EAFE^® Index over the long term.

Vanguard Growth Index Fund. The Fund seeks to track the performance of the MSCI U.S. Prime Market Growth Index, a broadly diversified index made up of growth stocks of large U.S. companies. The Fund invests all, or substantially all, of its assets in the stocks that make up the Index, holding each stock in approximately the same proportion as its weighting in the Index.

Vanguard Value Index Fund. The Fund seeks to track the performance of the MSCI U.S. Prime Market Value Index, a broadly diversified index predominantly made up of value stocks of large U.S. companies. The Fund invests all, or substantially all, of its assets in the stocks that make up the Index, holding each stock in approximately the same proportion as its weighting in the Index.

SSgA Russell Small Cap Index Fund. The Fund seeks to offer broad, low cost exposure to stocks of small U.S. companies. The Fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the Russell 2000^® Index over the long term.

SSgA NASDAQ 100 Index Fund. The Fund seeks to offer low cost exposure to the stocks of large, non-financial U.S. and international companies listed on the NASDAQ Stock Market. The SSgA NASDAQ 100 Index^® Fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the Nasdaq-100^® Index over the long term.

SSgA U.S. REIT Index Fund. The Fund seeks to offer broad, low cost exposure to the U.S. commercial real estate securities market. The SSgA REIT Index Fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the Dow Jones U.S. Select REIT Index^SM over the long term.

SSgA Target Retirement Funds (2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045 and 2050). The SSgA Target Retirement Funds seek an investment return that approximates, as closely as practicable, before expenses, the performance of custom benchmark index over the long term. Each Fund seeks to achieve its objective by investing in a set of underlying SSgA collective trust funds representing various asset classes. Each Fund (other than the SSgA Target Retirement Income Fund) is managed to a specific retirement year (target date) included in its name.

Overtime, the allocation to asset classes and funds change according to a predetermined “glide path.” (The glide path represents the shifting of asset classes over time and does not apply to the Income Fund.) Each Fund’s asset allocation will become more conservative as it approaches its target retirement date. This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of a portfolio, which may be a primary source of income after retiring. The allocations reflected in the glide path do not reflect tactical decisions made by SSgA to overweight or underweight a particular asset class based on its market outlook but rather management of each fund’s strategic allocation according to its glide path and applicable benchmark. Each Fund attempts to closely match the characteristics and returns of its custom benchmark as opposed to any attempts to outperform this benchmark.

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Once a Fund reaches its target retirement date, it will begin a five-year transition period to the SSgA Target Retirement Income Fund resulting at the end of that five-year period in an allocation to stocks and real estate that will remain fixed at approximately 35% of assets. The remainder of the Fund will be invested in fixed-income securities.

SSgA U.S. Bond Index Fund (aka “Aggregate Bond Index Fund”). The Fund seeks to offer broadly diversified, low cost exposure to the overall U.S. bond market. The Fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the Barclays Capital U.S. Aggregate Bond Index over the long term.

SSgA U.S. Government Short Term Investment Fund. The Fund seeks to offer safety of principal and a competitive yield by investment in securities issued by the U.S. Government. The Fund seeks to provide safety of principal, daily liquidity and a competitive yield over the long term. The Fund is not a “money market fund” registered with the Securities and Exchange Commission, and is not subject to the various rules and limitations that apply to such funds. There can be no assurance that the Fund will maintain a stable net asset value.

SSgA U.S. Inflation Protected Bond Index Fund. The Fund seeks to offer broad, low cost exposure to U.S. Treasury bonds which automatically adjust to protect from increases in inflation. The Fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the Barclays Capital U.S. Treasury Inflation Protected Securities Index over the long term.

Fraternity Community Bancorp Stock Fund. In connection with the Stock Offering, Fraternity Federal has implemented the Fraternity Community Bancorp Stock Fund. Following the close of the Stock Offering, the Fraternity Community Bancorp Stock Fund will consist of investments in the common stock of Fraternity Community Bancorp made on the closing date of the Stock Offering. Your investment in the Fraternity Community Bancorp Stock Fund will be recorded using the unit accounting method. If cash dividends are paid on Fraternity Community Bancorp common stock, the trustee will, to the extent practicable, use the dividends held in the Fraternity Community Bancorp Stock Fund to purchase shares of the common stock. Pending investment in the common stock, assets held in the Fraternity Community Bancorp Stock Fund will be placed in the short term investment component of the Fraternity Community Bancorp Stock Fund earning a market rate of interest.

As of the date of this prospectus supplement, no shares of Fraternity Community Bancorp common stock have been issued or are outstanding, and there is no established market for Fraternity Community Bancorp common stock. Accordingly, there is no record of the historical performance of the Fraternity Community Bancorp Stock Fund. Performance of the Fraternity Community Bancorp Stock Fund depends on a number of factors, including the financial condition and profitability of Fraternity Federal and general stock market conditions. See “Risk Factors” in the attached prospectus.

Once you have submitted your Investment Form, you may not change your investment directions in the Stock Offering.

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Benefits Under the 401(k) Plan

Vesting. All participants are 100% vested in their pre-tax salary deferrals and employer matching contribution. This means that participants have a non-forfeitable right to these funds and any earnings on the funds at all times.

Withdrawals and Distributions from the 401(k) Plan

Withdrawals Before Termination of Employment. While in active service, participants may take one non-hardship withdrawal from the 401(k) Plan per plan year (subject to the restrictions set forth in the 401(k) Plan). A participant may also take one hardship withdrawal per plan year, provided the participant has a hardship event as defined by the Internal Revenue Service regulations and subject to approval by the Fraternity Federal Compensation Committee.

Distribution Upon Retirement, Death or Disability. If a participant’s accounts are $500 or less upon termination of employment, payment will be in the form of a lump sum as of a valuation date as soon thereafter as administratively possible. If a participant’s accounts exceed $500 and are $5,000 or less upon termination of employment, and the participant does not elect to have his/her distribution paid, payment will be in the form of a Direct Rollover to an individual retirement plan designated by the Plan Administrator.

If termination of employment is due to Normal or Postponed Retirement, Death, or Total and Permanent Disability (as defined in the 401(k) Plan), and a participant’s account exceeds $5,000, distribution of the participant’s accounts will be in the form of a lump sum payment, upon the participant’s attainment of Normal Retirement Date, unless the participant elects (within 30 days of receipt of an election notice) to further defer distribution beyond Normal Retirement Date to a Postponed Retirement Date (subject to an Internal Revenue Service minimum distribution of benefits requirement following attainment of age 70 ¹/2), or unless the participant elects one of the following optional forms of payment:

• Lump sum payment or in annual installments over a period not exceeding the participant’s life expectancy or the joint and survivor life expectancy of the participants and his/her designated beneficiary, as selected by the participant as of any valuation date following the date of termination of employment. (Note: lump sums are subject to a mandatory 20% income tax withholding and a statutory 10% additional federal tax if paid before age 55). A participant “Rollover” within 60 days of distribution to an Individual Retirement Account (IRA), or another employer’s plan (if permitted by that plan).

• Direct “Rollover” from the 401(k) Plan to another employer’s plan (if permitted by that plan) for accounts which are lesser or greater than $5,000.

Distribution Upon Termination for Any Other Reason. If a participant’s accounts are $500 or less upon termination of employment, payment will be in the form of a lump sum as of a valuation date as soon thereafter as administratively possible. If a participant’s accounts exceed $500 and are $5,000 or less upon termination of employment, and the participant does not elect to have his/her distribution paid, payment will be in the form of a Direct Rollover to an individual retirement plan designated by the Plan Administrator.

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If upon termination of employment, a participant’s accounts exceed $5,000, payment will be deferred to Normal Retirement Date, unless the participant elects one of the following optional forms of payment:

• Lump sum payment as of any valuation date following the date of termination of employment. (Note: lump sums are subject to a mandatory 20% income tax withholding and a statutory 10% additional federal tax if paid before age 55). A participant “Rollover” is permitted within 60 days of distribution to an Individual Retirement Account (IRA), or another employer’s plan (if permitted by that plan).

• Direct “Rollover” from the 401(k) Plan to another employer’s plan (if permitted by that plan) for accounts which are lesser or greater than $5,000.

Nonalienation of Benefits. Except with respect to federal income tax withholding, and as provided for under a qualified domestic relations order, benefits payable under the 401(k) Plan will not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the 401(k) Plan will be void.

Applicable federal tax law requires the 401(k) Plan to impose substantial restrictions on your right to withdraw amounts held under the 401(k) Plan before your termination of employment with Fraternity Federal. Federal law may also impose an excise tax on withdrawals from the 401(k) Plan before you attain 59 ¹/2 years of age, regardless of whether the withdrawal occurs during your employment with Fraternity Federal or after termination of employment.

ADMINISTRATION OF THE 401(k) PLAN

Trustees

The board of directors of Fraternity Federal has appointed Thomas K. Sterner and Richard C. Schultze to serve as the Trustees for the Fraternity Community Bancorp Stock Fund. Reliance Trust Company will serve as the custodian of the shares held in the Fraternity Community Bancorp Stock Fund and the trustee of all the other plan assets. The trustees receive, hold and invest the contributions to the 401(k) Plan in trust and distribute them to participants and beneficiaries in accordance with the terms of the 401(k) Plan and the directions of the Plan Administrator. The trustees are responsible for the investment of the trust assets, as directed by the Plan Administrator and the participants.

Reports to 401(k) Plan Participants

The Plan Administrator furnishes participants quarterly statements that show the balance in their accounts as of the statement date, contributions made to their accounts during that period and any additional adjustments required to reflect earnings or losses.

Plan Administrator

Fraternity Federal currently serves as Plan Administrator for the 401(k) Plan. The Plan Administrator handles the following administrative functions: interpreting the provisions of the plan, prescribing procedures for filing applications for benefits, preparing and distributing information explaining the plan, maintaining plan records, books of account and all other data necessary for the proper

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administration of the plan, preparing and filing all returns and reports required by the U.S. Department of Labor and the IRS and making all required disclosures to participants, beneficiaries and others under ERISA.

Amendment and Termination

Fraternity Federal expects to continue the 401(k) Plan indefinitely. Nevertheless, Fraternity Federal may terminate the 401(k) Plan at any time. If Fraternity Federal terminates the 401(k) Plan in whole or in part, all affected participants become fully vested in their accounts, regardless of other provisions of the 401(k) Plan. Fraternity Federal reserves the right to make, from time to time, changes which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries. Fraternity Federal may amend the plan, however, as necessary or desirable, in order to comply with ERISA or the Internal Revenue Code.

Merger, Consolidation or Transfer

If the 401(k) Plan merges or consolidates with another plan or transfers the trust assets to another plan, and either the 401(k) Plan or the other plan is subsequently terminated, the 401(k) Plan requires that you receive a benefit immediately after the merger, consolidation or transfer that would equal or exceed the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer, if the 401(k) Plan had terminated at that time.

Federal Income Tax Consequences

The following briefly summarizes the material federal income tax aspects of the 401(k) Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences of the 401(k) Plan. Statutory provisions change, as do their interpretation, and their application may vary in individual circumstances. Finally, applicable state and local income tax laws may have different tax consequences than the federal income tax laws. 401(k) Plan participants should consult a tax advisor with respect to any transaction involving the 401(k) Plan, including any distribution from the 401(k) Plan.

As a “tax-qualified retirement plan,” the Internal Revenue Code affords the 401(k) Plan certain tax advantages, including the following:

(1) the sponsoring employer may take an immediate tax deduction for the amount contributed to the plan each year;

(2) participants pay no current income tax on amounts contributed by the employer on their behalf; and

(3) earnings of the plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.

Fraternity Federal administers the 401(k) Plan to comply in operation with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law. If Fraternity Federal should receive an adverse determination letter from the Internal Revenue Service regarding the 401(k) Plan’s tax exempt status, all participants would generally recognize income equal to their vested interests in the 401(k) Plan, the participants would not be permitted to transfer amounts distributed from the 401(k) Plan to an Individual Retirement Account or to another qualified retirement plan, and Fraternity Federal would be denied certain tax deductions taken in connection with the 401(k) Plan.

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Lump Sum Distribution. A distribution from the 401(k) Plan to a participant or the beneficiary of a participant qualifies as a lump sum distribution if it is made within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant attains age 59 ¹/2; and consists of the balance credited to the participant under this plan and all other profit sharing plans, if any, maintained by Fraternity Federal. The portion of any lump sum distribution included in taxable income for federal income tax purposes consists of the entire amount of the lump sum distribution, less the amount of after-tax contributions, if any, made to any other profit-sharing plans maintained by Fraternity Federal, if the distribution includes those amounts.

Fraternity Community Bancorp Common Stock Included in Lump Sum Distribution. If a lump sum distribution includes Fraternity Community Bancorp common stock, the distribution generally is taxed in the manner described above. The total taxable amount is reduced, however, by the amount of any net unrealized appreciation on Fraternity Community Bancorp common stock; that is, the excess of the value of Fraternity Community Bancorp common stock at the time of the distribution over the cost or other basis of the securities to the trust. The tax basis of Fraternity Community Bancorp common stock, for purposes of computing gain or loss on a subsequent sale, equals the value of Fraternity Community Bancorp common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of Fraternity Community Bancorp common stock, to the extent of the net unrealized appreciation at the time of distribution, is long-term capital gain, regardless of how long you hold the Fraternity Community Bancorp common stock, or the “holding period.” Any gain on a subsequent sale or other taxable disposition of Fraternity Community Bancorp common stock that exceeds the amount of net unrealized appreciation upon distribution is considered long-term capital gain, regardless of the holding period. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed under IRS regulations.

We have provided you with a brief description of the material federal income tax aspects of the 401(k) Plan that are generally applicable under the Internal Revenue Code. We do not intend this description to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the 401(k) Plan. Accordingly, you should consult a tax advisor concerning the federal, state and local tax consequences of participating in and receiving distributions from the 401(k) Plan.

Restrictions on Resale

Any “affiliate” of Fraternity Community Bancorp under Rules 144 and 405 of the Securities Act of 1933, as amended, who receives a distribution of common stock under the 401(k) Plan, may re-offer or resell such shares only under a registration statement filed under the Securities Act of 1933, as amended, assuming the availability of a registration statement, or under Rule 144 or some other exemption from these registration requirements. An “affiliate” of Fraternity Community Bancorp is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, Fraternity Community Bancorp. Generally, a director, principal officer or major shareholder of a corporation is deemed to be an “affiliate” of that corporation.

Any person who may be an “affiliate” of Fraternity Community Bancorp may wish to consult with counsel before transferring any common stock they own. In addition, participants should consult with counsel regarding the applicability to them of Section 16 of the Securities Exchange Act of 1934, as amended, which may restrict the sale of Fraternity Community Bancorp common stock acquired under the 401(k) Plan or other sales of Fraternity Community Bancorp common stock.

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Persons who are not deemed to be “affiliates” of Fraternity Community Bancorp at the time of resale may resell freely any shares of Fraternity Community Bancorp common stock distributed to them under the 401(k) Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, or compliance with the restrictions and conditions contained in the exemptions available under federal law. A person deemed an “affiliate” of Fraternity Community Bancorp at the time of a proposed resale may publicly resell common stock only under a “re-offer” prospectus or in accordance with the restrictions and conditions contained in Rule 144 of the Securities Act of 1933, as amended, or some other exemption from registration, and may not use this prospectus supplement or the accompanying prospectus in connection with any such resale. In general, Rule 144 restricts the amount of common stock which an affiliate may publicly resell in any three-month period to the greater of 1% of Fraternity Community Bancorp common stock then outstanding or the average weekly trading volume reported on the Nasdaq Capital Market during the four calendar weeks before the sale. Affiliates may sell only through brokers without solicitation and only at a time when Fraternity Community Bancorp is current in filing all required reports under the Securities Exchange Act of 1934, as amended.

SEC Reporting and Short-Swing Profit Liability

Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors and persons who beneficially own more than 10% of public companies such as Fraternity Community Bancorp. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), such person must file a Form 3 reporting initial beneficial ownership with the Securities and Exchange Commission (“SEC”). Such persons must also report periodically certain changes in beneficial ownership involving the allocation or reallocation of assets held in their 401(k) Plan accounts, either on a Form 4 within two business days after a transaction, or annually on a Form 5 within 45 days after the close of a company’s fiscal year.

In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by Fraternity Community Bancorp of profits realized from the purchase and sale or sale and purchase of its common stock within any six-month period by any officer, director or person who beneficially owns more than 10% of the common stock.

The SEC has adopted rules that exempt many transactions involving the 401(k) Plan from the “short-swing” profit recovery provisions of Section 16(b). The exemptions generally involve restrictions upon the timing of elections to buy or sell employer securities for the accounts of any officer, director or person who beneficially owns more than 10% of the common stock of a company.

Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are subject to Section 16(b) may be required, under limited circumstances involving the purchase of common stock within six months of the distribution, to hold the shares of common stock distributed from the 401(k) Plan for six months after the distribution date.

Financial Information Regarding Plan Assets

Financial information representing the net assets available for 401(k) Plan benefits and the change in net assets available for 401(k) Plan benefits at December 31, 2010, is available upon written request to Celeste Tolson in the Human Resources Department of Fraternity Federal.

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LEGAL OPINION

The validity of the issuance of the common stock of Fraternity Community Bancorp will be passed upon by Kilpatrick Townsend & Stockton LLP, Washington, DC. Kilpatrick Townsend & Stockton LLP acted as special counsel for Fraternity Community Bancorp in connection with the Stock Offering.

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PROSPECTUS

[LOGO]

Fraternity Community Bancorp, Inc.

(Proposed Holding Company for Fraternity Federal Savings and Loan Association)

Minimum of 1,020,000 and Up to 1,380,000 Shares of Common Stock

Fraternity Community Bancorp, Inc. is offering shares of its common stock for sale in connection with the conversion of Fraternity Federal Savings and Loan Association from the mutual to the stock form of ownership. After the offering, Fraternity Community Bancorp will be the holding company for Fraternity Federal Savings and Loan Association through its ownership of 100% of Fraternity Federal Savings and Loan Association’s outstanding common stock. We intend to have our common stock quoted on the OTC Bulletin Board.

If you are or were a depositor of Fraternity Federal Savings and Loan Association:

• You may have priority rights to purchase shares of common stock.

If you do not fit into the category above, but are interested in purchasing shares of our common stock:

• You may have an opportunity to purchase shares of common stock after priority orders are filled.

We are offering up to 1,380,000 shares of common stock for sale on a best efforts basis, subject to certain conditions. We must sell a minimum of 1,020,000 shares to complete the offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, the independent appraiser determines that our pro forma market value has increased, we may sell up to 1,587,000 shares without giving you further notice or the opportunity to change or cancel your order. If our pro forma market value at the end of the stock offering period is either below $10.2 million or above $15.87 million, then, after consulting with the Office of Thrift Supervision, we may: (i) terminate the stock offering and promptly return all funds, with interest and without deduction; (ii) set a new offering range, while retaining the $10.00 per share offering price, and give all subscribers the opportunity to confirm, modify or rescind their stock purchase orders; or (iii) take such other actions as may be permitted by the Office of Thrift Supervision, the Securities Exchange Commission and any applicable state securities commissions.

The offering is expected to expire at 2:00 p.m., Eastern time, on [EXP DATE]. We may extend this expiration date without notice to you until [DATE 1], unless the Office of Thrift Supervision approves a later date, which will not be beyond [DATE 2].

Sandler O’Neill + Partners, L.P. will use its best efforts to assist us in our selling efforts, but is not required to purchase any of the common stock that is being offered for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering. All shares offered for sale are offered at a price of $10.00 per share.

The minimum purchase is 25 shares. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond [DATE 1]. If the offering is extended beyond [DATE 1], subscribers will have the right to modify or rescind their purchase orders. Funds received before the completion of the offering will be maintained in a segregated account at Fraternity Federal Savings and Loan Association. All funds received will bear interest at Fraternity Federal Savings and Loan Association’s passbook savings rate, which is subject to change at any time and is currently         % per annum. If we terminate the offering for any reason, or if we extend the offering beyond [DATE 1], we will notify you and will promptly return your funds with interest if you do not respond to the notice.

The Office of Thrift Supervision conditionally approved our plan of conversion on                     . However, such approval does not constitute a recommendation or endorsement of this offering.

This investment involves a degree of risk, including the possible loss of principal.

Please read “Risk Factors” beginning on page     .

OFFERING SUMMARY

Price Per Share: $10.00

	Minimum		Maximum		Maximum, as Adjusted
Number of shares		1,020,000		1,380,000		1,587,000
Gross offering proceeds	$	10,200,000	$	13,800,000	$	15,870,000
Estimated offering expenses, excluding selling agent fees and expenses	$	550,000	$	550,000	$	550,000
Estimated selling agent fees and expenses	$	250,000	$	250,000	$	250,000
Estimated net proceeds	$	9,400,000	$	13,000,000	$	15,070,000
Estimated net proceeds per share	$	9.22	$	9.42	$	9.50

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

For assistance, please contact the stock information center at (        )         -            

SANDLER O’NEILL + PARTNERS, L.P.

The date of this prospectus is                     

TABLE OF CONTENTS

	PAGE
Summary		1
Risk Factors		12
A Warning About Forward-Looking Statements		21
Selected Consolidated Financial and Other Data		22
Use of Proceeds		24
Our Dividend Policy		25
Market for the Common Stock		26
Capitalization		27
Regulatory Capital Compliance		29
Pro Forma Data		30
Our Business		35
Management’s Discussion and Analysis of Financial Condition and Results of Operations		43
Our Management		75
Subscriptions by Executive Officers and Directors		85
Regulation and Supervision		86
Federal and State Taxation		94
The Conversion and Stock Offering		96
Restrictions on the Acquisition of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association		114
Description of Fraternity Community Bancorp Capital Stock		118
Transfer Agent and Registrar		119
Registration Requirements		119
Legal and Tax Opinions		119
Experts		119
Where You Can Find More Information		119
Index to Consolidated Financial Statements of Fraternity Federal Savings and Loan Association		121

Summary

This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the stock offering fully, you should read this entire document carefully. In certain instances where appropriate, the terms “we,” “us” and “our” refer to Fraternity Community Bancorp and/or Fraternity Federal Savings and Loan Association, as indicated by context. For assistance, please contact our conversion center at (        )         -            .

The Companies

Fraternity Community Bancorp, Inc.

Fraternity Federal Savings and Loan Association

764 Washington Boulevard

Baltimore, Maryland 21230

(410) 539-1313

Fraternity Community Bancorp, Inc. This offering is made by Fraternity Community Bancorp, a Maryland corporation incorporated on October 12, 2010 by Fraternity Federal Savings and Loan Association to be its holding company following the conversion. Currently, Fraternity Community Bancorp has no assets. Following the conversion, Fraternity Community Bancorp will own all of Fraternity Federal Savings and Loan Association’s capital stock and will direct, plan and coordinate Fraternity Federal Savings and Loan Association’s business activities. In the future, Fraternity Community Bancorp might also acquire or organize other operating subsidiaries, including other financial institutions or financial services companies, although it currently has no specific plans or agreements to do so.

Fraternity Federal Savings and Loan Association. Founded in 1913, Fraternity Federal Savings and Loan Association is a community-oriented financial institution, dedicated to serving the financial service needs of customers and businesses within its market area, which consists of Baltimore City and Baltimore, Carroll and Howard Counties in Maryland. We offer a variety of deposit products and provide loans secured by real estate located in our market area. Our real estate loans consist primarily of one- to four-family mortgage loans, as well as commercial real estate loans, land loans, home equity lines of credit and residential construction loans. We also offer consumer loans and, to a limited extent, commercial business loans. We currently operate out of our corporate headquarters and main office in Baltimore and full-service branch offices located in Cockeysville, Ellicott City and Hampstead, Maryland. We are subject to extensive regulation, examination and supervision by the Office of Thrift Supervision, our primary federal regulator, and the Federal Deposit Insurance Corporation, our deposit insurer. At September 30, 2010, we had total assets of $166.5 million, total deposits of $125.7 million and total equity of $16.4 million.

Recent Operating Results and Operating Strategy (page       )

We had net income of $343,000 and $8,000 for the years ended December 31, 2009 and 2008, respectively. We had a net loss of $572,000 for the nine months ended September 30, 2010. We have identified the following strategic initiatives we will pursue in our efforts to achieve our mission to operate and grow a profitable community-oriented financial institution:

• building on our strengths as a community-oriented financial institution;

• improving our interest margin and earnings and reducing our interest rate risk by increasing commercial real estate loans;

• emphasizing lower cost core deposits to reduce funding costs;

• generating higher non-interest income by selling loans in the secondary market;

• adding a new branch in our existing market area or a contiguous county within the next three years;

• expanding our market share within our primary market area; and

• discontinued speculative construction lending.

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The Conversion

Description of the Conversion (page       )

Currently, we are a federally chartered mutual savings association with no shareholders. Our depositors and borrowers currently have the right to vote on certain matters such as the election of directors and this conversion transaction. The conversion transaction that we are undertaking involves a change from our mutual form to a stock savings association charter that will result in all of Fraternity Federal Savings and Loan Association’s capital stock being owned by Fraternity Community Bancorp. Voting rights in Fraternity Community Bancorp will belong to its shareholders, including our employee stock ownership plan. For more information on the employee stock ownership plan, see “Summary—The Offering—Benefits of the Offering to Management—Employee Stock Ownership Plan.”

We are conducting the conversion under the terms of our plan of conversion. The Office of Thrift Supervision has conditionally approved the plan of conversion, including a condition that it be approved by our members. We have called a special meeting of members for [MEETING DATE] to vote on the plan of conversion.

The following diagram depicts our corporate structure after the conversion and offering, including the number and percentage of shares of common stock that will be owned by public shareholders at the minimum, maximum, and maximum, as adjusted, of the offering range upon completion of the conversion and the offering:

Regulation and Supervision (page       )

We are, and Fraternity Community Bancorp will be upon completion of the conversion, subject to regulation, supervision and examination by the Office of Thrift Supervision. We are also subject to regulation by the Federal Deposit Insurance Corporation. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), signed by the President on July 21, 2010, provides for the regulation and supervision of federal savings associations like Fraternity Federal Savings and Loan Association to be transferred to the Office of the Comptroller of the Currency, the agency that regulates national banks. The Office of the Comptroller of the Currency will assume primary responsibility for implementing and enforcing many of the laws and regulations applicable to federal savings associations. The transfer will occur over a transition period of up to one year, subject to a possible six month extension. At the same time, the responsibility for supervising savings and loan holding companies will be transferred to the Federal Reserve Board.

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The Offering

Purchase Price

The purchase price is $10.00 per share. You will not pay a commission to buy any shares in the offering.

Number of Shares to be Sold

We are offering for sale between 1,020,000 and 1,380,000 shares of Fraternity Community Bancorp common stock in a subscription offering, community offering and possibly a syndicated offering. With regulatory approval, we may increase the number of shares to be sold to 1,587,000 shares without giving you further notice or the opportunity to change or cancel your order. In considering whether to permit an increase in the offering size, the Office of Thrift Supervision will consider such factors as the level of subscriptions, the views of our independent appraiser, our financial condition and results of operations and changes in market conditions.

How We Determined the Offering Range (page       )

We are offering between 1,020,000 and 1,380,000 shares, which is our offering range, based on an independent appraisal of our pro forma market value prepared by Feldman Financial Advisors, Inc., an independent appraisal firm experienced in appraisals of financial institutions. Feldman Financial Advisors estimates that as of December 3, 2010, our pro forma market value was between $10.2 million and $13.8 million, with a midpoint of $12.0 million.

In preparing its appraisal, Feldman Financial Advisors considered the information in this prospectus, including our consolidated financial statements. Feldman Financial Advisors also considered the following factors, among others:

• our present and projected operating results and financial condition;

• the economic and demographic conditions of our primary market area;

• pertinent historical financial and other information relating to Fraternity Federal Savings and Loan Association;

• a comparative evaluation of our operating and financial statistics with those of other thrift institutions;

• the proposed price per share;

• the aggregate size of the offering of common stock;

• the impact of the conversion on our capital position and earnings potential; and

• the trading market for securities of comparable institutions and general conditions in the market for such securities.

Two measures that some investors use to analyze whether a stock might be a good investment are the ratio of the offering price to the issuer’s “book value” and the ratio of the offering price per share to the issuer’s income per share for the past twelve months. Feldman Financial Advisors considered these ratios, among other factors, in preparing its appraisal. Book value is the same as total equity and represents the difference between the issuer’s assets and liabilities. Feldman Financial Advisors’ appraisal also incorporates an analysis of a peer group of publicly traded companies that Feldman Financial Advisors considered to be comparable to us. In choosing the peer group, Feldman Financial Advisors selected companies with operating characteristics comparable to those of Fraternity Federal Savings and Loan Association based on measures of asset size, profitability, credit quality, and capitalization. Similar to our recent earnings performance, the peer group’s earning results were below the median levels reported by all publicly traded savings institutions. We have had losses and low earnings in recent periods, including a net loss of $572,000 for the nine months ended September 30, 2010 and net income of $343,000 and $8,000 for the years ended December 31, 2009 and 2008, respectively. In order to select a meaningful number of companies for the peer group, Feldman Financial Advisors applied a selection criteria that included a return on average assets of 0.25% or less for the most recent 12-month period. The median return on average assets of 0.07% for the peer group was below the median of 0.35% reported by all publicly traded institutions.

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The following table presents a summary of selected pricing ratios for the peer group companies and for us utilized by Feldman Financial Advisors in its appraisal. These ratios are based on book value and tangible book value as of September 30, 2010 or, in the case of one peer group company, June 30, 2010, the latest date for which complete financial data was publicly available for the peer group.

	Price to Book Value Ratio			Price to Tangible Book Value Ratio
Fraternity Community Bancorp (pro forma):
Minimum		41.4	%		41.4	%
Midpoint		45.8			45.8
Maximum		49.7			49.7
Maximum, as adjusted		53.6			53.6
Peer group companies as of December 3, 2010:
Average		57.4			58.0
Median		56.6			56.6

We reported negative earnings for the most recent twelve months ended September 30, 2010. Thus, comparisons to peer group ratios related to earnings are not meaningful. Compared to the average pricing ratios of the peer group at the maximum of the offering range, our stock would be priced at a discount of 14.3% to the peer group on a price-to-book basis and a discount of 13.4% on a price-to-tangible book basis. This means that, at the maximum of the offering rate, a share of our common stock would be less expensive than the peer group based on a book value per share basis.

The independent appraisal does not establish the market price at which our common stock will trade. You should not assume or expect that the valuation described above means that our common stock will trade at or above the $10.00 purchase price after the offering.

Possible Change in Offering Range (page       )

Feldman Financial Advisors will update its appraisal before we complete the stock offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, Feldman Financial Advisors determines that our pro forma market value has increased, with regulatory approval we may sell up to 1,587,000 shares without further notice to you. If our pro forma market value at the end of the stock offering period is either below $10.2 million or above $15.87 million, then, after consulting with the Office of Thrift Supervision, we may: (i) terminate the stock offering and promptly return all funds, with interest and without deduction; (ii) set a new offering range, while retaining the $10.00 per share offering price, and give all subscribers the opportunity to confirm, modify or rescind their purchase orders for shares of Fraternity Community Bancorp’s common stock; or (iii) take such other actions as may be permitted by the Office of Thrift Supervision, the Securities and Exchange Commission and any applicable state securities commissions.

Possible Termination of the Offering

We must sell a minimum of 1,020,000 shares to complete the offering. If we do not sell the minimum number of shares, or if we terminate the offering for any other reason, we will promptly return all funds, with interest, at our current passbook rate, and without deduction.

After-Market Performance of Mutual to Stock Conversions

The appraisal prepared by Feldman Financial Advisors includes examples of after-market stock price performance for standard mutual to stock conversion offerings (i.e., excluding “second step” conversions by mutual holding companies) completed between January 1, 2009 and December 3, 2010. These companies did not constitute the group of ten comparable public companies utilized in Feldman Financial Advisors’ valuation analysis.

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					Percentage Change from Initial Offering Price
Issuer (Market/Symbol)	Date of IPO		Offering Size (In Millions)		After 1 Day			After 1 Week			After 1 Month			Through December 3, 2010
SP Bancorp, Inc. (NASDAQ/PBC)		11/01/10	$	17.3		(6.0	)%		(6.2	)%		(9.9	)%		(8.5	)%
Madison Bancorp, Inc. (OTCBB/MDSN)		10/07/10		6.1		0.0			0.0			0.0			5.0
Standard Financial Corp. (NASDAQ/STND)		10/07/10		34.8		19.0			18.5			29.5			36.3
Century Next Financial Corporation (OTCBB/CTUY)		10/01/10		10.6		0.0			(5.0	)		5.0			12.0
United-American Savings Bank (OTCBB/UASB)		08/06/10		3.0		0.0			(5.0	)		5.0			1.0
Peoples Federal Bancshares, Inc. (NASDAQ/PEOP)		07/07/10		66.1		4.0			7.5			4.2			22.7
Fairmount Bancorp, Inc. (OTCBB/FMTB)		06/03/10		4.4		0.0			5.0			5.0			25.0
Harvard Illinois Bancorp, Inc. (OTCBB/HARI)		04/09/10		7.8		0.0			0.0			(1.0	)		(49.3	)
OBA Financial Services, Inc. (NASDAQ/OBAF)		01/22/10		46.3		3.9			1.5			3.0			25.9
OmniAmerican Bancorp, Inc. (NASDAQ/OABC)		01/21/10		119.0		18.5			14.0			9.9			25.6
Versailles Financial Corporation (OTCBB/VERF) (1)		01/11/10		4.3		0.0			0.0			0.0			0.0
Athens Bancshares Corporation (NASDAQ/AFCB)		01/07/10		26.8		16.0			15.0			10.6			15.1
Territorial Bancorp, Inc. (NASDAQ/TBNK)		07/13/09		122.3		49.9			47.2			48.0			89.4
St. Joseph Bancorp, Inc. (PINK SHEETS/SJBA) (1)		02/02/09		3.8		0.0			0.0			0.0			0.0
Hibernia Homestead Bancorp, Inc. (OTCBB/HIBE)		01/28/09		11.1		0.0			5.0			5.0			45.0
All Transactions:
Average		N/A		32.2		7.0			6.5			8.0			16.3
Median		N/A		11.1		0.0			1.5			5.0			15.1
High		N/A		122.3		49.9			47.2			48.0			89.4
Low		N/A		3.0		(6.0	)		(6.2	)		(9.9	)		(49.3	)
OTCBBB/Pink Sheets Transactions:
Average		N/A		6.4		0.0			0.0			3.0			4.8
Median		N/A		7.8		0.0			0.0			2.5			3.0
High		N/A		11.1		0.0			5.0			10.0			45.0
Low		N/A		3.0		0.0			(5.0	)		(1.0	)		(49.3	)

(1) There were no reported trades of this common stock issue through December 3, 2010.

This table is not intended to indicate how our stock may perform. Furthermore, this table presents only short-term price performance with respect to a limited number of companies that have only recently completed their initial public offerings and may not be indicative of the longer-term stock price performance of these companies.

Stock price appreciation or depreciation is affected by many factors, including, but not limited to: general market and economic conditions; the interest rate environment; the amount of proceeds a company raises in its offering and its ability to successfully deploy those proceeds through originating loans and making other investments; and numerous factors relating to the specific company, including the experience and ability of management, historical and anticipated operating results, the nature and quality of the company’s assets, and the company’s primary market area. The companies listed in the table above may not be similar to Fraternity Community Bancorp, the pricing ratios for their stock offerings were in some cases different from the pricing ratios for Fraternity Community Bancorp’s common stock and the market conditions in which these offerings were completed were, in some cases, different from current market conditions. Any or all of these differences may cause our stock to perform differently from these other offerings. Before you make an investment decision, we urge you to read carefully this prospectus, including, but not limited to, the section entitled “Risk Factors.”

You also should be aware that, recently, stock prices of some thrift initial public offerings have decreased once the stock has begun trading. We cannot assure you that our stock will not trade below the $10.00 purchase price or that our stock will perform similarly to other recent mutual to stock conversions.

Conditions to Completing the Conversion and Offering

We are conducting the conversion and offering under the terms of our plan of conversion. We cannot complete the conversion and offering unless:

• we sell at least the minimum number of shares offered;

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• we receive the final approval of the Office of Thrift Supervision to complete the offering; and

• our members approve the plan of conversion.

Reasons for the Conversion and Offering (page       )

Our primary reasons for the conversion and offering are to:

• increase the capital of Fraternity Federal Savings and Loan Association to support future lending;

• enhance profitability and earnings through reinvesting and leveraging the proceeds, primarily through traditional lending and investing activities;

• support future branching activities and/or the acquisition of other financial institutions or financial services companies; and

• implement equity compensation plans to retain and attract qualified directors, officers and staff to enhance our current incentive-based compensation programs.

Benefits of the Offering to Management (page       )

We intend to adopt the following benefit plans and employment agreements:

Employee Stock Ownership Plan. We have adopted an employee stock ownership plan that we anticipate will purchase in the conversion offering a number of shares of common stock equal to 8% of the shares sold in the offering by means of a 12-year loan from Fraternity Community Bancorp. As the loan is repaid and shares are released from collateral, the plan will allocate shares to the accounts of participating employees. Participants will receive allocations based on their individual compensation as a percentage of total plan compensation. Non-employee directors are not eligible to participate in the employee stock ownership plan. The purchase of common stock by the employee stock ownership plan in the offering will comply with all applicable Office of Thrift Supervision regulations except to the extent waived by the Office of Thrift Supervision. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan.

Future Equity Incentive Plan. We intend to implement an equity incentive plan no earlier than six months after completion of the conversion. If we implement the plan within one year after the conversion, the plan must be approved by a majority of the total votes eligible to be cast by our shareholders. If we implement the plan more than one year after the conversion, it must be approved only by a majority of the total votes cast. We currently expect to implement this plan more than one year after the conversion, although no decision has been made. Under this plan, we may award stock options and shares of restricted stock to key employees and directors. We will award shares of restricted stock at no cost to the recipient. We will grant stock options at an exercise price at least equal to 100% of the fair market value of our common stock on the option grant date. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan. Under this plan, we may grant stock options in an amount up to 10% of the number of shares sold in the offering, and we may grant awards of restricted stock in an amount of up to 4% of the number of shares sold in the offering. If we complete the offering at the midpoint of the valuation range, the future equity incentive plan could allow us to grant stock options to acquire up to 120,000 shares of our common stock. Such options would have an estimated aggregate value of $452,000 assuming the options are granted at an exercise price of $10.00 per share. If we complete the offering at the midpoint of the estimated valuation range, the future equity incentive plan would allow us to issue 48,000 shares of restricted stock, which would have a value of $480,000 assuming the market price for our common stock is $10.00 per share on the date of grant. For further information, see “Our Management—Executive Compensation—Equity Incentive Plans—Future Equity Incentive Plan.” We expect to fund the plan with shares we purchase in the open market, but in determining whether to do so, the board of directors will consider our financial condition and results of operations, capital requirements, economic conditions and whether sufficient shares are available for purchase in the open market. The equity incentive plan will comply with all applicable Office of Thrift Supervision regulations except to the extent waived by the Office of Thrift Supervision.

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Employment Agreements. Fraternity Federal Savings and Loan Association currently has three-year employment agreements with Thomas K. Sterner, our Chairman of the Board, Chief Executive Officer and Chief Financial Officer, and Richard C. Schultze, our President and Chief Operating Officer. Fraternity Community Bancorp intends to enter into employment agreements with each of Thomas K. Sterner and Richard C. Schultze on terms similar to the employment agreements with Fraternity Federal Savings and Loan Association. Based solely on initial cash compensation payable under the employment agreements and excluding any benefits that would be payable under any employee benefit plan, if a change in control of Fraternity Community Bancorp occurred and we terminated the executives, the total payment due under the employment agreements would be approximately $1.13 million.

Employee Severance Compensation Plan. In connection with the conversion, we intend to adopt an employee severance compensation plan. This plan will provide severance benefits to eligible employees if there is a change in control of Fraternity Community Bancorp or Fraternity Federal Savings and Loan Association. Based solely on compensation levels as of September 30, 2010, if a change in control occurred, and we terminated all employees covered by the severance compensation plan, the total payment due under the plan would be approximately $405,000.

The Offering Is Not Expected to Be Taxable to Persons Receiving or Exercising Subscription Rights (page       )

As a general matter, the offering is not expected to be a taxable transaction for purposes of federal income taxes to persons who receive or exercise subscription rights. We have received an opinion from our special counsel, Kilpatrick Stockton LLP, that, for federal income tax purposes:

• it is more likely than not that the members of Fraternity Federal Savings and Loan Association will not realize any income upon the issuance or exercise of subscription rights;

• it is more likely than not that the tax basis to the purchasers in the offering will be the amount paid for our common stock, and that the holding period for shares of common stock will begin on the date of completion of the subscription offering; and

• the holding period for shares of common stock purchased in the community offering or syndicated offering will begin on the day after the date of completion of the purchase.

Persons Who May Order Stock in the Offering (page       )

Note: Subscription rights are not transferable, and persons with subscription rights may not subscribe for shares for the benefit of any other person. If you violate this prohibition, you may lose your rights to purchase shares and may face criminal prosecution and/or other sanctions.

We have granted rights to subscribe for shares of Fraternity Community Bancorp common stock in a “subscription offering” to the following persons in the following order of priority:

1. Persons with $50 or more on deposit at Fraternity Federal Savings and Loan Association as of the close of business on June 30, 2009.

2. Our employee stock ownership plan, which will provide retirement benefits to our employees.

3. Persons (other than our directors and officers) with $50 or more on deposit at Fraternity Federal Savings and Loan Association as of the close of business on [SERD].

4. Fraternity Federal Savings and Loan Association’s depositors and borrowers as of the close of business on [RECORD DATE] who were not able to subscribe for shares under categories 1 or 3.

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If we receive subscriptions for more shares than are to be sold in this offering, we may be unable to fill or may only partially fill your order. Shares will be allocated in order of the priorities described above under a formula outlined in the plan of conversion. Generally, shares first will be allocated so as to permit each eligible subscriber, if possible, to purchase a number of shares sufficient to make the subscriber’s total allocation equal to 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining eligible subscribers whose subscriptions remain unfilled in proportion to the amounts that their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible subscribers whose subscriptions remain unfilled. If we increase the number of shares to be sold above 1,380,000, the employee stock ownership plan will have the first priority right to purchase any shares exceeding that amount to the extent that its subscription has not previously been filled. Any shares remaining will be allocated in the order of priorities described above. See “The Conversion and Stock Offering — Subscription Offering and Subscription Rights” for a description of the allocation procedure.

We may offer shares not sold in the subscription offering, if any, to the general public in a community offering. People, and trusts for the benefit of people, who are residents of Baltimore, Howard and Carroll Counties and Baltimore City in Maryland will be given a first preference to purchase shares in the community offering. We may, in our sole discretion, reject orders received in the community offering either in whole or in part. For example, we would reject an order submitted by a person whom we believe is making false representations or whom we believe is attempting to violate, evade or circumvent the terms and conditions of the plan of conversion. If your order is rejected in part, you cannot cancel the remainder of your order. The community offering may commence concurrently with the subscription offering or at any time thereafter and may terminate at any time without notice until [DATE 1], unless the Office of Thrift Supervision approves a later date, which will not be beyond [DATE 2].

Shares of our common stock not purchased in the subscription offering or the community offering may be offered for sale to the general public in a syndicated offering through a syndicate of selected dealers. We may begin the syndicated offering at any time following the commencement of the subscription offering. Sandler O’Neill + Partners, L.P. will act as sole book-running manager for any syndicated offering, which will also be conducted on a best efforts basis. Neither Sandler O’Neill + Partners, L.P. nor any other member of the syndicate will be required to purchase any shares in the syndicated offering.

Deadline for Ordering Stock (page         )

The subscription offering will expire at 2:00 p.m., Eastern time, on [EXP DATE]. We expect that the community offering will expire at the same time, although it may continue for up to 45 days after the end of the subscription offering, or longer if the Office of Thrift Supervision approves a later date. No single extension may be for more than 90 days. If we extend the offering beyond [DATE 1], or if we intend to sell fewer than 1,020,000 shares or more than 1,587,000 shares, all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will return your funds promptly with interest at our passbook rate and without deduction.

Purchase Limitations (page         )

Our plan of conversion establishes limitations on the purchase of stock in the offering. These limitations include the following:

• The minimum purchase is 25 shares.

• No individual (or individuals on a single deposit account) may purchase more than $250,000 of common stock (which equals 25,000 shares) in the subscription offering.

• No individual may purchase more than $250,000 of common stock (which equals 25,000 shares) in the community offering.

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• No individual, no individual together with any associates, and no group of persons acting in concert may purchase more than $400,000 of common stock (which equals 40,000 shares) in all offering categories.

Subject to the Office of Thrift Supervision’s approval, we may increase or decrease the purchase limitations at any time.

How to Purchase Common Stock (page         )

If you want to place an order for shares in the offering, you must complete an original stock order and certification form and send it to us together with full payment, or deliver it in person to the stock information center located at Fraternity Federal Savings and Loan Association’s main office, 764 Washington Boulevard, Baltimore, Maryland 21230. We must receive your stock order and certification form before the end of the subscription offering or the end of the community offering, as appropriate, regardless of the postmark date. Once we receive your order, you cannot cancel or change it without our consent.

To ensure that we properly identify your subscription rights, you must list all of your deposit accounts as of the applicable eligibility date on the stock order form. If you fail to do so, your subscription may be reduced or rejected if the offering is oversubscribed. To preserve your purchase priority, only the name(s) of person(s) listed on your deposit account at the applicable date of eligibility may be listed on your order form. You may not add the names of others who were not eligible to purchase common stock in the offering on the applicable date of eligibility.

You may pay for shares in the subscription offering or the community offering in either of the following ways:

• By check or money order made payable to Fraternity Community Bancorp, Inc.; or

• By authorizing withdrawal from an account at Fraternity Federal Savings and Loan Association.

Depositors interested in using funds in an individual retirement account with us to purchase common stock should contact the stock information center as soon as possible so that the necessary forms may be forwarded for execution and returned before the subscription offering ends. To use funds in an individual retirement account at Fraternity Federal Savings and Loan Association, you must transfer your account to an unaffiliated institution or broker and open a self-directed individual retirement account. Individual retirement accounts at Fraternity Federal Savings and Loan Association are not self-directed and common stock may only be purchased using a self-directed individual retirement account. Please contact your broker or financial institution as quickly as possible to determine if you may transfer your individual retirement account from Fraternity Federal Savings and Loan Association because the transfer may take several days. You may use funds currently in an independent, self-directed individual retirement account to purchase stock by having your trustee complete and return the subscription form together with a check payable to Fraternity Community Bancorp, Inc. before the expiration of the subscription offering.

We will pay interest on your subscription funds at the rate we pay on passbook accounts, which is subject to change at any time and is currently         % per annum, from the date we receive your funds until the offering is completed or terminated. All funds authorized for withdrawal from deposit accounts with us will earn interest at the applicable account rate until the offering is completed or terminated. If, as a result of a withdrawal from a certificate of deposit, the balance falls below the minimum balance requirement, the remaining funds will earn interest at our passbook rate. There will be no early withdrawal penalty for withdrawals from certificates of deposit used to pay for stock.

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How We Will Use the Proceeds of this Offering (page         )

The following table summarizes how we will use the proceeds of this offering, based on the sale of shares at the minimum and maximum of the offering range. We expect to contribute 50% of the net proceeds of the offering to Fraternity Federal Savings and Loan Association.

(In thousands)	Minimum 1,020,000 Shares  at $10.00 Per Share			Maximum 1,380,000 Shares  at $10.00 Per Share
Offering proceeds	$	10,200		$	13,800
Less estimated offering expenses		(800	)		(800	)
Net offering proceeds		9,400			13,000
Less:
Proceeds contributed to Fraternity Federal Savings and Loan Association		4,700			6,500
Proceeds used for loan to employee stock ownership plan		816			1,104
Proceeds remaining for Fraternity Community Bancorp	$	3,884		$	5,396

Fraternity Community Bancorp may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Fraternity Federal Savings and Loan Association may use the portion of the proceeds that it receives to fund new loans, open new branches, invest in securities and expand its business activities. Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans, arrangements or understandings to do so at this time. Except as described above, neither Fraternity Community Bancorp nor Fraternity Federal Savings and Loan Association has any specific plans for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. For a discussion of our business reasons for undertaking this offering, see “The Conversion and Stock Offering — Reasons for the Conversion.”

Purchases by Directors and Executive Officers (page         )

We expect that our directors and executive officers, together with their associates, will subscribe for 45,000 shares, which equals 4.4% of the shares that would be sold at the minimum of the offering range. Our directors and executive officers, together with their associates, will pay the same $10.00 price per share as everyone else who purchases shares in the offering. Like all of our depositors, our directors and executive officers and their associates have subscription rights based on their deposits and, if there is an oversubscription, their orders will be subject to the allocation provisions set forth in our plan of conversion, unless waived by the Office of Thrift Supervision. Purchases by our directors and executive officers and their associates will count towards the minimum number of shares we must sell to close the offering.

Market for Fraternity Community Bancorp, Inc.’s Common Stock (page         )

We intend to list the common stock of Fraternity Community Bancorp for trading on the OTC Bulletin Board. Sandler O’Neill + Partners, L.P. currently intends to become a market maker in the common stock, but it is under no obligation to do so. In addition, if needed, Sandler O’Neill + Partners, L.P. will assist us in obtaining additional market makers. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for our common stock will develop or, if developed, will be maintained. After shares of the common stock begin trading, you may contact a stock broker to buy or sell shares.

Fraternity Community Bancorp, Inc.’s Dividend Policy (page         )

After the offering, we initially do not intend to pay cash dividends. Our ability to pay dividends will depend on a number of factors, including capital requirements, regulatory limitations and our operating results and financial condition.

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Delivery of Prospectus

To ensure that each person receives a prospectus at least 48 hours before the offering deadline, we may not mail prospectuses any later than five days before such date or hand-deliver prospectuses later than two days before that date. Stock order forms may only be delivered if accompanied or preceded by a prospectus. We are not obligated to deliver a prospectus or order form by means other than U.S. mail.

We will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights. The subscription offering and all subscription rights will expire at 2:00 p.m., Eastern time, on [EXP DATE] whether or not we have been able to locate each person entitled to subscription rights.

Delivery of Stock Certificates (page         )

Certificates representing shares of common stock issued in the subscription and community offerings will be mailed to purchasers at the address provided by them on the order form as soon as practicable following completion of the offering. Shares of common stock issued in any syndicated offering will be issued in book entry form. Until certificates for common stock are available and delivered to subscribers, subscribers may not be able to sell their shares, even though trading of the common stock will have commenced.

Stock Information Center

If you have any questions regarding the offering, please call the stock information center at (        )         -             to speak to a registered representative of Sandler O’Neill + Partners, L.P. The stock information center will be open Monday through Friday, 10:00 a.m. to 4:00 p.m., Eastern time. The stock information center will be closed on weekends and bank holidays.

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Risk Factors

You should consider carefully the following risk factors before purchasing Fraternity Community Bancorp common stock.

Risks Related to Our Business

We have had losses and low earnings in recent periods. If we cannot increase our income to competitive levels, our stock price may be adversely affected.

We have had losses and low earnings in recent periods, including a net loss of $572,000 for the nine months ended September 30, 2010 and net income of $343,000 and $8,000 for the years ended December 31, 2009 and 2008, respectively. Our return on average assets was (0.46)% for the nine months ended September 30, 2010 and 0.20% and 0% for the years ended December 31, 2009 and 2008, respectively, and our return on average equity was (4.64)% and 2.03% and 0.05% for the nine months ended September 30, 2010 and for the years ended December 31, 2009 and 2008, respectively. These returns compared to a median return on average assets of (0.07)% and a median return on average equity of (0.58)% for the most recent 12-month period for the peer group of comparable institutions utilized by Feldman Financial Advisors, Inc. in preparing our appraisal.

For a detailed description of our strategic initiatives to improve earnings, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Strategy.” However, our strategic initiatives may not succeed in generating or increasing income. If we are unable to generate or increase income, our stock price may be adversely affected. Moreover, even if we are successful in generating net income, our earnings may be low for some time. In such event, our return on equity, which equals net income divided by average equity, may be below returns on equity achieved by peer institutions, which also could adversely affect our stock price.

Significant loan losses could require us to increase our allowance for loan losses through a charge to earnings.

When we loan money, we incur the risk that our borrowers will not repay their loans. We provide for loan losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on our assessment of loan losses inherent in our loan portfolio. The process for determining the amount of the allowance is critical to our financial condition and results of operations. It requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their loans. We might underestimate the loan losses inherent in our loan portfolio and have loan losses in excess of the amount recorded in our allowance for loan losses. We might increase the allowance because of changing economic conditions. For example, in a rising interest rate environment, borrowers with adjustable-rate loans could see their payments increase. There may be a significant increase in the number of borrowers who are unable or unwilling to repay their loans, resulting in our charging off more loans and increasing our allowance. In addition, when real estate values decline, the potential severity of loss on a real estate-secured loan can increase significantly, especially in the case of loans with high combined loan-to-value ratios. The recent decline in the national economy and the local economies of the areas in which the loans are concentrated could result in an increase in loan delinquencies, foreclosures or repossessions resulting in increased charge-off amounts and the need for additional loan loss allowances in future periods. Our nonperforming loans totaled $2.3 million at September 30, 2010, $1.0 million at December 31, 2009 and $0 at December 31, 2008. The increase in nonperforming loans primarily is due to a limited number of speculative construction loans that became nonperforming loans during the year ended December 31, 2009 and the nine months ended September 30, 2010. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Analysis of Nonperforming and Classified Assets” and “Our Business—Lending Activities—Residential Construction Loans.” In addition, our determination as to the amount of our allowance for loan losses is subject to review by our primary regulator, the Office of Thrift Supervision, as part of its examination process, which may result in the establishment of an additional allowance based upon the judgment of the Office of Thrift Supervision after a review of the information available at the time of its examination. Our allowance for loan losses amounted to $1.1 million, or 0.95% of total loans outstanding and 47.84% of nonperforming loans, at September 30, 2010. At September 30, 2010, the mean ratio of the allowance for loan losses to nonperforming loans was 40.4% for the peer group

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companies utilized by Feldman Financial Advisers in its appraisal. Our allowance for loan losses at September 30, 2010 may not be sufficient to cover future loan losses. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would decrease our earnings. In addition, at September 30, 2010, we had 19 loan relationships with outstanding balances, net of participation interests sold, that exceeded $1.0 million, all of which were performing according to their original terms. However, the deterioration of one or more of these loans could result in a significant increase in our nonperforming loans and our provision for loan losses, which would negatively impact our results of operations.

Our speculative construction loan portfolio may expose us to increased credit risk.

During 2007 and 2008, we determined to offer a limited number of speculative construction loans to builders who have not identified a buyer for the completed property at the time of origination (known as “speculative” construction loans). Such loans were for the building of luxury residences. We determined to make these speculative construction loans because of the higher yields on such loans compared to conforming loans for the construction of owner-occupied, one- to four-family residences and to reduce our interest rate risk. As a result of the deterioration in local economic conditions in 2009 and 2010, certain of our speculative construction borrowers experienced difficulties selling the completed residences. At September 30, 2010, we had one speculative construction loan totaling $1.2 million that was nonperforming. Subsequent to September 30, 2010, we foreclosed on the collateral securing that loan. At September 30, 2010, our other two speculative construction loans, totaling $2.1 million, were performing in accordance with their terms, although we have extended the terms of both of these loans. Of our two remaining speculative construction loans, one was classified as substandard, and the other one was classified as special mention in accordance with a policy we adopted in 2009 of classifying all speculative construction loans as special mention. If difficult economic conditions continue, we could experience difficulty selling the properties we acquired in foreclosure, and the other speculative construction loan borrowers could have difficulty selling their properties. If a borrower has insufficient liquidity to pay interest on such projects, the loan could become impaired and require an increase in the allowance for loan losses which would adversely impact our results of operations. In light of current market conditions, we have discontinued speculative construction lending. For information regarding our experience with speculative construction loans, see “Our Business – Lending Activities – Residential Construction Loans.”

Our plan to gradually increase our emphasis on commercial real estate lending may expose us to increased lending risks.

At September 30, 2010, our loan portfolio included $4.0 million of commercial real estate loans, representing 3.42% of our total loan portfolio at such date. As part of our strategy to increase earnings, we will seek to gradually increase commercial real estate lending, and may add commercial lending personnel to assist us in these efforts. These types of loans generally expose a lender to greater risk of non-payment and loss than one- to four-family mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family mortgage loans. In addition, since such loans generally entail greater risk than one- to four-family mortgage loans, we may need to increase our allowance for loan losses in the future associated with the growth of such loans. Also, commercial real estate borrowers often have more than one loan outstanding with their lender. Consequently, if we increase our commercial real estate lending, an adverse development with respect to one loan or one credit relationship could expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family mortgage loan.

The loss of senior management could hurt our operations.

We rely heavily on our two senior executive officers, Thomas K. Sterner, our Chairman of the Board, Chief Executive Officer and Chief Financial Officer, and Richard C. Schultze, our President and Chief Operating Officer. The loss of either or both of our senior executive officers could have an adverse effect on us because, as a small community bank, our senior executive officers have more responsibility than would be typical at a larger financial institution with more employees. In addition, as a small community bank, we have fewer management-level personnel who are in a position to assume the responsibilities of our senior executive officers. We have not purchased key man life insurance on our senior executive officers.

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If we conclude that the decline in value of any of our investment securities is other than temporary, we are required to write down the value of that security through a charge to earnings.

We review our investment securities portfolio at each quarter-end reporting period to determine whether the fair value is below the current carrying value. When the fair value of any of our investment securities has declined below its carrying value, we are required to assess whether the decline is other-than-temporary. If we conclude that the decline is other-than-temporary, we are required to write down the value of that security through a charge to earnings. As of September 30, 2010, our investment securities portfolio available-for-sale included two nonagency mortgage-backed securities with a book value of $1.04 million and an estimated fair value of $998,406. Changes in the expected cash flows of these securities and/or prolonged price declines may result in our concluding in future periods that the impairment of these securities is other-than-temporary, which would require a charge to earnings to write down theses securities to their fair value. Any charges for other-than-temporary impairment would not impact cash flow, tangible capital or liquidity.

If in the future we determined to buy nonagency mortgage-backed securities, we would be exposed to increased risk of losses related to our investment portfolio.

Under applicable laws and regulations, banks like Fraternity Federal Savings and Loan Association have authority to invest in mortgage-backed securities, including mortgage-backed securities that are not guaranteed by the U.S. government or an agency thereof, which could include mortgage-backed securities where the underlying loans are subprime loans, interest only loans, option adjustable-rate loans, Alt-A loans or other similar mortgage loans that have higher risk characteristics. In recent years, many banks and other investors have recorded impairment charges related to their investments in these nonagency mortgage-backed securities. If in the future we determined to buy nonagency mortgage-backed securities, we would be exposed to increased risk of losses related to our investment portfolio.

Our stock price may decline when trading commences.

If you purchase shares in the offering, you may not be able to sell them at or above the $10.00 purchase price. After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced by many factors outside of our control, including prevailing interest rates, investor perceptions, securities analyst research reports and general industry, geopolitical and economic conditions. Publicly traded stocks, including stocks of financial institutions, often experience substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded. Additionally, the stock prices of some recently converted thrift institutions have declined below, and remain below, their initial offering prices.

Continued turmoil in the financial markets could have an adverse effect on our financial position or results of operations.

Beginning in 2008, United States and global financial markets experienced severe disruption and volatility, and general economic conditions have declined significantly. Adverse developments in credit quality, asset values and revenue opportunities throughout the financial services industry, as well as general uncertainty regarding the economic, industry and regulatory environment, have had a negative impact on the industry. The United States and the governments of other countries have taken steps to try to stabilize the financial system, including investing in financial institutions, and have implemented programs intended to improve general economic conditions. The U.S. Department of the Treasury created the Capital Purchase Program under the Troubled Asset Relief Program, pursuant to which the U.S. Department of the Treasury provided additional capital to participating financial institutions through the purchase of preferred stock or other securities. Other measures include homeowner relief that encourages loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; regulatory action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to

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address illiquidity and other weaknesses in the banking sector. Notwithstanding the actions of the United States and other governments, there can be no assurance that these efforts will be successful in restoring industry, economic or market conditions to their previous levels and that they will not result in adverse unintended consequences. Factors that could continue to pressure financial services companies, including Fraternity Community Bancorp, are numerous and include:

• worsening credit quality, leading among other things to increases in loan losses and reserves,

• continued or worsening disruption and volatility in financial markets, leading among other things to continuing reductions in asset values,

• capital and liquidity concerns regarding financial institutions generally,

• limitations resulting from or imposed in connection with governmental actions intended to stabilize or provide additional regulation of the financial system, or

• recessionary conditions that are deeper or last longer than currently anticipated.

The recent economic downturn could result in increases in our level of nonperforming loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.

Our business activities and earnings are affected by general business conditions in the United States and in our primary market area. These conditions include short-term and long-term interest rates, inflation, unemployment levels, monetary supply, consumer confidence and spending, fluctuations in both debt and equity capital markets and the strength of the economy in the United States generally and in our primary market area in particular. Recently, the national economy has experienced a general downturn, with rising unemployment levels, declines in real estate values and an erosion in consumer confidence. These economic conditions also had a negative impact on our primary market area. In addition, our primary market area has experienced a softening of the local real estate market, including reductions in local property values, and a decline in the local manufacturing industry, which employs many of our borrowers. Declining real estate market conditions in our market area have negatively affected loan demand. Our loan originations decreased by $10.3 million, or 31.4%, from $32.8 million for the nine months ended September 30, 2009 to $22.5 million for the nine months ended September 30, 2010. A prolonged or more severe economic downturn, continued elevated levels of unemployment, further declines in the values of real estate, or other events that affect household and/or corporate incomes could impair the ability of our borrowers to repay their loans in accordance with their terms. Nearly all of our loans are secured by real estate or made to businesses in our primary market area, which consists of Baltimore, Carroll, Howard, Harford and Anne Arundel Counties and Baltimore City in Maryland and the surrounding areas. As a result of this concentration, a prolonged or more severe downturn in the local economy could result in significant increases in nonperforming loans, which would negatively impact our interest income and result in higher provisions for loan losses, which would decrease our earnings. The economic downturn could also result in reduced demand for credit or fee-based products and services, which also would decrease our revenues.

Increased and/or special Federal Deposit Insurance Corporation assessments will hurt our earnings.

The recent economic downturn has caused a high level of bank failures, which has dramatically increased Federal Deposit Insurance Corporation resolution costs and led to a significant reduction in the balance of the Deposit Insurance Fund. As a result, the Federal Deposit Insurance Corporation has significantly increased the initial base assessment rates paid by financial institutions for deposit insurance. Increases in the base assessment rate have increased our deposit insurance costs and negatively impacted our earnings. In addition, in May 2009, the Federal Deposit Insurance Corporation imposed a special assessment on all insured institutions. Our special assessment, which was reflected in earnings for the quarter ended June 30, 2009, was $76,000. In lieu of imposing an additional special assessment, the Federal Deposit Insurance Corporation required all institutions to prepay their assessments for all of 2010, 2011 and 2012, which for us totaled $671,000. Additional increases in the base assessment rate or additional special assessments would negatively impact our earnings.

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Changing interest rates may decrease our earnings and asset value.

Our net interest income is the interest we earn on loans and investments less the interest we pay on our deposits and borrowings. Our interest rate spread is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates—up or down—could adversely affect our interest rate spread and, as a result, our net interest income. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our interest rate spread to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our interest rate spread to contract until the yield catches up. This contraction could be more severe following a prolonged period of lower interest rates, as a larger proportion of our fixed-rate one- to four-family loan portfolio will have been originated at those lower rates and borrowers may be more reluctant or unable to sell their homes in a higher interest rate environment. Changes in the slope of the “yield curve”—or the spread between short-term and long-term interest rates—could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts, we could experience pressure on our interest rate spread as our cost of funds increases relative to the yield we can earn on our assets. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Interest Rate Risk Management.”

Our strategies to modify our interest rate risk profile may be difficult to implement.

Our asset/liability management strategies are designed to decrease our interest rate risk sensitivity. One such strategy is increasing the amount of adjustable-rate and/or short-term assets. We offer ten-year fixed rate and adjustable rate loan products as a means to achieve this strategy. However, the currently prevailing low long-term interest rates have created a decrease in borrower demand for these types of loans. Additionally, there is no guarantee that any adjustable-rate assets obtained will not prepay. At September 30, 2010, 41% of our loan portfolio consisted of adjustable-rate loans, compared to 44% and 43% at December 31, 2009 and 2008, respectively, and 6% of our loan portfolio consisted of ten-year fixed-rate loans, compared to 8% at December 31, 2009 and 2008.

We are also managing our liabilities to moderate our interest rate risk sensitivity. Customer demand is primarily for short-term maturity certificates of deposit. Using short-term liabilities to fund long-term, fixed-rate assets will increase the interest rate sensitivity of any financial institution. We have utilized Federal Home Loan Bank advances to mitigate the impact of customer demand by lengthening the maturities of our liabilities.

Federal Home Loan Bank advances are entered into as liquidity is needed or to fund assets that provide for a spread considered sufficient by management. If we are unable to originate short-term or adjustable-rate loans at favorable rates or fund loan originations or securities purchases with long-term advances, we may have difficulty executing this asset/liability management strategy and/or it may result in a reduction in profitability.

Strong competition within our primary market area could negatively impact our profits and slow growth.

We face intense competition both in making loans and attracting deposits. This competition has made it more difficult for us to make new loans and attract deposits. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which would reduce net interest income. Competition also makes it more difficult to grow loans and deposits. At June 30, 2010, which is the most recent date for which data is available from the Federal Deposit Insurance Corporation, we held approximately 0.28% of the deposits in Baltimore County, Maryland, 1.21% of the deposits in Howard County, Maryland and 0.13% of the deposits in Carroll County, Maryland. Most of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our primary market area. See “Our Business — Market Area” and “Our Business — Competition” for more information about our primary market area and the competition we face.

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We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, our primary federal regulator, and the Federal Deposit Insurance Corporation, as insurer of our deposits. Such regulation and supervision governs the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of Fraternity Federal Savings and Loan Association rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

Recently enacted regulatory reform may have a material impact on our operations.

On July 21, 2010, the President signed into law the Dodd-Frank Act. The Dodd-Frank Act restructures the regulation of depository institutions. The Dodd-Frank Act contains various provisions designed to enhance the regulation of depository institutions and prevent the recurrence of a financial crisis such as occurred in 2008-2009. Under the Dodd-Frank Act, the Office of Thrift Supervision will be eliminated and its duties and powers transferred to the Office of the Comptroller of the Currency, which regulates national banks. Savings and loan holding companies, such as Fraternity Community Bancorp, will be regulated by the Federal Reserve Board. Because Fraternity Federal Savings and Loan Association will be regulated by the Office of the Comptroller of the Currency and Fraternity Community Bancorp will be regulated by the Federal Reserve Board, we will have two new federal banking regulators instead of only being regulated by the Office of Thrift Supervision, as is currently the case. Also included in the Dodd-Frank Act is the creation of a new federal agency to administer consumer and fair lending laws, a function that is now performed by the depository institution regulators. The federal preemption of state laws currently accorded federally chartered depository institutions will be reduced as well. The Dodd-Frank Act also will impose consolidated capital requirements on savings and loan holding companies effective in five years, which will limit our ability to borrow at the holding company and invest the proceeds from such borrowings as capital in Fraternity Federal Savings and Loan Association that could be leveraged to support additional growth. The full impact of the Dodd-Frank Act on our business and operations will not be known for years until regulations implementing the statute are written and adopted. The Dodd-Frank Act may have a material impact on our operations, particularly through increased regulatory burden and compliance costs resulting from possible future consumer and fair lending regulations as well as the change in primary federal banking regulators.

Risks Related to This Offering

We may sell up to 1,587,000 shares of stock in the offering without providing you with an opportunity to change or cancel your order.

Pursuant to the Office of Thrift Supervision conversion regulations, we are permitted to close the offering if we obtain orders for shares within the range of a minimum of 1,020,000 shares to a maximum, as adjusted, of 1,587,000 shares, without giving you further notice or the opportunity to change or cancel your order. Should we receive orders for the maximum, as adjusted, of 1,587,000 shares, this will result in higher pro forma pricing ratios in terms of the price to book value ratio and the price to tangible book value ratio (see “Pro Forma Data”). This may negatively affect our post-conversion trading price.

There likely will be a limited market for our common stock, which may adversely affect our stock price.

Although we intend to list our shares of common stock for trading on the OTC Bulletin Board, our shares of common stock are not likely to be actively traded. If an active trading market for our common stock does not develop, you may not be able to sell all of your shares of common stock and the sale of a large number of shares at

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one time could temporarily depress the market price. There also may be a wide spread between the bid and asked price for our common stock. When there is a wide spread between the bid and asked price, the price at which you may be able to sell our common stock may be significantly lower than the price at which you could buy it at that time.

Additional expenses following the offering from operating as a public company will adversely affect our profitability.

Following the offering, our noninterest expenses will increase as a result of the financial accounting, legal and various other expenses usually associated with operating as a public company and complying with public company disclosure obligations, particularly those obligations imposed by the Sarbanes-Oxley Act of 2002. Compliance with the Sarbanes-Oxley Act of 2002 will require us to upgrade our accounting systems, which will increase our operating expenses and adversely affect our profitability.

We will incur additional expenses following the conversion if we hire additional lending personnel in furtherance of our strategy to expand our lending activity.

Part of our strategic plan is to improve our net interest margin and income and reduce our interest rate risk by increasing commercial real estate loans. To accomplish this, following the conversion we may add additional lending personnel. We anticipate that this initiative would enhance long-term shareholder value. However, if we add new lending personnel, we will be required to make increased expenditures for salaries and employee benefits, and it may take some period of time for the new personnel to generate sufficient loan volume to offset these expenditures. Accordingly, we anticipate that, in the short term, net income could be negatively affected.

Additional expenses following the offering from the implementation of new equity benefit plans will adversely affect our profitability.

We will recognize additional annual employee compensation and benefit expenses stemming from options and shares of common stock granted to employees, directors and executives under new benefit plans. These additional expenses will adversely affect our profitability. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices generally require that they be based on the fair market value of the options or shares of common stock at the date of the grant; however, we expect them to be material. We will recognize expenses for our employee stock ownership plan when shares are committed to be released to participants’ accounts and will recognize expenses for restricted stock awards and stock options generally over the vesting period of awards made to recipients. These benefit expenses in the first year following the offering have been estimated to be approximately $308,000 on a pre-tax basis at the maximum of the offering range assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. See “Pro Forma Data” and “Our Management — Executive Compensation — Benefit Plans.”

We have broad discretion in allocating the proceeds of the offering. Our failure to effectively utilize such proceeds would reduce our profitability.

We intend to contribute 50% of the net proceeds of the offering to Fraternity Federal Savings and Loan Association. Fraternity Community Bancorp may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Fraternity Federal Savings and Loan Association may use the portion of the proceeds that it receives to fund new loans, open new branches, invest in securities and expand its business activities. Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans to do so at this time. We have not allocated specific amounts of proceeds for any of these purposes, and we will have significant flexibility in determining how much of the net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively would reduce our profitability.

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A significant percentage of our common stock will be held by our directors and executive officers and benefit plans.

We expect that our directors and executive officers, together with their associates, will subscribe for 45,000 shares in the offering. In addition, we intend to establish an employee stock ownership plan that will purchase an amount of shares equal to 8% of the shares sold in the offering. As a result, upon consummation of the offering, a total of up to 126,600, or 12.4%, and 155,400, or 11.3%, of our outstanding shares will be held by our directors and executive officers and our employee stock ownership plan at the minimum and maximum of the offering range, respectively. Further, shares will be held by management following the implementation of an equity incentive plan, which we intend to implement no earlier than six months following the completion of the offering. Assuming the equity incentive plan is implemented, under the plan options are granted to and exercised by directors and executive officers for 10% of the shares sold in the conversion and restricted stock awards are made to directors and executive officers for 4% of the shares sold in the conversion and the plan is funded with shares purchased in the open market, a total of up to 269,400, or 26.4%, and 348,600, or 25.3%, of our outstanding shares will be held by our directors and executive officers and our employee stock ownership plan at the minimum and maximum of the offering range, respectively. The articles of incorporation of Fraternity Community Bancorp contain supermajority voting provisions that require that the holders of at least 75% of Fraternity Community Bancorp’s outstanding shares of voting stock approve certain actions including, but not limited to, the amendment of certain provisions of Fraternity Community Bancorp’s articles of incorporation and bylaws. If our directors and executive officers and benefit plans were to hold more than 25% of our outstanding common stock following the completion of the offering, the shares held by these individuals and benefit plans could be voted in a manner that would ensure that the 75% supermajority needed to approve such actions could not be attained. For more information on the restrictions included in the articles of incorporation and bylaws of Fraternity Community Bancorp, see “Restrictions on the Acquisition of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association.”

Issuance of shares for benefit programs may dilute your ownership interest.

We intend to adopt an equity incentive plan following the offering. If shareholders approve the new equity incentive plan, we intend to issue shares to our officers, employees and directors through this plan. If the restricted stock awards under the equity incentive plan are funded from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 3.85%, assuming awards of common stock equal to 4% of the shares sold in the offering are awarded under the plan. If we adopt the equity incentive plan more than one year after completion of the offering, we may elect to increase the awards of restricted stock we may grant. In such event, your ownership interest in the shares could be further diluted. If the shares issued upon the exercise of stock options under the equity incentive plan are issued from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 9.09%, assuming stock option grants equal to 10% of the shares sold in the offering are granted under the plan. See “Pro Forma Data” and “Our Management — Executive Compensation — Benefit Plans.”

The articles of incorporation and bylaws of Fraternity Community Bancorp and certain laws and regulations may prevent or make more difficult certain transactions, including a sale or merger of Fraternity Community Bancorp

Provisions of the articles of incorporation and bylaws of Fraternity Community Bancorp, state corporate law and federal banking regulations may make it more difficult for companies or persons to acquire control of Fraternity Community Bancorp. As a result, our shareholders may not have the opportunity to participate in such a transaction and the trading price of our common stock may not rise to the level of other institutions that are more vulnerable to hostile takeovers. The factors that may discourage takeover attempts or make them more difficult include:

• Articles of incorporation and bylaws. Provisions of the articles of incorporation and bylaws of Fraternity Community Bancorp may make it more difficult and expensive to pursue a takeover attempt that the board of directors opposes. These provisions also make more difficult the removal of current directors or management, or the election of new directors. These provisions include:

• limitation on the right to vote shares;

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• the election of directors to staggered terms of three years;

• provisions regarding the timing and content of shareholder proposals and nominations;

• provisions restricting the calling of special meetings of shareholders;

• the absence of cumulative voting by shareholders in the election of directors;

• the removal of directors only for cause; and

• supermajority voting requirements for changes to some provisions of the articles of incorporation and bylaws.

• Maryland anti-takeover statute. Under Maryland law, any person who acquires more than 10% of a Maryland corporation without prior approval of its board of directors is prohibited from engaging in any type of business combination with the corporation for a five-year period. Any business combination after the five-year period would be subject to supermajority shareholder approval or minimum price requirements.

• Office of Thrift Supervision regulations. Office of Thrift Supervision regulations prohibit, for three years following the completion of a mutual to stock conversion, the offer to acquire or the acquisition of more than 10% of any class of equity security of a converted institution without the prior approval of the Office of Thrift Supervision. See “Restrictions on Acquisition of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association.”

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A Warning About Forward-Looking Statements

This prospectus contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include:

• statements of our goals, intentions and expectations;

• statements regarding our business plans, prospects, growth and operating strategies;

• statements regarding the quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

• general economic conditions, either nationally or in our primary market area, that are worse than expected;

• a continued decline in real estate values;

• changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;

• increased competitive pressures among financial services companies;

• changes in consumer spending, borrowing and savings habits;

• legislative, regulatory or supervisory changes that adversely affect our business;

• adverse changes in the securities markets; and

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board.

Any of the forward-looking statements that we make in this prospectus and in other public statements we make may later prove incorrect because of inaccurate assumptions, the factors illustrated above or other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed.

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Selected Consolidated Financial and Other Data

The summary consolidated financial information presented below is derived in part from our consolidated financial statements. The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1. The information at December 31, 2009 and 2008 and for the years then ended is derived in part from the audited consolidated financial statements of Fraternity Federal Savings and Loan Association that appear elsewhere in this prospectus. The selected data at September 30, 2010 and for the nine months ended September 30, 2010 and 2009 was not audited, but in the opinion of management, represents all adjustments necessary for a fair presentation. All of these adjustments are normal and recurring. The results of operations for the nine months ended September 30, 2010 are not necessarily indicative of the results of operations that may be expected for the entire year.

	At September 30, 2010		At December 31,
(In thousands)			2009		2008
	(Unaudited)
Financial Condition Data:
Total assets	$	166,466	$	166,976	$	170,688
Cash and cash equivalents		27,383		13,908		11,439
Investment securities available-for-sale		13,168		24,116		8,526
Investment and securities held-to-maturity		—		—		7,447
Loans receivable, net		115,621		120,092		136,547
Deposits		125,696		125,960		124,913
Federal Home Loan Bank advances		22,667		22,917		28,417
Total equity		16,446		16,992		16,475

	For the Nine Months Ended September 30,					For the Year Ended December 31,
(In thousands)	2010			2009		2009		2008
	(Unaudited)
Operating Data:
Interest income	$	5,671		$	6,302	$	8,272	$	8,993
Interest expense		2,915			3,676		4,805		5,856
Net interest income		2,756			2,626		3,467		3,137
Provision for loan losses		1,164			51		51		5
Net interest income after provision for loan losses		1,592			2,575		3,416		3,132
Noninterest income		441			471		692		323
Noninterest expenses		3,053			2,685		3,646		3,600
Income (loss) before income tax expense (benefit)		(1,020	)		361		462		(145	)
Income tax expense (benefit)		(448	)		95		119		(153	)
Net (loss) income	$	(572	)	$	266	$	343	$	8

22

	At or for the Nine Months Ended September 30,						At of For the Year Ended December 31,
	2010			2009			2009			2008
	(Unaudited)
Performance Ratios (1)(2):
Return on average assets		(.46	)%		.25	%		0.20	%		—	%
Return on average equity		(4.64	)		2.49			2.03			0.05
Interest rate spread (3)		1.93			1.76			1.74			1.48
Net interest margin (4)		2.22			2.10			2.08			1.86
Noninterest expenses to average assets		2.42			2.13			2.17			2.12
Average interest-earning assets to average interest-bearing liabilities		111.79			111.74			111.71			111.22
Average equity to average assets		9.98			10.01			10.04			9.71
Regulatory Capital Ratios:
Tier 1 capital (to adjusted total assets)		9.87			10.12			10.19			9.75
Tier 1 capital (to risk-weighted assets)		18.14			19.32			18.34			18.01
Total risk-based capital (to risk-weighted assets)		19.39			19.69			18.69			18.35
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans		.95			.26			0.23			0.20
Allowance for loan losses as a percent of nonperforming loans		47.84			72.32			15.91			145.52
Net charge-offs to average outstanding loans during the period		.28			—			0.04			—
Nonperforming loans as a percent of total loans		2.00			.32			1.44			—
Nonperforming assets as a percent of total assets		1.39			.23			0.62			—
Other Data:
Number of offices		4			4			4			3
Number of deposit accounts		6.465			6.790			6,677			6,969
Number of loans		1,157			1,222			1,208			1,252

(1) With the exception of end of period ratios, all ratios are based on average monthly balances during the periods.

(2) Performance ratios for the nine-month periods have been annualized.

(3) Represents the difference between the average yield on average interest-earning assets and the average cost on average interest-bearing liabilities.

(4) Represents net interest income as a percent of average interest-earning assets.

23

Use of Proceeds

The following table shows how we intend to use the net proceeds of the offering. The actual net proceeds will depend on the number of shares of common stock sold in the offering and the actual expenses incurred in connection with the offering. Payments for shares made through withdrawals from deposit accounts at Fraternity Federal Savings and Loan Association will reduce deposits and will not result in the receipt of new funds for investment. See “Pro Forma Data” for the assumptions used to arrive at these amounts.

	Minimum of Offering Range						Midpoint of Offering Range						Maximum of Offering Range						Maximum, as Adjusted, of Offering Range
(Dollars in thousands)	1,020,000 Shares at $10.00 Per Share			Percent of Net Proceeds			1,200,000 Shares at $10.00 Per Share			Percent of Net Proceeds			1,380,000 Shares at $10.00 Per Share			Percent of Net Proceeds			1,587,000 Shares at $10.00 Per Share			Percent of Net Proceeds
Offering proceeds	$	10,200					$	12,000					$	13,800					$	15,870
Less: estimated offering expenses		(800	)					(800	)					(800	)					(800	)
Net offering proceeds	$	9,400			100.00	%	$	11,200			100.00	%	$	13,000			100.00	%	$	15,070			100.00	%
Less:
Proceeds contributed to Fraternity Federal Savings and Loan Association		4,700			50.0			5,600			50.0			6,500			50.0			7,535			50.0
Proceeds used for loan to employee stock ownership plan		816			8.7			960			8.6			1,104			8.5			1,270			8.4
Proceeds remaining for Fraternity Community Bancorp (1)	$	3,884			41.3	%	$	4,640			41.4	%	$	5,396			41.5	%	$	6,265			41.6	%

(1) Following the completion of the stock offering and in accordance with applicable regulations, Fraternity Community Bancorp may purchase shares of its common stock in the open market in order to grant awards of restricted stock under its proposed equity incentive plan. Assuming a market price of $10.00 per share at the time of purchase, the cost of acquiring the shares would be approximately $408,000 (40,800 shares) at the minimum of the offering range, $480,000 (48,000 shares) at the midpoint of the offering range, $552,000 (55,200 shares) at the maximum of the offering range and $634,800 (63,480 shares) at the maximum, as adjusted, of the offering range and assuming we grant a number of restricted stock awards equal to 4% of the shares sold in the offering. See “Pro Forma Data” and “Our Management — Executive Compensation — Nonqualified Deferred Compensation — Future Equity Incentive Plan.”

Fraternity Community Bancorp intends to invest the proceeds it retains from the offering initially in short-term, liquid investments. Over time, Fraternity Community Bancorp may use the proceeds it retains from the offering:

• to invest in securities;

• to pay dividends to shareholders;

• to repurchase shares of its common stock, subject to regulatory restrictions;

• for possible future investment in Fraternity Federal Savings and Loan Association if needed to support future growth or expansion; and

• for general corporate purposes.

The specific amounts of net proceeds to be allocated in the future to each of the uses described above have not been determined, is subject to change and will depend on capital requirements, regulatory limitations, future expansion opportunities and our operating results and financial condition.

Under current Office of Thrift Supervision regulations, Fraternity Community Bancorp may not repurchase shares of its common stock during the first year following the offering, except to fund shareholder-approved equity benefit plans or, with prior regulatory approval, when extraordinary circumstances exist.

24

We expect to contribute 50% of the net proceeds of the offering to Fraternity Federal Savings and Loan Association. Fraternity Federal Savings and Loan Association may use the proceeds that it receives from the offering, which is shown in the table above as the amount contributed to Fraternity Federal Savings and Loan Association:

• to fund new loans;

• to invest in securities;

• subject to the receipt of regulatory approval, to finance the possible expansion of its business activities through the establishment of new branch offices and/or the acquisition of other financial institutions or financial services companies; while we intend to open a new branch office in our current market area or a contiguous county in the next three years, we currently have no definitive plans, arrangements, understandings or commitments regarding potential branch office expansion or acquisition opportunities; and

• for general corporate purposes.

Except as described above, neither Fraternity Community Bancorp nor Fraternity Federal Savings and Loan Association has any specific plans, arrangements or understandings for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. The specific amounts of net proceeds to be allocated in the future to each of the uses described above have not been determined, is subject to change and will depend on capital requirements, regulatory limitations, future expansion opportunities and our operating results and financial condition. For a discussion of our business reasons for undertaking the offering, see “The Conversion and Stock Offering — Reasons for the Conversion.”

Our Dividend Policy

Following the offering, our board of directors initially does not intend to pay cash dividends.

In the future, the board of directors may declare and pay regular cash dividends and/or periodic special cash dividends in addition to, or in lieu of, regular cash dividends. In determining whether to declare or pay any dividends, whether regular or special, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements, industry standards, and economic conditions. We will also consider the regulatory restrictions that affect the payment of dividends by Fraternity Federal Savings and Loan Association to us, as discussed below.

Fraternity Community Bancorp is subject to Maryland law, which generally permits a corporation to pay dividends on its common stock unless, after giving effect to the dividend, the corporation would be unable to pay its debts as they become due in the usual course of its business or the total assets of the corporation would be less than its total liabilities.

Fraternity Community Bancorp will not be subject to Office of Thrift Supervision regulatory restrictions on the payment of dividends. However, our ability to pay dividends may depend, in part, upon dividends we receive from Fraternity Federal Savings and Loan Association because we initially will have no source of income other than dividends from Fraternity Federal Savings and Loan Association and earnings from the investment of the net proceeds from the offering that we retain. Office of Thrift Supervision regulations limit dividends and other distributions from Fraternity Federal Savings and Loan Association to us. Fraternity Federal Savings and Loan Association may not declare or pay a cash dividend on its capital stock if its effect would be to reduce the regulatory capital of Fraternity Federal Savings and Loan Association below the amount required for the liquidation account to be established as required by our plan of conversion. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized. See “Regulation and Supervision — Regulation of Federal Savings Associations — Limitation on Capital Distributions” and “The Conversion and Stock Offering —Effects of Conversion to Stock Form — Liquidation Account.”

25

Any payment of dividends by Fraternity Federal Savings and Loan Association to us that would be deemed to be drawn out of Fraternity Federal Savings and Loan Association’s bad debt reserves would require Fraternity Federal Savings and Loan Association to pay federal income taxes at the then current income tax rate on the amount deemed distributed. See “Federal and State Taxation —Federal Income Taxation.” We do not contemplate any distribution by Fraternity Federal Savings and Loan Association that would result in this type of tax liability.

In addition, Fraternity Community Bancorp may not make a distribution that would constitute a return of capital during the three-year term of the business plan submitted in connection with the offering.

Market for the Common Stock

We have not previously issued common stock and there is currently no established market for the common stock. We intend to list our common stock for trading on the OTC Bulletin Board upon completion of the offering. Sandler O’Neill + Partners, L.P. intends to become a market maker in our common stock following the offering, but it is under no obligation to do so. We cannot assure you that an active and liquid trading market for the common stock will develop or, if developed, will be maintained.

The development of a public market having the desirable characteristics of depth, liquidity and orderliness depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of our common stock at any particular time may be limited, which may have an adverse effect on the price at which our common stock can be sold. There can be no assurance that persons purchasing the common stock will be able to sell their shares at or above the $10.00 price per share in the offering. Purchasers of our common stock should recognize that there likely will be a limited trading market in the common stock and, therefore, should have the financial ability to withstand a longer-term investment horizon.

26

Capitalization

The following table presents the historical capitalization of Fraternity Federal Savings and Loan Association at September 30, 2010 and the capitalization of Fraternity Community Bancorp reflecting the offering (referred to as “pro forma” information). The pro forma capitalization gives effect to the assumptions listed under “Pro Forma Data,” based on the sale of the number of shares of common stock indicated in the table. This table does not reflect the issuance of additional shares as a result of the exercise of options granted under the proposed equity incentive plan. A change in the number of shares to be issued in the offering may materially affect pro forma capitalization. We are offering our common stock on a best efforts basis. We must sell a minimum of 1,020,000 shares to complete the offering.

				Pro Forma Capitalization Based Upon the Sale of
(Dollars in thousands)	Capitalization as of September 30, 2010			1,020,000 Shares at $10.00 Per Share			1,200,000 Shares at $10.00 Per Share			1,380,000 Shares at $10.00 Per Share			1,587,000 Shares at $10.00 Per Share
	(Unaudited)
Deposits (1)	$	125,696		$	125,696		$	125,696		$	125,696		$	125,696
Borrowings		22,667			22,667			22,667			22,667			22,667
Total deposits and borrowed funds	$	148,363		$	148,363		$	148,363		$	148,363		$	148,363
Shareholders’ equity:
Preferred stock:
1,000,000 shares, $0.01 par value per share, authorized; none issued or outstanding	$	—		$	—		$	—		$	—		$	—
Common stock:
15,000,000 shares, $0.01 par value per share, authorized; specified number of shares assumed to be issued and outstanding (2)	$	—		$	10		$	12		$	14		$	16
Additional paid-in capital		—			9,390			11,188			12,986			15,054
Retained earnings (3)		16,432			16,432			16,432			16,432			16,432
Accumulated other comprehensive income		14			14			14			14			14
Less:
Common stock acquired by employee stock ownership plan (4)		—			(816	)		(960	)		(1,104	)		(1,270	)
Common stock to be acquired by equity incentive plan (5)		—			(408	)		(480	)		(552	)		(635	)
Total shareholders’ equity	$	16,446		$	24,622		$	26,206		$	27,790		$	29,611
Shareholders’ equity to assets (1)		9.88	%		14.10	%		14.87	%		15.63	%		16.48	%

(1) Does not reflect withdrawals from deposit accounts for the purchase of common stock in the offering. Withdrawals to purchase common stock will reduce pro forma deposits and assets by the amounts of the withdrawals.

(2) Reflects total issued and outstanding shares of 1,020,000, 1,200,000, 1,380,000, and 1,587,000 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively.

(3) Retained earnings are restricted by applicable regulatory capital requirements.

(4) Assumes that 8% of the common stock sold in the offering will be acquired by the employee stock ownership plan in the offering with funds borrowed from Fraternity Community Bancorp. Under generally accepted accounting principles, the amount of common stock to be purchased by the employee stock ownership plan represents unearned compensation and is, accordingly, reflected as a reduction of capital and a liability to the employee stock ownership plan. As shares are released to plan participants’ accounts, a compensation expense will be charged, along with related tax benefit, and a reduction in the charge against capital will occur in the amount of the compensation expense recognized. Since the funds are borrowed from Fraternity Community Bancorp, the borrowing will be eliminated in consolidation and no liability or interest expense will be reflected in the financial statements of Fraternity Community Bancorp. The loan will be repaid principally through Fraternity Federal Savings and Loan Association’s contributions to the employee stock ownership plan and dividends payable on common stock, if any, held by the plan over the anticipated 12-year term of the loan. See “Our Management — Executive Compensation — Benefit Plans — Employee Stock Ownership Plan.”

27

(5) Assumes the purchase in the open market at $10.00 per share, for restricted stock awards under the proposed equity incentive plan, of a number of shares equal to 4% of the shares of common stock sold in the offering. The shares are reflected as a reduction of shareholders’ equity. The equity incentive plan will be submitted to shareholders for approval at a meeting following the offering. See “Risk Factors — Issuance of shares for benefit programs may dilute your ownership interest,” “Pro Forma Data” and “Our Management — Executive Compensation — Nonqualified Deferred Compensation — Future Equity Incentive Plan.”

28

Regulatory Capital Compliance

At September 30, 2010, Fraternity Federal Savings and Loan Association exceeded all regulatory capital requirements. The following table presents Fraternity Federal Savings and Loan Association’s capital position relative to its regulatory capital requirements at September 30, 2010, on a historical and a pro forma basis. The table reflects receipt by Fraternity Federal Savings and Loan Association of 50% of the net proceeds of the offering. For purposes of the table, the amount expected to be borrowed by the employee stock ownership plan is deducted from pro forma regulatory capital. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see “Use of Proceeds,” “Capitalization” and “Pro Forma Data.” The definitions of the terms used in the table are those provided in the capital regulations issued by the Office of Thrift Supervision. For a discussion of the capital standards applicable to Fraternity Federal Savings and Loan Association, see “Regulation and Supervision — Regulation of Federal Savings Associations — Capital Requirements.”

						Pro Forma at September 30, 2010
						Minimum of Offering Range						Midpoint of Offering Range						Maximum of Offering Range						Maximum, as Adjusted, of Offering Range
	Historical at September 30, 2010					1,020,000 Shares At $10.00 Per Share						1,200,000 Shares At $10.00 Per Share						1,380,000 Shares At $10.00 Per Share						1,587,000 Shares At $10.00 Per Share
	Amount		Percent of Assets (1)			Amount			Percent of Assets			Amount			Percent of Assets			Amount			Percent of Assets			Amount			Percent of Assets
	(Dollars in thousands)
Total capital under generally accepted accounting principles	$	16,446		9.88	%	$	20,330			11.88	%	$	21,086			12.25	%	$	21,842			12.63	%	$	22,711			13.05	%
Tangible Capital:
Capital level (2)	$	16,432		9.87	%	$	20,316			11.87	%	$	21,072			12.25	%	$	21,828			12.62	%	$	22,697			13.05	%
Requirement		2,497		1.50			2,567			1.50			2,580			1.50			2,594			1.50			2,609			1.50
Excess	$	13,935		8.37	%	$	17,749			10.37	%	$	18,492			10.75	%	$	19,234			11.12	%	$	20,088			11.55	%
Core Capital:
Capital level (2)	$	16,432		9.87	%	$	20,316			11.87	%	$	21,072			12.25	%	$	21,828			12.62	%	$	22,697			13.05	%
Requirement		4,995		3.00			5,133			3.00			5,160			3.00			5,187			3.00			5,218			3.00
Excess	$	11,437		6.87	%	$	15,183			8.87	%	$	15,912			9.25	%	$	16,641			9.62	%	$	17,479			10.05	%
Tier 1 Risk-Based Capital:
Capital level	$	16,432		18.14	%	$	20,316			22.20	%	$	21,072			22.98	%	$	21,828			23.76	%	$	22,697			24.65	%
Requirement		3,623		4.00			3,660			4.00			3,667			4.00			3,675			4.00			3,683			4.00
Excess	$	12,809		14.14	%	$	16,656			18.20	%	$	17,405			18.98	%	$	18,153			19.76	%	$	19,014			20.65	%
Total Risk-Based Capital:
Total risk-based capital (3)	$	17,564		19.39	%	$	21,448			23.44	%	$	22,204			24.22	%	$	22,960			24.99	%	$	23,829			25.88	%
Requirement		7,245		8.00			7,320			8.00			7,335			8.00			7,349			8.00			7,366			8.00
Excess	$	10,319		11.39	%	$	14,128			15.44	%	$	14,869			16.22	%	$	15,611			16.99	%	$	16,463			17.88	%
Reconciliation of capital infusion to Fraternity Federal Savings and Loan Association:
Net proceeds of offering						$	9,400					$	11,200					$	13,800					$	15,870
Proceeds to Fraternity Federal Savings and Loan Association						$	4,700					$	5,600					$	6,500					$	7,535
Less: stock acquired by employee stock ownership plan							(816	)					(960	)					(1,104	)					(1,270	)
Pro forma increase in GAAP and regulatory capital						$	3,884					$	4,640					$	5,396					$	6,265

(1) Tangible capital and core capital levels are shown as a percentage of adjusted total assets of $166.4 million. Risk-based capital levels are shown as a percentage of risk-weighted assets of $90.6 million.

(2) See note 13 of the notes to consolidated financial statements for further information regarding our tangible capital, core capital, Tier 1 risk-based capital and total risk-based capital ratios.

(3) Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk-weighting.

29

Pro Forma Data

The following tables show information about our net income and shareholders’ equity reflecting the sale of common stock in the offering. The information provided illustrates our pro forma net income and shareholders’ equity based on the sale of common stock at the minimum of the offering range, the midpoint of the offering range, the maximum of the offering range and the maximum, as adjusted, of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following tables are based upon the following assumptions:

• All shares of stock will be sold in the subscription and community offerings;

• Our employee stock ownership plan will purchase a number of shares equal to 8% of the shares sold in the offering with a loan from Fraternity Community Bancorp that will be repaid in equal installments over 12 years;

• Sandler O’Neill + Partners, L.P. will receive a success fee equal to $160,000; and

• Total expenses of the offering, excluding fees paid to Sandler O’Neill + Partners, L.P., will be approximately $640,000.

Actual expenses may vary from this estimate.

Pro forma net income for the nine months ended September 30, 2010 and the year ended December 31, 2009 has been calculated as if the offering were completed at the beginning of the period, and the net proceeds had been invested at 0.42% for the nine months ended September 30, 2010 and 1.14% for the year ended December 31, 2009, which represents the two-year treasury rate at September 30, 2010. We believe that the two-year treasury rate at September 30, 2010 represents a more realistic yield on the investment of the offering proceeds than the arithmetic average of the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate required to be assumed by Office of Thrift Supervision regulations.

A pro forma after-tax return of 0.28% is used for the nine months ended September 30, 2010 and 0.75% is used for the year ended December 31, 2009, after giving effect to a combined federal and state income tax rate of 34% for the period. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the number of shares of common stock indicated in the tables.

When reviewing the following tables you should consider the following:

• The final column gives effect to a 15% increase in the offering range, which may occur without any further notice if Feldman Financial Advisors increases its appraisal to reflect the results of this offering, changes in our financial condition or results of operations or changes in market conditions after the offering begins. See “The Conversion and Stock Offering — How We Determined the Offering Range and the $10.00 Per Share Purchase Price.”

• Since funds on deposit at Fraternity Federal Savings and Loan Association may be withdrawn to purchase shares of common stock, the amount of funds available for investment will be reduced by the amount of withdrawals for stock purchases. The pro forma tables do not reflect withdrawals from deposit accounts.

• Historical per share amounts have been computed as if the shares of common stock expected to be issued in the offering had been outstanding at the beginning of the period covered by the table. However, neither historical nor pro forma shareholders’ equity has been adjusted to reflect the investment of the estimated net proceeds from the sale of the shares in the offering, the additional employee stock ownership plan expense or the proposed equity incentive plan.

30

• Pro forma shareholders’ equity (“book value”) represents the difference between the stated amounts of our assets and liabilities. Book value amounts do not represent fair market values or amounts available for distribution to shareholders in the unlikely event of liquidation. The amounts shown do not reflect the federal income tax consequences of the restoration to income of Fraternity Federal Savings and Loan Association’s special bad debt reserves for income tax purposes or give effect to the liquidation account in the unlikely event of liquidation. See “Federal and State Taxation” and “The Conversion and Stock Offering — Effects of Conversion to Stock Form — Liquidation Account.”

• The amounts shown as pro forma shareholders’ equity per share do not represent possible future price appreciation of our common stock.

The following pro forma data may not represent the actual financial effects of the offering or our operating results after the offering. The pro forma data relies exclusively on the assumptions outlined above and in the notes to the pro forma tables. The pro forma data does not represent the fair market value of our common stock, the current fair market value of our assets or liabilities, or the amount of money that would be available for distribution to shareholders if we are liquidated after the offering.

31

We are offering our common stock on a best efforts basis. We must sell a minimum of 1,020,000 shares to complete the offering.

	At or For the Nine Months Ended September 30, 2010
	Minimum of Offering Range			Midpoint of Offering Range			Maximum of Offering Range			Maximum, as Adjusted, of Offering Range
	1,020,000 Shares at $10.00 Per Share			1,200,000 Shares at $10.00 Per Share			1,380,000 Shares at $10.00 Per Share			1,587,000 Shares at $10.00 Per Share
	(Dollars in thousands, except per share amounts)
Gross proceeds	$	10,200		$	12,000		$	13,800		$	15,870
Less: estimated offering expenses		(800	)		(800	)		(800	)		(800	)
Estimated net conversion proceeds		9,400			11,200			13,000			15,070
Less: common stock acquired by employee stock ownership plan (1)		(816	)		(960	)		(1,104	)		(1,270	)
Less: common stock to be acquired by equity incentive plan (2)		(408	)		(480	)		(552	)		(635	)
Net investable proceeds	$	8,176		$	9,760		$	11,344		$	13,165
Pro Forma Net Income:
Pro forma net income (loss):
Historical	$	(572	)	$	(572	)	$	(572	)	$	(572	)
Pro forma income on net investable proceeds		17			20			24			28
Less: pro forma employee stock ownership plan adjustments (1)		(34	)		(40	)		(46	)		(52	)
Less: pro forma restricted stock award expense (2)		(40	)		(48	)		(55	)		(63	)
Less: pro forma stock option expense (3)		(53	)		(62	)		(71	)		(82	)
Pro forma net income (loss)	$	(682	)	$	(702	)	$	(720	)	$	(741	)
Pro forma net income (loss) per share:
Historical	$	(0.61	)	$	(0.52	)	$	(0.45	)	$	(0.39	)
Pro forma income on net investable proceeds		0.02			0.02			0.02			0.02
Less: pro forma employee stock ownership plan adjustments (1)		(0.04	)		(0.04	)		(0.04	)		(0.04	)
Less: pro forma restricted stock award expense (2)		(0.04	)		(0.04	)		(0.04	)		(0.04	)
Less: pro forma stock option expense (3)		(0.06	)		(0.06	)		(0.06	)		(0.06	)
Pro forma net income (loss) per share	$	(0.72	)	$	(0.63	)	$	(0.56	)	$	(0.50	)
Offering price as a multiple of annualized pro forma net income per share		NM			NM			NM			NM
Number of shares used to calculate pro forma annualized net income per share (4)		943,500			1,110,000			1,276,500			1,467,975
Pro Forma Shareholders’ Equity:
Pro forma shareholders’ equity (book value) (4):
Historical	$	16,446		$	16,446		$	16,446		$	16,446
Estimated net proceeds		9,400			11,200			13,000			15,070
Less: common stock acquired by employee stock ownership plan (1)		(816	)		(960	)		(1,104	)		(1,270	)
Less: common stock to be acquired by equity incentive plan (2)		(408	)		(480	)		(552	)		(635	)
Pro forma shareholders’ equity	$	24,622		$	26,206		$	27,790		$	29,611
Pro forma shareholders’ equity per share (4):
Historical	$	16.12		$	13.71		$	11.92		$	10.36
Estimated net proceeds		9.22			9.33			9.42			9.50
Less: common stock acquired by employee stock ownership plan (1)		(0.80	)		(0.80	)		(0.80	)		(0.80	)
Less: common stock to be acquired by equity incentive plan (2)		(0.40	)		(0.40	)		(0.40	)		(0.40	)
Pro forma shareholders’ equity per share	$	24.14		$	21.84		$	20.14		$	18.66
Offering price as a percentage of pro forma shareholders’ equity per share		41.4	%		45.8	%		49.7	%		53.6	%
Number of shares used to calculate pro forma shareholders’ equity per share (4)		1,020,000			1,200,000			1,380,000			1,587,000

(footnotes on page __)

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	At or For the Year Ended December 31, 2009
	Minimum of Offering Range			Midpoint of Offering Range			Maximum of Offering Range			Maximum, as Adjusted, of Offering Range
	1,020,000 Shares at $10.00 Per Share			1,200,000 Shares at $10.00 Per Share			1,380,000 Shares at $10.00 Per Share			1,587,000 Shares at $10.00 Per Share
	(Dollars in thousands, except per share amounts)
Gross proceeds	$	10,200		$	12,000		$	13,800		$	15,870
Less: estimated offering expenses		(800	)		(800	)		(800	)		(800	)
Estimated net conversion proceeds		9,400			11,200			13,000			15,070
Less: common stock acquired by employee stock ownership plan (1)		(816	)		(960	)		(1,104	)		(1,270	)
Less: common stock to be acquired by equity incentive plan (2)		(408	)		(480	)		(552	)		(635	)
Net investable proceeds	$	8,176		$	9,760		$	11,344		$	13,165
Pro Forma Net Income:
Pro forma net income:
Historical	$	343		$	343		$	343		$	343
Pro forma income on net investable proceeds		61			73			85			99
Less: pro forma employee stock ownership plan adjustments (1)		(45	)		(53	)		(61	)		(70	)
Less: pro forma restricted stock award expense (2)		(54	)		(63	)		(73	)		(84	)
Less: pro forma stock option expense (3)		(70	)		(83	)		(95	)		(109	)
Pro forma net income (loss)	$	235		$	217		$	199		$	179
Pro forma net income (loss) per share:
Historical	$	0.36		$	0.31		$	0.27		$	0.23
Pro forma income on net investable proceeds		0.07			0.07			0.07			0.07
Less: pro forma employee stock ownership plan adjustments (1)		(0.05	)		(0.05	)		(0.05	)		(0.05	)
Less: pro forma restricted stock award expense (2)		(0.06	)		(0.06	)		(0.06	)		(0.06	)
Less: pro forma stock option expense (3)		(0.07	)		(0.07	)		(0.07	)		(0.07	)
Pro forma net income (loss) per share	$	0.25		$	0.20		$	0.16		$	0.12
Offering price as a multiple of pro forma net income per share		40.0x			50.0x			62.5x			83.3x
Number of shares used to calculate pro forma net income per share (4)		945,200			1,112,000			1,278,800			1,470,620
Pro Forma Shareholders’ Equity:
Pro forma shareholders’ equity (book value) (4):
Historical	$	16,992		$	16,992		$	16,992		$	16,992
Estimated net proceeds		9,400			11,200			13,000			15,070
Less: common stock acquired by employee stock ownership plan (1)		(816	)		(960	)		(1,104	)		(1,270	)
Less: common stock to be acquired by equity incentive plan (2)		(408	)		(480	)		(552	)		(635	)
Pro forma shareholders’ equity	$	25,168		$	26,752		$	28,336		$	30,157
Pro forma shareholders’ equity per share (4):
Historical	$	16.66		$	14.16		$	12.31		$	10.71
Estimated net proceeds		9.21			9.33			9.42			9.49
Less: common stock acquired by employee stock ownership plan (1)		(0.80	)		(0.80	)		(0.80	)		(0.80	)
Less: common stock to be acquired by equity incentive plan (2)		(0.40	)		(0.40	)		(0.40	)		(0.40	)
Pro forma shareholders’ equity per share	$	24.67		$	22.29		$	20.53		$	19.00
Offering price as a percentage of pro forma shareholders’ equity per share		40.5	%		44.9	%		48.7	%		52.6	%
Number of shares used to calculate pro forma shareholders’ equity per share (4)		1,020,000			1,200,000			1,380,000			1,587,000

(footnotes on page __)

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(1) Assumes that the employee stock ownership plan will acquire a number of shares of stock equal to 8% of the shares sold in the offering (81,600, 96,000, 110,400 and126,960) shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively). The employee stock ownership plan will borrow the funds to acquire these shares from the net offering proceeds retained by Fraternity Community Bancorp. The amount of this borrowing has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. This borrowing will have an interest rate equal to the prime rate as published in The Wall Street Journal, which is currently 3.25%, and a term of 12 years. Fraternity Federal Savings and Loan Association intends to make contributions to the employee stock ownership plan in amounts at least equal to the principal and interest requirement of the debt. Interest income that Fraternity Community Bancorp will earn on the loan will offset the interest expense paid on the loan by Fraternity Federal Savings and Loan Association. As the debt is paid down, shares will be released for allocation to participants’ accounts and shareholders’ equity will be increased. The adjustment to pro forma net income for the employee stock ownership plan reflects the after-tax compensation expense associated with the plan. Applicable accounting principles require that compensation expense for the employee stock ownership plan be based upon the market value of shares committed to be released and that unallocated shares be excluded from earnings per share computations. An equal number of shares (1/15 of the total, based on a 12-year loan) will be released each year over the term of the loan. The valuation of shares committed to be released would be based upon the average market value of the shares during the year, which, for purposes of this calculation, was assumed to be equal to the $10.00 per share purchase price. If the average market value per share is greater than $10.00 per share, total employee stock ownership plan expense would be greater. See “Our Management — Executive Compensation — Benefit Plans — Employee Stock Ownership Plan.”

(2) Assumes that Fraternity Community Bancorp will purchase in the open market a number of shares of stock equal to 4% of the shares sold in the offering (40,800, 48,000, 55,200 and 63,480 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively), that will be reissued as restricted stock awards under an equity incentive plan to be adopted following the offering. Purchases will be funded with cash on hand at Fraternity Community Bancorp or with dividends paid to Fraternity Community Bancorp by Fraternity Federal Savings and Loan Association. The cost of these shares has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. In calculating the pro forma effect of the restricted stock awards, it is assumed that the required shareholder approval has been received, that the shares used to fund the awards were acquired at the beginning of the respective period and that the shares were acquired at the $10.00 per share purchase price. The issuance of authorized but unissued shares of the common stock instead of shares repurchased in the open market would dilute the ownership interests of existing shareholders by approximately 3.85%. The adjustment to pro forma net income for the restricted stock awards reflects the after-tax compensation expense associated with the awards. It is assumed that the fair market value of a share of Fraternity Community Bancorp common stock was $10.00 at the time the awards were made, that shares of restricted stock issued under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the shares awarded was an amortized expense during each year, and that the combined federal and state income tax rate was 34%. If the fair market value per share is greater than $10.00 per share on the date shares are awarded under the equity incentive plan, total equity incentive plan expense would be greater.

(3) The adjustment to pro forma net income for stock options reflects the after-tax compensation expense associated with the stock options that may be granted under the equity incentive plan expected to be adopted following the offering. If the equity incentive plan is approved by shareholders, a number of shares equal to 10% of the number of shares sold in the offering (102,000, 120,000, 138,000 and 158,700 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively) will be reserved for future issuance upon the exercise of stock options that may be granted under the plan. Using the Black-Scholes option-pricing formula, the options are assumed to have a value of $3.77 for each option, based on the following assumptions: exercise price, $10.00; trading price on date of grant, $10.00; dividend yield, 0%; expected life, 10 years; expected volatility, 22.83%; and risk-free interest rate, 2.53%. Because there currently is no market for Fraternity Community Bancorp common stock, the assumed expected volatility is based on the SNL Index for all publicly-traded thrifts. The dividend yield is assumed to be 0% because there is no history of dividend payments and the board of directors has not expressed an intention to commence dividend payments upon completion of the offering. It is assumed that stock options granted under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the options awarded is an amortized expense during each year, that 25% of the options awarded are non-qualified options and that the combined federal and state income tax rate is 34%. If the fair market value per share is different than $10.00 per share on the date options are awarded under the equity incentive plan, or if the assumptions used in the option-pricing formula are different from those used in preparing this pro forma data, the value of the stock options and the related expense would be different. Applicable accounting standards do not prescribe a specific valuation technique to be used to estimate the fair value of employee stock options. Fraternity Community Bancorp may use a valuation technique other than the Black-Scholes option-pricing formula and that technique may produce a different value. The issuance of authorized but unissued shares of common stock to satisfy option exercises instead of shares repurchased in the open market would dilute the ownership interests of existing shareholders by approximately 9.09%.

(4) The number of shares used to calculate pro forma net income per share is equal to the total number of shares to be outstanding upon completion of the offering, less the number of shares purchased by the employee stock ownership plan not committed to be released within six months or one year following the offering. The number of shares used to calculate pro forma shareholders’ equity per share equals the total number of shares to be outstanding upon completion of the offering.

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Our Business

General

Fraternity Community Bancorp, a Maryland corporation, was incorporated in October 2010 to become the holding company for Fraternity Federal Savings and Loan Association upon completion of the conversion. Before the completion of the conversion, Fraternity Community Bancorp has not engaged in any significant activities other than organizational activities. Following completion of the conversion, Fraternity Community Bancorp’s business activity will be the ownership of the outstanding capital stock of Fraternity Federal Savings and Loan Association. Fraternity Community Bancorp will not own or lease any property but will instead use the premises, equipment and other property of Fraternity Federal Savings and Loan Association with the payment of appropriate rental fees, as required by applicable law and regulations, under the terms of an expense allocation agreement that Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association will enter into upon completion of the conversion. The expense allocation agreement generally provides that Fraternity Community Bancorp will pay to Fraternity Federal Savings and Loan Association, on a quarterly basis, fees for its use of Fraternity Federal Savings and Loan Association’s premises, furniture, equipment and employees in an amount to be determined by the board of directors of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association. Such fees shall not be less than the fair market value received for such goods or services. In addition, Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association will also enter into a tax allocation agreement upon completion of the conversion as a result of their status as members of an affiliated group under the Internal Revenue Code. The tax allocation agreement generally provides that Fraternity Community Bancorp will file consolidated federal tax income returns with Fraternity Federal Savings and Loan Association and its subsidiaries. The tax allocation agreement also formalizes procedures for allocating the consolidated tax liability of the group among its members and establishes procedures for the future payments by Fraternity Federal Savings and Loan Association to Fraternity Community Bancorp for tax liabilities attributable to Fraternity Federal Savings and Loan Association and its subsidiaries. In the future, Fraternity Community Bancorp may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.

Founded in 1913, Fraternity Federal Savings and Loan Association is a community-oriented financial institution, dedicated to serving the financial service needs of customers and businesses within its market area, which consists of the Greater Baltimore area. We offer a variety of deposit products and provide loans secured by real estate located in our market area. Our real estate loans consist primarily of one- to four-family mortgage loans, as well as commercial real estate loans, land loans, home equity lines of credit and residential construction loans. We also offer consumer loans, and to a much lesser extent, commercial business loans. We currently operate out of our corporate headquarters and main office in the Baltimore and full-service branch offices located in Ellicott City, Cockeysville and Hampstead, Maryland. We are subject to extensive regulation, examination and supervision by the Office of Thrift Supervision, our primary federal regulator, and the Federal Deposit Insurance Corporation, our deposit insurer. At September 30, 2010, we had total assets of $166.5 million, total deposits of $125.7 million and total equity of $14.4 million.

Our website address is www.fraternityfed.com. Information on our website should not be considered a part of this prospectus.

Market Area

We are headquartered in Baltimore, Maryland. We consider our lending market to consist of the Greater Baltimore area, which consists of Baltimore City and the surrounding Counties of Baltimore, Carroll, Howard, Harford and Anne Arundel in Maryland, although almost all of our deposits come from our branch office locations in Baltimore City and Baltimore, Carroll and Howard Counties. The economy of our market area is a diverse cross section of employment sectors, with a mix of services, manufacturing, wholesale/retail trade, federal and local government, health care facilities and finance related employment. This diversification helped to mitigate the impact of the economic recession experienced over the last two years, as Maryland’s seasonable adjusted unemployment rose from 4.6% in August of 2008 to 7.3% by September of 2010, which remained well below the national seasonably adjusted unemployment rate which rose from 6.2% in August of 2008 to 9.6% by August of

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2010 (Source: Maryland Department of Labor, Licensing and Regulation). Select employers in the Baltimore metropolitan area include Johns Hopkins University, Johns Hopkins Hospital and Health System, University of Maryland Health System, University of Maryland, Baltimore, and LifeBridge Health. Other large employers in Baltimore City include Constellation Energy, Legg Mason, Verizon, and the U.S. Social Security Administration. In Howard County, the largest employers include the Johns Hopkins Applied Physics Laboratory, Northrop Grumman, Verizon Wireless and SAIC while Carroll County’s largest employers include the Carroll County Hospital, Springfield Hospital Center, Random House, EMA/Fairhaven Retirement Communities and McDaniel College.

Demographic and economic growth trends provide key insight into the health of our market area. The following table sets forth information regarding the distribution of our loans and deposits and demographic information for the counties in our market area, including Baltimore City, and the State of Maryland. The demographic information is based on published statistics of the U.S. Census Bureau.

	Baltimore City			Baltimore County			Carroll County			Howard County			Maryland
Loans by County (in millions) (1)	$	25.8		$	64.8		$	4.3		$	6.5		$	112.7
Deposits by County (in millions) (1)		19.1			46.3			4.8			55.8			126.0
Unemployment rate (2)		11.5			8.1			6.8			5.7			7.6
Median household income (3)	$	36,650		$	63,355			76,938		$	100,769		$	66,983
Population growth (decline) (4)		(2.1	)%		4.7	%		12.7	%		10.9	%		7.6	%

(1) At September 30, 2010

(2) September 2010

(3) For 2010

(4) From April 2000 to July 2009

If the population of Baltimore City continues to decline, it could negatively affect our deposit and loan volumes. However, we maintain only a single branch in Baltimore City, and Baltimore City accounted for only 15.2% of our total deposits and 22.3% of our total loans at September 30, 2010. As a result, we expect the adverse effect on our loan and deposit volumes of any future population declines in Baltimore City to be limited.

Our lending area, like many regions of the United States, has experienced declines in home values in recent years. According to the National Association of Realtors, from 2007 to the third calendar quarter of 2010, the median sales price of existing single family homes in the Baltimore-Towson, Maryland metropolitan area declined from $286,100 to $257,100, representing a deduction of 10.1%. Home prices in the Baltimore-Towson metropolitan area have increased by 5.4% from January 1, 2010 through September 30, 2010. The Baltimore-Towson, Maryland metropolitan area is comprised of our lending market plus Queen Anne’s County, Maryland, and represents a reasonable proxy for home price data in our lending market.

According to Real Estate Business Intelligence, a real estate data company, the number of home sales in our lending market area, the Baltimore metropolitan region, totaled 1,560 for the month of October 2010, up 29.7% from the number of home sales in October 2009 and up 8.6% from the number of home sales in September 2010.

Competition

We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the many financial institutions operating in our primary market area and from other financial service companies such as securities brokerage firms, credit unions and insurance companies. We also face competition for investors’ funds from money market funds, mutual funds and other corporate and government securities. At June 30, 2010, which is the most recent date for which data is available from the Federal Deposit Insurance Corporation, we held approximately 0.28% of the deposits in Baltimore County, Maryland, 0.13% of the deposits in Carroll County, Maryland, 1.21% of the deposits in Howard County and 0.10% of the deposits in Baltimore City. This data does not reflect deposits held by credit unions with which we also compete. In addition, banks owned by large national and regional holding companies and other community-based banks also operate in our primary market area. Most of these institutions are larger than us and, therefore, may have greater resources.

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Our competition for loans comes primarily from financial institutions, including credit unions, in our primary market area and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from non-depository financial services companies entering the mortgage market, such as insurance companies, securities companies and specialty finance companies.

We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet, and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal law now permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans could limit our growth in the future.

Lending Activities

General. The largest segment of our loan portfolio is real estate mortgage loans, consisting primarily of one- to four-family mortgage loans, and, to a lesser extent, commercial real estate loans, land loans, home equity lines of credit and residential construction loans. We also offer consumer loans and, to a limited extent, commercial business loans. We originate one- to four-family mortgage loans primarily for sale in the secondary market, with servicing released. We generally retain in our portfolio all adjustable-rate loans we originate, as well as shorter-term, fixed-rate one- to four-family loans. Loans we sell consist primarily of longer-term, fixed-rate one- to four-family mortgage loans.

We intend to continue to emphasize one- to four-family lending, while also seeking to expand our commercial real estate lending activities with a focus on serving small businesses and emphasizing relationship banking in our primary market area.

The following is a description of the loans we offer and our lending policies. On occasion, as described below, we may choose to originate a loan that does not conform in every particular with our loan policies. However, such exceptions are extremely rare and immaterial. Any exceptions to our loan policies must be approved by the individuals or committee having authority to approve a comparable loan that conformed fully with our lending policies. For information regarding loan approval procedures and authority, see “— Loan Underwriting — Loan Approval Procedures and Authority.”

One- to Four-Family Mortgage Loans. At September 30, 2010, we had $88.5 million in one- to four-family mortgage loans, which represented 75.9% of our total loan portfolio. Our origination of one- to four-family mortgage loans enables borrowers to purchase or refinance existing homes located in our primary market area.

Our one- to four-family mortgage lending policies and procedures generally conform to secondary market guidelines. We offer a mix of adjustable-rate mortgage loans and fixed-rate mortgage loans with terms of up to 40 years, although we have never originated any such loans with a term exceeding 30 years. Borrower demand for adjustable-rate loans compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees offered for fixed-rate mortgage loans as compared to an initially discounted interest rate and loan fees for multi-year adjustable-rate mortgages. The relative amount of fixed-rate mortgage loans and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment. We determine the loan fees, interest rates and other provisions of mortgage loans based on our own pricing criteria and competitive market conditions.

While one- to four-family real estate loans are normally originated with 15- or 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full either upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market,

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prevailing interest rates and the interest rates payable on outstanding loans on a regular basis. We do not offer one- to four-family mortgage loans with negative amortization, and we have made a very limited number of interest only one- to four-family mortgage loans in cases where the borrower had unusually favorable income or collateral characteristics.

Interest rates and payments on our adjustable-rate mortgage loans adjust for periods ranging from one year to up to 10 years, with most adjusting annually after an initial fixed period that, in most cases, is five or seven years. Interest rates and payments on our adjustable-rate loans are indexed to the one-year U.S. Treasury Bill rate or LIBOR.

We make owner occupied one- to four-family real estate loans with loan-to-value ratios of up to 95%. Loans with loan-to-value ratios in excess of 80% require private mortgage insurance. In addition, under current lending policies, non-owner occupied one- to four-family real estate loan-to-value ratios may not exceed 80%. We require all properties securing mortgage loans to be appraised by a board-approved independent appraiser. We also require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, and flood insurance is required for all loans located in flood hazard areas. We do not offer, and have not offered, sub-prime or no-documentation mortgage loans. While we have originated a limited amount of Alt-A mortgage loans in the past, we no longer offer Alt-A mortgage loans.

Included in one- to four-family mortgage loans are second mortgage loans. Second mortgage loans are made at fixed rates for terms of up to 15 years. We do not offer second mortgage loans with loan-to-value ratios exceeding 80%, including any first mortgage loan balance, except when there are exceptional income or credit characteristics on the loan. Second mortgage loans totaled $2.8 million at September 30, 2010 and represented 3.2% of one- to four-family mortgage loans at such date.

In order to provide financing for low- and moderate-income and first-time homebuyers, we participate in the Healthy Neighborhoods program under which a consortium of local financial institutions that make loans to low- and moderate-income individuals for home purchases and improvements. Our commitment under this program is $1 million in loans.

Home Equity Lines of Credit. We offer home equity lines of credit, all of which are adjustable-rate loans with terms up to 15 years, although in the past we offered terms of up to 30 years. We do not originate home equity loans with loan-to-value ratios exceeding 80%, including any first mortgage loan balance, although in the past we originated home equity lines of credit with loan-to-value ratios of up to 85% where there were exceptional income or credit characteristics on the loan. At September 30, 2010, home equity lines of credit totaled $13.5 million, or 11.6% of our total loan portfolio.

Residential Construction Loans. We originate construction loans for one- to four-family homes. At September 30, 2010, residential construction loans totaled $7.1 million, which represented 6.1% of our total loan portfolio. We originate fixed- and adjustable-rate loans to individuals and to builders to finance the construction of residential dwellings. Our construction loans generally are interest-only loans that provide for the payment of only interest during the construction phase, which is usually up to 12 months. At the end of the construction phase, the loan generally converts to a permanent mortgage loan. Loans generally can be made with a maximum loan to value ratio of 80% on residential construction, based on appraised value as if complete. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also will generally require an inspection of the property before disbursement of funds during the term of the construction loan.

Included in our residential construction loan portfolio are speculative construction loans. Beginning in December 2005, we began making a limited number of speculative construction loans for the building of luxury residences. We determined to make these speculative construction loans because of the higher yields on such loans compared to conforming loans for the construction of owner-occupied, one- to four-family residences and to reduce our interest rate risk. We made a total of 13 speculative construction loans aggregating $14.8 million, net of participations sold, before we determined to discontinue this type of lending. Two of the 13 loans were originated as owner-occupied construction loans and were later classified as speculative. Of these loans, nine loans totaling $10.7 million have been repaid in full. At September 30, 2010, we had three speculative construction loans totaling $3.3

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million outstanding. We have extended the terms of two of these three loans, totaling $2.1 million, and each of these two loans were performing in accordance with their extended terms. One of these extended loans amounting to $1.6 million had an original term ending October of 2009. This loan term has been extended twice, most recently in August of 2010 to February 28, 2011. The borrower has been making the interest payment on time each month, and our latest review of the borrower’s financial condition has not given us cause to determine that such borrower is in financial difficulty at this time, and, therefore, we have not classified this loan as a troubled debt restructuring. This loan was classified as substandard at September 30, 2010. After reviewing the latest appraisal, dated August 2010, and subtracting expected disposition costs, we determined there was no loss to be recognized for this loan. The other extended loan, totaling $577,500, had an original loan term ending March 31, 2009. This loan term has been extended three times, most recently in August 2010 to February 28, 2011. We have determined the borrower is experiencing financial difficulty, and, therefore, we have classified this loan as a troubled debt restructuring as of September 30, 2010. This loan was classified as special mention at September 30, 2010. As a result of the deterioration in local economic conditions in 2009 and 2010, both speculative construction borrowers whose loan terms were extended experienced difficulties selling the completed residences.

Our third outstanding speculative construction loan at September 30, 2010 had an outstanding balance of $1.2 million and was nonperforming. Such loan was classified as substandard at September 30, 2010. Subsequent to September 30, 2010, we foreclosed on the collateral securing that loan. In addition, at September 30, 2010, we had assets acquired through foreclosure totaling $871,000, which included one property securing a speculative construction loan that was carried at $563,000. In light of current market conditions, we have discontinued speculative construction lending.

At September 30, 2010, our largest residential construction loan was a $1.6 million speculative construction loan secured by a custom built luxury home. The home is substantially completed and is listed for sale. We have extended the term of the loan, which was performing in accordance with its terms, as extended, at September 30, 2010. This loan was classified as substandard at September 30, 2010.

Commercial Real Estate Loans. We offer fixed- and adjustable-rate mortgage loans secured by a variety of commercial real estate, such as small office buildings, warehouses and retail properties. Commercial real estate loans totaled $4.0 million and represented 3.45% of our total loan portfolio at September 30, 2010. We originate a variety of fixed- and adjustable-rate commercial real estate loans generally with rates fixed for 10 years and which amortize over terms of from ten to 25 years. Our commercial real estate loans are callable after an initial ten-year term. Adjustable-rate loans are typically based on the one-year U.S. Treasury Bill or Prime Rate as published in The Wall Street Journal plus a specified percentage over the initial rate of interest. Loans are secured by first mortgages, and amounts generally do not exceed 75% of the property’s appraised value. We require all properties securing commercial real estate loans to be appraised by a board-approved independent licensed appraiser. Commercial real estate loans also are supported by personal guarantees.

As of September 30, 2010, our largest commercial real estate loan was $700,000 and was secured by a mixed commercial use building. This loan was performing in accordance with its terms at September 30, 2010.

Land Loans. We originate loans to individuals and developers for the purpose of building one- to four-family properties. At September 30, 2010, land loans totaled $3.4 million, which represented 2.9% of our total loan portfolio. Land loans, which generally are offered for terms of up to 15 years with rates that adjust annually after an initial period of up to five years, are indexed to the prime rate as reported in The Wall Street Journal or a U.S. Treasury bill rate plus a negotiated margin. We limit the loan-to-value ratio to a maximum of 80%, except where there are exceptional credit circumstances on the loan. At September 30, 2010, our largest land loan had an outstanding balance of $495,000. This loan was a nonaccrual loan at September 30, 2010.

Consumer Loans. We offer consumer loans as an accommodation to our customers and do not emphasize this type of lending. We have made a variety of consumer loans, including automobile loans and unsecured lines of credit. At September 30, 2010, consumer loans totaled $50,400, or less than .1% of our total loan portfolio. The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan.

Loan Underwriting

Adjustable-Rate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, an increased monthly mortgage payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.

Non-Owner Occupied One- to Four-Family Real Estate Loans. Loans secured by investment properties represent a unique credit risk to us and, as a result, we adhere to special underwriting guidelines. Of primary concern in non-owner occupied real estate lending is the consistency of rental income of the property.

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Payments on loans secured by rental properties often depend on the maintenance of the property and the payment of rent by its tenants. Payments on loans secured by rental properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. We generally require collateral on these loans to be a first mortgage along with an assignment of rents and leases, although we might accept a second mortgage where the combined loan-to-value ratio is low.

Commercial Real Estate Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family mortgage loans. Of primary concern in commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. We apply what we believe to be conservative underwriting standards when originating commercial loans and seek to limit our exposure to lending concentrations to related borrowers, types of business and geographies, as well as seeking to participate with other banks in both buying and selling larger loans of this nature. To monitor cash flows on income properties, we normally require borrowers and loan guarantors, if any, to provide annual financial statements on commercial real estate loans. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability, and the value of the underlying property. An environmental survey or environmental risk insurance is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials.

Construction and Land Loans. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the building. If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a building having a value which is insufficient to assure full repayment if liquidation is required. If we are forced to foreclose on a building before or at completion due to a default, we may be unable to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In addition, speculative construction loans, which are loans made to home builders who, at the time of loan origination, have not yet secured an end buyer for the home under construction, typically carry higher risks than those associated with traditional construction loans. These increased risks arise because of the risk that there will be inadequate demand to ensure the sale of the property within an acceptable time. As a result, in addition to the risks associated with traditional construction loans, speculative construction loans carry the added risk that the builder will have to pay the property taxes and other carrying costs of the property until an end buyer is found. Land and land development loans have substantially similar risks to speculative construction loans. To monitor cash flows on speculative construction properties, we require borrowers and loan guarantors, if any, to provide annual financial statements and, in reaching a decision on whether to make a speculative construction loan, we consider and review a global cash flow analysis of the borrower and consider the borrower’s expertise, credit history and profitability. We also disburse funds on a percentage-of-completion basis following an inspection by a third party inspector or qualified bank personnel.

Consumer Loans and Home Equity Lines of Credit. Consumer loans may entail greater risk than do one- to four-family mortgage loans, particularly in the case of consumer loans that are secured by assets that depreciate rapidly, such as motor vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. In the case of home equity loans, real estate values may be reduced to a level that is insufficient to cover the outstanding loan balance after accounting for the first mortgage loan balance. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

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Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by our board of directors and management. Certain of our executive officers have been granted individual lending limits, which vary depending on the type of loan. All loans secured by one- to four-family residences that conform with secondary market guidelines may be approved by either of our Chairman, Chief Executive Officer and Chief Financial Officer or our President and Chief Operating Officer. All other loans must be approved by the full Board of Directors prior to a commitment being made. All loan originations are reviewed for quality control and oversight purposes by our Loan Committee, which consists of any two of our directors and typically is comprised of two non-management directors.

Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities is limited, by regulation, to 15% of our unimpaired capital and surplus. At September 30, 2010, our regulatory limit on loans-to-one-borrower was $2.6 million. This limit will increase upon completion of this offering and the contribution of 50% of the net offering proceeds to Fraternity Federal Savings and Loan Association. At September 30, 2010, our largest lending relationship was $2.5 million, and all loans in that relationship were performing according to their original terms at that date. The loans are secured by various properties, including one- to four-family investment properties and commercial properties, including office buildings and mixed-use properties, as well as the borrower’s principal residence.

Loan Commitments. We issue commitments for one- to four-family mortgage and commercial mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers. Most of our loan commitments expire after 30 days. See note 11 to notes to consolidated financial statements appearing elsewhere in this prospectus.

Investment Activities

We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored agencies and of state and municipal governments, mortgage-backed securities and certificates of deposit of federally insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in other permissible securities. As a member of the Federal Home Loan Bank of Atlanta, we also are required to maintain an investment in Federal Home Loan Bank of Atlanta stock.

At September 30, 2010, our investment portfolio consisted primarily of U.S. government agency securities and mortgage-backed securities available-for-sale. We also had $1.1 million in private label mortgage-backed securities. In addition to our investment portfolio, at September 30, 2010, we maintained a $1.45 million investment, at cost, in Federal Home Loan Bank of Atlanta common stock.

Our primary investment objectives are: (i) to provide and maintain liquidity within the guidelines of the Office of Thrift Supervision’s regulations, (ii) to fully employ the available funds of Fraternity Federal Savings and Loan Association; (iii) to earn an average rate of return on invested funds competitive with comparable institutions; (iv) to manage interest rate risk; and (v) to limit risk. Our board of directors has the overall responsibility for the investment portfolio, including approval of the investment policy. Our President and Chief Executive Officer are responsible for the implementation policy and monitoring our investment performance. Our board of directors reviews the status of our investment portfolio on an annual basis, or more frequently if warranted.

Deposit Activities and Other Sources of Funds

General. Deposits, borrowings and loan repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.

Deposit Accounts. Deposits are attracted from within our primary market area through the offering of a broad selection of deposit instruments, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts), passbook accounts and certificates of deposit. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we

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consider the rates offered by our competition, our liquidity needs, profitability to us, matching deposit and loan products and customer preferences and concerns. We generally review our deposit mix and pricing weekly. Our deposit pricing strategy has typically been to offer competitive rates on all types of deposit products, and to periodically offer special rates in order to attract deposits of a specific type or term.

Borrowings. We had $22.7 million in borrowings at September 30, 2010, consisting of advances from the Federal Home Loan Bank of Atlanta to supplement our investable funds. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank of Atlanta and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth, the Federal Home Loan Bank’s assessment of the institution’s creditworthiness, collateral value and level of Federal Home Loan Bank stock ownership. We may also utilize securities sold under agreements to repurchase and overnight repurchase agreements to supplement our supply of investable funds and to meet deposit withdrawal requirements. We had unused borrowing capacity of approximately $27.6 million with the Federal Home Loan Bank of Atlanta as of September 30, 2010.

Properties

We conduct our business through our main office and branch offices. The following table sets forth certain information relating to these facilities as of September 30, 2010.

Location

Year Opened

Approximate Square Footage

Owned/ Leased

Lease Expiration Date

Net Book  Value at September 30, 2010 (in thousands)

Deposits at September  30, 2010 (in thousands)

Main Office:

764 Washington Boulevard Baltimore, Maryland 21230

1913

10,663

Owned

N/A

$

276

$

19,051

Branch Offices:

Scotts Corner Shopping Center 10283 York Road Cockeysville, Maryland 21030

1995

3,000

Leased

1/31/2015

N/A

46,358

Normandy Shopping Center 8460 Baltimore National Pike Ellicott City, Maryland 21403

1964

3,388

Leased

4/30/2016

N/A

55,787

Green Mount Station 1631 N. Main Street Hampstead, Maryland 21074

2009

2,400

Leased

9/30/2024

N/A

4,815

Personnel

As of September 30, 2010, we had 33 full-time employees and one part-time employee, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.

Legal Proceedings

Periodically, there may be various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

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Subsidiaries

Fraternity Federal Savings and Loan Association has one active subsidiary, 764 Washington Boulevard, LLC (the “LLC”). The LLC was established in order to hold and manage real estate owned. The LLC had no assets at September 30, 2010. In addition, Fraternity Federal Savings and Loan Association has an inactive subsidiary, Fraternity Insurance Agency Incorporated, which had been licensed to sell insurance products on an agency basis.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The objective of this section is to help potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and the notes to consolidated financial statements that appear at the end of this prospectus.

Operating Strategy

Historically, we have operated as a traditional savings and loan association, attracting deposits and investing those funds primarily in one- to four-family mortgage loans and investment securities. Our objective is to build on our historic strengths of customer loyalty and high asset quality, and gradually grow our balance sheet with assets and liabilities that allow us to increase our net interest margin while reducing our exposure to risk from interest rate fluctuations. Our operating strategy includes the following:

• building on our strengths as a community-oriented financial institution;

• improving our net interest margin and earnings and reducing our interest rate risk by increasing commercial real estate loans;

• emphasizing lower cost core deposits to reduce funding costs;

• generating higher non-interest income by selling loans in the secondary market;

• adding a new branch in our existing market area or a contiguous county within the next three years;

• expanding our market share within our primary market area; and

• discontinued speculative construction lending.

Building on our strengths as a community-oriented financial institution

We have operated continuously as a community-oriented financial institution since we were established in 1913. We are committed to meeting the financial needs of the communities in which we operate, and we are dedicated to providing quality personal service to our customers. We provide a broad range of consumer and business financial services through our network of branches and will continually seek out ways to improve convenience, safety and service through our product offerings.

Over the years, we have developed a core of loyal customers, and our product mix concentrating on time, savings and checking deposits and one- to four-family mortgage loans have allowed us to maintain strong asset quality. We intend to continue to retain these strengths while gradually growing our balance sheet with assets and liabilities that allow us to increase our net interest margin while reducing our exposure to risk from interest rate fluctuations.

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Improving our net interest margin and earnings and reducing our interest rate risk by increasing commercial real estate loans

Our strategic plan calls for us to grow our balance sheet by emphasizing assets and liabilities that allow us to increase our net interest margin while reducing our exposure to risk from interest rate fluctuations.

With respect to our assets, our strategy has been, and continues to be, to increase the percentage of assets invested in commercial real estate loans, which tend to have higher yields than traditional one- to four-family mortgage loans and which have shorter terms to maturity or adjustable interest rates. We intend to continue to emphasize one- to four-family mortgage lending, while also seeking to expand our commercial real estate lending activities with a focus on serving small businesses and emphasizing relationship banking in our primary market area. See “Risk Factors—Risks Related to Our Business—Our increased focus on commercial real estate lending may expose us to increased lending risks.”

Commercial real estate loans provide us with the opportunity to earn more income because they tend to have higher interest rates than one- to four-family mortgage loans. In addition, these loans are beneficial for interest rate risk management because they typically have shorter terms and adjustable interest rates. There are many commercial properties and businesses located in our market area, and with the additional capital raised in the offering we intend to pursue the larger lending relationships associated with these opportunities. Though our current staff is sufficient to facilitate growth, we may seek to add additional expertise in our commercial loan department.

With respect to liabilities, our strategy is to seek to increase transaction and money market accounts, as well as certificates of deposit of various terms. We value these types of deposits because they represent longer-term customer relationships and a lower cost of funding compared to longer-term certificates of deposit. We seek transaction and money market deposits through competitive products and pricing and targeted advertising. In addition, we offer business checking accounts for our commercial customers, and we will seek to leverage the relationships we build as we expand our commercial real estate lending to generate low cost business checking deposits from these customers.

Emphasizing lower cost core deposits to reduce funding costs

We seek to increase net interest income by controlling costs of funding rather than maximizing asset yields because originating loans with high yields often involves greater credit risk. Historically, a high percentage of our deposit accounts have been higher balance, higher costing certificates of deposits. We will continue to seek to reduce our dependence on high cost deposits in favor of stable low cost demand deposits. We have utilized additional product offerings, technology and a focus on customer service in working toward this goal. Over time, we will also seek to replace maturing, high cost, long-term Federal Home Loan Bank advances with core deposits.

Generating higher noninterest income by selling loans in the secondary market

Currently, we sell most of our one- to four-family fixed-rate loan originations in the secondary market, and we earned $72,000, $224,000 and $28,000 from such sales during the nine months ended September 30, 2010 and the years ended December 31, 2009 and 2008, respectively. We will seek to increase our originations of one- to four-family loans to generate further income from loan sales.

Adding a new branch in our existing market area or a contiguous county within the next three years

We intend to add a new branch in our existing market area within the next three years, although we have no current plans or commitments regarding a specific additional branch office.

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Expanding our market share within our primary market area

We intend to expand our market share in our primary market area through enhancing the efforts of our staff in marketing additional products and services to our customers. We believe that we have a solid infrastructure in place that will allow us to grow assets and liabilities without adding materially to our noninterest expenses.

Discontinued speculative construction lending

We have experienced losses in connection with our portfolio of speculative construction loans. In light of current market conditions, we have discontinued speculative construction lending.

Overview

Income. Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investment securities, and interest expense, which is the interest that we pay on our deposits. Other significant sources of pre-tax income are service charges (mostly from service charges on deposit accounts). We also recognize income from the sale of securities.

Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a monthly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Expenses. The noninterest expenses we incur in operating our business consists of salaries and employee benefits expenses, occupancy expenses, advertising expenses, data processing expenses, directors fees and other general and administrative expenses including, among others, federal deposit insurance premiums and Office of Thrift Supervision assessments, stationery and postage expenses and other miscellaneous expenses. Following the offering, our noninterest expenses are likely to increase as a result of expenses of shareholder communications and meetings and expenses related to additional accounting services.

Salaries and employee benefits expenses consist primarily of salaries, wages and bonuses paid to our employees, payroll taxes and expenses for health insurance, retirement plans and other employee benefits. Following the offering, we will recognize additional annual employee compensation expenses stemming from the adoption of new equity benefit plans. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices require that they be based on the fair market value of the shares of common stock at specific points in the future. For an illustration of these expenses, see “Pro Forma Data.”

Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of depreciation charges, rental expenses, furniture and equipment expenses, maintenance, real estate taxes and costs of utilities. Depreciation of premises and equipment is computed using a combination of accelerated and straight-line methods based on the useful lives of the related assets, which range from three to 40 years.

Data processing expenses are the fees we pay to third parties for processing customer information, deposits and loans.

Federal deposit insurance premiums are payments we make to the Federal Deposit Insurance Corporation for insurance of our deposit accounts, and Office of Thrift Supervision assessments are semi-annual assessments we pay to our primary regulator.

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Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. The following represent our critical accounting policies:

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impaired loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance monthly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses and may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings. See note 3 of the notes to the consolidated financial statements included in this prospectus.

Other-Than-Temporary Impairment. Management evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under Statement of Financial Accounting Standards ASC 320, Accounting for Certain Investments in Debt and Equity Securities.

In determining OTTI under the ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs the amount of the OTTI recognized in earnings depends on whether we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Balance Sheet Analysis

Assets. At September 30, 2010, our assets totaled $166.5 million, a decrease of $500,000, or 0.3%, from total assets of $167.0 million at December 31, 2009. The decrease in assets for the nine months ended September 30, 2010 was due mainly to a $10.9 million, or 45.4%, decrease in investments as a number of securities were called, and a $4.5 million, or 3.7%, decrease in loans as payoffs occurred due to refinancings taking place in light of historically low mortgage rates. We have opted not to book large amounts of long-term fixed-rate mortgages at currently prevailing historically low interest rates, opting rather to sell the majority of these loans that we are presently originating and booking fee income from such sales. These decreases were largely offset by an increase in cash and cash equivalents of $13.5 million, or 97%, an $871,000, or 100%, increase in other real estate owned, an increase in other assets of $469,000, or 41.7%, and an increase of $143,000, or 3.6%, in investment in bank-owned life insurance.

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At December 31, 2009, our assets totaled $167.0 million, a decrease of $3.7 million, or 2.2%, from total assets of $170.7 million at December 31, 2008. The decrease in assets during the year ended December 31, 2009 was primarily due to a $16.5 million, or 12.1%, decrease in net loans. This decrease was offset, in part, by an $8.1 million, or 51.0%, increase in investment securities and a $2.5 million, or 21.6%, increase in cash and cash equivalents.

Loans. Our primary lending activity is the origination of loans secured by real estate. Our loans secured by real estate consist primarily of one- to four-family mortgage loans. We also originate lines of credit, residential construction loans, commercial real estate loans and land loans. Our non-real estate loans consist of consumer loans, and, to a very limited extent, commercial business loans.

The largest portion of the loan portfolio consists of one- to-four family mortgage loans. Most of our one- to four-family mortgage loans are owner occupied, but this category also includes loans secured by single-family investment properties. One- to four-family mortgage loans totaled $88.5 million, or 76.5%, $89.3 million, or 74.3%, and $108.7 million, or 79.6%, of the total loan portfolio, at September 30, 2010 and December 31, 2009 and 2008, respectively. The $19.4 million, or 17.8%, decrease in one- to four-family mortgage loans during the year ended December 31, 2009 was primarily a result of our decision to sell most newly originated fixed-rate one- to four-family loans due to the low rates prevailing on such loans in 2009.

Lines of credit, all of which are secured by one- to four-family residential properties, totaled $13.5 million, and represented 11.6% of total loans, at September 30, 2010, compared to $12.3 million, or 10.2% of total loans, at December 31, 2009, and $13.2 million, or 9.6% of total loans, at December 31, 2008.

Residential construction loans totaled $7.1 million, and represented 6.1% of total loans, at September 30, 2010, compared to $10.4 million, or 8.7% of total loans, at December 31, 2009 and $7.7 million, or 5.6% of total loans, at December 31, 2008. We increased our residential construction loans by $2.7 million, or 35%, during the year ended December 31, 2009 as we made disbursements on several larger loans for the construction of custom built luxury homes, including speculative construction loans to builders. During the nine months ended September 30, 2010, we reduced residential construction loans by $3.3 million, or 32%, as we determined in light of market conditions to discontinue originations of speculative construction loans.

Commercial real estate loans totaled $4.0 million and represented 3.5% of total loans at September 30, 2010, compared to $4.2 million, or 3.5% of total loans, at December 31, 2009 and $3.6 million, or 2.6% of total loans, at December 31, 2008. We offer a variety of commercial real estate loans to owner occupants and investors. Our commercial real estate loans include loans secured by office buildings, dental offices, small retail buildings and warehouses.

Land loans totaled $3.4 million, or 2.9% of total loans, at September 30, 2010, compared to $3.9 million, or 3.3% of total loans, at December 31, 2009 and $3.5 million, or 2.6% of total loans, at December 31, 2008. Most of our land loans represent loans for the purchase of land that eventually will be used for the construction of owner-occupied residential property.

Our non-real estate loans consist of consumer loans and, to a very limited extent, commercial loans. While we offer a variety of consumer loans, we do not emphasize this type of lending and generally make consumer loans as an accommodation to our existing customers. Consumer loans totaled $50,000 at September 30, 2010, representing less than 0.1% of the loan portfolio, and consisted of automobile loans, unsecured loans and miscellaneous other loans.

At September 30, 2010, our commercial loans consisted of two unsecured operating lines of credit. We generally do not originate loans secured by equipment and receivables. Commercial loans totaled $28,500, representing less than 0.1% of total loans, at September 30, 2010.

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The following table sets forth the composition of our loan portfolio at the dates indicated.

							At December 31,
	At September 30, 2010						2009						2008
	Amount			Percent			Amount			Percent			Amount			Percent
	(Unaudited)
Real estate-mortgage:
One-to four-family	$	88,504,462			76.55	%	$	89,312,560			74.37	%	$	108,696,059			79.60	%
Lines of credit		13,480,769			11.66			12,305,473			10.25			13,154,109			9.63
Commercial		3,986,760			3.45			4,197,266			3.50			3,594,160			2.63
Residential construction		7,093,241			6.13			10,437,002			8.69			7,723,822			5.66
Land		3,410,212			2.95			3,939,295			3.28			3,535,871			2.59
Total real estate loans		116,475,444			100.74		$	120,191,596			100.09	%		136,704,021			100.11	%
Consumer loans		50,429			0.04	%		33,511			0.03	%		42,456			0.03	%
Commercial loans		28,520			0.02			26,688			0.02			28,794			0.02
Total		78,949			0.06	%		60,199			0.05	%		71,250			0.05	%
Less:
Deferred loan origination costs (fees), net		171,294			0.15	%		116,718			0.10	%		44,049			0.03	%
Allowance for loan losses		(1,104,500	)		(0.95	)		(276,621	)		(0.23	)		(272,121	)		(0.20	)
Net loans	$	115,621,187			100.00	%	$	120,091,892			100.00	%	$	136,547,199			100.00	%

Loan Maturity

The following table sets forth certain information at December 31, 2009 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.

	At December 31, 2009
	One- to Four-Family Loans		Lines of Credit		Commercial		Residential Construction		Land Loans		Consumer Loans		Commercial Loans		Total Loans
Amounts due in:
One year or less	$	6,140,936	$	12,305,473	$	1,773,481	$	9,074,718	$	3,509,177	$	9,750	$	26,688	$	32,840,223
More than one year to two years		5,689,113		—		—		—		110,962		14,054		—		5,814,129
More than two years to three years		4,509,865		—		629,061		—		319,156		2,788		—		5,460,870
More than three years to five years		12,559,380		—		456,665		—		—		4,193		—		13,020,238
More than five years to ten years		19,528,105		—		1,056,198		313,800		—		—		—		20,898,103
More than ten years to fifteen years		9,142,930		—		—		—		—		—		—		9,142,930
More than fifteen years		31,742,232		—		281,861		1,048,484		—		2,725		—		33,075,302
Total	$	89,312,561	$	12,305,473	$	4,197,266	$	10,437,002	$	3,939,295	$	33,510	$	26,688	$	120,251,795

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Fixed vs. Adjustable Rate Loans

The following table sets forth the dollar amount of all loans at December 31, 2009 that are due after December 31, 2010, and that have either fixed interest rates or floating or adjustable interest rates. The amounts shown below exclude unearned loan origination fees and deferred loan costs.

	Fixed Rates		Floating or Adjustable Rates		Total
Real estate loans:
One- to four-family	$	62,933,635	$	20,237,990	$	83,171,625
Lines of credit		—		—		—
Commercial		1,474,177		949,608		2,423,785
Residential construction		1,362,284		—		1,362,284
Land		—		430,118		430,118
Consumer loans		23,760		—		23,760
Commercial loans		—		—		—
Total	$	65,793,856	$	21,617,716	$	87,411,572

Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of loans is substantially less than their contractual terms because of prepayments. In addition, due-on-sale clauses on loans generally give us the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan market rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when current mortgage loan market rates are substantially lower than rates on existing mortgage loans.

49

Loan Activity

The following table shows loans originated, purchased and sold during the periods indicated.

	Nine Months Ended September 30,						Year Ended December 31,
	2010			2009			2009			2008
	(Unaudited)
Total loans at beginning of period	$	120,251,794		$	136,775,270		$	136,775,270		$	131,311,059
Loans originated:
Real estate loans:
One-to-four-family		11,877,700			25,537,400			29,531,000			16,363,345
Lines of credit		4,975,680			3,817,144			4,566,336			7,771,292
Commercial real estate		535,000			700,000			700,000			1,537,500
Residential construction		4,590,400			2,287,300			5,602,300			6,083,950
Land		456,000			428,000			428,000			1,416,250
Commercial		23,738			11,502			16,918			29,945
Consumer		43,250			24,700			31,700			27,050
Total loans originated		22,501,768			32,806,046			40,876,254			33,229,332
Loans purchased:
Real estate loans:
One-to four-family		17,041			180,674			248,161			223,849
Lines of credit		—			—			—			—
Commercial real estate		—			—			—			—
Residential construction		—			—			—			—
Land		—			—			—			—
Commercial		—			—			—			—
Consumer		—			—			—			—
Total loans purchased		17,041			180,674			248,161			223,849
Deduct:
Loan principal repayments		(20,760,955	)		(29,170,949	)		(36,422,227	)		(19,634,615	)
Loan sales		(5,012,500	)		(18,410,800	)		(20,195,300	)		(3,066,148	)
Loan participations		(105,096	)		(920,765	)		(983,904	)		(5,288,207	)
Charge-offs		(337,660	)		(3,960	)		(46,460	)		—
Net loan activity		(3,697,402	)		(15,519,754	)		(16,523,476	)		5,464,211
Total loans at end of period	$	116,554,393		$	121,255,517		$	120,251,795		$	136,775,271

Loan originations come from a number of sources. In addition to leads generated by our loan officer, our primary sources of loan originations are realtor relationships, existing customers, walk-in traffic, advertising and referrals from customers.

Based on market conditions, we may chose to sell newly originated one- to four-family mortgage loans. In recent periods we have elected to sell almost all newly originated conforming fixed-rate one- to four-family real estate loans and to hold in our portfolio shorter-term fixed-rate loans and adjustable-rate loans. Generally, loans are sold to investors on a servicing released basis.

During the year ended December 31, 2009, the amount of loans sold increased by $12.8 million, or 153.5%, primarily as the result of our decision to sell most newly originated fixed-rate, one-to four-family loans due to low rates prevailing on such loans in 2009. Loan sales decreased by $14.2 million, or 73.5%, during the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009, due to the decline in loan originations during the 2010 period. The decline in loan originations during the 2010 period is primarily the result of decreased loan demand caused by declining real estate market conditions in our market area. See “—Our Business—Market Area.”

We have not purchased loan participation interests in recent years and purchased minimal amounts of one-to four-family real estate loans since 2008. All such loans purchased were originated through a community development program called the “Healthy Neighborhood” Program.

50

Securities

At September 30, 2010, we had $13.2 million of securities available-for-sale, as compared to $24.1 million at December 31, 2009 and $8.5 million at December 31, 2008. Securities available for sale at September 30, 2010 consisted of U.S. government agency securities and mortgage-backed securities. Most of our U.S. government agency securities and mortgage-backed securities are mortgage-backed securities issued by Freddie Mac or Fannie Mae or guaranteed by Ginnie Mae, although at September 30, 2010 we held two “private label” mortgage-backed securities with an amortized cost of $1.0 million. We had unrealized losses on those two mortgage-backed securities totaling $45,000 at September 30, 2010, although the securities continue to perform as expected and at September 30, 2010 we had the intent and ability to hold these securities to maturity.

We purchased two privately issued mortgage-backed securities, one in December 2007 and one in January 2008. The total face value of these securities when purchased totaled $2.1 million. At the time of purchase, both were rated AAA by either Moody’s and/or Standard & Poor’s. The yields on private label securities can exceed those available on agency securities. However, the absence of a government guarantee and the limited liquidity for privately issued mortgage-backed securities can negatively affect the trading values for such securities.

At December 31, 2008 , we had $7.4 million of securities held-to-maturity, consisting of mortgage-backed securities issued by Freddie Mac or Fannie Mae or guaranteed by Ginnie Mae. During the year ended December 31, 2009, we reclassified all held-to-maturity securities as available-for-sale. We held no securities classified as held-to-maturity at December 31, 2009 or September 30, 2010.

Our securities portfolio is used to invest excess funds for increased yield and manage interest rate risk. At September 30, 2010, we also held a $1.5 million investment in the common stock of the Federal Home Loan Bank of Atlanta. A portion of this investment is required in order to collateralize borrowings from the Federal Home Loan Bank of Atlanta, and the investment is periodically increased by stock dividends paid by the Federal Home Loan Bank of Atlanta. At September 30, 2010, we held no stock in Fannie Mae and Freddie Mac, nor have we held stock in these entities throughout the periods presented.

Our securities available-for-sale decreased by $10.9 million, or 45.4%, from $24.1 million at December 31, 2009 to $13.2 million at September 30, 2010, as we invested cash flow resulting from payments on and maturities of mortgage-backed and U.S. government agency securities into liquid assets due to the historically low yields available on mortgage-backed securities.

The following table sets forth the amortized costs and fair values of our investment securities at the dates indicated.

					At December 31,
	At September 30, 2010				2009				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Unaudited)
Investment available-for-sale:
Obligations of U.S. government agencies	$	4,288,243	$	4,315,943	$	12,310,007	$	12,197,840	$	3,616,516	$	3,653,401
Mortgage-backed securities		7,865,654		7,852,776		10,399,230		10,485,170		5,210,762		4,872,214
Bank notes		991,579		999,280		1,425,882		1,443,100		—		—
Investment held-to-maturity:
Mortgage-backed securities		—		—		—		—		7,446,849		7,566,468
Total securities	$	13,145,476	$	13,167,999	$	24,135,119	$	24,116,110	$	16,274,127	$	16,092,083

51

The following table sets forth the stated maturities and weighted average yields of investment securities at September 30, 2010. Certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the table below. Weighted average yield calculations on investments available for sale do not give effect to changes in fair value that are reflected as a component of equity. At September 30, 2010, we did not have any security (other than U.S. government agency securities) that exceeded 10% of our total equity at that date.

	One Year or Less					More than One Year To Five Years					More than Five Year To Ten Years					More Than Ten Years					Total
	Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield
Investments (available-for-sale):
U.S. government agencies	$	—		—	%	$	—		—	%	$	1,000,167		3.50	%	$	3,288,076		3.62	%	$	4,288,243		3.59	%
Mortgage-backed securities		—		—			14,696		3.83			306,194		4.56			7,544,764		3.70			7,865,654		3.73
Bank notes		—		—			991,579		5.00			—		—			—		—			991,579		5.00
Investments (held-to-maturity)		—		—			—		—			—		—			—		—			—		—
Total securities	$	—		—	%	$	1,006,275		4.98	%	$	1,306,361		3.75	%	$	10,832,840		3.67	%	$	13,145,476		3.78	%

52

Bank Owned Life Insurance. We invest in bank owned life insurance to provide us with a funding source for our benefit plan obligations. Bank owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses at the time of investment. This investment is accounted for using the cash surrender value method and is recorded at the amount that can be realized under the insurance policies at the balance sheet date. At September 30, 2010, December 31, 2009 and December 31, 2008, the aggregate cash surrender value of these policies was $4.1 million, $4.0 million and $2.3 million, respectively.

Ground Rents. Ground rents represent the value of long-term leases with respect to land we own underlying residential properties. Ground leases amounted to $861,000, $864,000 and $885,000 at September 30, 2010 and at December 31, 2009 and 2008, respectively. We intend to let our portfolio of ground leases run off over time as the homeowners redeem leases.

Deposits. We accept deposits primarily from individuals and businesses who are located in our primary market area. We rely on competitive pricing, customer service, account features and the location of our branch offices to attract and retain deposits. Deposits serve as the primary source of funds for our lending and investment activities. Interest-bearing deposit accounts offered include time deposits, which are certificates of deposit, passbook accounts, individual NOW accounts and money market accounts. Noninterest-bearing accounts consist of free checking and commercial checking accounts. To a limited extent, we also have utilized brokered deposits. Brokered deposits totaled $2,297,350, $2,356,733 and $2,305,413 at September 30, 2010, December 31, 2009 and December 31, 2008, respectively.

The following table sets forth average balances and average rates of our deposit products for the periods indicated. For purposes of this table, average balances have been calculated using monthly balances.

	For the Nine Months Ended September 30, 2010					For the Year Ended December 31,
						2009					2008
	Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate
	(Unaudited)
Non-interest-bearing demand deposits	$	832,119		—	%	$	722,897		—	%	$	872,334		—	%
Interest bearing deposits:
Time deposits		104,644,871		2.68			106,410,704		3.48			107,739,063		4.35
NOW and money market		4,762,107		0.25			4,382,658		0.27			4,058,549		0.90
Passbook		12,533,641		0.56			12,492,264		0.63			13,696,503		1.40
Brokered deposits		2,303,705		4.29			2,324,574		4.30			383,841		2.96
Total	$	125,076,443		2.39		$	126,333,097		3.08		$	126,750,290		3.89

The following table sets forth the balances of our deposit accounts at the dates indicated.

						Year Ended December 31,
	At September 30, 2010					2009					2008
	Amount		Percent			Amount		Percent			Amount		Percent
	(Unaudited)
Noninterest-bearing deposits	$	447,427		0.36	%	$	759,607		0.60	%	$	684,761		0.55	%
Interest-bearing deposits:
Time deposits		105,666,304		84.06			105,705,790		83.93			104,679,252		83.80
NOW and money market		4,533,508		3.61			4,637,116		3.68			4,489,967		3.59
Passbook		12,751,497		10.14			12,500,646		9.92			12,753,294		10.21
Brokered deposits		2,297,350		1.83			2,356,734		1.87			2,305,414		1.85
Total interest-bearing deposits		125,248,659		99.64			125,200,286		99.40			124,227,927		99.45
Total deposits	$	125,696,086		100.00	%	$	125,959,893		100.00	%	$	124,912,688		100.00	%

53

Balances in noninterest-bearing deposits increased by approximately $75,000, or 10.9%, from $685,000 at December 31, 2008 to $760,000 at December 31, 2009. Balances in noninterest-bearing deposits decreased by approximately $312,000, or 41.1%, from $760,000 at December 31, 2009 to $447,000 at September 30, 2010.

The following table indicates the amount of jumbo certificates of deposit with balances of $100,000 or greater by time remaining until maturity as of September 30, 2010, none of which are brokered deposits.

Maturity Period at September 30, 2010	Amount
	(Unaudited)
Three months or less	$	2,708,603
Over three through six months		7,010,311
Over six through twelve months		8,357,294
Over twelve months		12,105,967
Total	$	30,182,175

The following table sets forth time deposits classified by rates at the dates indicated.

			At December 31,
	At September 30, 2010		2009		2008
	(Unaudited)
0.00 - 1.00%	$	6,866,210	$	1,263,930	$	—
1.01 - 2.00		39,430,399		29,421,599		—
2.01 - 3.00		22,077,100		22,406,778		10,112,736
3.01 - 4.00		14,088,524		22,661,398		45,766,843
4.01 - 5.00		25,221,774		32,004,693		45,798,532
5.01 - 6.00		174,488		176,777		4,992,400
Total	$	107,858,495	$	107,935,175	$	106,670,510

The following table sets forth the amount and maturities of time deposits at September 30, 2010 (unaudited).

	Amount Due
	Less Than One Year		More Than One Year to Two Years		More Than Two Years to Three Years		More Than Three Years		Total		Percent  of Total Time Deposits
0.00 - 1.00%	$	6,861,804	$	4,406	$	—	$	—	$	6,866,210		6.37	%
1.01 - 2.00%		32,925,482		3,088,951		3,415,966		—		39,430,399		36.56
2.01 - 3.00%		4,051,121		5,610,303		8,119,299		4,296,377		22,077,100		20.47
3.01 - 4.00%		6,814,168		4,670,873		368,547		2,234,936		14,088,524		13.06
4.01 - 5.00%		10,316,768		5,759,344		6,055,042		3,090,620		25,221,774		23.38
5.01 - 6.00%		—		—		174,488		—		174,488		0.16
Total	$	60,969,343	$	19,133,877	$	18,133,342	$	9,621,933	$	107,858,495		100.00	%

The following table sets forth deposit activity for the periods indicated.

	Nine Months Ended September 30,						Year Ended December 31,
	2010			2009			2009			2008
	(Unaudited)
Beginning balance	$	125,959,893		$	124,912,687		$	124,912,687		$	133,134,406
Increase (decrease) before interest credited		(2,020,569	)		(1,079,168	)		(2,126,343	)		(12,794,308	)
Interest credited		2,071,084			2,759,471			3,589,677			4,572,589
Internal deposit accounts		(314,322	)		—			(416,128	)		—
Net increase (decrease) in deposits		(263,807	)		1,680,303			1,047,206			(8,221,719	)
Ending balance	$	125,696,086		$	126,592,990		$	125,959,893		$	124,912,687

54

Borrowings. We use borrowings from the Federal Home Loan Bank of Atlanta to supplement our supply of funds for loans and investments and for interest rate risk management. The following table sets forth information regarding our Federal Home Loan Bank advances for the periods presented.

	Nine Months Ended September 30,						Year Ended December 31,
	2010			2009			2009			2008
Maximum amount of Federal Home Loan Bank advances outstanding at any month end during the period	$	27,888,889		$	28,305,556		$	28,305,556		$	28,750,000
Average Federal Home Loan Bank advances outstanding during the period	$	23,333,333		$	23,675,926		$	23,493,056		$	25,520,834
Weighted average interest rate during the period		3.82	%		3.15	%		3.17	%		3.50	%
Balance outstanding at end of period	$	22,666,667		$	23,000,000		$	22,916,667		$	28,416,667
Weighted average interest rate at end of period		3.91	%		3.20	%		3.20	%		2.98	%

Equity. Equity decreased by $546,000, or 3.2%, to $16.4 million at September 30, 2010 from $17.0 million at December 31, 2009 primarily as the result of a net loss of $572,000 for the nine months ended September 30, 2010. Equity increased by $517,000, or 3.1%, to $17.0 million at December 31, 2009 from $16.5 million at December 31, 2008 as the result of net income of $343,000 for the year ended December 31, 2009.

Results of Operations for the Nine Months Ended September 30, 2010 and 2009

Overview. We had a net loss of $572,000 for the nine months ended September 30, 2010, as compared to net income of $266,000 for the nine months ended September 30, 2009. The decrease in net income between the periods was primarily due to a provision for loan losses of $1.2 million during the nine months ended September 30, 2010, as compared to a $51,000 provision for the same period in 2009. The increased provision primarily was due to problems experienced during the nine months ended September 30, 2010 with respect to certain speculative construction loans. See “—Risk Management-Analysis and Determination of the Allowance for Loan Losses.” Also contributing to the decline in net income during the nine months ended September 30, 2010 was an increase of $368,000, or 13.7%, in noninterest expenses.

Net Interest Income. Net interest income increased by $130,000, or 5.0%, from $2.6 million for the nine months ended September 30, 2009 to $2.7 million for the nine months ended September 30, 2010. The increase in net interest income is primarily attributable to a 17 basis point increase in our interest rate spread from 1.76% for the nine months ended September 30, 2009 to 1.93% for the nine months ended September 30, 2010, offset, in part, by a $9.6 million, or 7.5%, decrease in the average balance of loans receivable net. During the nine months ended September 30, 2010, we also were able to take advantage of decreasing market interest rates to reduce our cost of funds while limiting the decrease in yields earned on our other interest-earning assets.

Interest on loans receivable, net decreased by $655,000, or 11.60%, from $5.6 million for the nine months ended September 30, 2009 to $5.0 million for the nine months ended September 30, 2010, due to a $9.6 million, or 7.5%, decrease in the average balance of loans and a 26 basis point decrease in the average yield. The decrease in the average balance of loans reflected our decision to sell a greater portion of our fixed-rate one- to four-family loan originations during the year ended December 31, 2009 due to the low rates available on those loans. The decrease in the average yield on loans was attributable to a decrease in prevailing market interest rates during the year ended December 31, 2009.

Interest on investment securities available-for-sale increased by $18,000, or 3.0%, for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009, as a $2.7 million, or 14.6%, increase in the average balance of investment securities available-for-sale more than offset a 44 basis point decrease in the average yield.

Interest on cash and cash equivalents remained low by historical standards during the nine months ended September 30, 2010 and 2009 due to the historically low prevailing market rates during those periods.

55

During the nine months ended September 30, 2010, we were able to reduce interest paid on deposits primarily as the result of time deposits being rolled over at lower rates in response to general declines in market interest rates and decreases in the cost of other deposits due to a decline in market rates. Interest on time deposits decreased by $742,000, or 26.1%, from $2.8 million for the nine months ended September 30, 2009, to $2.1 million for the nine months ended September 30, 2010, as a 89 basis point decrease in the average cost of time deposits more than offset a $1.5 million, or 1.43%, decrease in the average balance of time deposits. During the nine months ended September 30, 2010, we were able to take advantage of declining interest rates to reprice maturing certificates of deposit at lower rates. Interest on brokered deposits remained stable at $74,000 for the nine months ended September 30, 2010 and 2009, as both the average balance of, and average rate earned on, brokered deposits remained stable. Interest on NOW and money market accounts remained stable during the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009, as a 0% increase in the average balance was offset by a 2 basis point decrease in the average cost of NOW and money market accounts. Interest on passbook accounts decreased by $9,000, or 14.9%, from $61,000 for the nine months ended September 30, 2009 to $52,000 for the nine months ended September 30, 2010, due primarily to a 9 basis point decrease in the average rate paid on passbook accounts. The average balance of passbook accounts increased slightly during the nine months ended September 30, 2010, as compared to the same period in 2009.

Interest on other interest-bearing liabilities, which consist of Federal Home Loan Bank advances, decreased by 11,000, or 1.6%, during the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009, primarily due to a 9 basis point decrease in the average cost of other interest-bearing liabilities. At September 30, 2010, we had $23.9 million of Federal Home Loan Bank advances. See note 8 of Notes to Consolidated Financial Statements for a schedule of the amounts, rates and maturities of our Federal Home Loan Bank advances.

56

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using monthly balances, and nonaccrual loans are included in average balances only. Amortization of net deferred loan fees are included in interest income on loans and are insignificant. No tax equivalent adjustments were made. Nonaccruing loans have been included in the table as loans carrying a zero yield.

	At September 30,			Nine Months Ended September 30,
	2010			2010								2009
	Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Unaudited)
Assets:
Cash and cash equivalents		0.05	%	$	19,333,035		$	10,895		0.08	%	$	14,558,985		$	9,702		0.09	%
Loans receivable net		5.76			118,727,083			4,993,928		5.61			128,289,472			5,649,040		5.87
Investment securities available-for-sale (1)		6.30			20,971,368			822,092		3.96			18,299,094			604,163		4.40
		—			—			—		—			—			—		—
Other interest-earning assets		0.89			6,559,412			43,732		0.89			5,404,661			39,260		0.97
Total interest-earning assets		4.65			165,590,898			5,670,647		4.57			166,552,212			6,302,165		5.05
Noninterest-earning assets		—			2,702,425			—		—			1,762,034			—		—
Total assets		4.54		$	168,293,323			5,670,647		4.49		$	168,314,246			6,302,165		4.99
Liabilities and equity:
Time deposits		2.66			104,644,871			2,104,202		2.68			106,164,923			2,845,806		3.57
NOW and money market		0.26			4,762,107			8,951		0.25			4,377,627			8,861		0.27
Passbook		0.55			12,533,641			52,198		0.56			12,513,321			61,346		0.65
Brokered deposits		4.31			2,303,705			74,207		4.29			2,318,745			74,556		4.29
Other interest-bearing liabilities (Federal Home Loan Bank advances)		3.97			23,888,889			675,250		3.77			23,675,926			686,006		3.86
Total interest-bearing liabilities		2.63			148,133,213			2,914,808		2.62			149,050,542			3,676,575		3.29
Noninterest-bearing liabilities		—			3,361,277			—		—			2,411,329			—		—
Total liabilities		2.59			151,494,490			2,914,808		2.56			151,461,871			3,676,675		3.23
Total equity					16,798,833								16,852,375
Total liabilities and equity				$	168,293,323							$	168,314,246
Net interest income							$	2,755,839							$	2,625,590
Interest rate spread		1.95	%							1.93	%							1.76	%
Net interest margin										2.22	%							2.10	%
Ratio of average interest-earning assets to average interest-bearing liabilities					111.79	%							111.74	%

(1) Investment securities available-for-sale are presented at fair market value.

57

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.

	Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
	Increase (Decrease Due To)
	Volume			Rate			Net
Assets:
Cash and cash equivalents	$	4,572		$	(3,379	)	$	1,193
Loans receivable, net		(414,132	)		(240,980	)		(655,112	)
Investment securities		55,548			(37,619	)		17,929
Other interest-earning assets		5,874			(1,402	)		4,472
Total interest-earning assets		(348,138	)		(283,380	)		(631,518	)
Liabilities:
Time deposits		(30,991	)		(710,613	)		(741,604	)
NOW and money market		491			(401	)		90
Passbook		84			(9,232	)		(9,148	)
Brokered deposits		(439	)		90			(349	)
Other interest-bearing liabilities		7,039			(17,795	)		(10,756	)
Total interest-bearing liabilities		(23,815	)		(737,952	)		(761,767	)
Net change in interest income	$	(324,323	)	$	454,572		$	130,249

Provision for Loan Losses. We maintain an allowance at a level necessary to absorb management’s best estimate of probable loan losses in the portfolio. Management considers, among other factors, historical loss experience, type and amount of loans, borrower concentrations and current conditions of the economy. In addition, the allowance considers the level of loans which management monitors as a result of inconsistent repayment patterns. Management has identified commercial real estate loans as an area for expected increased lending. Such loans carry a higher degree of credit risk than our historical single-family lending.

We have had minimal historical loss experience up until late 2009. Due to the worsening economic environment, however, management felt it prudent to increase the allowance for loan losses, and, therefore, the provision for loan losses, during the first half of 2009. Management continued to monitor the allowance for loan losses very closely, and determined no further increase was either necessary or justifiable during the second half of 2009 given our historical loss experience. As management has continued to monitor closely the level of the allowance for loan losses throughout 2010, and taking into consideration our historical loss experience and current economic conditions, we have further increased the allowance for loan losses and, therefore, the provision for loan losses, to reflect management’s most current assessment.

Our provision for loan losses was $1.2 million for the nine months ended September 30, 2010, compared to a provision of $51,000 for the nine months ended September 30, 2009. At September 30, 2010, the allowance for loan losses was $1.1 million, or 1.0% of the total loan portfolio, compared to $277,000, or 0.2% of the total loan portfolio, at December 31, 2009.

Management also reviews individual loans for which full collectibility may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in our provision for loan losses.

Nonaccrual loans amounted to $2.3 million at September 30, 2010 and $1.0 million at December 31, 2010. Net loan charge-offs amounted to $337,000 during the nine months ended September 30, 2010, compared to $4,000 during the nine months ended September 30, 2009.

Although management utilizes its best judgment in providing for losses, there can be no assurance that they will not have to change its allowance for loan losses in subsequent periods. Management will continue to monitor the allowance for loan losses and make additional provisions to the allowance as appropriate.

An analysis of the changes in the allowance for loan losses, nonperforming loans and classified loans is presented under “—Risk Management—Analysis of NonPerforming and Classified Assets” and “—Risk Management—Analysis and Determination of the Allowance for Loan Losses.”

Noninterest Income. Total noninterest income decreased by $30,000, or 6.3%, from $471,000 for the nine months ended September 30, 2009 to $441,000 for the nine months ended September 30, 2010. The decrease primarily reflected a decrease of $128,000, or 64%, in gain on sale of loans in 2009, as we elected to sell most newly originated fixed-rate one- to four-family loans due to the low rate prevailing on such loans.

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Noninterest Expenses. Total noninterest expenses increased by $368,000, or 13.7%, from $2.7 million for the nine months ended September 30, 2009 to $3.1 million for the nine months ended September 30, 2010. The increase primarily was attributable to increases of $172,000, or 11.5%, $39,000, or 8.7%, and $111,000, or 22.9%, in salaries and employee benefits, occupancy expenses and other general and administrative expenses, respectively, as a result of the opening of our new branch office in Hampstead, Maryland in September 2009.

Income Tax Expense. We had an income tax benefit of $449,000 during the nine months ended September 30, 2010, due to our incurring a net loss during that period. We had income tax expense of $95,000 during the nine months ended September 30, 2009, resulting in an effective tax rate of 34% for that period.

Results of Operations for the Years Ended December 31, 2009 and 2008

Overview. We had net income of $343,000 for the year ended December 31, 2009, as compared to net income of $8,000 for the year ended December 31, 2008. The increase in net income in 2009 was primarily due to a $330,000, or 10.5%, increase in net interest income, as we were able to increase our interest rate spread in a declining interest rate environment. Also contributing to the increase in net income was a $370,000, or 114.6%, increase in non-interest income, which was primarily due to a $196,000, or 701.3 %, increase in gain on sale of loans and a $137,000, or 150.3%, increase in gain on sale of investments.

Net Interest Income. Our net interest income benefited from falling interest rates during the year ended December 31, 2009. Net interest income increased by $330,000, or 10.5%, from $3.1 million for the year ended December 31, 2008 to $3.4 million for the year ended December 31, 2009. The increase in net interest income is primarily attributable to a 46 basis point improvement in our interest rate spread, from 1.48% for the year ended December 31, 2008 to 1.74% for the year ended December 31, 2009, as we were able to take advantage of decreasing market interest rates during the year ended December 31, 2009, to reduce our cost of funds while limiting the decrease in yields earned on our other interest-earning assets. The improvement in our interest rate spread during the year ended December 31, 2009 was offset, in part, by a $1.8 million, or 1.1%, decrease in the average volume of interest-earning assets, due primarily to our decision to sell most newly originated fixed-rate one- to four-family loans due to the low rates prevailing on such loans in 2009.

Interest on loans receivable, net decreased by $442,000, or 5.7%, from $7.8 million for the year ended December 31, 2008 to $7.4 million for the year ended December 31, 2009, due to a $8.9 million, or 6.6%, decrease in the average balance of loans more than offset a 6 basis point increase in the average yield. The decrease in the average balance of loans reflected our decision to sell a greater portion of our fixed-rate one- to four-family loan originations during 2009 due to the low rates available on those loans. The increase in the average yield on loans occurred as we reinvested loan payments and repayments in higher yielding loans such as speculative construction loans.

Interest on investment securities available-for-sale increased by $45,000, or 5.7%, for the year ended December 31, 2009 as compared to the year ended December 31, 2008, as a $3.4 million, or 21.1%, increase in the average balance of investment securities available-for-sale more than offset a 63 basis point decrease in the average yield. The increase in the average balance of investment securities available-for-sale reflected the proceeds from loan sales into U.S. government agency securities.

Interest on cash and cash equivalents decreased by $259,000, or 95.9%, from $270,000 for the year ended December 31, 2008 to $11,000 for the year ended December 31, 2009, as the yield on cash and cash equivalents fell from 2.20% for the year ended December 31, 2008 to .07% for the year ended December 31, 2009, reflecting the historically low market rates prevailing during 2009.

During the year ended December 31, 2009, we were able to reduce interest paid on deposits primarily as the result of time deposits being rolled over at lower rates in response to general declines in market interest rates and decreases in the cost of other deposits due to a decline in market rates. Interest on time deposits decreased by $989,000, or 21.1%, from $4.7 million for the year ended December 31, 2008, to $3.7 million for the year ended

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December 31, 2009, primarily due to an 87 basis point decrease in the average cost of time deposits and, to a lesser extent, a $1.3 million, or 1.2%, decrease in the average balance of time deposits. During the year ended December 31, 2009, we were able to take advantage of declining interest rates to reprice maturing certificates of deposit at lower rates. Interest on brokered deposits increased from $11,000 for the year ended December 31, 2008 to $100,000 for the year ended December 31, 2009, as we accepted brokered deposits in late 2008 as part of our efforts to lengthen the average term of our deposits, and brokered deposits were available at that time at favorable rates. Interest on NOW and money market accounts decreased by $25,000, or 67.6%, from $37,000 during for the year ended December 31, 2008 to $12,000 for the year ended December 31, 2009, as a 63 basis point decrease in the average cost of NOW and money market accounts more than offset a $324,000, or 8.0%, increase in the average balance of NOW and money market accounts. Interest on passbook accounts decreased by $113,000, or 59.2%, from $191,000 for the year ended December 31, 2008 to $78,000 for the year ended December 31, 2009, due primarily to a 78 basis point decrease in the average rate paid on passbook accounts. The average balance of passbook accounts decreased by $1.2 million, or 8.8%, during the year ended December 31, 2009, as compared to the prior year.

Interest on other interest-bearing liabilities, which consist of Federal Home Loan Bank advances, decreased by $13,000, or 1.4%, during the year ended December 31, 2009 as compared to the year ended December 31, 2008, as a $2.0 million decrease in the average balance of other interest-bearing liabilities more than offset a 26 basis point increase in the average cost of other interest-bearing liabilities . The increase in the average cost of other interest-bearing liabilities occurred as we elected to roll over maturing short-term, low cost advances for longer terms at higher rates.

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Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using monthly balances, and nonaccrual loans are included in average balances only. Amortization of net deferred loan fees are included in interest income on loans and are insignificant. No tax equivalent adjustments were made. Nonaccruing loans have been included in the table as loans carrying a zero yield.

	Year Ended December 31,
	2009							2008
	Average Balance		Interest and Dividends		Yield/ Cost			Average Balance		Interest and Dividends		Yield/ Cost
Assets:
Cash and cash equivalents	$	15,009,423	$	10,953		0.07	%	$	12,254,289	$	270,099		2.20	%
Loans receivable net		126,464,432		7,372,112		5.83			135,357,320		7,814,228		5.77
Investment securities available-for-sale (1)		19,614,289		838,433		4.27			16,201,821		793,512		4.90
Other interest-earning assets		5,479,978		50,334		0.92			4,565,861		115,207		2.52
Total interest-earning assets		166,568,122		8,271,832		4.97			168,379,291		8,993,046		5.34
Noninterest-earning assets		1,594,639		—		—			1,445,142		—		—
Total assets		168,162,761		8,271,832		4.92			169,824,433		8,993,046		5.30
Liabilities and equity:
Time deposits		106,410,704		3,700,750		3.48			107,739,063		4,689,258		4.35
NOW and money market		4,382,658		11,731		0.27			4,058,549		36,719		0.90
Passbook		12,492,264		78,193		0.63			13,696,503		191,247		1.40
Brokered deposits		2,324,574		100,001		4.30			383,841		11,352		2.96
Other interest-bearing liabilities (Federal Home Loan Bank advances)		23,493,056		914,690		3.89			25,520,834		927,601		3.63
Total interest-bearing liabilities		149,103,256		4,805,365		3.22			151,398,790		5,856,177		3.87
Noninterest-bearing liabilities		2,168,808		—		—			1,931,859		—		—
Total liabilities		151,272,064		4,805,365		3.18			153,330,649		5,856,177		3.82
Total equity		16,890,697							16,493,784
Total liabilities and equity	$	168,162,761						$	169,824,433
Net interest income			$	3,466,467						$	3,136,869
Interest rate spread						1.74	%						1.48	%
Net interest margin						2.08	%						1.86	%
Ratio of average interest-earning assets to average interest-bearing liabilities						111.71	%						111.22	%

(1) Investment securities available-for-sale are presented at fair market value.

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Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each.

	Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
	Increase (Decrease Due To)
	Volume			Rate			Net
Assets:
Cash and cash equivalents	$	(261,499	)	$	2,353		$	(259,146	)
Investment securities		(122,210	)		167,131			44,921
Loans receivable, net		76,286			(518,402	)		(442,116	)
Other interest-earning assets		(80,599	)		15,726			(64,873	)
Total interest-earning assets		(388,023	)		(333,192	)		(721,215	)
Liabilities:
Time deposits		(967,404	)		(21,116	)		(988,520	)
NOW and money market		(29,016	)		4,029			(24,987	)
Passbook		(99,915	)		(13,138	)		(113,053	)
Brokered deposits		32,480			56,170			88,650
Other interest-bearing liabilities		63,186			(76,088	)		(12,902	)
Total interest-bearing liabilities		(1,000,669	)		(50,143	)		(1,050,812	)
Change in net interest income	$	612,646		$	(283,049	)	$	329,597

Provision for Loan Losses. We maintain an allowance at a level necessary to absorb management’s best estimate of probable loan losses in the portfolio. Management considers, among other factors, historical loss experience, type and amount of loans, borrower concentrations and current conditions of the economy. In addition, the allowance considers the level of loans which management monitors as a result of inconsistent repayment patterns. Management has identified commercial real estate loans as an area for expected increased lending. Such loans carry a higher degree of credit risk than our historical single-family lending.

Our provision for loan losses increased from $5,000 for the year ended December 31, 2008 to $51,000 for the year ended December 31, 2009. At December 31, 2009, the allowance for loan losses was $277,000, or 0.2% of the total loan portfolio, compared to $272,000, or 0.2% of the total loan portfolio, at December 31, 2008.

Management also reviews individual loans for which full collectibility may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in our provision for loan losses.

Nonaccrual loans amounted to $1,033,000 and $187,000 at December 31, 2009 and 2008, respectively. Net loan charge-offs amounted to $46,000 during the year ended December 31, 2009, compared to $0 during the year ended December 31, 2008.

Although management utilizes its best judgment in providing for losses, there can be no assurance that they will not have to change its allowance for loan losses in subsequent periods. Management will continue to monitor the allowance for loan losses and make additional provisions to the allowance as appropriate.

An analysis of the changes in the allowance for loan losses, nonperforming loans and classified loans is presented under “—Risk Management—Analysis of Nonperforming and Classified Assets” and “—Risk Management—Analysis and Determination of the Allowance for Loan Losses.”

Non-interest Income. Total non-interest income increased by $370,000, or 114.6%, from $323,000 for the year ended December 31, 2008 to $693,000 for the year ended December 31, 2009. The increase primarily reflected an increase of $196,000, or 801.3%, in gain on sale of loans in 2009, as we elected to sell most newly

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originated fixed-rate one- to four-family loans due to low rates prevailing on such loans. The increase also reflected an increase of $137,000, or 150%, in gain on sale of investments, as we sold various securities to lock in gains, including mortgage-backed securities on which we anticipated prepayments in a declining interest rate environment. Also contributing to the increase in noninterest income was a $45,000, or 37%, increase in income on bank-owned life insurance.

Noninterest Expenses. Total noninterest expenses increased by $47,000, or 1.3%. The increase in noninterest expenses included increases of $125,000, or 7%, $31,000, or 5%, and $192,000, or 40%, in salaries and employee benefits, occupancy expenses and other general and administrative expenses, respectively, as a result of the opening of our new branch office in Hampstead, Maryland in September 2009. Partly offsetting these increases was the absence in 2009 of a $299,000 expense we incurred in 2008 related to the termination of our pension plan.

Income Tax Expense. We recorded an income tax benefit of $153,000 during the year ended December 31, 2008 as a result of our incurring a $145,000 loss before provision (benefit) for income taxes for 2008. The tax benefit for the year ended December 31, 2008 was primarily the result of nontaxable income generated by Fraternity Federal Savings and Loan Association’s investment in bank-owned life insurance. We had income tax expense of $119,000 for the year ended December 31, 2009, resulting in an effective tax rate of 25.7% for that year.

Risk Management

Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for on a mark-to-market basis. Other risks that we face are operational risk, liquidity risks and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors, technology and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or income.

Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans. We do not offer, and have not offered, sub-prime or no-documentation mortgage loans and have made only a limited amount of Alt A mortgage loans.

When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. When the loan becomes 15 day past due, a late notice is sent to the borrower. When the loan becomes 30 days past due, a more formal letter is sent. Between 15 and 30 days past due, telephone calls are also made to the borrower. After 30 days, we regard the borrower in default. Between 30 and 45 days delinquent, the borrower may be sent a letter from our attorney and we may commence collection proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. Management informs the board of directors monthly of the amount of loans delinquent more than 30 days, all loans in foreclosure and repossessed property that we own.

Analysis of Nonperforming and Classified Assets. We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Loans are generally placed on nonaccrual status when they become 90 days delinquent, at which time the accrual of interest ceases and the allowance for any uncollectible accrued interest is established and charged against interest income. Typically, payments received on a nonaccrual loan are first applied to the outstanding principal balance. In addition, we consider certain nonagency mortgage-backed securities as nonperforming due to ratings downgrades and cash flow concerns.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired it is recorded at the lower of its cost, which is the unpaid balance of the loan plus foreclosure costs, or fair market value at the date of foreclosure. Any holding costs and declines in fair value after acquisition of the property result in charges against income.

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The following table provides information with respect to our nonperforming assets at the dates indicated.

	At September  30, 2010			At December 31,
				2009			2008
Nonperforming loans:
Real estate loans:
One-to four-family	$	572,124		$	340,551		$	—
Lines of credit		—			59,499			—
Commercial		—			—			—
Residential construction		1,241,568			632,549			—
Land		495,000			—			—
Commercial		—			—			—
Consumer		—			—			—
Total	$	2,308,692		$	1,032,601		$	—
Accruing loans past due 90 days or more:
Real estate loans:
One-to four-family		—			706,000			—
Lines of credit		—			—			—
Commercial		—			—			—
Residential construction		—			—			—
Land		—			—			—
Commercial		—			—			—
Consumer		—			—			—
Total	$	—		$	706,000		$	—
Total of nonperforming loans and accruing loans 90 days or more past due	$	2,308,692		$	1,738,601		$	—
Assets acquired through foreclosure		871,047			—			—
Total nonperforming assets	$	3,179,739		$	1,738,601		$	—
Troubled debt restructurings	$	1,553,781		$	—		$	—
Troubled debt restructurings and total nonperforming assets	$	4,733,523		$	—		$	—
Total of nonperforming loans and accruing loans past due 90 days or more to total loans		2.00	%		1.44	%		—	%
Total nonperforming loans to total assets		1.39	%		0.62	%		—	%
Total nonperforming assets to total assets		1.91	%		1.04	%		—	%

At September 30, 2010, nonaccrual one- to four-family loans consisted of a $542,000 loan secured by an owner-occupied property, a $22,000 loan secured by an owner -occupied property that was subsequently foreclosed on and sold at no loss, and two loans totaling $8,000 originated under The Healthy Neighborhood Program. At September 30, 2010, nonaccrual residential construction loans consisted of one speculative construction loan. We also had one nonaccrual land loan totaling $495,000. The increase in nonperforming loans at September 30, 2010 as compared to December 31, 2009 is primarily the result of a $1.2 million speculative construction loan becoming nonperforming.

For further information on our methodology for establishing specific valuation allowances, see “—Analysis and Determination of the Allowance for Loan Losses — Specific Valuation Allowance.”

We occasionally modify loans to extend the term or make other concessions to help borrowers stay current on their loan and to avoid foreclosure. We do not forgive principal or interest on loans or modify the interest rates on loans to rates that are below market rates. At September 30, 2010 and December 31, 2009 and 2008, we had $1,533,781, $0 and $0, respectively, in modified loans, which are also referred to as troubled debt restructurings. At September 30, 2010, troubled debt restructured loans included one speculative construction loan with an outstanding balance of $578,000 and three owner-occupied one- to four-family loans aggregating $976,000.

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Interest income that would have been recorded for the nine months ended September 30, 2010 and the year ended December 31, 2009 had nonaccrual loans been current according to their original terms, amounted to approximately $214,000 and $40,000, respectively. Interest income of $0 and $0 related to nonaccrual loans was included in interest income for the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively.

At September 30, 2010, we had no real estate owned.

Classified Assets. Federal regulations require us to review and classify our assets on a regular basis. In addition, the Office of Thrift Supervision has the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets; substandard, doubtful and loss. “Substandard assets” must have one or more defined weakness and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose an institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving close attention. When we classify an asset as substandard or doubtful we may establish a specific allowance for loan losses. If we classify an asset as loss, we charge off an amount equal to 100% of the portion of the asset classified loss.

The following table shows the aggregate amounts of our classified and criticized assets at the dates indicated.

	At September  30, 2010		At December 31,
			2009		2008
	(Unaudited)
Special mention assets	$	1,089,567	$	8,862,000	$	—
Substandard assets		4,170,332		2,624,000		174,000
Doubtful assets		—		81,000		187,000
Total classified and criticized assets	$	5,259,899	$	11,567,000	$	361,000

Classified and criticized assets include loans that are classified due to factors other than payment delinquencies, such as lack of current financial statements and other required documentation, insufficient cash flows or other deficiencies, and, therefore are not included as nonperforming assets. Other than as disclosed in the above tables, there are no other loans where management has serious doubts about the ability of the borrowers to comply with the present loan repayment terms. Also included in classified and criticized assets are delinquent ground rents and certain nonagency mortgage-backed securities that have experienced rating downgrades or cash flow deficiencies.

The decrease in classified assets for the nine months ended September 30, 2010 was due to $2.5 million of classified assets as of December 31, 2009 paying off during the period, $2.8 million being brought current, $1.2 million being reclassified from speculative construction loan to an owner-occupied loan, $1 million transferred to other real estate owned, and $100,000 of charge-offs. These improvements were offset, in part, as $1.4 million of loans that were not previously classified at December 31, 2009 were classified as of September 30, 2010. These newly classified loans included eight one- to four-family investment properties totaling $400,000, one land loan for $495,000 and one owner-occupied one- to four-family real estate loan for $542,000. Further, a $1.7 million residential construction loan that had been classified as special mention at December 31, 2009 was repaid during the nine months ended September 30, 2010. Of the $4.1 million of substandard assets at September 30, 2010, $2.3 million were nonaccrual loans. See “— Analysis of Nonperforming and Classified Assets.”

Special mention assets increased from $0 at December 31, 2008 to $8.9 million at December 31, 2009. The increase occurred as a result of our decision in 2009 to adopt a policy of classifying all speculative construction loans as special mention assets.

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Delinquencies. The following table provides information about delinquencies in our loan portfolio at the dates indicated.

									At December 31,
	At September 30, 2010								2009								2008
	30 – 89 Days				90 Days or More				30 – 89 Days				90 Days or More				30 – 89 Days				90 Days or More
	Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans		Number of Loans		Principal Balance of Loans
Real estate loans:
One-to four-family		17	$	1,005,417		4	$	572,125		15	$	2,450,000		6	$	1,046,551		4	$	174,247		—	$	—
Lines of credit		3		504,917		—		—		2		55,000		1		59,499		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—		—		—		—
Residential construction		—		—		1		1,241,568		—		—		1		632,549		—		—		—		—
Land		—		—		1		495,000		—		—		—		—		—		—		—		—
Consumer		1		196		—		—		1	$	1,000		—		—		—		—		—		—
Commercial		—		—		—		—		—		—		—		—		—		—		—		—
Total		21	$	1,510,530		6	$	2,308,692		18	$	2,506,000		8	$	1,738,601		4	$	174,247		—	$	—

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Analysis and Determination of the Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a monthly basis, and any adjustments must be approved quarterly by the Board. When additional allowances are necessary, a provision for loan losses is charged to earnings. Our methodology for assessing the appropriateness of the allowance for loan losses is reviewed periodically by the board of directors. The board of directors also reviews the allowance for loan losses established on a quarterly basis.

General Valuation Allowance. We establish a general valuation allowance for loans that should be adequate to reserve for the estimated credit losses inherent in each segment of our loan portfolio, given the facts and circumstances as of the valuation date for all loans in the portfolio that have not been classified. The allowance is based on our average annual rate of net charge offs experienced over the previous four quarters on each segment of the portfolio and is adjusted for current qualitative factors. If historical loss data is not available for a segment, the estimates used will be based on various components such as industry averages. For purposes of determining the estimated credit losses, the loan portfolio is segmented as follows: (i) one- to four-family first mortgage real estate loans; (ii) one- to four-family second mortgage real estate loans; (iii) one- to four-family home equity lines of credit; (iv) commercial loans; (v) speculative construction loans; (vi) other construction loans; (vii) land loans; and (viii) consumer loans. Qualitative factors that are considered in determining the adequacy of the allowance for loan losses are as follows: (i) trends of delinquent and nonaccrual loans; (ii) economic factors; (iii) concentrations of credit; (iv) changes in the nature and volume of the loan portfolio; and (v) changes in lending staff and loan policies. We do not record allowances for impaired loans in our general allowance; however, the balances of impaired loans are included in the other categories of our allowance for loan losses if there was no loss on the impaired loan when measured individually.

Specific Valuation Allowance. All adversely classified loans meeting the following loan balance thresholds are individually reviewed: (i) speculative construction loans; (ii) commercial loans greater than $500,000; (iii) land loans greater than $500,000; (iv) all other loans greater than $1.5 million; and (v) any other nonperforming loans. Any portion of the recorded investment in excess of the fair value of the collateral less the disposition costs is charged off against the allowance for loan losses. It has been our policy to not maintain specific reserves against impaired loans. Impaired loans are measured for loss using the fair value of collateral less disposition costs method for collateral dependent loans, and the present value of discounted cash flows method for other loans. It has been our policy to directly charge off any loss determined on impaired loans using these methods, and we do not foresee maintaining specific reserves for these loans.

We charge off 100% of the assets or portions thereof classified as loss. The amount of the loss will be the excess of the recorded investment in the loan over the fair value of collateral less disposition costs estimated on the date that a probable loss is identified. Management obtains updated appraisals with respect to loans secured by real estate.

All other adversely classified loans as well as special mention and watch loans are reviewed monthly. Our historical loss experience in each category of loans is utilized in determining the allowance for that group. The determined loss factor in each loan category may be adjusted for qualitative factors as determined by management.

Unallocated Valuation Allowance. Our allowance for loan losses methodology also includes an unallocated component to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the loan portfolio.

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The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.

									At December 31,
	At September 30, 2010								2009								2008
	Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans
Real estate loans:
One-to four-family	$	177,070		16.03	%		75.93	%	$	91,335		33.02	%		73.71	%	$	110,461		40.59	%		78.93	%
Lines of credit		450,258		40.77			11.57			132,257		47.81			10.16			96,179		35.34			9.55
Commercial		79,735		7.22			3.42			20,986		7.59			3.46			1,776		0.65			2.61
Residential construction		300,043		27.17			6.09			18,795		6.79			8.61			60,006		22.05			5.61
Land		79,458		7.19			2.93			7,879		2.85			3.25			—		—			2.57
Consumer		1,546		0.14			0.04			1,166		0.42			0.78			—		—			0.71
Commercial		—		—			0.02			—		—			0.02			—		—			0.02
Unallocated		16,390		1.48			—			4,203		1.52			—			3,699		1.36			—
Total	$	1,104,500		100.00	%		100.00	%	$	276,621		100.00	%		100.00	%	$	272,121		100.00	%		100.00	%

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Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that the Office of Thrift Supervision, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. The Office of Thrift Supervision may require us to increase our allowance for loan losses based on judgments different from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operation.

Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.

	Nine Months Ended September 30,						Year Ended December 31,
	2010			2009			2009			2008
	(Unaudited)
Allowance for loan losses at beginning of period	$	276,621		$	272,121		$	272,121		$	267,121
Charge-offs:
Real estate loans:
One-to four-family		6,785			—			—			—
Lines of credit		207,125			—			42,500			—
Commercial		—			—			—			—
Residential construction		112,500			—			—			—
Land		11,250			—			—			—
Commercial		—			—			—			—
Consumer		—			3,960			3,960			—
Total charge-offs		337,660			3,960			46,460			—
Recoveries		1,200			—			—			—
Net charge-offs		336,460			3,960			46,460			—
Provision for loan losses		1,164,339			50,960			50,960			5,000
Allowance at end of period	$	1,104,500		$	319,121		$	276,621		$	272,121
Allowance for loan losses to total loans at the end of the period		0.96	%		0.26	%		0.23	%		0.20	%
Net charge-offs to average loans outstanding during the period		0.28	%		—	%		0.04	%		—	%

Loans are considered impaired when, based on available information, it is probable that we will not collect all principal and interest payments according to contractual terms. Generally, loans are considered impaired once principal and interest payments are past due and they are placed on nonaccrual. Management also considers the financial condition of the borrower, cash flows of the loan and the value of the related collateral. Impaired loans do not include large groups of smaller balance homogeneous credits such as residential real estate, consumer installment loans, and commercial leases, which are evaluated collectively for impairment. Loans specifically reviewed for impairment are not considered impaired during periods of “minimal delay” in payment (usually 90 days or less), provided eventual collection of all amounts due is expected. The impairment of a loan is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if repayment is expected to be provided by the collateral. Generally, we measure impairment on such loans by reference to the fair value of the collateral. Fair value of the collateral is generally determined using third party appraisals that are reviewed by management for propriety and reasonableness. Third party appraisals are conducted at least annually. Additionally, internal evaluations of collateral value are conducted quarterly to ensure any further deterioration of the collateral value is recognized on a timely basis. Once a loss is determined to have occurred, the loan is charged down to the fair value of the collateral, net of any disposal costs, or net realizable value. Income on impaired loans is recognized in a manner similar to the method followed on nonaccrual loans.

        We have classified as impaired, loans that are 90 days or more delinquent, or a troubled debt restructuring. The amount of impaired loans of $822,747 as of December 31, 2009 was comprised of three loans that were all 90 days or more delinquent. All three loans were evaluated for loss using the fair value of collateral less disposition cost method, and it was determined that no loss should be recognized at that time. The amount of impaired loans of $3,862,474 as of September 30, 2010 was comprised of ten loans. Three loans were small balance loans totaling $30,193 on residential owner-occupied properties. One loan was for $495,000 on a speculative building lot. This loan amount reflects the loan having been written down by $11,250 based on an updated appraisal and estimated disposition costs. Two loans totaling $1,819,218 were speculative construction loans, both of which were evaluated for loss using updated appraisals and expected disposition costs. One of these loans was written down by $42,500 based on those evaluations. One of these speculative construction loans for $577,650 was classified as a troubled debt restructuring. Three of the remaining loans were also classified as troubled debt restructurings. All three of these loans were measured for loss using the present value of discounted cash flows method. Using this method, we determined there was no loss on any of these three loans. The remaining loan was a $541,932 loan on a residential owner-occupied property. The loan is insured by a private mortgage insurer. This loan was measured for loss using the fair value of collateral method less disposition costs. It was determined there was no loss on this loan under this method after applying the funds to be received from the private mortgage insurer.

We measure an impaired loan for loss in the following ways:

• Collateral dependent loans are measured for loss at the point the loan becomes 60 or more days delinquent or at maturity if an extension is requested. We obtain a third party appraisal to determine the fair market value of the collateral. We measure these loans for loss by using the fair value of collateral less disposition costs method and if any loss is determined it is charged off directly. Subsequently, these loans are re-evaluated at least annually by obtaining an updated third party appraisal to determine if there should be any further loss recognition.

• Non-collateral dependent loans are measured for loss at the point the loan becomes 90 to 120 days delinquent. If there are no work-out arrangements, we will treat the loan as a collateral dependent loan and measure for loss as stated above. If there is a work-out arrangement, the loan will be measured for loss using the present value of discounted cash flows method. If any loss is determined, it is our policy to charge off this loss directly. As long as the borrower performs under the terms of the work-out arrangement, no further measurement for loss is performed. If the borrower would fail to perform under the work-out arrangement, we will treat the loan as a collateral dependent loan and measure for loss as stated above.

We have not experienced any significant time lapses between the time a third party appraisal is ordered and the time it is received and used to evaluate if any loss has been incurred and subsequently recognized, if applicable. We have not charged off an amount different from what was determined after evaluating a collateral dependent loan for loss using the fair value of collateral less disposition costs method.

During the nine months ended September 30, 2010, we had charge-offs totaling $337,000. Of this amount, $207,000 related to three home equity lines of credit, and $113,000 was attributable to two speculative construction loans. The increase in the allowance for loan losses at September 30, 2010 as compared to December 31, 2009 is primarily the result of speculative construction loans relating to luxury homes.

For the nine months ended September 30, 2010, charge-offs included $59,500, which was the remaining loan balance on a loan to a nonprofit for the acquisition and intended rehabilitation of several residential properties in a low income neighborhood in Baltimore City. The nonprofit filed for bankruptcy, and we foreclosed on the property with no bidders. We decided to walk away from the properties and write off the balance of the loan. In addition, $112,500 was charged off relating to two speculative construction loans after receiving updated appraisals and reducing the appraised value by expected disposition costs. Another $11,250 was charged off relating to a speculative lot loan as to which we received an updated appraisal and reduced the appraised value by expected disposition costs. We made $147,625 of additional charge-offs related to two residential home equity loans where the value of the properties exceeded the combined first and second loan balances and the borrowers filed for bankruptcy. The remaining $6,785 of charge-offs related to a residential loan participation in which we participated by purchasing a percentage of residential loans through a consortium of local lenders for the purchase and/or rehabilitation of residential properties in low to moderate income neighborhoods.

The amount of charge-offs during the nine months ending September 30, 2010 exceeded the beginning balance of the allowance for loan loss primarily due to the fact we have had virtually no historical experience of loan losses until recently. In 2010 we have experienced some loan losses and are recognizing these losses as incurred.

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Interest Rate Risk Management. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes adjusting our loan mix by adding more loans with variable rates and adjusting our investment portfolio mix and duration. Specifically, over the past several years we have sought to shorten the average term of our loan portfolio by emphasizing the origination of one- to four-family fixed-rate loans with ten year terms. In addition, at September 30, 2010, we had $13.5 million of home equity lines of credit, all of which reprice monthly. We also had $27.4 million of cash and cash equivalents that reprice in the very near term. With respect to liabilities, we have had some success in the current low interest rate environment in increasing our longer-term certificates of deposit, as our customers have been willing to purchase longer-term certificates of deposit in exchange for increased yield, while, conversely, decreasing our short-term certificates of deposit.

We currently do not participate in hedging programs, interest rate swaps or other activities involving the use of derivative financial instruments.

During the year ended December 31, 2007, we sold $9.5 million of low yielding loans in order to reduce our interest rate risk profile and to enhance future earnings through the reinvestment of the proceeds from such loan sales into higher yielding assets. The loans sold were long-term, fixed-rate, one- to four-family mortgage loans with an average yield of 4.8%. Initially, we reinvested the proceeds from this sale into interest-bearing deposits in other banks, and eventually we seek to reinvest the proceeds into jumbo one- to four-family mortgage loans, which generally carry higher yields than our conforming one- to four-family mortgage loans. The effect of this transaction was to shorten the average maturity of our interest-earning assets, thereby reducing our interest rate risk.

We have an Asset/Liability Management Committee, which includes members of management selected by the board of directors and one non-management director, to communicate, coordinate and control all aspects involving asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest and net income.

Net Portfolio Value Analysis. We currently use the net portfolio value analysis prepared by the Office of Thrift Supervision to review our level of interest rate risk. This analysis measures interest rate risk by capturing changes in net portfolio value of our cash flows from assets, liabilities and off-balance sheet items, based on a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. These analyses assess the risk of loss in market risk-sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase or 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. In addition to the net portfolio value analysis prepared by the Office of Thrift Supervision, we utilize other interest rate risk software to help us manage interest rate risk.

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The following table, which is based on information that we provide to the Office of Thrift Supervision, presents the change in our net portfolio value at September 30, 2010 that would occur in the event of an immediate change in interest rates based on Office of Thrift Supervision assumptions, with no effect given to any steps that we might take to counteract that change.

			Estimated Net Portfolio Value								Net Portfolio Value as % of Portfolio Value of Assets
Basis Point Change in Rates			Amount		Change			% Change			NPV Ratio			Basis Point Change
	300		$	16,120	$	(1,790	)		(10	)%		9.69	%		(62	)bp
	200			17,802		(108	)		(1	)		10.49			19
	100			18,541		631			4			10.77			46
	0			17,910		—			—			10.30			—
	(100	)		17,225		(685	)		(4	)		9.88			(42	)

The Office of Thrift Supervision uses various assumptions in assessing interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if there is a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. Prepayment rates can have a significant impact on interest income. Because of the large percentage of loans and mortgage-backed securities we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe these assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security and loan repayment activity.

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds available to meet short-term liquidity needs consist of deposit inflows, loan repayments and maturities and sales of investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets available to meet short-term liquidity needs based upon our assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities and (iv) the objectives of our asset/liability management policy. We do not have long-term debt or other financial obligations that would create long-term liquidity concerns.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The level of these assets depends on our operating, financing, lending and investing activities during any given period. At September 30, 2010, cash and cash equivalents totaled $27.4 million. Securities classified as available-for-sale, amounting to $13.1 million at September 30, 2010, provides an additional sources of liquidity. In addition, at September 30, 2010, we had the ability to borrow a total of approximately $50.2 million from the Federal Home Loan Bank of Atlanta. At September 30, 2010, we had $22.7 million in Federal Home Loan Bank advances outstanding. For additional liquidity, if needed, we have a $3 million line of credit with another bank, on which we had no outstanding balance at September 30, 2010.

During the year ended December 31, 2009 we sold one of our securities that was classified as held-to-maturity. The decision to sell this security was based on the specifics of that security and was not made as a result of liquidity concerns. As a result of the sale, the remainder of the held-to-maturity portfolio was considered tainted and transferred to the available-for-sale portfolio in accordance with accounting rules.

At September 30, 2010 we had $3.5 million in commitments to extend credit outstanding. Certificates of deposit due within one year of September 30, 2010 totaled $61 million, or 58% of certificates of deposit. We believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods due to the recent low interest rate environment and local competitive pressures. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on

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such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2011. We believe, however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The following table presents certain of our contractual obligations as of December 31, 2009.

	As of December 31, 2009
Contractual Obligations	Total		Less than One Year		One to Three Years		Three to Five Years		More Than Five Years
Operating lease obligations	$	805,836	$	232,831	$	302,760	$	270,245	$	—
Federal Home Loan Bank advances and other borrowings		22,916,667		336,000		7,580,667		—	$	15,000,000
Total	$	23,722,503	$	568,831	$	7,883,427	$	270,245	$	15,000,000

Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activity is activity in deposit accounts. Deposit flows are affected by the overall level of interest rates, the interest rates and product offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

Financing and Investing Activities

Capital Management. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2010, we exceeded all of our regulatory capital requirements and were considered “well capitalized” under regulatory guidelines. See “Regulation and Supervision—Regulation of Federal Savings Associations—Capital Requirements,” “Regulatory Capital Compliance” and note 13 of the notes to consolidated financial statements included in this prospectus.

The capital from the offering will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of lending activities. Our financial condition and results of operations will be enhanced by the capital from the offering, resulting in increased net interest-earning assets and income. However, the large increase in equity resulting from the capital raised in the offering will, initially, have an adverse impact on our return on equity. Following the offering, we may use capital management tools such as cash dividends and common share repurchases. However, under Office of Thrift Supervision regulations, we will not be allowed to repurchase any shares during the first year following the offering, except to fund the restricted stock awards under the equity benefit plan after its approval by shareholders, unless extraordinary circumstances exist and we receive regulatory approval.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit and letters of credit. For information about our loan commitments, unused lines of credit and letters of credit, see note 11 of the notes to consolidated financial statements.

For the nine months ended September 30, 2010 and the year ended December 31, 2009, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

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Impact of Recent Accounting Pronouncements

Accounting Standards Codification. The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became effective on July 1, 2009. At that date, ASC became FASB’s officially recognized source of authoritative United States (“U.S.”) generally accepted accounting principles (“GAAP”) applicable to all public and non-public, non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. Rules and interpretive releases of the United States Securities and Exchange Commission under the authority of federal securities laws are also sources of authoritative GAAP for Securities and Exchange Commission registrants. All other accounting literature is considered non-authoritative. The switch to ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

Accounting Standards Updates (“ASU”) No. 2009-16, “Transfers and Servicing (Topic- 860)-Accounting for Transfers of Financial Assets” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. ASU 2009-16 also requires additional disclosures about all continuing involvement with transferred financial assets including information about gains and losses resulting from transfers during the period. The provisions of ASU 2009-16 became effective on January 1, 2010 and did not have a significant impact on our consolidated results of operations or financial position.

ASU No. 2009-17, “Consolidations (Topic 810)-Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” amends prior guidance to change how a company determines when an entity that is sufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. ASU 2009-17 requires additional disclosures about the reporting entity’s involvement with variable interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. As further discussed below, ASU No. 2010-10, “Consolidations (Topic 810),” deferred the effective date of ASU 2009-17 for a reporting entity’s interests in investment companies. The provisions of ASU 2009-17 became effective on January 1, 2010 and they did not have a material impact on our consolidated results of operations or financial position.

ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820)-Improving Disclosures About Fair Value Measurements” requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between the levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) companies should provide fair value measurement disclosures for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. ASU No. 2010-06 requires the disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective on January 1, 2010. The adoption of ASU No. 2010-06 did not have a material impact on our consolidated results of operations or financial position.

ASU No. 2010-10, “Consolidations (Topic 810)-Amendments for Certain Investment Funds” defers the effective date of the amendments to the consolidation requirements made by ASU 2009-17 to a company’s interest in an entity (i) that has all of the attributes of an investment company, as specified under ASC Topic 946, “Financial Services-Investment Companies,” or (ii) for which it is industry practice to apply measurement principles of financial reporting that are consistent with those in ASC Topic 946. As a result of the deferral, companies are not

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required to apply the ASU 2009-17 amendments to the Subtopic 810-10 consolidation requirements to its interest in an entity that meets the criteria to qualify for the deferral. ASU 2010-10 also clarifies that any interest held by a related party should be treated as though it is an entity’s own interest when evaluating the criteria for determining whether such interest represents a variable interest. ASU 2010-10 also clarifies that companies should not use a quantitative calculation as the sole basis for evaluating whether a decision maker’s or service provider’s fee is variable interest. The provisions of ASU 2010-10 became effective as of January 1, 2010 and did not have a material impact on our consolidated results of operations or financial position.

ASU No. 2010-11, “Derivatives and Hedging (Topic 815)-Scope Exception Related to Embedded Credit Derivatives” clarifies that the only form of an embedded credit derivative that is exempt from the embedded derivative bifurcation requirement are those that relate to the subordination of one financial instrument to another. Entities that have contracts containing an embedded credit derivative feature in a form other than subordination may need to separately account for the embedded credit derivative feature. The provisions of ASU 2010-11 became effective on July 1, 2010. We do not anticipate that it will have a material impact on our consolidated results of operations or financial position.

In April 2010, the FASB issued ASU 2010-18, “Receivables (Subtopic 310) – Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset.” This guidance addresses diversity in practice on whether a loan that is part of a pool of loans accounted for as a single asset should be removed from that pool upon modification that would constitute a troubled debt restructuring or remain in the pool after modification. The guidance also clarifies that modifications of loans that are accounted for within a pool do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if the expected cash flows for the pool change. The amendments in this update do not require any additional disclosures and are effective for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010. This guidance is not expected to have a significant impact on our consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, “Receivables (Subtopic 310)-Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The main objective of ASU 2010-20 is to provide financial statement users greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. Existing disclosure guidance was amended to require an entity to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. In addition, the amendments in ASU 2010-20 require an entity to disclose credit quality indicators, past due information, and modifications of its financing receivables. These improvements will help financial statement users assess an entity’s credit risk exposures and its allowance for credit losses. ASU 2010-20 is effective for interim or annual periods ending on or after December 31, 2010. Since ASU 2010-20 only requires enhanced disclosures, management does not expect the adoption of this statement to have a material impact on our consolidated financial statements or results of operations.

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data presented in this prospectus have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial positions and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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Our Management

Board of Directors

The board of directors of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association are each comprised of five persons who are elected for terms of three years, approximately one-third of whom are elected annually. The same individuals comprise the boards of directors of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association.

Three of our five directors are independent under the current listing standards of the Nasdaq Stock Market. The two directors who are not independent under such standards are Thomas K. Sterner, who serves as Chairman, Chief Executive Officer and Chief Financial Officer of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association, and Richard C. Schultze, who serves as President and Chief Operating Officer of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association.

Information regarding the directors is provided below. Unless otherwise stated, each person has held his or her current occupation for the last five years. Ages presented are as of September 30, 2010. The starting year of service as a director relates to service on the board of directors of Fraternity Federal Savings and Loan Association.

The following directors have terms ending in 2011:

Michael P. O’Shea has been the President and Chief Executive Officer of O’Shea Lumber Company since 1971. Director since 2002. Age 67.

Mr. O’Shea provides the Board with significant management, strategic and operational knowledge through his experience as President and Chief Executive Officer of O’Shea Lumber Company. In addition, Mr. O’Shea provides the Board of Directors with valuable insight regarding Fraternity Federal Savings and Loan Association’s market area through his experience as President and Chief Executive Officer of O’Shea Lumber Company over the past 39 years.

Richard C. Schultze has served with Fraternity Federal Savings and Loan Association since 1990 and has been our President and Chief Operating Officer since 1993. Director since 1993. Age 56.

Through his affiliation with Fraternity Federal Savings and Loan Association for over 20 years and with over 32 years in the banking industry, Mr. Schultze brings in-depth knowledge and understanding of the banking business and our history, operations and customer base. In addition, Mr. Schultze has been a resident of Fraternity Federal Savings and Loan Association’s market area for many years and is an active member of the community. Mr. Schultze’s active involvement in the community has helped him establish a network of contacts that greatly assists us in our marketing efforts.

The following directors have terms ending in 2012:

William D. Norton is the co-founder of and has served as an Executive Vice President of Red Bag Solutions since March 2002. In addition to co-founding Red Bag Solutions, Mr. Norton has been a Managing Member of Waste Processing Solutions Service Co. since May 2010. Director since 2003. Age 63.

Mr. Norton has lived in Fraternity Federal Savings and Loan Association’s market area for many years and has developed extensive ties to the market area. Additionally, Mr. Norton’s management experience as a small business owner of two other companies in the local area have provided him with leadership experience and expertise that is valuable to the Board of Directors.

Thomas K. Sterner has served with Fraternity Federal Savings and Loan Association since January 1988 and has been our Chairman of the Board and Chief Executive Officer since 1993. He also serves as our Chief Financial Officer. Director since 1993. Age 51.

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Mr. Sterner’s over 31 years of banking experience, including 22 years with Fraternity Federal Savings and Loan Association, have provided him with strong leadership and managerial skills, as well as a deep understanding of the financial industry. In addition, Mr. Sterner’s knowledge of all aspects of our business and its history, combined with his success and strategic vision, position him well to serve as our Chairman, Chief Executive Officer and Chief Financial Officer.

The following director has a term ending in 2013:

William J. Baird, Jr. began his career with Armco Steel as an industrial engineer and in 1963 became a Partner in an engineering consulting business which he then sold in 1976. At that time, he started a risk management insurance consulting firm which, after several mergers, became part of the Willis Group, a global risk consulting/brokerage operation where he held several senior management positions. He retired in 1995. Mr. Baird has been involved in numerous for-profit and not-for profit organizations over 50 years, including service on the boards of directors of three hospitals, two universities, three private businesses and numerous charities. Director since 2009. Age 70.

Mr. Baird provides extensive management experience in both large and small firm settings as well as critical experience in risk management related matters. In addition, Mr. Baird’s continued involvement in community organizations and local matters is a vital component of a well rounded board.

Executive Officers

The executive officers of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association are elected annually by the board of directors and serve at the board’s discretion. The executive officers of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association are:

Name	Position
Thomas K. Sterner	Chairman of the Board, Chief Executive Officer and Chief Financial Officer of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association
Richard C. Schultze	President and Chief Operating Officer of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association

Meetings and Committees of the Board of Directors

We conduct business through meetings of our board of directors and its committees. During the year ended December 31, 2009, the board of directors of Fraternity Federal Savings and Loan Association met 28 times. As Fraternity Community Bancorp was incorporated in October 2010, the board of directors of Fraternity Community Bancorp did not meet during the year ended December 31, 2009.

In connection with the formation of Fraternity Community Bancorp, the board of directors established Audit, Compensation and Nominating Committees.

The Audit Committee consists of Michael P. O’Shea, William D. Norton and William J. Baird, Jr. The Audit Committee is responsible for providing oversight relating to our financial statements and financial reporting process, systems of internal accounting and financial controls, internal audit function, annual independent audit and the compliance and ethics programs established by management and the board. Each member of the Audit Committee is independent in accordance with the listing standards of the Nasdaq Stock Market. The board of directors of Fraternity Community Bancorp has designated William D. Norton as an audit committee financial expert under the rules of the Securities and Exchange Commission.

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The Compensation Committee consists of Michael P. O’Shea, William D. Norton and William J. Baird, Jr. The Compensation Committee is responsible for human resources policies, salaries and benefits, incentive compensation, executive development and management succession planning. Each member of the Compensation Committee is independent in accordance with the listing standards of the Nasdaq Stock Market.

The Nominating Committee consists of Michael P. O’Shea, William D. Norton and William J. Baird, Jr. The Nominating Committee is responsible for identifying individuals qualified to become board members and recommending a group of nominees for election as directors at each annual meeting of shareholders, ensuring that the board and its committees have the benefit of qualified and experienced independent directors, and developing a set of corporate governance policies and procedures. Each member of the Nominating Committee is independent in accordance with the listing standards of the Nasdaq Stock Market.

Each of Fraternity Community Bancorp’s committees listed above operates under a written charter, which governs its composition, responsibilities and operations.

Corporate Governance Policies and Procedures

In addition to having established committees of the board of directors, Fraternity Community Bancorp has also adopted certain policies to govern the activities of both Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association, including a code of business conduct and ethics.

The code of business conduct and ethics, which applies to all employees and directors, addresses conflicts of interest, the treatment of confidential information, general employee conduct and compliance with applicable laws, rules and regulations. In addition, the code of business conduct and ethics is designed to deter wrongdoing and to promote honest and ethical conduct, the avoidance of conflicts of interest, full and accurate disclosure and compliance with all applicable laws, rules and regulations.

Executive Compensation

Summary Compensation Table

The following information is furnished for our principal executive officer and the next most highly compensated executive officer whose total compensation for the year ended December 31, 2009 exceeded $100,000. These individuals are referred to in this prospectus as “named executive officers.”

Name and Principal Position	Year		Salary		Bonus		All Other Compensation (1)		Total
Thomas K. Sterner     Chairman of the Board,     Chief Executive Officer and Chief     Financial Officer		2009	$	193,744	$	21,500	$	41,335	$	256,579
Richard C. Schultze     President and Chief Operating Officer		2009		193,744		21,500		38,333		253,577

(1) Details of the amounts disclosed in the “All Other Compensation” column are provided in the table below:

	Mr. Sterner		Mr. Schultze
Employer matching contribution to 401(k) plan	$	9,024	$	11,003
Contributions under deferred compensation arrangement		9,750		9,750
Directors fees		22,561		17,580
Total	$	41,335	$	38,333

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Employment Agreements and Severance Plan

Current Employment Agreement. On September 15, 2009, Fraternity Federal Savings and Loan Association entered into employment agreements with Messrs. Sterner and Schultze. Each of the agreements contain the same general terms, except for the employment positions with each of the executives. The agreements provide for a three-year term, subject to annual renewal by the board of directors for an additional year beyond the then-current expiration date. As extended, the term of the agreements currently expires on September 15, 2013. Under the agreements, the current annual base salary for each of Messrs. Sterner and Schultze is $205,368. We may modify the amount of the base salaries under the agreements from time to time and will review the salaries not less than annually. We may also pay Messrs. Sterner and Schultze discretionary bonuses. The executives also participate in all standard benefit plans and programs we sponsor for employees or other officers.

In addition to providing for base salary and other benefits, the employment agreements incorporate the terms of a deferred compensation program originally established in 2004. Pursuant to that program, we contribute to a trust for the benefit of each of the executives $812.50 each month. Each executive is fully vested in these contributions, plus any earnings on the contributions. Following their termination of employment, the trust will pay the accumulated benefit to Messrs. Sterner and Schultze weekly over a 15-year period. However, upon a change in control, the trust will pay the accumulated benefits in a single lump sum payment.

Under the employment agreements, if we terminate Messrs. Sterner’s or Schultze’s employment for “cause,” as that term is defined in the agreements, they will not receive any compensation for any period of time after the termination date. If we terminate the executives’ employment without cause, we will continue to pay their base salary for 36 months. In addition, we will continue health and life insurance benefits for the executive and his dependents until the earlier of (i) the date the executive turns age 65, (ii) his death or (iii) 36 months from his termination. We will also provide the severance payment and benefits to the executives if they voluntarily terminate employment for “good reason.” Under the agreement, the executives have good reason to terminate employment upon (i) a material diminution of base salary, (ii) a material diminution of authorities, duties or responsibilities or (iii) a relocation of place of employment by more than 30 miles.

If we, or our successor, terminate Messrs. Sterner’s or Schultze’s employment during the term of the employment agreements following a change in control or if they voluntarily terminate employment with us or our successor during the term of the agreements for “good reason” (as described above) following a change in control, they will receive a lump sum severance benefit equal to 2.99 times their average taxable income for the five taxable years preceding the change in control. In addition, we will continue health and life insurance benefits for the executive and his dependents until the earlier of (i) the date the he turns age 65, (ii) his death or (iii) 36 months from his termination.

Proposed Employment Agreements. Upon completion of the conversion, Fraternity Community Bancorp expects to enter into separate employment agreements with each of Messrs. Sterner and Schultze on the same general terms as contained in the agreements with Fraternity Federal Savings and Loan Association.

Employee Severance Compensation Plan. In connection with the conversion, we expect to adopt an employee severance plan to provide benefits to eligible employees who terminate employment in connection with or following a change in control. Employees become eligible for severance benefits under the plan if they complete a minimum of one year of service and do not enter into a separate employment or change in control agreement. Under the severance plan, if, within twelve months after a change in control, an employee’s employment involuntarily terminates, or if an employee voluntarily terminates employment without being offered continued employment in a comparable position, the terminated employee would receive a severance payment equal to two weeks of base compensation for each year of service up to a maximum of 52 weeks of base compensation and with a minimum of four (4) weeks base compensation. Based solely on compensation levels and years of service at September 30, 2010, and assuming that a change in control occurred on September 30, 2010, and all eligible employees became entitled to severance payments, the aggregate payments due under the severance plan would equal approximately $405,000.

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Benefit Plans

401(k) Plan. We maintain the Fraternity Federal Savings and Loan Association 401(k) Plan, a tax-qualified defined contribution plan, for all employees of Fraternity Federal Savings and Loan Association who satisfy the plan’s eligibility requirements. Participants become eligible to participate in the plan on the first day of the month that coincides with or next follows the date they complete one year of employment. Eligible employees may contribute up to 50% of their compensation to the plan on a pre-tax basis, subject to limitations imposed by the Internal Revenue Code. For 2010, the salary deferral contribution limit is $16,500; provided, however, that participants over age 50 may contribute an additional $5,500 to the plan. Participants are always 100% vested in their salary deferral contributions. In addition to salary deferral contributions, the plan provides that we will make a safe harbor matching contribution equal to 100% of the participant’s deferrals, not to exceed 4% of the participant’s salary, plus 50% of the next 2% of the participant’s elective contributions. In addition, we currently make monthly basic contributions equal to 3% of each participant’s compensation. Participants are 100% vested in employer contributions under the plan. The plan allows participants to take loans and other in-service distributions in accordance with certain requirements set forth in the plan. Participants have individual accounts under the plan and may direct the investment of their accounts among a variety of investment funds. In connection with the offering, we expect to add another investment alternative, the Fraternity Community Bancorp Stock Fund (the “Stock Fund”), which will permit participants to use their 401(k) plan funds to purchase Fraternity Community Bancorp common stock in the offering as an investment under the 401(k) plan. Unlike the employee stock ownership plan, the 401(k) plan does not have priority subscription rights to purchase common stock in the offering. A 401(k) plan participant who elects to purchase common stock in the offering through self-directed purchases within the plan will receive the same subscription priority, and be subject to the same purchase limitations, as if the participant had elected to purchase the common stock using funds outside the plan. See “The Conversion and Stock Offering—Subscription Offering and Subscription Rights” and “—Limitations on the Purchase of Shares.” The Stock Fund trustee will purchase common stock in the offering on behalf of plan participants, to the extent that shares are available. Participants will direct the trustee regarding the voting of shares purchased for their plan accounts through the Stock Fund.

Employee Stock Ownership Plan. In connection with the conversion, Fraternity Federal Savings and Loan Association has adopted an employee stock ownership plan for eligible employees. Eligible employees will participate in the employee stock ownership plan as of the first day of the month following or coincident with their completion of one year of service.

We may engage an independent third party to act as trustee of the plan or we may appoint certain directors or officers to serve as trustees of the plan. The trustees, on behalf of the employee stock ownership plan, will subscribe for up to 8% of the number of shares of common stock sold in the conversion 81,600, 96,000, 110,400 and 126,960 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively). The purchase of common stock by the employee stock ownership plan in the offering will comply with all applicable Office of Thrift Supervision regulations. The trustees will fund the stock purchase for the plan through a loan from Fraternity Community Bancorp equal to 100% of the aggregate purchase price of the common stock. The plan will repay the loan principally through contributions to the employee stock ownership plan by Fraternity Federal and any dividends paid on common stock held by the plan over an expected 12-year term of the loan. We anticipate that the fixed interest rate for the will equal the prime rate, as published in The Wall Street Journal, on the closing date of the offering. See “Pro Forma Data.”

The trustee will hold the shares purchased by the employee stock ownership plan in a loan suspense account, and will release the shares from the suspense account on a pro rata basis as Fraternity Federal Savings and Loan Association repays the loan. The trustee will allocate the shares released among active participants on the basis of each active participant’s proportional share of compensation. Participants will vest in their employee stock ownership plan allocations at the rate of 33.3% per year beginning after two years of service. Participants will be credited with past service for vesting purposes under the employee stock ownership plan. Participants will become fully vested upon age 65, death or disability, a change in control, or termination of the plan. Generally, participants will receive distributions from the employee stock ownership plan upon separation from service. The plan reallocates any unvested shares of common stock forfeited upon termination of employment among the remaining participants in the plan.

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Participants may direct the plan trustee how to vote the shares of common stock credited to their accounts. The plan trustee will vote all unallocated shares and allocated shares for which participants do not provide instructions on any matter in the same ratio as it votes those shares for which participants provide instructions, subject to fulfillment of its fiduciary responsibilities as trustee.

Under applicable accounting requirements, Fraternity Federal Savings and Loan Association will record a compensation expense for a leveraged employee stock ownership plan at the fair market value of the shares when they are committed to be released from the suspense account to participants’ accounts under the plan.

Equity Incentive Plans

Future Equity Incentive Plan. Following the conversion, Fraternity Community Bancorp plans to adopt an equity incentive plan that will provide for grants of stock options and restricted stock. In accordance with applicable regulations, we anticipate that the plan, if adopted within the first year after the offering, will authorize a number of stock options equal to 10% of the shares sold in the conversion stock offering and a number of shares of restricted stock equal to 4% of the shares sold in the offering. Therefore, the number of shares reserved under the plan, if adopted within that one-year period, will range from 142,800 shares, assuming 1,020,000 shares are sold in the offering at the minimum of the offering range, to 193,200 shares, assuming 1,380,000 shares are sold in the offering at the maximum of the offering range. If we adopt the equity incentive plan more than one year after completion of the offering, we would not be subject to Office of Thrift Supervision regulations limiting the awards we may make under the plan or certain other requirements applicable to the plan implemented within the first year of conversion. We may fund the plan with shares we purchase in the open market or with authorized, but unissued shares, of common stock. We may also establish a trust to hold shares subject to the terms of the plan. In determining the source of shares transferred to participants of the plan, we will consider our financial condition and results of operations, capital requirements, economic conditions and whether sufficient shares are available for purchase in the open market. The equity incentive plan will comply with all applicable required Office of Thrift Supervision regulations except to the extent waived by the Office of Thrift Supervision.

The following table represents the total value of all shares to be available for restricted stock awards under the equity incentive plan, based on a range of market prices from $8.00 per share to $14.00 per share. The value of the grants will depend on the actual trading price of our common stock at the time of grant.

		Value of
Share Price		40,800 Shares Awarded  at Minimum of Range		48,000 Shares Awarded  at Midpoint of Range		55,200 Shares Awarded  at Maximum of Range		63,480 Shares Awarded  at Maximum, as Adjusted, of Range
		(In thousands, except per share amounts)
$	8.00	$	326	$	384	$	442	$	508
	10.00		408		480		552		635
	12.00		490		576		662		762
	14.00		571		672		773		889

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The following table presents the total value of all stock options available for grant under the equity incentive plan, based on a range of market prices at the date of grant from $8.00 per share to $14.00 per share. For purposes of this table, the value of the stock options was determined using the Black-Scholes option-pricing formula. See “Pro Forma Data.” Financial gains can be realized on a stock option only if the market price of the common stock increases above the exercise price at which the option is granted.

				Value of
Exercise Price		Option Value		102,000 Options Granted  at Minimum of Range		120,000 Options Granted  at Midpoint of Range		138,000 Options Granted  at Maximum of Range		158,700 Options Granted at Maximum, as Adjusted, of Range
				(In thousands, except per share amounts)
$	8.00	$	3.01	$	307	$	361	$	415	$	478
	10.00		3.77		385		452		520		598
	12.00		4.52		461		542		624		717
	14.00		5.27		538		632		727		836

The following tables summarize at the minimum and maximum of the offering range the total number and value of the shares of common stock that the employee stock ownership plan expects to acquire and the total value of all restricted stock awards and stock options that are expected to be available under the equity incentive plan. At the minimum of the offering range we would sell 1,020,000 shares and have 1,020,000 shares outstanding, and at the maximum of the offering range, we would sell 1,380,000 shares and have 1,380,000 shares outstanding. The number of shares reflected for the benefit plans in the table below assumes that we grant a number of restricted stock awards equal to 4% of the shares sold in the offering and the application of the net proceeds as described under “Use of Proceeds.”

	Number of Shares to be Granted or Purchased at Minimum of Offering Range
	Number of Shares		As a % of Common Stock Sold			Total Estimated Value of Grants
Employee stock ownership plan (1)		81,600		8.00	%	$	816,000
Restricted stock awards (1)		40,800		4.00			408,000
Stock options (2)		102,000		10.00			384,540
Total		224,400		22.00	%	$	1,608,540

(1) Assumes the value of Fraternity Community Bancorp common stock is $10.00 per share for purposes of determining the total estimated value of the grants.

(2) Assumes the value of a stock option is $3.84, which was determined using the Black-Scholes option-pricing formula. See “Pro Forma Data.”

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	Number of Shares to be Granted or Purchased At Maximum of Offering Range
	Number of Shares		As a % of Common Stock Sold			Total Estimated Value of Grants
Employee stock ownership plan (1)		110,400		8.00	%	$	1,104,000
Restricted stock awards (1)		55,200		4.00			552,000
Stock options (2)		138,000		10.00			520,260
Total		303,600		22.00	%	$	2,176,260

(1) Assumes the value of Fraternity Community Bancorp common stock is $10.00 per share for purposes of determining the total estimated value of the grants.

(2) Assumes the value of a stock option is $3.84, which was determined using the Black-Scholes option-pricing formula. See “Pro Forma Data.”

Nonqualified Deferred Compensation

Deferred Compensation Arrangement. Each month, we contribute $812.50 to a trust for the benefit of Messrs. Sterner and Schultze. The trust will pay the accumulated benefit of these contributions, plus any earnings on the contributions, to Messrs. Sterner and Schultze either in a lump sum upon a change in control or over a 15-year period following the executive’s termination from employment. In connection with the offering, we expect to amend the plan to allow each of the individuals to make a one-time election to invest a portion of the account balance in stock purchased in the offering. Distribution of any amounts used to purchase stock in the offering will be made in shares of stock. For more information on this benefit, see Employment Agreements and Severance Plan – Current Employment Agreement.

Existing Supplemental Executive Retirement Plan. On September 15, 2009, Fraternity Federal established a supplemental executive retirement plans for the benefit of Messrs. Sterner and Schultze. Under the plans, if Mr. Sterner or Mr. Schultze terminates employment after attaining age 65, we will pay an annual retirement benefit of $90,115 for Mr. Sterner or $65,196 for Mr. Schultze for 15 years (the “Normal Retirement Benefit”). If either executive terminates employment before attaining age 65, we will pay him a reduced retirement benefit equal to the amount we have accrued to date toward his Normal Retirement Benefit (the “Early Retirement Benefit”) in equal monthly installments for 15 years. If either executive terminates employment at any time following a change in control, regardless of age, we will pay him a lump sum benefit equal to the present value of his Normal Retirement Benefit. If either executive dies while employed with Fraternity Federal Savings and Loan Association, we will pay his beneficiaries a single lump sum benefit equal to the lesser of $1.0 million or a portion of the insurance proceeds from a life insurance policy on the life of the applicable executive pursuant to the terms of a death benefit plan agreement we have entered into with each executive. If an executive dies after terminating employment and while receiving payments under the plan, we will pay his beneficiaries a lump sum payment equal to the present value of remaining scheduled payments under the plan.

Proposed Excess Benefit Supplemental Executive Retirement Plan. Following the conversion, we intend to implement a supplemental executive retirement plan to provide for supplemental retirement benefits with respect to the employee stock ownership plan and 401(k) plan. The plan will provide participating executives with benefits otherwise limited by other provisions of the Internal Revenue Code or the terms of the employee stock ownership plan loan. Specifically, the plan will provide benefits to eligible individuals (those designated by our board of directors) that cannot be provided under the employee stock ownership plan or 401(k) plan as a result of the limitations imposed by the Internal Revenue Code, but that would have been provided under those plans but for such limitations. In addition to providing for benefits lost under tax-qualified plans as a result of limitations imposed by the Internal Revenue Code, the new plan will also provide supplemental benefits to designated individuals upon a change of control before the complete scheduled repayment of the employee stock ownership plan loan. Generally, upon a change in control, the supplemental executive retirement plan will provide the participant with a benefit equal to the benefit the individual would have received under the employee stock ownership plan had he remained employed throughout the term of the employee stock ownership plan loan less the benefits actually provided under the employee stock ownership on behalf of the participant. An individual’s benefit under the supplemental executive retirement plan will become payable upon a separation from service.

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Director Compensation

The following table provides the compensation received by individuals, who are not executive officers, who served as directors of Fraternity Federal Savings and Loan Association during the 2009 fiscal year. Since the formation of Fraternity Community Bancorp, no directors have received compensation for service as a director of Fraternity Community Bancorp.

	Fees Earned or Paid in Cash		Total
William J. Baird, Jr.	$	3,780	$	3,780
William D. Norton	$	20,457	$	20,457
Michael P. O’Shea	$	20,226	$	20,226

Meeting Fees for Non-Employee Directors. The following table sets forth the applicable fees that are paid to our non-employee directors for their service on the board of directors of Fraternity Federal Savings and Loan Association. Members of the board of directors of Fraternity Community Bancorp will not receive additional fees for service on the Company’s board of directors.

Board of Directors of Fraternity Federal Savings and Loan Association:
Fee for each board meeting attended	$	630
Additional fee for each asset and liability committee and loan committee meeting attended		125

Director Retirement Policy

In 2009, Fraternity Federal established a director retirement policy under which Messrs. O’Shea and Norton participate. Pursuant to that policy, each director will receive an annual retirement benefit of $16,000, payable for 10 years, beginning upon his retirement at age 75.

Transactions with Fraternity Federal Savings and Loan Association

Loans and Extensions of Credit. The Sarbanes-Oxley Act of 2002 generally prohibits loans by publicly traded companies to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption from such prohibition for loans by banks to their executive officers and directors in compliance with federal banking regulations. Federal regulations generally require that all loans or extensions of credit to executive officers and directors of insured institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and must not involve more than the normal risk of repayment or present other unfavorable features, although federal regulations allow us to make loans to executive officers and directors at reduced interest rates if the loan is made under a benefit program generally available to all other employees that does not give preference to any executive officer or director over any other employee.

In addition, loans made to a director or executive officer in an amount that, when aggregated with the amount of all other loans to the person and his or her related interests, are in excess of the greater of $25,000 or 5% of Fraternity Federal Savings and Loan Association’s capital and surplus, up to a maximum of $500,000, must be approved in advance by a majority of the disinterested members of the board of directors. See “Regulation and Supervision — Regulation of Federal Savings Banks — Transactions with Related Parties.”

The outstanding balance of loans extended by Fraternity Federal Savings and Loan Association to its executive officers and directors and related parties was $811,000 at September 30, 2010, or approximately 3.1% of pro forma shareholders’ equity assuming that 1,200,000 shares are sold in the offering at the midpoint of the offering range. Such loans were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to Fraternity Federal Savings and Loan Association, and did not involve more than the normal risk of collectibility or present other unfavorable features when made. All loans were performing according to their original terms at September 30, 2010.

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Other Transactions. Since January 1, 2008, there have been no transactions and there are no currently proposed transactions in which we were or are to be a participant and the amount involved exceeds $120,000, and in which any of our executive officers and directors had or will have a direct or indirect material interest.

Indemnification for Directors and Officers

Fraternity Community Bancorp’s articles of incorporation provide that Fraternity Community Bancorp shall indemnify its directors and officers, whether serving the Fraternity Community Bancorp or at its request any other entity, to the fullest extent required or permitted by the general laws of the State of Maryland, including the advance of expenses under the procedures required, and other employees and agents to such extent as shall be authorized by the board of directors or Fraternity Community Bancorp’s bylaws and as permitted by law. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of Fraternity Community Bancorp pursuant to its articles of incorporation or otherwise, Fraternity Community Bancorp has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

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Subscriptions by Executive Officers and Directors

The following table presents certain information as to the proposed purchases of common stock by our directors and executive officers, including their associates, if any, as defined by applicable regulations. The amounts shown include any shares our executive officers may elect to purchase through our 401(k) Plan and the deferred compensation plan. No individual has entered into a binding agreement to purchase these shares and, therefore, actual purchases could be more or less than indicated. Directors and executive officers and their associates may not purchase in the aggregate more than 32% of the shares sold in the offering. Like all of our depositors, our directors and officers have subscription rights based on their deposits. For purposes of the following table, sufficient shares are assumed to be available to satisfy subscriptions in all categories. All directors and officers as a group would own 4.4% of our outstanding shares at the minimum of the offering range and 3.3% of our outstanding shares at the maximum of the offering range.

	Proposed Purchases of Stock in the Offering
Name	Number of Shares		Dollar Amount		Percent of Common Stock Outstanding at Minimum of  Offering Range
Directors:
William J. Baird, Jr.		2,500	$	25,000		0.2	%
William D. Norton		5,000		50,000		0.5
Michael P. O’Shea		2,500		25,000		0.2
Richard C. Schultze		15,000		150,000		1.5
Thomas K. Sterner		20,000		200,000		2.0
All directors and executive officers as a group (5 persons)		45,000	$	450,000		4.4	%

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Regulation and Supervision

General

Fraternity Federal Savings and Loan Association is subject to extensive regulation, examination and supervision by the Office of Thrift Supervision, as its primary federal regulator, and the Federal Deposit Insurance Corporation, as its deposits insurer. Fraternity Federal Savings and Loan Association is a member of the Federal Home Loan Bank System, and its deposit accounts are insured up to applicable limits by the Deposit Insurance Fund managed by the Federal Deposit Insurance Corporation. Fraternity Federal Savings and Loan Association must file reports with the Office of Thrift Supervision and the Federal Deposit Insurance Corporation concerning its activities and financial condition in addition to obtaining regulatory approval before entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the Office of Thrift Supervision and, under certain circumstances, the Federal Deposit Insurance Corporation, to evaluate Fraternity Federal Savings and Loan Association’s safety and soundness and compliance with various regulatory requirements. This regulatory structure is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the Office of Thrift Supervision, the Federal Deposit Insurance Corporation or Congress, could have a material adverse impact on Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association and their operations. Fraternity Community Bancorp, as a savings and loan holding company, will be required to file certain reports with, is subject to examination by, and otherwise must comply with the rules and regulations of the Office of Thrift Supervision. Fraternity Community Bancorp will also be subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

The Dodd-Frank Act, signed by the President on July 21, 2010, provides for the regulation and supervision of federal savings associations like Fraternity Federal Savings and Loan Association to be transferred to the Office of the Comptroller of the Currency, the agency that regulates national banks. The Office of The Comptroller of the Currency will assume primary responsibility for implementing and enforcing many of the laws and regulations applicable to federal savings associations. The transfer will occur over a transition period of up to one year, subject to a possible six month extension. At the same time, the responsibility for supervising savings and loan holding companies like Fraternity Community Bancorp will be transferred to the Federal Reserve Board. The Dodd-Frank Act also provides for the creation of a new agency, the Consumer Financial Protection Bureau, as an independent bureau of the Federal Reserve Board, to take over the implementation of federal consumer financial protection and fair lending laws from the depository institution regulators. However, institutions of $10 billion or fewer in assets will continue to be examined for compliance with such laws and regulations by, and subject to the enforcement authority of, the prudential regulator rather than the Consumer Financial Protection Bureau.

The material regulatory requirements that are or will be applicable to Fraternity Federal Savings and Loan Association and Fraternity Community Bancorp are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on Fraternity Federal Savings and Loan Association and Fraternity Community Bancorp.

Regulation of Federal Savings Association

Business Activities. Federal law and regulations, primarily the Home Owners’ Loan Act and the regulations of the Office of Thrift Supervision, govern the activities of federal savings associations, such as Fraternity Federal Savings and Loan Association. These laws and regulations delineate the nature and extent of the activities in which federal savings associations may engage. In particular, certain lending authority for federal savings associations, e.g., commercial, nonresidential real property loans and consumer loans, is limited to a specified percentage of the institution’s capital or assets.

The Dodd-Frank Act authorizes depository institutions to pay interest on demand deposits effective July 31, 2011. Depending upon competitive responses, that change could have an adverse impact on Fraternity Federal Savings and Loan Association’s interest expense.

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Branching. Federal savings associations are authorized to establish branch offices in any state or states of the United States and its territories, subject to the approval of the Office of Thrift Supervision.

Capital Requirements. The Office of Thrift Supervision’s capital regulations require federal savings institutions to meet three minimum capital standards: a 1.5% tangible capital to total assets ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS examination rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The Office of Thrift Supervision regulations also require that, in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not permissible for national banks.

The risk-based capital standard requires federal savings institutions to maintain Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 1,250%, assigned by the Office of Thrift Supervision capital regulation based on the risks believed inherent in the type of asset. Core (Tier 1) capital is defined as common shareholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The Office of Thrift Supervision also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular circumstances. At September 30, 2010, Fraternity Federal Savings and Loan Association met each of these capital requirements. See note 13 of the notes to consolidated financial statements included in this prospectus.

Prompt Corrective Regulatory Action. The Office of Thrift Supervision is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a savings institution that has a ratio of total capital to risk-weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to be “undercapitalized.” A savings institution that has a total risk-based capital ratio of less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized” and a savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the Office of Thrift Supervision is required to appoint a receiver or conservator within specified time frames for an institution that is “critically undercapitalized.” An institution must file a capital restoration plan with the Office of Thrift Supervision within 45 days of the date it receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding company in the amount of the lesser of 5% of the association’s total assets when it became undercapitalized or the amount necessary to achieve full compliance at the time the association first failed to comply. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. “Significantly undercapitalized” and “critically undercapitalized” institutions are subject to more extensive mandatory regulatory actions. The Office of Thrift Supervision could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. At September 30, 2010, Fraternity Federal Savings and Loan Association was considered “well capitalized” under these regulations.

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Loans to One Borrower. Federal law provides that savings institutions are generally subject to the limits on loans to one borrower applicable to national banks. Subject to certain exceptions, a savings institution may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral. See “Our Business — Lending Activities — Loans to One Borrower.”

Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted Interagency Guidelines Establishing Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the Office of Thrift Supervision determines that a savings institution fails to meet any standard prescribed by the guidelines, the Office of Thrift Supervision may require the institution to submit an acceptable plan to achieve compliance with the standard.

Limitation on Capital Distributions. Office of Thrift Supervision regulations impose limitations upon all capital distributions by a savings institution, including cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger. Under the regulations, an application to and the prior approval of the Office of Thrift Supervision is required before any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under Office of Thrift Supervision regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the Office of Thrift Supervision. If an application is not required, the institution must still provide prior notice to the Office of Thrift Supervision of the capital distribution if it is a subsidiary of a holding company, like Fraternity Federal Savings and Loan Association will be upon the completion of the conversion. If Fraternity Federal Savings and Loan Association’s capital were ever to fall below its regulatory requirements or the Office of Thrift Supervision notified it that it was in need of increased supervision, its ability to make capital distributions could be restricted. In addition, the Office of Thrift Supervision could prohibit a proposed capital distribution that would otherwise be permitted by the regulation, if the agency determines that such distribution would constitute an unsafe or unsound practice.

Qualified Thrift Lender Test. Federal law requires savings institutions to meet a qualified thrift lender test. Under the test, a savings association is required to either qualify as a “domestic building and loan association” under the Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, including certain mortgage-backed securities) in at least nine months out of each 12-month period.

A savings institution that fails the qualified thrift lender test is subject to certain operating restrictions. The Dodd-Frank Act also makes noncompliance with the qualified thrift lender test subject to agency enforcement action for a violation of law and a basis for dividend restrictions. As of September 30, 2010, Fraternity Federal Savings and Loan Association maintained 91.17% of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.

Transactions with Related Parties. Fraternity Federal Savings and Loan Association’s authority to engage in transactions with “affiliates” is limited by Office of Thrift Supervision regulations and Sections 23A and 23B of the Federal Reserve Act as implemented by the Federal Reserve Board’s Regulation W. The term “affiliates” for these purposes generally means any company that controls or is under common control with an institution. Fraternity Community Bancorp and any of its non-savings institution subsidiaries would be affiliates of Fraternity Federal Savings and Loan Association. In general, transactions with affiliates must be on terms that are as favorable to the institution as comparable transactions with non-affiliates. In addition, certain types of transactions are restricted to 10% of an institution’s capital and surplus with any one affiliate and 20% of capital and surplus with all affiliates. Collateral in specified amounts must usually be provided by affiliates in order to receive loans from an institution. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.

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The Sarbanes-Oxley Act of 2002 generally prohibits a company from making loans to its executive officers and directors. However, that act contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws. Under such laws, Fraternity Federal Savings and Loan Association’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such persons control, is limited. The law restricts both the individual and aggregate amount of loans Fraternity Federal Savings and Loan Association may make to insiders based, in part, on Fraternity Federal Savings and Loan Association’s capital position and requires certain board approval procedures to be followed. Such loans must be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. There are additional restrictions applicable to loans to executive officers. For information about transactions with our directors and officers, see “Our Management —Transactions with Fraternity Federal Savings and Loan Association.”

Enforcement. The Office of Thrift Supervision has primary enforcement responsibility over federal savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including shareholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, or conservatorship. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The Federal Deposit Insurance Corporation has authority to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.

The Office of the Comptroller of the Currency will assume the enforcement authority of the Office of Thrift Supervision as part of the Dodd-Frank Act regulatory restructuring.

Assessments. Federal savings associations are required to pay assessments to the Office of Thrift Supervision to fund its operations. The general assessments, paid on a semi-annual basis, are based upon the savings institution’s total assets, including consolidated subsidiaries, as reported in the institution’s latest quarterly thrift financial report, the institution’s financial condition and the complexity of its asset portfolio. The Office of the Comptroller of the Currency also funds its operations through assessments on regulated institutions.

Insurance of Deposit Accounts. Fraternity Federal Savings and Loan Association’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned, and certain potential adjustments established by Federal Deposit Insurance Corporation regulations. Effective April 1, 2009, assessment rates range from seven to 77.5 basis points of assessable deposits. Beginning January 1, 2011, assessment rates will range from 10 to 80.5 basis points of assessable deposits. The Federal Deposit Insurance may adjust the scale uniformly from one quarter to the next, except that no adjustment can deviate more than three basis points from the base scale without notice and comment. No institution may pay a dividend if in default of the federal deposit insurance assessment.

The Federal Deposit Insurance Corporation imposed on all insured institutions a special emergency assessment of five basis points of total assets minus Tier 1 capital (as of June 30, 2009), capped at ten basis points of an institution’s deposit assessment base, in order to cover losses to the Deposit Insurance Fund. That special assessment, in the amount of $76,000, was collected on September 30, 2009. The Federal Deposit Insurance Corporation provided for similar assessments during the final two quarters of 2009, if deemed necessary. However, in lieu of further special assessments, the Federal Deposit Insurance Corporation required insured institutions to prepay estimated quarterly risk-based assessments for the fourth quarter of 2009 through the fourth quarter of 2012. Such amount was $629,000 for the Fraternity Federal Savings and Loan Association. The estimated assessments, which include an assumed annual assessment base increase of 5%, were recorded as a prepaid expense asset as of December 30, 2009. As of December 31, 2009, and each quarter thereafter, a charge to earnings will be recorded for each regular assessment with an offsetting credit to the prepaid asset.

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Due to the recent difficult economic conditions, deposit insurance per account owner has been raised to $250,000. That limit was made permanent by the Dodd-Frank Act. In addition, the Federal Deposit Insurance Corporation adopted an optional Temporary Liquidity Guarantee Program by which, for a fee, noninterest-bearing transaction accounts would receive unlimited insurance coverage until June 30, 2010, subsequently extended to December 31, 2010, with an additional possible extension up to December 31, 2011, and certain senior unsecured debt issued by institutions and their holding companies between October 13, 2008 and October 31, 2009 would be guaranteed by the Federal Deposit Insurance Corporation through June 30, 2012, or in some cases, December 31, 2012. Fraternity Federal Savings and Loan Association opted to participate in the unlimited noninterest bearing transaction account coverage and in the unsecured debt guarantee program. The Dodd-Frank Act extended the unlimited coverage for certain noninterest bearing transaction accounts until December 31, 2012.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. That payment is established quarterly and during the four quarters ended September 30, 2010 averaged 1.04 basis points of assessable deposits. These financing corporation payments will continue until the bonds mature in 2017 through 2019.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the Federal Deposit Insurance Corporation.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Fraternity Federal Savings and Loan Association. Management cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or regulatory condition imposed in writing. The management of Fraternity Federal Savings and Loan Association does not know of any practice, condition or violation that might lead to termination of deposit insurance.

Federal Home Loan Bank System. Fraternity Federal Savings and Loan Association is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Fraternity Federal Savings and Loan Association, as a member of the Federal Home Loan Bank of Atlanta, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. At September 30, 2010, Fraternity Federal Savings and Loan Association complied with this requirement with an investment in Federal Home Loan Bank stock of $1.45 million.

The Federal Home Loan Banks are required to provide funds for the resolution of insolvent thrifts in the late 1980s and to contribute funds for affordable housing programs. These requirements, or general results of operations, could reduce or eliminate the dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. If dividends are reduced, or interest on future Federal Home Loan Bank advances increased, our net interest income could also be reduced. In fact, Federal Home Loan Bank dividends have been significantly reduced over the past two years from previous levels.

Community Reinvestment Act. Under the Community Reinvestment Act, as implemented by Office of Thrift Supervision regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the Community Reinvestment Act. The Community Reinvestment Act requires the Office of Thrift Supervision, in connection with its examination of a savings association, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution.

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The Community Reinvestment Act requires public disclosure of an institution’s rating and requires the Office of Thrift Supervision to provide a written evaluation of an association’s Community Reinvestment Act performance utilizing a four-tiered descriptive rating system.

Fraternity Federal Savings and Loan Association received a “satisfactory” rating as a result of its most recent Community Reinvestment Act assessment.

Other Regulations

Interest and other charges collected or contracted for by Fraternity Federal Savings and Loan Association are subject to state usury laws and federal laws concerning interest rates. Fraternity Federal Savings and Loan Association’s operations are also subject to federal laws applicable to credit transactions, such as the:

• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

• Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and

• Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of Fraternity Federal Savings and Loan Association also are subject to the:

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

• Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

• Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the “USA PATRIOT Act”), which significantly expands the responsibilities of financial institutions, including savings and loan associations, in preventing the use of the U.S. financial system to fund terrorist activities. Among other provisions, it requires financial institutions operating in the United States to develop new anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations; and

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• The Gramm-Leach-Bliley Act which places limitations on the sharing of consumer financial information with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of personal financial information with unaffiliated third parties.

Federal Reserve System

The Federal Reserve Board regulations require savings institutions to maintain noninterest earning reserves against their transaction accounts (primarily Negotiable Order of Withdrawal (“NOW”) and regular checking accounts). The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $55.2 million; a 10% reserve ratio is applied above $55.2 million. The first $10.7 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The amounts are adjusted annually. Fraternity Federal Savings and Loan Association complies with the foregoing requirements.

Holding Company Regulation

General. Fraternity Community Bancorp will be a unitary savings and loan holding company within the meaning of federal law, will register with the Office of Thrift Supervision and be subject to Office of Thrift Supervision regulations, examinations, supervision, reporting requirements and regulations. In addition, the Office of Thrift Supervision will have enforcement authority over Fraternity Community Bancorp and its non-savings institution subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to Fraternity Federal Savings and Loan Association. As a savings and loan holding company, new Fraternity Community Bancorp will be able to engage only in activities permitted to a financial holding company and those permitted for a multiple savings and loan holding company, which includes non-banking activities that have been determined to be permissible for bank holding companies. As part of the Dodd-Frank Act regulatory restructuring, the Office of Thrift Supervision’s authority over savings and loan holding companies will be transferred to the Federal Reserve Board, which is the agency that regulates bank holding companies.

The Gramm-Leach-Bliley Act of 1999 provided that no company may acquire control of a savings institution after May 4, 1999 unless it engages only in the financial activities permitted for financial holding companies under the law or for multiple savings and loan holding companies as described below. Further, the Gramm-Leach-Bliley Act specifies that existing savings and loan holding companies may only engage in such activities. Upon any non-supervisory acquisition by Fraternity Community Bancorp of another savings institution or savings association that meets the qualified thrift lender test and is deemed to be a savings institution by the Office of Thrift Supervision, Fraternity Community Bancorp would become a multiple savings and loan holding company (if the acquired institution is held as a separate subsidiary) and would generally be limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Office of Thrift Supervision, and certain activities authorized by Office of Thrift Supervision regulation. However, the Office of Thrift Supervision has issued an interpretation concluding that multiple savings and loan holding companies may also engage in activities permitted for financial holding companies.

A savings and loan holding company is prohibited from, directly or indirectly, acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company, without prior written approval of the Office of Thrift Supervision, and from acquiring or retaining control of a depository institution that is not insured by the Federal Deposit Insurance Corporation. In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision considers the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the deposit insurance funds, the convenience and needs of the community and competitive factors.

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The Office of Thrift Supervision may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (ii) the acquisition of a savings institution in another state if the laws of the state target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, requires the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. There is a five year transition period before the capital requirements will apply to savings and loan holding companies. The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must issue regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions.

Fraternity Federal Savings and Loan Association must notify the Office of Thrift Supervision 30 days before declaring any dividend to Fraternity Community Bancorp. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the Office of Thrift Supervision and the agency has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the institution.

Acquisition of Control. Under the federal Change in Bank Control Act, a notice must be submitted to the Office of Thrift Supervision if any person (including a company), or group acting in concert, seeks to acquire “control” of a savings and loan holding company or savings association. An acquisition of “control” can occur upon the acquisition of 10% or more of the voting stock of a savings and loan holding company or savings institution or as otherwise defined by the Office of Thrift Supervision. Under the Change in Bank Control Act, the Office of Thrift Supervision has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control would then be subject to regulation as a savings and loan holding company.

Regulatory Restructuring Legislation

On July 21, 2010, President Obama signed the Dodd-Frank Act, which is legislation that restructures the regulation of depository institutions. In addition to eliminating the Office of Thrift Supervision and creating the Consumer Financial Protection Bureau, the Dodd-Frank Act, among other things, requires changes in the way that institutions are assessed for deposit insurance, mandates the imposition of consolidated capital requirements on savings and loan holding companies, requires that originators of securitized loans retain a percentage of the risk for the transferred loans, reduces the federal preemption afforded to federal savings associations and contains a number of reforms related to mortgage origination. Many of the provisions of the Dodd-Frank Act require the issuance of regulations before their impact on operations can be assessed by management. However, there is a significant possibility that the Dodd-Frank Act will, at a minimum, result in increased regulatory burden and increase compliance and possibly interest expense costs for Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association.

Federal Securities Laws

Fraternity Community Bancorp has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 for the registration of the common stock to be issued in the offering. Upon completion of the offering, Fraternity Community Bancorp’s common stock will be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Fraternity Community Bancorp will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934, as amended.

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The registration, under the Securities Act of 1933, as amended, of the shares of common stock to be issued in the offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of Fraternity Community Bancorp may be resold without registration. Shares purchased by an affiliate of Fraternity Community Bancorp will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933, as amended. If Fraternity Community Bancorp meets the current public information requirements of Rule 144, each affiliate of Fraternity Community Bancorp that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Fraternity Community Bancorp or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, Fraternity Community Bancorp may permit affiliates to have their shares registered for sale under the Securities Act of 1933, as amended.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act of 2002, Fraternity Community Bancorp’s Chief Executive Officer and Chief Financial Officer will be required to certify that Fraternity Community Bancorp’s quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act of 2002 have several requirements, including having the Chief Executive Officer and Chief Financial Officer certify that: he is responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; he has made certain disclosures to our auditors and the audit committee of the board of directors about our internal controls; and he has included information in our quarterly and annual reports about his evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls. Fraternity Community Bancorp will be subject to further reporting and audit requirements beginning with the year ending March 31, 2011 under the requirements of the Sarbanes-Oxley Act. Fraternity Community Bancorp will prepare policies, procedures and systems designed to comply with these regulations to ensure compliance with these regulations.

Federal and State Taxation

Federal Income Taxation

General. We report our income on a fiscal year basis using the accrual method of accounting. The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns have not been audited during the last five years. For its 2009 fiscal year, Fraternity Federal Savings and Loan Association’s maximum statutory federal income tax rate was 34%.

Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association will enter into a tax allocation agreement. Because Fraternity Community Bancorp will own 100% of the issued and outstanding capital stock of Fraternity Federal Savings and Loan Association after the completion of the conversion, Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association will be members of an affiliated group within the meaning of Section 1504(a) of the Internal Revenue Code, of which group Fraternity Community Bancorp will be the common parent corporation. As a result of this affiliation, Fraternity Federal Savings and Loan Association may be included in the filing of a consolidated federal income tax return with Fraternity Community Bancorp and, if a decision to file a consolidated tax return is made, the parties agree to compensate each other for their individual share of the consolidated tax liability and/or any tax benefits provided by them in the filing of the consolidated federal income tax return.

Bad Debt Reserves. For fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real

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property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and require savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves.

Distributions. If Fraternity Federal Savings and Loan Association makes “non-dividend distributions” to Fraternity Community Bancorp, the distributions will be considered to have been made from Fraternity Federal Savings and Loan Association’s unrecaptured tax bad debt reserves, including the balance of its reserves as of December 31, 1987, to the extent of the “non-dividend distributions,” and then from Fraternity Federal Savings and Loan Association’s supplemental reserve for losses on loans, to the extent of those reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be included in Fraternity Federal Savings and Loan Association’s taxable income. Non-dividend distributions include distributions in excess of Fraternity Federal Savings and Loan Association’s current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of Fraternity Federal Savings and Loan Association’s current or accumulated earnings and profits will not be so included in Fraternity Federal Savings and Loan Association’s taxable income.

The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if Fraternity Federal Savings and Loan Association makes a non-dividend distribution to Fraternity Community Bancorp, approximately one and one-half times the amount of the distribution not in excess of the amount of the reserves would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. Fraternity Federal Savings and Loan Association does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.

State Taxation

The state of Maryland imposes an income tax of approximately 8.25% on income measured substantially the same as federally taxable income. The State of Maryland currently assesses a personal property tax for December 2000 and forward.

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The Conversion and Stock Offering

Our board of directors has approved the plan of conversion. The Office of Thrift Supervision also has conditionally approved the plan of conversion, but its approval does not constitute a recommendation or endorsement of the plan of conversion by the agency.

General

On September 14, 2010, the board of directors of Fraternity Federal Savings and Loan Association unanimously adopted the plan of conversion according to which Fraternity Federal Savings and Loan Association will convert from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association and become a wholly owned subsidiary of Fraternity Community Bancorp, a newly formed Maryland corporation. On October 18, 2010, the board of directors of Fraternity Community Bancorp unanimously adopted the plan of conversion. Fraternity Community Bancorp will offer 100% of its common stock to qualifying depositors and borrowers of Fraternity Federal Savings and Loan Association in a subscription offering and, if necessary, to members of the general public through a community offering and/or a syndicate of registered broker-dealers. The completion of the offering depends on market conditions and other factors beyond our control. We can give no assurance as to the length of time that will be required to complete the sale of the common stock. If we experience delays, significant changes may occur in the appraisal of Fraternity Federal Savings and Loan Association, which would require a change in the offering range. A change in the offering range would result in a change in the net proceeds realized by Fraternity Community Bancorp from the sale of the common stock. If the offering is terminated, Fraternity Federal Savings and Loan Association would be required to charge all offering expenses against current income. The Office of Thrift Supervision approved our plan of conversion, subject to the fulfillment of certain conditions.

The following is a brief summary of the pertinent aspects of the conversion. A copy of the plan of conversion is available from Fraternity Federal Savings and Loan Association upon request and is available for inspection at the offices of Fraternity Federal Savings and Loan Association and at the Office of Thrift Supervision. The plan of conversion is also filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.”

Reasons for the Conversion

The primary reasons for the conversion and related stock offering are to:

• increase the capital of Fraternity Federal Savings and Loan Association to support future lending;

• enhance profitability and earnings through reinvesting and leveraging the proceeds, primarily through traditional lending and investing activities;

• support future branching activities and/or the acquisition of financial services companies; and

• implement equity compensation plans to retain and attract qualified directors, officers and staff to enhance our current incentive-based compensation programs.

As a stock holding company, Fraternity Community Bancorp will have greater flexibility than Fraternity Federal Savings and Loan Association now has in structuring mergers and acquisitions, including the consideration paid in a transaction. Our current mutual savings association structure, by its nature, limits our ability to offer any common stock as consideration in a merger or acquisition. Our new stock holding company structure will enhance our ability to compete with other bidders when acquisition opportunities arise by better enabling us to offer stock or cash consideration, or a combination of the two. We currently do not have any agreement or understanding as to any specific acquisition.

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Effects of Conversion to Stock Form

General. Each depositor in a mutual savings association has both a deposit account in the institution and a pro rata ownership interest in the net worth of the institution based upon the balance in his or her account. However, this ownership interest is tied to the depositor’s account and has no value separate from such deposit account. Furthermore, this ownership interest may only be realized in the unlikely event that the institution is liquidated. In such event, the depositors of record at that time, as owners, would be able to share in any residual surplus and reserves after payment of other claims, including claims of depositors to the amounts of their deposits. Any depositor who opens a deposit account obtains a pro rata ownership interest in the net worth of the institution without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the account but nothing for his or her ownership interest in the net worth of the institution, which is lost to the extent that the balance in the account is reduced.

When a mutual savings association converts to stock form, depositors lose all rights to the net worth of the mutual savings association, except the right to claim a pro rata share of funds representing the liquidation account established in connection with the conversion. Additionally, permanent nonwithdrawable capital stock is created and offered to depositors which represents the ownership of the institution’s net worth. The common stock of Fraternity Community Bancorp is separate and apart from deposit accounts and cannot be and is not insured by the Federal Deposit Insurance Corporation or any other governmental agency. Certificates are issued to evidence ownership of the permanent stock. The stock certificates are transferable, and therefore the stock may be sold or traded if a purchaser is available with no effect on any deposit account the seller may hold in the institution.

No assets of Fraternity Community Bancorp will be distributed in connection with the conversion other than the payment of those expenses incurred in connection with the conversion.

Continuity. While the conversion is being accomplished, the normal business of Fraternity Federal Savings and Loan Association will continue without interruption, including being regulated by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. After the conversion, Fraternity Federal Savings and Loan Association will continue to provide services for depositors and borrowers under current policies by its present management and staff.

The directors of Fraternity Federal Savings and Loan Association at the time of the conversion will serve as directors of Fraternity Federal Savings and Loan Association after the conversion. The initial directors of Fraternity Community Bancorp are composed of the individuals who serve on the board of directors of Fraternity Federal Savings and Loan Association. All officers of Fraternity Federal Savings and Loan Association at the time of conversion will retain their positions after the conversion.

Deposit Accounts and Loans. Fraternity Federal Savings and Loan Association’s deposit accounts, account balances and existing Federal Deposit Insurance Corporation insurance coverage of deposit accounts will not be affected by the conversion. Furthermore, the conversion will not affect the loan accounts, loan balances or obligations of borrowers under their individual contractual arrangements with Fraternity Federal Savings and Loan Association.

Effect on Voting Rights. Voting rights in Fraternity Federal Savings and Loan Association, as a mutual savings association, belong to its depositor and borrower members. After the conversion, depositors and borrowers will no longer have voting rights in Fraternity Federal Savings and Loan Association and, therefore, will no longer be able to elect directors of Fraternity Federal Savings and Loan Association or control its affairs. Instead, Fraternity Community Bancorp, as the sole shareholder of Fraternity Federal Savings and Loan Association, will possess all voting rights in Fraternity Federal Savings and Loan Association. The holders of the common stock of Fraternity Community Bancorp will possess all voting rights in Fraternity Community Bancorp. Depositors and borrowers of Fraternity Federal Savings and Loan Association will not have voting rights after the conversion except to the extent that they become shareholders of Fraternity Community Bancorp by purchasing common stock.

Liquidation Account. In the unlikely event of a complete liquidation of Fraternity Federal Savings and Loan Association before the conversion, each depositor in Fraternity Federal Savings and Loan Association would receive a pro rata share of any assets of Fraternity Federal Savings and Loan Association remaining after payment of

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claims of all creditors, including the claims of all depositors up to the withdrawal value of their accounts. Each depositor would receive a pro rata share of the remaining assets in the same proportion as the value of his or her deposit account to the total value of all deposit accounts in Fraternity Federal Savings and Loan Association at the time of liquidation.

After the conversion, holders of withdrawable deposits in Fraternity Federal Savings and Loan Association, including certificates of deposit, will not be entitled to share in any residual assets upon liquidation of Fraternity Federal Savings and Loan Association. However, under applicable regulations, Fraternity Federal Savings and Loan Association will, at the time of the conversion, establish a liquidation account in an amount equal to its total equity as of the date of the latest statement of financial condition contained in the final prospectus relating to the conversion.

Fraternity Federal Savings and Loan Association will maintain the liquidation account after the conversion for the benefit of eligible account holders and supplemental eligible account holders who retain their savings accounts in Fraternity Federal Savings and Loan Association. Each eligible account holder and supplemental account holder will, with respect to each deposit account held, have a related inchoate interest in a sub-account portion of the liquidation account balance.

The initial sub-account balance for a savings account held by an eligible account holder or a supplemental eligible account holder will be determined by multiplying the opening balance in the liquidation account by a fraction of which the numerator is the amount of the holder’s “qualifying deposit” in the deposit account and the denominator is the total amount of the “qualifying deposits” of all eligible or supplemental eligible account holders. The initial subaccount balance will not be increased, but it will be decreased as provided below.

If the deposit balance in any deposit account of an eligible account holder or supplemental eligible account holder at the close of business on any annual closing day of Fraternity Federal Savings and Loan Association (which is December) after June 30, 2009 or [SERD], is less than the lesser of the deposit balance in a deposit account at the close of business on any other annual closing date after June 30, 2009 or [SERD], or the amount of the “qualifying deposit” in a savings account on June 30, 2009 or [SERD], then the subaccount balance for a savings account will be adjusted by reducing the subaccount balance in an amount proportionate to the reduction in the savings balance. Once reduced, the subaccount balance will not be subsequently increased, notwithstanding any increase in the savings balance of the related savings account. If any savings account is closed, the related subaccount balance will be reduced to zero.

Upon a complete liquidation of Fraternity Federal Savings and Loan Association, each eligible account holder and supplemental account holder will be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current adjusted subaccount balance(s) for deposit account(s) held by the holder before any liquidation distribution may be made to shareholders. No merger, consolidation, bulk purchase of assets with assumptions of savings accounts and other liabilities or similar transactions with another federally insured institution in which Fraternity Federal Savings and Loan Association is not the surviving institution will be considered to be a complete liquidation. In any of these transactions, the liquidation account will be assumed by the surviving institution.

In the unlikely event Fraternity Federal Savings and Loan Association is liquidated after the conversion, depositors will be entitled to full payment of their deposit accounts before any payment is made to Fraternity Community Bancorp as sole shareholder of Fraternity Federal Savings and Loan Association. There are no plans to liquidate either Fraternity Federal Savings and Loan Association or Fraternity Community Bancorp in the future.

Material Income Tax Consequences

In connection with the conversion, we have received an opinion of counsel with respect to federal tax laws that no gain or loss will be recognized by account holders receiving subscription rights, except to the extent, if any, that subscription rights are deemed to have fair market value on the date such rights are issued. We believe that the tax opinion summarized below addresses all material federal income tax consequences that are generally applicable to persons receiving subscription rights.

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Kilpatrick Stockton LLP has issued an opinion to us that, for federal income tax purposes:

• the conversion of Fraternity Federal Savings and Loan Association from the mutual to the stock form of organization will qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code, and no gain or loss will be recognized by account holders and no gain or loss will be recognized by Fraternity Federal Savings and Loan Association by reason of such conversion;

• no gain or loss will be recognized by Fraternity Community Bancorp upon the sale of shares of common stock in the offering;

• it is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of Fraternity Community Bancorp to be issued to eligible account holders, supplemental eligible account holders and other members is zero and, accordingly, that no income will be realized by eligible account holders, supplemental eligible account holders and other members upon the issuance to them of the subscription rights or upon the exercise of the subscription rights; and

• it is more likely than not that the tax basis to the holders of shares of common stock purchased in the stock offering pursuant to the exercise of the subscription rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of completion of the stock offering.

The reasoning in support of Kilpatrick Stockton LLP’s statements set forth in the third and fourth bullet points above is set forth below. Whether subscription rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. According to our counsel, the Internal Revenue Service will not issue rulings on whether subscription rights have a market value. Counsel has also advised us that they are unaware of any instance in which the Internal Revenue Service has taken the position that nontransferable subscription rights have a market value. Counsel also noted that the subscription rights will be granted at no cost to the recipients, will be nontransferable and of short duration, and will afford the recipients the right only to purchase our common stock at a price equal to its estimated fair market value, which will be the same price as the purchase price for the unsubscribed shares of common stock.

Unlike a private letter ruling issued by the Internal Revenue Service, an opinion of counsel is not binding on the Internal Revenue Service and the Internal Revenue Service could disagree with the conclusions reached in the opinion. If there is a disagreement, no assurance can be given that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the Internal Revenue Service.

Fraternity Federal Savings and Loan Association also has received an opinion from Stegman & Company that, assuming the conversion does not result in any federal income tax liability to Fraternity Federal Savings and Loan Association, its account holders, or Fraternity Community Bancorp, implementation of the plan of conversion will not result in any Maryland income tax liability to those entities or persons.

The opinions of Kilpatrick Stockton LLP and of Stegman & Company are filed as exhibits to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.”

Subscription Offering and Subscription Rights

Under the plan of conversion, we have granted rights to subscribe for Fraternity Community Bancorp common stock to the following persons in the following order of priority:

• Persons with deposits in Fraternity Federal Savings and Loan Association with balances aggregating $50 or more (“qualifying deposits”) as of the close of business on June 30, 2009 (“eligible account holders”). For this purpose, deposit accounts include all savings, time and demand accounts.

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• Our employee stock ownership plan.

• Persons with qualifying deposits in Fraternity Federal Savings and Loan Association as of the close of business on [SERD] (“supplemental eligible account holders”) other than our officers and directors and their associates.

• Depositors and borrowers of Fraternity Federal Savings and Loan Association as of the close of business on [RECORD DATE], who are neither eligible nor supplemental eligible account holders (collectively, “other members”).

The amount of common stock that any person may purchase will depend on the availability of the common stock after satisfaction of all subscriptions having priority rights in the subscription offering and to the maximum and minimum purchase limitations set forth in the plan of conversion. See “— Limitations on Purchases of Shares.” All persons on a joint account will be counted as a single depositor for purposes of determining the maximum amount that may be subscribed for by owners of a joint account.

We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest.

Category 1: Eligible Account Holders. Subject to the purchase limitations as described below under “— Limitations on Purchases of Shares,” each eligible account holder has the right to subscribe for up to the greater of:

• $250,000 of common stock (which equals 25,000 shares);

• one-tenth of 1% of the total offering of common stock; or

• 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the eligible account holder and the denominator is the total amount of qualifying deposits of all eligible account holders.

If there are insufficient shares to satisfy all subscriptions by eligible account holders, shares first will be allocated so as to permit each subscribing eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible account holders whose subscriptions remain unfilled. Unless waived by the Office of Thrift Supervision, subscription rights of eligible account holders who are also executive officers or directors of Fraternity Federal Savings and Loan Association or their associates will be subordinated to the subscription rights of other eligible account holders to the extent attributable to increased deposits in Fraternity Federal Savings and Loan Association in the one-year period preceding June 30, 2009.

To ensure a proper allocation of stock, each eligible account holder must list on his or her stock order form all deposit accounts in which such eligible account holder had an ownership interest at June 30, 2009. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.

Category 2: Tax-Qualified Employee Benefit Plans. Our tax-qualified employee benefit plans (other than our 401(k) plan) have the right to purchase up to 10% of the shares of common stock sold in the offering. As a tax-qualified employee benefit plan, our employee stock ownership plan intends to purchase a number of shares equal to 8% of the shares sold in the offering. Subscriptions by the employee stock ownership plan will not

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be aggregated with shares of common stock purchased by any other participants in the offering, including subscriptions by our officers and directors, for the purpose of applying the purchase limitations in the plan of conversion. If eligible account holders subscribe for all of the shares being sold, no shares will be available for our tax-qualified employee benefit plans. However, if we increase the number of shares offered above the maximum of the offering range, the employee stock ownership plan will have a first priority right to purchase any shares exceeding that amount up to 10% of the common stock issued in the offering. If the plan’s subscription is not filled in its entirety, the employee stock ownership plan may purchase shares in the open market or may purchase shares directly from us with the approval of the Office of Thrift Supervision.

Category 3: Supplemental Eligible Account Holders. Subject to the purchase limitations as described below under “— Limitations on Purchases of Shares,” each supplemental eligible account holder has the right to subscribe for up to the greater of:

• $250,000 of common stock (which equals 25,000 shares);

• one-tenth of 1% of the total offering of common stock; or

• 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the supplemental eligible account holder and the denominator is the total amount of qualifying deposits of all supplemental eligible account holders.

If eligible account holders and the employee stock ownership plan subscribe for all of the shares being sold, no shares will be available for supplemental eligible account holders. If shares are available for supplemental eligible account holders but there are insufficient shares to satisfy all subscriptions by supplemental eligible account holders, shares first will be allocated so as to permit each subscribing supplemental eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing supplemental eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining supplemental eligible account holders whose subscriptions remain unfilled.

To ensure a proper allocation of stock, each supplemental eligible account holder must list on his or her stock order form all deposit accounts in which such supplemental eligible account holder had an ownership interest at [SERD]. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.

Category 4: Other Members. Subject to the purchase limitations as described below under “—Limitations on Purchases of Shares,” each other member has the right to purchase up to the greater of $250,000 of common stock (which equals 25,000 shares) or one-tenth of 1% of the total offering of common stock. If eligible account holders, the employee stock ownership plan and supplemental eligible account holders subscribe for all of the shares being sold, no shares will be available for other members. If shares are available for other members but there are not sufficient shares to satisfy all subscriptions by other members, shares first will be allocated so as to permit each subscribing other member, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing other members in the proportion that each other member’s subscription bears to the total subscriptions of all such subscribing other members whose subscriptions remain unfilled.

To ensure a proper allocation of stock, each other member must list on his or her stock order form all deposit accounts in which such other member had an ownership interest at [RECORD DATE]. Failure to list an account or providing incorrect information could result in the loss of all or part of a subscriber’s stock allocation.

Expiration Date for the Subscription Offering. The subscription offering, and all subscription rights under the plan of conversion, will expire at 2:00 p.m., Eastern time, on [EXP DATE]. We will not accept orders for common stock in the subscription offering received after that time. We will make reasonable attempts to provide a prospectus and related offering materials to holders of subscription rights; however, all subscription rights will expire on the expiration date whether or not we have been able to locate each person entitled to subscription rights.

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Office of Thrift Supervision regulations require that we complete the sale of common stock within 45 days after the close of the subscription offering. If the sale of the common stock is not completed within that period, all funds received will be returned promptly with interest at our passbook rate and without deduction, and all withdrawal authorizations will be canceled unless we receive approval of the Office of Thrift Supervision to extend the time for completing the offering. If regulatory approval of an extension of the time period has been granted, we will notify all subscribers of the extension and of the duration of any extension that has been granted, and subscribers will have the right to modify or rescind their purchase orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscriber’s order will be rescinded and all funds received will be returned promptly with interest and without deduction, or withdrawal authorizations will be canceled. No single extension can exceed 90 days.

Persons in Non-Qualified States. We will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock under the plan of conversion reside. However, we are not required to offer stock in the subscription offering to any person who resides in a foreign country or who resides in a state of the United States in which (1) only a small number of persons otherwise eligible to subscribe for shares of common stock reside; (2) the granting of subscription rights or the offer or sale of shares to such person would require that we or our officers or directors register as a broker, dealer, salesman or selling agent under the securities laws of the state, or register or otherwise qualify the subscription rights or common stock for sale or qualify as a foreign corporation or file a consent to service of process; or (3) we determine that compliance with that state’s securities laws would be impracticable for reasons of cost or otherwise.

Restrictions on Transfer of Subscription Rights and Shares. Subscription rights are nontransferable. You may not transfer, or enter into any agreement or understanding to transfer, the legal or beneficial ownership of your subscription rights issued under the plan of conversion or the shares of common stock to be issued upon exercise of your subscription rights. Your subscription rights may be exercised only by you and only for your own account. If you exercise your subscription rights, you will be required to certify that you are purchasing shares solely for your own account and that you have no agreement or understanding regarding the sale or transfer of such shares. Federal regulations also prohibit any person from offering, or making an announcement of an offer or intent to make an offer, to purchase such subscription rights or shares of common stock before the completion of the offering.

If you sell or otherwise transfer your rights to subscribe for common stock in the subscription offering or subscribe for common stock on behalf of another person, you may forfeit those rights and face possible further sanctions and penalties imposed by the Office of Thrift Supervision or another agency of the U.S. Government. We will pursue any and all legal and equitable remedies if we become aware of the transfer of subscription rights and will not honor orders known by us to involve the transfer of such rights.

Community Offering

To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, we may offer shares in a community offering to the following persons in the following order of priority:

• First priority, to natural persons and trusts of natural persons who are residents of Baltimore, Carroll and Howard Counties and Baltimore City in Maryland; and

• Second priority, to other persons to whom we deliver a prospectus.

We will consider persons to be residents of the above listed counties if they occupy a dwelling in the county and have established an ongoing physical presence in the county that is not merely transitory in nature. We may utilize depositor or loan records or other evidence provided to us to make a determination as to whether a person is a resident of such counties. In all cases, the determination of residence status will be made by us in our sole discretion.

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Purchasers in the community offering are eligible to purchase up to $250,000 of common stock (which equals 25,000 shares). If shares are available for preferred purchasers in the community offering but there are insufficient shares to satisfy all orders, the available shares will be allocated first to each preferred purchaser whose order we accept in an amount equal to the lesser of 100 shares or the number of shares ordered by each such subscriber, if possible. After that, unallocated shares will be allocated among the remaining preferred purchasers whose orders remain unsatisfied in the same proportion that the unfilled order of each such purchaser bears to the total unfilled orders of all such subscribers. If, after filling the orders of preferred purchasers in the community offering, shares are available for other purchasers in the community offering but there are insufficient shares to satisfy all orders, shares will be allocated in the same manner as for preferred purchasers.

The community offering, if held, may commence concurrently with, during or after the subscription offering and will terminate no later than 45 days after the close of the subscription offering unless extended by us, with approval of the Office of Thrift Supervision. If we receive regulatory approval for an extension, all purchasers will be notified of the extension and of the duration of any extension that has been granted, and will have the right to confirm, increase, decrease or rescind their orders. If we do not receive an affirmative response from a purchaser to any resolicitation, the purchaser’s order will be rescinded and all funds received will be promptly returned with interest and without deduction.

The opportunity to purchase shares of common stock in the community offering is subject to our right to reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.

Syndicated Offering

If feasible, our Board of Directors may decide to offer for sale shares of common stock not subscribed for or purchased in the subscription and community offerings in a syndicated offering, subject to such terms, conditions and procedures as we may determine, in a manner that will achieve a wide distribution of our shares of common stock. We retain the right to accept or reject in whole or in part any orders in the syndicated offering. Unless the Office of Thrift Supervision permits otherwise, accepted orders for Fraternity Community Bancorp common stock in the syndicated offering will first be filled up to a maximum of two percent (2%) of the shares sold in the offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all shares have been allocated. Unless the syndicated offering begins during the community offering, the syndicated offering will begin as soon as possible after the completion of the subscription and community offerings.

If a syndicated offering is held, Sandler O’Neill + Partners, L.P. will serve as sole book-running manager, and each firm will assist us in selling our common stock on a best efforts basis. Neither Sandler O’Neill + Partners, L.P. nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated offering. The syndicated offering will be conducted in accordance with certain Securities and Exchange Commission rules applicable to best efforts offerings. Under these rules, Sandler O’Neill + Partners, L.P. or the other broker-dealers participating in the syndicated offering generally will accept payment for shares of common stock to be purchased in the syndicated offering through a sweep arrangement, provided we have received subscriptions to meet the minimum of the offering range, under which a customer’s brokerage account at the applicable participating broker-dealer will be debited in the amount of the purchase price for the shares of common stock that such customer wishes to purchase in the syndicated offering on the settlement date. Participating broker-dealers will only sell to customers who have accounts at the participating broker-dealer and who authorize the broker-dealer to debit their accounts. Customers who authorize participating broker-dealers to debit their brokerage accounts are required to have the funds for the payment in their accounts on, but not before, the settlement date. Certain investors may pay Sandler O’Neill + Partners, L.P. for shares purchased in the syndicated offering on the settlement date through the services of the Depository Trust Company on a delivery versus payment basis. The closing of the syndicated offering is subject to conditions set forth in an agency agreement among Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association on one hand and Sandler O’Neill + Partners, L.P., as representative of the several agents, on the other hand. If and when all the conditions for the closing are met, funds for common stock sold in the syndicated offering, less fees and commissions payable, will be delivered promptly to us. Normal customer ticketing will be used for order placement.

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If for any reason we cannot affect a syndicated offering of shares of common stock not purchased in the subscription and community offerings, or in the event that there are a significant number of shares remaining unsold after such offerings, we will try to make other arrangements for the sale of unsubscribed shares, if possible. The Office of Thrift Supervision, the Securities and Exchange Commission and Financial Industry Regulatory Authority must approve any such arrangements.

Limitations on Purchases of Shares

In addition to the purchase limitations described above under “Subscription Offering and Subscription Rights,” “— Community Offering,” the plan of conversion provides for the following purchase limitations:

• Except for our employee stock ownership plan, no person may purchase in the aggregate more than $250,000 of the common stock, or 25,000 shares sold in the offering.

• No person, either alone or together with associates of or persons acting in concert with such person, may purchase more than $400,000 of the common stock, or 40,000 shares sold in the offering.

• Our tax-qualified employee benefit plans are entitled to purchase up to 10.0% of the shares sold in the conversion. As a tax-qualified employee benefit plan, our employee stock ownership plan intends to purchase 8.0% of the shares sold in the offering.

• Each subscriber must subscribe for a minimum of 25 shares.

• Our directors and executive officers, together with their associates, may purchase in the aggregate up to 32% of the common stock sold in the offering.

We may, in our sole discretion, increase the individual or aggregate purchase limitation to up to 5% of the shares of common stock sold in the offering. If we decide to increase the purchase limitations, persons who subscribed for the maximum number of shares of common stock will be given the opportunity to increase their subscriptions accordingly, subject to the rights and preferences of any person who has priority subscription rights.

If we increase the maximum purchase limitation to 5% of the shares of common stock sold in the offering, we may further increase the maximum purchase limitation to 9.99%, provided that orders for common stock exceeding 5% of the shares of common stock sold in the offering may not exceed in the aggregate 10% of the total shares of common stock sold in the offering.

The plan of conversion defines “acting in concert” to mean knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not by an express agreement; or a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. In general, a person who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting in concert with that other party. We may presume that certain persons are acting in concert based upon, among other things, joint account relationships or the fact that persons share a common address (whether or not related by blood or marriage) or may have filed joint Schedules 13D or 13G with the Securities and Exchange Commission with respect to other companies. For purposes of the plan of conversion, our directors are not deemed to be acting in concert solely by reason of their Board membership.

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The plan of conversion defines “associate,” with respect to a particular person, to mean:

• a corporation or organization other than Fraternity Community Bancorp or Fraternity Federal Savings and Loan Association or a majority-owned subsidiary of Fraternity Community Bancorp or Fraternity Federal Savings and Loan Association of which a person is a senior officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities of such corporation or organization;

• a trust or other estate in which a person has a substantial beneficial interest or as to which a person serves as a trustee or a fiduciary; and

• any person who is related by blood or marriage to such person and who lives in the same home as such person or who is a director or senior officer of Fraternity Community Bancorp or Fraternity Federal Savings and Loan Association or any of their subsidiaries.

For example, a corporation of which a person serves as an officer would be an associate of that person and, therefore, all shares purchased by the corporation would be included with the number of shares that the person could purchase individually under the aggregate purchase limitation described above. We have the right in our sole discretion to reject any order submitted by a person whose representations we believe to be false or who we otherwise believe, either alone or acting in concert with others, is violating or circumventing, or intends to violate or circumvent, the terms and conditions of the plan of conversion. Directors and officers are not treated as associates of each other solely by virtue of holding such positions. We have the sole discretion to determine whether prospective purchasers are “associates” or “acting in concert.”

Marketing Arrangements

We have retained Sandler O’Neill + Partners, L.P. to consult with and advise and assist us, on a best efforts basis, in the distribution of shares in the offering. Sandler O’Neill + Partners, L.P. is a broker-dealer registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority. Sander O’Neill + Partners, L.P. will assist us in the conversion by acting as marketing agent with respect to the subscription offering, the community offering and syndicated offering, if held. The services that Sandler O’Neill + Partners, L.P. will provide include, but are not limited to:

• Consulting as to the financial and securities market implications of the plan of conversion and any related corporate documents;

• Reviewing with the board of directors the financial impact of the offering on Fraternity Community Bancorp, based upon the independent appraiser’s appraisal of the common stock;

• Reviewing all offering documents, including the prospectus, stock order forms and related offering materials;

• Assisting in the design and implementation of a marketing strategy for the offering;

• Assisting management in scheduling and preparing for meetings with potential investors in the offering; and

• Providing such other general advice and assistance as we may request to promote the successful completion of the offering.

For its services performed as marketing agent, if the offering is consummated, Sandler O’Neill + Partners, L.P. is entitled to receive a fee equal to the greater of 1.00% of the aggregate actual purchase price of the shares of common stock sold in the subscription and community offerings (excluding shares sold to certain persons) and $160,000. In addition to the foregoing, in the event that common stock is sold through a group of broker-dealers in a syndicated offering, we will pay (i) a management fee of 1.00% of the aggregate dollar amount of the common stock sold in the syndicated offering, and (ii) a sales commission, which shall be allocated to dealers in accordance with the actual number of shares of common stock sold by such dealers. The sum of the management fee and the sales commission shall not exceed 6.00% of the actual purchase price of each security sold in the syndicated offering. Sandler O’Neill + Partners, L.P. will serve as sole book-running manager of the syndicated offering.

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Regardless of whether the conversion and any related offerings are consummated, or if Sandler O’Neill + Partners, L.P.’s engagement is terminated for certain specified reasons, Sandler O’Neill + Partners, L.P. is entitled to be reimbursed for its reasonable out of pocket expenses (including legal fees) up to a maximum of $75,000 incurred in connection with its engagement and for fees and expenses incurred on behalf of Fraternity Community Bancorp. The maximum amount of out of pocket expenses that Fraternity Community Bancorp will reimburse in connection with the offerings will be increased to $100,000 in the event that a resolicitation of subscribers is required. Regardless of whether this maximum is increased to $100,000, Fraternity Community Bancorp will only potentially pay up to $75,000 of expenses related to Sandler O’Neill + Partners, L.P.’s legal fees in connection with the contemplated offerings. In recognition of the long lead times involved in the offering process, Fraternity Community Bancorp has made an advance payment of $25,000 to Sandler O’Neill + Partners, L.P. for its engagement as marketing agent, which shall be credited against any fees or reimbursement of expenses and refunded to the extent it exceeds the actual amount due.

We have also engaged Sandler O’Neill + Partners, L.P. to act as our conversion agent in connection with the stock offering. In its role as conversion agent, Sandler O’Neill + Partners, L.P. will assist us in the stock offering as follows:

• consolidation of accounts and vote calculation;

• design and preparation of proxy and stock order forms;

• organization and supervision of the stock information center;

• proxy solicitation and special meeting services; and

• subscription order processing and stock allocation services.

For all these services, Sandler O’Neill + Partners, L.P. will receive a fee of $20,000, which is payable as follows: (i) a nonrefundable $10,000 fee payable upon execution of the engagement letter; and (ii) the balance upon completion or termination of the offering, as the case may be. In addition to its fee, Sandler O’Neill + Partners, L.P. will be reimbursed for its reasonable out-of-pocket expenses incurred in connection with its engagement as conversion agent up to $25,000.

Sandler O’Neill + Partners, L.P. has not prepared any report or opinion constituting a recommendation or advice to us or to persons who subscribe for stock, nor has it prepared an opinion as to the fairness to us of the purchase price or the terms of the stock to be sold. Sandler O’Neill + Partners, L.P. expresses no opinion as to the prices at which common stock to be issued may trade.

We have also agreed to indemnify Sandler O’Neill + Partners, L.P. against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933 and the performance of Sandler O’Neill + Partners, L.P. of its services in connection with the conversion.

Description of Sales Activities

Fraternity Community Bancorp will offer the common stock in the subscription offering and community offering by the distribution of this prospectus and through activities conducted at the stock information center. The stock information center is expected to operate during normal business hours throughout the subscription offering and any community offering. It is expected that at any particular time one or more Sandler O’Neill + Partners, L.P. employees will be working at the stock information center. Employees of Sandler O’Neill + Partners, L.P. will be responsible for responding to questions regarding the conversion and the offering and processing stock orders.

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Sales of common stock will be made by registered representatives affiliated with Sandler O’Neill + Partners, L.P. or by the selected dealers managed by Sandler O’Neill + Partners, L.P. Fraternity Federal Savings and Loan Association’s officers and employees may participate in the offering in clerical capacities, providing administrative support in effecting sales transactions or, when permitted by state securities laws, answering questions of a mechanical nature relating to the proper execution of the order form. Fraternity Federal Savings and Loan Association’s officers may answer questions regarding our business when permitted by state securities laws. Other questions of prospective purchasers, including questions as to the advisability or nature of the investment, will be directed to registered representatives. Fraternity Federal Savings and Loan Association’s officers and employees have been instructed not to solicit offers to purchase common stock or provide advice regarding the purchase of common stock.

No officer, director or employee of Fraternity Federal Savings and Loan Association will be compensated, directly or indirectly, for any activities in connection with the offer or sale of common stock in the offering.

None of Fraternity Federal Savings and Loan Association’s personnel participating in the offering is registered or licensed as a broker or dealer or an agent of a broker or dealer. Fraternity Federal Savings and Loan Association’s personnel will assist in the above-described sales activities under an exemption from registration as a broker or dealer provided by Rule 3a4-l promulgated under the Securities Exchange Act of 1934, as amended. Rule 3a4-l generally provides that an “associated person of an issuer” of securities will not be deemed a broker solely by reason of participation in the sale of securities of the issuer if the associated person meets certain conditions. These conditions include, but are not limited to, that the associated person participating in the sale of an issuer’s securities not be compensated in connection with the offering at the time of participation, that the person not be associated with a broker or dealer and that the person observe certain limitations on his or her participation in the sale of securities. For purposes of this exemption, “associated person of an issuer” is defined to include any person who is a director, officer or employee of the issuer or a company that controls, is controlled by or is under common control with the issuer.

Procedure for Purchasing Shares in the Subscription and Community Offerings

Use of Order Forms. To purchase shares in the subscription offering, a properly completed and executed order form must be received (not postmarked) by us at the address printed at the top of the stock order form or at our stock information center, by 2:00 p.m., Eastern time, on [EXP DATE]. Your order form must be accompanied by full payment for all of the shares subscribed for or include appropriate authorization in the space provided on the order form for withdrawal of full payment from a deposit account with Fraternity Federal Savings and Loan Association. To purchase shares in the community offering, you must deliver a properly completed and executed order form to us, accompanied by the required payment for each share subscribed for, before the community offering terminates, which may be on, or at any time after, the end of the subscription offering. Our interpretation of the terms and conditions of the plan of conversion and of the acceptability of the order forms will be final.

To ensure that your stock purchase eligibility and priority are properly identified, you must list all accounts on the order form, giving all names in each account and the account number. We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest. Failure to list all of your accounts may result in fewer shares being allocated to you than if all of your accounts were listed.

We need not accept order forms that are received after the expiration of the subscription offering or community offering, as the case may be, or that are executed defectively or that are received without full payment or without appropriate withdrawal instructions. In addition, we are not obligated to accept orders submitted on photocopied or facsimilied stock order forms. We have the right to waive or permit the correction of incomplete or improperly executed order forms, but do not represent that we will do so. Under the plan of conversion, our interpretation of the terms and conditions of the plan of conversion and of the order form will be final. Once received, an executed order form may not be modified, amended or rescinded without our consent unless the offering has not been completed within 45 days after the end of the subscription offering.

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The reverse side of the order form contains a regulatorily mandated certification form. We will not accept order forms where the certification form is not executed. By executing and returning the certification form, you will be certifying that you received this prospectus and acknowledging that the common stock is not a deposit account and is not insured or guaranteed by the federal government. You also will be acknowledging that you received disclosure concerning the risks involved in this offering. The certification form could be used as support to show that you understand the nature of this investment.

To ensure that each purchaser in the subscription and community offering receives a prospectus at least 48 hours before the end of the subscription and community offering, as required by Rule 15c2-8 under the Securities Exchange Act of 1934, as amended, no prospectus will be mailed any later than five days before that date or hand delivered any later than two days before that date. Execution of the order form will confirm receipt or delivery under Rule 15c2-8. Order forms will be distributed only when preceded or accompanied by a prospectus.

Payment for Shares. Payment for subscriptions may be made by check, bank draft or money order, or by authorization of withdrawal from deposit accounts maintained with Fraternity Federal Savings and Loan Association. Funds received before the completion of the offering will be maintained in a segregated account at Fraternity Federal Savings and Loan Association. All checks, bank drafts and money orders must be made payable to the Fraternity Community Bancorp segregated account in compliance with Securities and Exchange Commission Rule 15c2-4. However, we will not maintain more than one account. All subscriptions received will bear interest at Fraternity Federal Savings and Loan Association’s passbook savings rate, which is subject to change at any time and is currently         % per annum. Subscribers’ funds will be transmitted to the segregated account no later than noon of the next business day where they will be invested in investments that are permissible under Securities and Exchange Commission Rule 15c2-4. Appropriate means by which withdrawals may be authorized are provided on the order form. No wire transfers or third party checks will be accepted. Interest will be paid on payments made by check, bank draft or money order at our passbook rate from the date payment is received at the stock information center until the completion or termination of the offering. Payment in cash will not be accepted unless the cash is converted into a bank check or money order. If payment is made by authorization of withdrawal from deposit accounts, the funds authorized to be withdrawn from a deposit account will continue to accrue interest at the contractual rates until completion or termination of the offering, but a hold will be placed on the funds, making them unavailable to the depositor until completion or termination of the offering. When the offering is completed, the funds received in the offering will be used to purchase the shares of common stock ordered. The shares of common stock issued in the offering cannot and will not be insured by the Federal Deposit Insurance Corporation or any other government agency. If the offering is not consummated for any reason, all funds submitted will be promptly refunded with interest and without deduction as described above.

If a subscriber authorizes us to withdraw the amount of the purchase price from his or her deposit account, we will do so as of the completion of the offering, though the account must contain the full amount necessary for payment at the time the subscription order is received. We will waive any applicable penalties for early withdrawal from certificate accounts. If the remaining balance in a certificate account is reduced below the applicable minimum balance requirement at the time funds are actually transferred under the authorization, the certificate will be canceled at the time of the withdrawal, without penalty, and the remaining balance will earn interest at our passbook rate.

The employee stock ownership plan will not be required to pay for the shares subscribed for at the time it subscribes, but will pay for shares of common stock subscribed for upon the completion of the offering; provided that there is in force from the time of its subscription until the completion of the offering a loan commitment from an unrelated financial institution or from us to lend to the employee stock ownership plan, at that time, the aggregate purchase price of the shares for which it subscribed.

We may, in our sole discretion, permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for such shares of common stock for which they subscribe in the community offering at any time before the 48 hours before the completion of the offering. This payment may be made by wire transfer.

Our individual retirement accounts do not permit investment in common stock. A depositor interested in using his or her individual retirement account funds to purchase common stock must do so through a self-directed individual retirement accounts. Since we do not offer those accounts, we will allow a depositor to make a trustee-to-

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trustee transfer of the individual retirement account funds to a trustee offering a self-directed individual retirement account program with the agreement that the funds will be used to purchase our common stock in the offering. There will be no early withdrawal or Internal Revenue Service interest penalties for such transfers. The new trustee would hold the common stock in a self-directed account in the same manner as we now hold the depositor’s individual retirement account funds. An annual administrative fee may be payable to the new trustee. You may use funds currently in an independent, self-directed individual retirement account to purchase stock by having your trustee complete and return the subscription form together with a check payable to Fraternity Community Bancorp before the expiration of the subscription offering. Depositors interested in using funds in an individual retirement account with us to purchase common stock should contact the stock information center as soon as possible so that the necessary forms may be forwarded for execution and returned before the subscription offering ends. In addition, federal laws and regulations require that officers, directors and 10% shareholders who use self-directed individual retirement account funds to purchase shares of common stock in the subscription offering, make purchases for the exclusive benefit of individual retirement accounts.

How We Determined the Offering Range and the $10.00 Per Share Purchase Price

Federal regulations require that the aggregate purchase price of the securities sold in connection with the offering be based upon our estimated pro forma value, as determined by an independent appraisal. We have retained Feldman Financial Advisors, Inc., which is experienced in the evaluation and appraisal of business entities, to prepare the independent appraisal. Feldman Financial Advisors will receive fees totaling $32,500 for its appraisal services, plus $5,000 for each appraisal valuation update other than the required final valuation update at closing, and a maximum of $1,000 for reimbursement of out-of-pocket expenses. We have agreed to indemnify Feldman Financial Advisors and its employees and affiliates for certain costs and expenses, including reasonable legal fees arising out of, related to, or based upon the offering and due to any misstatement or untrue statement or intentional omission by Fraternity Federal Savings and Loan Association. We have not paid any fees to Feldman Financial Advisors during the past three fiscal years.

Feldman Financial Advisors prepared the appraisal taking into account the pro forma impact of the offering. For its analysis, Feldman Financial Advisors undertook substantial investigations to learn about our business and operations. We supplied financial information, including annual financial statements, information on the composition of assets and liabilities, and other financial schedules. In addition to this information, Feldman Financial Advisors reviewed our conversion application as filed with the Office of Thrift Supervision and our registration statement as filed with the Securities and Exchange Commission. Furthermore, Feldman Financial Advisors visited our facilities and had discussions with our management. Feldman Financial Advisors did not perform a detailed individual analysis of the separate components of our assets and liabilities. We did not impose any limitations on Feldman Financial Advisors in connection with its appraisal.

In connection with its appraisal, Feldman Financial Advisors reviewed the following factors, among others:

• our present and projected operating results and financial condition;

• the economic and demographic conditions of our primary market area;

• pertinent historical financial and other information relating to Fraternity Federal Savings and Loan Association;

• a comparative evaluation of our operating and financial statistics with those of other thrift institutions;

• the proposed price per share;

• the aggregate size of the offering of common stock;

• the impact of the conversion on our capital position and earnings potential; and

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• the trading market for securities of comparable institutions and general conditions in the market for such securities.

Consistent with Office of Thrift Supervision appraisal guidelines, Feldman Financial Advisors’ analysis utilized three selected valuation procedures, the price/tangible book method, the price/core earnings method, and the price/assets method, all of which are described in its report. Feldman Financial Advisors’ appraisal report is filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.” Feldman Financial Advisors placed the greatest emphasis on the price/tangible book method in estimating pro forma market value, as Fraternity Federal Savings and Loan Association recorded negative core earnings for the most recent 12-month period. Feldman Financial Advisors compared the pro forma price/tangible book ratio for Fraternity Community Bancorp to the same ratios for a peer group of comparable companies. The peer group included publicly traded companies listed on a major exchange (not organized in a mutual holding company structure or subject to an announced or rumored transaction) with:

• total assets of less than $625 million;

• tangible equity to assets greater than 6.0%; and

• a return on average assets for the last 12-month period of 0.25% or less.

Similar to our recent earnings performance, the peer group’s earning results were below the median levels reported by all publicly traded savings institutions.

As indicated in its appraisal, Feldman Financial Advisors compared the operating characteristics of Fraternity Federal Savings and Loan Association to those of the peer group to determine Fraternity Federal Savings and Loan Association’s relative strengths and weaknesses as compared to the peer group companies. Feldman Financial Advisors then derived benchmark pricing ratios for the price/tangible book value and price/assets ratios based on the comparative group medians. Investors tend to make decisions to purchase thrift conversion stocks and more seasoned thrift issues based upon consideration of core earnings profitability and price/tangible book value comparisons. Generally, the price/earnings ratio is an important valuation ratio in the current thrift stock environment for companies reporting core profitability. In cases where companies are reporting negative core earnings, as is the case with Fraternity Federal Savings and Loan Association and many of the peer group companies, the price/tangible book value ratio becomes a key determinant of the estimate of Fraternity Community Bancorp’s pro forma market value. Feldman Financial Advisors reviewed the core earnings of Fraternity Federal Savings and Loan Association and the peer group companies to apply the pricing methodology related to core earnings. As both Fraternity Federal Savings and Loan Association and many of the peer group companies recorded core losses, no meaningful comparison or conclusions were derived for purposes of establishing a price/core earnings ratio.

Feldman Financial Advisors’ appraisal concluded that the Fraternity Community Bancorp’s pro forma market value should be discounted relative to the peer group companies on a price/tangible book value basis because of factors associated with earnings prospects, liquidity of the issue, stock market conditions, and the new issue discount. Individual discounts and premiums are not necessarily additive and may, to some extent, offset or overlay each other. Currently, converting thrifts are often valued at discounts to peer institutions relative to price/tangible book value.

The peer group selected by Feldman Financial Advisors is comprised solely of companies traded on Nasdaq.

On the basis of the analysis in its report, Feldman Financial Advisors has advised us that, in its opinion, as of December 3, 2010, our estimated pro forma market value, was within the valuation range of $10,200,000 and $13,800,000 with a midpoint of $12,000,000.

In determining the estimated pro forma market value of Fraternity Community Bancorp, Feldman Financial Advisors employed the comparative company approach and considered, among others, the following pricing ratios: price-to-earnings per share, price-to-book value per share and price-to-tangible book value per share. As Fraternity Federal Savings and Loan Association and the majority of peer group companies recorded very low or negative earnings for the last 12-month period, price-to-earnings ratios were not meaningful. The following table presents a summary of selected pricing ratios for Fraternity Community Bancorp, for the peer group companies and for all

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publicly traded thrifts. Compared to the average pricing ratios of the peer group, Fraternity Community Bancorp’s pro forma pricing ratios at the maximum of the offering range indicated discount of 13.4% on a price-to-book value basis and 14.3% on a price to tangible book value basis. Such amounts represent the difference between the price-to-book value ratio or the price to tangible book value ratio of the peer group and the comparable ratio for Fraternity Community Bancorp, assuming completion of the offering at the maximum of the offering range, expressed as a percentage of the applicable peer group ratio.

	Price to  Book Value Ratio (1)			Price to  Tangible Book Value Ratio (1)(2)
Fraternity Community Bancorp (pro forma):
Minimum		41.4	%		41.4	%
Midpoint		45.8			45.8
Maximum		49.7			49.7
Maximum, as adjusted		53.6			53.6
Peer Group:
BCSB Bancorp, Inc.		67.3			67.4
Citizens Community Bancorp, Inc. (3)		38.1			43.1
CMS Bancorp, Inc.		81.8			81.8
First Advantage Bancorp		74.7			74.7
First Bancshares, Inc.		43.2			43.4
First Federal of Northern Michigan Bcrp		32.6			33.6
GS Financial Corp.		45.8			45.8
Hampden Bancorp, Inc.		77.1			77.1
WSB Holdings, Inc.		40.6			40.6
WVS Financial Corp.		72.5			72.5
Average		57.4			58.0
Median		56.6			56.6
All publicly traded thrifts:
Average		76.6			83.3
Median		74.9			76.8

(1) Ratios are based on book value and tangible book value as of September 30, 2010, and share prices as of December 3, 2010.

(2) Tangible book value is book value less intangible assets, such as goodwill or core deposit intangibles.

(3) Ratios are based on book value and tangible book value as of June 30, 2010, and the share prices as of December 3, 2010.

The pro forma information presented under “Pro Forma Data” reflects an estimated expense for the equity incentive plan that may be adopted by Fraternity Community Bancorp and the resulting effect on the pro forma price-to-earnings multiples for Fraternity Community Bancorp.

Our board of directors reviewed Feldman Financial Advisors’ appraisal report, including the methodology and the assumptions used by Feldman Financial Advisors, and determined that the valuation range was reasonable and adequate. Assuming that the shares are sold at $10.00 per share in the conversion, the estimated number of shares would be between 1,020,000 at the minimum of the valuation range and 1,380,000 at the maximum of the valuation range, with a midpoint of 1,200,000. The purchase price of $10.00 per share was determined by us, taking into account, among other factors, the requirement under Office of Thrift Supervision regulations that the common stock be offered in a manner that will achieve the widest distribution of the stock and desired liquidity in the common stock after the offering.

Since the outcome of the offering relates in large measure to market conditions at the time of sale, it is not possible for us to determine the exact number of shares that we will issue at this time. The offering range may be amended, with the approval of the Office of Thrift Supervision, if necessitated by developments following the date of the appraisal in, among other things, market conditions, our financial condition or operating results, regulatory guidelines or national or local economic conditions.

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If, upon completion of the subscription offering, at least the minimum number of shares are subscribed for, Feldman Financial Advisors, after taking into account factors similar to those involved in its prior appraisal, will determine its estimate of our pro forma market value as of the close of the subscription offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, Feldman Financial Advisors determines that our pro forma market value has increased, we may sell up to 1,587,000 shares without any further notice to you.

No shares will be sold unless Feldman Financial Advisors confirms that, to the best of its knowledge and judgment, nothing of a material nature has occurred that would cause it to conclude that the actual total purchase price of the shares on an aggregate basis was materially incompatible with its appraisal. If, however, the facts do not justify that statement, we may either: terminate the stock offering and promptly return all funds without deduction; set a new offering range, notify all subscribers and give them the opportunity to place a new order for shares of Fraternity Community Bancorp common stock; or take such other actions as may be permitted by the Office of Thrift Supervision. If the offering is terminated all subscriptions will be cancelled and subscription funds will be returned promptly with interest and without deduction, and holds on funds authorized for withdrawal from deposit accounts will be released or reduced. If Feldman Financial Advisors establishes a new valuation range, it must be approved by the Office of Thrift Supervision.

In formulating its appraisal, Feldman Financial Advisors relied upon the truthfulness, accuracy and completeness of all documents we furnished to it. Feldman Financial Advisors also considered financial and other information from regulatory agencies, other financial institutions, and other public sources, as appropriate. While Feldman Financial Advisors believes this information to be reliable, Feldman Financial Advisors does not guarantee the accuracy or completeness of the information and did not independently verify the consolidated financial statements and other data provided by us nor independently value our assets or liabilities. The appraisal is not intended to be, and must not be interpreted as, a recommendation of any-kind as to the advisability of purchasing shares of common stock. Moreover, because the appraisal must be based on many factors that change periodically, there is no assurance that purchasers of shares in the offering will be able to sell shares after the offering at prices at or above the purchase price.

Copies of the appraisal report of Feldman Financial Advisors, including any amendments to the report, and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at our main office and the other locations specified under “Where You Can Find More Information.”

Delivery of Certificates

Certificates representing the common stock sold in the subscription and community offerings will be mailed by our transfer agent to the persons whose subscriptions or orders are filled at the addresses of such persons appearing on the stock order form as soon as practicable following completion of the offering. We will hold certificates returned as undeliverable until claimed by the persons legally entitled to the certificates or otherwise disposed of in accordance with applicable law. Until certificates for common stock are available and delivered to subscribers, subscribers may not be able to sell their shares, even though trading of the common stock may have commenced. All shares of Fraternity Community Bancorp common stock sold in the syndicated offering will be in book entry form, and physical certificates will not be issued.

Restrictions on Repurchase of Stock

Under Office of Thrift Supervision regulations, we may not for a period of one year from the date of the completion of the offering repurchase any of our common stock from any person, except (1) in an offer made to all shareholders to repurchase the common stock on a pro rata basis, approved by the Office of Thrift Supervision; (2) the repurchase of qualifying shares of a director; or (3) repurchases to fund restricted stock plans or tax-qualified employee stock benefit plans. Where extraordinary circumstances exist, the Office of Thrift Supervision may approve the open market repurchase of up to 5% of our common stock during the first year following the offering. To receive such approval, we must establish compelling and valid business purposes for the repurchase to the satisfaction of the Office of Thrift Supervision. Furthermore, repurchases of any common stock are prohibited if they would cause Fraternity Federal Savings and Loan Association’s regulatory capital to be reduced below the amount required under the regulatory capital requirements imposed by the Office of Thrift Supervision.

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Restrictions on Transfer of Shares After the Conversion Applicable to Officers and Directors

Common stock purchased in the offering will be freely transferable, except for shares purchased by our directors and executive officers.

Shares of common stock purchased by our directors and executive officers may not be sold for a period of one year following the offering, except upon the death of the shareholder or unless approved by the Office of Thrift Supervision. Shares purchased by these persons in the open market after the offering will be free of this restriction. Shares of common stock issued to directors and executive officers will bear a legend giving appropriate notice of the restriction and, in addition, we will give appropriate instructions to our transfer agent with respect to the restriction on transfers. Any shares issued to directors and executive officers as a stock dividend, stock split or otherwise with respect to restricted common stock will be similarly restricted.

Persons affiliated with us, including our directors and executive officers, received subscription rights based only on their deposits with Fraternity Federal Savings and Loan Association as account holders. Any purchases made by persons affiliated with us for the explicit purpose of meeting the minimum of the offering must be made for investment purposes only, and not with a view towards redistribution. Furthermore, as set forth above, Office of Thrift Supervision regulations restrict sales of common stock purchased in the offering by directors and executive officers for a period of one year following the offering.

Purchases of outstanding shares of our common stock by directors, officers, or any person who becomes an executive officer or director after adoption of the plan of conversion, and their associates, during the three-year period following the offering may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Office of Thrift Supervision. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to the purchase of stock under stock benefit plans.

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, for the registration of the common stock to be issued in the offering. This registration does not cover the resale of the shares. Shares of common stock purchased by persons who are not affiliates of us may be resold without registration. Shares purchased by an affiliate of us will have resale restrictions under Rule 144 of the Securities Act of 1933, as amended. If we meet the current public information requirements of Rule 144, each affiliate of ours who complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of certain other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares or the average weekly volume of trading in the shares during the preceding four calendar weeks. We may make future provision to permit affiliates to have their shares registered for sale under the Securities Act of 1933, as amended, under certain circumstances.

Interpretation, Amendment and Termination

To the extent permitted by law, all interpretations by us of the plan of conversion will be final; however, such interpretations have no binding effect on the Office of Thrift Supervision. The plan of conversion provides that, if deemed necessary or desirable, we may substantively amend the plan of conversion as a result of comments from regulatory authorities or otherwise.

Completion of the offering requires the sale of all shares of the common stock within 90 days following approval of the plan of conversion by the Office of Thrift Supervision, unless an extension is granted by the Office of Thrift Supervision. If this condition is not satisfied, the plan of conversion will be terminated and we will continue our business as a federal mutual savings association. We may terminate the plan of conversion at any time.

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Restrictions on the Acquisition of

Fraternity Community Bancorp and

Fraternity Federal Savings and Loan Association

General

Fraternity Federal Savings and Loan Association’s plan of conversion provides for the conversion of Fraternity Federal Savings and Loan Association from the mutual to the stock form of organization and, as part of the conversion, the adoption of a new federal stock charter and bylaws by Fraternity Federal Savings and Loan Association’s members. The plan of conversion also provides for the concurrent formation of a holding company. As described below and elsewhere in this document, certain provisions in Fraternity Community Bancorp’s articles of incorporation and bylaws may have anti-takeover effects. In addition, provisions in Fraternity Federal Savings and Loan Association’s federal stock charter and bylaws may also have anti-takeover effects. Finally, Maryland corporate law and regulatory restrictions may make it difficult for persons or companies to acquire control of either Fraternity Community Bancorp or Fraternity Federal Savings and Loan Association.

Anti-takeover Provisions in Fraternity Community Bancorp’s Articles of Incorporation and Bylaws

Fraternity Community Bancorp’s articles of incorporation and bylaws contain provisions that could make more difficult an acquisition of Fraternity Community Bancorp by means of a tender offer, proxy contest or otherwise. Some provisions will also render the removal of the incumbent board of directors or management of Fraternity Community Bancorp more difficult. These provisions may have the effect of deterring a future takeover attempt that is not approved by the directors of Fraternity Community Bancorp, but which Fraternity Community Bancorp shareholders may deem to be in their best interests or in which shareholders may receive a substantial premium for their shares over then current market prices. As a result, shareholders who might desire to participate in such a transaction may not have the opportunity to do so. The following description of these provisions is only a summary and does not provide all of the information contained in Fraternity Community Bancorp’s articles of incorporation and bylaws. See “Where You Can Find More Information” for information on where to obtain a copy of these documents.

Limitation on Voting Rights. Our articles of incorporation provide that in no event will any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of shareholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of common stock, be entitled, or permitted to any vote in respect of the shares held in excess of the limit. This limitation does not apply to any director or officer acting solely in their capacities as directors and officers, or any employee benefit plans of Fraternity Community Bancorp or any subsidiary or a trustee of a plan.

Board of Directors

Classified Board. Our board of directors is divided into three classes as nearly as equal in number as possible. The shareholders elect one class of directors each year for a term of three years. The classified board makes it more difficult and time consuming for a shareholder group to fully use its voting power to gain control of the board of directors without the consent of the incumbent board of directors of Fraternity Community Bancorp.

Filling of Vacancies; Removal. Our bylaws provide that any vacancy occurring in the board of directors, including a vacancy created by an increase in the number of directors, may be filled only by a vote of a majority of the directors then in office. A person elected to fill a vacancy on the board of directors will serve for the remainder of the full term of the class of directors in which the vacancy occurred and until his or her successor shall have been elected and qualified. Our articles of incorporation provide that a director may be removed from the board of directors before the expiration of his or her term only for cause and only upon the vote of a majority of the shares entitled to vote in the election of directors. These provisions make it more difficult for shareholders to remove directors and replace them with their own nominees.

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Qualification. Our bylaws provide that to be eligible to serve on the board of directors a person must not: (1) be under indictment for, or ever have been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, (2) be a person against whom a banking agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal, or (3) have been found either by a regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit, or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency. These provisions contained in our bylaws may prevent shareholders from nominating themselves or persons of their choosing for election to the board of directors.

Elimination of Cumulative Voting. Our articles of incorporation provide that no shares will be entitled to cumulative voting. The elimination of cumulative voting makes it more difficult for a shareholder group to elect a director nominee.

Special Meetings of Shareholders. Our shareholders must act only through an annual or special meeting. Special meetings of shareholders may only be called by the Chairman, the President, by two-thirds of the total number of directors or by the Corporate Secretary upon the written request of the holders of a majority of all the shares entitled to vote at a meeting. The limitations on the calling of special meetings of shareholders may have the effect of delaying consideration of a shareholder proposal until the next annual meeting.

Amendment of Articles of Incorporation. Our articles of incorporation provide that certain amendments to our articles of incorporation relating to a change in control of us must be approved by at least 75% of the outstanding shares entitled to vote.

Advance Notice Provisions for Shareholder Nominations and Proposals. Our bylaws establish an advance notice procedure for shareholders to nominate directors or bring other business before an annual meeting of shareholders. A person may not be nominated for election as a director unless that person is nominated by or at the direction of our board of directors or by a shareholder who has given appropriate notice to us before the meeting. Similarly, a shareholder may not bring business before an annual meeting unless the shareholder has given us appropriate notice of the shareholder’s intention to bring that business before the meeting. Our Secretary must receive notice of the nomination or proposal not less than 90 days before the date of the annual meeting; provided, however, that if less than 100 days’ notice of prior public disclosure of the date of the meeting is given or made to the shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 10^th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder who desires to raise new business must provide us with certain information concerning the nature of the new business, the shareholder, the shareholder’s ownership of Fraternity Community Bancorp and the shareholder’s interest in the business matter. Similarly, a shareholder wishing to nominate any person for election as a director must provide us with certain information concerning the nominee and the proposing shareholder.

Advance notice of nominations or proposed business by shareholders gives our board of directors time to consider the qualifications of the proposed nominees, the merits of the proposals and, to the extent deemed necessary or desirable by our board of directors, to inform shareholders and make recommendations about those matters.

Authorized but Unissued Shares of Capital Stock. Following the offering, we will have authorized but unissued shares of common and preferred stock. Our articles of incorporation authorize the board of directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, dividend rights, conversion and redemption rates, and liquidation preferences. Such shares of common and preferred stock could be issued by the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise.

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Business Combinations with Interested Shareholders. Under Maryland law, “business combinations” between Fraternity Community Bancorp and an interested shareholder or an affiliate of an interested shareholder are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder. These business combinations include a merger, consolidation, statutory share exchange or, in circumstances specified in the statute, certain transfers of assets, certain stock issuances and transfers, liquidation plans and reclassifications involving interested shareholders and their affiliates or issuance or reclassification of equity securities. Maryland law defines an interested shareholder as: (1) any person who beneficially owns 10% or more of the voting power of Fraternity Community Bancorp’s voting stock after the date on which Fraternity Community Bancorp had 100 or more beneficial owners of its stock; or (2) an affiliate or associate of Fraternity Community Bancorp at any time after the date on which Fraternity Community Bancorp had 100 or more beneficial owners of its stock who, within the two-year period before the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of Fraternity Community Bancorp. A person is not an interested shareholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested shareholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

After the five-year prohibition, any business combination between Fraternity Community Bancorp and an interested shareholder generally must be recommended by the board of directors of Fraternity Community Bancorp and approved by the affirmative vote of at least: (1) 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of Fraternity Community Bancorp and (2) two-thirds of the votes entitled to be cast by holders of voting stock of Fraternity Community Bancorp other than shares held by the interested shareholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested shareholder. These super-majority vote requirements do not apply if Fraternity Community Bancorp’s common shareholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested shareholder for its shares.

Restrictions in Fraternity Federal Savings and Loan Association’s Federal Stock Charter and Bylaws

Although the board of directors of Fraternity Federal Savings and Loan Association is not aware of any effort that might be made to obtain control of Fraternity Federal Savings and Loan Association after its conversion to the stock form of ownership, the board of directors believes it is appropriate to adopt certain provisions permitted by federal regulations that may have the effect of deterring a future takeover attempt that is not approved by Fraternity Federal Savings and Loan Association’s board of directors. The following description of these provisions is only a summary and does not provide all of the information contained in Fraternity Federal Savings and Loan Association’s proposed federal stock charter and bylaws.

Beneficial Ownership Limitation. Fraternity Federal Savings and Loan Association’s charter provides that, for a period of five years from the date of the conversion, no person, other than Fraternity Community Bancorp, may acquire directly or indirectly the beneficial ownership of more than 10% of any class of any equity security of Fraternity Federal Savings and Loan Association. If a person acquires shares in violation of this provision, all shares beneficially owned by such person in excess of 10% will be considered “excess shares” and will not be counted as shares entitled to vote or counted as voting shares in connection with any matters submitted to the shareholders for a vote.

Board of Directors

Classified Board. Fraternity Federal Savings and Loan Association’s board of directors is divided into three classes as nearly as equal in number as possible. The shareholders elect one class of directors each year for a term of three years. The classified board makes it more difficult and time consuming for a shareholder group to fully use its voting power to gain control of the board of directors without the consent of the incumbent board of directors of Fraternity Federal Savings and Loan Association.

Filling of Vacancies; Removal. The bylaws provide that any vacancy occurring in the board of directors, including a vacancy created by an increase in the number of directors, may be filled by a vote of a majority of the remaining directors although less than a quorum of the board of directors then in office. A person elected to fill a vacancy on the board of directors will serve until the next election of directors by the shareholders.

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Fraternity Federal Savings and Loan Association’s bylaws provide that a director may be removed from the board of directors before the expiration of his or her term only for cause and only upon the vote of the holders of at least a majority of the outstanding shares of voting stock. These provisions make it more difficult for shareholders to remove directors and replace them with their own nominees.

Elimination of Cumulative Voting. The charter of Fraternity Federal Savings and Loan Association does not provide for cumulative voting with respect to the election of directors. The elimination of cumulative voting makes it more difficult for a shareholder group to elect a director nominee.

Authorized but Unissued Shares of Capital Stock. Following the conversion, Fraternity Federal Savings and Loan Association will have authorized but unissued shares of common and preferred stock. Fraternity Federal Savings and Loan Association’s charter authorizes the board of directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, conversion rates, and liquidation preferences. Such shares of common and preferred stock could be issued by the board of directors to render more difficult or to discourage an attempt to obtain control of Fraternity Federal Savings and Loan Association by means of a merger, tender offer, proxy contest or otherwise.

Regulatory Restrictions

Office of Thrift Supervision Regulations. Regulations of the Office of Thrift Supervision provide that, for a period of three years following the date of the completion of the conversion, no person, acting singly or together with associates in a group of persons acting in concert, will directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of any equity security of Fraternity Community Bancorp without the prior written approval of the Office of Thrift Supervision. Where any person, directly or indirectly, acquires beneficial ownership of more than 10% of any class of any equity security of Fraternity Community Bancorp without the prior written approval of the Office of Thrift Supervision, the securities beneficially owned by such person in excess of 10% will not be voted by any person or counted as voting shares in connection with any matter submitted to the shareholders for a vote, and will not be counted as outstanding for purposes of determining the affirmative vote necessary to approve any matter submitted to the shareholders for a vote.

Change in Bank Control Act. The acquisition of 10% or more of the common stock outstanding may trigger the provisions of the Change in Bank Control Act, a federal law. The Office of Thrift Supervision has also adopted a regulation under the Change in Bank Control Act which generally requires persons who at any time intend to acquire control of a federally chartered savings association, including a converted savings and loan association such as Fraternity Federal Savings and Loan Association, to provide 60 days prior written notice and certain financial and other information to the Office of Thrift Supervision.

The 60-day notice period does not commence until the information is deemed to be substantially complete. Control for the purpose of this Act exists in situations in which the acquiring party has voting control of at least 25% of any class of Fraternity Community Bancorp’s voting stock or the power to direct the management or policies of Fraternity Community Bancorp. However, under Office of Thrift Supervision regulations, “control” is presumed to exist where the acquiring party has voting control of at least 10% of any class of Fraternity Community Bancorp’s voting securities if specified “control factors” are present. The statute and underlying regulations authorize the Office of Thrift Supervision to disapprove a proposed acquisition on certain specified grounds.

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Description of Fraternity Community Bancorp Capital Stock

The common stock of Fraternity Community Bancorp will represent nonwithdrawable capital, will not be an account of any type, and will not be insured by the Federal Deposit Insurance Corporation or any other government agency.

General

Fraternity Community Bancorp is authorized to issue 15 million (15,000,000) shares of common stock having a par value of $0.01 per share and one million (1,000,000) shares of preferred stock having a par value of $0.01 per share. Each share of Fraternity Community Bancorp’s common stock will have the same relative rights as, and will be identical in all respects with, each other share of common stock. Upon payment of the purchase price for the common stock, as required by the plan of conversion, all stock will be duly authorized, fully paid and nonassessable. Fraternity Community Bancorp will not issue any shares of preferred stock in the conversion.

Common Stock

Dividends. Under applicable law, Fraternity Community Bancorp can pay dividends on its common stock if, after giving effect to the distribution, it would be able to pay its indebtedness as the indebtedness comes due in the usual course of business and its total assets exceed the sum of its liabilities and the amount needed, if Fraternity Community Bancorp were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of any holders of capital stock who have a preference upon dissolution. The holders of common stock of Fraternity Community Bancorp will be entitled to receive and share equally in dividends as may be declared by the board of directors of Fraternity Community Bancorp out of funds legally available for dividends. If Fraternity Community Bancorp issues preferred stock, the holders of the preferred stock may have a priority over the holders of the common stock with respect to dividends. See “Our Dividend Policy” and “Regulation and Supervision.”

Voting Rights. After the conversion, the holders of common stock of Fraternity Community Bancorp will possess exclusive voting rights in Fraternity Community Bancorp. They will elect Fraternity Community Bancorp’s board of directors and act on other matters as are required to be presented to them under Maryland law or as are otherwise presented to them by the board of directors. Except as discussed under “Restrictions on the Acquisition of Fraternity Community Bancorp and Fraternity Federal Savings and Loan Association—Restrictions in Fraternity Community Bancorp’s Articles of Incorporation and Bylaws—Limitations on Voting Rights,” each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. If Fraternity Community Bancorp issues preferred stock, holders of Fraternity Community Bancorp preferred stock may also possess voting rights.

Liquidation. If there is any liquidation, dissolution or winding up of Fraternity Federal Savings and Loan Association, Fraternity Community Bancorp, as the sole holder of Fraternity Federal Savings and Loan Association’s capital stock, would be entitled to receive all of Fraternity Federal Savings and Loan Association’s assets available for distribution after payment or provision for payment of all debts and liabilities of Fraternity Federal Savings and Loan Association, including all deposit accounts and accrued interest. Upon liquidation, dissolution or winding up of Fraternity Community Bancorp, the holders of its common stock would be entitled to receive all of the assets of Fraternity Community Bancorp available for distribution after payment or provision for payment of all its debts and liabilities. If Fraternity Community Bancorp issues preferred stock, the preferred stock holders may have a priority over the holders of the common stock upon liquidation or dissolution.

Preemptive Rights; Redemption. Holders of the common stock of Fraternity Community Bancorp will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock cannot be redeemed.

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Preferred Stock

Fraternity Community Bancorp will not issue any preferred stock in the conversion and it has no current plans to issue any preferred stock after the conversion. Preferred stock may be issued with designations, powers, preferences and rights as the board of directors may from time to time determine. The board of directors can, without shareholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control. Fraternity Community Bancorp will not offer preferred stock to officers, directors or 5% shareholders unless the issuance of preferred stock is approved by a majority of our independent directors who do not have an interest in the transaction and who have access, at our expense, to our legal counsel or to independent legal counsel.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be                                 .

Registration Requirements

We have registered our common stock with the Securities and Exchange Commission under Section 12(b) of the Securities Exchange Act of 1934, as amended, and will not deregister our common stock for a period of at least three years following the offering. As a result of registration, the proxy and tender offer rules, insider trading reporting and restrictions, annual and periodic reporting and other requirements of that statute will apply.

Legal and Tax Opinions

The legality of our common stock has been passed upon for us by Kilpatrick Townsend & Stockton LLP, Washington, D.C. The federal tax consequences of the conversion have been opined upon by Kilpatrick Townsend & Stockton LLP and the state tax consequences of the conversion have been opined upon by Stegman & Company. Kilpatrick Townsend & Stockton LLP and Stegman & Company have consented to the references to their opinions in this prospectus. Certain legal matters will be passed upon for Sandler O’Neill + Partners, L.P. by SNR Denton US LLP.

Experts

The consolidated financial statements of Fraternity Federal Savings and Loan Association as of December 31, 2009 and 2008, and for each of the years in the two-year period ended December 31, 2009 included in this prospectus and in the registration statement have been audited by Stegman & Company, an independent registered public accounting firm, as stated in its report appearing herein and elsewhere in the registration statement (which report expresses an unqualified opinion), and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

Feldman Financial Advisors has consented to the summary in this prospectus of its report to us setting forth its opinion as to our estimated pro forma market value and to the use of its name and statements with respect to it appearing in this prospectus.

Where You Can Find More Information

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, that registers the common stock offered in the stock offering. This prospectus forms a part of the registration statement. The registration statement, including the exhibits, contains additional relevant information about us and our common stock. The rules and regulations of the Securities and Exchange Commission allow us to omit certain information included in the registration statement from this prospectus. You may read and copy the registration statement at the Securities and Exchange Commission’s public reference room at 100 F Street, NE, Room 1580, Washington, DC 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330

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for further information on the Securities and Exchange Commission’s public reference rooms. The registration statement also is available to the public from commercial document retrieval services and at the Internet World Wide Website maintained by the Securities and Exchange Commission at http://www.sec.gov.

Fraternity Federal Savings and Loan Association has filed an application for approval of the plan of conversion with the Office of Thrift Supervision. This prospectus omits certain information contained in the application. The application may be inspected, without charge, at the offices of the Office of Thrift Supervision, 1700 G Street, NW, Washington, DC 20552 and at the offices of the Regional Director of the Office of Thrift Supervision at the Southeast Regional Office of the Office of Thrift Supervision, 1475 Peachtree Street, NE, Atlanta, Georgia 30309.

A copy of the plan of conversion and Fraternity Community Bancorp’s articles of incorporation and bylaws are available without charge from Fraternity Federal Savings and Loan Association.

The appraisal report of Feldman Financial Advisors has been filed as an exhibit to our registration statement and to our application to the Office of Thrift Supervision. The appraisal report was filed electronically with the Securities and Exchange Commission and is available on its website as described above. The appraisal report also is available at the public reference room of the Securities and Exchange Commission and the offices of the Office of Thrift Supervision as described above.

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Index to Consolidated Financial Statements

of Fraternity Federal Savings and Loan Association

	Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Statements of Financial Condition as of September 30, 2010 (unaudited) and December  31, 2009 and 2008		F-2
Consolidated Statements of Income for the Nine Months Ended September 30, 2010 and 2009 (unaudited) and the Years Ended December 31, 2009 and 2008		F-3
Consolidated Statements of Retained Earnings for the Nine Months Ended September 30, 2010 and 2009 (unaudited) and the Years Ended December 31, 2009 and 2008		F-5
Consolidated Statements of Comprehensive Income for the Nine Months Ended September 30, 2010 and 2009 (unaudited) and the Years Ended December  31, 2009 and 2008		F-5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (unaudited) and the Years Ended December 31, 2009 and 2008		F-6
Notes to Consolidated Financial Statements		F-8

****

All schedules are omitted as the required information either is not applicable or is included in the financial statements or related notes. Separate financial statements for Fraternity Community Bancorp have not been included in this prospectus because Fraternity Community Bancorp, which has engaged only in organizational activities to date, has no significant assets, contingent or other liabilities, revenues or expenses.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Fraternity Federal Savings and Loan Association, Inc.

Baltimore, Maryland

We have audited the consolidated statements of financial condition of Fraternity Federal Savings and Loan Association and subsidiary (the “Association”) as of December 31, 2009 and 2008, and the related consolidated statements of income, comprehensive income, retained earnings and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Association’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Association is not required to have, nor were we engaged to perform, an audit of the internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Association’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fraternity Federal Savings and Loan Association and subsidiary as of December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Stegman & Company

Baltimore, Maryland

January 4, 2011

F-1

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

ASSETS

	September 30,		December 31,		December 31,
	2010		2009		2008
	(unaudited)
Cash and cash equivalents:
Cash and due from banks	$	3,642,597	$	4,400,585	$	2,574,151
Interest-bearing deposits in other banks		23,739,971		9,506,968		8,864,633
Total cash and cash equivalents		27,382,568		13,907,553		11,438,784
Investment securities:
Available-for-sale - at fair value		13,167,999		24,116,110		8,525,615
Held-to-maturity - at amoritized cost (fair value approximates $-0-, $-0- and $8,356,400, respectively)		—		—		7,446,849
Loans - net of allowance for loan losses of $1,104,500, $276,621 and $272,121, respectively		115,621,187		120,091,892		136,547,199
Investment in bank-owned life insurance		4,127,359		3,983,719		2,319,216
Other real estate owned		871,048		—		—
Property and equipment, net		781,902		812,357		699,268
Federal Home Loan Bank stock - at cost - restricted		1,450,300		1,353,700		1,597,300
Ground rents - net of valuation allowance		860,948		863,994		885,245
Accrued interest receivable		609,101		722,443		669,631
Deferred income taxes		—		—		94,694
Other assets		1,593,091		1,123,892		464,666
TOTAL ASSETS	$	166,465,503	$	166,975,660	$	170,688,467

LIABILITIES AND EQUITY

Liabilities:
Deposits	$	125,696,086	$	125,959,893		$	124,912,688
Advances from the Federal Home Loan Bank		22,666,667		22,916,667			28,416,667
Advances by borrowers for taxes and insurance		839,853		644,217			580,310
Other liabilities		817,397		463,117			303,653
Total liabilities		150,020,003		149,983,894			154,213,318
Commitments and contingencies		—		—			—
Equity:
Retained earnings - substantially restricted		16,431,675		17,003,434			16,660,310
Accumulated other comprehensive income (loss) - net of income taxes of $(9,217), $7,779 and $123,441 for September 30, 2010 and December 31, 2009 and 2008, respectively		13,825		(11,668	)		(185,161	)
Total equity		16,445,500		16,991,766			16,475,149
TOTAL LIABILITIES AND EQUITY	$	166,465,503	$	166,975,660		$	170,688,467

See accompanying notes.

F-2

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

	Nine Months Ended September 30,						Years Ended December 31,
	2010			2009			2009			2008
	(unaudited)
INTEREST INCOME:
Interest and fees on loans:
Real estate loans	$	4,993,928		$	5,649,040		$	7,372,112		$	7,814,228
Interest and dividends on investment securities		636,583			614,700			851,620			1,117,400
Income from ground rents owned		40,137			38,425			48,099			61,417
Total interest income		5,670,648			6,302,165			8,271,831			8,993,045
INTEREST EXPENSE:
Interest on deposits		2,239,557			2,990,567			3,890,675			4,928,576
Interest on borrowings		675,252			686,008			914,690			927,601
Total interest expense		2,914,809			3,676,575			4,805,365			5,856,177
NET INTEREST INCOME		2,755,839			2,625,590			3,466,466			3,136,868
PROVISION FOR LOAN LOSSES		1,164,339			50,960			50,960			5,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,591,500			2,574,630			3,415,506			3,131,868
NON-INTEREST INCOME:
Loss on sale of fixed assets		—			(2,977	)		(2,977	)		—
Gain on sale of investments		177,722			98,384			228,705			91,375
Income on bank-owned life insurance		143,641			115,088			164,503			119,216
Gain on sale of loans		72,454			200,662			224,368			28,000
Other income		47,438			59,720			78,164			84,180
Total non-interest income		441,255			470,877			692,763			322,771
NON-INTEREST EXPENSES:
Salaries and employee benefits		1,665,627			1,493,339			2,006,969			1,881,620
Occupancy expenses		488,516			449,330			607,803			576,858
Advertising		40,411			28,029			47,977			64,453
Data processing expense		188,754			165,205			226,510			211,418
Directors fees		74,002			64,008			88,180			88,780
Pension termination expense		—			—			—			299,944
Other general and administrative expenses		595,757			484,764			669,038			476,720
Total non-interest expenses		3,053,067			2,684,675			3,646,477			3,599,793
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES		(1,020,312	)		360,832			461,792			(145,154	)
PROVISION (BENEFIT) FOR INCOME TAXES:		(448,553	)		94,835			118,668			(153,178	)
NET (LOSS) INCOME	$	(571,759	)	$	265,997		$	343,124		$	8,024

See accompanying notes.

F-3

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	September 30,						December 31,
	2010			2009			2009			2008
	(unaudited)
NET (LOSS) INCOME	$	(571,759	)	$	265,997		$	343,124		$	8,024
OTHER COMPREHENSIVE INCOME ON AVAILABLE-FOR-SALE INVESTMENT SECURITIES:
Unrealized gains (losses) arising during period		220,210			85,947			508,676			(322,825	)
Income taxes on unrealized gains (losses) arising during the period		(88,084	)		(34,379	)		(196,451	)		124,675
		132,126			51,568			312,225			(198,150	)
Less reclassification adjustment for gains		(177,722	)		(98,384	)		(228,705	)		(91,375	)
Income taxes on reclassification adjustment		71,089			39,354			89,973			35,947
		(106,633	)		(59,030	)		(138,732	)		(55,428	)
Other comprehensive income (loss) net of income taxes		25,493			(7,462	)		173,493			(253,578	)
COMPREHENSIVE (LOSS) INCOME	$	(546,266	)	$	258,535		$	516,617		$	(245,554	)

See accompanying notes.

F-4

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Retained earnings at January 1, 2008	$	16,652,286
Net income for the year ended December 31, 2008		8,024
Retained earnings at December 31, 2008		16,660,310
Net income for the year ended December 31, 2009		343,124
Retained earnings at December 31, 2009		17,003,434
Net loss for the nine months ended September 30, 2010 (unaudited)		(571,759	)
Retained earnings at September 30, 2010 (unaudited)	$	16,431,675

See accompanying notes.

F-5

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	September 30,			Years Ended December 31,
	2010			2009			2008
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(571,759	)	$	343,124		$	8,024
Adjustments to reconcile net income used in operating activities:
Depreciation		87,485			114,957			118,066
Gain on sale of available-for-sale securities		(177,722	)		(228,705	)		(91,375	)
Gain on sale of loans		(72,454	)		(224,368	)		(28,000	)
Loss on sale of fixed assets		—			2,977			—
Origination of loans sold		(5,012,500	)		(20,195,300	)		(3,066,148	)
Proceeds from loans sold		5,084,954			20,419,668			3,094,148
Amortization/accretion of premium/discount		422,705			—			3,083
Increase in value of bank-owned life insurance		(143,640	)		(164,503	)		(119,216	)
Deferred income taxes		—			1,191			1,917
Provision for loan losses		1,164,339			50,960			5,000
Changes in operating assets and liabilities:
Accrued interest receivable and other assets		(355,857	)		(758,498	)		(170,816	)
Other liabilities		354,280			252,967			(261,672	)
Net cash provided by (used in) operating activities		779,831			(385,530	)		(506,989	)
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in loans		3,306,366			16,455,307			(5,455,682	)
Redemption of ground rents		3,046			21,251			18,525
Acquisition of property and equipment		(57,030	)		(231,023	)		(41,821	)
Purchase of:
Investment in subsidiary		(871,048	)		—			—
Investment securities available-for-sale		(16,158,642	)		(20,002,550	)		(9,180,165	)
Federal Home Loan Bank stock		(208,700	)		—			(441,900	)
Bank-owned life insurance (BOLI)		—			(1,500,000	)		—
Proceeds from:
Sales and maturities investment securities available-for-sale		25,130,600			7,946,948			5,410,539
Principal paydowns on investment securities available-for-sale		1,756,663			4,309,654			759,434
Principal paydowns on investment securities held-to-maturity		—			—			1,128,378
Sale of Federal Home Loan Bank stock		112,100			243,600			240,000
Net cash provided by (used in) investing activities		13,013,355			7,243,187			(7,562,692	)

F-6

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

	Nine Months Ended
	September 30,			Years Ended December 31,
	2010			2009			2008
	(unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits	$	(263,807	)	$	1,047,205		$	(8,221,714	)
Borrowings from the Federal Home Loan Bank		5,000,000			—			41,000,000
Repayments of Federal Home Loan Bank borrowings		(5,250,000	)		(5,500,000	)		(36,250,000	)
Increase in advances by borrowers for taxes and insurance		195,636			63,907			25,320
Net cash provided by (used in) financing activities		(318,171	)		(4,388,888	)		(3,446,394	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		13,475,015			2,468,769			(11,516,075	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		13,907,553			11,438,784			22,954,859
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	27,382,568		$	13,907,553		$	11,438,784
Cash paid for interest	$	2,914,848		$	4,805,504		$	5,855,857
Cash paid for taxes	$	—		$	125,000		$	—
Transfers of investment securities from held-to-maturity to available for sale	$	—		$	4,337,231		$	—

See accompanying notes.

F-7

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Fraternity Federal Savings and Loan (the “Association”) provides a full range of banking services to individuals and businesses through its main office and three branches in the Baltimore metropolitan area. Its primary deposit products are certificates of deposit and demand, savings, NOW, and money market accounts. Its primary lending products are consumer loans and real estate mortgages.

Unaudited Interim Financial Statements

The interim consolidated financial statements prepared by management as of September 30, 2010 and for the nine months ended September 30, 2010 and 2009 are not covered by the Independent Auditors’ Report. In the opinion of management, the accompanying consolidated financial statements as of September 30, 2010 and for the nine months ended September 30, 2010 and 2009 contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at September 30, 2010, and the results of operations and cash flows for the nine months ended September 30, 2010 and 2009. The results of operations for the nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year.

Principles of Consolidation

The consolidated financial statements include the accounts of the Association and its wholly owned subsidiary, Fraternity Insurance Agency, Inc. (an inactive corporation). All significant intercompany accounts and transactions have been eliminated. The accounting and reporting policies of the Association conform to U.S. generally accepted accounting principles and to general practices in the banking industry.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment Securities

Investment securities designated as available-for-sale are stated at estimated fair value based on quoted market prices. They represent those securities which management may sell as part of its asset/liability strategy or that may be sold in response to changing interest rates or liquidity needs. Unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income. Realized gains (losses) on available-for-sale securities are included in other income and, when applicable, are reported as a reclassification adjustment in other comprehensive income. Gains and losses on the sale of available-for-sale securities are recorded on the trade date and are determined by the specific identification method. The amortization of premiums and the accretion of discounts are recognized in interest income using the interest method over the term of the security.

F-8

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investment securities designated as held-to-maturity are stated at amortized cost and adjusted for premiums and discounts that are recognized in interest income using the interest method over the period of maturity.

Federal Home Loan Bank Stock – at cost

The Association, as a member of the Federal Home Loan Bank System, is required to maintain an investment in capital stock of the Federal Home Loan Bank of Atlanta (“FHLB”) in varying amounts based on balances of outstanding home loans and on amounts borrowed from the FHLB. Because no ready market exists for this stock and it has no quoted market value, the Association investment in this stock is carried at cost.

Loans Held for Sale

Loans originated for sale are carried at the lower of aggregate cost or market value. Market value is based on commitments from investors. Gains and losses on sales are determined using the specific identification method.

Loans Receivable

Loans are stated at the principal amount outstanding net of unearned income. Interest income on loans is accrued at the contractual rate on the principal amount outstanding. When scheduled principal and interest payments are past due 90 days or more, the accrual of interest income is discontinued and recognized only as collected. Accrual of interest resumes when the loan is brought current and the borrower demonstrates an ability to service the debt on a current basis.

Loan origination fees and qualifying deferred loan costs are being deferred, and the net amount is amortized over the contractual life of the loan as an adjustment to the loan’s yield. The computation on a per loan basis was based on salaries of loan officers, employees associated with originating loans and loan volume.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb loan losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, and trends in historical loss experience, specific impaired loans, and economic conditions. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

While management uses all available information to recognize credit losses in accordance with U.S. generally accepted accounting principles, future increases or decreases to the allowance may be necessary based on several factors such as changes in local economic conditions affecting the Association’s customers, the payment performance of individual loans, portfolio seasoning, changes in collateral values, and reviews of loan relationships. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Association’s allowance for credit losses. Such examinations could result in the Association recognizing additions to this allowance based on the regulators’ judgments about information available to them at the time of their examination.

F-9

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A loan is considered impaired when it is probable that the Association will be unable to collect scheduled payments. Factors in determining impairment include payment status, collateral value and probability of collection. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Bank-Owned Life Insurance

The Association purchased single premium life insurance policies on certain employees of the Association. The net cash surrender value of those policies is included in the accompanying statement of financial position. Appreciation in the value of the insurance policies is classified in non-interest income.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets from the respective dates of acquisition. The useful lives for the principal classes of assets are:

Buildings and improvements	30 – 40 years
Furniture, fixtures and equipment	3 – 20 years
Leasehold improvements	10 years

Expenditures for maintenance, repairs and minor renewals are expensed as incurred. Expenditures for additions, improvements and replacements are added to premises and equipment accounts. The cost of retirements and other dispositions is removed from both the asset and accumulated depreciation accounts.

Income Taxes

Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of available-for-sale securities, allowance for loan losses, accumulated depreciation, deferred loan fees, and accrued employee benefits for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Advertising

Advertising costs are expensed as incurred. Advertising expense was $47,977 and $64,453 for the years ended December 31, 2009 and 2008, respectively. Advertising expense was $40,411 and $28,029 for the nine months ended September 30, 2010 and 2009, respectively.

Cash and Cash Equivalents

The Association considers all cash and due from banks and interest-bearing deposits in other banks having original maturities of three months or less to be cash equivalents for purposes of the statement of cash flows.

F-10

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial Statement Presentation

Certain reclassifications have been made to the financial statement presentation to conform with the current year’s method of presentation. Such reclassifications had no effect on net income.

Recent Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Board (“ASC”) Topic 320, “Investments - Debt and Equity Securities.” New authoritative accounting guidance under ASC Topic 320, “Investments - Debt and Equity Securities,” (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. The Association adopted the provisions of the new authoritative accounting guidance under ASC Topic 320 during the first quarter of 2009. Adoption of the new guidance did not significantly impact the Association’s financial statements.

FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of ASC Topic 820 became effective for the Association on January 1, 2008 for financial assets and financial liabilities and on January 1, 2009 for non-financial assets and non-financial liabilities (see Note 14 - Fair Value Measurements).

Additional new authoritative accounting guidance under ASC Topic 820 affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic 820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The new accounting guidance amended prior guidance to expand certain disclosure requirements. The Association adopted the new authoritative accounting guidance under ASC Topic 820 during 2009. Adoption of the new guidance did not significantly impact the Association’s financial statements.

Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available. In such instances, a reporting entity is required to measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii) quoted prices for similar liabilities when traded as assets, or (iii) another valuation technique that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach. The new authoritative accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.

The foregoing new authoritative accounting guidance under ASC Topic 820 became effective for the Association’s financial statements for 2009 and did not have a significant impact on the Association’s financial statements.

F-11

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FASB ASC Topic 855, “Subsequent Events.” New authoritative accounting guidance under ASC Topic 855, “Subsequent Events,” establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC Topic 855 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The new authoritative accounting guidance under ASC Topic 855 became effective for the Association’s financial statements for 2009 and did not have a significant impact on the Association’s financial statements.

FASB ASC Topic 860, “Transfers and Servicing.” New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860 became effective January 1, 2010 and did not have a significant impact on the Association’s financial statements.

Credit Risk

The Association has deposits in other financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC).

F-12

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. INVESTMENT SECURITIES

The amortized cost and fair values of investment securities are as follows:

	September 30, 2010 (unaudited)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
Bank notes	$	991,579	$	7,701	$	—	$	999,280
Obligations of U.S. Government agencies		4,288,243		27,700		—		4,315,943
Mortgage-backed securities:
FNMA		3,714,833		35,573		6,066		3,744,340
GNMA		97,664		9,689		—		107,353
FHLMC		3,009,787		41		7,151		3,002,677
Private Label CMO		1,043,370		13,999		58,963		998,406
	$	13,145,476	$	94,703	$	72,180	$	13,167,999
Held-to-maturity:
Mortgage-backed securities	$	—	$	—	$	—	$	—

	December 31, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
Bank notes	$	1,425,882	$	7,218	$	—	$	1,433,100
Obligations of U.S. Government agencies		12,310,007		10,687	$	122,854		12,197,840
Mortgage-backed securities:
FNMA		5,289,498		141,239		2,121		5,428,616
GNMA		1,493,564		20,313		—		1,513,877
FHLMC		2,351,686		39,099		13,199		2,377,586
Private Label CMO		1,264,482		—		99,391		1,165,091
	$	24,135,119	$	218,556	$	237,565	$	24,116,110
Held-to-maturity:
Mortgage-backed securities	$	—	$	—	$	—	$	—

F-13

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale:
Obligations of U.S. Government agencies		3,616,516		36,885	$	—		3,653,401
Mortgage-backed securities:
FNMA		1,237,261		38,120		3,256		1,272,125
GNMA		132,282		4,990		607		136,665
FHLMC		2,004,057		45,289		32		2,049,314
Private Label CMO		1,837,162		—		423,052		1,414,110
	$	8,827,278	$	125,284	$	426,947	$	8,525,615
Held-to-maturity:
Mortgage-backed securities:
FNMA	$	6,190,609	$	115,852	$	—	$	6,306,461
GNMA		—		—		—		—
FHLMC		1,256,240		3,767		—		1,260,007
Private Label CMO		—		—		—		—
	$	7,446,849	$	119,619	$	—	$	7,566,468

The amortized cost and fair value of debt securities at December 31, 2009 and September 30, 2010 by contractual maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have to call or repay obligations with or without call or prepayment penalties.

	September 30, 2010 (unaudited) Available-for-Sale
	Amortized Cost		Fair Value
Due in one year through five years	$	1,006,275	$	1,014,288
Due in five years through ten years		1,306,361		1,328,374
Due after ten years		10,832,840		10,825,337
	$	13,145,476	$	13,167,999

	December 31, 2009 Available-for-Sale
	Amortized Cost		Fair Value
Due in one year through five years	$	3,432,582	$	3,448,453
Due in five years through ten years		6,200,268		6,290,126
Due after ten years		14,502,269		14,377,531
	$	24,135,119	$	24,116,110

F-14

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Association recognized gains on sales of available-for-sale securities of $228,705 and $91,375 for the years ended December 31, 2009 and 2008, respectively. The Association recognized gains on sales of available-for-sale securities of $177,722 and $98,384 for the nine months ended September 30, 2010 and 2009, respectively.

Securities with unrealized losses, segregated by length of impairment, as of September 30, 2010 and December 31, 2009 and 2008 were as follows:

	Less than 12 Months				More than 12 Months				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
September 30, 2010 (unaudited)
Available-for-sale:
Bank Notes	$	—	$	—	$	—	$	—	$	—	$	—
Obligation of U.S. Government Agencies		—		—		—		—		—		—
Mortgage-backed securities:
FNMA		2,081,827		4,079		12,661		1,987		2,094,488		6,066
GNMA		—		—		—		—		—		—
FHLMC		3,001,242		7,151		—		—		3,001,242		7,151
Private Label CMO		—		—		460,631		58,963		460,631		58,963
	$	5,083,069	$	11,230	$	473,292	$	60,950	$	5,556,361	$	72,180

	Less than 12 Months				More than 12 Months				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
December 31, 2009
Available-for-sale:
Bank Notes	$	—	$	—	$	—	$	—	$	—	$	—
Obligation of U.S. Government Agencies		6,160,950		122,854		—		—		6,160,950		122,854
Mortgage-backed securities:
FNMA		—		—		37,864		2,121		37,864		2,121
GNMA		—		—		—		—		—		—
FHLMC		1,342,931		13,199		—		—		1,342,931		13,199
Private Label CMO		—		—		1,165,092		99,391		1,165,092		99,391
	$	7,503,881	$	136,053	$	1,202,956	$	101,512	$	8,706,837	$	237,565

F-15

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Less than 12 Months				More than 12 Months				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
December 31, 2008
Available-for-sale:
Bank Notes	$	—	$	—	$	—	$	—	$	—	$	—
Obligation of U.S. Government Agencies		—		—		—		—		—		—
Mortgage-backed securities:
FNMA		156,960		3,256		—		—		156,960		3,256
GNMA		24,816		607		—		—		24,816		607
FHLMC		1,492		32		—		—		1,492		32
Private Label CMO		1,414,111		423,052		—		—		1,414,111		423,052
	$	1,597,379	$	426,947	$	—	$	—	$	1,597,379	$	426,947

Declines in the fair value of investment securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Association to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.

Furthermore, as of September 30, 2010, management does not have the intent to sell any of the securities classified as available-for-sale in the table above and believes that it is more likely than not that the Association will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2010, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Association’s consolidated income statement.

F-16

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the year ended December 31, 2009, the Association sold one security from its held-to-maturity portfolio. The security was sold because it was experiencing a relatively high amount of prepayments due to market conditions and no longer fit into the Association’s investment strategy. The book value of the security was $1,576,795 at the date of sale and resulted in a gain on sale in the amount of $66,049. Management determined that this sale tainted the remainder of the held-to-maturity portfolio and required the transfer of the remainder of that portfolio to the available-for-sale portfolio. Management has also determined that future security purchases will be classified as available-for-sale for the foreseeable future. Information related to the transfer of the held-to-maturity portfolio is as follows:

Amortized cost of held-to-maturity investment securities	$	4,337,231
Unrealized gain on transferred securities	$	94,345

3. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans and allowance for loan losses consisted of the following:

	September 30, 2010			December 31, 2009			December 31, 2008
	(unaudited)
Real Estate Loans:
One-to-four family	$	88,504,462		$	89,312,560		$	108,696,059
Lines of Credit		13,480,769		$	12,305,473			13,154,109
Commercial		3,986,760			4,197,266			3,594,160
Residential Construction		7,093,241			10,437,002			7,723,822
Land		3,410,212			3,939,296			3,535,873
Total Real Estate Loans		116,475,444			120,191,597			136,704,023
Consumer Loans		50,429			33,510			42,454
Commercial Loans		28,520			26,688			28,794
Total Loans		116,554,393			120,251,795			136,775,271
Less:
Allowance for loan losses		(1,104,500	)		(276,621	)		(272,121	)
Deferred loan fees and costs (net)		171,294			116,718			44,049
Total loans and allowance for loan losses	$	115,621,187		$	120,091,892		$	136,547,199

F-17

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Transactions in the allowance for loan losses are as follows:

	Nine Months Ended September 30,						Years Ended December 31,
	2010			2009			2009			2008
	(unaudited)			(unaudited)
Beginning of year	$	276,621		$	272,121		$	272,121		$	267,121
Charge-offs		(337,660	)		(3,960	)		(46,460	)		—
Recoveries		1,200			—			—			—
Provision charged to expense		1,164,339			50,960			50,960			5,000
End of year	$	1,104,500		$	319,121		$	276,621		$	272,121

The balance of impaired loans is $822,747 and $-0- as of December 31, 2009 and 2008, respectively. The balance of impaired loans is $3,862,474 and $382,510 as of September 30, 2010 and 2009, respectively.

Non-Performing/Past Due Loans – Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations, which typically occurs when principal or interest payments are more than 90 days past due. Non-accrual loans totalled $1,035,000 at December 31, 2009 and $187,000 at December 31, 2008.Non-accrual loans totalled $2,309,000 at September 30, 2010 and $383,000 at September 30, 2009. Accruing loans past due more than 90 days totalled $706,000 at December 31, 2009 and $ -0- at December 31, 2008. Accruing loans past due more than 90 days totalled $ 0 at September 30, 2010 and 2009.

Impaired Loans – Impaired loans were as follows:

	September		December 31,
	2010		2009		2008
	(unaudited)
Balance of impaired loans with no allocated allowance	$	3,862,474	$	822,747	$	—
Balance of impaired loans with an allocated allowance		—		—		—
Total recorded investment in impaired loans	$	3,862,474	$	822,747	$	—
Amount of the allowance allocated to impaired loans	$	—	$	—	$	—

The impaired loans included in the table above were primarily comprised of collateral dependent residential real estate loans. No interest income was recognized on these loans subsequent to their classification as impaired.

Troubled debt restructures (“TDRs”), which are loans that have been restructured due to the borrower’s inability to maintain a current status on the loan, that are not included in the nonaccrual balance amounted to approximately $1.6 million as of September 30, 2010 and $0 as of December 31, 2009 and December 31, 2008. Our TDRs are generally reviewed individually to determine impairment, accrual status, and the need for charge-offs. For collateral dependent loans, we utilize the fair value of the collateral in determining impairment. For noncollateral dependent loans, we calculate the present value of expected future cash flows to determine fair value and impairment. The interest income which would have been recorded on TDRs if those loans had been handled in accordance with their contractual terms was no different for the nine months ended September 30, 2010 than the actual interest income recorded on those loans for the nine months ended September 30, 2010.

F-18

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Aggregate loans to executive officers, directors and their associates, including companies in which they have partial ownership interest, did not exceed 5% of equity as of September 30, 2010, or December 31, 2009 and 2008. Such loans were made under terms and conditions substantially the same as loans made to parties not affiliated with the Association. Loans to such borrowers are summarized as follows:

	September 30,			December 31,
	2010			2009			2008
	(unaudited)
Beginning of year	$	819,907		$	1,096,069		$	1,115,831
New loans		—			220,000			—
Repayments		(8,524	)		(496,162	)		(19,762	)
End of year	$	811,383		$	819,907		$	1,096,069

As of December 31, 2009 and 2008, respectively, $16,983,168 and $21,043,336 of loans receivable are being serviced for the benefit of others. As of September 30, 2010 and 2009, respectively, $12,317,975 and $17,231,443 of loans receivable are being serviced for the benefit of others. The amount of compensation received by the Association approximates the cost of servicing the assets. Accordingly, no servicing asset or liability has been recorded. Service fee revenue recognized in 2009 and 2008 was $52,959 and $55,351, respectively. Service fee revenue recognized for the nine months ended September 30, 2010 and 2009 was $30,640 and $41,053, respectively.

4. ACCRUED INTEREST RECEIVABLE

Accrued interest receivable was as follows:

	September 30,		December 31,
	2010		2009		2008
	(unaudited)
FDIC – insured CDs	$	1,633	$	1,470	$	—
Obligations of U.S. Government agencies		72,037		76,244		29,619
Mortgage-backed securities		26,954		49,021		51,691
Loans		508,477		595,708		586,321
Dividends		—		—		2,000
Total	$	609,101	$	722,443	$	669,631

F-19

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. GROUND RENTS

The carrying value of ground rents was as follows:

	September 30,			December 31,
	2010			2009			2008
	(unaudited)
Ground rents at cost	$	906,448		$	909,494		$	929,345
Less valuation allowance		(45,500	)		(45,500	)		(44,100	)
Total	$	860,948		$	863,994		$	885,245

Ground rents represent the value of long-term leases with respect to land we own underlying residential properties. Based on the analysis of the ground rents owned by the Association, management has determined that the valuation allowance is adequate as of September 30, 2010.

6. PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

	September 30,		December 31,
	2010		2009		2008
	(unaudited)
Land	$	170,773	$	170,773	$	170,773
Land improvements		27,284		27,284		27,284
Building		837,522		949,761		835,630
Furniture, fixtures, and equipment		763,779		739,572		649,407
Leasehold improvements		296,817		151,755		151,755
Automobiles		79,152		79,152		81,356
		2,175,327		2,118,297		1,916,205
Less accumulated depreciation and amortization		1,393,425		1,305,940		1,216,937
Net book value of premises and equipment	$	781,902	$	812,357	$	699,268

Depreciation expense amounted to $114,957 and $118,066 for the years ended December 31, 2009 and 2008, respectively. Depreciation expense amounted to $87,485 and $83,302 for the nine months ended September 30, 2010 and 2009, respectively.

The Association is obligated under noncancelable lease agreements for three branches. The leases each contain renewal options and provide that the Association pay property taxes, insurance and maintenance costs. Total rent expense under operating leases for the years ended December 31, 2009 and 2008 was $207,384 and $193,316, respectively. Total rent expense for the nine months ended September 30, 2010 and 2009 was $183,976 and $163,809, respectively.

F-20

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Future minimum lease payments under leases having initial or remaining noncancelable leases:

2011	$	167,610
2012		136,545
2013		142,000
2014		128,245
2015		8,036

7. DEPOSIT ACCOUNTS

Deposit accounts by type are as follows:

	September 30,		December 31,
	2010		2009		2008
	(unaudited)
Demand	$	447,426	$	759,607	$	684,761
Passbook		12,751,497		12,500,646		12,753,294
NOW accounts		3,051,782		2,822,422		2,783,410
Money market funds		1,481,727		1,814,694		1,706,557
Certificates of deposit		105,666,304		105,705,790		104,679,252
Brokered deposits		2,297,350		2,356,734		2,305,414
Total	$	125,696,086	$	125,959,893	$	124,912,688

The following tables present contractual maturities of certificate accounts:

	As of September 30, 2010 (unaudited)
	2010		2011		2012		2013		2014 and thereafter
Certificates of Deposit	$	12,936,384	$	54,210,514	$	15,133,977	$	16,598,191	$	6,787,274
	As of December 31, 2009
	2010		2011		2012		2013		2014 and thereafter
Certificates of Deposit	$	53,149,986	$	27,031,482	$	12,701,678	$	7,101,853	$	5,720,791

Certificates of deposit and other time deposits in denominations of more than $250,000 totalled $2,521,556 and $3,999,443 as of December 31, 2009 and 2008, respectively. Certificates of deposit and other time deposits in denominations of more than $250,000 totalled $3,638,324 and $2,873,419 as of September 30, 2010 and 2009, respectively. Generally, deposit amounts in excess of $250,000 are not federally insured.

The Association held deposits of $248,718 for related parties at December 31, 2009. The Association held deposits of $365,219 for related parties at September 30, 2010.

F-21

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest expense by type is as follows:

	September 30,				December 31,
	2010		2009		2009		2008
	(unaudited)
Demand	$	—	$	—	$	—	$	—
Passbook		52,198		61,346		78,237		191,326
NOW / Money market funds		8,951		8,861		11,731		36,719
Certificates of deposit		2,104,305		2,845,928		3,700,867		4,689,364
Brokered deposits		74,208		74,556		100,002		11,352
Total	$	2,239,662	$	2,990,691	$	3,890,837	$	4,928,761

8. BORROWED FUNDS

Total advances outstanding from the Federal Home Loan Bank (FHLB) were $22,916,667 and $28,416,667 as of December 31, 2009 and 2008, respectively. Total advances from the Federal Home Loan Bank were $22,666,667 as of September 30, 2010. The total amount available under the line of credit at December 31, 2009 was approximately $27,400,000. The total amount available under the line of credit at September 30, 2010 was approximately $27,600,000.

Advances are summarized as follows:

		September 30,		December 31,
		2010		2009		2008
Year of Maturity	Interest Rate	Amount		Amount		Amount
		(unaudited)
2009	2.84%	$	—	$	—	$	166,667
2009	0.88%		—		—		5,000,000
2011	4.40%		5,000,000		5,000,000		5,000,000
2011	2.72%		166,667		416,667		750,000
2012	3.32%		2,500,000		2,500,000		2,500,000
2017	4.28%		5,000,000		5,000,000		5,000,000
2018	3.94%		5,000,000		5,000,000		5,000,000
2018	3.38%		5,000,000		5,000,000		5,000,000
		$	22,666,667	$	22,916,667	$	28,416,667

Interest is paid monthly with principal due at maturity except one of the notes where principal and interest are paid monthly. Interest expense on advances from the FHLB amounted to $914,687 and $927,589 for the years ended December 31, 2009 and 2008, respectively. Interest expense on advances from the FHLB amounted to $675,250 and $686,006 for the nine months ended September 30, 2010 and 2009, respectively.

Pursuant to collateral agreements with the FHLB, advances are secured by all stock in the FHLB and qualifying first and second mortgage loans.

F-22

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

9. INCOME TAXES

A reconciliation between income tax expense and taxes computed at the statutory federal rate is as follows:

	September 30,						December 31,
	2010			2009			2009			2008
	(unaudited)			(unaudited)
Statutory federal tax rate		(34.0	)%		34.0	%		34.0	%		(34.0	)%
Increases (decreases) in tax resulting from:
State franchise tax, net of federal income tax benefit		(5.3	)		3.2			1.2			0.0
Non-taxable on bank-owned life insurance		(4.8	)		(10.8	)		(12.1	)		(56.2	)
Other		0.1			(0.1	)		2.6			(15.3	)
		(44.0	)%		26.3	%		25.7	%		(105.5	)%

The deferred tax effects of temporary differences between financial and taxable income are as follows:

	December 31,
	2009			2008
Depreciation	$	(16,662	)	$	1,720
Loan fee income		(28,668	)		(4,226	)
Deferred compensation		35,186			952
Allowance for loan losses		1,775			2,952
Ground rents		—			655
Net operating loss		9,560			(136	)
Deferred income tax expense	$	1,191		$	1,917

F-23

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net deferred income taxes consisted of the following:

	September			December 31,
	2010			2009			2008
	(unaudited)
Deferred income tax assets
Provision for loan losses	$	50,299		$	50,299		$	48,524
Ground rents		655			655			655
Deferred compensation		72,718			72,718			37,532
State net operating loss		9,560			9,560			—
Unrealized holding losses on available-for-sale securities		—			7,342			116,502
		133,232			140,574			203,213
Deferred income tax liabilities:
Depreciation	$	84,041		$	84,041		$	67,379
Loan Fee income		46,046			46,046			17,378
FHLB stock dividend		23,762			23,762			23,762
Unrealized gains on available-for-sale securities		34,543			—			—
		188,392			153,849			108,519
Net deferred tax (liability) asset	$	(55,160	)	$	(13,275	)	$	94,694

In determining whether a valuation allowance on deferred tax assets is required, management reviews its current tax position and the ability to carry back losses as well as projected future taxable income exclusive of reversing temporary differences and carry-forwards.

10. EMPLOYEE RETIREMENT PLANS

During 2008 the Association terminated its defined benefit pension plan and eliminated any future liability for benefits. Expense related to this termination totalled $299,944 and is included in the 2008 statement of operations.

The Association also sponsors an employee 401(k) savings and investment plan. The plan covers substantially all employees meeting age and service requirements and provides for both employee and employer matching contributions under Safe Harbor provisions. Expenses related to this plan for the years ended December 31, 2009 and 2008 was $57,651 and $59,899, respectively. Expenses related to this plan for the nine months ended September 30, 2010 and 2009 was $46,270 and $43,146, respectively.

11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Association is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers consisting of commitments to extend credit. This involves, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated statements of financial condition.

The Association’s exposure to credit loss in the event of non-performance by the other party for commitments to extend credit is represented by the contractual notional amount of those instruments. The Association uses the same credit policies in making commitments as it does for on-balance sheet instruments.

F-24

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Association evaluates each customer’s creditworthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the Association upon extension of credit, varies and is based on management’s credit evaluation of the counterparty.

The Association had commitments to originate mortgages of $2,577,800 and $980,200, secured by dwelling units, at December 31, 2009 and 2008, respectively. The Association had commitments to originate mortgages of $3,535,900 and $0, secured by dwelling units, at September 30, 2010 and 2009, respectively. Additionally, the Association had unfunded lines of credit totalling $13,145,037 and $13,133,757 as of December 31, 2009 and 2008, respectively. The Association had unfunded lines of credit totalling $12,316,292 and $13,213,442 as of September 30, 2010 and 2009, respectively.

Of the total commitments to originate mortgages of $3,535,900 as of September 30, 2010, $1,225,900 was for fixed rate mortgage loans with interest rates ranging from 3.75% to 5.00%. Of this total, $697,900 with interest rates ranging from 3.75% to 4.25% were sold. Of the total commitments to originate mortgages of $2,577,800 as of December 31, 2009, $1,597,800 was for fixed rate mortgage loans with interest rates ranging from 4.75% to 7.25%.

12. DEFERRED COMPENSATION

The Association has entered into deferred compensation agreements with two of its executive officers. Under the terms of the agreements, which consist of both a defined contribution component and a defined benefit component, the Association is obligated to provide annual benefits for the officers or their beneficiaries, after the officer’s death, disability, or retirement. For the defined benefit component the estimated present value to be paid is being accrued over the period from the effective date of the agreements until the full eligibility dates of the participants. The expense incurred for these plans for the years ended December 31, 2009 and 2008 was $87,422 and $19,500, respectively. The expense incurred for these plans for the nine months ended September 30, 2010 and 2009 was $71,710 and $55,169, respectively.

13. REGULATORY MATTERS

The Association is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of Thrift Supervision (OTS). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that if undertaken, could have a direct material effect on the Association and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines involving quantitative measures of the Association’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Association’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of: total risk-based capital and Tier I capital and Tier I capital to risk-weighted assets (as defined in the regulations), Tier I capital to adjusted total assets (as defined), and tangible capital to adjusted total assets (as defined).

F-25

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of September 30, 2010, December 31, 2009 and 2008 (the most recent notification from the OTS), the Association was categorized as well capitalized under the regulatory framework for prompt corrective action. Nothing has come to management’s attention since the institution’s most recent notification of being classified as “well capitalized” that would cause such classification to change. The following table details the Association’s capital position:

	Actual					For Capital Adequacy Purposes and to be Adequately Capitalized Under the Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio
	(dollars in thousands)					(dollars in thousands)
As of September 30, 2010 (unaudited)
Total Risk-Based Capital (to Risk-Weighted Assets)	$	17,564		19.39	%	$	7,245		8.0	%
Tier I Capital (to Risk-Weighted Assets)	$	16,432		18.14	%	$	3,623		4.0	%
Tier I Capital (to Adjusted Total Assets)	$	16,432		9.87	%	$	4,995		3.0	%
Tangible Capital (to Adjusted Total Assets)	$	16,432		9.87	%	$	2,497		1.5	%
As of December 31, 2009
Total Risk-Based Capital (to Risk-Weighted Assets)	$	17,326		18.69	%	$	7,416		8.0	%
Tier I Capital (to Risk-Weighted Assets)	$	17,003		18.34	%	$	3,708		4.0	%
Tier I Capital (to Adjusted Total Assets)	$	17,003		10.19	%	$	5,006		3.0	%
Tangible Capital (to Adjusted Total Assets)	$	17,003		10.19	%	$	2,503		1.5	%
As of December 31, 2008
Total Risk-Based Capital (to Risk-Weighted Assets)	$	16,976		18.35	%	$	7,401		8.0	%
Tier I Capital (to Risk-Weighted Assets)	$	16,660		18.01	%	$	3,700		4.0	%
Tier I Capital (to Adjusted Total Assets)	$	16,660		9.75	%	$	5,126		3.0	%
Tangible Capital (to Adjusted Total Assets)	$	16,660		9.75	%	$	2,563		1.5	%

F-26

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides a reconciliation of total equity per the consolidated financial statements to capital amounts reflected in the above table:

	September 30,			December 31,
	2010			2009		2008
Total equity	$	16,446		$	16,992	$	16,475
Adjustment for accumulated other comprehensive loss		(14	)		11		185
Adjustment for parent company equity		—			—		—
Tangible, Tier 1 and Core Capital		16,432			17,003		16,660
Allowance for loan losses		1,132			323		316
Total risk-based capital	$	17,564		$	17,326	$	16,976

14. FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Company adopted FASB guidance on Fair Value Measurements which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This guidance applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the guidance establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

F-27

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the Association’s assets measured at fair value on a recurring basis:

	Fair Value at September 30, 2010 (unaudited)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities	$	13,167,999	$	—	$	13,167,999	$	—
Total assets measured at fair value	$	13,167,999	$	—	$	13,167,999	$	—
	Fair Value at December 31, 2009 (unaudited)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities	$	24,116,110	$	—	$	24,116,110	$	—
Total assets measured at fair value	$	24,116,110	$	—	$	24,116,110	$	—

Securities classified as available-for-sale are reported at fair value utilizing Level 2 Inputs. For these securities, the Association obtains fair values from an independent pricing service and safekeeping custodians. The observable data may include dealer quotes, cash flows, U.S. Treasury yield curve, trading levels, credit information, and the terms and conditions of the security, among other things.

F-28

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial Instruments Measured on a Nonrecurring Basis

The Association may be required, from time to time, to measure certain other financial assets and liabilities at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis as of September 30, 2010 and December 31, 2009, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the assets:

	Fair Value at September 30, 2010 (unaudited)		Quoted Prices (Level  1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans	$	3,862,474	$	—	$	—	$	3,862,474
	Fair Value at December 31, 2009 (unaudited)		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Loans	$	822,747	$	—	$	—	$	822,747

Loans for which it is probable that the Association will not collect all principal and interest due according to contractual terms are measured for impairment in accordance with FASB guidance. Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans or, where a loan is determined not to be collateral dependent, using the discounted cash flow method. In our determination of fair value, we have categorized both methods of valuation as estimates based on Level 3 inputs.

If the impaired loan is identified as collateral dependent, then the fair value method measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal or utilizing some other method of valuation for the collateral and applying a discount factor to the value based on our loan review policy and procedures.

If the impaired loan is determined not to be collateral dependent, then the discounted cash flow method is used. This method requires the impaired loan to be recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate. The effective interest rate of a loan is the contractual interest rate adjusted for any net deferred loan fees or costs, premiums, or discounts existing at origination or acquisition of the loan.

F-29

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates, methods, and assumptions are set forth below for the Association’s financial instruments as of September 30, 2010, December 31, 2009 and 2008.

	September 30, 2010				December 31, 2009				December 31, 2008
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(unaudited)
Assets:
Cash and cash equivalents	$	27,382,568	$	27,382,568	$	13,907,553	$	13,907,553	$	11,438,784	$	11,438,784
Securities - available-for-sale		13,167,999		13,167,999		24,116,110		24,116,110		8,525,615		8,525,615
Securities - held-to-maturity		—		—		—		—		7,446,849		7,566,468
Loans		116,725,687		121,473,138		120,368,513		122,239,029		136,819,320		138,532,552
Fed Home Loan Bank stock		1,450,300		1,450,300		1,353,700		1,353,700		1,597,300		1,597,300
Accrued interest receivable		609,101		609,101		722,443		722,443		669,631		669,631
Investment in bank-owned life insurance		4,127,359		4,127,359		3,983,719		3,983,719		2,319,216		2,319,216
Liabilities:
Deposit accounts and advances by borrowers		126,535,939		128,011,617		126,604,110		128,413,988		125,492,998		126,451,070
Advances from the FHLB		22,666,667		23,174,630		22,916,667		22,997,847		28,416,667		28,438,595

	September 30,		December 31,		December 31,
	2010		2009		2008
	(unaudited)
Off-Balance Sheet Instruments:
Commitments to extend credit	$	3,535,900	$	2,577,800	$	980,200
Unused lines of credit	$	12,316,292	$	13,145,037	$	13,133,757

(a) Cash and Cash Equivalents - The carrying amount for cash on hand and in banks approximates fair value due to the short maturity of these instruments.

(b) Securities - The fair value of securities excluding Federal Home Loan Bank stock, is based on bid prices received from an external pricing service or bid quotations received from securities dealers.

(c) Loans - Loans were segmented into portfolios with similar financial characteristics. Loans were also segmented by type such as residential, multifamily and non-residential, construction and land, second mortgage loans, commercial, and consumer. Each loan category was further segmented by fixed and adjustable rate interest terms and performing and nonperforming categories. The fair value of residential loans was calculated by discounting anticipated cash flows based on weighted-average contractual maturity, weighted-average coupon, and discount rate.

The fair value for nonperforming loans was determined by reducing the carrying value of nonperforming loans by the Company’s historical loss percentage for each specific loan category.

(d) Federal Home Loan Bank Stock - The fair value of Federal Home Loan Bank stock approximates its carrying value based on the redemption provisions of the Federal Home Loan Bank.

F-30

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(e) Accrued Interest Receivable - The carrying amounts of accrued interest approximate the fair values.

(f) Investments in Bank-Owned Life Insurance - The fair value of the insurance contracts approximates the carrying value.

(g) Deposits and Advances by Borrowers - The fair value of deposits with no stated maturity, such as noninterest bearing deposits, interest-bearing NOW accounts, money market and statement savings accounts, is deemed to be equal to the carrying amounts. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate for certificates of deposit was estimated using the rate currently offered for deposits of similar remaining maturities.

(h) Advances from the FHLB - Fair values are estimated by discounting carrying values using a cash flow approach based on market rates as of September 30, 2010 and December 31, 2009.

(i) Off-Balance Sheet Financial Instruments - The Company’s adjustable rate commitments to extend credit move with market rates and are not subject to interest rate risk. The rates and terms of the Company’s fixed rate commitments to extend credit are competitive with others in the various markets in which the Company operates. The fair values of these instruments are immaterial.

(j) Limitations - Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect estimates.

16. SUBSEQUENT EVENTS

On September 14, 2010, the Association’s Board of Directors approved a plan (the “Plan”) to convert from a federally-chartered mutual savings association to a federally-chartered stock savings association form of organization, subject to approval by its members. The Plan, which includes formation of a holding company to own all of the outstanding capital stock of the Association, is subject to approval by the Office of Thrift Supervision (the “OTS”) and includes the filing of a registration statement with the Securities and Exchange Commission.

The cost of conversion and issuing and selling the capital stock will be deferred and deducted from the proceeds of the offering. In the event the conversion and offering are not completed, any deferred costs will be charged to operations. Through September 30, 2010, the Bank had incurred $126,000 in conversion costs, which were recorded in prepaid expenses and other assets on the Statement of Financial Condition.

F-31

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Plan calls for the common stock of the holding company to be offered to various parties in a subscription offering at a price based on an independent appraisal of the Association. It is anticipated that any shares not purchased in the subscription offering will be offered in a community offering. The Association may not declare or pay a cash dividend if the effect thereof would cause its net worth to be reduced below either the amount required for the liquidation account discussed below or the regulatory capital requirements imposed by the OTS.

At the time of conversion, the Association will establish a liquidation account in an amount equal to its retained earnings as reflected in the latest statement of financial condition used in the final conversion prospectus. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their deposit accounts in the Association after conversion. The liquidation account will be reduced annually to the extent that eligible depositors have reduced their qualifying deposits. In the event of a complete liquidation of the Association, eligible depositors who continue to maintain accounts in accordance with OTS regulations shall be entitled to receive a distribution from the liquidation account before any liquidation may be made with respect to common stock.

F-32

You should rely only on the information contained in this prospectus. Neither Fraternity Community Bancorp nor Fraternity Federal Savings and Loan Association has authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered by this prospectus to any person or in any jurisdiction in which an offer or solicitation is not authorized or in which the person making an offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make an offer or solicitation in those jurisdictions. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock.

[LOGO]

(Proposed Holding Company for Fraternity Federal Savings and Loan Association)

1,380,000 Shares

(Anticipated Maximum, Subject to Increase

to up to 1,587,000 Shares)

COMMON STOCK

Prospectus

SANDLER O’NEILL + PARTNERS, L.P.

Until             , all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth our anticipated expenses of the offering:

SEC filing fee (1)	$	2,000
OTS filing fee		12,000
FINRA filing fee (1)		3,000
EDGAR, printing, postage and mailing		75,000
Blue Sky fees and expenses		20,000
Legal fees and expenses		285,000
Accounting fees and expenses		30,000
Appraiser’s fees and expenses		38,500
Marketing firm expenses (including legal fees)		250,000
Conversion agent fees and expenses		30,000
Business plan fees and expenses		30,000
Transfer agent and registrar fees and expenses		10,000
Certificate printing		7,500
Miscellaneous		7,000
TOTAL	$	800,000

(1) Based on the registration of $15.9 million of common stock.

Item 14. Indemnification of Directors and Officers.

The Articles of Incorporation of Fraternity Community Bancorp, Inc. provides as follows:

NINTH: The Corporation shall indemnify (A) its directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the general laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures required, and (B) other employees and agents to such extent as shall be authorized by the Board of Directors or the Corporation’s Bylaws and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such Bylaws, resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment of the Articles of Incorporation of the Corporation shall limit or eliminate the right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.

Item 15. Recent Sales of Unregistered Securities.

None.

II-1

Item 16. Exhibits and Financial Statement Schedules.

The exhibits filed as a part of this Registration Statement are as follows:

(a) List of Exhibits

Exhibit	Description	Location
1.1	Engagement Letter by and between Fraternity Federal Savings and Loan Association and Sandler O’Neill & Partners, L.P., as marketing agent	Previously filed
1.2	Draft Agency Agreement	Previously filed
2.0	Plan of Conversion, as amended	Previously filed
3.1	Articles of Incorporation of Fraternity Community Bancorp, Inc.	Previously filed
3.2	Bylaws of Fraternity Community Bancorp, Inc.	Previously filed
4.0	Specimen Common Stock Certificate of Fraternity Community Bancorp, Inc.	Previously filed
5.0	Opinion of Kilpatrick Stockton LLP re: Legality	Previously filed
8.1	Opinion of Kilpatrick Stockton LLP re: Federal Tax Matters	Previously filed
8.2	Opinion of Stegman & Company re: State Tax Matters	Previously filed
10.1	Fraternity Federal Savings and Loan Association 401(k) Plan and Trust	Filed herewith
10.2	Form of Fraternity Federal Savings and Loan Association Employee Stock Ownership Plan and Trust Agreement	Previously filed
10.3	Form of Employee Stock Ownership Plan Loan Agreement, Pledge Agreement and Promissory Note	Previously filed
10.4	+Employment Agreement between Fraternity Federal Savings and Loan Association and Thomas K. Sterner, as amended	Previously filed
10.5	+Employment Agreement between Fraternity Federal Savings and Loan Association and Richard C. Schultze, as amended	Previously filed
10.6	+Supplemental Executive Retirement Plan Agreement between Fraternity Federal Savings and Loan Association and Thomas K. Sterner	Previously filed

II-2

Exhibit	Description	Location
10.7	+Supplemental Executive Retirement Plan Agreement between Fraternity Federal Savings and Loan Association and Richard C. Schultze	Previously filed
10.8	+Rabbi Trust Agreement	Previously filed
10.9	+Form of Employment Agreement between Fraternity Community Bancorp, Inc. and Thomas K. Sterner	Previously filed
10.10	+Form of Supplemental Executive Retirement Plan	Previously filed
10.11	+Form of Fraternity Federal Savings and Loan Association Employee Severance Compensation Plan	Previously filed
10.12	+ Form of Fraternity Federal Savings and Loan Association Deferred Compensation Plan	Filed herewith
10.13	+ Form of Employment Agreement between Fraternity Community Bancorp, Inc. and Richard C. Schultze	Previously filed
23.1	Consent of Kilpatrick Stockton LLP	Contained in Exhibits 5.0 and 8.1 (previously filed)
23.2	Consent of Stegman & Company	Filed herewith
23.3	Consent of Feldman Financial Advisors, Inc.	Previously filed
24.0	Powers of Attorney	Previously filed
99.1	Appraisal Report of Feldman Financial Advisors, Inc.	Previously filed
99.2	Draft of Marketing Materials	Previously filed
99.3	Draft of Subscription Order Form and Instructions	Previously filed
99.4	Appraisal Report Update of Feldman Financial Advisors, Inc.	Previously filed

+ Management contract or compensation plan or arrangement.

(b) Financial Statement Schedules

All schedules have been omitted as not applicable or not required under the rules of Regulation S-X.

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

II-3

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(5) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

II-4

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Baltimore, State of Maryland on January 4, 2011.

Fraternity Community Bancorp, Inc.
By:	/s/    THOMAS K. STERNER
	Thomas K. Sterner
	Chairman of the Board, Chief Executive Officer and Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Name	Title	Date
/s/    THOMAS K. STERNER         Thomas K. Sterner	Chairman of the Board, Chief Executive Officer and Chief Financial Officer (principal executive officer and principal financial and accounting officer)	January 4, 2011
/s/    RICHARD C. SCHULTZE         Richard C. Schultze	President, Chief Operating Officer and Director	January 4, 2011
* William J. Baird, Jr.	Director
* William D. Norton	Director
* Michael P. O’Shea	Director
*  Pursuant to the Powers of Attorney filed as Exhibit 24.0 to the registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on October 29, 2010.
/s/    THOMAS K. STERNER		January 4, 2011
Thomas K. Sterner
Attorney-in-Fact

EX-10.1

Exhibit 10.1

PROTOTYPE DEFINED CONTRIBUTION PLAN

Sponsored By

Pentegra Retirement Services, Inc.

BASIC PLAN DOCUMENT #01

THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. ITS USE, DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.

TABLE OF CONTENTS

ARTICLE I		1
DEFINITIONS		1
1.1	ACTUAL CONTRIBUTION PERCENTAGE (ACP)	1
1.2	ACTUAL DEFERRAL PERCENTAGE (ADP)	1
1.3	ADOPTION AGREEMENT	2
1.4	AGGREGATE LIMIT	2
1.5	ALLOCATION DATE(S)	2
1.6	ANNUAL ADDITIONS	2
1.7	ANNUITY STARTING DATE	3
1.8	APPLICABLE CALENDAR YEAR	3
1.9	APPLICABLE LIFE EXPECTANCY	3
1.10	AVERAGE ANNUAL COMPENSATION	3
1.11	AVERAGE CONTRIBUTION PERCENTAGE (ACP)	3
1.12	AVERAGE DEFERRAL PERCENTAGE (ADP)	3
1.13	BENEFICIARY	3
1.14	BREAK IN SERVICE	3
1.15	CATCH-UP CONTRIBUTIONS	4
1.16	CODE	4
1.17	COMPENSATION	4
1.18	CUSTODIAN	7
1.19	DAVIS-BACON ACT	7
1.20	DAYS OF SERVICE	7
1.21	DEFINED BENEFIT PLAN	8
1.22	DEFINED BENEFIT (PLAN) FRACTION	8
1.23	DEFINED CONTRIBUTION DOLLAR LIMITATION	8
1.24	DEFINED CONTRIBUTION PLAN	8
1.25	DEFINED CONTRIBUTION (PLAN) FRACTION	8
1.26	DESIGNATED BENEFICIARY	8
1.27	DIRECT ROLLOVER	8
1.28	DISABILITY	9
1.29	DISTRIBUTION CALENDAR YEAR (VALUATION CALENDAR YEAR)	9
1.30	EARLY RETIREMENT AGE	9
1.31	EARLY RETIREMENT DATE	9
1.32	EARNED INCOME	9
1.33	EFFECTIVE DATE	9
1.34	ELAPSED TIME	9
1.35	ELECTION PERIOD	10
1.36	ELECTIVE DEFERRALS	10
1.37	ELIGIBLE EMPLOYEE	10
1.38	ELIGIBLE EMPLOYER	10
1.39	ELIGIBLE PARTICIPANT	11
1.40	ELIGIBLE RETIREMENT PLAN	11
1.41	ELIGIBLE ROLLOVER DISTRIBUTION	11
1.42	EMPLOYEE	11
1.43	EMPLOYER	12
1.44	ENTRY DATE	12
1.45	ERISA	12
1.46	EXCESS AGGREGATE CONTRIBUTIONS	12
1.47	EXCESS ANNUAL ADDITIONS	12
1.48	EXCESS CONTRIBUTIONS	13
1.49	EXCESS ELECTIVE DEFERRALS	13
1.50	EXPECTED YEAR OF SERVICE	13
1.51	FIDUCIARY	13
1.52	FIRST DISTRIBUTION CALENDAR YEAR	13
1.53	FORMER PARTICIPANT	13
1.54	HARDSHIP	13
1.55	HIGHEST AVERAGE COMPENSATION	13
1.56	HIGHLY COMPENSATED EMPLOYEE	14
1.57	HOUR OF SERVICE	14
1.58	INTEGRATION LEVEL	15

i

1.59	KEY EMPLOYEE	15
1.60	LEASED EMPLOYEE	15
1.61	LIFE EXPECTANCY	15
1.62	LIMITATION YEAR	15
1.63	MASTER OR PROTOTYPE PLAN	16
1.64	MATCHING CONTRIBUTION	16
1.65	MAXIMUM PERMISSIBLE AMOUNT	16
1.66	NAMED INVESTMENT FIDUCIARY	16
1.67	NET PROFIT	16
1.68	NORMAL RETIREMENT AGE	16
1.69	NORMAL RETIREMENT DATE	16
1.70	OWNER-EMPLOYEE	16
1.71	PARTICIPANT	16
1.72	PARTICIPANT’S ACCOUNT BALANCE	16
1.73	PARTICIPANT'S BENEFIT	17
1.74	PERIOD OF SEVERANCE	17
1.75	PERMISSIVE AGGREGATION GROUP	17
1.76	PLAN	17
1.77	PLAN ADMINISTRATOR	17
1.78	PLAN SPONSOR	17
1.79	PLAN YEAR	17
1.80	PREDECESSOR ORGANIZATION	17
1.81	PRESENT VALUE	17
1.82	PRIOR PLAN YEAR	17
1.83	PROJECTED ANNUAL BENEFIT	18
1.84	QUALIFIED DOMESTIC RELATIONS ORDER (QDRO)	18
1.85	QUALIFIED EARLY RETIREMENT AGE	18
1.86	QUALIFIED JOINT AND SURVIVOR ANNUITY (QJSA)	18
1.87	QUALIFIED MATCHING CONTRIBUTIONS (QMACS)	18
1.88	QUALIFIED NON-ELECTIVE CONTRIBUTIONS (QNECS)	18
1.89	QUALIFIED PLAN	18
1.90	QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY	18
1.91	QUALIFIED VOLUNTARY CONTRIBUTION	19
1.92	REQUIRED AFTER-TAX CONTRIBUTIONS	19
1.93	REQUIRED AGGREGATION GROUP	19
1.94	REQUIRED BEGINNING DATE	19
1.95	ROLLOVER CONTRIBUTION	19
1.96	ROTH ELECTIVE DEFERRALS	20
1.97	SALARY DEFERRAL AGREEMENT	20
1.98	SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE)	20
1.99	SELF-EMPLOYED INDIVIDUAL	20
1.100	SERVICE	20
1.101	SERVICE PROVIDER	21
1.102	SEVERANCE DATE	21
1.103	SEVERANCE PERIOD	21
1.104	SHAREHOLDER EMPLOYEE	21
1.105	SIMPLIFIED EMPLOYEE PENSION PLAN	21
1.106	SPONSOR	21
1.107	SPOUSE (SURVIVING SPOUSE)	21
1.108	SUPER TOP-HEAVY PLAN	21
1.109	TAXABLE WAGE BASE	21
1.110	TOP-HEAVY DETERMINATION DATE	21
1.111	TOP-HEAVY PLAN	21
1.112	TOP-HEAVY RATIO	22
1.113	TOP-PAID GROUP	22
1.114	TRANSFER CONTRIBUTION	23
1.115	TRUST	23
1.116	TRUSTEE	23
1.117	UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF 1994 (USERRA)	23
1.118	VALUATION DATE	23
1.119	VESTED ACCOUNT BALANCE	23
1.120	VOLUNTARY AFTER-TAX CONTRIBUTION	23
1.121	WELFARE BENEFIT FUND	23
1.122	YEAR OF SERVICE	23

ii

ARTICLE II		26
ELIGIBILITY REQUIREMENTS		26
2.1	ELIGIBILITY	26
2.2	DETERMINATION OF ELIGIBILITY	26
2.3	CHANGE IN CLASSIFICATION OF EMPLOYMENT	26
2.4	PARTICIPATION	27
2.5	EMPLOYMENT RIGHTS	27
2.6	SERVICE WITH CONTROLLED GROUPS	27
2.7	LEASED EMPLOYEES	27
2.8	THRIFT PLAN	27
2.9	TARGET BENEFIT PLAN	28
2.10	DAVIS-BACON PLAN	28
2.11	WAIVER OF PARTICIPATION	28
2.12	OMISSION OF ELIGIBLE EMPLOYEE	28
2.13	INCLUSION OF INELIGIBLE EMPLOYEE	28
2.14	PARTICIPATING EMPLOYER	28
ARTICLE III		30
EMPLOYER CONTRIBUTIONS		30
3.1	CONTRIBUTION AMOUNT	30
3.2	OVERALL PERMITTED DISPARITY LIMITS	31
3.3	CONTRIBUTION AMOUNT FOR A SIMPLE 401(K) PLAN	31
3.4	RESPONSIBILITY FOR CONTRIBUTIONS	32
3.5	RETURN OF CONTRIBUTIONS	32
3.6	MERGER OF ASSETS FROM ANOTHER PLAN	32
3.7	COVERAGE REQUIREMENTS	32
3.8	ELIGIBILITY FOR CONTRIBUTION	33
3.9	CROSS-TESTED ALLOCATION FORMULA	33
3.10	TARGET BENEFIT PLAN CONTRIBUTION	35
3.11	DAVIS-BACON PLAN CONTRIBUTION	35
3.12	UNIFORM DOLLAR CONTRIBUTION	35
3.13	UNIFORM POINTS CONTRIBUTION	35
3.14	403(B) MATCHING CONTRIBUTION	35
ARTICLE IV		36
EMPLOYEE CONTRIBUTIONS		36
4.1	VOLUNTARY AFTER-TAX CONTRIBUTIONS	36
4.2	REQUIRED AFTER-TAX CONTRIBUTIONS	36
4.3	QUALIFIED VOLUNTARY CONTRIBUTIONS	36
4.4	ROLLOVER CONTRIBUTIONS	36
4.5	VOLUNTARY DIRECT TRANSFERS BETWEEN PLANS	37
4.6	ELECTIVE DEFERRALS IN A 401(K) PLAN	38
4.7	CATCH-UP CONTRIBUTIONS	39
4.8	ELECTIVE DEFERRALS IN A SIMPLE 401(K) PLAN	39
4.9	ROTH ELECTIVE DEFERRALS IN A 401(K) PLAN	40
4.10	AUTOMATIC ENROLLMENT	41
4.11	RESERVED	42
4.12	MAKE-UP CONTRIBUTIONS UNDER USERRA	42
ARTICLE V		43
PARTICIPANT ACCOUNTS		43
5.1	SEPARATE ACCOUNTS	43
5.2	VALUATION DATE	43
5.3	ALLOCATIONS TO PARTICIPANT ACCOUNTS	44
5.4	ALLOCATING EMPLOYER CONTRIBUTIONS	44
5.5	ALLOCATING INVESTMENT EARNINGS AND LOSSES	44
5.6	ALLOCATION ADJUSTMENTS	45
5.7	PARTICIPANT STATEMENTS	45
5.8	CHANGES IN METHOD AND TIMING OF VALUING PARTICIPANTS’ ACCOUNTS	45
ARTICLE VI		46
RETIREMENT BENEFITS AND DISTRIBUTIONS		46
6.1	NORMAL RETIREMENT BENEFITS	46
6.2	EARLY RETIREMENT BENEFITS	46
6.3	BENEFIT UPON DEATH	46
6.4	BENEFIT UPON DISABILITY	46

iii

6.5	BENEFITS ON TERMINATION OF EMPLOYMENT	46
6.6	RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS	48
6.7	NORMAL AND OPTIONAL FORMS OF PAYMENT	49
6.8	DISTRIBUTION IN EVENT OF INCAPACITY	49
6.9	COMMENCEMENT OF BENEFITS	50
6.10	IN-SERVICE WITHDRAWALS	50
6.11	HARDSHIP WITHDRAWALS	52
6.12	DIRECT ROLLOVERS	53
6.13	PARTICIPANT’S NOTICE	54
6.14	ASSETS TRANSFERRED FROM MONEY PURCHASE PENSION PLANS	55
6.15	ASSETS TRANSFERRED FROM A CODE SECTION 401(K) PLAN	55
ARTICLE VII		56
DISTRIBUTION REQUIREMENTS		56
7.1	JOINT AND SURVIVOR ANNUITY REQUIREMENTS	56
7.2	DESIGNATION OF BENEFICIARY	56
7.3	MINIMUM DISTRIBUTION REQUIREMENTS	56
7.4	LIMITS ON DISTRIBUTION PERIODS	57
7.5	REQUIRED BEGINNING DATE	57
7.6	DEATH OF PARTICIPANT BEFORE DISTRIBUTIONS BEGIN	57
7.7	FORMS OF DISTRIBUTIONS	57
7.8	AMOUNT OF REQUIRED MINIMUM DISTRIBUTION FOR EACH DISTRIBUTION CALENDAR YEAR	57
7.9	LIFETIME REQUIRED MINIMUM DISTRIBUTIONS CONTINUE THROUGH YEAR OF PARTICIPANT’S DEATH	58
7.10	DEATH ON OR AFTER REQUIRED DISTRIBUTIONS BEGIN	58
7.11	DEATH BEFORE DATE REQUIRED DISTRIBUTIONS BEGIN	58
7.12	PRIOR PRE-RETIREMENT DISTRIBUTION OPTIONS	58
7.13	TRANSITIONAL RULES	59
7.14	DISTRIBUTIONS TO MINORS AND INDIVIDUALS WHO ARE LEGALLY INCOMPETENT	60
7.15	UNCLAIMED BENEFITS	60
7.16	TEFRA 242(B) ELECTION	60
ARTICLE VIII		61
JOINT AND SURVIVOR ANNUITY REQUIREMENTS		61
8.1	APPLICABILITY OF PROVISIONS	61
8.2	PAYMENT OF QUALIFIED JOINT AND SURVIVOR  ANNUITY	61
8.3	PAYMENT OF QUALIFIED PRE-RETIREMENT SURVIVOR  ANNUITY	61
8.4	QUALIFIED ELECTION	61
8.5	NOTICE REQUIREMENTS FOR QUALIFIED JOINT AND SURVIVOR ANNUITY	61
8.6	NOTICE REQUIREMENTS FOR QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY	62
8.7	SPECIAL SAFE HARBOR EXCEPTION FOR CERTAIN PROFIT-SHARING OR 401(K) PLANS	62
8.8	TRANSITIONAL RULE	63
8.9	AUTOMATIC JOINT AND SURVIVOR ANNUITY AND EARLY SURVIVOR ANNUITY	64
8.10	ANNUITY CONTRACTS	64
ARTICLE IX		65
VESTING		65
9.1	EMPLOYEE CONTRIBUTIONS	65
9.2	EMPLOYER CONTRIBUTIONS	65
9.3	VESTING OF EMPLOYER CONTRIBUTIONS IN A SIMPLE 401(K) PLAN	65
9.4	COMPUTATION PERIOD	65
9.5	REQUALIFICATION PRIOR TO FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE	65
9.6	REQUALIFICATION AFTER FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE	65
9.7	CALCULATING VESTED INTEREST	66
9.8	FORFEITURES	66
9.9	AMENDMENT OF VESTING SCHEDULE	66
9.10	SERVICE WITH CONTROLLED GROUPS	67
9.11	COMPLIANCE WITH UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF 1994	67
ARTICLE X		68
LIMITATIONS ON ALLOCATIONS		68
10.1	MAXIMUM ANNUAL ADDITIONS	68
10.2	PARTICIPATION IN THIS PLAN ONLY	68
10.3	DISPOSITION OF EXCESS ANNUAL ADDITIONS	68
10.4	PARTICIPATION IN MULTIPLE DEFINED CONTRIBUTION PLANS	69

iv

10.5	DISPOSITION OF EXCESS ANNUAL ADDITIONS UNDER TWO PLANS	69
10.6	PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN PRIOR TO JANUARY 1, 2000	70
ARTICLE XI		71
NONDISCRIMINATION TESTING		71
11.1	GENERAL TESTING REQUIREMENTS	71
11.2	ADP TESTING LIMITATIONS	71
11.3	SPECIAL RULES RELATING TO APPLICATION OF  THE ADP TEST	71
11.4	ACP TESTING LIMITATIONS	72
11.5	SPECIAL RULES RELATING TO THE APPLICATION OF THE ACP TEST	73
11.6	RECHARACTERIZATION	74
11.7	CALCULATION AND DISTRIBUTION OF EXCESS CONTRIBUTIONS AND EXCESS AGGREGATE CONTRIBUTIONS	74
11.8	DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS	75
11.9	DISTRIBUTION OF EXCESS CONTRIBUTIONS	75
11.10	DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS	76
11.11	QUALIFIED NON-ELECTIVE AND/OR MATCHING  CONTRIBUTIONS	77
11.12	NONDISCRIMINATION TESTS IN A SIMPLE 401(K) PLAN	78
11.13	SAFE HARBOR 401(K) PLAN RULES OF APPLICATION	79
11.14	SAFE HARBOR 401(K) PLAN DEFINITIONS	79
11.15	REQUIRED RESTRICTIONS ON SAFE HARBOR 401(K) CONTRIBUTIONS	80
11.16	ADP TEST SAFE HARBOR	81
11.17	ACP TEST SAFE HARBOR	81
11.18	SAFE HARBOR 401(K) STATUS	82
11.19	SAFE HARBOR 401(K) NOTICE REQUIREMENT	83
11.20	SATISFYING SAFE HARBOR 401(K) CONTRIBUTION REQUIREMENTS UNDER ANOTHER DEFINED CONTRIBUTION PLAN	83
ARTICLE XII		85
ADMINISTRATION		85
12.1	PLAN ADMINISTRATOR	85
12.2	PERSONS SERVING AS PLAN ADMINISTRATOR	85
12.3	ACTION BY EMPLOYER	86
12.4	RESPONSIBILITIES OF THE PARTIES	86
12.5	PROMULGATING NOTICES AND PROCEDURES	86
12.6	APPOINTMENT OF INVESTMENT MANAGER	86
12.7	PARTICIPANT INVESTMENT DIRECTION	87
12.8	APPLICATION OF ERISA SECTION 404(C)	88
12.9	PARTICIPANT LOANS	88
12.10	INSURANCE POLICIES	89
12.11	DETERMINATION OF QUALIFIED DOMESTIC RELATIONS ORDER (QDRO OR ORDER)	91
12.12	RECEIPT AND RELEASE FOR PAYMENTS	92
12.13	RESIGNATION AND REMOVAL	92
12.14	CLAIMS AND CLAIMS REVIEW PROCEDURE	92
12.15	BONDING	93
ARTICLE XIII		94
TRUST PROVISIONS		94
13.1	ESTABLISHMENT OF THE TRUST	94
13.2	CONTROL OF PLAN ASSETS	94
13.3	DISCRETIONARY TRUSTEE	94
13.4	NONDISCRETIONARY TRUSTEE	94
13.5	PROVISIONS RELATING TO INDIVIDUAL TRUSTEES	94
13.6	INVESTMENT INSTRUCTIONS	95
13.7	FIDUCIARY STANDARDS	95
13.8	POWERS OF THE TRUSTEE	95
13.9	APPOINTMENT OF ADDITIONAL TRUSTEE AND ALLOCATION OF RESPONSIBILITIES	97
13.10	COMPENSATION, ADMINISTRATIVE FEES AND EXPENSES	98
13.11	RECORDS	98
13.12	LIMITATION ON LIABILITY AND INDEMNIFICATION	99
13.13	RESPONSIBILITIES OF A NAMED CUSTODIAN	100
13.14	INVESTMENT ALTERNATIVES OF THE CUSTODIAN	101
13.15	PROHIBITED TRANSACTIONS	101
13.16	EXCLUSIVE BENEFIT RULES	101
13.17	ASSIGNMENT AND ALIENATION OF BENEFITS	101
13.18	LIQUIDATION OF ASSETS	101
13.19	RESIGNATION AND REMOVAL OF THE TRUSTEE AND/OR CUSTODIAN	102

v

ARTICLE XIV		103
TOP-HEAVY PROVISIONS		103
14.1	APPLICABILITY OF RULES	103
14.2	DETERMINATION OF TOP-HEAVY STATUS	103
14.3	MINIMUM CONTRIBUTION	104
14.4	MINIMUM VESTING	105
14.5	LIMITATIONS ON ALLOCATIONS	105
14.6	USE OF SAFE HARBOR CONTRIBUTIONS TO SATISFY TOP-HEAVY CONTRIBUTION RULES	105
14.7	TOP-HEAVY RULES FOR SIMPLE 401(K) PLANS	105
ARTICLE XV		106
AMENDMENT AND TERMINATION		106
15.1	AMENDMENT BY SPONSOR	106
15.2	AMENDMENT BY EMPLOYER	106
15.3	PROTECTED BENEFITS	106
15.4	PERMITTED PLAN AMENDMENTS AFFECTING ALTERNATIVE FORMS OF PAYMENT	106
15.5	PLAN TERMINATION	107
15.6	INVOLUNTARY TERMINATION	107
15.7	TERMINATION OF PARTICIPATION BY PARTICIPATING EMPLOYER	107
15.8	DISTRIBUTION RESTRICTIONS UNDER A CODE SECTION 401(K) PLAN	107
15.9	QUALIFICATION OF EMPLOYER’S PLAN	108
15.10	MERGERS AND CONSOLIDATIONS	110
15.11	QUALIFICATION OF PROTOTYPE	110
ARTICLE XVI		111
GOVERNING LAW		111
16.1	GOVERNING LAW	111
16.2	STATE COMMUNITY PROPERTY LAWS	111
ARTICLE XVII		112
RESERVED		112
ARTICLE XVII		113
DEEMED IRAS		113
17.1	DEEMED IRAS	113
17.2	INDIVIDUAL	113
17.3	INVESTMENT IN COLLECTIBLES	113
17.4	RESTRICTIONS ON DIRECTING INVESTMENTS	113
17.5	PROHIBITION AGAINST INVESTING IN LIFE INSURANCE	113
17.6	COMMINGLING OF ASSETS	113
17.7	NONFORFEITABILITY	113
17.8	SEPARATE ACCOUNTING	113
17.9	SEPARATE TRUSTS	113
17.10	SEPARATE ANNUITIES	114
17.11	REPORTING DUTIES	114
17.12	DISTRIBUTIONS	114
17.13	VOLUNTARY EMPLOYEE CONTRIBUTIONS	114
17.14	SUBSTITUTION OF NON-BANK TRUSTEE	114
17.15	DISQUALIFICATION	114
ARTICLE XVIII		115
DEEMED TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS		115
RESERVED		115
ARTICLE XVIII		116
DEEMED TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS		116
18.1	DEEMED IRA	116
18.2	MAXIMUM ANNUAL CONTRIBUTION	116
18.3	CATCH-UP CONTRIBUTION	116

vi

18.4	REQUIRED BEGINNING DATE	116
18.5	TAX YEAR	116
18.6	TRUSTEE	116
18.7	TRADITIONAL IRA CONTRIBUTIONS	116
18.8	EXCESS CONTRIBUTIONS	117
18.9	MAINTENANCE OF AN INDIVIDUAL’S IRA	117
18.10	METHODS OF PAYMENT	117
18.11	REQUIREMENTS OF INCOME TAX REGULATIONS	117
18.12	REQUIRED BEGINNING DATE	117
18.13	FORMS OF DISTRIBUTIONS	117
18.14	DISTRIBUTIONS UPON DEATH	117
18.15	DESIGNATED BENEFICIARY	118
18.16	REMAINDER BENEFICIARY	118
18.17	DISTRIBUTION CALENDAR YEAR	118
18.18	LIFE EXPECTANCY	118
18.19	INDIVIDUAL’S ACCOUNT BALANCE	119
18.20	DUTIES OF THE TRUSTEE	119
18.21	DUTIES OF THE INDIVIDUAL	119
ARTICLE XIX		120
DEEMED ROTH INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS		120
RESERVED		120
ARTICLE XIX		121
DEEMED ROTH INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS		121
19.1	DEEMED ROTH IRA	121
19.3	AGE REQUIREMENTS	121
19.4	PLAN YEAR	121
19.5	TIMING OF CONTRIBUTIONS	121
19.6	ADJUSTED GROSS INCOME (AGI)	121
19.7	MODIFIED AGI	121
19.8	APPLICABLE DOLLAR AMOUNT	121
19.9	MAXIMUM PERMISSIBLE AMOUNT	121
19.10	ROTH IRA CONTRIBUTIONS	122
19.11	EXCESS CONTRIBUTION	123
19.12	QUALIFIED DISTRIBUTIONS	123
19.13	QUALIFIED SPECIAL PURPOSE DISTRIBUTION	123
19.14	NONQUALIFIED DISTRIBUTIONS	123
19.15	FORM OF PAYMENT	123
19.16	ROLLOVER FROM A QUALIFIED RETIREMENT PLAN	123
19.17	LIFE EXPECTANCY	123
19.18	DISTRIBUTIONS COMMENCING PRIOR TO DEATH	124
19.19	DISTRIBUTIONS AFTER DEATH	124
19.20	ORDERING RULES UPON DEATH OF INDIVIDUAL	124
19.21	MINIMUM PAYMENT	124
19.22	DUTIES OF TRUSTEE	124
19.23	DUTIES OF INDIVIDUAL	125

vii

PROTOTYPE DEFINED CONTRIBUTION PLAN

Sponsored By

Pentegra Retirement Services, Inc.

The Sponsor hereby establishes this Plan for use by its clients who wish to adopt a qualified retirement plan. This Plan shall be interpreted in a manner consistent with the intention of the adopting Employer that this Plan satisfies Internal Revenue Code Sections 401 and 501. Any Plan and Trust established hereunder shall be so established for the exclusive benefit of Plan Participants and their Beneficiaries and shall be administered under the following terms and conditions:

ARTICLE I

DEFINITIONS

1.1 Actual Contribution Percentage (ACP)

The average of the Contribution Percentage of the eligible Participants in a specific group of Participants (either Highly Compensated Employees or Non-Highly Compensated Employees) for a Plan Year. The Actual Contribution Percentage shall mean the ratio (expressed as a percentage and calculated separately for each Participant) of:

(a) the Participant’s Contribution Percentage Amounts [as defined at (c)-(f)] for a Plan Year, to

(b) the Participant’s Compensation for such Plan Year. [Unless otherwise specified in the Adoption Agreement, Compensation will only include amounts for the period during which the Employee was eligible to participate.]

Contribution Percentage Amounts on behalf of any Participant shall include:

(c) the amount of Voluntary After-tax Contributions, Required After-tax Contributions, Matching Contributions (except to the extent such Matching Contributions may be disregarded in accordance with IRS Notice 98-1), and Qualified Matching Contributions (to the extent not taken into account for purposes of the ADP test) made under the Plan on behalf of the Participant for the Plan Year,

(d) forfeitures of Excess Aggregate Contributions or Matching Contributions allocated to the Participant’s account which shall be taken into account in the year in which such forfeiture is allocated,

(e) at the election of the Employer, Qualified Non-Elective Contributions, and

(f) the Employer may elect to use Elective Deferrals or Roth Elective Deferrals in the Contribution Percentage Amounts as long as the ADP test is met before the Elective Deferrals or Roth Elective Deferrals are used in the ACP test and continues to be met following the exclusion of those Elective Deferrals or Roth Elective Deferrals that are used to meet the ACP test.

Contribution amounts shall not include Matching Contributions, whether or not Qualified, that are forfeited either to correct Excess Aggregate Contributions, or because the contributions to which they relate are Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions.

1.2 Actual Deferral Percentage (ADP)

For a specified group of Participants (either Highly Compensated Employees or Non-Highly Compensated Employees) for a Plan Year, the average of the ratios (calculated separately for each Participant in such group) of:

(a) the amount of Employer contributions [as defined at (c) – (d)] actually contributed to the Trust on behalf of such Participant for the Plan Year, to

(b) the Participant’s Compensation for such Plan Year. [Unless otherwise specified in the Adoption Agreement, Compensation will only include amounts received for the period during which the Employee was eligible to participate.]

Employer contributions on behalf of any Participant shall include:

(c) any Elective Deferrals or Roth Elective Deferrals (other than Catch-Up Contributions) made pursuant to the Participant’s Salary Deferral Agreement, including Excess Elective Deferrals or Roth Elective Deferrals of Highly Compensated Employees, but excluding Excess Elective Deferrals or Roth Elective Deferrals

1

distributed to Non-Highly Compensated Employees and Elective Deferrals or Roth Elective Deferrals that are either taken into account in the Actual Contribution Percentage test (provided the ADP test is satisfied both with and without exclusion of these Elective Deferrals) or are returned as excess Annual Additions, and

(d) at the election of the Employer, Qualified Non-Elective Contributions and Qualified Matching Contributions.

For purposes of computing Actual Deferral Percentages, an eligible Employee who fails to make Elective Deferrals shall be treated as a Participant on whose behalf no Elective Deferrals are made.

1.3 Adoption Agreement

The document attached to this Plan by which an Employer elects the terms and conditions of a Qualified Plan established under this Basic Plan Document #01. A Standardized Adoption Agreement used in conjunction with this Basic Plan Document #01 establishes a Plan that meets the requirements of Section 4.10 of Revenue Procedure 2005-16. A Nonstandardized Adoption Agreement used in conjunction with this Basic Plan Document #01 establishes a Plan that does not meet the definition of a Standardized Plan.

1.4 Aggregate Limit

For Plan Years beginning before 2002 only, the sum of:

(a) 125% of the greater of the Average Deferral Percentage of the Non-Highly Compensated Employees for the Prior Plan Year or the Average Contribution Percentage of Non-Highly Compensated Employees under the Plan subject to Code Section 401(m) for the Plan Year beginning with or within the Prior Plan Year, and

(b) the lesser of 200% or two percent plus the lesser of such ADP or ACP.

Alternatively, the Aggregate Limit can be determined by substituting “the lesser of 200% or two percent plus” for “125% of” in (a) above, and substituting “125% of” for “the lesser of 200% or two percent plus” in (b) above if it would result in a larger Aggregate Limit.

If the Employer has elected in the Adoption Agreement to use the Current Year Testing Method, then, in calculating the Aggregate Limit for a particular Plan Year, the Non-Highly Compensated Employees’ ADP and ACP for that Plan Year, instead of the prior Plan Year, is used.

1.5 Allocation Date(s)

The date or dates on which Participant recordkeeping accounts are adjusted to reflect account activity including but not limited to contributions, loan distributions, Hardship withdrawals, as well as earnings activity including but not limited to income, capital gains or market fluctuations in accordance with Article V hereof. Unless the Plan Administrator in a uniform and nondiscriminatory manner designates otherwise, all allocations for a particular Plan Year will be made as of the Valuation Date of that Plan Year.

1.6 Annual Additions

The sum of the following amounts credited to a Participant’s account for the Limitation Year:

(a) Employer contributions (under Article III),

(b) Employee contributions (under Article IV),

(c) forfeitures,

(d) Employer allocations under a Simplified Employee Pension Plan,

(e) amounts allocated after March 31, 1984, to an individual medical account as defined in Code Section 415(l)(2), which is part of a pension or annuity plan maintained by the Employer (these amounts are treated as Annual Additions to a Defined Contribution Plan though they arise under a Defined Benefit Plan), and

(f) amounts derived from contributions paid or accrued after 1985, in taxable years ending after 1985, which are either attributable to post-retirement medical benefits allocated to the separate account of a Key Employee or to a Welfare Benefit Fund [as defined in Code Section 419(e)] maintained by the Employer. For purposes of this paragraph, an Employee is a Key Employee if he or she meets the requirements of paragraph 1.59 at any time during the Plan Year or any preceding Plan Year.

2

For purposes of applying the limitations of Code Section 415, the transfer of funds from one Qualified Plan to another is not considered an Annual Addition. The following are not Employee contributions for the purposes of Annual Additions:

Rollover Contributions [as defined in Code Sections 402(e)(6), 403(a)(4), 403(b)(8) and 408(d)(3)];

(h) repayments of loans made to a Participant from the Plan;

(i) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs);

repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and

Employee contributions to a Simplified Employee Pension Plan excludible from gross income under Code Section 408(k)(6).

Employee and Employer make-up contributions under USERRA received during the current Limitation Year shall be treated as Annual Additions with respect to the Limitation Year to which the make-up contributions are attributable. Excess Amounts applied in a Limitation Year to reduce Employer contributions will be considered Annual Additions for such Limitation Year, pursuant to the provisions of Article X.

1.7 Annuity Starting Date

The first day of the first period for which an amount is paid as an annuity or in the case of a benefit not payable as an annuity, the first day all events have occurred which entitle the Participant to such benefit.

1.8 Applicable Calendar Year

The First Distribution Calendar Year and each such succeeding calendar year. If payments commence in accordance with paragraph 7.6 before the Required Beginning Date, the Applicable Calendar Year is the year such payments commence. If distribution is in the form of an immediate annuity purchased after the Participant’s death with the Participant’s remaining interest, the Applicable Calendar Year is the year of purchase.

1.9 Applicable Life Expectancy

The life expectancy or joint and last survivor expectancy calculated using the attained age of the Participant or Beneficiary as of the Participant’s or Beneficiary’s birthday in the Applicable Calendar Year, reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated.

1.10 Average Annual Compensation

Compensation as defined in paragraph 1.17, as elected in Section II(A) of either the Standardized and Nonstandardized Target Benefit Adoption Agreement. If the Participant has fewer than three (3) years of participation in the Plan, Compensation is averaged over the Participant’s total period of participation.

1.11 Average Contribution Percentage (ACP)

The average of the Actual Contribution Percentages for the eligible Participants in a specified group of Participants for a Plan Year.

1.12 Average Deferral Percentage (ADP)

The average of the Actual Deferral Percentages for Participants in a specified group of Participants for a Plan Year.

1.13 Beneficiary

A “Beneficiary” is the recipient designated by the Participant to receive the Plan benefits payable upon the death of the Participant, or the recipient designated by a Beneficiary to receive any benefits which may be payable in the event of the Beneficiary’s death prior to receiving the entire death benefit to which the Beneficiary is entitled. A “Designated Beneficiary” is any individual designated or determined in accordance with Code Section 401(a)(9) and the Regulations issued thereunder, except that it shall not include any person who becomes a beneficiary by virtue of the laws of inheritance or intestate succession.

1.14 Break In Service

If the Hours of Service method is used in determining either an Employee’s initial or continuing eligibility to participate in the Plan, or the nonforfeitable interest in the Employee’s account balance derived from Employer contributions, a Break in Service is a twelve (12) consecutive month period (during which the Employee has not completed more than five hundred (500) Hours of Service.

For purposes of determining whether a Break in Service has occurred in a particular computation period, an Employee who is absent from work for maternity or paternity reasons shall receive credit for Hours of Service which would otherwise have been credited to such Employee but for such absence, or in any case in which such hours cannot be determined, with eight (8) Hours of Service per day of such absence. The Hours of Service to be so credited shall be credited in the computation period in which the absence begins if the crediting is necessary to prevent a Break in Service in that period or, in all other cases, in the following computation periods.

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(c) With respect to determinations based on the Elapsed Time method, a Break in Service is a severance period of twelve (12) or more consecutive months. In the case of an Employee who is absent from work for maternity or paternity reasons, the twelve (12) consecutive month period beginning on the first anniversary of the first day of such absence shall not constitute a Break in Service.

(d) Notwithstanding the foregoing, in the case of an Employee who is absent from work beyond the first anniversary of the first day of absence from work for maternity or paternity reasons, such period begins on the second anniversary of the first day of such absence. The period between the first and second anniversaries of said first day of absence from work is neither a Period of Service for which the Employee will receive credit nor is such period a Break in Service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the Employee, (2) by reason of the birth of a child of the Employee, (3) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement.

(e) An Employer adopting the Elapsed Time method is required to credit periods of Service and, under the Service spanning rules, certain periods of severance of twelve (12) months or less. Under the first Service spanning rule, if an Employee severs from Service as a result of resignation, discharge or retirement and then returns to Service within twelve (12) months, the Period of Severance is required to be taken into account. A situation may arise in which an Employee is absent from Service for any reason other than resignation, discharge, retirement and during the absence a resignation, discharge or retirement occurs. The second Service spanning rule provides that, under such circumstances, the Plan is required to take into account the period of time between the severance from Service date (i.e., the date of resignation, discharge or retirement) and the first anniversary of the date on which the Employee was first absent, if the Employee returns to Service on or before such first anniversary date.

1.15 Catch-Up Contributions

Catch-Up Contributions are Elective Deferrals made to the Plan that are in excess of any otherwise applicable Plan limit that are made by Participants who are age fifty (50) or older (by the end of their tax year). An otherwise applicable Plan limit is a limit in the Plan that applies to Elective Deferrals or Roth Elective Deferrals without regard to Catch-Up Contributions, such as the limit on Annual Additions, the dollar limitation on Elective Deferrals or Roth Elective Deferrals under Code Section 402(g) (not counting Catch-Up Contributions) and the limit imposed by the Actual Deferral Percentage (ADP) Test under Code Section 401(k)(3). Catch-Up Contributions for a Participant for a taxable year may not exceed the dollar limit on Catch-Up Contributions under Code Section 414(v)(2)(B)(i) for the taxable year or when added to other Elective Deferrals or Roth Elective Deferrals, 75% of the Participant’s Compensation for the taxable year. The dollar limit on Catch-Up Contributions under Code Section 414(v)(2)(B)(i) is $1,000 for taxable years beginning in 2002, increasing by $1,000 for each year thereafter up to $5,000 for taxable years beginning in 2006 and later. Different limits apply to Catch-Up Contributions under SIMPLE 401(k) Plans. For taxable years beginning in 2002, the limit is $500, and increases each year thereafter in $500 increments until it reaches $2,500 in 2006. After 2006, the $5,000 limit and $2,500 limit respectively, will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code Section 414(v)(2)(C) in multiples of $500.

Catch-Up Contributions are not subject to the limit on Annual Additions, are not counted in the ADP Test and are not counted in determining the minimum allocation under Code Section 416 (but Catch-Up Contributions made in prior years are counted in determining whether the Plan is Top-Heavy). Provisions in the Plan relating to Catch-Up Contributions apply to Elective Deferrals or Roth Elective Deferrals made after 2001.

1.16 Code

The Internal Revenue Code of 1986, including any amendments thereto. Reference to any section or subsection of the Code, includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection, and also includes reference to any Regulation issued pursuant to or with respect to such section or subsection.

1.17 Compensation

The Employer may select one of the following three safe harbor definitions of Compensation in the Adoption Agreement. The definition of Compensation for Employers who adopt a plan established under a Standardized Adoption Agreement, plans that provide permitted disparity (other than the CODA portion of these plans), Target Benefit Plans, and for Employers determining top-heavy minimum contributions, must be one of the three safe harbor definitions of Compensation. In a Nonstandardized Adoption Agreement, the Employer may modify the definition of Compensation provided that such definition, as modified, satisfies the provisions of Code Sections 414(s) and 401(a)(4). Compensation will also include Compensation provided by the Employer through another employer or entity under the provisions of Code Sections 3121 and 3306.

(a) Code Section 3401(a) Wages – All remuneration received by an Employee for services performed for the Employer which are subject to Federal income tax withholding at the source. Unless elected otherwise in the Adoption Agreement, Compensation shall include any amount deferred under a Salary Deferral Agreement which is not includible in the gross income of a Participant under Code Section 125 in connection with a cafeteria plan, Code

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Section 402(e)(3) in connection with a cash or deferred plan, Code Section 402(h)(1)(B) in connection with a Simplified Employee Pension Plan, Code Section 401(k) in connection with a SIMPLE Retirement Account, Code Section 457 in connection with a Plan maintained under said Section, and Code Section 403(b) in connection with a tax-sheltered annuity plan. Wages are determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed [such as the exception for agricultural labor in Code Section 3401(a)(2)]. For Limitation Years beginning after December 31, 1997, for purposes of applying the limitations of this paragraph, Compensation paid or made available during such Limitation Year shall include any Elective Deferral [as defined in Code Section 402(g)(3)] or Roth Elective Deferrals, and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee by reason of Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1), 403(b), or 457.

(b) Code Sections 6041, 6051 And 6052 Reportable Wages – All remuneration received by an Employee for services performed for the Employer that is required to be reported on Form W-2. Unless otherwise elected in the Adoption Agreement, Compensation shall include any amount deferred under a Salary Deferral Agreement which is not includible in the gross income of a Participant under Code Section 125 in connection with a cafeteria plan, Code Section 402(e)(3) in connection with a cash or deferred plan, Code Section 402(h)(1)(B) in connection with a Simplified Employee Pension Plan, and Code Section 403(b) in connection with a tax-sheltered annuity plan. A Participant’s wages include remuneration defined at subparagraph (a) above and all other remuneration paid to an Employee by the Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Such amount must be determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed [such as the exception for agricultural labor in Code Section 3401(a)(2)]. For Limitation Years beginning after December 31, 1997, for purposes of applying the limitations of this paragraph, Compensation paid or made available during such Limitation Year shall include any Elective Deferral [as defined in Code Section 402(g)(3)] or Roth Elective Deferrals, and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee by reason of Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1), 403(b), or 457.

(c) Code Section 415 Compensation – A Participant’s Earned Income, wages, salaries, and fees for professional services and other amounts received, without regard to whether or not an amount is paid in cash, for personal services actually rendered in the course of employment with the Employer maintaining the Plan. Compensation includes, but is not limited to, commissions paid salesmen, Compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits and reimbursements or other expense allowances under a non-accountable plan [as described in Regulation Section 1.62-2(c)]. Compensation excludes the following:

(1) Employer contributions made under the terms of a Salary Deferral Agreement between an Employee and the Employer to a plan of deferred compensation which are not includible in the Employee’s gross income for the taxable year in which contributed. Such contributions shall include any amount deferred under Code Section 125 in connection with a cafeteria plan, Code Section 402(e)(3) in connection with a cash or deferred plan [Elective Deferrals as defined in Code Section 402(g) or Roth Elective Deferrals], Code Section 402(h)(1)(B) in connection with a Simplified Employee Pension Plan, Code Section 402(k) in connection with a SIMPLE Retirement Account, Code Section 132(f)(4) amounts (which prior to January 1, 1998 had been excluded), Code Section 457 in connection with a Plan maintained under said Section, and Code Section 403(b) in connection with a tax-sheltered annuity plan,

(2) to a Plan of deferred Compensation which are not includible in the Employee’s gross income for the taxable year in which contributed, or Employer contributions under a Simplified Employee Pension Plan, or any distributions from a Plan of deferred Compensation,

(3) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture,

(4) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option,

(5) other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Code Section 403(b) (whether or not the contributions are actually excludable from the gross income of the Employee), and

(6) amounts paid after severance from employment [as defined in Code Section 401(k)] generally would not be treated as Code Section 415(c)(3) unless payment is made within 2 ¹/2 months following the Participant’s severance and is payment that would otherwise have been made while the Participant was employed such as regular, overtime, shift differential pay, commissions, bonuses and other similar Compensation, and payments for accrued bona fide sick pay, vacation, or other leave (but only if the Participant would have been able to

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use the leave if employment had continued). This provision is applicable no earlier than the 2005 Limitation Year. If elected by the Employer on the Adoption Agreement, post-severance compensation may be excluded from the definition of Compensation.

Unless otherwise specified by the Employer in the Adoption Agreement, Compensation shall be determined as provided in Code Section 3401(a) [paragraph (a) above]. Notwithstanding the foregoing, the Compensation of a Participant who is a sole proprietor, partner or a member of a limited liability corporation (LLC) shall be determined under Code Section 415. The definition of Compensation used in nondiscrimination testing (ADP/ACP Testing) will be elected by the Employer in the Adoption Agreement. Unless indicated otherwise in the Adoption Agreement, Code Section 3401(a) Compensation paid during a Plan Year while a Participant will be used in the ADP/ACP Tests. Notwithstanding any other provision to the contrary, if the Plan is an amendment and restatement of a Qualified Plan, for Plan Years ending prior to the Plan Year in which the amendment or restatement is adopted, Compensation shall have the meaning set forth in the Qualified Plan prior to its amendment.

Exclusions From Compensation A Participant’s Compensation shall be determined in accordance with paragraph (a), (b) or (c) above and shall not exclude any item of income unless provided in the definition or elected by the Employer in the Adoption Agreement.

Annual Additions And Top-Heavy Rules For purposes of Article X and XIV, Compensation shall be Code Section 415 Compensation as described in paragraph 1.17(c). Compensation includes amounts deferred under a plan of deferred compensation as described at paragraph 1.17(c)(1). For purposes of applying the limitations of Article X, Compensation for a Limitation Year is the Compensation actually paid or made available during such Limitation Year. For Limitation Years beginning after December 31, 1997, for purposes of applying the limitations of this paragraph, Compensation paid or made available during such Limitation Year shall include any Elective Deferral [as defined in Code Section 402(g)(3)] or Roth Elective Deferrals, and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee by reason of Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457.

If the Plan is or becomes Top-Heavy in any Plan Year beginning after December 31, 1983, the provisions of Article XIV will supersede any conflicting provisions in the Basic Plan Document #01 or Adoption Agreement. Earned Income means net earnings from self-employment in the trade or business with respect to which the Plan is established for which personal services of the individual are a material income-producing factor. Net earnings will be determined without regard to items not included in gross income and the deductions allocable to such items. Net earnings are reduced by contributions by the Employer to a Qualified Plan to the extent deductible under Code Section 404.

Net earnings shall be determined with regard to the deduction allowed to the taxpayer by Code Section 164(f) for taxable years beginning after December 31, 1989.

Contributions Made On Behalf Of Disabled Participants Compensation with respect to a Participant in a Defined Contribution Plan who is permanently and totally disabled [as defined in Code Section 22(e)(3)] is the Compensation such Participant would have received for the Limitation Year if the Participant had been paid at the rate of Compensation paid immediately before becoming permanently and totally disabled; for Limitation Years beginning before January 1, 1997, but not for Limitation Years beginning after December 31, 1996, such imputed Compensation for the disabled Participant may be taken into account only if the Participant is not a Highly Compensated Employee (defined at paragraph 1.56) and contributions made on behalf of such Participant are nonforfeitable when made. Compensation will mean Compensation as that term is defined in this paragraph.

Highly Compensated And Key Employees For purposes of paragraphs 1.56 and 1.59, Compensation shall be Code Section 415 Compensation as described in paragraph 1.17(c). Such definition shall include any amount deferred under Code Section 125 in connection with a cafeteria plan, Code Section 132(f)(4) or Code Section 402(e)(3) in connection with a cash or deferred plan, Code Section 402(h)(1)(B) in connection with a Simplified Employee Pension Plan, Code Section 402(k) in connection with a SIMPLE Retirement Account (SIMPLE), Code Section 457 in connection with a Plan maintained under said Section, and Code Section 403(b) in connection with a tax-sheltered annuity plan. The Employer, if elected in the Adoption Agreement, may limit Compensation considered for purposes of the Plan for these Participants.

Computation Period The Plan Year, while eligible to participate, shall be the computation period for purposes of determining a Participant’s Compensation, unless the Employer selects a different computation period in the Adoption Agreement.

Limitation On Compensation The annual Compensation of each Participant which may be taken into account for determining all benefits provided under the Plan for any year, shall not exceed the limitation as imposed by Code Section 401(a)(17), as adjusted under Code Section 401(a)(17)(B). If a Plan has a Plan Year that contains fewer than twelve (12) calendar months, the annual Compensation limit for that period is an amount equal to the limitation as imposed by Code Section 401(a)(17) as adjusted for the calendar year in which the Compensation period begins, multiplied by a fraction, the numerator of which is the number of full months in the short Plan Year and the denominator of which is twelve (12).

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For Plan Years beginning on or after January 1, 1994, and before January 1, 2002, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any Plan Year shall not exceed $150,000, as adjusted for increases in the cost-of-living in accordance with Code Section 401(a)(17)(B) of the Internal Revenue Code, the cost-of-living adjustment in effect for a calendar year applies to any determination period beginning in such calendar year.

The annual Compensation of each Participant taken into account in determining allocations for any Plan Year beginning after December 31, 2001, shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with Code Section 401(a)(17)(B). Annual Compensation means Compensation during the Plan Year or such other consecutive twelve (12) month period over which Compensation is otherwise determined under the Plan (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual Compensation for the determination period that begins with or within such calendar year.

USERRA For purposes of Employee and Employer make-up contributions, Compensation during the period of military service shall be deemed to be the Compensation the Employee would have received during such period if the Employee were not in qualified military service, based on the rate of pay the Employee would have received from the Employer but for the absence due to military leave. If the Compensation the Employee would have received during the leave is not reasonably certain, Compensation will be equal to the Employee’s average Compensation from the Employer during the twelve (12) month period immediately preceding the military leave or, if shorter, the Employee’s actual period of employment with the Employer.

Definition of Compensation For Purposes Of Safe Harbor CODA Provisions Compensation for the purposes of a Safe Harbor CODA is defined in this paragraph 1.17. No dollar limit other than the limit imposed by Code Section 401(a)(17) applies to the Compensation of a Non-Highly Compensated Employee. For purposes of determining the Compensation subject to a Participant’s salary deferral election, the Employer may use an alternative definition to the one described above provided such alternative definition is a reasonable definition of Compensation within the meaning of Section 1.414(s)-1(d)(2) of the Regulations and permits each Participant to contribute sufficient Elective Deferrals or Roth Elective Deferrals to receive the maximum amount of Matching Contributions (determined using the definition of Compensation described above) available to the Participant under the Plan.

Definition Of Compensation For Purposes Of 401(k) SIMPLE Provisions For purposes of paragraphs 1.38, 3.3, and 4.8, Compensation is the sum of the wages, tips and other compensation from the Employer subject to Federal income tax withholding [as described in Code Section 6051(a)(3)] and the Employee’s salary reduction contributions made under Code Section 125 in connection with a cafeteria plan, Code Section 402(e)(3) in connection with a cash or deferred plan, Code Section 402(h)(1)(B) in connection with a Simplified Employee Pension Plan, Code Section 402(k) in connection with a SIMPLE Retirement Account, Code Section 457 in connection with a plan maintained under said Section and Code Section 403(b) in connection with a tax-sheltered annuity plan, required to be reported by the Employer on Form W-2 [as described in Code Section 6051(a)(8)]. For self-employed individuals, Compensation means net earnings from self-employment determined under Code Section 1402(a) prior to subtracting any contributions made to this Plan on behalf of any Employee. The provisions of the Plan implementing the limit on Compensation under Code Section 401(a)(17) apply to the Compensation under paragraph 4.8.

Code Section 125 Arrangements If elected in the Adoption Agreement amounts under Code Section 125 include any amounts not available to a Participant in cash in lieu of group health coverage because the Participant is unable to certify that he or she has other health coverage (deemed Code Section 125 Compensation). An amount will be treated as an amount under Code Section 125 only if the Employer does not request or collect information regarding the Participant’s other health coverage as part of the enrollment process for the health plan. The use of this definition of Compensation will generally also apply to the definition of Compensation for purposes of Code Section 414(s) unless the Plan otherwise specifically excludes all amounts described in Code Section 414(s)(2).

If no election is made on the Adoption Agreement the Plan will exclude deemed Code Section 125 Compensation for purposes of the definition of Compensation.

1.18 Custodian

The institution or institutions (who may be the Sponsor or an affiliate) and any successors or assigns thereto, named in the Adoption Agreement, to hold the assets of the Plan as provided at paragraph 13.1 herein.

1.19 Davis-Bacon Act

The Davis-Bacon Act found at 40 U.S.C. Section 276(a) et seq., as may be amended from time to time.

1.20 Days of Service

A method of crediting Service with the Employer whereby an Employee receives credit for a Day of Service for any calendar day in which he or she provides Service to the Employer.

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1.21 Defined Benefit Plan

A plan under which a Participant’s benefit is determined by a formula contained in the plan and no Employee accounts are maintained for Participants.

1.22 Defined Benefit (Plan) Fraction

For Limitation Years beginning before January 1, 2000, a fraction, the numerator of which is the sum of the Participant’s Projected Annual Benefits under all the Defined Benefit Plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of 125% of the dollar limitation determined for the Limitation Year under Code Sections 415(b) and (d) or 140% of the Highest Average Compensation, including any adjustments under Code Section 415(b).

Transitional Rule If an Employee was a Participant as of the first day of the first Limitation Year beginning after 1986, in one or more Defined Benefit Plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125% of the sum of the annual benefits under such Plans which the Participant had accrued as of the close of the last Limitation Year beginning before 1987, disregarding any changes in the terms and conditions of the Plan after May 5, 1986. The preceding sentence applies only if the Defined Benefit Plans individually and in the aggregate satisfied the requirements of Code Section 415 for all Limitation Years beginning before 1987.

1.23 Defined Contribution Dollar Limitation

This limit is forty thousand dollars ($40,000) as adjusted by the Secretary of the Treasury for increases in the cost-of-living. This limitation shall be adjusted by the Secretary at the same time and in the same manner as under Code Section 415(d). Such increases will be in multiples of one thousand dollars ($1,000).

1.24 Defined Contribution Plan

A plan under which Employee accounts are maintained for each Participant to which all contributions, forfeitures, investment income and gains or losses, and expenses are credited or deducted. A Participant’s benefit under such plan is based solely on the fair market value of his or her account balance.

1.25 Defined Contribution (Plan) Fraction

For Limitation Years beginning before January 1, 2000, a fraction, the numerator of which is the sum of the Annual Additions to the Participant’s account under all the Defined Contribution Plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years (including the Annual Additions attributable to the Participant’s nondeductible Employee contributions to all Defined Benefit Plans, whether or not terminated, maintained by the Employer, and the Annual Additions attributable to all Welfare Benefit Funds as defined in paragraph 1.121, individual medical accounts as defined in Code Section 415(l)(2) and Simplified Employee Pension Plans as defined in paragraph 1.105, maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior Limitation Years of Service with the Employer (regardless of whether a Defined Contribution Plan was maintained by the Employer). The maximum aggregate amount in the Limitation Year is the lesser of 125% of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35% of the Participant’s Compensation for such year.

Transitional Rule If an Employee was a Participant as of the end of the first day of the first Limitation Year beginning after 1986, in one or more Defined Contribution Plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of the excess of the sum of the fractions over 1.0 multiplied by the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before 1987, and disregarding any changes in the terms and conditions of the Plan made after May 6, 1986, but using the Code Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. The Annual Addition for any Limitation Year beginning before 1987, shall not be re-computed to treat all Employee contributions as Annual Additions.

1.26 Designated Beneficiary

The individual who is designated as the Beneficiary under paragraph 1.13 and who is the Designated Beneficiary under Code Section 401(a)(9) and Section 1.401(a)(9)-1 of the Treasury Regulations.

1.27 Direct Rollover

A payment made by the Plan to an Eligible Retirement Plan that is specified by the distributee or a payment received by the Plan from an Eligible Retirement Plan on behalf of a Participant or an Employee, if selected in the Adoption Agreement by the Employer. A Direct Rollover from a Roth Elective Deferral account under a qualified cash or deferred arrangement may only be made to another designated Roth account under an applicable retirement plan described in Code Section 402A(e)(1) or to a Roth IRA described in Code Section 408A, and only to the extent the rollover is permitted under the rules of Code Section 402(c). Moreover, a Plan is permitted to treat the balance of the Participant’s designated Roth account and the Participant’s other accounts under the Plan as accounts held under two separate Plans [within the meaning of Section 414(I)] for purposes of applying the special rule in A-11 of

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§1.401(a)(31)-1 [under which a Plan will satisfy Code Section 401(a)(31) even though the Plan Administrator does not permit any distributee to elect a Direct Rollover with respect to Eligible Rollover Distributions during a year that are reasonably expected to total less than $200].

1.28 Disability

Unless the Employer has elected a different definition in the Adoption Agreement, Disability is defined as an illness or injury of a potentially permanent nature, expected to last for a continuous period of not less than twelve (12) months or can be expected to result in death, as certified by a physician satisfactory to the Employer, which prevents the Participant from engaging in any occupation for wage or profit for which the Employee is reasonably fitted by training, education or experience. If elected by the Employer in the Adoption Agreement, nonforfeitable contributions will be made to the Plan on behalf of each disabled Participant who is not a Highly Compensated Employee (as defined at paragraph 1.56). Compensation for purposes of calculating the contribution will mean Compensation as defined at paragraph 1.17 herein.

1.29 Distribution Calendar Year (Valuation Calendar Year)

A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the First Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant’s Required Beginning Date. For distributions beginning after the Participant’s death, the First Distribution Calendar Year is the calendar year in which distributions are required to begin under paragraph 7.6. The required minimum distribution for the Participant’s First Distribution Calendar Year will be made on or before the Participant’s Required Beginning Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.

1.30 Early Retirement Age

The age set by the Employer in the Adoption Agreement, not less than age fifty-five (55), at which a Participant becomes fully vested and is eligible to retire and receive his or her benefits under the Plan.

1.31 Early Retirement Date

The date as selected in the Adoption Agreement on which a Participant or former Participant has satisfied the Early Retirement Age requirements. If no election is made on the Adoption Agreement, it shall mean the date on which a Participant attains his or her Early Retirement Age.

A former Participant who has separated from Service after satisfying any service requirement but before satisfying the Early Retirement Age and who thereafter reaches the age requirement elected on the Adoption Agreement shall be entitled to receive benefits under the Plan (other than full vesting and any allocation of Employer contributions) as though the requirements for Early Retirement Age had been satisfied.

1.32 Earned Income

Net earnings from self-employment in the trade or business with respect to which the Plan is established, determined without regard to items not included in gross income and the deductions allocable to such items, provided that personal services of the individual are a material income-producing factor. Earned Income shall be reduced by contributions made by an Employer to a Qualified Plan to the extent deductible under Code Section 404. Net earnings shall be determined taking into account the deduction for one-half of self-employment taxes allowed to the taxpayer under Code Section 164(f), to the extent deductible for taxable years beginning after December 31, 1989.

1.33 Effective Date

The date on which the Employer’s Plan or amendment to such Plan becomes effective. For amendments reflecting statutory and regulatory changes contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the Effective Date(s) of the applicable provisions of this legislation will be the earlier of the date upon which such amendment is first administratively applied or the first day of the Plan Year following the date of adoption of such amendment or adoption of the Prototype Plan.

The Effective Date for Elective Deferrals and Roth Elective Deferrals provisions is the date the provisions are actually adopted. In no event may the Effective Date for Roth Elective Deferrals be earlier than January 1, 2006.

1.34 Elapsed Time

For purposes of determining an Employee’s initial or continued eligibility to participate in the Plan or the nonforfeitable interest in the Participant’s account balance derived from Employer contributions, an Employee will receive credit for the aggregate of all time period(s) commencing with the Employee’s first day of employment or reemployment and ending on the date a Break in Service begins. The first day of employment or reemployment is the first day the Employee performs an Hour of Service. An Employee will also receive credit for any Period of Severance of less than twelve (12) consecutive months. Fractional periods of a year will be expressed in terms of days.

For purposes of this section, Hour of Service shall mean each hour for which an Employee is paid or entitled to payment for the performance of duties for the Employer.

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A Break in Service is a Period of Severance of at least twelve (12) consecutive months. A Period of Severance is a continuous period of time during which the Employee is not employed by the Employer. Such period begins on the date the Employee retires, quits or is discharged, or if earlier, the twelve (12) month anniversary of the date on which the Employee was otherwise first absent from service.

In the case of an individual who is absent from work for maternity or paternity reasons, the twelve (12) consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a Break in Service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence:

(a) by reason of the pregnancy of the individual,

(b) by reason of the birth of a child of the individual,

(c) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or

(d) for purposes of caring for such child for a period beginning immediately following such birth or placement.

Each Employee will share in Employer contributions for the period beginning on the date the Employee commences participation under the Plan and ending on the date on which such Employee severs employment with the Employer or is no longer a member of an eligible class of Employees.

If the Employer is a member of an affiliated service group [under Code Section 414(m)], a controlled group of corporations [under Code Section 414(b)], a group of trades or business under common control [under Code Section 414(c)] or any other entity required to be aggregated with the Employer pursuant to Code Section 414(o), Service will be credited for any period of employment with any other member of such group. Service will also be credited for any individual required under Code Section 414(n) or Code Section 414(o) to be considered an Employee of any Employer aggregated under Code Sections 414(b), (c) or (m).

1.35 Election Period

The period which begins on the first day of the Plan Year in which the Participant attains age thirty-five (35) and ends on the date of the Participant’s death. If a Participant separates from Service prior to the first day of the Plan Year in which age thirty-five (35) is attained, the Election Period shall begin on the date of separation, with respect to the account balance as of the date of separation.

1.36 Elective Deferrals

For taxable years beginning after 2005, the term “Elective Deferrals” includes pre-tax Elective Deferrals and Roth Elective Deferrals. Pre-tax Elective Deferrals are a Participant’s Elective Deferrals that are not includible in the Participant’s gross income at the time deferred. Elective Deferrals are Employer contributions in lieu of cash Compensation made to the Plan on behalf of the Participant pursuant to a Salary Deferral Agreement or other deferral mechanism. With respect to any taxable year, a Participant’s Elective Deferral is the sum of all Employer contributions made on behalf of such Participant pursuant to an election to defer under any qualified cash or deferred arrangement as described in Code Section 401(k), any Simplified Employee Pension Plan with a cash or deferred arrangement as described in Code Section 408(k)(6), any SIMPLE IRA Plan described in Code Section 408(p), any plan as described under Code Section 501(c)(18), and any Employer contributions made on behalf of a Participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a Salary Deferral Agreement. Elective Deferrals or Roth Elective Deferrals shall not include any deferrals properly distributed as Excess Annual Additions.

1.37 Eligible Employee

For purposes of the SIMPLE 401(k) Plan provisions, any Employee who is entitled to make Elective Deferrals under the terms of the SIMPLE 401(k) Plan.

1.38 Eligible Employer

For purposes of the SIMPLE 401(k) Plan provisions, an Eligible Employer means with respect to any Plan Year, an Employer who had no more than one hundred (100) Employees who received at least $5,000 of Compensation from the Employer for the preceding year. In applying the preceding sentence, all Employees of controlled groups of corporations under Code Section 414(b), all Employees of trades or businesses (whether incorporated or not) under common control under Code Section 414(c), all Employees of affiliated service groups under Code Section 414(m), and Leased Employees required to be treated as the Employer’s Employees under Code Section 414(n), are taken into account.

An Eligible Employer who elects to have the SIMPLE 401(k) Plan provisions apply to the Plan and fails to continue to qualify as an Eligible Employer for any subsequent year, is treated as an Eligible Employer for the two (2) years following the last year during which the employer was an Eligible Employer. If the failure is due to any acquisition, disposition, or similar transaction involving an Eligible Employer, the preceding sentence shall apply only if the provisions of Code Section 410(b)(6)(C)(i) are satisfied.

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1.39 Eligible Participant

Any Employee who is eligible to make a Voluntary or Required After-tax Contribution or an Elective Deferral or Roth Elective Deferral (if the Employer takes such contributions into account in the calculation of the Actual Contribution Percentage), or to receive a Matching Contribution (including forfeitures) or a Qualified Matching Contribution. If a Required After-tax Contribution is required as a condition of participation in the Plan, any Employee who would be a Participant in the Plan if such Employee made such a contribution shall be treated as an Eligible Participant even though no Employee contributions are made.

1.40 Eligible Retirement Plan

An Eligible Retirement Plan is an eligible Plan under Code Section 457(b) that is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such Plan from this Plan, an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b) an annuity plan described in Code Section 403(a), an annuity contract described in Code Section 403(b), or a Qualified Plan described in Code Section 401(a), which accepts the distributee’s Eligible Rollover Distribution. The definition of Eligible Retirement Plan shall also apply in the case of a distribution to a Surviving Spouse, or to a Spouse or former Spouse who is the alternate payee under a Qualified Domestic Relations Order, as defined in Code Section 414(p). If any portion of an Eligible Rollover Distribution is attributable to payments or distributions from a designated Roth account, an Eligible Retirement Plan with respect to such portion shall include only another designated Roth account of the individual from whose account the payments or distributions were made, or a Roth IRA of such individual.

1.41 Eligible Rollover Distribution

An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Participant except that an Eligible Rollover Distribution does not include:

(a) any distribution that is one of a series of substantially equal periodic payments made not less frequently than annually for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and the Participant’s Beneficiary, or for a specified period of ten (10) years or more,

(b) any distribution to the extent such distribution is required under Code Section 401(a)(9),

(c) any Hardship withdrawal distribution under Code Section 401(k)(2)(B)(i)(IV) received after December 31, 1998, (or if elected by the Employer in accordance with IRS Notice 99-5, received after December 31, 1999).

(d) the portion of any distribution that would not be includible in gross income if paid to the Participant (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities),

(e) any excess amounts that is returned to a Participant in accordance with paragraphs 10.3, 11.8, 11.9 and 11.10,

any other distribution(s) that is reasonably expected to total less than $200 during a year,

any corrective distributions of Excess Elective Deferrals or Roth Elective Deferrals under Code Section 402(g), and the income allocable thereto,

any corrective distributions of Excess Contributions and Excess Aggregate Contributions under Code Section 401(k) and Code Section 401(m), and the income allocable thereto,

any PS 58 costs, and

any dividends paid on securities under Code Section 404(k).

A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax Employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Code Section 408(a) or (b), or to a qualified defined contribution Plan described in Code Section 401(a) or 403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

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1.42 Employee

The term Employee means (a) any person reported on the payroll records of the Employer as an Employee who is deemed by the Employer to be a common law Employee; (b) except for determining eligibility to participate in this Plan, any person reported on the payroll records of an affiliated Employer of the Employer or a participating Employer as an Employee who is deemed by the affiliated Employer to be a common law Employee, even if the affiliated Employer is not a participating Employer; (c) any Self-Employed Individual who derives Earned Income from the Employer; (d) any Owner-Employee; and (e) any person who is considered a Leased Employee but who (1) is not covered by a Plan described in Code Section 414(n)(5), or (2) is covered by a Plan described in Code Section 414(n)(5), but Leased Employees constitute more than twenty percent (20%) of the Employer’s non-highly compensated work force. However, the term Employee will not include any individual who is not reported on the payroll records of the Employer or an affiliated Employer as a common law Employee. If such person is later determined by the Employer or by a court or governmental agency to be or to have been an Employee, he or she will only be eligible for participation prospectively and may participate in the Plan as of the next entry date following such determination and after the satisfaction of all other eligibility requirements.

The term Employee for these purposes, shall include all Employees of a member of an affiliated service group [as defined in Code Section 414(m)], all Employees of a controlled group of corporations [as defined in Code Section 414(b)], all Employees of any incorporated or unincorporated trade or business which is under common control [as defined in Code Section 414(c)], Leased Employees [as defined in Code Section 414(n)], and any Employee required to be aggregated by Code Section 414(o). All such Employees shall be treated as employed by a single Employer.

Leased Employees [as defined in Code Section 414(n) or 414(o)] shall be considered Employees in a Plan established under a Standardized Adoption Agreement except as otherwise provided in this paragraph. Exclusion under a Standardized Adoption Agreement is available only if Leased Employees do not constitute more than 20% of the recipient Employer’s non-highly compensated work force, and the Employer complies with the requirements as outlined in paragraph 2.7.

The term does not include any other common law employee or any Leased Employee. It is expressly intended that individuals not treated as common law employees by the Employer or a member of the same controlled group or affiliated service group on their payroll records, as identified by a specific job code or work status code, are to be excluded from Plan participation even if a court or administrative agency subsequently determines that such individuals are common law Employees and not independent contractors.

1.43 Employer

The Self-Employed Individual, partnership, corporation or other organization including any participating Employer, which adopts this Plan including any entity that succeeds the Employer and adopts this Plan. For purposes of Article X, Limitations on Allocations, Employer shall mean the Employer that adopts or sponsors this Plan, and all members of a controlled group of corporations [as defined in Code Section 414(b) as modified by Code Section 415(h)], all commonly controlled trades or businesses [as defined in Code Section 414(c) as modified by Code Section 415(h)] or affiliated service groups [as defined in Code Section 414(m)] of which the adopting Employer is a part, and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o).

In addition to such required treatment, the Plan Sponsor may, in its discretion, designate as an Employer any business entity which is not such a “common control,” “affiliated service group” or “predecessor” business entity which is otherwise affiliated with the Employer, subject to such nondiscriminatory limitations as the Employer may impose.

1.44 Entry Date

The date as of which an Employee who has satisfied the Plan’s eligibility requirements enters or reenters the Plan, as defined in the Adoption Agreement.

1.45 ERISA

The Employee Retirement Income Security Act of 1974, as amended and any successor statute thereto.

1.46 Excess Aggregate Contributions

The excess, with respect to any Plan Year, of:

(a) the aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over

(b) the maximum Contribution Percentage Amounts permitted by the ACP test (determined hypothetically by reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages).

(c) Such determination shall be made after first determining Excess Elective Deferrals or Roth Elective Deferrals pursuant to paragraph 1.49 and then determining Excess Contributions pursuant to paragraph 1.48.

1.47 Excess Annual Additions

The excess of the Participant’s Annual Additions for the Limitation Year over the Maximum Permissible Amount.

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1.48 Excess Contributions

With respect to any Plan Year, the excess of:

the aggregate amount of Employer contributions actually taken into account in computing the ADP of Highly Compensated Employees for such Plan Year, over

(b) the maximum amount of such contributions permitted by the ADP Test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in order of the ADPs, beginning with the highest of such percentages).

1.49 Excess Elective Deferrals

Those Elective Deferrals or Roth Elective Deferrals that are includible in a Participant’s gross income under Code Section 402(g) to the extent such Participant’s Elective Deferrals or Roth Elective Deferrals for a taxable year exceed the dollar limitation under Code Section 402(g) [including if applicable, the dollar limitation on such Catch-Up Contributions as defined in Code Section 414(v)] for such year or are made during a calendar year and exceed the dollar limitation under Code Section 402(g) including, if applicable, the dollar limitation on Catch-Up Contributions defined in Code Section 414(v) for the Participant’s taxable year beginning in such calendar year, counting only Elective Deferrals or Roth Elective Deferrals made under this Plan and any other Plan, contract or arrangement maintained by the Employer. Excess Elective Deferrals or Roth Elective Deferrals shall be treated as Annual Additions under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant’s taxable year. For taxable years beginning after December 31, 2005, unless the Participant specifies otherwise, distribution of Excess Elective Deferrals or Roth Elective Deferrals for a year shall be made first from the Participant’s pre-tax Elective Deferral account to the extent the pre-tax Elective Deferrals were made for the year. Pre-tax Elective Deferrals are elective contributions under a qualified cash or deferred arrangement that are not Roth Elective Deferrals.

1.50 Expected Year Of Service

An eligibility computation period during which an Employee is expected to complete a Year of Service (as defined in the Adoption Agreement) based upon their employment schedule or position. If an Employee who was not expected to complete a Year of Service actually completes the required number of Hours of Service during an applicable computation period, such Employee shall be deemed to have entered the plan as of the same date they would have had the Employee been originally classified as expected to complete a Year of Service. In the event an Employee becomes a Participant under such circumstances, the Employee shall be eligible for an allocation of all contributions that would have been made on the Employee’s behalf had the Employee had been properly classified. If an Employee who was originally classified not being expected to complete a Year of Service has a subsequent change in employment schedule or position such that the Employee would be considered as likely to complete a Year of Service, such Employee shall eligible to participate in the Plan as of the earlier of the completion of the Service requirement specified in the Adoption Agreement on the reclassified basis or the actual completion of a Year of Service as it is defined in the Adoption Agreement. The Employee shall then enter the Plan as a Participant as of the next Entry Date following satisfaction of the eligibility requirements specified above.

1.51 Fiduciary

Any individual or entity which exercises any discretionary authority or control over the management of the Plan or over the disposition of the assets of the Plan; renders investment advice for a fee or other compensation (direct, or indirect); has any discretionary authority or responsibility over Plan administration; or acts to carry out a Fiduciary responsibility, when designated by a named Fiduciary pursuant to authority granted by the Plan; subject, however, to any exception granted directly or indirectly by the provisions of ERISA or any applicable Regulations. The Sponsor is the “Named Fiduciary” for purposes of ERISA Section 402(a)(2).

1.52 First Distribution Calendar Year

For distributions beginning before the Participant’s death, the First Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant’s Required Beginning Date. For distributions beginning after the Participant’s death, the First Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to paragraph 7.6.

1.53 Former Participant

A Participant who is no longer actively accruing benefits under the Plan.

1.54 Hardship

An immediate and heavy financial need of the Employee where such Employee lacks other available financial resources to satisfy such financial need.

1.55 Highest Average Compensation

For Limitation Years beginning before January 1, 2000, the average Compensation for the three (3) consecutive Years of Service with the Employer that produces the highest average. A Year of Service with the Employer is the twelve (12) consecutive month period defined in the Adoption Agreement, or, if not indicated in the Adoption Agreement, as defined in paragraph 1.122.

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1.56 Highly Compensated Employee

Effective for years after December 31, 1996, the term Highly Compensated Employee means any Employee who: (1) is a 5% or more owner at any time during the year or preceding year, or (2) for the preceding year had Compensation from the Employer in excess of $80,000 and if the Employer so elects in the Adoption Agreement, is in the Top-Paid Group for the preceding year. The $80,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996.

For the determination of who is a Highly Compensated Employee, the applicable year of the Plan for which a determination is being made is called a determination year and the preceding twelve (12) month period is called a look-back year. Employees who do not meet the Highly Compensated Employee definition are considered Non-Highly Compensated Employees.

A Highly Compensated former Employee is based on the rules applicable to determining Highly Compensated Employee status in effect for that determination year, in accordance with Section 1.414(q)-1T, A-4 of the temporary Income Tax Regulations and IRS Notice 97-45.

In determining whether an Employee is a Highly Compensated Employee for years beginning in 1997, the amendments to Code Section 414(q) stated above are treated as having been in effect for years beginning in 1996. In order to be effective, a Top-Paid Group election or calendar year data election must apply consistently to all plans of the Employer that begin with or within the same calendar year.

1.57 Hour Of Service

(a) Unless otherwise specified in the Adoption Agreement, each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours shall be credited to the Employee for the computation period in which the duties are performed, and

(b) each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including Disability), layoff, jury duty, military duty or leave of absence. No more than five hundred and one (501) Hours of Service shall be credited under this paragraph for any single continuous period (whether or not such period need occur in a single computation period). Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference, and

(c) each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service shall not be credited both under paragraph (a) or paragraph (b), as the case may be, and under this paragraph (c). These hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made.

(d) Hours of Service shall be credited for employment with the Employer and with other members of an affiliated service group [as defined in Code Section 414(m)], a controlled group of corporations [as defined in Code Section 414(b)], or a group of trades or businesses under common control [as defined in Code Section 414(c)] of which the adopting Employer is a member, and any other entity required to be aggregated with the Employer pursuant to Code Section 414(o) and the Regulations thereunder. Hours of Service shall also be credited for any individual considered an Employee for purposes of this Plan under Code Section 414(n) or Code Section 414(o) and the Regulations thereunder.

(e) Solely for purposes of determining whether a Break in Service, as defined in paragraph 1.14, for participation and vesting purposes has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight (8) Hours of Service per day of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence by reason of the pregnancy of the individual, by reason of a birth of a child of the individual, by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this paragraph shall be credited in the computation period in which the absence begins if the crediting is necessary to prevent a Break in Service in that period, or in all other cases, in the following computation period. No more than five hundred and one (501) hours will be credited under this paragraph.

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(f) Notwithstanding paragraph (b), the Plan Administrator may elect for all Employees or for one or more different classifications of Employees (provided such classifications are reasonable and are consistently applied) to apply one or more of the following equivalency methods in determining the Hours of Service of an Employee paid on an hourly or salaried basis. Under such equivalency methods, an Employee will be credited with either (1) one hundred ninety (190) Hours of Service for each month in which he or she is paid or entitled to payment for at least one (1) Hour of Service; or (2) ninety five (95) Hours of Service for each semi-monthly period in which he or she is paid or entitled to payment for at least one (1) Hour of Service; or (3) forty-five (45) Hours of Service for each week in which he or she is paid or entitled to payment for at least one (1) Hour of Service; or (4) ten (10) Hours of Service for each day in which he or she is paid or entitled to payment for at least one (1) Hour of Service.

(g) Hours of Service shall be determined under the hours counting method as elected by the Employer in the Adoption Agreement. If no election is made, actual hours under the hours counting method will be used.

1.58 Integration Level

The amount of Compensation specified in the Adoption Agreement at or below which the rate of contributions or benefits (expressed in each case as a percentage of such Compensation) provided under the Plan is less than the rate of contributions or benefits (expressed in each case as a percentage of such Compensation) provided under the Plan with respect to Compensation above such level. The Adoption Agreement must specify an Integration Level in effect for the Plan Year. No Integration Level in effect for a particular Plan Year may exceed the contribution and benefit base (“Taxable Wage Base”) under Section 230 [Code Section 3121(a)(1)] of the Social Security Act in effect on the first day of the Plan Year.

1.59 Key Employee

For Plan Years beginning after December 31, 2001, Key Employee means any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the determination date was an officer of the Employer having annual Compensation greater than $130,000 [as adjusted under Code Section 416(i)(1) for Plan Years beginning after December 31, 2002], a five percent (5%) or more owner of the Employer, or a more than one percent (1%) owner of the Employer having annual Compensation of more than $150,000. In determining whether a Plan is Top-Heavy for Plan Years beginning before January 1, 2002, Key Employee means any Employee or former Employer (including any deceased Employee) who at the time during the five (5) year period ending on the determination date, is an officer of the Employer having an annual Compensation that exceeds fifty percent (50%) of the dollar limitation under Code Section 415(b)(1)(A), an owner (or considered an owner under Code Section 318) of one of the ten largest interests in the Employer if such Individual’s Compensation exceeds one-hundred percent (100%) of the dollar limitation under Code Section 415(c)(1)(A), a five percent (5%) or more owner of the Employer, or a more than one percent (1%) owner of the Employer who has an annual Compensation of more than $150,000. For this purpose, annual Compensation means Compensation within the meaning of Code Section 415(c)(3). The determination of who is a Key Employee will be made in accordance with Code Section 416(i)(1) and the applicable Regulations and other guidance of general applicability issued thereunder.

1.60 Leased Employee

Any person (other than an Employee of the recipient) within the meaning of Code Section 414(n)(2) and Section 414(o) who is not reported on the payroll records of the Employer as a common law Employee and who provides services to the Employer if (a) the services are provided under an agreement between the Employer and a leasing organization; (b) the person has performed services for the Employer or for the Employer and related persons as determined under Code Section 414(n)(6) on a substantially full time basis for a period of at least one year; and (c) the services are performed under the primary direction and control of the Employer. Contributions or benefits provided to a Leased Employee by the leasing organization attributable to services performed for the Employer will be treated as provided by the Employer.

A Leased Employee will not be considered an Employee of the recipient if he is covered by a money purchase plan providing (a) a non-integrated Employer contribution rate of at least ten percent (10%) of Code Section 415 Compensation, including amounts contributed by the Employer pursuant to a salary reduction agreement which are excludible from the Leased Employee’s gross income under a cafeteria plan covered by Code Section 125, a cash or deferred Plan under Code Section 401(k), a SEP under Code Section 408(k) or a tax-deferred annuity under Code Section 403(b) and also including for Plan Years beginning on or after January 1, 2001, any elective amounts that are not includible in the gross income of the Leased Employee because of Code Section 132(f)(4); (b) immediate participation; and (c) full and immediate vesting. This exclusion is only available if Leased Employees do not constitute more than twenty percent (20%) of the recipient’s non-highly compensated work force.

1.61 Life Expectancy

Life expectancy as computed by use of one of the following tables, as appropriate: (1) Single Life Table, (2) Uniform Life Table, or (3) Joint and Last Survivor Table found in Section 1.401(a)(9)-9 of the Regulations.

1.62 Limitation Year

The calendar year or such other twelve (12) consecutive month period designated by the Employer in the Adoption Agreement for purposes of determining the maximum Annual Additions to a Participant’s account. All Qualified Plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different twelve (12) consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. If no designation is made on the Adoption Agreement, the Limitation Year will automatically default to the Plan Year. The Limitation Year under the SIMPLE 401(k) Adoption Agreement shall be the calendar year.

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1.63 Master Or Prototype Plan

A plan, the form of which is the subject of a favorable opinion letter from the Internal Revenue Service.

1.64 Matching Contribution

An Employer contribution made to this or any other Defined Contribution Plan on behalf of a Participant on account of a Voluntary or Required After-tax Contribution made by such Participant, or on account of a Participant’s Elective Deferral, Roth Elective Deferral or Catch-Up Contribution made by such Participant under a Plan maintained by the Employer.

A Plan established under a Cash or Deferred Adoption Agreement may allocate Matching Contributions throughout the Plan Year, even though the amount of Matching Contributions is determined on the basis of the Plan Year. If the Plan is calculating Matching Contributions on a Plan Year basis, but Matching Contributions that are deposited during the Plan Year have been calculated on a payroll period, an additional “true-up” contribution may be required to accurately calculate the Matching Contributions as elected on the Adoption Agreement.

1.65 Maximum Permissible Amount

The maximum Annual Additions that may be contributed or allocated to a Participant’s account under the Plan for any Limitation Year shall not exceed the lesser of:

(a) the Defined Contribution Dollar Limitation, or

100% of the Participant’s Compensation for the Limitation Year.

The Compensation limitation referred to in (b) shall not apply to any contribution for medical benefits [within the meaning of Code Section 401(h) or Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under Code Sections 415(l)(1) or 419(d)(2). If a short Limitation Year is created because of an amendment changing the Limitation Year to a different twelve (12) consecutive month period, the Maximum Permissible Amount will not exceed the Defined Contribution Dollar Limitation multiplied by a fraction, the numerator of which is the number of months in the short Limitation Year and the denominator of which is twelve (12).

1.66 Named Investment Fiduciary

One or more Fiduciaries who have the authority to control and manage the operation, management and administration of the Plan as more fully described in Article XII. The Named Investment Fiduciaries shall be selected through a procedure outlined by the Plan Sponsor.

1.67 Net Profit

The current and accumulated operating earnings of the Employer after Federal and state income taxes, excluding nonrecurring or unusual items of income, and before contributions to this and any other Qualified Plan of the Employer, unless the Employer has elected a different definition in the Adoption Agreement. Unless elected otherwise in the Adoption Agreement, Employer contributions to the Plan are not conditioned on profits.

1.68 Normal Retirement Age

The age set by the Employer in the Adoption Agreement, not to exceed age sixty-five (65), or if later the number of years of participation elected in the Adoption Agreement, if any, at which a Participant becomes fully vested and is eligible to retire and receive his or her benefits under the Plan. If the Employer enforces a mandatory retirement age, the Normal Retirement Age is the lesser of that mandatory age or the age specified in the Adoption Agreement. If no selection is made, Normal Retirement Age will be defined as attainment of age sixty-five (65).

1.69 Normal Retirement Date

The date on which the Participant attains the Normal Retirement Age as elected in the Adoption Agreement. If no election is made on the Adoption Agreement, it shall mean the date on which a Participant attains his or her Normal Retirement Age.

1.70 Owner-Employee

A sole proprietor or a partner owning more than 10% of either the capital or profits interest of the partnership.

1.71 Participant

Any current Employee who met the applicable eligibility requirements and reached his or her Entry Date and, where the context so requires, pursuant to the terms of the Plan, any living former Employee on whose behalf an Account is maintained or former Employee who has met the eligibility requirements.

1.72 Participant’s Account Balance

The account balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (Valuation Calendar Year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account as of dates in the Valuation Calendar Year after the Valuation Date and

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decreased by distributions made in the Valuation Calendar Year after the Valuation Date. The account balance for the Valuation Calendar Year includes any amounts rolled over or transferred to the Plan either in the Valuation Calendar Year or in the Distribution Calendar Year if distributed or transferred in the Valuation Calendar Year.

1.73 Participant’s Benefit

With respect to required distributions pursuant to paragraph 7.8, the account balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year increased by the amount of any contributions or forfeitures allocated to the account balance as of the dates in the calendar year after the Valuation Date and decreased by distributions made in the calendar year after the Valuation Date. A special exception exists for the second Distribution Calendar Year. For purposes of this paragraph, if any portion of the minimum distribution for the First Distribution Calendar Year is made in the second Distribution Calendar Year on or before the Required Beginning Date, the amount of the minimum distribution made in the second Distribution Calendar Year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year.

1.74 Period Of Severance

For Plans using Elapsed Time for purposes of crediting a Year of Service for eligibility, accrual of benefits and/or vesting, Employees will receive credit for all periods of Service from their date of hire (or rehire) until the next Period of Severance.

When using Elapsed Time:

a Break in Service shall mean a Period of Severance of at least twelve (12) months;

a Period of Severance is a continuous period of time during which the Employee is not employed by the Employer;

a Period of Severance begins on the date the Employee retires, quits, or is discharged, or if earlier, the twelve (12) month anniversary of the date on which the Employee was otherwise first absent from Service.

1.75 Permissive Aggregation Group

The Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.

1.76 Plan

The Defined Contribution Plan of the Employer in the form of this Prototype Plan and the applicable Adoption Agreement executed by the Employer as may be amended from time to time (which includes any addendum thereto). The Plan shall have the name specified in the Adoption Agreement.

1.77 Plan Administrator

The Employer or individual(s) or entity(ies) appointed by the Employer to administer the Plan as provided at paragraph 12.1 herein.

1.78 Plan Sponsor

The Employer who adopts this Prototype Plan and accompanying Adoption Agreement.

1.79 Plan Year

The twelve (12) consecutive month period designated by the Employer in the Adoption Agreement. The Plan Year under the SIMPLE 401(k) Adoption Agreement shall be the calendar year.

1.80 Predecessor Organization

An employer that previously employed the employees acquired by the current Employer. The determination of whether a prior employer is a “predecessor organization” shall be determined in accordance with Code Section 414. The Employer may grant optional crediting of predecessor service pursuant to Code Section 414(a)(2) and the Regulations issued thereunder.

1.81 Present Value

The actuarial equivalent of a Participant’s accrued benefit under a Defined Benefit Plan maintained by the Employer expressed in the form of a lump sum. Actuarial equivalence shall be based on reasonable interest and mortality assumptions determined in accordance with the Top-Heavy provisions of the respective plan. Present Value is used for the purposes of the Top-Heavy test and the determination with respect thereto.

1.82 Prior Plan Year

The Plan Year immediately preceding the current Plan Year.

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1.83 Projected Annual Benefit

For Limitation Years beginning before January 1, 2000, the annual retirement benefit (adjusted to an actuarial equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or Qualified Joint and Survivor Annuity) to which the Participant would be entitled under the terms of a Defined Benefit Plan or Plans, assuming:

(a) the Participant will continue employment until Normal Retirement Age under the Plan (or current age, if later), and

(b) the Participant’s Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years.

1.84 Qualified Domestic Relations Order (QDRO)

A Qualified Domestic Relations Order (QDRO) is a signed domestic relations order issued by a state court or agency which creates, recognizes or assigns to an alternate payee(s) the right to receive all or part of a Participant’s Plan benefit and which meets the requirements of Code Section 414(p). An alternate payee is a Spouse, former Spouse, child, or other dependent who is treated as a Beneficiary under the Plan as a result of the QDRO. Unless elected otherwise by the Employer in the Adoption Agreement, the earliest date for payment of a QDRO to an alternate payee, is the date upon which the order is deemed qualified.

1.85 Qualified Early Retirement Age

For purposes of paragraph 8.9, Qualified Early Retirement Age is the latest of:

(a) the earliest date under the Plan on which the Participant may elect to receive retirement benefits, or

(b) the first day of the 120th month beginning before the Participant reaches Normal Retirement Age, or

(c) the date the Participant begins participation.

1.86 Qualified Joint And Survivor Annuity (QJSA)

An immediate annuity for the life of the Participant with a survivor annuity for the life of the Participant’s Spouse which is at least 50%, but not more than 100%, of the annuity payable during the joint lives of the Participant and the Participant’s Spouse. The exact amount of the survivor annuity is to be specified by the Employer in the Adoption Agreement. If no election is made on the Adoption Agreement, and the Plan is subject to the Qualified Joint and Survivor Annuity provisions, the survivor annuity will be 50% of the amount paid to the Participant during his or her lifetime. The Qualified Joint and Survivor Annuity will be the amount of benefit which can be provided by the Participant’s Vested Account Balance.

1.87 Qualified Matching Contributions (QMACs)

Matching Contributions that are nonforfeitable when made to the Plan and that are distributable only in accordance with the distribution provisions (other than for Hardships) applicable to Elective Deferrals and Roth Elective Deferrals. Qualified Matching Contributions (QMACs) must satisfy Regulations Section 1.401(k)-2(a)(6) if used for the ADP Test.

1.88 Qualified Non-Elective Contributions (QNECs)

Contributions (other than Matching Contributions or Qualified Matching Contributions) made by the Employer and allocated to Participants’ accounts that the Participants may not elect to receive in cash until distributed from the Plan, that are nonforfeitable when made, and that are distributable only in accordance with the distribution provisions (other than for Hardships) that are applicable to Elective Deferrals or Roth Elective Deferrals and Qualified Matching Contributions. If Qualified Non-Elective Contributions (QNECs) or Elective Deferrals or Roth Elective Deferrals are used for the ACP Test, they must satisfy Regulations Section 1.401(m)-2(a)(6).

1.89 Qualified Plan

Any pension, profit-sharing, stock bonus, or other plan which meets the requirements of Code Section 401(a) and includes a trust exempt from tax under Code Section 501(a) or any annuity plan described in Code Section 403(a).

Solely for the purposes of Rollover Contributions, for Plan Years beginning after December 31, 2001, the term “Qualified Plan” includes a governmental Code Section 457 Plan, and a Code Section 403(b) annuity or plan.

1.90 Qualified Pre-Retirement Survivor Annuity

An annuity for the life of the Surviving Spouse of a Participant the actuarial equivalent of which is not less than 50% of the Participant’s Vested Account Balance as of the date of the Participants’ death, as elected by Employer in the Adoption Agreement. If no selection is made on the Adoption Agreement, and the Plan is subject to the Qualified Joint and Survivor Annuity provisions, the Qualified Pre-Retirement Survivor Annuity shall be 50% of the Participant’s Vested Account Balance as of the date of the death of the Participant, unless the Employer in a prior version of the Adoption Agreement or Plan, had elected that the Qualified Pre-Retirement Survivor Annuity be 100% of the Account Balance.

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1.91 Qualified Voluntary Contribution

A tax-deductible Voluntary Employee Contribution which was permitted to be made for the tax years 1982 through 1986. This type of contribution is no longer permitted to be made by a Participant. This Plan shall accept such type of contribution if made in a prior plan and an appropriate recordkeeping account will be established on behalf of the Participant.

1.92 Required After-tax Contributions

Employee after-tax contributions required as a condition of participation in the Plan.

1.93 Required Aggregation Group

A group of plans including:

(a) each Qualified Plan of the Employer in which at least one (1) Key Employee participates or participated at any time during the determination period (regardless of whether the plan has terminated), and

(b) any other Qualified Plan of the Employer which enables a plan described in (a) to meet the requirements of Code Sections 401(a)(4) or 410.

1.94 Required Beginning Date

As elected in the Adoption Agreement, the Required Beginning Date will be defined in either subparagraph (a) or (b) below:

(a) The Required Beginning Date of a Participant is the April 1 of the calendar year following the calendar year in which the Participant attains age 70 ¹/2.

(b) The Required Beginning Date of a Participant is the April 1 of the calendar year following the calendar year in which the Participant attains age 70 ¹/2, except that benefit distributions to a Participant [other than a five percent (5%) or more owner] must commence by April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 ¹/2 or the calendar year in which the Participant retires.

(c) Any participant attaining age 70 ¹/2 in years after 1995 may elect by April 1 of the calendar year following the year in which the Participant attained age 70 ¹/2, to defer distributions until the April 1 of the calendar year following the calendar year in which the Participant retires. If no such election is made, the Participant will begin receiving distributions by the April 1 of the calendar year following the year in which the Participant attained age 70 ¹/2.

(d) A Participant is treated as a five percent (5%) or more owner for purposes of this section if such Participant is a five percent (5%) or more owner as defined in Code Section 416 at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 ¹/2. Once distributions have begun to a five percent (5%) or more owner under this section, they must continue to be distributed, even if the Participant ceases to be a five percent (5%) or more owner in a subsequent year.

1.95 Rollover Contribution

A Qualified Plan may accept a Rollover Contribution from any Eligible Retirement Plan described in Code Section 402(c)(8)(B). An Eligible Retirement Plan is:

(a) another Qualified Plan;

(b) an Individual Retirement Account or Annuity (IRA);

(c) a Code Section 403(b) plan;

(d) a governmental Code Section 457(b) plan.

If the distribution is from an IRA, it is eligible for rollover into a Qualified Plan, but only to the extent it would be includible in gross income if it were not rolled over.

The term Rollover Contribution means an amount transferred to this Plan in a Trustee to Trustee transfer from another Qualified Plan and transferred to this Plan within sixty (60) days of receipt thereof. Any amount that is transferred to this Plan from another qualified retirement plan which at the time of transfer was not subject to the Qualified Joint and Survivor Annuity and Qualified Pre-retirement Survivor Annuity requirements of Code Section 401(a)(11), or which is transferred to this Plan under subparagraph (b) above from a individual retirement account, will not at any time be subject to the spousal consent requirements as set forth in Article VIII.

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1.96 Roth Elective Deferrals

An Elective Deferral designated by a Participant as a Roth Elective Deferral that at the time the deferral is made that is includible in the Participant’s gross income and has been irrevocably designated as Roth Elective Deferrals by the Participant in his or her deferral election. A Participant’s Roth Elective Deferrals will be maintained in a separate account containing only the Participant’s Roth Elective Deferrals and gains and losses attributable to those Roth Elective Deferrals.

Roth Elective Deferrals shall be treated in the same manner as a pre-tax Elective Deferrals under the terms of the Plan. For purposes of interpreting the Plan, the term Elective Deferral shall mean both pre-tax Elective Deferrals and Roth Elective Deferrals except in cases where the context is clearly in violation of the requirements of this paragraph.

Roth Elective Deferrals are effective on the later of when the Plan is adopted or January 1, 2006.

1.97 Salary Deferral Agreement

An agreement between the Employer and an Employee where the Employee authorizes the Employer to withhold a specified percentage or dollar amount of his or her Compensation (otherwise payable in cash) for deposit to the Plan on behalf of such Employee.

1.98 Savings Incentive Match Plan For Employees (SIMPLE)

A plan adopted by an Eligible Employer under Code Section 401(k)(11) under which Eligible Employees are permitted to make Elective Deferrals to a Qualified Plan established by the completion of the SIMPLE 401(k) Plan Adoption Agreement. An Eligible Employer that elects to have the SIMPLE 401(k) provisions apply to the Plan and that fails to continue to qualify an Eligible Employer for any subsequent year, is treated as an Eligible Employer for the two (2) years following the last year during which the Employer was an Eligible Employer. If the failure is due to any acquisition, disposition, or similar transaction involving an Eligible Employer, the preceding sentence shall apply only if the provisions of Code Section 410(h)(6)(c)(i) are satisfied.

1.99 Self-Employed Individual

An individual who has Earned Income for the taxable year from the trade or business for which the Plan is established including an individual who would have had Earned Income but for the fact that the trade or business had no Net Profit for the taxable year.

1.100  Service

The period of current or prior employment with the Employer including any imputed period of employment which must be counted under USERRA. If the Employer maintains a plan of a predecessor employer, service for such predecessor shall be treated as Service for the Employer for the purpose(s) specified in the Adoption Agreement. Service is determined under an hours counting method or Elapsed Time method as selected by the Employer in the Adoption Agreement.

If the Employer has elected to use the Elapsed Time method to determine eligibility and/or vesting Service, the aggregate of the following (applied without duplication and except for periods of Service that may be disregarded under paragraph 9.6):

Each period from an Employee’s date of hire (or reemployment date) to his next Severance Date; and

If an Employee performs an Hour of Service within twelve (12) months of a Severance Date, the period from such Severance Date to such Hour of Service. Service shall be credited for all periods when the Employer or an Affiliated Employer employs the Employee.

Service shall be measured in whole years and fractions of a year in months. For this purpose, (a) periods of less than a full year shall be aggregated on the basis that twelve (12) months or three hundred and sixty five (365) days equals a year, and (b) in aggregating days into months, thirty (30) days shall be rounded up to the nearest whole month. For purposes of determining Service, “Date of Hire” means the date on which an Employee first completes an Hour of Service and “Reemployment Date” means the date on which an Employee first completes an Hour of Service after a Severance Date.

If the Employer is a member of an affiliated service group [under Code Section 414(m)], a controlled group of corporations [under Code Section 414(b)], a group of trades or businesses under common control [under Code Section 414(c)] or any other entity required to be aggregated with the Employer pursuant to Code Section 414(o), Service will be credited for any employment for any period of time for any other member of such group. Service will also be credited for any individual required under Code Section 414(n) or Code Section 414(o) to be considered an Employee of any Employer aggregated under Code Section 414(b), (c), or (m).

The timing of any Plan amendment that credits (or increases benefits attributable to) Years of Service for a period in the past is deemed not to have the effect of discriminating significantly in favor of Highly Compensated Employees or former Highly Compensated Employees if the period for which the service credit (or benefit increase) is granted under a standardized plan does not exceed the five (5) years immediately preceding the Plan Year in which the

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amendment first becomes effective. The service credit (or benefit increase) is granted on a reasonably uniform basis to all Employees, if benefits attributable to the period are determined by applying the current Plan formula, and the service credited is Service (including pre-participation or imputed Service) with the Employer or a previous employer that may be taken into account under Regulations Section 1.401(a)(4)-11(d)(3) [without regard to Regulations Section 1.401(a)(4)-11(d)(3)(i)(B)]. This safe harbor is not available if the Plan amendment granting the service credit (or increasing benefits) is part of a pattern of amendments that has the effect of discriminating significantly in favor of Highly Compensated Employees or former Highly Compensated Employees.

Service credit (or benefit increase) granted under a nonstandardized plan may exceed the five (5) years immediately preceding the Plan Year in which the amendment first becomes effective. Any credited Service shall be as elected on the Adoption Agreement.

1.101  Service Provider

An individual or business entity who is retained by the Plan Administrator on behalf of the Plan to provide specified administrative services to the Plan.

1.102  Severance Date

The date which is the earlier of:

the date on which an Employee quits, retires, is discharged or dies; or

the first anniversary of the first date of a period in which an Employee remains continuously absent from Service with an Employer or affiliate (with or without pay) for any reason other than quit, retirement, discharge or death.

1.103  Severance Period

Each period from an Employee’s Severance Date to his next re-employment date for purposes of USERRA.

1.104  Shareholder Employee

An Employee or officer who owns [or is considered as owning within the meaning of Code Section 318(a)(1)], on any day during the taxable year of an electing small business corporation (S Corporation), more than 5% of such corporation’s outstanding stock.

1.105  Simplified Employee Pension Plan

A plan under which the Employer makes contributions for eligible Employees pursuant to a written formula. Contributions are made to an individual retirement account which meets the requirements of Code Section 408(k).

1.106  Sponsor

The institution or entity and any of its affiliates or any successor or assigns thereto who makes this Prototype Plan available to adopting Employers.

1.107  Spouse (Surviving Spouse)

The individual to whom a Participant is married, or was married in the case of a deceased Participant who was married at the time of his or her death. A former Spouse will be treated in the same manner as a Spouse to the extent provided under a Qualified Domestic Relations Order as described in Code Section 414(p).

1.108  Super Top-Heavy Plan

A Plan described at paragraph 1.111 under which the Top-Heavy Ratio exceeds 90%.

1.109  Taxable Wage Base

For plans with an allocation formula which takes into account the Employer’s contribution under the Federal Insurance Contributions Act (FICA), the contribution and benefit base in effect under the Social Security Act (Section 203) at the beginning of the Plan Year.

1.110  Top-Heavy Determination Date

For the first Plan Year of the Plan, the last day of the first Plan Year. For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year.

1.111  Top-Heavy Plan

For any Plan Year, the Employer’s Plan is Top-Heavy if any of the following conditions exist:

(a) The Top-Heavy Ratio for the Employer’s Plan exceeds 60% and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans.

(b) The Employer’s Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60%.

(c) The Employer’s Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%.

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1.112  Top-Heavy Ratio

(a) If the Employer maintains one or more Defined Contribution Plans (including any Simplified Employee Pension Plan) and the Employer has not maintained any Defined Benefit Plan which during the five (5) year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for this Plan alone, or for the Required or Permissive Aggregation Group as appropriate, is a fraction,

(1) the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) [including any part of any account balance distributed in the one (1) year period ending on the Determination Date(s)], and

(2) the denominator of which is the sum of all account balances [including any part of any account balance distributed in the one (1) year period ending on the Determination Date(s)], both computed in accordance with Code Section 416 and the Regulations thereunder.

Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date but which is required to be taken into account on that date under Code Section 416 and the Regulations thereunder. In the case of a distribution made for a reason other than severance from employment, death or Disability, this provision shall be applied by substituting “five (5) year period” for “one (1) year period”.

(b) If the Employer maintains one or more Defined Contribution Plans (including any Simplified Employee Pension Plan) and the Employer maintains or has maintained one or more Defined Benefit Plans which during the five (5) year period ending on the Determination Date(s) has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of account balances under the aggregated Defined Contribution Plan or Plans for all Key Employees, determined in accordance with (a) above, and the Present Value of accrued benefits under the aggregated Defined Benefit Plan or Plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated Defined Contribution Plan or Plans for all Participants, determined in accordance with (a) above, and the Present Value of accrued benefits under the Defined Benefit Plan or Plans for all Participants as of the Determination Date(s), all determined in accordance with Code Section 416 and the Regulations thereunder. The accrued benefits under a Defined Benefit Plan in both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the five (5) year period ending on the Determination Date.

(c) For purposes of (a) and (b) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the twelve (12) month period ending on the Determination Date, except as provided in Code Section 416 and the Regulations thereunder for the first and second Plan Years of a Defined Benefit Plan. The account balances and accrued benefits of a Participant who is not a Key Employee but who was a Key Employee in a prior year, or who has not been credited with at least one (1) Hour of Service with any Employer maintaining the Plan at any time during the five (5) year period ending on the Determination Date, will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the Regulations thereunder. Qualified Voluntary Employee Contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Participant other than a Key Employee shall be determined under the method, if any, that uniformly applies for accrual purposes under all Defined Benefit Plans maintained by the Employer, or if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C).

1.113  Top-Paid Group

The group consisting of the top 20% of Employees when ranked on the basis of Compensation paid during such year. For purposes of determining the number of Employees in the group (but not who is in it), Employees identified in (a) through (d) may be excluded and Employees identified in (e) through (f) shall be excluded:

(a) Employees who have not completed six (6) months of Service by the end of the year;

(b) Employees who normally work less than seventeen and one-half (17 ¹/2) hours per week by the end of the year;

(c) Employees who normally work not more than six (6) months during any year;

(d) Employees who have not attained age twenty-one (21) by the end of the year;

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(e) Employees included in a collective bargaining unit, covered by an agreement between Employee representatives and the Employer, where retirement benefits were the subject of good faith bargaining, if they constitute at least 90% of the Employer’s work force and the Plan covers only non-union Employees; and

(f) Employees who are nonresident aliens and who receive no Earned Income which constitutes income from sources within the United States.

1.114  Transfer Contribution

A non-taxable transfer of a Participant’s benefit directly from a Qualified Plan to this Plan. This type of transfer does not constitute constructive receipt of plan assets.

1.115  Trust

The trust established in conjunction with the Plan, together with any and all amendments thereto which holds assets of the Plan held by or in the name of the Trustee or Custodian.

1.116  Trustee

An individual, individuals or corporation and any of its affiliates or any successor or assigns (who may be the Sponsor or an affiliate) named in the Adoption Agreement or any duly appointed successor or assigns as provided for in paragraph 13.19.

1.117  Uniformed Services Employment And Reemployment Rights Act Of 1994 (USERRA)

The Uniformed Services Employment and Reemployment Rights Act of 1994, as amended. Notwithstanding any provision of the Plan to the contrary, contributions, benefits, Plan loan repayment, suspensions and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u).

1.118  Valuation Date

The last day of the Plan Year and such other date(s) as specified in the Adoption Agreement on which the fair market value of Plan assets is determined. The Trustee and/or Custodian may also value all or any portion of the assets of the Trust on such other Valuation Dates as directed by the Plan Administrator, including but not limited to semi-annually, quarterly, monthly, or daily Valuation Dates.

1.119  Vested Account Balance

The aggregate value of the Participant’s Vested Account Balances derived from Employer and Employee contributions (including Rollovers), whether vested before or upon death, including the proceeds of insurance contracts, if any, on the Participant’s life. The provisions of Article IX shall apply to a Participant who is vested in amounts attributable to Employer contributions, Employee contributions (or both) at the time of death or distribution.

1.120  Voluntary After-tax Contribution

Any contribution (other than Roth Elective Deferrals) made to the Plan or any other Defined Contribution Plan by or on behalf of a Participant that is included in the Participant’s gross income in the year in which made and that is maintained under a separate account to which earnings and losses are allocated.

1.121  Welfare Benefit Fund

Any fund that is part of a plan of the Employer, or has the effect of a plan, through which the Employer provides welfare benefits to Employees or their Beneficiaries. For these purposes, Welfare Benefit means any benefit other than those with respect to which Code Section 83(h) (relating to transfers of property in connection with the performance of services), Code Section 404 (relating to deductions for contributions to an Employees’ trust or annuity and Compensation under a deferred payment plan), Code Section 404A (relating to certain foreign deferred compensation plans) apply. A “Fund” for purposes of this paragraph, is any social club, voluntary employee benefit association, supplemental unemployment benefit trust or qualified group legal service organization described in Code Section 501(c)(7), (9), (17) or (20); any trust, corporation, or other organization not exempt from income tax, or to the extent provided in regulations, any account held for an Employer by any person.

1.122  Year Of Service

If elected in the Adoption Agreement, the hours counting method will be used in determining either an Employee’s initial or continuing eligibility to participate in the Plan, or the nonforfeitable interest in the Participant’s account balance derived from Employer contributions. A Year of Service is a twelve (12) consecutive month period in which an Employee has completed 1,000 Hours of Service (or such lower number as is specified in the Adoption Agreement).

(1) The eligibility computation period begins on the date the Employee first performs an Hour of Service (employment commencement date) and is a twelve (12) consecutive month period during which the Employee has completed the number of Hours of Service (not to exceed 1,000) as elected in the Adoption Agreement.

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(2) The vesting computation period is a twelve (12) consecutive month period as elected by the Employer in the Adoption Agreement during which the Employee completed the number of Hours of Service [not to exceed 1,000] as elected in the Adoption Agreement. If no election is made, the Plan Year shall be used provided that in the event the Plan Year is changed, the “vesting computation period” shall be the twelve (12) consecutive month period determined in accordance with Department of Labor Regulation Section 2530.203-2(c), the provisions of which are incorporated herein by reference.

Alternatively, if elected in the Adoption Agreement, the Elapsed Time method will be used in determining an Employee’s initial or continuing eligibility to participate in the Plan, accrual of benefits or the nonforfeitable interest in the Participant’s account balance derived from Employer contributions. An Employee will receive credit for the aggregate of all time period(s) commencing with the Employee’s first day of employment or reemployment and ending on the date a Period of Severance begins. The first day of employment or reemployment is the first day the Employee performs an Hour of Service for the Employer. An Employee will also receive credit for any Period of Severance of less than twelve (12) consecutive months. Fractional periods of a year will be expressed in terms of days. Years of Service will be determined in accordance with paragraph 1.100.

(1) A Break in Service under the Elapsed Time method as defined in paragraph 1.74 is a Period of Severance of at least twelve (12) consecutive months. A Period of Severance is a continuous period of time during which the Employee is not employed by the Employer. The continuous period begins on the date the Employee retires, quits, is discharged or if earlier, the first twelve (12) month anniversary of the date on which the Employee is first absent from Service.

In the case of an individual who is absent from work for maternity or paternity reasons, the twelve (12) consecutive month period beginning on the first anniversary of the first date of such absence from work for maternity or paternity reasons (i) by reason of the pregnancy of the individual, (ii) by reason of the birth of the child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement.

Each Employee will share in Employer contributions for the period beginning on the date the Employee commences participation under the Plan and ending on the date on which such Employee terminates employment with the Employer or is no longer a member of an eligible class of Employees.

If two (2) Years of Service are required as a condition of eligibility, a Participant will only have completed two (2) Years of Service for eligibility purposes upon the actual completion of two (2) consecutive Years of Service.

The Employer may elect in the Adoption Agreement for purposes of determining a Participant’s vested interest to disregard Years of Service prior to the time the Employer or any affiliate maintained the Plan or any predecessor plan, and/or an Employee’s attainment of a certain age, not to exceed age eighteen (18).

(f) An Employee’s Years of Service under this Plan may be determined using the hours counting method or the Elapsed Time method or both. Unless otherwise elected in the Adoption Agreement, Years of Service shall be determined using the hours counting method on the basis of actual hours worked.

(g) If the Plan determines Service for a given purpose on one basis and an Employee transfers to Employment covered by this Plan from employment covered by another Qualified Plan which determines Service for such purpose on the other basis, and if the Employee’s Service for the period during which he was covered by such other plan is required to be taken into consideration under this Plan for that purpose, then the following rules shall apply:

(1) If such Service was determined under the other plan using the hours counting method, then the period so taken into consideration through the close of the computation period in which such transfer occurs shall be the number of Years of Service credited to the Employee for such purpose under such other plan as of the start of such computation period, and for the computation period in which such transfer occurs, the greater of (A) his Service for such period as of the date of transfer determined under the rules of such other plan, or (B) his Service for such period determined under the Elapsed Time rules of this Plan. Service after the close of that computation period shall be determined for such purpose solely under the Elapsed Time rules of this Plan.

(2) If such Service was determined under the other plan using the Elapsed Time method, then the period taken into consideration shall be (i) the number of one-year periods of Service credited to the Employee under such other plan as of the date of the transfer, and (ii) for the computation period which includes the date of transfer, the Hours of Service equivalent to any fractional part of a Year of Service credited to him under such other plan. In determining such equivalency, the Employee shall be credited with one-hundred-ninety (190) Hours of Service for each month or fraction thereof.

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If this Plan is an amendment and continuation of another Qualified Plan or if this Plan is amended and an effect of the amendment is to change the basis on which Years of Service are determined, the foregoing rules shall be applied as if each Employee had transferred employment on the effective date of such amendment.

If no election is made on the Adoption Agreement, the Plan will define a Year of Service as a twelve (12) consecutive month period in which an individual has completed 1,000 Hours of Service under the hours counting method.

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ARTICLE II

ELIGIBILITY REQUIREMENTS

2.1 Eligibility

Employees who meet the eligibility requirements in the Adoption Agreement on the Effective Date of the Plan shall become Participants as of the Effective Date of the Plan. If elected in the Adoption Agreement, all Employees employed on the Effective Date of the Plan may participate, even if they have not satisfied the Plan’s specified eligibility requirements. Employees hired after the Effective Date of the Plan, upon meeting the eligibility requirements, shall become Participants on the applicable Entry Date. For amended and restated Plans, Employees who were Participants in the Plan prior to the Effective Date will continue to participate in the Plan, regardless of whether the Employee satisfies the eligibility requirements in the restated or amended Plan, unless otherwise elected in the Adoption Agreement. If no age and Service requirement are elected in the Adoption Agreement, an Employee will become a Participant on the date the individual first performs an Hour of Service for the Employer. The Employee must satisfy the eligibility requirements specified in the Adoption Agreement and be employed on the Entry Date to become a Participant in the Plan.

(a) In the event that an Employee has satisfied the eligibility requirements, but is not employed on the applicable Entry Date, such Employee will become a Participant for the purpose(s) for which an Employee had previously qualified upon his or her rehire.

(b) Except as otherwise provided in the Adoption Agreement, all Years of Service will be counted for purposes of determining whether an Employee has satisfied the Plan’s Service eligibility requirement, if any. If a Participant has a Break in Service or Period of Severance, Service before that Break in Service or Period of Severance shall be reinstated as of the date the Employee is credited with an Hour of Service after incurring such Break in Service or Period of Severance.

(c) In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee shall participate immediately if such Employee has satisfied the minimum age and Service requirements and would have previously become a Participant had he or she been in an eligible class.

(d) A former Participant shall be eligible to authorize Elective Deferrals or Roth Elective Deferrals and may make other Employee Contributions as permitted under the Plan as of the date on which the individual is rehired. Such contributions shall resume immediately (or as soon as administratively feasible) on or after his or her date of rehire. A former Employee who had become a Participant for the purpose of Employer contributions shall again become a Participant with respect to Employer Contributions on the date on which the individual is rehired.

(e) An Employee who has become a Participant under the Plan will remain a Participant for as long as an account is maintained under the Plan for his or her benefit, or until his or her death, if earlier.

(f) Each Employee will share in Employer contributions for the period beginning on the date the Employee commences participation under the Plan and ending on the date on which such Employee terminates employment with the Employer or is no longer a member of an eligible class of Employees.

(g) An Employee’s eligibility to make Elective Deferrals or Roth Elective Deferrals under a cash or deferred arrangement may not be conditioned upon the completion of more than one (1) Year of Service or the attainment of an age greater than twenty-one (21). An Employee’s eligibility to receive Matching Contributions, Qualified Matching Contributions, or Qualified Non-Elective Contributions may be conditioned upon the completion of up to two (2) Years of Service. No contributions or benefits (other than Matching Contributions or Qualified Matching Contributions) may be conditioned upon an Employee’s Elective Deferrals or Roth Elective Deferrals.

2.2 Determination Of Eligibility

The Plan Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information provided by the Employer. Such determination shall be conclusive and binding on all Employees except as otherwise provided herein or by operation of law.

2.3 Change In Classification Of Employment

In the event a Participant becomes ineligible to participate because he or she is no longer a member of an eligible class of Employees (as elected by the Employer in the Adoption Agreement), Elective Deferrals, Roth Elective Deferrals and/or other Employee contributions will cease as soon as administratively practicable after the Participant becomes ineligible. Such Participant shall participate for the purpose(s) for which the Participant had previously qualified immediately (or as soon as administratively feasible) upon his or her return to an eligible class of Employees.

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2.4 Participation

A Year of Service for participation in the Plan is an eligibility computation period during which an Employee completes the Hours of Service requirement (1,000 hours or less) elected by the Employer in the Adoption Agreement. If the Plan utilizes the Elapsed Time method of crediting Service, an eligibility computation period for which the Employee receives credit for a Year of Service will be determined under the Service crediting rules of paragraph 1.100. Plans that require Employees to complete more than one (1) Year of Service in order to become a Participant must fully vest such Employee upon becoming a Participant in the Plan.

The initial eligibility computation period shall be the twelve (12) consecutive month period beginning on the Employee’s employment commencement date (the first day an Employee completes an Hour of Service for the Employer). The Plan will measure succeeding eligibility computation periods based on the Plan Year, unless otherwise elected in the Adoption Agreement. Where the subsequent computation periods are calculated on the basis of the Plan Year, an Employee who receives credit for the required number of Hours of Service during the initial computation period and then earns an additional Year of Service credit during the Plan Year commencing during the subsequent twelve (12) month period will be credited with two (2) Years of Service for purposes of eligibility to participate. Years of Service and Breaks in Service shall be measured on the same eligibility computation period.

An Employer may specify in the Adoption Agreement a Service requirement for eligibility for participation in the Plan after completion of a specified number of months or Hours of Service. Any Service requirement based on months of Service may not require an Employee to complete more than one (1) Year of Service (1,000 Hours of Service) in a twelve (12) consecutive month period, or if applicable, two (2) Years of Service.

2.5 Employment Rights

Participation in the Plan shall not confer upon a Participant any employment rights, nor shall it interfere with the Employer’s right to terminate the employment of any Employee at any time.

2.6 Service With Controlled Groups

All Years of Service with other members of a controlled group of corporations [as defined in Code Section 414(b)], trades or businesses under common control [as defined in Code Section 414(c)], or members of an affiliated service group [as defined in Code Section 414(m)] and any other entity required to be aggregated with the Employer pursuant to Code Section 414(o) shall be credited for purposes of determining an Employee’s eligibility to participate.

2.7 Leased Employees

A Leased Employee shall be treated as an Employee of the recipient Employer in any Plan established under a Standardized Adoption Agreement, unless specifically excluded under the provisions of the next subparagraph. A Leased Employee will be considered an Employee of the recipient Employer for purposes of participation in any Plan established under a Nonstandardized Adoption Agreement, unless otherwise elected by the Employer in the Adoption Agreement. Contributions or benefits provided by the leasing organization that are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer.

A Leased Employee shall not be considered an Employee of the recipient if such Employee is covered by a money purchase pension plan sponsored by the leasing organization providing:

(a) a non-integrated Employer contribution rate of at least 10% of Compensation [as defined in Code Section 415(c)(3)], but including amounts contributed pursuant to a salary reduction agreement which are excludable from the Employee’s gross income under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), or 403(b),

(b) immediate participation, and

(c) full and immediate vesting.

This exclusion is only available if Leased Employees do not constitute more than 20% of the recipient’s Non-Highly Compensated work force. The Plan Administrator must apply this paragraph consistent with Code Sections 414(n) and 414(o) and the Regulations issued thereunder. The Employer must specify in an addendum to the Adoption Agreement the manner in which the Plan will determine the allocation of Employer contributions and Participant forfeitures on behalf of a Participant if the Participant is a Leased Employee covered by a plan maintained by the leasing organization.

2.8 Thrift Plan

The Employer may make an election in the Adoption Agreement to require Employee after-tax contributions (Required After-tax Contributions) as a condition of participation in the Plan. The Employer shall notify each eligible Employee of his or her eligibility for participation prior to the appropriate Entry Date. The Employee shall indicate his or her intention to join the Plan by authorizing the Employer to withhold a percentage of his or her Compensation as provided in the Plan. Such authorization shall be returned to the Employer within the time prescribed. The Employee may decline participation by so indicating in accordance with the procedures prescribed by the Employer. If the Employee declines to participate, such Employee shall be given the opportunity to join the Plan on any subsequent Entry Date.

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2.9 Target Benefit Plan

A Target Benefit Plan may be established by executing a Target Benefit Plan Adoption Agreement. The Employer shall notify each eligible Employee of his or her eligibility for participation prior to the appropriate Entry Date. The Employer will make contributions for each Participant in level annual contributions that will fund the Participant’s target benefit at the Plan’s Normal Retirement Age.

2.10 Davis-Bacon Plan

A Davis-Bacon Plan may be established by executing a Davis-Bacon Plan Adoption Agreement. The Employer shall notify each Employee covered by any Davis-Bacon or prevailing wage contract of his or her eligibility for participation prior to the appropriate Entry Date. The Employer will make contributions for each Participant in accordance with the formula or any public contract subject to the Davis-Bacon Act or to any other Federal, state or municipal prevailing wage law as specified in the Adoption Agreement or any schedule attached thereto. The contribution schedule shall take into account each Participant’s hourly rate, employment category, employment classification, and such other factors the Davis-Bacon contract may specify.

For the purposes of this paragraph, Employees covered by a Davis-Bacon or prevailing wage contract will be those who are not included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee representatives.

2.11 Waiver Of Participation

Effective with the initial adoption or upon the amendment or restatement of this Plan, otherwise eligible Employees may not execute a waiver of participation. Any properly executed waivers of participation executed prior to the adoption of the Plan shall be grandfathered and such waiver shall be valid in full force and effect.

An Employee or Participant will continue to earn credit for each Year of Service for eligibility or vesting purposes he or she completes and his or her account (if any) will share in the gains or losses of the Plan during the periods he or she elects not to participate.

2.12 Omission Of Eligible Employee

If, in any Plan Year, an Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his or her Employer for the Plan Year has been made, the Employer shall make any such correction regarding the Employee’s eligibility under one of the IRS approved correction programs.

2.13 Inclusion Of Ineligible Employee

If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included, the Employer shall make any such correction regarding the Employee’s eligibility under one of the IRS approved correction programs.

2.14 Participating Employer

The term Participating Employer means any entity which is part of a controlled group or affiliated service group, as those terms are defined in Code Sections 414(b), (c) and (m),or is otherwise required to be aggregated under Code Section 414(o) that adopts this Plan with the consent of the Employer. An Employee’s transfer to or from any Employer or Participating Employer will not affect his or her Participant’s Account Balance, total Years of Service (Periods of Service) and total Years of Service as a Participant (Periods of Service as a Participant). A Participating Employer shall be subject to the following provisions:

Whenever a right or obligation is imposed upon the Employer by the terms of the Plan, the same shall extend to the Participating Employer as the “Employer” under the Plan and shall be separate and distinct from that imposed upon the Employer. It is the intention of the parties that the Participating Employer shall be a party to the Plan and treated in all respects as the Employer thereunder, with its employees to be considered as the Employees or Participants as the case may be, thereunder. However, the participation of the Participating Employer in the Plan shall in no way diminish, augment, modify or in any way affect the rights and duties of the Employer, its Employees and Participants under the Plan.

(b) The Trustee(s) and/or Custodian(s) agree to receive and allocate contributions made to the Plan by the Employer and by the Participating Employer, as well as to do and perform all acts that are necessary to keep records and accounts of all funds held for Participants who are employees.

(c) The Participating Employer shall be construed as having adopted the Plan in every respect as if said Plan had this date been executed between the Participating Employer and the Trustee and/or Custodian, except as otherwise expressly provided herein or in any amendment that may subsequently be adopted hereto.

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(d) All actions required by the Plan to be taken by the Employer shall be effective with respect to the Participating Employer. The Participating Employer hereby irrevocably designates the Employer as its agent for such purposes.

(e) Contributions made by any such Participating Employer will be held in a common Trust Fund with contributions made by the Employer, and contributions shall be available to pay the benefits of a Participant or Beneficiary who is an Employee of the Plan Sponsor or any such Participating Employer.

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ARTICLE III

EMPLOYER CONTRIBUTIONS

3.1 Contribution Amount

The Employer shall make periodic contributions to the Plan in accordance with the contribution formula or formulas elected in the Adoption Agreement.

The Employer’s contribution (if any) may consist of (1) cash; (2) qualifying Employer securities or qualifying Employer real property as defined in Section 407(d) of ERISA, provided the acquisition of such qualifying Employer securities or qualifying real property securities satisfies the requirements of Section 408(e) of ERISA; or (3) any other unencumbered property that is permitted under Code Section 4975 and is subject to the consent of the Trustee and/or the Custodian made to the Plan on a discretionary basis. No contribution of property may be made to any Plan established hereunder which would result in a prohibited transaction.

The Employer shall also make Matching Contributions, Top-Heavy minimum contributions and any other Employer contribution for the benefit of Participants who are covered by USERRA. Employer Matching Contributions under USERRA shall be made in the Plan Year for which the Participant exercises his or her right to make-up Elective Deferrals, Roth Elective Deferrals and/or other Employee contributions for prior years. Top-Heavy minimum contributions and other Employer contributions for USERRA protected Service shall be made during the Plan Year in which the individual returns to employment with the Employer. Employer contributions required under USERRA are not increased or decreased with respect to Plan investment earnings for the period to which such contributions relate. The Employer’s contribution for any Plan Year shall be subject to the limitations on allocations contained in Article X.

If the Employer’s Non-Elective Contribution utilizes permitted disparity the following rules shall apply, as determined by the election made by the Employer in the Adoption Agreement. Only one plan maintained by the Employer may provide for permitted disparity. Any Plan utilizing a Safe Harbor formula may not apply the Safe Harbor Contribution to the integrated allocation formula.

(a) Excess Integrated Allocation Formula – If the Plan is not Top-Heavy or if the Top-Heavy minimum contribution or benefit is provided under another plan covering the same Employees, paragraphs (1) and (2) below may be disregarded and 5.7%, 5.4% or 4.3% may be substituted for 2.7%, 2.4% or 1.3% where it appears in paragraph (3) below.

(1) Step One: Contributions and Forfeitures will be allocated to each Participant’s account in the ratio that each Participant’s total Compensation bears to all Participants’ total Compensation but not in excess of 3% of each Participants Compensation Participants will receive an allocation not to exceed 3% of their Compensation.

(2) Step Two: Any remaining Employer contributions will be allocated up to a maximum of 3% of excess Compensation of all Participants to Participants who have Compensation in excess of the Integration Level (excess Compensation) as defined in the Adoption Agreement. Each such Participant will receive an allocation in the ratio that his or her excess Compensation bears to the excess Compensation of all Participants. If Employer contributions are insufficient to fund to this level, the Employer must determine the uniform allocation percentage to allocate to those Participants who have Compensation in excess of the Integration Level. To determine this uniform allocation percentage, the Employer must take the remaining contribution and divide that amount by the total excess Compensation of Participants.

(3) Step Three: Any remaining Employer contributions will be allocated to all Participants in the ratio that their Compensation plus excess Compensation bears to the total Compensation plus excess Compensation of all Participants. Participants may only receive an allocation of up to 2.7% of their Compensation plus Excess Compensation, under this allocation step. If the Integration Level defined in the Adoption Agreement is less than or equal to the greater of $10,000 or 20% of the maximum, the 2.7% need not be reduced. If the amount specified is greater than the greater of $10,000 or 20% of the Taxable Wage Base, but not more than 80%, 2.7% must be reduced to 1.3%. If the amount specified is greater than 80% but less than 100% of the maximum Taxable Wage Base, the 2.7% must be reduced to 2.4%. If Employer contributions are insufficient to fund to this level, the Employer must determined the uniform allocation percentage to allocate to those Participants who have Compensation up to the Integration Level and Excess Compensation. To determine this uniform allocation percentage, the Employer must take the remaining contributions and divide that amount by the total Compensation including Excess Compensation of Participants.

(4) Step Four: Any remaining Employer contributions will be allocated to all Participants in the ratio that each Participant’s Compensation bears to all Participants’ Compensation.

(b) Base Integrated Allocation Formula – To the extent that such contributions are sufficient they shall be allocated first, as a designated percentage of each eligible Participant’s Compensation, plus a designated percentage of Compensation in excess of the Integration Level (as defined in the Adoption Agreement). The

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percentage of excess Compensation may not exceed the lesser of (i) the amount first specified in this paragraph or (ii) the greater of 5.7% or the percentage rate of tax under Code Section 3111(a) as in effect on the first day of the Plan Year attributable to the Old Age (OA) portion of the OASDI provisions of the Social Security Act. If the Employer specifies an Integration Level in the Adoption Agreement which is lower than the Taxable Wage Base (for Social Security purposes (SSTWB) in effect as of the first day of the Plan Year, the percentage contributed with respect to excess Compensation must be adjusted. If the Plan’s Integration Level is greater than the larger of $10,000 or 20% of the SSTWB but not more than 80% of the TWB, the excess percentage is 4.3%. If the Plan’s Integration Level is greater than 80% of the TWB but less than 100% of the TWB, the excess percentage is 5.4%.

3.2 Overall Permitted Disparity Limits

Annual Overall Permitted Disparity Limits - Notwithstanding the preceding paragraphs, for any Plan Year this Plan benefits any Participant who benefits under another Qualified Plan or Simplified Employee Pension Plan, as defined in Code Section 408(k), maintained by the Employer that provides for permitted disparity (or imputes disparity), Employer contributions and forfeitures under a Plan established under a Standardized Adoption Agreement will be allocated to the account of each Participant who either completes more than 500 Hours or Service during the Plan Year or who is employed on the last day of the Plan Year in the ratio that each Participant’s total Compensation bears to the total Compensation of all Participants.

Cumulative Permitted Disparity Limits—Effective for Plan Years beginning on or after January 1, 1995, the cumulative permitted disparity limit for a Participant is thirty five (35) total cumulative permitted disparity years. Total cumulative permitted years means the number of years credited to the Participant for allocation or accrual purposes under this Plan, and any other Qualified Plan or Simplified Employee Pension Plan (whether or not terminated) ever maintained by the Employer. For purposes of determining the Participant’s cumulative permitted disparity limit, all years ending in the same calendar year are treated as the same year. If the Participant has not benefited under a Defined Benefit or Target Benefit Plan for any year beginning on or after January 1, 1994, the Participant has no cumulative disparity limit.

Compensation for purposes of this paragraph shall mean Compensation as elected in the Adoption Agreement.

3.3 Contribution Amount For A SIMPLE 401(k) Plan

If the Employer has executed the SIMPLE 401(k) Adoption Agreement, the provisions of the following paragraphs shall apply for a Plan Year if the Employer is an Eligible Employer and no contributions are made or benefits accrued for services during the Plan Year on behalf of any Eligible Employee under any other plan, contract, pension or trust described in Code Section 219(g)(5)(A) or (B) maintained by the Employer. To the extent that other provisions of the Plan are inconsistent with the SIMPLE 401(k) provisions, the SIMPLE 401(k) provisions shall govern.

(a) SIMPLE 401(k) Matching Contribution Formula – For each Plan Year, the Employer shall contribute and allocate to each Eligible Employee’s account an amount equal to the Employee’s Elective Deferral contribution up to a limit of 3% of the Employee’s Compensation for the full Plan Year. If the Employer elects in the Adoption Agreement to make the Non-Elective Contribution as specified in paragraph 3.3(b) below, this Matching Contribution will not be made.

(b) SIMPLE 401(k) Non-Elective Contribution Formula – For any Plan Year, the Employer may elect to contribute a Non-Elective Contribution of 2% of Compensation for the full Plan Year for each Eligible Employee who received at least $5,000 of Compensation (or such lesser amount as elected by the Employer in the SIMPLE 401(k) Plan Adoption Agreement) for the Plan Year. The allocation thereof shall be unrelated to any Participant Elective Deferral contributions made hereunder. If the Employer elects in the Adoption Agreement to make the Non-Elective Contribution for a Plan Year, the Employer shall not make the Matching Contribution described in paragraph 3.3(a) above with respect to the same Plan Year. The Employer shall notify Eligible Employees within a reasonable period of time (before the sixtieth day) prior to the beginning of each Plan Year of its election to make the 2% Non-Elective Contribution in lieu of the Matching Contribution.

(c) The provisions of the Plan implementing the limitations of Code Section 415 apply to contributions made pursuant to paragraphs 3.3(a) (other than Catch-Up Contributions) and 3.3(b).

(d) In the event that the contribution and allocation formula above results in an Excess Annual Addition, such excess shall be corrected as provided for at paragraph 10.3. The Employer’s contribution for any Plan Year shall be subject to the overall limitations on allocations contained in Article X.

(e) No other Employer or Employee contributions may be made to the SIMPLE 401(k) Plan for the Plan Year other than Elective Deferrals described in paragraph 4.8, Matching or Non-Elective Contributions described in paragraphs 3.3(a) and (b), and Rollover Contributions described in Regulations Section 1.402(c)-2, Q&A-1(a).

(f) In the event the deduction of a contribution made by the Employer is disallowed under Code Section 404, such contribution (to the extent disallowed) must be returned to the Employer within one year of the disallowance of the deduction.

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(g) All benefits attributable to contributions described in paragraphs 3.3(a) and (b) are nonforfeitable at all times, and all previous contributions made under the Plan provisions are nonforfeitable as of the beginning of the Plan Year the SIMPLE 401(k) provisions apply.

3.4 Responsibility For Contributions

Neither the Trustee (or the Custodian, if this is a Custodial Plan), nor the Sponsor shall be required to determine if the Employer has made a contribution or if the amount contributed from its general assets is in accordance with the Code and the provisions elected in the Adoption Agreement. The Employer shall have sole responsibility in this regard. The Trustee, or Custodian if this is a Custodial Plan, shall be accountable solely for contributions actually received. The Employer shall have the responsibility to determine whether the Contribution is within the limits of Article X.

3.5 Return Of Contributions

Contributions made to the Plan by the Employer shall be irrevocable except as provided below:

(a) Any contribution forwarded to the Trustee and/or Custodian due to a mistake of fact, provided that the contribution is returned to the Employer within one (1) year of the date of the contribution. The Trustee and/or Custodian will not increase the amount of the Employer contribution returnable under this paragraph 3.5 for any earnings attributable to the contribution but the Trustee and/or Custodian will reduce the amount returned to the Employer for any losses incurred attributable to the excess contribution.

(b) In the event that the Commissioner of Internal Revenue determines that the Plan is not initially qualified under the Internal Revenue Code, any contribution dependent on the initial qualification by the Employer must be returned to the Employer within one (1) 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.

(c) Contributions forwarded to the Trustee or Custodian are presumed to be deductible and are conditioned on their deductibility. Contributions that are determined by the Internal Revenue Service to not be deductible will be returned to the Employer within one (1) year after the disallowance and reduced by any losses.

3.6 Merger Of Assets From Another Plan

The Employer may in its sole discretion direct the Trustee or Custodian to accept assets from another Defined Contribution Plan, or to transfer assets to another Defined Contribution Plan, provided that such transfer satisfies the requirements of Code Section 414(l) and the Regulations thereunder. The Employer, Plan Administrator, Trustee or Custodian shall have the right to refuse to accept or transfer assets for any reason, provided that nothing in this paragraph 3.6 shall give the Trustee or Custodian the right to refuse to make a direct transfer of an Eligible Rollover Distribution if requested to do so by a Participant in accordance with paragraph 6.12.

When the transferor plan is a money purchase pension plan and the transferee plan (the Plan established under this document), is not a money purchase pension plan as set forth in Code Section 401(a)(11)(B)(iii)(III), the Qualified Joint and Survivor Annuity option may not be eliminated at least with respect to the benefits which are transferred.

When the transferor plan is a profit-sharing, stock bonus or cash or deferred arrangement [401(k) plan] which included the Qualified Joint and Survivor Annuity provisions but was not required to do so, upon the transfer of those assets, the transferee plan may be amended to entirely eliminate the annuity option.

3.7 Coverage Requirements

For purposes of coverage testing, a Participant is treated as benefiting under the Plan for any Plan Year during which the Participant received or is deemed to receive an allocation in accordance with Regulation Section 1.410(b)-3(a). If during the Plan Year, the number of Participants who are eligible to share in any contribution for a Plan Year is such that the Plan established under a Nonstandardized Adoption Agreement would fail to meet the requirements of Regulation Section 410(b)(1) or 410(b)(2)(A)(i), then the group of Participants eligible to share in the contribution for the Plan Year will be increased to include such minimum number of Participants who did not meet the hours requirement, as may be necessary to satisfy the applicable tests under the Code Sections referenced above. The Participants who will become eligible to share in the contribution will be those active Participants when compared to Participants who are similarly situated, are those who have completed the greatest number of Hours of Service in the Plan Year. If after such allocation, the coverage requirements of the Code are still not satisfied, allocation shall continue to be made to Participants with decreasing Hours of Service until the coverage requirements of the ratio percentage test of Code Section 410(b)(1)(A) are satisfied.

If after the application of the correction procedure in the preceding paragraph the coverage requirements are still not satisfied, the Employer may apply the same correction procedure first to those Participants who are not employed by the Employer on the last day of the Plan Year and did not meet the hours requirements and then an otherwise excludable class of Employees until the coverage requirements of the ratio percentage test of Code Section 410(b)(1)(A) are satisfied.

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The preceding paragraph will not be construed to permit the reduction of any Participant’s account balance, and any amounts which were allocated to Participants whose eligibility to share in the contribution did not result from the application of the preceding paragraph will not be reallocated to satisfy such requirements. Instead, the Employer shall make an additional contribution equal to the amount which the affected Participants would have received had they been included initially in the allocation of the Employer’s contribution, even if it would cause the contributions of the Employer for the applicable Plan Year to exceed the amount which is deductible by the Employer for such Plan Year under Code Section 404. Any adjustments pursuant to this paragraph will be considered a retroactive amendment of the Plan that was adopted by the last day of the Plan Year.

Specifically excluded from the Code Section 410(b) coverage tests are those Employees who are excluded from participation in the Plan for the entire Plan Year which includes those Employees whose retirement benefits are subject to a collective bargaining agreement, nonresident aliens, those Employees excluded from Plan participation by age and Service requirements imposed by the Plan and those Employees who incur a Separation from Service during the applicable Plan Year and for the Plan Year fail to complete more than five hundred (500) Hours of Service or three (3) consecutive calendar months under the Elapsed Time method.

After the end of the Plan Year, the correction method for any coverage failure must be done in accordance with the requirements of the Employee Plans Compliance Resolution System (EPCRS) program for which they are eligible. EPCRS is currently described in Revenue Procedure 2006-27.

3.8 Eligibility For Contribution

The Employer will determine in the Adoption Agreement the conditions that Participants must meet in order to receive an allocation of an Employer contribution and any forfeitures, subject to the following:

(a) In a Plan established under a Standardized Adoption Agreement, a Participant who is employed on the last day of the Plan Year will share in the allocation of the Employer contribution in that Plan Year without regard to the Participant’s Hours of Service.

A Participant in a Plan established under a Standardized Adoption Agreement, who completed more than five hundred (500) Hours of Service, ninety-one (91) consecutive calendar days, or three (3) consecutive calendar months under the Elapsed Time method will share in the allocation of Employer contributions for the Plan Year, regardless of whether employed on the last day of the Plan Year.

(b) In a Plan established under a Nonstandardized Adoption Agreement, the Employer will elect in the Adoption Agreement whether any Employer contribution shall be allocated to any Participant who does not complete the necessary Hours of Service, requisite number of days, or consecutive calendar months requirement elected in the Adoption Agreement, subject to the Top-Heavy minimum contribution requirements, if applicable.

In a Plan established under a Nonstandardized Adoption Agreement, the Employer will elect in the Adoption Agreement whether a Participant will receive an allocation of the Employer’s contribution if not employed on the last day of the Plan Year, or if applicable, the end of the Plan Year quarter.

(c) The Employer may elect in the Standardized or Nonstandardized Adoption Agreement any other conditions a Participant must meet to receive an allocation of a contribution under the Plan established hereunder.

(d) The Adoption Agreements that accompany this Basic Plan Document #01 have been generally designed to satisfy Code Section 401(a)(4) as a designed-based safe harbor. Designed-based safe harbor contribution formulas include those that provide a uniform allocation as either a percentage of Compensation or a dollar amount. Non-designed-based safe harbor contribution formulas include a uniform points and age-based allocation formulas. The Target Benefit Plan formulas have been designed to comply with Treasury Regulations Section 1.401(a)(4)-8(b)(3).

3.9 Cross-Tested Allocation Formula

Unless otherwise elected in the Adoption Agreement, when a cross-testing formula has been elected, Employer contributions for a Plan Year will be allocated to each Employee of the Employer who has met the allocation accrual requirements as specified in the Adoption Agreement. The general nondiscrimination test under Regulations Section 1.401(a)(4)-2(c)(1) must be satisfied using equivalent accrual rates [within the meaning of Regulations Section 1.401(a)(4)-8(b)(2)] that are substituted for each Employee’s allocation rate in the determination of rate groups. The allocation rate for any Employee is equal to the sum of Employer Non-Elective Contributions and any forfeitures allocated to the Employee’s account, divided by the Employee’s Compensation as defined in paragraph 1.17. When calculating equivalent accrual rates for purposes of nondiscrimination testing, a standard interest rate and standard mortality table [within the meaning of the definitions in Regulations Section 1.401(a)(4)-12] must be used.

As elected by the Employer in the Adoption Agreement, the Employer will determine the total amount of contributions for each Plan Year and either (1) allocate such total amount to participant groups (the “Participant Group Allocation Method”) or (2) allocate such total amount using age weighted allocation rates (the “Age Weighted Allocation Method”). Employer contributions will be allocated to each eligible Participant.

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(a) Participant Group Allocation Method – If the Employer has elected the Participant Group Allocation method in the Adoption Agreement, each eligible Participant of the Employer will constitute a “separate allocation group” for purposes of allocating contributions. Only a limited number of allocation rates are permitted, and the number of allocation rates cannot be greater than the maximum allowable number of allocation rates. The maximum allowable number of allocation rates is equal to the sum of the allowable number of allocation rates for eligible Non-Highly Compensated Employees (eligible NHCEs) and the allowable number of allocation rates for eligible Highly Compensated Employees (eligible HCEs). The allowable number of allocation rates for eligible HCEs is equal to the number of eligible HCEs, limited to twenty-five (25). The allowable number of eligible NHCEs is equal to the number of eligible HCEs, limited to twenty-five (25). The allowable number of NHCE allocation rates depends on the number of eligible NHCEs, limited to twenty-five (25). The allocation will be made as follows:

(1) First, the total amount of contributions is allocated among the deemed aggregated allocation groups in portions determined by the Employer. A deemed aggregated allocation group consists of all of the separate allocation groups that have the same allocation rate. Second, within each deemed aggregated allocation group, the allocated portion is allocated to each Participant in the ratio that such Participant’s Compensation as defined in paragraph 1.17, bears to the total Compensation of all Participants in the group. An allocation rate is the amount of contributions allocated to a Participant for a Plan Year expressed as a percentage of Compensation, as defined in paragraph 1.17. The number of eligible NHCEs to which a particular allocation rate applies must reflect a reasonable classification of Participants, and no Participant can be assigned to more than one (1) deemed aggregated allocation group for a Plan Year.

(2) For Plans with only one (1) or two (2) eligible NHCEs, the allowable number of NHCE allocation rates is one (1). For Plans with three (3) to eight (8) eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed two (2). For Plans with nine (9) to eleven (11) eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed three (3). For Plans with twelve (12) to nineteen (19) eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed four (4). For Plans with twenty (20) to twenty-nine (29) eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed five (5). For Plans with thirty (30) or more eligible NHCEs, the allowable number of NHCE allocation rates cannot exceed the number of eligible NHCEs divided by five (5) (rounded down to the next whole number if the result of dividing is not a whole number), but shall not exceed twenty-five (25).

(b) Age Weighted Allocation Method – If the Age Weighted Allocation Method is selected in the Adoption Agreement, the total Employer contribution will be allocated to each eligible Participant such that the equivalent benefit accrual rate for each Participant is identical. The equivalent benefit accrual rate is the annual annuity commencing at the Participant’s testing age, expressed as a percentage of the Participant’s Compensation as defined in paragraph 1.17 which is provided from the allocation of Employer contributions and forfeitures for the Plan Year, using standardized actuarial assumptions that satisfy 1.401(a)(4)-12 of the Income Tax Regulations. The Participant’s testing age is the later of Normal Retirement Age, or the Participant’s current age.

The allocation methodology used in determining a Participant’s individual allocation must satisfy one of the following three allocation rules:

(c) Minimum Allocation Gateway – Each eligible Non-Highly Compensated Employee has an allocation rate that is equal to the lesser of five percent (5%) of the Employee’s Compensation (as defined in paragraph 1.17), or one-third of the allocation rate of the Highly Compensated Employee with the highest allocation rate. The allocation rate for each group of Highly Compensated Employees will be as stated in an addendum to the Adoption Agreement.

(d) Broadly Available Allocation Rates – Each allocation rate will be currently available [within the meaning of Regulations Section 1.401(a)(4)-4(b)(2)] to a group of Employees that satisfies Code Section 410(b) without regard to the average benefit percentage test. If two allocation rates are permissively aggregated under Regulations Section 1.401(a)(4)-4(d)(4), they are aggregated and treated as a single allocation rate. The ability to disregard the age and service conditions of Regulations Section 1.401(a)(4)-4(b)(2)(ii)(A) does not apply for purposes of this paragraph. The allocation rate for each group of Employees will be as stated in the addendum to either the new comparability cash or deferred profit sharing or new comparability profit sharing Adoption Agreement(s) (whichever is applicable).

(e) Gradually Increasing Age Or Service Schedule – Each allocation rate increases smoothly at regular intervals within a series of bands based solely on age, based solely on Years of Service, or based on the number of points representing the sum of age and Service (age and Service points), as designated in the Adoption Agreement, such that the same allocation rate applies to all Employees whose age, Years of Service, or age and Service points are within each band. If age-only bands are used, all Participants younger than age twenty-five (25) are deemed to be in the first band. If the age and Service point band is used, all Participants with a sum of age and Service that is less than twenty-five (25) are deemed to be in the first band.

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The specific categories of Participant should be such that resulting allocations are provided in a definite predetermined formula that complies with Regulations Section 1.401-1(b)(1)(ii). The number of allocation rates must not exceed the maximum allowable number of allocation rates. Highly Compensated Employees may each be in separate allocation groups. Eligible Non-Highly Compensated Employees must be grouped using allocation rates specified in the Adoption Agreement, or as stated in an addendum to the new comparability cash or deferred or new comparability profit sharing Adoption Agreement (whichever is applicable). The grouping of eligible Non-Highly Compensated Employees must be done in a reasonable manner and should reflect a reasonable classification in accordance with Regulations Section 1.410(b)(4)-4(b). Standard interest rates and standard mortality table assumptions in accordance with Regulations Section 1.401(a)(4)-12 must be used when testing the Plan for satisfaction of nondiscrimination requirements. In the case of self-employed individuals (i.e., sole proprietorships or partnerships), the requirements of Regulations Section 1.401(k)-1(a)(6) continue to apply, and the allocation method should not be such that a cash or deferred election is created for a self-employed individual as a result of application of the allocation method.

Standard interest rates and mortality table assumptions in accordance with Regulations Section 1.401(a)(4)-12 must be used when testing the Plan for satisfaction of the nondiscrimination requirements. A table of age-weighted factors that comply with the previous sentence may also be used.

3.10 Target Benefit Plan Contribution

The Employer’s annual contribution to a Target Benefit Plan shall be determined by a Stated Benefit Formula and corresponding factor tables contained in the Adoption Agreement and shall be allocated to Participants as provided in paragraph 5.3. This notwithstanding, the Employer’s contribution for any Plan Year shall be subject to the limitations on allocations contained in Article X and shall not be less than the minimum contribution required at Article XIV for Top-Heavy Plans.

3.11 Davis-Bacon Plan Contribution

The Employer will irrevocably contribute the amount determined in accordance with the contribution formula or formulas elected on the Davis-Bacon Adoption Agreement. An Employer may take credit for purposes of the Davis-Bacon Act or any other Federal, state or municipal Davis-Bacon prevailing wage law at the hourly rate specified in an addendum attached to the Davis-Bacon Adoption Agreement. Contributions made by the Employer to the Plan for the Davis-Bacon work performed by the Employer’s covered Employees during the Plan Year may be used as an offset for any Employer contributions to be made to another Defined Contribution Plan sponsored by the Employer. “Davis-Bacon or Prevailing Wage Contributions” may be treated as Qualified Non-Elective Contributions, which become nonforfeitable and that are distributable only in accordance with the distribution provisions (other than Hardships) that are applicable to Elective Deferrals, Roth Elective Deferrals and Qualified Matching Contributions. Contributions made on behalf of Participants who do not perform prevailing wage work cannot be used as a credit towards meeting the Employer’s obligation under the prevailing wage or Davis-Bacon plan.

3.12 Uniform Dollar Contribution

The Employer’s contribution to a Plan utilizing a uniform dollar allocation formula for a Plan Year shall be the same dollar amount to each Participant regardless of Compensation, Years of Service, age or any other variable set forth in the Adoption Agreement.

3.13 Uniform Points Contribution

The Employer’s contribution to a Plan utilizing a uniform points allocation formula for a Plan Year shall be in the same ratio that each Participant’s points, as elected in the Adoption Agreement, bears to the total points awarded to all Participants for the Plan Year.

3.14 403(b) Matching Contribution

If a tax-exempt Employer elects in the 401(k) Adoption Agreement to make a Matching Contribution based on the Employee’s Elective Deferral or Roth Elective Deferral contributions under the Code Section 403(b) Plan, the Employer shall make a Matching Contribution to the Matching Contribution Account of those Participants who make Elective Deferrals or Roth Elective Deferrals (while an Employee and a Participant in the Plan) and who are eligible under the Adoption Agreement to receive the Matching Contribution. Any such Matching Contribution made to the Plan will be allocated under the formula elected in the Adoption Agreement. In the event the rate of Matching Contribution is determined to be discriminatory in favor of one or more Highly Compensated Employees, that part of the Matching Contribution as is necessary to make such rate nondiscriminatory shall be forfeited. Any such amount forfeited shall be disregarded under the Plan’s provisions relating to Code Sections 401(k)(3) and 401(m)(2).

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ARTICLE IV

EMPLOYEE CONTRIBUTIONS

4.1 Voluntary After-tax Contributions

If elected by an Employer in the Adoption Agreement, a Participant may make Voluntary After-tax Contributions to the Plan. These contributions are not excludable from the Participant’s gross income. Such contributions must be made in a uniform and nondiscriminatory manner. Such contributions are subject to the limitations on Annual Additions and are subject to ACP nondiscrimination testing. Any Voluntary After-tax Contribution shall not be a condition precedent to the contribution or allocation of any Employer contribution to the Participant. Under any Plan established hereunder and if permitted in the Plan’s loan policy document, a Participant may repay a defaulted loan from the Plan with voluntary after-tax dollars. The Employer may permit buy-back of amounts previously forfeited with after-tax dollars even if Voluntary After-tax Contributions are not permitted in the Plan. Any buy-back of amounts previously forfeited must be subject to uniform and nondiscriminatory rules that do not operate in favor of Highly Compensated Employees. Repayment of loans made to a Participant and buy-backs of cash-outs as described in Code Section 411(a)(7)(B) will not be considered Annual Additions as described in Regulations Section 1.415-6(b)(6). These amounts are not subject to the limitation contained in Code Section 401(m) in the year in which made, as they are not considered Annual Additions pursuant to Code Section 415.

4.2 Required After-tax Contributions

If elected by the Employer in the Adoption Agreement, each Eligible Participant shall be required to make Required After-tax Contributions to the Plan as a condition of participation in the Plan. Such contributions shall be withheld from the Employee’s Compensation and shall be transmitted by the Employer to the Trustee and/or Custodian. A Participant may discontinue participation or change his or her contribution percentage in accordance with either an election on the Adoption Agreement or uniform and nondiscriminatory rules established by the Employer. If a Participant discontinues his or her contributions, such Participant may not again authorize such contributions until a change is permitted in accordance with uniform and nondiscriminatory rules established by the Employer. The Employer may reduce a Participant’s contribution percentage if required to satisfy the ACP Test described in Article XI.

4.3 Qualified Voluntary Contributions

A Participant may no longer make Qualified Voluntary Contributions to the Plan for taxable years beginning after December 31, 1986. Amounts already contributed may remain in the Plan until distributed to the Participant. Such amounts will be maintained in a separate account that will be nonforfeitable at all times. The account will share in the gains and losses of the Trust in the same manner as described at paragraph 5.5. No part of the Qualified Voluntary Contribution Plan account will be used to purchase life insurance. Subject to Article VIII, Joint and Survivor Annuity Requirements (if applicable), the Participant may withdraw any part of the Qualified Voluntary Contribution account by making written application to the Plan Administrator.

4.4 Rollover Contributions

Unless elected otherwise in the Adoption Agreement, a Participant/Employee may make a Rollover Contribution to a Defined Contribution Plan established hereunder of all or any part of an amount distributed or distributable to him or her from a Qualified Plan or an individual retirement account (IRA) qualified under Code Section 408 where the IRA was used as a conduit from a Qualified Plan provided:

(a) the amount distributed to the Participant/Employee is deposited to the Plan no later than the sixtieth day after such distribution was received by the Participant/Employee,

(b) the amount distributed is not one of a series of substantially equal periodic payments made for the life (or life expectancy) of the Participant/Employee or the joint lives (or joint life expectancies) of the Participant/Employee and the Participant’s/Employee’s Beneficiary, or for a specified period of ten (10) years or more,

(c) the amount distributed is not a required minimum distribution under Code Section 401(a)(9),

(d) if the amount distributed included property, such property is rolled over only upon the Trustee, Custodian and/or Employer’s approval, or if sold, the proceeds of such property may be rolled over,

(e) the amount distributed would otherwise be includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities), and

(f) unless otherwise elected in the Adoption Agreement, the amount rolled over does not include any amounts contributed on an after-tax basis by the Participant to the Qualified Plan.

(g) If elected by the Employer in the Adoption Agreement, the Plan will accept Participant Rollover Contributions and/or Direct Rollovers of distributions made after December 31, 2001, from the types of plans specified in the Adoption Agreement.

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(h) The Plan Administrator shall be held solely responsible for determining the tax-free status of any Rollover Contribution made to this Plan, and the Trustee and/or Custodian shall have no responsibility for any such determination.

(i) A Participant or an Employee may arrange for the direct transfer of his or her entire benefit from another Qualified Plan to the Plan established hereunder. Such transfer shall be made for any reason and may be in cash and/or in-kind. The Employer, the Trustee and/or Custodian, if applicable, in their sole discretion shall have the right to refuse to accept a transfer for any reason including but not limited to the following reasons: that such assets do not comply operationally; the proposed transfer would result in a prohibited transaction; the assets are not readily marketable; or they are not compatible with the Employer’s investment policy objectives. If necessary, for accounting and recordkeeping purposes, Transfer Contributions shall be treated in the same manner as Rollover Contributions.

(j) In the event the Employer accepts a Transfer Contribution from a Plan in which the Participant or Employee was directing the investment of his or her account, the Employer may, if the Employer determines that it is appropriate and not in violation of the nondiscrimination rules under Regulation Section 1.401(a)(4)-4, permit the Participant or Employee to continue to direct his or her investments in accordance with paragraph 12.7 with respect only to such Transfer Contribution.

(k) Notwithstanding any provision of this Plan to the contrary, to the extent that any optional form of benefit under the Plan established hereunder permits a distribution prior to the Employee’s Normal Retirement Age, death, Disability, or severance from employment, and prior to Plan termination, the optional form of benefit is not available with respect to benefits attributable to assets (including the post-transfer earnings thereon) and liabilities that are transferred, within the meaning of Code Section 414, to this Plan from a money purchase pension plan qualified under Code Section 401(a) (other than any portion of those assets and liabilities attributable to Voluntary After-tax Contributions).

(l) Unless otherwise elected in the Adoption Agreement, an Employee is not required to be a Participant in order to make a Rollover or Transfer Contribution.

(m) If elected in the Adoption Agreement, the Plan shall accept a Direct Rollover from another Roth Elective Deferral Account under a retirement plan as described in Code Section 402A(e)(1). When a portion of a distribution is from a Roth Elective Deferral Account, the rollover of any such distribution pursuant to Code Section 402A(c)(3) must be accomplished through a Direct Rollover and can only be made to a plan qualified under Code Section 401(a) which agrees to separately account for the amount not includible in income. The transferring Plan shall report the amount of the investment in the contract (contributions as well as associated earnings) and the first year of the five (5) year period to the plan established hereunder. For purposes of this paragraph, the five (5) taxable year period of Plan participation is the period of five (5) consecutive taxable years that begins with the first day of the first taxable year in which the Participant makes a designated Roth Elective Deferral to any designated Roth Elective Deferral Account established for the Participant under the plan and ends when five (5) consecutive taxable years have been completed. For this purpose, the first taxable year in which a Participant makes a designated Roth Elective Deferral is the year in which the amount is first includible in the Participant’s gross income.

4.5 Voluntary Direct Transfers Between Plans

A Participant or Employee shall be able to transfer amounts up to his or her entire benefit between qualified Defined Contribution Plans [other than a direct transfer described in Code Section 401(a)(31)] without regard to whether the Participant’s benefit is immediately distributable or results in the elimination or reduction of Code Section 411(d)(6) protected benefits. Such a transfer does not violate Code Section 411(d)(6) if the following requirements are met:

(a) The plan from which the benefits are transferred must provide that the transfer is conditioned upon a voluntary, fully informed election by the Participant to transfer his or her entire benefit to another qualified Defined Contribution Plan. As an alternative to the transfer, the Participant must be offered the opportunity to retain the Participant’s Code Section 411(d)(6) protected benefits under the Plan [or if the Plan is terminating, to receive any optional form of benefit for which the Participant is eligible under the Plan as required by Code Section 411(d)(6)].

(b) The transferring plan must be the same plan type as the Plan sponsored by the Employer. When benefits are being transferred from a qualified cash or deferred arrangement under Code Section 401(k), the benefits must be transferred to a qualified cash or deferred arrangement under Code Section 401(k). Money purchase pension plans must be transferred to money purchase pension plans. Benefits transferred from a profit-sharing plan other than a 401(k) plan or employee stock ownership plan may be transferred to any type of Defined Contribution Plan, even if the event is not one that allows a distribution.

(c) This type of elective transfer is only available for transfers made on or after September 6, 2000, even if the transaction or change of employment occurred prior to that date.

(d) If the conditions outlined in (a), (b), and (c) above are met, the Employer’s Plan is not required to protect optional forms of benefits available under the prior plan with respect to any benefit transferred [except as required by the Qualified Joint and Survivor Annuity requirements under Code Sections 401(a)(11) and 417]. Such a transfer is not a protected optional form of benefit, but rather is a “right or feature” under Regulation Section 1.401(a)(4)-4(e).

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4.6 Elective Deferrals In A 401(k) Plan

(a) Elective Deferrals are Employer contributions made to the Plan at the election of the Participant in lieu of cash compensation. With respect to any taxable year, a Participant’s Elective Deferrals are the sum of all Employer contributions made on behalf of such Participant pursuant to an election to defer under any qualified cash or deferred arrangement (“CODA”) described in Code Section 401(k), any salary reduction simplified employee pension described in Code Section 408(k)(6), any SIMPLE IRA Plan described in Code Section 408(p), any Plan described under Code Section 501(c)(18), and any Employer contributions made on the behalf of a Participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement. For Plan Years beginning after 2005, the term “Elective Deferrals” includes both pre-tax Elective Deferrals and Roth Elective Deferrals. Pre-tax Elective Deferrals are a Participant’s Elective Deferrals that are not includible in the Participant’s gross income at the time deferred. Elective Deferrals or Roth Elective Deferrals shall not include any deferrals properly distributed as Excess Annual Additions.

(b) A Participant may enter into a Salary Deferral Agreement with the Employer authorizing the Employer to withhold a portion of such Participant’s Compensation not to exceed the dollar limit under Code Section 402(g), as adjusted under Code Section 415(d), for the Applicable Calendar Year, or the percentage or dollar amount of Compensation specified in the Adoption Agreement except to the extent permitted under paragraph 4.7 and Code Section 414(v), if applicable. The dollar limitation contained in Code Section 402(g) is $10,500 for taxable years beginning in 2000 and 2001 increasing to $11,000 for taxable years beginning in 2002 and increasing by $1,000 for each year thereafter up to $15,000 for taxable years beginning in 2006 and later years. After 2006, the $15,000 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code Section 402(g)(4). Any such adjustments will be in multiples of $500.

(c) Any Salary Deferral Agreement may not be effective earlier than the latest date of the following:

(1) The date of the Participant’s entry (or reentry) into the Plan;

(2) the execution of the Participant’s Salary Deferral Agreement;

(3) the date the Employer adopts the 401(k) Plan by executing the Adoption Agreement;

(4) the Effective Date of the Elective Deferral or Roth Elective Deferral provisions as specified in the Adoption Agreement;

(5) The first Entry Date after the Participant becomes subject to the Plan’s Automatic Enrollment Provisions.

(d) Any such contribution shall be credited to the Employee’s Elective Deferral or Roth Elective Deferral account, whichever is applicable. A Participant may terminate deferrals at any time. A Participant may amend his or her Salary Deferral Agreement to increase or decrease his or her deferral percentage upon notice in accordance with the provisions in the Adoption Agreement or such other uniform and nondiscriminatory procedures. The Employer shall determine the permitted frequency of such changes, which shall be no less frequently than once each calendar year. Any such election will be effective as soon as practicable following the receipt of the notification by the Employer in accordance with uniform and nondiscriminatory procedures established and communicated to the Participants. The Participant shall notify the Employer of any change in his or her deferral election in writing or in such other form or manner as permitted. The Employer may, notwithstanding any limit to the contrary in the Adoption Agreement, limit the maximum deferral percentage for any Employee including but not limited to Highly Compensated Employees. If a Participant terminates his or her agreement, such Participant shall be permitted to put a new Salary Deferral Agreement into effect as provided in the Adoption Agreement or any other uniform and nondiscriminatory procedures established. The Employer may also amend or terminate said agreement on notice to the affected Participant, if required to maintain the qualified status of the Plan.

(e) If permitted by the Employer, a Participant who has not authorized the Employer to withhold the maximum annual deferral amount pursuant to Code Section 402(g) and who desires to increase the total amount withheld for a Plan Year may authorize the Employer to withhold a supplemental amount up to 100% of his or her Compensation for one or more pay periods. In no event may the amounts withheld under the Salary Deferral Agreement plus any additional amount deferred pursuant to this paragraph, exceed the lesser of 100% of a Participant’s Compensation or any other limitation elected in the Adoption Agreement by the Employer.

(f) If the Plan permits Voluntary After-tax Contributions and the Employer has elected in the Adoption Agreement that all or any portion of amounts previously withheld under any Salary Deferral Agreement may be recharacterized as Voluntary After-tax Contributions within the Plan Year, such Elective Deferrals may be so recharacterized.

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(g) Elective Deferrals and Roth Elective Deferrals shall be deposited in the Plan’s Trust as soon as administratively feasible after being withheld from the Participant’s Compensation at the earliest date on which the contributions can reasonably be segregated from the Employer’s general assets, but no later than the time prescribed by the Code, ERISA or by applicable Treasury or Department of Labor Regulations.

(h) Elective Deferrals contributed to the Plan as either pre-tax Elective Deferrals or Roth Elective Deferrals may not be reclassified as the other type of deferral.

(i) Roth Elective Deferrals may be treated as Catch-Up Contributions.

(j) Employer Contributions generally may not be deemed as Elective Deferrals or Roth Elective Deferrals if they are remitted to the Trust before the payroll date associated with services rendered or before the services have been performed. An exception to the foregoing timing rule on deposits to the Trust is available where the earlier remittance of Elective Deferral or Roth Elective Deferral amounts is on account of bona fide administrative considerations (as more fully described in the Income Tax regulations), and that the timing of such remittance is not made for the principal purpose of accelerating deductions.

4.7 Catch-Up Contributions

Employees who are eligible to make Elective Deferrals or Roth Elective Deferrals under this Plan and who have attained age fifty (50) before the end of their taxable year shall be eligible to make Catch-Up Contributions in accordance with, and subject to the limitations of, Code Section 414(v). Such Catch-Up Contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Code Sections 402(g) and 415. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Code Section 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416, as applicable, by reason of the making of such Catch-Up Contributions. “Catch-Up Contributions” are Elective Deferrals or Roth Elective Deferrals made to the Plan that are in excess of an otherwise applicable Plan limit and that are made by Participants who are age fifty (50) or over by the end of their taxable years. An otherwise applicable Plan limit is a limit in the Plan that applies to Elective Deferrals or Roth Elective Deferrals without regard to Catch-Up Contributions, such as the limits on annual additions, the dollar limitation on Elective Deferrals or Roth Elective Deferrals under Code Section 402(g) (not counting Catch-Up Contributions) and the limit imposed by the Actual Deferral Percentage (ADP) test under Code Section 401(k)(3). Catch-Up Contributions for a Participant for a taxable year may not exceed:

(a) the dollar limit on Catch-Up Contributions under Code Section 414(v)(2)(B)(i) for the taxable year, or

(b) when added to other Elective Deferrals or Roth Elective Deferrals, seventy-five percent (75%) of the Participant’s Compensation for the taxable year.

The dollar limit on Catch-Up Contributions under Code Section 414(v)(2)(B)(i) is $1,000 for taxable years beginning in 2002, increasing by $1,000 for each year thereafter up to $5,000 for taxable years beginning in 2006 and later years. After 2006, the $5,000 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code Section 414(v)(2)(C). Any such adjustments will be in multiples of $500. Different limits apply to Catch-Up Contibutions under SIMPLE 401(k) Plans. Catch-Up Contributions are not subject to the limit on Annual Additions, are not counted in the ADP test and are not counted in determining the minimum allocation under Code Section 416 (but Catch-Up Contributions made in prior years are counted in determining whether the Plan is Top-Heavy). Provisions in the Plan relating to Catch-Up Contributions apply to Elective Deferrals or Roth Elective Deferrals made after 2001.

4.8 Elective Deferrals In A SIMPLE 401(k) Plan

If the Employer has executed a SIMPLE 401(k) Adoption Agreement, the following provisions shall apply:

(a) An Eligible Employee may enter into a Salary Deferral Agreement with the Employer authorizing the Employer to withhold a portion of such Eligible Employee’s Compensation, not to exceed the limitation on Elective Deferrals in effect for the calendar year. The limitation on Elective Deferrals is $6,000 for 2000, $6,500 for 2001, $7,000 for 2002 and increasing by $1,000 for each year thereafter up to $10,000 for 2005 and later years. After 2005, the $10,000 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code Section 408(p)(2)(E). Any such adjustments will be in multiples of $500. No Eligible Employee shall be permitted to make Elective Deferrals under this Plan, or any other Qualified Plan maintained by the Employer, during any taxable year in excess of the dollar limitation contained in Code Section 402(g) in effect in at the beginning of such taxable year. The $6,000 limit may be reduced if an Eligible Employee contributes pre-tax contributions to Qualified Plans of other employers.

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(b) In addition to any other election periods provided, each Participant may make or modify his Salary Deferral Agreement during the sixty (60) day election period immediately preceding each January 1.

(c) For the Plan Year in which an Eligible Employee becomes eligible to make Elective Deferrals under the SIMPLE 401(k) Plan provisions, the sixty (60) day election period requirement of paragraph 4.8(b) above is deemed satisfied if the Eligible Employee may make or modify a Salary Deferral Agreement election during a sixty (60) day period that includes either the date the Employee becomes eligible, or the day before.

(d) An Eligible Employee may amend his or her Salary Deferral Agreement to increase or decrease the percentage upon proper and timely notice to the Employer. The Employer shall determine the permitted frequency of such changes. An Eligible Employee may terminate his or her Salary Deferral Agreement at any time during the Plan Year upon notice to the Employer. If an Eligible Employee terminates his or her Salary Deferral Agreement, such Eligible Employee will be permitted to execute a new Salary Deferral Agreement in accordance with the provisions elected in the Adoption Agreement or any other uniform and nondiscriminatory procedure. The Employer may also amend or terminate any Salary Deferral Agreement on notice to the affected Eligible Employee, if required to maintain the qualified status of the Plan.

(e) If permitted by the Employer, a Participant who has not authorized the Employer to withhold at the maximum annual deferral amount and desires to increase the total amount withheld for a Plan Year, such Participant may authorize the Employer to withhold an amount up to 100% of his or her Compensation for one or more pay periods. In no such event may the amounts withheld under the Salary Deferral Agreement, plus any additional amount deferred pursuant to this paragraph, exceed the lesser of 100% of a Participant’s Compensation. A Participant may terminate their Salary Deferral Agreement at any time.

(f) Elective Deferrals shall be deposited in the Plan’s Trust as soon as administratively feasible after being withheld from the Participant’s Compensation at the earliest date on which the contributions can reasonably be segregated from the Employer’s general assets but no later than the time prescribed by the Code, ERISA or by applicable Treasury or Department of Labor Regulations.

(g) The Employer will notify each Eligible Employee prior to the sixty (60) day election period described in paragraph 4.8(b) that he or she can make an Elective Deferral or modify a prior election during that period.

(h) The notification described in this subparagraph will indicate whether the Employer will provide a Matching Contribution described in paragraph 3.3(a) or a 2% Non-Elective Contribution described in paragraph 3.3(b).

(i) The Plan is not treated as a Top-Heavy Plan under Code Section 416 for any Plan Year for which the SIMPLE 401(k) Plan provisions apply.

(j) Except to the extent permitted under subparagraph (k) below, the Adoption Agreement, EGTRRA §631 and Code Section 414(v), the maximum salary reduction contribution that can be made to this Plan is the amount determined under Code Section 408(p)(2)(A)(ii) for the calendar year.

(k) Beginning in 2002, if elected by the Employer in the Adoption Agreement, all Employees who are eligible to make Elective Deferrals under this Plan and who have attained age fifty (50) before the end of the calendar year shall be eligible to make Catch-Up Contributions in accordance with, and subject to the limitations of, Code Section 414(v). Allowable Catch-Up Contributions are $500 for 2002, increasing by $500 for each year thereafter up to $2,500 for 2006. After 2006, the $2,500 limit will be adjusted by the Secretary of the Treasury for cost-of living increases under Code Section 414(v)(2)(C). Any such adjustments will be in multiples of $500. Catch-Up Contributions are otherwise treated the same as other Elective Deferrals. Such Catch-Up Contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Code Sections 401(k)(11), 408(p)(2)(A)(ii), 410(b) and 415(c) as applicable, by reason of the making of such Catch-Up Contributions.

(l) The ADP and ACP tests described in Article XI are treated as satisfied for any Plan Year in which this paragraph applies.

4.9 Roth Elective Deferrals In A 401(k) Plan

If elected by the Employer in the Adoption Agreement, eligible Employees (“Participants”) may make a designated Roth contribution to a 401(k) Plan as described in Code Section 402A. The term designated Roth contribution (which for purposes of this Plan shall also be referred to as a “Roth Elective Deferral”) shall mean an Elective Deferral made under a qualified cash or deferred arrangement that qualifies as a “qualified” Roth contribution Plan pursuant to Code Section 402A(b) and, to the extent permitted under the Plan, is:

(a) designated irrevocably by the Participant at the time of the cash or deferred election as a Roth Elective Deferral;

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(b) treated by the Employer as includible in the Participant’s income at the time the Employee would have received the amount in cash if the Participant had not made the cash or deferred election (i.e., by treating the contributions as wages subject to applicable withholding requirements); and

(c) maintained by the Plan in a separate account.

Under the separate accounting requirement of this paragraph, contributions and withdrawals of Roth Elective Deferrals must be credited and debited to a Roth Elective Deferral Account maintained for the Participant who made the designation and the Plan must maintain a record of the Participant’s investment in the contract (i.e., Roth Elective Deferrals that have not been distributed) with respect to the Participant’s Roth Elective Deferral Account. In addition, gains, losses, and other credits or charges must be separately allocated on a reasonable and consistent basis to the Roth Elective Deferral Account and other accounts under the Plan. Forfeitures may not be allocated to the Roth Elective Deferral Account. The separate accounting requirement applies at the time the Roth Elective Deferral is contributed to the Plan and must continue to apply until the Roth Elective Deferral Account is completely distributed. No contributions other than designated Roth Elective Deferrals and Rollover Contributions described in Code Section 402A(c)(3)(B) are permitted to be allocated to a designated Roth Elective Deferral account.

A Roth Elective Deferral must satisfy the requirements applicable to Elective Deferrals made under a qualified cash or deferred arrangement. A Roth Elective Deferral must satisfy the requirements of Regulations Section 1.401(k)-1(c) and (d) and is treated as an Employer Contribution for purposes of Code Sections 401(a), 401(k), 402, 404, 409, 411, 412, 415, 416 and 417. Additionally, Roth Elective Deferrals are treated as Elective Deferrals for purposes of the ADP Test and are subject to the rules of Code Section 401(a)(9)(A) and (B) in the same manner as an account that contains pre-tax Elective Deferrals. The rules regarding the frequency of elections apply in the same manner to both pre-tax Elective Deferrals and designated Roth Elective Deferrals. Thus, an Employee must have an effective opportunity to make (or change) an election to make Roth Elective Deferrals at least once during each Plan Year.

The Employer may make Matching Contributions based on a Participant’s Roth Elective Deferrals based on a formula elected in the Adoption Agreement. Matching Contributions shall not be allocated to any Roth Elective Deferral account. Any Matching Contribution shall be allocated to the Participant’s Matching Contribution Account. Roth Elective Deferrals may be treated as Catch-Up Contributions.

4.10 Automatic Enrollment

(a) If the Employer so elects in the Adoption Agreement, each Employee eligible under the Employer’s Code Section 401(k) cash or deferred arrangement shall automatically become a Participant in the Plan as of the first Entry Date after satisfying the Plan’s eligibility requirements. The default deferral contributions are to be treated as pre-tax Elective Deferrals. The Employer may elect in the Nonstandardized Adoption Agreement to apply the automatic enrollment provisions to current Employees and Participants or only to Employees hired on or after the Effective Date of the adoption of or the amendment to the Plan providing for the automatic enrollment provisions. If the Employer elects the provision to apply to current Employees, the Employer will apply the automatic enrollment provision to Employees who have not made an affirmative election to defer an amount to the Plan, including a zero (0) amount.

(b) After satisfying the Plan’s eligibility requirements, each Employee will have his or her Compensation automatically reduced by the percentage elected in the Adoption Agreement. These amounts will be contributed to the Plan. An election by the Employee not to make Elective Deferrals or to contribute a different percentage may be made at any time. The election is effective for the first pay period and subsequent pay periods (until superseded by a subsequent election) if filed when the Employee is hired, or within a reasonable period thereafter ending before the Compensation for the first pay period is currently made available. In the event an Employee has Elective Deferrals withheld pursuant to this provision and no investment directive has been received, any cash received shall be invested as provided for in paragraph 13.6 herein or another appropriate vehicle. If an Employee elects to receive cash in lieu of Elective Deferrals and the election is made when the Employee is hired or within a reasonable period thereafter ending before the Compensation is currently available, then no Elective Deferrals for the first pay period or subsequent pay periods are made on the Employee’s behalf to the Plan until the Employee makes a subsequent affirmative election to reduce his or her Compensation. Elections filed at a later date are effective as soon as administratively feasible pursuant to the election in the Adoption Agreement.

(c) If so elected in the Adoption Agreement, for those current Participants who are deferring at a percentage or dollar amount less than the amount elected on the Adoption Agreement, the Employer will in the first payroll period after the effective date of the amendment reduce the Participant’s Compensation by the difference between the Participant’s current deferral election and the election as stated on the Adoption Agreement.

(d) At the time an Employee is hired, the Plan Administrator shall provide the Employee a notice that explains the automatic enrollment provision. This notice will also explain the Employee’s right to elect to have no such Elective Deferrals made to the Plan or to alter the amount of those contributions. This notice will include the procedure for exercising the right and the timing for implementation of any such election. The Plan Administrator

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shall provide each Participant in the Plan with an annual notice of his or her Elective Deferral percentage and each Participant’s right to change the percentage, including the procedure for exercising that right and the timing for implementation of any such election. Prior to an Employee’s automatic enrollment becoming effective, the Plan Administrator will provide such Employee with appropriate guidance as to the procedures then in effect, for the Employee to make alternative elections referenced above. Each Employee deferring Compensation pursuant to this paragraph shall be deemed to have consented to an Elective Deferral contribution in the amount specified by the Employer in the Adoption Agreement, unless he/she has filed an election to the contrary with the Plan Administrator pursuant to the Plan’s administrative procedures.

(e) The Employer who has adopted the automatic enrollment provisions may adopt an administrative policy that increases the automatic deferral default amount each year in which the automatic enrollment provision is in effect. Unless the Employer specifies a different incremental amount, the automatic deferral default amount shall be no less than 3% in the first full year of a Participant’s participation in the Plan, increasing to no less than 4% in the next following Plan Year, no less than 5% in the second following Plan Year, and no less than 6% in all subsequent years.

4.11 RESERVED

4.12 Make-Up Contributions Under USERRA

A Participant who has the right to make-up Elective Deferrals, Roth Elective Deferrals, Voluntary After-tax Contributions and/or Required After-tax Contributions under USERRA shall be permitted to increase his or her Elective Deferral with respect to a make-up year without regard to any provision limiting contributions for such Plan Year. Make-up contributions shall be limited to the maximum amount permitted under the Plan and the statutory limitations applicable with respect to the make-up year. Employee-related make-up contributions must be made within the time period beginning on the date of reemployment and continuing for the lesser of five (5) years or three (3) times the period of military service.

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ARTICLE V

PARTICIPANT ACCOUNTS

5.1 Separate Accounts

The Plan Administrator or its agent shall establish a separate recordkeeping account for each Participant showing the fair market value of his or her Plan benefits. Each Participant’s account may be separated for recordkeeping purposes into the following sub-accounts:

Employer contributions:

(1) Non Safe-Harbor Matching Contribution Formula 1 Contributions

(2) Non Safe-Harbor Matching Contribution Formula 2 Contributions

(3) Qualified Matching Contributions

(4) Qualified Non-Elective Contributions

(5) Non-Elective Contributions Formula 1 Contributions

(6) Non-Elective Contributions Formula 2 Contributions

(7) Safe Harbor Matching Contributions

(8) Safe Harbor Non-Elective Contributions

(9) Davis-Bacon Contributions

(10) Target Benefit Contributions

(11) SIMPLE 401(k) Matching Contributions

(12) SIMPLE 401(k) Non-Elective Contributions

(13) Money Purchase Pension Plan Contributions

(b) Employee contributions:

(1) Voluntary After-tax Contributions

(2) Qualified Voluntary Contributions

(3) Elective Deferrals [other than Roth Elective Deferrals]

Roth Elective Deferrals

Required After-tax Contributions

Rollover Contributions

Transfer Contributions

Elective Deferrals in a SIMPLE 401(k) Plan

Deemed Traditional IRA Contributions

Deemed Roth IRA Contributions

5.2 Valuation Date

The Trustee shall value the Trust at the fair market value as of each Valuation Date and those Valuation Dates elected in the Adoption Agreement or as directed in writing by the Plan Administrator.

The fair market value of securities listed on a registered stock exchange will be the prices at which they were last traded on such exchange preceding the close of business on the Valuation Date. If the securities were not traded on the Valuation Date, or if the exchange on which they are traded was not open for business on the Valuation Date, then the securities will be valued at the prices at which they were last traded prior to the Valuation Date. Any unlisted

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security will be valued at its bid price next preceding the close of business on the Valuation Date, which bid price will be obtained from a registered broker or an investment banker. To determine the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may use any reasonable method to determine the value of such assets, or may elect to employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers.

All allocations for a particular Plan Year will be made as of the last Valuation Date(s) of that Plan Year or such other dates determined by the Plan Administrator.

5.3 Allocations To Participant Accounts

As of each Valuation Date elected by the Employer in the Adoption Agreement and/or on any date within the allocation period selected in writing by the Plan Administrator, each Participant’s account shall be adjusted to reflect:

(a) the Participant’s share of the Employer’s contribution and forfeitures as determined in the Adoption Agreement,

(b) any Employee contributions,

(c) any repayment of amounts previously distributed to a Participant upon a separation from Service and repaid by the Participant since the last Allocation Date,

(d) the Participant’s proportionate share of any investment earnings and increase in the fair market value of the Trust since the last Allocation Date, and

(e) loan repayments of principal and interest.

The Employer shall deduct from each account:

(f) any withdrawals or payments made from the Participant’s account since the last Allocation Date,

(g) the Participant’s proportionate share of any decrease in the fair market value of the Trust since the last allocation Date, and

(h) the Participant’s proportionate or “per capita” share of any fees and expenses paid from the Plan.

5.4 Allocating Employer Contributions

(a) The Employer must specify in the Adoption Agreement the manner in which the Employer’s contribution shall be allocated to Participants including any minimum contribution for Top-Heavy Plans. Employer contributions shall be allocated to all Participants eligible to receive a contribution as provided in the Adoption Agreement.

(b) Notwithstanding any provision of this Plan to the contrary, Participants will accrue the right to share in allocations of Employer contributions with respect to periods of qualified military service as provided in Code Section 414(u).

(c) At the end of each Plan Year the Plan Administrator shall re-determine any Matching Contribution for each Participant based on his or her eligible annual Compensation in accordance with the Matching Contribution formula elected by the Employer in the Adoption Agreement. Any Participant for whom any Matching Contribution has not been sufficiently made in accordance with the Matching Contribution formula elected by the Employer shall receive an additional Matching Contribution so that the total annual deferrals (whether pre-tax or after-tax) reflected as a percentage of eligible annual Compensation are matched in accordance with the Matching Contribution formula (“true-up” of Matching Contributions) selected by the Employer in the Adoption Agreement. If no election is made in the Adoption Agreement, no true-up of Matching Contributions will occur.

5.5 Allocating Investment Earnings And Losses

Account balances are adjusted to reflect actual income and investment gains and losses from the period beginning on the day following the last Valuation Date and ending on the current Valuation Date. Each Participant’s account shall receive a proportionate share of the actual income and investment gains and losses during the period. The value of accounts for allocation purposes shall be based on the value of all Participant accounts (without regard to any portion of any such account attributable to segregated investments) as of the last Valuation Date less withdrawals, distributions and expenses plus any contributions including deferrals (whether pre-tax or after-tax) if any, paid from the Trust since the last Valuation Date. Investment gains and losses shall be credited to all Participant accounts having a balance on the Valuation Date regardless of the vested status of such account and regardless of the Participant’s employment status. The Plan Administrator shall also have the right to adopt an alternative procedure for allocating income and investment gains and losses provided that such alternative procedure is uniform

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and does not discriminate in favor of Highly Compensated Employees. Any change in procedure shall be effective as of the next following Valuation Date or such other date as agreed to by the Employer and the Plan Administrator. Accounts with segregated investments shall receive the income or loss on such segregated investments. Investment gains or losses are determined separately for each investment alternative offered under the Plan.

(a) The value of a Participant’s account invested in a mutual fund (Registered Investment Company) will equal the value of a share in such fund multiplied by the number of shares credited to the Participant’s account.

(b) In the case of any pooled investment vehicle, earnings, gains or losses on the pooled investment vehicle will be allocated among the Participant’s accounts in proportion to the value of each Participant’s account invested in that investment vehicle immediately prior to the Valuation Date. The gain or loss attributed to each investment vehicle will be credited to or charged against the Participants’ account. Alternatively, the Plan Administrator or his designate may establish unit values for each pooled investment vehicle offered under the Plan in accordance with uniform procedures established by the Plan Administrator for this purpose. The value of the portion of a Participant’s account invested in a pooled investment vehicle will equal the value of a unit in such investment vehicle multiplied by the number of units credited to the account.

(c) In the case of any investment that is held specifically for a Participant’s account, any gain or loss on such investment will be charged or credited to that Participant’s account.

5.6 Allocation Adjustments

The Plan Administrator or his designate, if applicable, shall have the right to re-determine the value of Participant accounts if a previous allocation or valuation was performed incorrectly. Such re-determination shall be made without regard to the reason for the incorrect allocation. Such reasons may include, but are not limited to, incorrect contribution or Employee information provided by the Employer or representative of the Employer, incorrect valuation of Plan assets, incorrect determination of investment income and gains or losses, improper interpretation of the Plan’s allocation formulas or procedures, erroneous omission of Top-Heavy minimum contributions and failure to transmit, receive or interpret amendments to the allocation formulas, methods or procedures. Subject to express limits that may be imposed under the Code, the Plan Administrator reserves the right to delay the processing of any contribution, distribution or other transaction for any legitimate business reason (including, but not limited to, failure of systems or computer programs, failure of means of transmission of data, force majeure, the failure of any Service Provider to timely receive values or prices, or to correct for its errors omissions or the errors or omissions of any Service Provider). After having made any necessary adjustments, the Plan Administrator or his designate, if applicable, may issue either revised or adjusted statements to Participants with an explanation of the allocation adjustments.

5.7 Participant Statements

The Plan Administrator shall prepare a statement for each Participant not less frequently than annually. Statements may be prepared more frequently, as may be agreed between the Plan Administrator and the Service Provider or other entity responsible for the maintenance of Plan records or for valuing Plan assets. Each statement shall show the additions to and subtractions from the Participant’s account for the period since the last such statement and shall show the fair market value of the Participant’s account as of the current statement date.

5.8 Changes In Method And Timing Of Valuing Participants’ Accounts

If necessary or appropriate, the Plan Administrator may establish different or additional uniform and nondiscriminatory procedures for determining the fair market value of Participant’s accounts under the Plan.

5.9 Roth Elective Deferral Account

The Roth Elective Deferral account is the required separate account maintained to record the contribution and withdrawal of a Participant’s Roth Contributions and other adjustments as required by the Plan. Forfeitures may not be allocated to a Roth Elective Deferral Account and no contributions other than designated Roth Elective Deferrals will be allocated. If elected in the Adoption Agreement, Direct Rollover contributions described in Code Section 402A(c)(3) are permitted to be allocated to the Roth Elective Deferral Account. Each Participant’s Roth Elective Deferral Account shall continue to be maintained and administered separately until it is completely distributed. Income, losses and other credits or charges must be separately allocated on a reasonable and consistent basis to the Participant’s Roth Elective Deferral Account and other accounts under the Plan to ensure that the Roth Elective Deferral account maintains a record of the Participant’s interest in the Plan.

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ARTICLE VI

RETIREMENT BENEFITS AND DISTRIBUTIONS

6.1 Normal Retirement Benefits

A Participant shall be entitled to receive the balance held in his or her account upon attaining his or her Normal Retirement Age or at such earlier dates as the provisions of this Article VI and the Adoption Agreement may permit. If a Participant elects to continue working past his or her Normal Retirement Age, he or she will continue as an active Participant. If the Employer elects otherwise in the Adoption Agreement, distribution shall be made to such Participant at his or her request prior to his or her actual retirement. Distribution shall be made in the normal form, or if elected, in one of the optional forms of payment provided in the Adoption Agreement.

6.2 Early Retirement Benefits

If elected in the Adoption Agreement, an Early Retirement benefit may be available to individuals who meet the age and Service requirements that are specified in the Adoption Agreement. A Participant who attains his or her Early Retirement Date will become fully vested, regardless of any vesting schedule which otherwise might apply. If a Participant separates from Service with a nonforfeitable benefit before satisfying the age requirements, but after having satisfied the Service requirement, the Participant will be entitled to elect an Early Retirement benefit upon satisfaction of the age requirement.

6.3 Benefit Upon Death

Upon the death of a Participant prior to termination of employment, or upon the death of a terminated Participant prior to distribution of his or her Vested Account Balance, his or her Beneficiary will be entitled to the Participant’s Vested Account Balance determined as of the most recent Valuation Date coinciding with or immediately preceding the date of distribution. A Participant who dies prior to attainment of Normal Retirement Age but before termination of employment will become fully vested, regardless of any vesting schedule which otherwise might apply. If any Beneficiary who is alive on the date of the Participant’s death dies before receiving the entire death benefit to which he or she is entitled, the balance of the death benefit will be distributed to the Beneficiary’s Beneficiary in accordance with paragraph 7.6. The Plan Administrator’s determination that a Participant has died and that a particular person has a right to receive a death benefit will be final. Distribution will be made in accordance with paragraph 7.6.

6.4 Benefit Upon Disability

If a Participant suffers a Disability prior to termination of employment and terminates employment with the Employer as a result of that Disability, or if a terminated Participant suffers a Disability prior to a distribution of his or her Vested Account Balance, he or she will be entitled to his or her Vested Account Balance determined as of the most recent Valuation Date coinciding with or immediately preceding the date of distribution. A Participant who retires prior to attainment of Normal Retirement Age but before termination of employment on account of a Disability will become fully vested, regardless of any vesting schedule which otherwise might apply.

6.5 Benefits On Termination Of Employment

(a) If a Participant terminates employment prior to Normal Retirement Age, such Participant shall be entitled to receive the vested balance held in his or her account payable at Normal Retirement Age in the normal form, or if elected, in one of the other forms of payment provided hereunder and by the Employer in the Adoption Agreement. If applicable, the Early Retirement benefit provisions may be elected. Notwithstanding the preceding, a former Participant may, if allowed in the Adoption Agreement, make application to the Employer requesting early payment of any deferred vested and nonforfeitable benefit due.

(b) For purposes of this Article, if the value of a Participant’s Vested Account Balance is zero, the Participant shall be deemed to have received a distribution of such Vested Account Balance immediately following termination. If the Participant is reemployed prior to incurring five (5) consecutive one (1) year Breaks in Service or Periods of Severance, he or she will be deemed to have immediately repaid such distribution. Notwithstanding the above, if the Employer maintains or has maintained a policy of not distributing any amounts until the Participant’s Normal Retirement Age, the Employer can continue to uniformly apply such policy.

(c) If a Participant who is not 100% vested receives or is deemed to receive a distribution pursuant to this paragraph and resumes employment covered under this Plan, the Participant shall have the right to repay to the Plan the full amount of the distribution attributable to both Employer Contributions and Employee Contributions including Elective Deferrals and/or Roth Elective Deferrals on or before the earlier of the date the Participant incurs five (5) consecutive one (1) year Breaks in-Service following the date of distribution or five (5) years after the first date on which the Participant is subsequently reemployed. In such event, the Participant’s account shall be restored to the value thereof at the time the distribution was made. The account may be further increased by the Plan’s income and investment gains and/or losses on the undistributed amount from the date of the distribution to the date of repayment.

(d) If a Participant terminates employment with a Vested Account Balance greater than $5,000, and elects (with his or her Spouse’s consent, if required) to receive 100% of the value of his or her Vested Account Balance in a lump sum, the non-vested portion will be treated as a forfeiture. The Participant (and his or her Spouse, if required) must consent to any distribution when the Vested Account Balance described above exceeds $5,000.

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(e) A Participant whose Vested Account Balance is greater than $5,000 shall have the option to postpone payment of his or her Plan benefits until his or her Required Beginning Date. If elected in the Adoption Agreement, any balance in a Participant’s account resulting from his or her Employee contributions listed at paragraph 5.1(b), not previously withdrawn, may be withdrawn by the Participant immediately following separation from Service.

(f) Unless elected otherwise in the Adoption Agreement, if a Participant’s Vested Account Balance is $1,000 or less, after the Participant’s termination of employment, the distributions shall be in a lump sum and any non-vested amounts shall be immediately forfeited. Such distribution shall be paid to the Participant as soon as practicable after complying with the Federal tax withholding rules without the need for spousal consent. Terminated Participants receiving an involuntary distribution of $200 or more must be notified of their right to have such amounts directly rolled over to an IRA or Qualified Plan of their choosing.

If elected in the Adoption Agreement, when a terminating Participant or Employee does not make a timely election with respect to the cash-out distribution of amounts greater than $1,000 but less than or equal to $5,000, [pursuant to Code Sections 411(a)(7), 411(a)(11) and 417(e)(7)], the Plan Administrator shall make a Direct Rollover into an individual retirement account or annuity (“IRA”). The Plan Administrator will select the IRA trustee or custodian, establish the IRA, and make the initial IRA investment selection.

If elected in the Adoption Agreement, when the Participant does not elect to have such distribution paid directly to an Eligible Retirement Plan, as specified by the Participant, or does not elect to receive the distribution directly, the Plan Administrator shall pay the distribution in a Direct Rollover to an individual retirement plan that is designated by the Plan Administrator and is communicated to the Plan Participant. The extent to which Rollover Contributions will be included or excluded in determining the value of the Participant’s Vested Account Balance for purposes of the Plan’s involuntary cash-out rules will be governed by the election made in the Adoption Agreement. Rollover Contributions will always be considered in determining if the $1,000 automatic rollover threshold has been exceeded.

If elected in the Adoption Agreement, the value of a Participant’s nonforfeitable account balance shall be determined without regard to that portion of the account balance that is attributable to Rollover Contributions (and the earnings allocable thereto) within the meaning of Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii) and 457(e)(16). If the value of the Participant’s nonforfeitable account balance as so determined is $5,000 or less, the Plan shall immediately distribute the Participant’s entire nonforfeitable account balance, subject to this paragraph. Eligible Rollover Distributions from a Participant’s Roth Elective Deferral Account are taken into consideration in determining whether the total amount of the Participant’s account balances under the Plan exceeds the $1,000 threshold for purposes of mandatory distributions from the Plan.

(g) If elected by the Employer in the Adoption Agreement, this paragraph shall apply for distributions and severances from employment occurring after the dates specified in the Adoption Agreement.

A Participant’s Elective Deferrals, Roth Elective Deferrals, Qualified Non-Elective Contributions, Qualified Matching Contributions, and earnings attributable to these contributions shall be distributed on account of the Participant’s severance from employment. However, such a distribution shall be subject to the other provisions of the Plan regarding distributions, other than provisions that require a separation from Service before such amounts may be distributed.

(h) A Direct Rollover of a distribution from a Roth Elective Deferral Account under this Plan will be made to another Roth Elective Deferral Account under an applicable retirement plan described in Code Section 402A(e)(1) or to a Roth IRA described in Code Section 408A, and only to the extent the rollover is permitted under Code Section 402(c).

The Plan shall not provide for a Direct Rollover (including an automatic rollover) of distributions from a Participant’s Roth Elective Deferral Account if the amount of the distributions that are Eligible Rollover Distributions are reasonably expected to total less than $200 during a year. In addition, any distribution from a Participant’s Roth Elective Deferral Account are not taken into consideration in determining whether distributions from a Participant’s other accounts are reasonably expected to total less than $200 during a year.

(i) If the Plan permits partial distributions, a Participant shall be permitted to designate all or any portion of such distribution to be from the Roth Elective Deferral Account. This provision does not apply to a return of Excess Contribution or a distribution of Excess Elective Deferrals.

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6.6 Restrictions On Immediate Distributions

(a) An account balance is immediately distributable if any part of the account balance could be distributed to the Participant (or Surviving Spouse) before the Participant attains (or would have attained if not deceased) the later of the Normal Retirement Age or age sixty-two (62).

(b) If payment in the form of a Qualified Joint and Survivor Annuity is required and the value of a Participant’s Vested Account Balance exceeds $5,000, or there are remaining payments to be made with respect to a particular distribution option that previously commenced, and the account balance is immediately distributable, the Participant and his or her Spouse (or where either the Participant or the Spouse has died, the survivor) must consent to any distribution of such account balance.

(c) If payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to a Participant and the value of a Participant’s Vested Account Balance exceeds $5,000, and the account balance is immediately distributable, only the Participant must consent to any distribution of such account balance.

(d) The consent of the Participant and/or the Spouse shall be obtained in writing or in such other form accepted by the Plan Administrator within the ninety (90) day period ending on the Annuity Starting Date, which is the first day of the first period for which an amount is paid as an annuity or in any other form. The Plan Administrator shall notify the Participant and the Participant’s Spouse of the right to defer any distribution until the Participant’s account balance is no longer immediately distributable. Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Code Section 417(a)(3), and shall be provided no less than thirty (30) days and no more than ninety (90) days prior to the Annuity Starting Date.

(e) If the distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than thirty (30) days after the notice required under Regulations Section 1.411(a)-11(c) is given provided that:

(1) the Plan Administrator clearly informs the Participant that the Participant has the right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and

(2) the Participant after receiving the notice affirmatively elects a distribution.

If a distribution is one to which Code Section 417 does apply, the distribution may commence less than thirty (30) days, but not less than seven (7) days after the notice required under Regulations Section 1.411(a)-11(c) is given, provided that the conditions of sub-paragraphs (1) and (2) above are satisfied with regard to both the Participant and the Participant’s Spouse.

Notwithstanding the foregoing, only the consent of the Participant to the commencement of a distribution in the form of a Qualified Joint and Survivor Annuity is required while the account balance is immediately distributable. Furthermore, if payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to the Participant pursuant to paragraph 8.7 of the Plan, only the Participant must consent to the distribution of an account balance that is immediately distributable. Neither the consent of the Participant nor the Participant’s Spouse shall be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or Code Section 415 or constitutes Excess Deferrals, Excess Contributions or Excess Aggregate Contributions. In addition, upon termination of this Plan if the Plan does not offer an annuity option (purchased from a commercial provider), the Participant’s account balance may, without the Participant’s consent, be distributed to the Participant or transferred to another Defined Contribution Plan [other than an employee stock ownership plan as defined in Code Section 4975(e)(7)] within the same controlled group.

(g) For purposes of determining the applicability of the foregoing consent requirements to distributions made before the first day of the first Plan Year beginning after December 31, 1988, the Participant’s Vested Account Balance shall not include amounts attributable to accumulated deductible employee contributions within the meaning of Code Section 72(o)(5)(B).

(h) Any Plan established hereunder which is making distributions to any former Employee, Participant or surviving Spouse may charge reasonable Plan administrative expenses to the account of that former Employee, Participant or surviving Spouse, but only if the administrative expenses are apportioned on a pro-rata basis, i.e., the expenses are based on the amount in each account of a former Employer, Participant or surviving Spouse receiving benefits from the Plan, (or another reasonable basis that complies with the requirements of Title I of ERISA). However, the allocation of Plan expenses still must meet the nondiscrimination rules of Code Section 401(a)(4).

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6.7 Normal And Optional Forms Of Payment

(a) The normal form of payment for a profit sharing, 401(k) or SIMPLE 401(k) plan shall be designated in the Adoption Agreement. If no election is made in the Adoption Agreement, the Plan will default to the normal form of benefit being a lump sum, and the safe harbor provisions of paragraph 8.7 shall apply.

(b) A Plan other than a money purchase pension plan, a target benefit plan or a profit-sharing plan required to provide a Joint and Survivor benefit may be amended to eliminate or restrict optional payment forms provided that a single lump sum payment option remains available. The remaining lump sum must have the same (or less restrictive) timing of distribution, medium of distribution and eligibility conditions that were available for the eliminated forms of payment.

Each optional form of benefit provided under a Prototype Plan (other than any that have been prospectively eliminated) must be currently available to all Employees benefiting under the Plan. This is the case regardless of whether a particular form of benefit is the actuarial equivalent of any other optional form of benefit under the Plan. Code Section 411(d)(6) prevents a Plan from being amended to eliminate or restrict optional forms of benefits and any other Code Section 411(d)(6) protected benefits with respect to benefits attributable to Service before the amendments except as expressly provided under the Regulations Section 1.411(d)-4.

(c) For money purchase and target benefit plans, the normal form of payment hereunder shall be a Qualified Joint and Survivor Annuity as provided under Article VIII. Effective January 1, 2002, the Employer may elect in the Adoption Agreement to eliminate any periodic payment options that are not required by the Qualified Joint and Survivor Annuity rules such as but not limited to installment payments.

(d) The normal form of payment shall be automatic, unless the Participant files a written request with the Employer prior to the date on which the benefit is automatically payable, electing another option available under the Plan.

(e) As elected in the Adoption Agreement, a Participant shall (with the consent of his or her Spouse, if applicable) have the right to receive his or her benefit in a single lump sum or in installment payments. Installment payments need not be equal or substantially equal until such time as the individual reaches his or her Required Beginning Date. Installment payments which are intended to be equal or substantially equal can be made monthly, quarterly, semi-annually or annually based on any period not extending beyond the joint and survivor life expectancy of the Participant and his or her Beneficiary.

(f) Benefits payable under the Plan may be distributed in cash or in-kind as elected in the Adoption Agreement. The Employer may also elect on the Adoption Agreement to limit a Participant’s right to receive distributions in the form of marketable securities (other than Employer securities) and to require distributions in the form of cash only. Only the right to receive a distribution in the form of cash, Employer securities and/or other property that is not marketable is protected.

(g) A Plan that permits its Participants to receive in-kind distributions may limit the available in-kind distributions to the investments listed in the Adoption Agreement and only to the extent the investments are held in the Participant’s account at the time of the distribution. A Plan may be amended to limit the investments that may be distributed in-kind. The amendment must include all investments (other than marketable securities for which cash may be substituted) that are held in a Participant’s account at the time of the amendment and for which the Plan, prior to such amendment, allowed for distribution of those investments in kind. The right to an in-kind distribution for investments held at the time of the distribution would only have to be protected to the extent such investment was in the Participant’s account at the time the amendment was adopted or effective, if later.

(h) Promissory notes of Participants may be distributed in-kind pursuant to the Employer’s loan policy document.

(i) Distribution of benefits payable in the form of installments shall be paid in cash.

(j) The Plan Administrator shall have the sole responsibility to determine the propriety, amount, and form of any distribution made under the terms of this Plan and such determination will be final. Upon such determination, the Plan Administrator shall direct the Trustee and/or Custodian in writing or by any such other means as expressly agreed upon, to make such a distribution.

6.8 Distribution In Event Of Incapacity

If any person who is entitled to receive a distribution of benefits (the “Payee”) suffers from a Disability or is under a legal incapacity, payments may be made in one or more of the following ways as directed by the Plan Administrator:

(a) to the Payee directly; or

(b) to the guardian or legal representative of the Payee’s person or estate.

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The Plan Administrator’s determination of the minority or incapacity of any Payee will be final.

6.9 Commencement Of Benefits

(a) Unless the Participant elects otherwise, distribution of benefits will begin no later than the sixtieth day after the close of the Plan Year in which the latest of the following events occurs:

(1) the Participant attains age sixty-five (65) (or Normal Retirement Age if earlier),

(2) the tenth anniversary of the year in which the Participant commenced participation in the Plan, or

(3) the Participant terminates Service with the Employer.

(b) Notwithstanding the foregoing, the failure of a Participant and Spouse (if necessary) to consent to a distribution while a benefit is immediately distributable within the meaning of paragraph 6.6 hereof, shall be deemed an election to defer commencement of payment of any benefit sufficient to satisfy this paragraph.

6.10 In-Service Withdrawals

If elected in the Adoption Agreement, an Employer may elect to permit a Participant in the Plan to make an in-service withdrawal, subject to any limitation(s) specified in the Adoption Agreement.

(a) Unless indicated otherwise on the Adoption Agreement, a Participant may withdraw all or any part of the fair market value of his or her Voluntary or Required After-tax Contributions as described in Article IV, other than Elective Deferrals or Roth Elective Deferrals, upon request to the Plan Administrator. No amount of the Employer’s Contribution will be forfeited solely as a result of a Participant’s withdrawal of an amount pursuant to this paragraph 6.10. Unless indicated otherwise in the Adoption Agreement, Rollover and Transfer Contributions, and the income allocable to each, may be withdrawn at any time.

(b) Subject to Article VIII, Joint and Survivor Annuity Requirements (if applicable) and pursuant to the Employer’s election in the Adoption Agreement, a Participant may be eligible to withdraw any part of his or her Qualified Voluntary Contribution account by making application to the Plan Administrator. A request to withdraw amounts pursuant to this paragraph must be consented to by the Participant’s Spouse, unless the Plan satisfies the safe harbor under paragraph 8.7 hereof. Spousal consent, if required, shall comply with the requirements of paragraph 6.6 relating to immediate distributions.

(c) A Participant may withdraw all or any part of the fair market value of his or her pre-1987 Voluntary Contributions with or without withdrawing the earnings attributable thereto. Post-1986 Voluntary Contributions may only be withdrawn along with a portion of the earnings thereon. The amount of the earnings to be withdrawn is determined by using the formula: DA [1-(V ÷ V+E)], where DA is the distribution amount, V is the amount of Voluntary Contributions and V+E is the amount of Voluntary Contributions plus the earnings attributable thereto. The aggregate value of the Participant’s Vested Account Balance derived from Employer and Employee contributions (including Rollovers), whether vested before or upon death, includes the proceeds of insurance contracts, if any, on the Participant’s life. The provisions of this Article shall apply to a Participant who is vested in amounts attributable to Employer contributions, Employee contributions (or both) at the time of death or distribution.

(d) Under a Profit Sharing Plan and to the extent that the Employer elects in the Adoption Agreement, the Participant is required to satisfy at least one of the following conditions to make an in-service withdrawal of all or any part of the Participant’s vested Non-Safe Harbor Matching Contributions and Non-Elective Contributions.

(1) An Employee who has been a Participant in the Plan for at least five (5) years may, prior to separating from Service with the Employer, elect to withdraw all or any part of the vested Non-Safe Harbor Matching Contributions and Non-Elective contributions.

(2) Vested Non-Safe Harbor Matching and Non-Elective Contributions which have been in the Plan for at least two (2) years may be withdrawn.

(3) A Participant who has attained age 59 ¹/2 may, prior to separation from Service, elect to withdraw all or any part of their vested Non-Safe Harbor Matching Contributions and Non-Elective contributions.

(4) A Participant may only withdraw amounts which are 100% vested.

(5) The Employer may require any or all of these conditions to be satisfied prior to an in-service distribution being made from the Plan.

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(e) Unless otherwise elected by the Employer in the Adoption Agreement, Elective Deferrals, Roth Elective Deferrals, Qualified Non-Elective Contributions, Safe Harbor Matching and Non-Elective Contributions, and Qualified Matching Contributions, and income allocable to each, are not distributable to a Participant earlier than upon severance of employment (separation from Service for Plan Years beginning before 2002), death, or Disability. Such amounts may also be distributed upon:

(1) termination of the Plan without the establishment of another Defined Contribution Plan other than an employee stock ownership plan [as defined in Code Section 4975(e)(7)] or a Simplified Employee Pension Plan [as defined in Code Section 408(k)], or a SIMPLE IRA plan [as defined in Code Section 408(p)], a Plan or contract described in Code Section 403(b) or a Plan described in Code Section 457(b) or (f) at any time during the period beginning on the date of Plan termination and ending twelve (12) months after all assets have been distributed from the Plan. Such distribution must be made in a lump sum;

(2) the attainment of age 59 ¹/2 in the case of a profit-sharing plan; or

(3) the Hardship of a Participant as described in paragraph 6.11.

(f) An in-service withdrawal shall not be eligible for redeposit to the Trust. A withdrawal under this paragraph shall not prohibit such Participant from sharing in any future Employer contribution he or she would otherwise be eligible to receive. Payment will be made in accordance with the administrative policy set by the Employer.

(g) Money purchase pension plans and target benefit plans shall allow in-service withdrawals only after the Participant’s attainment of the Normal Retirement Age provided it is so specified in the Adoption Agreement.

(h) Notwithstanding any provisions of the Plan to the contrary, to the extent that any optional form of benefit under this Plan permits a distribution prior to the Participant’s retirement, death, Disability, or separation from Service, and prior to Plan termination, the optional form of benefit shall not be available with respect to benefits attributable to assets (including the post-transfer earnings thereon) and liabilities that are transferred within the meaning of Code Section 414(l), to this Plan from a money purchase pension plan qualified under Code Section 401(a) (other than any portion of those assets and liabilities attributable to Voluntary After-tax Contributions).

(i) If elected in the Adoption Agreement, a Participant may withdraw any amount not in excess of the vested amount of Non-Elective Contributions, Elective Deferrals, Roth Elective Deferrals and Matching Contributions, if the withdrawal is made after the Participant attains age 59 ¹/2.

(j) If a distribution is made at a time when a Participant has a nonforfeitable right to less than 100% of the account balance derived from Employer contributions and the Participant may increase the nonforfeitable percentage in the account:

(1) a separate account will be established for the Participant’s interest in the Plan as of the time of the distribution, and

at any relevant time the Participant’s nonforfeitable portion of the separate account will be equal to an amount (“X”) determined by the formula: X = P [AB + D] – D. For purposes of applying the formula: “P” is the nonforfeitable percentage at the relevant time, “AB” is the account balance at the relevant time, “D” is the amount of the distribution.

(k) Effective August 17, 2006, a Participant who is ordered or called to active duty after September 11, 2001 and prior to December 31, 2007 may take a Qualified Reservist Distribution if the following are satisfied:

(1) the distribution consists solely of Elective Deferrals in a Code Section 401(k) Plan;

(2) the Participant was ordered or called to active duty for a period in excess of one hundred and seventy nine (179) days or for an indefinite period; and

(3) the distribution from the Plan is made during the period which begins on the date of such order or call and ends at the close of the active duty period.

The ten percent (10%) early withdrawal penalty tax will not apply to a Qualified Reservist Distribution, which meets requirements stated above.

(l) Unless elected otherwise on the Adoption Agreement, the Plan Administrator may implement on a uniform and nondiscriminatory basis an ordering rule for in-service withdrawals from a Participant’s account attributable to pre-tax Elective Deferrals or Roth Elective Deferrals.

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6.11 Hardship Withdrawals

If elected in the Adoption Agreement, a Participant may request a Hardship withdrawal as provided in this paragraph. If applicable, Hardship withdrawals are subject to the spousal consent requirements in Code Sections 401(a)(11) and 417. A request to make a withdrawal on account of Hardship must be consented to by the Participant’s Spouse unless the Plan satisfies the safe harbor provisions under paragraph 8.7 hereof. Spousal consent, if required, shall comply with the requirements of paragraph 6.6 relating to immediate distributions.

If elected in the Adoption Agreement, a Participant shall be permitted to make a Hardship withdrawal of any amount attributable to the vested portion of Elective Deferrals or Roth Elective Deferrals (and any earnings credited to a Participant’s account as of the later of December 31, 1988, and the end of the last Plan Year ending before July 1, 1989). Unless elected otherwise in the Adoption Agreement, vested Non-Elective Contributions, Matching Contributions, Rollover Contributions, Transfer Contributions and the income allocable to each (without regard to attainment of age 59 ¹/2 or Disability) may be available for Hardship withdrawal if the Participant establishes that an immediate and heavy financial need exists and the withdrawal is necessary to satisfy such financial need. A Participant may withdraw all or any part of the fair market value of his or her Voluntary or Required After-tax Contributions due to a Hardship upon request to the Plan Administrator. Such request shall be made in accordance with procedures adopted by the Plan Administrator or his or her designate, who shall have sole authority to authorize and direct a Hardship withdrawal pursuant to the following rules:

(a) For purposes of this paragraph, an immediate and heavy financial need of the Employee is one which cannot reasonably be relieved by borrowing from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need. In any event, a Hardship distribution may not be requested in excess of the amount of the immediate and heavy financial need described at paragraph (b) including amounts necessary to pay any Federal, state or local income taxes or penalties reasonably anticipated to result from the distribution.

(b) An immediate and heavy financial need exists when the Hardship withdrawal will be used to pay the following:

(1) expenses incurred or necessary for medical care that would be deductible under Code Section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted gross income) of the Participant, his or her Spouse, children and other dependents;

(2) the cost directly related to the purchase (excluding mortgage payments) of the principal residence of the Participant;

(3) payment of tuition and related educational expenses (including but not limited to expenses associated with room and board) for up to the next twelve (12) months of post-secondary education for the Participant, his or her Spouse, children or other dependents [as defined in Code Section 152, and for the taxable years beginning or after January 1, 2005, without regard to Code Sections 152(b)(1), (b)(2) and (d)(1)(B)];

(4) the need to prevent eviction of the Participant from, or a foreclosure on the mortgage of, the Participant’s principal residence;

The following reasons constituting an immediate and heavy financial need that permit a Hardship Withdrawal application shall apply for Plan Years beginning after December 31, 2005, unless adopted earlier by the Employer:

(5) payments for burial or funeral expenses for the Participant’s deceased parent, Spouse, child or dependent [as defined in Code Section 152, and for taxable years beginning on or after January 1, 2005, without regard to Code Section 152(d)(1)(B)]; or

(6) expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income).

(c) A distribution is not treated as necessary to satisfy an immediate and heavy financial need of a Participant to the extent the need may be relieved from other resources that are reasonably available to the Participant. For purposes of this paragraph, the Participant’s resources are deemed to include those assets of the Participant’s Spouse and minor children that are reasonably available to the Participant. However, property held for the Participant’s child under an irrevocable trust or under the Uniform Gifts to Minors Act (or comparable state law) is not treated as a resource of the Participant.

If the Plan Administrator approves a request for a Hardship withdrawal, funds shall be withdrawn from the contribution sources as elected in the Adoption Agreement unless provided otherwise by the Plan Administrator in an administrative procedure. Liquidation of a Participant’s assets for the purpose of a Hardship withdrawal will be allocated on a pro-rata basis across all the investment alternatives in a Participant’s account, unless otherwise provided by a directive from the Plan Administrator or by the Plan Participant.

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If Elective Deferrals (including Roth Elective Deferrals, if any), Voluntary After-tax, or Required After-tax Contributions are withdrawn under 6.11(b) above, such amounts will be suspended for all plans maintained by the Employer (other than benefits under Code Section 125 plans) for six (6) months after the receipt of the Hardship distribution. The Code Section 402(g) limit for 2002 does not have to be reduced with respect to a Participant who has received a Hardship distribution in calendar year 2001.

(d) The Plan Administrator may implement on a uniform and nondiscriminatory basis an ordering rule for Hardship withdrawals from a Participant’s account attributable to pre-tax Elective Deferrals or Roth Elective Deferrals.

(e) Effective August 17, 2006, if Hardship withdrawals are permitted in the Plan, the Plan’s Hardship withdrawal provisions shall apply to the Participant’s Beneficiary in addition to the Participant’s Spouse or dependent. The Beneficiary to which this applies must have an unconditional right to all or a portion of the Participant’s account balance under the Plan upon the Participant’s death.

6.12 Direct Rollovers

(a) This paragraph applies to distributions made after December 31, 2001. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this part, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution that is equal to at least $500 paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. If an Eligible Rollover Distribution is less than $500, a Distributee may not make the election described in the preceding sentence to rollover a portion of the Eligible Rollover Distribution.

(b) This paragraph applies to distributions made on or after January 1, 1993, and prior to January 1, 2002. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this part, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution that is equal to at least $500 paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover.

(c) Definitions

(1) Eligible Rollover Distribution – An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or Life Expectancy) of the Distributee or the joint lives (or Joint Life Expectancies) of the Distributee and the Distributee’s Designated Beneficiary, or for a specified period of ten (10) years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); any Hardship distribution described in Code Section 401(k)(2)(B)(i)(IV) received after December 31, 1998, the portion of any other distribution(s) that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities); and any other distribution(s) that is reasonably expected to total less than $200 during a year. For purposes of this paragraph, any amount that is distributed on account of Hardship shall not be an Eligible Rollover Distribution and the Distributee may not elect to have any portion of such a distribution paid directly to an Eligible Retirement Plan.

(2) Eligible Retirement Plan – An Eligible Retirement Plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a Qualified Plan described Code Section 401(a), that accepts the Distributee’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity.

(3) Distributee – A Distributee includes an Employee or former Employee. In addition, the Employee’s or former Employee’s surviving Spouse and the Employee’s or former Employee’s Spouse or former Spouse who is the alternate payee under a Qualified Domestic Relations Order, as defined in Code Section 414(p), are Distributees with regard to the interest of the Spouse or former Spouse.

(4) Direct Rollover – A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.

(d) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Participant’s election under this paragraph, for distributions made on or after January 1, 1993, a Participant may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan or individual retirement account specified by the Participant in a Direct Rollover. Any portion of a distribution that is not paid directly to an Eligible Retirement Plan or individual retirement

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account, pursuant to such Participant’s direction shall be distributed to the Participant. For purposes of this paragraph, a surviving Spouse or a Spouse or former Spouse who is an alternate payee under a Qualified Domestic Relations Order as defined in Code Section 414(p), will be permitted to elect to have any Eligible Rollover Distribution paid directly to an individual retirement account (IRA) or an individual retirement annuity (IRA) or to another Qualified Plan in which the alternate payee is a participant.

(e) If the entire Vested Account Balance is not eligible for a Direct Rollover of benefits as described in (a) above, the Participant may either make an elective transfer of the entire Vested Account Balance pursuant to the procedure described at paragraph 4.5 or a Direct Rollover of the portion which can be rolled over as described in (a) above and an elective transfer of the rest as described in paragraph 4.5 herein.

(f) After December 31, 2001, the elective transfer of distributable benefits will be available only if the Direct Rollover provisions of Code Section 401(a)(31) would not be available to transfer the Participant’s entire Vested Account Balance to the transferee plan. This elective transfer option will only be available in the following circumstances:

The Plan does not have a single sum distribution option available. The benefits are distributable only in a periodic payment method.

The distribution includes benefits that are not eligible for rollover treatment, including benefits attributable to after-tax contributions, required minimum distributions or other amounts that have previously been included in income.

For purposes of this paragraph, a portion of the distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of Voluntary After-tax Contributions that are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Code Section 408(a) or (b), or to a qualified Defined Contribution Plan described in Code Section 401(a) or 403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

(g) When a portion of a distribution is from a Roth Elective Deferral account, the rollover of any such distribution pursuant to Code Section 402A(c)(3) must be accomplished through a Direct Rollover and can only be made to a plan qualified under Code Section 401(a) which agrees to separately account for the amount not includible in income. The transferring Plan shall report the amount of the investment in the contract (contributions as well as associated earnings) and the first year of the five (5) year period to the recipient plan so that the recipient plan will not need to rely on the information from the Distributee.

For purposes of this paragraph, the five (5) taxable year period of Plan participation is the period of five (5) consecutive taxable years that begins with the first day of the first taxable year in which the Participant makes a designated Roth Elective Deferral to any designated Roth Elective Deferral Account established for the Participant under the same plan and ends when five (5) consecutive taxable years have been completed. For this purpose, the first taxable year in which a Participant makes a designated Roth Elective Deferral is the year in which the amount is first includible in the Participant’s gross income.

(h) A Direct Rollover of a distribution from a Roth Elective Deferral Account under this Plan will be made to another Roth Elective Deferral Account under an applicable retirement plan described in Code Section 402A(e)(1) or to a Roth IRA described in Code Section 408A, and only to the extent the rollover is permitted under Code Section 402(c). The Plan shall not provide for a Direct Rollover (including an automatic rollover) of distributions from a Participant’s Roth Elective Deferral Account if the amount of the distributions that are Eligible Rollover Distributions are reasonably expected to total less than $200 during a year. In addition, any distribution from a Participant’s Roth Elective Deferral Account are not taken into consideration in determining whether distributions from a Participant’s other accounts are reasonably expected to total less than $200 during a year.

6.13 Participant’s Notice

In the event that a Participant’s benefit becomes payable under Plan terms or if a Participant requests distribution of his or her benefit, the Plan Administrator shall provide such Participant with a notice regarding distribution of such benefit. The notice shall describe any Plan related information regarding the distribution including the Joint and Survivor Annuity requirements provided at paragraph 6.6(d), if applicable, the normal and optional forms of payment provided at paragraph 6.7, and the information required in connection with an Eligible Rollover Distribution. Information in connection with an Eligible Rollover Distribution shall include the right to have the funds transferred directly to another Qualified Plan or individual retirement account, the income tax withholding requirements, the rollover rules with respect to amounts distributed to the Participant, the default Direct Rollover provisions of Vested Account Balances greater than $1,000 but less than or equal to $5,000 (including any other appropriate information such as the name and address, and telephone number of the IRA Trustee and information regarding IRA maintenance and withdrawal fees and how the IRA funds will be invested), and the general tax rules which apply to such distributions. Such notice shall be provided to the Participant within the time period prescribed at paragraph

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6.6(d) hereof or, if the safe harbor provisions of paragraph 8.7 are applicable, not less than thirty (30) days prior to the Annuity Starting Date, subject to a waiver period of a lesser number of days if elected by the Participant and if applicable, their Spouse. A default Direct Rollover will occur not less than thirty (30) days and not more than ninety (90) days after such notice with the explanation of the default Direct Rollover is provided to the separating Participant.

6.14 Assets Transferred From Money Purchase Pension Plans

Notwithstanding any provision of this Plan to the contrary, to the extent that any optional form of benefit under this Plan permits a distribution prior to the Employee’s retirement, death, Disability, or severance from employment, and prior to Plan termination, the optional form of benefit shall not be available with respect to benefits attributable to assets (including the associated post-transfer earnings) and liabilities that are transferred, within the meaning of Code Section 414(l), to this Plan from a money purchase pension plan qualified under Code Section 401(a) (other than any portion of those assets and liabilities attributable to Voluntary After-tax Contributions).

6.15 Assets Transferred From A Code Section 401(k) Plan

If the Plan receives a direct transfer (by merger or otherwise) of Elective Deferrals or Roth Elective Deferrals (or amounts treated as Elective Deferrals) under a Plan with a Code Section 401(k) arrangement, the distribution restrictions of Code Sections 401(k)(2) and 401(k)(10) continue to apply to those transferred Elective Deferrals.

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ARTICLE VII

DISTRIBUTION REQUIREMENTS

7.1 Joint And Survivor Annuity Requirements

All distributions made under the terms of this Plan must comply with the provisions of Article VIII including, if applicable, the safe harbor provisions thereunder.

7.2 Designation Of Beneficiary

If a Participant completes or has completed a Beneficiary designation in which the Participant designates his or her Spouse as the Beneficiary, and the Participant and the Participant’s Spouse are legally divorced subsequent to the date of such designation, then the designation of such Spouse as a Beneficiary hereunder will be deemed null and void unless the Participant, subsequent to the legal divorce, reaffirms the designation by completing a new Beneficiary designation form.

For purposes of the Plan, a Beneficiary is the person or persons designated as such in accordance with Code Section 401(a)(9) and the Regulations thereunder by the Participant or by the Participant’s surviving Spouse if the Participant’s surviving Spouse is entitled to receive distributions under the Plan. Such a designation by the Participant’s surviving Spouse, however, shall relate solely to the distributions to be made under the Plan after the death of both the Participant and the surviving Spouse. A Beneficiary designation shall be communicated to the Plan Administrator on a form or other type of communication acceptable to the Plan Administrator for use in connection with the Plan, signed by the designating person, and subject to the last sentence of this subparagraph (a), filed with the Plan Administrator in accordance with this paragraph not later than thirty (30) days after the designating person’s death. The form may name individuals, trusts or estates to take upon the contingency of survival and may specify or limit the manner of distribution thereto. In the event a Participant or the Participant’s surviving Spouse, as the case may be, fails to properly designate a Beneficiary (including, as improper, a designation to which the Participant’s surviving Spouse did not properly consent) or in the event that no properly designated Beneficiary survives the Participant or the Participant’s surviving Spouse, as applicable, then the Beneficiary of such person shall be his surviving Spouse or, if none, his issue per stirpes or, if no issue, the Participant’s surviving parents in equal shares, or if no surviving parents, then to the Participant’s estate.

The Beneficiary designation last accepted by the Plan Administrator during the designating person’s lifetime before such distribution is to commence shall be controlling and, whether or not fully dispositive of the vested portion of the account of the Participant involved, thereupon shall revoke all such forms previously filed by that person.

Notwithstanding subparagraph (a), the designation by a married Participant of any Beneficiary other than the Participant’s Spouse, or the change of any such Beneficiary to a new Beneficiary other than the Participant’s Spouse, shall not be valid unless made in writing and consented to by the Participant’s Spouse. The Spouse’s consent to such designation must be made in the manner described in this paragraph.

Any Beneficiary designation made and in effect under a Qualified Plan immediately prior to that Plan’s amendment and continuation in the form of this Plan shall be deemed to be a valid Beneficiary designation filed under this Plan to the extent consistent with this Plan. If such Beneficiary designation was made with respect to a Qualified Plan that permitted the Participant to designate without spousal consent a Beneficiary to receive 50% of the Participant’s account balance in the event of the Participant’s death, with respect to such Beneficiary designation under this Plan, this paragraph shall be applied by application of 50% of the vested portion of the Participant’s account toward the purchase of a Qualified Pre-Retirement Survivor Annuity and the balance of the Participant’s account shall be paid to the Designated Beneficiary pursuant to the provisions of Article VIII. In such event, the amount of Voluntary After-tax Contributions applied to the purchase of the annuity shall be in the same proportion as the Voluntary After-tax Contributions bear to the entire Participant’s account.

(d) In the absence of a Beneficiary designation or other directive from the deceased Participant to the contrary, any Beneficiary may name his or her own Beneficiary to receive any benefits which may be payable in the event of the Beneficiary’s death prior to the receipt of all the Participant’s death benefits to which the Beneficiary was entitled.

(e) Notwithstanding any provision in this section, any Beneficiary named hereunder will be considered a contingent Beneficiary until the death of the Participant (or Beneficiary, as the case may be), and until such time will have no rights granted to Beneficiaries under the Plan.

7.3 Minimum Distribution Requirements

All distributions required under this Article shall be determined and made in accordance with the minimum distribution requirements of Code Section 401(a)(9) and the Regulations issued thereunder, including the minimum distribution incidental benefit rules found at Regulations Section 1.401(a)(9)-(G). The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant’s Required Beginning Date. Life Expectancy and joint and last survivor life expectancies are computed by using the expected return multiples found in Regulations

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Section 1.72-9. The provisions of this Article will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year. Notwithstanding the other provisions of this Article, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (“TEFRA”) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

7.4 Limits On Distribution Periods

As of the First Distribution Calendar Year, distributions, if not made in a single sum, may only be made over one of the following periods (or a combination thereof):

the life of the Participant,

the life of the Participant and a Designated Beneficiary,

a period certain not extending beyond the life expectancy of the Participant, or

a period certain not extending beyond the joint and last survivor life expectancy of the Participant and a Designated Beneficiary.

7.5 Required Beginning Date

The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date as defined at paragraph 1.94.

7.6 Death Of Participant Before Distributions Begin

If the Participant dies before required distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(a) If the Participant’s surviving Spouse is the Participant’s sole designated Beneficiary, then, except as provided in the Adoption Agreement, distributions to the surviving Spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 ¹/2, if later.

(b) If the Participant’s surviving Spouse is not the Participant’s sole Designated Beneficiary, then, except as provided in the Adoption Agreement, distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(c) If there is no Designated Beneficiary as of the date of the Participant’s death who remains a Beneficiary as of September 30 of the year immediately following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(d) If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary and the surviving Spouse dies after the Participant but before distributions to the surviving Spouse begin, this paragraph 7.6, with the exception of paragraph 7.6(a), will apply as if the surviving Spouse were the Participant.

For purposes of this paragraph and paragraphs 7.10 and 7.11, unless subparagraph 7.6(d) applies, distributions are considered to begin on the Participant’s Required Beginning Date. If subparagraph 7.6(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving Spouse under paragraph 7.6(a). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s Required Beginning Date [or to the Participant’s surviving Spouse before the date distributions are required to begin to the surviving Spouse under paragraph 7.6(a)], the date distributions are considered to begin is the date distributions actually commence.

7.7 Forms Of Distributions

Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Beginning Date, as of the First Distribution Calendar Year distributions will be made in accordance with paragraph 7.8 through paragraph 7.11. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code Section 401(a)(9) and the corresponding Treasury Regulations.

7.8 Amount Of Required Minimum Distribution For Each Distribution Calendar Year

During the Participant’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:

(a) the quotient obtained by dividing the Participant’s account balance including Roth Elective Deferrals by the distribution period set forth in the Uniform Lifetime Table found in Regulations Section 1.401(a)(9)-9, Q&A-2, using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or

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(b) if the Participant’s sole Designated Beneficiary for the Distribution Calendar Year is the Participant’s Spouse, the quotient obtained by dividing the Participant’s account balance by the number in the Joint and Last Survivor Table set forth in Regulations Section 1.401(a)(9)-9, Q&A-3, using the Participant’s and Spouse’s attained ages as of the Participant’s and Spouse’s birthdays in the Distribution Calendar Year.

7.9 Lifetime Required Minimum Distributions Continue Through Year Of Participant’s Death

Required minimum distributions will be determined under this paragraph and paragraph 7.8 beginning with the first Distribution Calendar Year and continuing up to and including the Distribution Calendar Year that includes the Participant’s date of death.

7.10 Death On Or After Required Distributions Begin

(a) Participant Survived By Designated Beneficiary – If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s Designated Beneficiary, determined as follows:

(1) The Participant’s remaining life expectancy is calculated in accordance with the Single Life Table found in Regulations Section 1.401(a)(9)-9, Q&A-1, using the age of the Participant in the year of death, reduced by one (1) for each subsequent year.

(2) If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, the remaining life expectancy of the surviving Spouse is calculated in accordance with the Single Life Table found in Regulations Section 1.401(a)(9)-9, Q&A-1, for each Distribution Calendar Year after the year of the Participant’s death using the surviving Spouse’s age as of the Spouse’s birthday in that year. For Distribution Calendar Years after the year of the surviving Spouse’s death, the remaining life expectancy of the surviving Spouse is calculated using the age of the surviving Spouse as of the Spouse’s birthday in the calendar year of the Spouse’s death, reduced by one (1) for each subsequent calendar year.

(3) If the Participant’s surviving Spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining life expectancy is calculated under the Single Life Table using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one (1) for each subsequent year.

(b) No Designated Beneficiary – If the Participant dies on or after the date required distributions begin and there is no Designated Beneficiary as of the Participant’s death who remains a Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the Participant’s remaining life expectancy calculated under the Single Life Table, using the age of the Participant in the year of death, reduced by one (1) for each subsequent year.

7.11 Death Before Date Required Distributions Begin

(a) Participant Survived By Designated Beneficiary – If the Participant dies before the date required distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the remaining life expectancy of the Participant’s Designated Beneficiary, determined as provided in paragraph 7.10.

(b) No Designated Beneficiary – If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of the date of death of the Participant who remains a Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(c) Death Of Surviving Spouse Before Distributions To Surviving Spouse Are Required To Begin – If the Participant dies before the date distributions begin, the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, and the surviving Spouse dies before distributions are required to begin to the surviving Spouse under paragraph 7.6(a), this paragraph shall apply as if the surviving Spouse were the Participant.

7.12 Prior Pre-Retirement Distribution Options

(a) Elimination of Pre-Retirement Age 70 ¹/2 Distribution Option – The pre-retirement age 70 ¹/2 distribution option will only be eliminated for Employees who reach age 70 ¹/2 in or after a calendar year that begins after the later of December 31, 1998, or the date of adoption of this amended Plan. The pre-retirement age 70 ¹/2 distribution option is an optional form of benefit under which benefits payable in a particular distribution form

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(including any modifications that may be elected after benefit commencement) begin at a time during the period that begins on or after January 1 of the calendar year in which an Employee reaches age 70 ¹/2 and ends April 1 of the immediately following calendar year.

(b) Election to Defer – If the Plan Administrator offered an election to defer distributions, a Participant who is not a 5% owner who reaches age 70 ¹/2 in years after 1995 and who made the election by April 1 of the calendar year following the year in which he or she reached age 70 ¹/2 (or by December 31, 1997, in the case of a Participant who reached age 70 ¹/2 in 1996) may defer distribution until the calendar year following the calendar year in which his or her retirement occurs. If the Plan Administrator does not offer such an election, or if the election is offered but not made, the Participant will begin receiving distributions by April 1^st of the calendar year following the year in which he or she reaches age 70 ¹/2 (or by December 31, 1997 in the case of a Participant who reached age 70 ¹/2 in 1996).

(c) Election to Suspend – If the Plan Administrator offered an election to suspend distributions, a Participant who is not a 5% owner who reached age 70 ¹/2 prior to 1997 and who made the election may stop distributions and recommence by April 1 of the calendar year following the year in which the Participant actually retires. In such an event, the Plan Administrator may elect that a new Annuity Starting Date will begin upon the distribution recommencement date.

7.13 Transitional Rules

Notwithstanding the other requirements of this Article and subject to the requirements of Article VIII, Joint and Survivor Annuity Requirements, distribution on behalf of any Employee, including a 5% owner may be made in accordance with all of the following requirements, regardless of when such distribution commences:

(1) the distribution by the Plan is one which would not have disqualified such Plan under Code Section 401(a)(9) as in effect prior to amendment by the Deficit Reduction Act of 1984,

(2) the distribution is in accordance with a method of distribution designated by the Participant whose interest in the Plan is being distributed or, if the Participant is deceased, by a Beneficiary of such Participant,

(3) such designation was in writing, was signed by the Participant or the Beneficiary, and was made before January 1, 1984,

(4) the Participant had accrued a benefit under the Plan as of December 31, 1983, and

(5) the method of distribution designated by the Participant or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Participant’s death, the Beneficiaries of the Participant listed in order of priority.

(b) A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Participant.

(c) For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Participant or the Beneficiary to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made, if the method of distribution was specified in writing and the distribution satisfies the requirements in subparagraphs (a)(1) through (5) above.

(d) If a designation is revoked, any subsequent distribution must satisfy the requirements of Code Section 401(a)(9) and the Regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Plan must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Code Section 401(a)(9) and the Regulations thereunder, but for the Code Section 242(b)(2) election of the Tax Equity and Fiscal Responsibility Act of 1982. For calendar years beginning after 1988, such distributions must meet the minimum distribution incidental benefit requirements in Regulations Section 1.401(a)(9)-2. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Regulations Section 1.401(a)(9)-8, Q&A-14 and Q&A-15 shall apply.

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7.14 Distributions To Minors And Individuals Who Are Legally Incompetent

Benefits payable to either a minor or an individual who has been declared legally incompetent shall be paid, at the direction of the conservator appointed either under a court order or applicable state law that permits such an individual to be a court appointed guardian for the benefit of said minor or incompetent.

7.15 Unclaimed Benefits

(a) The Plan Administrator shall notify Participants or Beneficiaries by certified or registered mail sent to his or her last known address of record with the Employer when their benefits become distributable as provided at paragraph 6.10 hereof. If a Participant or Beneficiary does not respond to the notice within ninety (90) days of the date of the notice, the Plan Administrator may take reasonable steps to locate the Participant or Beneficiary including, but not limited to, requesting assistance from the Employer, Employees, Social Security Administration and/or the Internal Revenue Service.

(b) If the Participant cannot be located after a period of twelve (12) months, or such other period determined by the Plan Administrator, the Plan Administrator shall treat the benefit as a forfeiture pursuant to paragraph 9.8. The forfeiture provisions of this subparagraph 7.15(b) apply only to the Participant’s or Beneficiary’s account balance which is less than $1,000. If the Employer does not make a contribution for the Plan Year during which the forfeiture takes place, such amount shall first be applied to pay Plan expenses and, if there are no such expenses, it shall then be allocated to eligible Participant accounts as if the amount were the Employer’s contribution for such Plan Year.

(c) If a Participant or Beneficiary later makes a claim for such benefit, the Plan Administrator shall validate such claim and provide the Participant or Beneficiary with all notices and other information necessary for the Participant or Beneficiary to perfect the claim. If the Plan Administrator validates the claim for benefits, the Participant’s account balance shall be restored to the benefit amount treated as a forfeiture. Such benefit shall not be adjusted for investment earnings or losses during the period beginning on the date of forfeiture and ending on the date of restoration. The funds necessary to restore the Participant’s account will first be taken from amounts eligible for reallocation or other disposition as forfeitures with respect to the Plan Year. If such funds do not exist or if such funds are insufficient, the Employer will make a contribution prior to the date on which the benefit is payable to restore such Participant’s account. Such benefit shall be paid or commence to be paid in the same manner as if the benefit was eligible for distribution on the date the claim for benefit is validated.

(d) The Plan Administrator shall follow the same procedure in locating and subsequently treating as a forfeiture the benefit of a Participant or Beneficiary whose benefit has been properly paid under Plan terms but where the Participant or Beneficiary has not negotiated the benefit check(s).

(e) Notwithstanding the foregoing, the Plan Administrator may establish alternative procedures for locating and administering the benefits of missing Plan Participants, including but not limited to re-establishing the Participant’s account.

(f) In the event of a Plan termination, the Plan Administrator shall apply such search methods for locating missing Participants as described in the Department of Labor Field Assistance Bulletin 2004-02 as it considers in its sole discretion appropriate under the circumstances.

(g) In making distributions from a terminating Plan on behalf of Participants who are either determined to be missing or who otherwise fail to elect a method of distribution in connection with the termination of the Plan, the Plan Administrator shall comply with the relevant requirements of proposed Treasury Regulation §2550.404a-2, without regard to the amount involved in the rollover distribution.

(h) Unless elected otherwise in the Adoption Agreement, if a terminated Participant cannot be located, the Participant’s Vested Account Balance is in excess of $1,000 but not greater than $5,000, and no Participant election has been made regarding the disposition of his or her Vested Account Balance, the automatic rollover provisions of Code Section 401(a)(31)(B) as contained in paragraph 6.5 shall be applied to said account.

7.16 TEFRA 242(b) Election

Notwithstanding the other provisions of this Article, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (“TEFRA”) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

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ARTICLE VIII

JOINT AND SURVIVOR ANNUITY REQUIREMENTS

8.1 Applicability Of Provisions

The provisions of this Article shall apply to any Participant who is credited with at least one (1) Hour of Service with the Employer and such other Participants as provided in paragraph 8.8.

8.2 Payment Of Qualified Joint And Survivor Annuity

Unless an optional form of benefit is selected pursuant to a Qualified Election within the ninety (90) day period ending on the Annuity Starting Date, a Participant’s Vested Account Balance will be paid in the form of a Qualified Joint and Survivor Annuity. For this purpose, a Qualified Joint and Survivor Annuity with respect to an unmarried Participant’s Vested Account Balance will be paid in the form of a straight life annuity. A straight life annuity means an annuity payable in equal installments for the life of the Participant that terminates upon the Participant’s death. The Participant may elect to have such annuity distributed upon attainment of the Early Retirement Age under the Plan, if any.

8.3 Payment Of Qualified Pre-Retirement Survivor Annuity

Unless an optional form of benefit has been elected within the Election Period pursuant to a Qualified Election, if a Participant dies before benefits have commenced then the Participant’s Vested Account Balance shall be paid in the form of a life annuity for the life of the surviving Spouse. The surviving Spouse may elect to have such annuity distributed within a reasonable period after the Participant’s death. If no election has been made within the Election Period prior to the Participant’s death, the surviving Spouse shall have the right to select an optional form of benefit after the Participant’s death. Such election will only be permitted if the surviving Spouse is provided with a notice similar to that required under paragraph 8.5 except that the notice will be modified to explain a life annuity rather than a Qualified Joint and Survivor Annuity.

A Participant who does not meet the age thirty-five (35) requirement set forth in the Election Period as of the end of any current Plan Year may make a special Qualified Election to waive the Qualified Pre-Retirement Survivor Annuity for the period beginning on the date of such election and ending on the first day of the Plan Year in which the Participant will attain age thirty-five (35). Such election shall not be valid unless the Participant receives a written explanation of the Qualified Pre-Retirement Survivor Annuity in such terms as are comparable to the explanation required under paragraph 8.5. Qualified Pre-Retirement Survivor Annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age thirty-five (35). Any new waiver on or after such date shall be subject to the full requirements of this Article.

8.4 Qualified Election

A Qualified Election is an election to either waive a Qualified Joint and Survivor Annuity or a Qualified Pre-Retirement Survivor Annuity. Any such election shall not be effective unless:

the Participant’s Spouse consents in writing to the election,

the election designates a specific Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries, which may not be changed without spousal consent unless the Spouse expressly permits designations by the Participant without any further spousal consent,

the Spouse’s consent acknowledges the effect of the election, and

the Spouse’s consent is witnessed by a Plan representative or notary public.

A Participant’s waiver of the Qualified Joint and Survivor Annuity shall not be effective unless the election designates a form of benefit payment that may not be changed without spousal consent unless the Spouse expressly permits designations by the Participant without any further spousal consent. If it is established to the satisfaction of the Plan Administrator that the Participant is unmarried or that the Spouse cannot be located, a waiver will be deemed a Qualified Election. Any consent by a Spouse obtained under this provision (or establishment that the consent of a Spouse cannot be obtained) shall be effective only with respect to such Spouse. A consent that permits designations by the Participant without any requirement of further consent by such Spouse must acknowledge that the Spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit where applicable, and that the Spouse voluntarily elects to relinquish either or both of such rights. A Participant may revoke a prior waiver without the consent of the Spouse at any time before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in paragraphs 8.5 and 8.6 below.

8.5 Notice Requirements For Qualified Joint And Survivor Annuity

In the case of a Qualified Joint and Survivor Annuity, the Plan Administrator shall, no less than thirty (30) days and no more than ninety (90) days prior to the Annuity Starting Date, provide each Participant a written explanation of:

the terms and conditions of a Qualified Joint and Survivor Annuity,

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the Participant’s right to make and the effect of an election to waive the Qualified Joint and Survivor Annuity form of benefit,

the rights of a Participant’s Spouse, and

the right to make and the effect of a revocation of a previous election to waive the Qualified Joint and Survivor Annuity.

The Annuity Starting Date may be less than thirty (30) days after and may be before receipt of the written explanation described in the preceding paragraph provided that:

the Plan Administrator clearly informs the Participant and the Participant’s Spouse that they have a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether to waive the Qualified Joint and Survivor Annuity and elect (with spousal consent) a form of distribution other than a Qualified Joint and Survivor Annuity; and

the Participant is permitted to revoke any affirmative distribution election at least until the Annuity Starting Date or, if later, at any time prior to the expiration to the seven (7) day period that begins the day after the explanation of the Qualified Joint and Survivor Annuity is provided to the Participant.

8.6 Notice Requirements For Qualified Pre-Retirement Survivor Annuity

In the case of a Qualified Pre-Retirement Survivor Annuity as described in paragraph 8.3, the Plan Administrator shall provide each Participant within the applicable period for such Participant a written explanation of the Qualified Pre-Retirement Survivor Annuity in such terms and in such manner as would be comparable to the explanation provided for meeting the requirements of paragraph 8.5 applicable to a Qualified Joint and Survivor Annuity. The applicable period for a Participant is whichever of the following periods ends at the latest date:

(a) the period beginning with the first day of the Plan Year in which the Participant attains age thirty-two (32) and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age thirty-five (35),

(b) a reasonable period ending after the individual becomes a Participant, or

(c) a reasonable period ending after this Article first applies to the Participant.

Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from Service in the case of a Participant who separates from Service before attaining age thirty-five (35). If such a Participant subsequently returns to employment with the Employer, the applicable period for such Participant shall be redetermined.

For purposes of applying the preceding paragraph, a reasonable period ending after the events described in (b) and (c) is the end of the two (2) year period beginning one (1) year prior to the date the applicable event occurs, and ending one (1) year after that date. In the case of a Participant who separates from Service before the Plan Year in which age thirty-five (35) is attained, notice shall be provided within the two (2) year period beginning one (1) year prior to separation and ending one (1) year after separation.

8.7 Special Safe Harbor Exception For Certain Profit-Sharing Or 401(k) Plans

This paragraph shall apply to a Participant in a profit-sharing or 401(k) plan, and to any distribution, made on or after the first day of the first Plan Year beginning after 1988, from or under a separate account attributable solely to Qualified Voluntary Contributions, as maintained on behalf of a Participant in a money purchase pension plan or target benefit plan, if the following conditions are satisfied:

the Participant does not elect payments in the form of a life annuity, and

on the death of a Participant, the Participant’s Vested Account Balance will be paid to the Participant’s Surviving Spouse, but if there is no surviving Spouse, or if the Surviving Spouse has consented to, in a manner conforming to a Qualified Election, then to the Participant’s Beneficiary.

The surviving Spouse may elect to have distribution of the Vested Account Balance commence within the ninety (90) day period following the date of the Participant’s death. The account balance shall be adjusted for gains or losses occurring after the Participant’s death in accordance with the provisions of the Plan governing the adjustment of account balances for other types of distributions.

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(d) If a Plan is otherwise exempt from the Qualified Joint and Survivor Annuity requirements, the Qualified Joint and Survivor Annuity requirements are not triggered unless the Participant in the Plan actually elects a life annuity as a distribution option.

(e) These safe harbor rules shall not be applicable to a Participant in a profit-sharing or 401(k) plan if the Plan is the recipient of assets as the result of a merger with a plan which was subject to the survivor annuity requirements of Code Sections 401(a)(11) and 417, and would therefore have a Qualified Joint and Survivor Annuity as its normal form of benefit, unless separate accounts or separate accounting was monitored for the assets of the merged plan.

(f) Money purchase and target benefit plans are required to include the Qualified Joint and Survivor Annuity option. These Plans may eliminate any periodic payment options that are not required by the Qualified Joint and Survivor Annuity rules such as installment payments.

(g) The Participant may waive the spousal death benefit described in this paragraph at any time provided that no such waiver shall be effective unless it satisfies the conditions (described in paragraph 8.4) that would apply to the Participant’s waiver of the Qualified Pre-Retirement Survivor Annuity.

(h) Profit-sharing plans that satisfy all of the requirements of this paragraph so that the Plan is not required to provide a Qualified Joint and Survivor Annuity for the Participant, but do provide such annuity (even if the annuity is the normal form), may replace the Qualified Joint and Survivor Annuity with payment in a single-sum distribution form that is otherwise identical to such annuity in accordance with the requirements under the Regulations Section 1.411(d)-4.

(i) For purposes of this paragraph, Vested Account Balance shall mean, in the case of a money purchase pension plan or a target benefit plan, the Participant’s separate account balance attributable solely to accumulated deductible employee contributions within the meaning of Code Section 72(o)(5)(b); in the case of a profit-sharing plan, Vested Account Balance shall have the same meaning as provided in paragraph 1.119.

(j) If this paragraph 8.7 is operative, then all other provisions of this Article VIII other than paragraph 8.8 are inoperative.

8.8 Transitional Rule

Special transitional rules apply to Participants who were not receiving benefits on August 23, 1984.

(a) Notwithstanding the other requirements of this Article and subject to the requirements of Article VII, Distribution Requirements, distribution on behalf of any Employee, including a more than 5% owner, may be made in accordance with all of the following requirements (regardless of when such distribution commences):

(1) The distribution by the Plan is one which would not have disqualified such Plan under Code Section 401(a)(9) as in effect prior to amendment by the Deficit Reduction Act of 1984.

(2) The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Plan is being distributed or, if the Employee is deceased, by a Beneficiary of such Employee.

(3) Such designation was in writing, was signed by the Employee or the Beneficiary, and was made before January 1, 1984.

(4) The Employee had accrued a benefit under the Plan as of December 31, 1983.

(5) The method of distribution designated by the Employee or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee’s death, the Beneficiaries of the Employee listed in order of priority.

(b) A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Employee.

(c) For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Employee, or the Beneficiary, to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in subparagraphs 8.8(a) and (a)(5).

(d) If a designation is revoked, any subsequent distribution must satisfy the requirements of Code Section 401(a)(9) and the Regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Plan must distribute by the end of the calendar year following the calendar year in which

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the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Code Section 401(a)(9) and the Regulations thereunder, but for the Section 242(b)(2) election. For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life).

(e) In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Regulations Section 1.401(a)(9)-8, Q&A-14 and Q&A-15 shall apply.

8.9 Automatic Joint And Survivor Annuity And Early Survivor Annuity

Any Participant who has elected pursuant to paragraph 8.8(b) and any Participant who does not elect under paragraph 8.8(a) or who meets the requirements of paragraph 8.8(a), except that such Participant does not have at least ten (10) years of vesting Service when he or she separates from Service, shall have his or her benefits distributed in accordance with all of the following requirements if benefits would have been payable in the form of a life annuity in accordance with all of the following requirements:

(a) If benefits in the form of a life annuity become payable to a married Participant who:

(1) begins to receive payments under the Plan on or after Normal Retirement Age, or

(2) dies on or after Normal Retirement Age while still working for the Employer, or

(3) begins to receive payments on or after the Qualified Early Retirement Age, or

(4) separates from Service on or after attaining Normal Retirement Age (or the Qualified Early Retirement Age) and after satisfying the eligibility requirements for the payment of benefits under the Plan and thereafter dies before beginning to receive such benefits, such benefits will be received under this Plan in the form of a Qualified Joint and Survivor Annuity, unless the Participant has elected otherwise during the Election Period. The Election Period must begin at least six (6) months before the Participant attains Qualified Early Retirement Age and end not more than ninety (90) days before the commencement of benefits. Any election will be in writing and may be changed by the Participant at any time.

(b) A Participant who is employed after attaining the Qualified Early Retirement Age will be given the opportunity to elect, during the Election Period, to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments which would have been made to the Spouse under the Qualified Joint and Survivor Annuity if the Participant had retired on the day before his or her death. Any election under this provision will be in writing and may be changed by the Participant at any time. The Election Period begins on the later of:

(1) the ninetieth day before the Participant attains the Qualified Early Retirement Age, or

(2) the date on which participation begins, and ends on the date the Participant terminates employment.

For purposes of this paragraph, Qualified Early Retirement Age is defined at paragraph 1.85 herein.

8.10 Annuity Contracts

Any annuity contract distributed under this Plan must be nontransferable. The terms of any annuity contract purchased and distributed by the Plan to a Participant or Spouse shall comply with the requirements of this Plan.

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ARTICLE IX

VESTING

9.1 Employee Contributions

A Participant shall always have a 100% vested and nonforfeitable interest in his or her Elective Deferrals, Roth Elective Deferrals, Catch-Up Contributions, Voluntary After-tax Contributions, Required After-tax Contributions, Qualified Voluntary Contributions, Required After-tax Contributions, Rollover and Transfer Contributions, plus the earnings thereon. No forfeiture of Employer contributions (including any minimum contributions made under paragraph 14.2) will occur solely as a result of a Participant’s withdrawal of any Employee contributions. Separate accounts for each contribution source will be maintained for each Participant. Each account will be credited with the applicable contributions and earnings thereon.

9.2 Employer Contributions

A Participant shall always have a 100% vested and nonforfeitable interest in any Qualified Matching Contributions, Qualified Non-Elective Contributions, Safe Harbor Matching Contributions, and Safe Harbor Non-Elective Contributions made by the Employer, plus the earnings thereon. Separate accounts for each contribution source will be maintained. A Participant shall acquire a vested and nonforfeitable interest in his or her account attributable to other Employer contributions in accordance with the schedule selected in the Adoption Agreement, provided that if a Participant is not already fully vested, he or she shall become so upon attaining Normal Retirement Age, Early Retirement Age, on death prior to normal retirement (provided the Participant has not terminated employment prior to death), on retirement due to Disability, or on termination of the Plan. Any contributions made on behalf of a Participant with a Disability within the meaning of Code Section 22(e)(3) at the election of the Employer must be fully vested when made. Effective for Plan Years beginning in 2002, Employer Matching Contributions are subject to the minimum vesting requirements of Code Section 411 and must satisfy either a three (3) year cliff vesting schedule or a two (2) to six (6) year graded vesting schedule as elected by the Employer.

Vested Matching Contributions (including Qualified Matching Contributions) will be subject to forfeiture if the contributions to which they relate are determined to be Excess Deferrals (unless the Excess Deferrals are for Non-Highly Compensated Employees), Excess Contributions, or Excess Aggregate Contributions.

9.3 Vesting Of Employer Contributions In A SIMPLE 401(k) Plan

A Participant shall have a 100% vested and nonforfeitable interest in his or her account attributable to any Employer contributions made under a SIMPLE 401(k) Plan. All previous contributions made under the Plan shall become nonforfeitable as of the first day of the Plan Year during which the SIMPLE 401(k) provisions first apply.

9.4 Computation Period

The vesting computation period used for determining Years of Service and Breaks in Service when calculating the vesting of a Participant means any twelve (12) consecutive month period as elected in the Adoption Agreement during which an Employee completes the number of Hours of Service (not to exceed 1,000) as specified in the Adoption Agreement. Alternatively, if the Plan elects the Elapsed Time method of crediting Service, the vesting computation period for which the Employee receives credit for a Year of Service will be determined under the Service crediting rules of paragraph 1.100.

9.5 Requalification Prior To Five Consecutive One-Year Breaks In Service

Subject to Article VI, the account balance of a Participant who is re-employed prior to incurring five (5) consecutive one (1) year Breaks in Service or Periods of Severance shall consist of any undistributed amount in his or her account as of the date of re-employment plus any future contributions added to such account plus the investment earnings on the account. The Vested Account Balance of such Participant shall be determined by multiplying the Participant’s account balance (adjusted to include any distribution or redeposit made under paragraph 6.5) by such Participant’s vested percentage. All Service of the Participant, both prior to and following the break, shall be counted when computing the Participant’s vested percentage.

9.6 Requalification After Five Consecutive One-Year Breaks In Service

Subject to Article VI, if a Participant was not fully vested prior to termination of employment and is re-employed after incurring five (5) consecutive one (1) year Breaks in Service or Periods of Severance, a new account shall be established for such Participant to separate his or her deferred vested and nonforfeitable account, if any, from the account to which new allocations will be made. The Participant’s deferred account to the extent remaining shall be fully vested and shall continue to share in earnings and losses of the Trust. When computing the Participant’s vested portion of the new account, all pre-break and post-break Service shall be counted. However, notwithstanding this provision, no such former Participant who has had five (5) consecutive one (1) year Breaks in Service or Periods of Severance shall acquire a larger vested and nonforfeitable interest in his or her prior account balance as a result of requalification hereunder.

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9.7 Calculating Vested Interest

A Participant’s vested and nonforfeitable interest, as determined by the Plan Administrator shall be calculated by multiplying the fair market value of his or her account attributable to Employer contributions on the Valuation Date concurrent with or preceding distribution by the decimal equivalent of the vested percentage as of his or her termination date. The amount attributable to Employer contributions for purposes of the calculation includes amounts previously paid out pursuant to paragraph 6.5 and not repaid. The Participant’s vested and nonforfeitable interest, once calculated above, shall be reduced to reflect those amounts previously paid out to the Participant and not repaid by the Participant. The Participant’s vested and nonforfeitable interest so determined shall continue to share in the investment earnings and any increase or decrease in the fair market value of the Trust up to the Valuation Date preceding or coinciding with payment.

9.8 Forfeitures

Any balance in the account of a Participant who has separated from Service to which he or she is not entitled under the foregoing provisions, shall be forfeited and applied as provided in the Adoption Agreement or as set forth in an amendment in the form of an addendum to the Adoption Agreement. The reallocation or other disposition of a non-vested benefit may only occur if the Participant has received payment of his or her entire vested benefit from the Plan, if the Participant has incurred five (5) consecutive one (1) year Breaks in Service, or a deemed cash-out has occurred. A Participant who is zero percent (0%) vested shall have a deemed cash-out distribution on the date of the Participant’s separation from Service and shall not be entitled to an allocation of any forfeitures (if reallocated) of any portion of his account balance or of any other Participant who has terminated Service in the same or prior Plan Year. A Participant who is less than 100% vested who receives a distribution will in the year of his or her termination of Employment receive an allocation of forfeitures unless the Participant fails to satisfy the Allocation Requirements elected in the Adoption Agreement. If the vested portion of a Participant’s account balance is not distributed by the end of the second Plan Year after such Participant’s termination of employment, forfeiture of the non-vested portion of the Participant’s account balance may not take place until such Participant has incurred five (5) consecutive one (1) year Breaks in Service. While awaiting reallocation or other disposition, the Plan Administrator or his designate, if applicable, shall have the right to leave the non-vested benefit in the Participant’s account or may transfer the non-vested benefit to a forfeiture suspense account. Amounts held in a forfeiture suspense account may share in any increase or decrease in fair market value of the assets of the Trust in accordance with Article V of the Plan. The Plan Administrator or his designate shall make such determination, if applicable.

If a Participant’s account balance is forfeited prior to five (5) consecutive one (1) year Breaks in Service, the amount necessary to restore the account balance to a Participant will be obtained from one of the following sources: current Plan Year’s forfeitures; an additional Employer contribution; or earnings on investments for the applicable Plan Year, as determined by the Plan Administrator. For purposes of this paragraph, if the value of a Participant’s Vested Account Balance is zero (0), the Participant shall be deemed to have received a distribution of his or her Vested Account Balance.

A Highly Compensated Employee’s Matching Contributions may be forfeited, even if vested, if the contributions to which they relate are Excess Deferrals, Excess Contributions or Excess Aggregate Contributions.

Benefits with respect to Participants who cannot be located as provided at paragraph 7.15 hereof will be treated in the same manner as a forfeiture. If any Participant’s vested account balance is forfeited because the Participant or Beneficiary cannot be found, such benefit will be reinstated if a claim is made by the Participant or Beneficiary.

9.9 Amendment Of Vesting Schedule

No amendment to the Plan shall have the effect of decreasing a Participant’s Vested Account Balance determined without regard to such amendment as of the later of the date such amendment is adopted or the date it becomes effective. Further, if the vesting schedule of the Plan is amended, or the Plan is amended in any way that directly or indirectly affects the computation of any Employee’s nonforfeitable percentage or if the Plan is deemed amended by an automatic change to or from a Top-Heavy vesting schedule, each Employee with at least three (3) Years of Service with the Employer may elect, during the election period defined herein, to have his or her nonforfeitable percentage computed under the Plan without regard to such amendment. For Participants who do not have at least one (1) Hour of Service in any Plan Year beginning after 1988, the preceding sentence shall be applied by substituting “five (5) Years of Service” for “three (3) Years of Service” where such language appears. The period during which the election may be made shall commence with the date the amendment is adopted and shall end on the later of:

(a) sixty (60) days after the amendment is adopted,

sixty (60) days after the amendment becomes effective, or

sixty (60) days after the Participant is issued written notice of the amendment by the Employer or the Trustee.

Should the Trustee notify the Participants involved, the Plan may be charged for the costs incurred.

No amendment to the Plan shall be effective to the extent that it has the effect of decreasing a Participant’s accrued benefit. Notwithstanding the preceding sentence, a Participant’s account balance may be reduced to the extent permitted under Code Section 412(c)(8) relating to financial Hardships. For purposes of this paragraph, a Plan amendment which has the effect of decreasing a Participant’s account balance with respect to benefits attributable to Service before the amendment, shall be treated as reducing an accrued benefit.

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Furthermore, if the vesting schedule of a Plan is amended, in the case of an Employee who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Employee’s Employer-derived accrued benefit will not be less than the percentage computed under the Plan without regard to such amendment.

No amendment to the Plan shall be effective to eliminate or restrict an optional form of benefit. The preceding sentence shall not apply to a Plan amendment that eliminates or restricts the ability of a Participant to receive payment of his or her account balance under a particular form of benefit if the amendment satisfies the condition in (d) below:

(d) The amendment provides a single sum distribution form that is otherwise identical to the optional form of benefit restricted. For purposes of this condition, a single-sum distribution form is otherwise identical only if it is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the Participant) except with respect to the timing of payments after commencement.

9.10 Service With Controlled Groups

All Years of Service with all members of a controlled group of corporations [as defined in Code Section 414(b) as modified by Code Section 415(h)], all commonly controlled trades or businesses [as defined in Code Section 414(c) as modified by Code Section 415(h)], or members of an affiliated service group [as defined in Code Section 414(m)] of which the Employer is a part, and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o), shall be considered for purposes of determining a Participant’s nonforfeitable percentage.

9.11 Compliance With Uniformed Services Employment And Reemployment Rights Act Of 1994

Notwithstanding any provision of this Plan to the contrary, Years of Service for vesting will be credited to Participants with respect to periods of qualified military service as provided in Code Section 414(u).

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ARTICLE X

LIMITATIONS ON ALLOCATIONS

10.1 Maximum Annual Additions

In general, for purposes of applying the limitations in this Article, Compensation for a Limitation Year is the Compensation actually paid or made available in gross income during such Limitation Year. For Limitation Years beginning before January 1, 2002, the maximum Annual Addition that may be contributed or allocated to a Participant’s Account under the Plan for any Limitation Year shall not exceed the lesser of:

(a) the Defined Contribution Dollar Limitation, or

(b) twenty-five percent (25%) of the Participant’s Compensation (as elected in the Adoption Agreement) for the Limitation Year.

For Limitation Years beginning on or after January 1, 2002, except to the extent permitted under paragraph 4.7 and under Code Section 414(v), the Annual Addition that may be contributed or allocated to a Participant’s account under the Plan for any Limitation Year beginning after December 31, 2001 shall not exceed the lesser of:

(c) $40,000, as adjusted for increases in the cost-of-living under Code Section 415(d), or

(d) 100% of the Participant’s Compensation (as elected in the Adoption Agreement), within the meaning of Code Section 415(c)(3), for the Limitation Year.

The Compensation limit referred to in (b) and (d) above shall not apply to any contribution for medical benefits after separation from Service [within the meaning of Code Section 401(h) or Code Section 419A(f)(2)] that is otherwise treated as an Annual Addition.

If a short Limitation Year is created because of an amendment changing the Limitation Year to a different twelve (12) consecutive month period, the Maximum Permissible Amount will not exceed the Defined Contribution Dollar Limitation multiplied by a fraction, the numerator of which is the number of months in the short Limitation Year, and the denominator of which is twelve (12).

10.2 Participation In This Plan Only

If the Participant does not participate in and has never participated in another Qualified Plan, a Welfare Benefit Fund, individual medical account as defined in Code Section 415(l)(2), or a Simplified Employee Pension Plan as defined in Code Section 408(k) maintained by the adopting Employer, which provides an Annual Addition, the amount of Annual Additions which may be credited to the Participant’s account for any Limitation Year will not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant’s account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount. Prior to determining the Participant’s actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimate of the Participant’s Compensation for the Limitation Year, uniformly determined for all Participants similarly situated. As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s actual Compensation for the Limitation Year.

10.3 Disposition Of Excess Annual Additions

If there is an Excess Annual Addition due to an error in estimating a Participant’s Compensation for a Limitation Year under paragraph 10.1, an error in estimating the amount of Elective Deferrals or Roth Elective Deferrals of the Participant, or as a result of the allocation of forfeitures, the excess will be distributed to the affected Participant in the following order:

Any Voluntary or Required After-tax Contributions plus the investment earnings thereon, to the extent they would reduce the excess, shall be returned to the Participant.

(b) Simultaneously, with the return of any Voluntary or Required After-tax Contributions (plus attributable earnings), any associated Employer Matching Contribution(s) plus the investment earnings thereon that relate to the returned Voluntary or Required After-tax Contributions, to the extent they would reduce the excess, will be held unallocated in a suspense account.

(c) Elective Deferrals and/or Roth Elective Deferrals plus the investment earnings thereon shall be returned to the Participant to the extent they would reduce the excess. Unless elected otherwise in the Adoption Agreement, Roth Elective Deferrals will be returned next to the extent they would reduce the excess.

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(d) Simultaneously with the return of the Elective Deferrals or Roth Elective Deferrals (plus attributable earnings), any associated Employer Matching Contribution(s) plus the investment earnings thereon that relate to the returned Elective Deferrals or Roth Elective Deferrals, to the extent they would reduce the excess, will be held unallocated in a suspense account. If the Participant is not covered by the Plan at the end of the Limitation Year, the Plan Administrator will apply the suspense account to reduce future Employer contributions for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year until the Excess Annual Addition is eliminated. If a suspense account is in existence at any time during a Limitation Year, all amounts in the suspense account must be allocated to Participant accounts before any Employer contributions or any Employee contributions may be made to the Plan for that Limitation Year. If a suspense account is in existence at any time during a Limitation Year pursuant to this paragraph, it will not participate in the allocation of investment gains or losses.

(e) If, after the application of subparagraphs (a) through (d) an excess still exists, the excess will be held unallocated in a suspense account. If the Participant is not covered by the Plan at the end of the Limitation Year, the Plan Administrator will apply the suspense account to reduce future Employer contributions for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year until the Excess Annual Addition is eliminated. If a suspense account is in existence at any time during a Limitation Year, all amounts in the suspense account must be allocated to Participant accounts before any Employer contributions or any Employee contributions may be made to the Plan for that Limitation Year. If a suspense account is in existence at any time during a Limitation Year pursuant to this paragraph, it will not participate in the allocation of investment gains or losses.

10.4 Participation In Multiple Defined Contribution Plans

The Annual Additions that may be credited to a Participant’s account under this Plan for any Limitation Year will not exceed the Maximum Permissible Amount. With respect to this Plan, the Maximum Permissible Amount is reduced by the Annual Additions credited to a Participant’s account under any other qualified Master or Prototype Defined Contribution Plans, Welfare Benefit funds, individual medical accounts as defined in Code Section 415(l)(2), Simplified Employee Pension Plans, and Code Section 403(b) annuity contracts purchased for certain Employees that may be maintained by the Employer which provide an Annual Addition for the same Limitation Year. If the Annual Additions with respect to the Participant under other Defined Contribution Plans, Welfare Benefit funds, individual medical accounts and Simplified Employee Pension Plans maintained by the Employer are less than the Maximum Permissible Amount and the Employer contribution that would otherwise be contributed or allocated to the Participant’s account under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated under this Plan will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such other Defined Contribution Plans and Welfare Benefit funds in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant’s account under this Plan for the Limitation Year. Prior to determining the Participant’s actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant in the manner described in paragraph 10.1. As soon as administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s actual Compensation for the Limitation Year. If the Participant is covered under another qualified Defined Contribution Plan maintained by the Employer which is not a Master or Prototype Plan, Annual Additions which may be credited to the Participant’s account under this Plan for any Limitation Year will be limited in accordance with this paragraph as though the other plan were a Master or Prototype Plan unless the Employer specifies other limitations in the Adoption Agreement.

10.5 Disposition Of Excess Annual Additions Under Two Plans

If a Participant’s Annual Additions under this Plan and such other plans as described in the preceding paragraph would result in an Excess Annual Additions for a Limitation Year due to an error in estimating a Participant’s Compensation for a Limitation Year under paragraph 10.4 or as a result of forfeitures, the Excess Annual Additions will be deemed to consist of the Annual Additions last allocated except that Annual Additions attributable to a Simplified Employee Pension Plan will be deemed to have been allocated first and then Annual Additions to a Welfare Benefit Fund or individual medical account as defined in Code Section 415(l)(2) will be deemed to have been allocated next regardless of the actual Allocation Date. If an Excess Annual Addition was allocated to a Participant on a Valuation or Allocation Date of this Plan that coincides with a valuation or allocation date of another plan, the Excess Annual Additions attributed to this Plan will be the product of:

the total Excess Annual Additions allocated as of such date, times

the ratio of:

(1) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan, to

(2) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified Master or Prototype Defined Contribution Plans.

Any Excess Annual Additions attributed to this Plan will be disposed of in the manner described in paragraph 10.3.

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10.6 Participation In This Plan And A Defined Benefit Plan Prior To January 1, 2000

For Limitation Years beginning prior to January 1, 2000, where the Employer maintained, or at any time maintained, a qualified Defined Benefit Plan covering any Participant in this Plan, the sum of the Participant’s Defined Benefit Plan Fraction and Defined Contribution Plan Fraction was limited to 1.0 in any Limitation Year. For any Plan Year prior to January 1, 2000 during which the Plan was Top-Heavy, the Defined Benefit and Defined Contribution Plan Fractions were calculated in accordance with Code Section 416(h) and the Annual Additions that may have been credited to the Participant’s account under this Plan for any Limitation Year were limited in accordance with the Adoption Agreement in effect at the time.

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ARTICLE XI

NONDISCRIMINATION TESTING

11.1 General Testing Requirements

With respect to each Plan Year, an Employer’s Plan which offers a Code Section 401(k) cash or deferred arrangement and any contributions made thereunder must satisfy the Average Deferral Percentage Test (“ADP Test”) and, if applicable, the Average Contribution Percentage Test (“ACP Test”). Under each of these tests, the Average Deferral Percentage (ADP) and the Average Contribution Percentage (ACP) for Highly Compensated Employees may not exceed the ADP and ACP for Non-Highly Compensated Employees by more than the amount permitted by application of the basic limit or the alternative limit. These limits are described at paragraphs 11.2 and 11.4 herein. If the ADP or ACP for Highly Compensated Employees exceeds the basic limit or the alternative limit, the applicable average for Highly Compensated Employees either must be reduced to the maximum permitted under the most liberal limit or the average of the Non-Highly Compensated Employees must be increased.

The reduction in the average is determined in accordance with paragraph 11.7 herein. In lieu of reducing the applicable average for the Highly Compensated Employees, the Employer may elect to make an additional Qualified Non-Elective Contribution (“QNEC”) and/or a Qualified Matching Contribution (“QMAC”) for Non-Highly Compensated Employees to increase their ADP and/or ACP to the point where the Plan satisfies the ADP and/or the ACP Test. These qualified contributions are described at paragraph 11.11 herein. Any Plan established under this Basic Plan Document #01 and associated Adoption Agreement may use different testing methods for the ADP and the ACP Tests provided the Plan established hereunder does not permit the recharacterization of Excess Contributions or Excess Elective Deferrals to be used in the ACP Test or permit the use of Qualified Matching Contributions in the ADP Test.

11.2 ADP Testing Limitations

Prior Year Testing – If elected by the Employer in the Adoption Agreement, the ADP for a Plan Year for Participants who are Highly Compensated Employees for each Plan Year and the Prior Plan Year’s ADP for Participants who were Non-Highly Compensated Employees for the Prior Plan Year must satisfy the basic limit set forth in (1) or the alternative limit set forth at (2):

(1) The ADP for the Plan Year for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Prior Plan Year’s ADP for Participants who were Non-Highly Compensated Employees for the Prior Plan Year multiplied by 1.25; or

(2) The ADP for a Plan Year for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Prior Plan Year’s ADP for Participants who were Non-Highly Compensated Employees for the Prior Plan Year multiplied by 2.0, provided that the ADP for Participants who are Highly Compensated Employees does not exceed the ADP for Participants who were Non-Highly Compensated Employees in the Prior Plan Year by more than two (2) percentage points.

For the first Plan Year of a Plan where the Plan permits a Participant to make Elective Deferrals or Roth Elective Deferrals and the Plan is not a successor Plan, for purposes of the foregoing limits, the Prior Plan Year’s Non-Highly Compensated Employees’ ADP shall be 3%, unless the Employer has elected in the Adoption Agreement to use the current Plan Year’s ADP for these Participants.

Current Year Testing – If no election is made by the Employer in the Adoption Agreement, or if so elected by the Employer in the Adoption Agreement, the ADP limits in (1) and (2), above, will be applied by comparing the current Plan Year’s ADP for Participants who are Highly Compensated Employees with the current Plan Year’s ADP for Participants who are Non-Highly Compensated Employees. Once made, the Employer can switch to Prior Year Testing for a Plan Year only if the Plan has used Current Year Testing for each of the preceding five (5) Plan Years (or if lesser, the number of Plan Years the Plan has been in existence) or if, as a result of a merger or acquisition described in Code Section 410(b)(6)(C)(i), the Employer maintains both a plan using Prior Year Testing and a plan using Current Year Testing and the change is made within the transition period described in Code Section 410(b)(6)(C)(ii).

Contributions taken into account for a Plan Year must be allocated to the Participant’s account on a day within the Plan Year.

11.3 Special Rules Relating To Application Of The ADP Test

(a) A Participant is a Highly Compensated Employee for a particular Plan Year if he or she meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Non-Highly Compensated Employee for a particular Plan Year if he or she does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

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(b) The Actual Deferral Percentage for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals or Roth Elective Deferrals (and QNEC or QMAC, or both, if treated as Elective Deferrals for purposes of the ADP Test) allocated to his or her accounts under two (2) or more arrangements described in Code Section 401(k), that are maintained by the Employer, shall be determined as if such Elective Deferrals (and, if applicable, such QNECs or QMACs, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two (2) or more cash or deferred arrangements that have different Plan Years, all Elective Deferrals made during the Plan Year under all such arrangements shall be aggregated. For Plan Years beginning before 2006, all such cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if the Regulations issued under Code Section 401(k) require mandatory disaggregation.

(c) In the event that this Plan satisfies the requirements of Code Sections 401(k), 401(a)(4), or 410(b) only if aggregated with one (1) or more other plans, or if one (1) or more other plans satisfy the requirements of such Code Sections only if aggregated with this Plan, then this section shall be applied by determining the Actual Deferral Percentage of Participants as if all such plans were a single plan. If more than 10% of the Employer’s Non-Highly Compensated Employees are involved in a Plan coverage change as defined in Regulations Section 1.401(k)-2(c)(4), then any adjustments to the Non-Highly Compensated Employee ADP for the Prior Plan Year will be made in accordance with such Regulations, unless the Employer has elected in the Adoption Agreement to use the Current Year Testing method. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same Plan Year and use the same ADP testing method.

(d) The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP Test and the amount of QNECs or QMACs, or both, used in such test.

(e) For purposes of the ADP Test, Elective Deferrals, Roth Elective Deferrals, QNECs and QMACs must be made before the end of the twelve (12) month period immediately following the Plan Year to which the contributions relate.

(f) A Plan may adopt a uniform written administrative policy that permits a Highly Compensated Employee who has made Elective Deferrals for a year where such Elective Deferrals includes both pre-tax Elective Deferrals and Roth Elective Deferrals to elect whether the Excess Contributions are to be attributed to pre-tax Elective Deferrals or Roth Elective Deferrals or a combination of the two. In the event that no such administrative policy is adopted, Excess Contributions will be first attributed to pre-tax Elective Deferrals, and, if such pre-tax contributions are not in an amount sufficient to make full correction, will then be attributed to Roth Elective Deferrals.

11.4 ACP Testing Limitations

Employee contributions and Matching Contributions must meet the nondiscrimination requirements of Code Section 401(a)(4) and the ACP Test of Code Section 401(m). Safe Harbor Contributions are taken into account for a Plan Year under the ACP Test in accordance with Treasury Regulations Section 1.401(m)-1(b)(4)(ii)(A). If Employee contributions (including any Elective Deferrals recharacterized as Voluntary After-tax Contributions) or Matching Contributions are made in connection with a cash or deferred arrangement, the ACP Test is in addition to the ADP Test under Code Section 401(k). QMACs and QNECs used to satisfy the ADP Test may not be used to satisfy the ACP Test.

(a) Prior Year Testing – If elected by the Employer in the Adoption Agreement, the ACP for a Plan Year for eligible Participants who are Highly Compensated Employees for each Plan Year and the Prior Plan Year’s ACP for eligible Participants who were Non-Highly Compensated Employees for the Prior Plan Year must satisfy one of the following tests:

(1) The ACP for a Plan Year for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Prior Plan Year’s ACP for eligible Participants who were Non-Highly Compensated Employees for the Prior Plan Year multiplied by 1.25; or

(2) The ACP for a Plan Year for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Prior Plan Year’s ACP for eligible Participants who were Non-Highly Compensated Employees for the Prior Plan Year multiplied by 2.0, provided that the ACP for eligible Participants who are Highly Compensated Employees does not exceed the ACP for eligible Participants who were Non-Highly Compensated Employees in the Prior Plan Year by more than two (2) percentage points.

For the first Plan Year of a Plan where this Plan permits any eligible Participant to make Employee contributions, provides for Matching Contributions, or both, and the Plan is not a successor Plan, for purposes of the foregoing limits, the Prior Plan Year’s Non-Highly Compensated Employees’ ACP shall be 3% unless the Employer has elected in the Adoption Agreement to use the current Plan Year’s ACP for these Participants.

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(b) Current Year Testing – If no election is made by the Employer in the Adoption Agreement, or if so elected by the Employer in the Adoption Agreement, the ACP limits in (1) and (2), above, will be applied by comparing the current Plan Year’s ACP for eligible Participants who are Highly Compensated Employees for the Plan Year with the current Plan Year’s ACP for eligible Participants who are Non-Highly Compensated Employees. Once made, the Employer can elect Prior Year Testing for a Plan Year only if the Plan has used Current Year Testing for each of the preceding five (5) Plan Years (or if lesser, the number of Plan Years the Plan has been in existence) or if, as a result of a merger or acquisition described in Code Section 410(b)(6)(C)(i), the Employer maintains both a plan using Prior Year Testing and a plan using Current Year Testing and the change is made within the transaction period described in Code Section 410(b)(6)(C)(ii).

11.5 Special Rules Relating To The Application Of The ACP Test

A Participant is a Highly Compensated Employee for a particular Plan Year if he or she meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Non-Highly Compensated Employee for a particular Plan Year if he or she does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

For Plan Years beginning before 2002, if one or more Highly Compensated Employees participated in both a cash or deferred arrangement and a plan subject to the ACP Test maintained by the Employer and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeded the Aggregate Limit, then the ADP or ACP of those Highly Compensated Employees who also participated in a cash or deferred arrangement may have been reduced in accordance with paragraph 11.7 so that the limit was not exceeded. The amount by which each Highly Compensated Employee’s Contribution Percentage Amounts was reduced was treated as an Excess Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees was determined after any corrections required to meet the ADP and ACP Tests and were deemed to be the maximum permitted under such tests for the Plan Year. Multiple use of the Aggregate Limit did not occur if either the ADP or ACP of the Highly Compensated employees did not exceed 1.25 multiplied by the ADP and ACP of the Non-Highly Compensated Employees. The restrictions on multiple use of the Aggregate Limit do not apply for Plan Years beginning after 2001.

For purposes of this paragraph, the ACP for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his or her account under two (2) or more plans described in Code Section 401(a) or arrangements described in Code Section 401(k) that are maintained by the Employer, shall be determined as if the total of such Contribution Percentage Amounts were made under a single plan or arrangement. If a Highly Compensated Employee participates in two (2) or more such plans or arrangements that have different Plan Years, all such plans and arrangements shall be aggregated. For Plan Years beginning before 2006, all such plans and arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if their disaggregation is mandatory under the Regulations issued under Code Section 401(m).

(d) Notwithstanding paragraphs (b)(2)(vi)(A) and (B) of Regulations Section 1.401(m)-2, a distribution of Excess Aggregate Contributions is not includible in gross income to the extent it represents a distribution of Roth Elective Deferrals. However, the income allocable to a corrective distribution of Excess Aggregate Contributions that are Roth Elective Deferrals is taxed in the same manner as income allocable to a corrective distribution of Excess Aggregate Contributions that are not Roth Elective Deferrals.

(e) In the event that this Plan satisfies the requirements of Code Sections 401(a)(4), 401(m), or 410(b) only if aggregated with one (1) or more other plans, or if one (1) or more other plans satisfy the requirements of such Code Sections only if aggregated with this Plan, then this section shall be applied by determining the ACP of eligible Participants as if all such plans were a single plan. If more than 10% of the Employer’s Non-Highly Compensated Employees are involved in a Plan coverage change as defined in Regulations Section 1.401(m)-2(c)(4), then any adjustments to the Non-Highly Compensated Employees ACP for the Prior Plan Year will be made in accordance with such Regulations, unless the Employer has elected in the Adoption Agreement to use the Current Year testing method. Plans may be aggregated in order to satisfy Code Section 401(m) only if the aggregated plans have the same Plan Year and use the same ACP testing method.

(f) For purposes of the ACP Test, Employee contributions are considered to have been made for the Plan Year in which contributed to the Plan. Matching Contributions and QMACs and QNECs, if applicable, will be considered made for a Plan Year if made no later than the end of the twelve (12) month period beginning on the day after the close of the Plan Year.

(g) The determination and treatment of the ACP of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury.

(h) Contribution Percentage Amounts shall mean the sum of the Employee contributions, Matching Contributions and QMACs (to the extent not taken into account for the purposes of the ADP Test) made under the Plan on behalf of the Participant for the Plan Year. Such Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions. If elected, the Employer may include QNECs in the contribution percentage amounts. The Employer may also elect to use Elective Deferrals in the Contribution Percentage Amounts so long as the ADP Test is met before the Elective Deferrals are used in the ACP Test and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP Test.

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(i) Employee contributions shall mean any contribution (other than Roth Elective Deferrals) made to the Plan by or on behalf of a Participant that is included in the Participant’s gross income in the year in which made and that is maintained under a separate account to which earnings and losses are allocated.

(j) Forfeitures Arising from Failure of the ADP Test. In the event the Plan fails the ADP Test and Excess Contributions are returned to Highly Compensated Employees, any corresponding Matching Contributions that are not returned because of a simultaneous failure of the ACP Test (Excess Aggregate Contributions) shall be forfeited, even if vested, from the Matching Contribution Account of the affected Highly Compensated Employees. Unless otherwise elected in the Adoption Agreement, such forfeited amounts shall be first used to reduce Employer Contributions that otherwise would be made for the Plan Year. If such forfeited amounts exceed the amount of the Employer’s intended contribution, any such excess shall be allocated to the Matching Contribution Account of each Non-Highly Compensated Employee who made an Elective Deferral (including Roth Elective Deferrals, if applicable) or an Voluntary After-tax Contribution, in the ratio that each such Employee’s Compensation bears to the total Compensation of all such Non-Highly Compensated Employees for that Plan Year. Forfeitures of Excess Aggregate Contributions will be applied at the end of the Plan Year in which they occurred and shall not be allocated to the account of any Highly Compensated Employee.

11.6 Recharacterization

If elected by the Employer in the Adoption Agreement Elective Deferrals allocated to a Highly Compensated Employee as excess Contributions will be recharacterized. Recharacterization is permitted only when Voluntary After-tax Contributions are permitted. A Participant may treat his or her Excess Contributions allocated to him or her as an amount distributed to the Participant and then contributed by the Participant to the Plan. Recharacterized amounts will remain nonforfeitable and subject to the same distribution requirements as Elective Deferrals. A Highly Compensated Employee may not recharacterize an Excess Contribution to the extent that such amount in combination with other Employee contributions made by that Employee would exceed any stated limit under the Plan on Employee contributions. Roth Elective Deferrals may not be recharacterized as Voluntary After-Tax Contributions.

The amount of recharacterization is determined using the ratio leveling method and the Excess Contribution uses the dollars leveling method. Excess Contributions to be recharacterized are reduced by Excess Deferrals previously distributed. Recharacterization must occur no later than two and one-half (2 ¹/2) months after the last day of the Plan Year for which such Excess Contributions arose and is deemed to occur no earlier than the date the last Highly Compensated Employee is informed in writing of the amount recharacterized and the consequences thereof. Recharacterized amounts will be taxable to the Participant for the Participant’s tax year in which the Participant would have received them in cash.

11.7 Calculation And Distribution Of Excess Contributions And Excess Aggregate Contributions

Reducing The Average For Highly Compensated Employees – If necessary, the ADP and/or ACP for Highly Compensated Employees must be reduced to the maximum allowed by the applicable limit at paragraphs 11.2 and 11.4. Excess ACP amounts are determined after determining the amount of Excess Contributions treated as Employee Contributions due to recharacterization. The average is reduced on a step-by-step leveling basis beginning by reducing the ADP or the ACP for the Highly Compensated Employee with the highest percentage until the average is reduced to the maximum allowed or until the ADP or ACP for such Highly Compensated Employee is lowered to that of the Highly Compensated Employee with the next highest percentage. This process continues until the ADP and/or the ACP is lowered to the maximum allowed for the Plan Year. The excess dollar amount attributable to each affected Highly Compensated Employee is then totaled for purposes of corrective distributions determined at paragraph (b) below.

Corrective Distributions To Highly Compensated Employees – The total amount to be distributed as determined under paragraph (a) is allocated to Highly Compensated Employees on the basis of the dollar amount included for such Employee in the numerator of the ADP or ACP, as applicable. The distribution for each affected Highly Compensated Employee is determined on a leveling basis similar to that described at paragraph (a) except that the process is based on dollars rather than percentages. Excess Contributions and Excess Aggregate Contributions are allocated to the Highly Compensated Employees with the largest amount of Employer contributions taken into account in calculating the ADP or ACP Test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such Employer contributions and continuing in descending order until all the Excess Contributions and Excess Aggregate Contributions have been allocated. For purposes of the preceding sentence, the “largest amount” is determined after distribution of any Excess Contribution and Excess Aggregate Contributions. After correcting distributions are allocated, it is not necessary to recompute the Highly Compensated Employee averages to determine if they satisfy the ADP Test and/or the ACP Test. Distributions of Excess Contributions and Excess Aggregate Contributions are to be made in accordance with paragraphs 11.9 and 11.10.

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Corrective Distributions Attributable To Roth Elective Deferrals – Notwithstanding paragraphs (b)(2)(vi)(A) and (B) of Regulations Section 1.401(k)-2, a distribution of Excess Contributions is not includible in gross income to the extent it represents a distribution of Roth Elective Deferrals. However, the income allocable to a corrective distribution of Excess Contributions that are Roth Elective Deferrals is included in gross income in the same manner as income allocable to a corrective distribution of Excess Contributions that are pre-tax Elective Deferrals.

11.8 Distribution Of Excess Elective Deferrals

(a) No Participant shall be permitted to defer under this Plan with respect to a calendar year more than the maximum dollar amount permitted under Code Section 402(g), as indexed, for such calendar year. If a Participant defers more than the maximum allowed due to mistake of fact, such Excess Elective Deferrals or Roth Elective Deferrals shall be distributed to the Participant no later than April 15 following the calendar year to which the excess is attributable. If a Participant who participates in this Plan and in another plan which permits Elective Deferrals or Roth Elective Deferrals defers more than the Code Section 402(g) maximum, such Participant shall have the right to notify one or both plans by March 1 of the calendar year following the year to which the excess is attributable requesting a distribution of the Excess Elective Deferrals or Roth Elective Deferrals. A Participant is deemed to notify the Plan Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferrals made to the Plan, contract, or arrangement of the Employer. If distribution is requested, the applicable plan(s) shall make distribution of the Excess Elective Deferrals or Roth Elective Deferrals, plus any income and minus any loss allocable thereto, no later than April 15 following the calendar year to which the excess is attributable. Excess Elective Deferrals or Roth Elective Deferrals that are distributed on a timely basis shall not be considered Annual Additions for the Limitation Year during which such amounts are deferred.

(b) Excess Elective Deferrals or Roth Elective Deferrals shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Elective Deferrals or Roth Elective Deferrals is the sum of (1) income or loss allocable to the Participant’s Elective Deferral account or Roth Elective Deferral (and if applicable, the QNEC or QMAC account, or both) for the Plan Year multiplied by a fraction, the numerator of which is such Participant’s Excess Elective Deferrals or Roth Elective Deferrals for the year and the denominator is the Participant’s account balance attributable to Elective Deferrals or Roth Elective Deferrals (and QNECs or QMACs, or both, if any of such contributions are included in the ADP Test) without regard to any income or loss occurring during such Plan Year; and (2) ten percent (10%) of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of the distribution if the distribution occurs after the fifteenth (15^th) of such month.

(c) The amount a Participant receives as a distribution of his or her Excess Elective Deferrals or Roth Elective Deferrals is includible in income with respect to the taxable year to which the excess is attributable.

(d) Any income attributable to the Excess Elective Deferrals or Roth Elective Deferrals determined in (b) above shall be includible in income with respect to the taxable year in which the excess is distributed.

(e) Additionally, if so elected by the Employer in the Adoption Agreement, effective with the Plan Year beginning with or after January 1, 2006, Excess Elective Deferrals may be recharacterized as Catch-Up Contributions.

(f) A distribution of Excess Elective Deferrals is not includible in gross income to the extent it represents a distribution of designated Roth Elective Deferrals. However, the income allocable to a corrective distribution of Excess Elective Deferrals that are designated Roth Elective Deferrals is included in gross income in the same manner as income allocable to a corrective distribution of Excess Elective Deferrals that are not designated as Roth Elective Deferrals.

The Plan Administrator may adopt a uniform written administrative policy that permits a Participant (including a Highly Compensated Employee) who has made Elective Deferrals for a year where such Elective Deferrals includes both pre-tax Elective Deferrals and Roth Elective Deferrals to elect whether the Excess Elective Deferrals, are to be attributed to pre-tax Elective Deferrals or Roth Elective Deferrals or a combination of the two. In the event that no such administrative policy is adopted, Excess Elective Deferrals will be first attributed to pre-tax Elective Deferrals, and if such pre-tax contributions are not in an amount sufficient to make full correction, will then be attributed to Roth Elective Deferrals.

11.9 Distribution Of Excess Contributions

(a) Notwithstanding any other provision of the Plan, Excess Contributions plus any income and minus any loss allocable thereto, shall be distributed to affected Participants no later than the last day of the Plan Year following the Plan Year to which the Excess Contributions are attributable except to the extent such Excess Contributions are classified as Catch-Up Contributions. Excess Contributions are allocated to the Highly

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Compensated Employees with the largest amounts of Employer contributions taken into account in calculating the ADP Test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such Employer contributions and continuing in descending order until all the Excess Contributions have been allocated. To the extent a Highly Compensated Employee has not reached his or her Catch-Up Contribution limit under the Plan, Excess Contributions allocated to such Highly Compensated Employee are Catch-Up Contributions and will not be treated as Excess Contributions. If such excess amounts (other than Catch-Up Contributions) are distributed more than two and one-half (2 ¹/2) months after the last day of the Plan Year to which the excess amounts are attributable, a 10% excise tax will be imposed on the Employer maintaining the Plan with respect to such amounts.

(b) Excess Contributions, including any amount recharacterized as a Voluntary After-tax Contribution, shall be treated as Annual Additions with respect to the Plan Year to which the excess is attributable, even if distributed.

(c) Excess Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Contributions allocated to each Participant is the sum of (1) income or loss allocable to the Participant’s Elective Deferral or Roth Elective Deferral Account (and, if applicable, the QNEC Account or the QMAC Account or both) for the Plan Year multiplied by a fraction, the numerator of which is such Participant’s Excess Contributions for the year and the denominator is the Participant’s account balance attributable to Elective Deferrals or Roth Elective Deferrals (and QNECs or QMACs, or both, if any of such contributions are included in the ADP test) without regard to any income or loss occurring during such Plan Year; and (2) ten percent (10%) of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if the distribution occurs after the fifteenth (15^th) of such month. A Plan may use any reasonable method for computing the income or loss allocable to Excess Contributions, provided such method is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income or loss to Participant’s accounts. For Plan Years beginning before 2006, income or loss allocable to the period between the end of the Plan Year and the date of distribution could be disregarded in determining income or loss.

(d) Excess Contributions shall be distributed from the Participant’s Elective Deferral or Roth Elective Deferral Account and QMAC Account (if applicable) in proportion to the Participant’s Elective Deferrals or Roth Elective Deferral and QMACs (to the extent used in the ADP Test) for the test year. Excess Contributions shall be distributed from the Participant’s QNEC Account only to the extent that such Excess Contributions exceed the Participant’s Elective Deferrals or Roth Elective Deferrals and QMACs Account for the applicable test year.

(e) Under a Plan established under a Davis Bacon Adoption Agreement, the return of an Excess Contribution which represents contributions made pursuant to a Davis Bacon or prevailing wage contract shall be reported as additional wages paid to the affected Participant.

(f) A distribution of Excess Contributions is not includible in gross income to the extent it represents a distribution of designated Roth Elective Deferrals. However, the income allocable to a corrective distribution of Excess Contributions that are designated Roth Elective Deferrals is included in gross income in the same manner as income allocable to a corrective distribution of Excess Contributions that are not designated as Roth Elective Deferrals.

(g) A Participant (including a Highly Compensated Employee) who has made Elective Deferrals for a year where such Elective Deferrals includes both pre-tax Elective Deferrals and Roth Elective Deferrals to elect whether the, Excess Contributions are to be attributed to pre-tax Elective Deferrals or Roth Elective Deferrals or a combination of the two. In the event that no election is made by the Participant, Excess Contributions will be first attributed to pre-tax Elective Deferrals, and if such pre-tax contributions are not in an amount sufficient to make full correction, will then be attributed to Roth Elective Deferrals.

11.10   Distribution Of Excess Aggregate Contributions

(a) Notwithstanding any other provisions of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if forfeitable or if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions are allocated to the Highly Compensated Employees with the largest Contribution Percentage Amounts taken into account in calculating the ACP Test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such Contribution Percentage and continuing in descending order until all the Excess Aggregate Contributions have been allocated. For purposes of the preceding sentence, the “largest amount” is determined after distribution of any Excess Aggregate Contributions.

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(b) If such Excess Aggregate Contributions are distributed more than two and one-half (2 ¹/2) months after the last day of the Plan Year in which such excess amount arose, a 10% excise tax will be imposed on the Employer maintaining the Plan with respect to those amounts. Excess Aggregate Contributions shall be treated as Annual Additions for purposes of Article X, Limitations On Allocations, even if distributed.

(c) Excess Aggregate Contributions shall be adjusted for any income or loss up to the date of the distribution. The income or loss allocable to the Excess Aggregate Contributions allocated to each Participant is the sum of (1) income or loss allocable to each Participant’s Employee contribution account, Matching Contribution Account, QMAC Account (if any, and if all amounts therein are not used in the ADP Test) and, if applicable, QNEC Account and the Elective Deferral Account of the Plan Year multiplied by a fraction, the numerator of which is such Participant’s Excess Aggregate Contributions for the year end the denominator is the Participant’s account balance(s) attributable to contribution percentage amounts without regard to any income or loss occurring during such Plan Year; and (2) ten percent (10%) of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the fifteenth (15^th) of such month.

(d) Excess Aggregate Contributions shall be forfeited, if forfeitable or distributed first from the Participant’s Voluntary After-tax Contribution account, if any, then the Required After-tax Contribution Account, if any, then the vested Matching Contribution Account and QMAC Account (and if applicable the Participant’s QNEC Account, and/or Elective Deferral, Roth Elective Deferral Account, or both).

(e) Forfeitures of Excess Aggregate Contributions may be reallocated to the accounts of other Participants or applied to reduce Employer contributions.

(f) Notwithstanding paragraphs (b)(2)(vi)(A) and (B) of Regulations Section 1.401(m)-2, a distribution of Excess Aggregate Contributions is not includible in gross income to the extent it represents a distribution of Roth Elective Deferrals. However, the income allocable to a corrective distribution of Excess Aggregate Contributions that are Roth Elective Deferrals is taxed in the same manner as income allocable to a corrective distribution of Excess Aggregate Contributions that are not Roth Elective Deferrals.

(g) Employee Contributions shall mean any contribution (other than Roth Elective Deferrals) made to the Plan by or on behalf of a Participant that is included in the Participant’s gross income in the year in which made and that is maintained under a separate account to which earnings and losses are allocated.

(h) A Participant (including a Highly Compensated Employee) who has made Elective Deferrals for a year where such Elective Deferrals includes both pre-tax Elective Deferrals and Roth Elective Deferrals to elect whether the Excess Aggregate Contributions and Excess Annual Additions are to be attributed to pre-tax Elective Deferrals or Roth Elective Deferrals or a combination of the two. In the event that no election is made by the Participant, Excess Aggregate Contributions will be first attributed to pre-tax Elective Deferrals, and if such pre-tax contributions are not in an amount sufficient to make full correction, will then be attributed to Roth Elective Deferrals.

11.11   Qualified Non-Elective And/Or Matching Contributions

The Employer may make a QNEC or QMAC for Non-Highly Compensated Employees to increase the ADP and/or ACP to the point where the Plan passes the ADP Test and/or the ACP Test. The following rules apply with respect to such contributions:

(a) A QNEC or QMAC used in the ADP Test may not also be included in the ACP Test.

(b) If testing is done on the basis of Current Plan Year data, QNECs and/or QMACs must be made and credited to Participant accounts not later than the last day of the twelve (12) consecutive month period following the end of the Plan Year being tested.

(c) If testing is done on the basis of Prior Plan Year data for Non-Highly Compensated Employees, QNECs and/or QMACs for such Employees must be contributed not later than the last day of the Plan Year being tested.

(d) If the Employer makes Non-Elective Contributions which are not designated as Qualified Non-Elective Contributions at the time of the contribution to the Plan, the Plan Administrator may re-designate such contributions as Qualified Non-Elective Contributions if the contributions otherwise satisfy the requirements of a Qualified Non-Elective Contribution.

(e) The Employer’s QNEC or QMAC Contribution will be allocated to a group of Non-Highly Compensated Participants. These contributions shall only be taken into account for a Plan Year for such Non-Highly Compensated Participant only to the extent any such contribution does not exceed the greater of:

(1) 5% of the Participant’s 414(s) Compensation;

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(2) the Participant’s Elective Deferrals or Roth Elective Deferrals for that year; and

(3) the product of two (2) times the Plan’s representative Matching Contribution rate and the Participant’s Elective Deferrals or Roth Elective Deferrals for that Plan Year.

For purposes of this paragraph, the Plan’s representative Matching Contribution rate is the lowest matching rate for any eligible Non-Highly Compensated Employee among a group of Non-Highly Compensated Employees that consists of half of all eligible Non-Highly Compensated Employees in the Plan for the Plan Year who make Elective Deferrals or Roth Elective Deferrals for the Plan Year (or, if greater, the lowest matching rate for all eligible Non-Highly Compensated Employees in the Plan who are employed by the Employer on the last day of the Plan Year and who make Elective Deferrals or Roth Elective Deferrals for the Plan Year).

For purposes of this paragraph, the Matching Contribution rate for a Participant generally is the Matching Contributions made for such Participant divided by the Participant’s Elective Deferrals or Roth Elective Deferrals for the Plan Year. If the Matching Contribution rate is not the same for all levels of Elective Deferrals pr Roth Elective Deferrals or a Participant, the Participant’s Matching Contribution rate is determined assuming that a Participant’s Elective Deferrals or Roth Elective Deferrals are equal to 6% of Compensation.

If a Plan provides a Matching Contribution with respect to the sum of the Participant’s Employee contributions and Elective Deferrals or Roth Elective Deferrals, that sum is substituted for the amount of the Participants Elective Deferrals or Roth Elective Deferrals of this paragraph and Participants who make either Employee Contributions or Elective Deferrals or Roth Elective Deferrals are taken into account under this paragraph. Similarly, if a Plan provides a Matching Contribution with respect to the Participant’s Employee contributions, but not to the Participant’s Elective Deferrals or Roth Elective Deferrals, the Participant’s Employee contributions are substituted for the amount of the Participant’s Elective Deferrals or Roth Elective Deferrals and Participants who make Employee contributions are taken into account.

(f) For purposes of this paragraph, the applicable contribution rate for an eligible Non-Highly Compensated Participant is the sum of the Qualified Matching Contributions taken into account under this paragraph for the eligible Non-Highly Compensated Participant for the Plan Year and the Qualified Non-Elective Contributions made for the eligible Non-Highly Compensated Participant for the Plan Year, divided by the eligible Non-Highly Compensated Participant’s Compensation for the same period.

(g) Notwithstanding anything herein to the contrary, Qualified Non-Elective Contributions that are made in connection an Employer’s obligation to pay prevailing wages under the Davis-Bacon Act (45 Stat. 1494), Public Law 71-798, Service Contract Act of 1965 (79 Stat. 1965), Public Law 89-286, or similar legislation can be taken into account for a Plan Year for a Non-Highly Compensated Participant to the extent such contributions do not exceed 10% of that Non-Highly Compensated Employee’s Compensation. This exception applies to both the ADP and ACP Test.

(h) Qualified Matching Contributions satisfy this paragraph only to the extent that such Qualified Matching Contributions are Matching Contributions that are not precluded from being taken into account under the ACP Test for the Plan Year under the rules of Regulations Section 1.401(m)-2(a)(5)(ii).

(i) Qualified Non-Elective Contributions and Qualified Matching Contributions cannot be taken into account under this paragraph where such contributions are taken into account for purposes of satisfying any other ADP Test, any ACP Test, or the requirements of Regulations Section 1.401(k)-4. Matching Contributions that are made pursuant to Regulations Section 1.401(k)-3(c) cannot be taken into account under the ADP Test. Similarly, if a plan switches from the Current Year testing method to the Prior Year testing method pursuant to Regulations Sections 1.401(k)-2(c), Qualified Non-Elective Contributions that are taken into account under the Current Year testing method for a Plan Year may not be taken into account under the Prior Year testing method for the next Plan Year.

(j) If the Employer has elected in the Adoption Agreement to use the Current Year Testing method, in lieu of distributing Excess Contributions as provided in paragraph 11.6, or Excess Aggregate Contributions as provided in paragraph 11.7, and to the extent elected by the Employer in the Adoption Agreement, the Employer will make a QNEC on behalf of Participants that is sufficient to satisfy the ADP Test and the ACP Test. QNECs will be allocated either to all Participants or only to Participants who are Non-Highly Compensated Employees, as elected by the Employer in the Adoption Agreement, in the ratio in which each such Participant’s Compensation for the Plan Year bears to the total Compensation of all such Participants for such Plan Year.

11.12   Nondiscrimination Tests In A SIMPLE 401(k) Plan

The ADP/ACP Tests described this Article XI are treated as satisfied for any Plan Year for which the Employer has adopted and complied with the provisions of the SIMPLE 401(k) Adoption Agreement.

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11.13   Safe Harbor 401(k) Plan Rules Of Application

(a) The Employer may elect in a cash or deferred adoption agreement to apply the safe harbor 401(k) plan provisions found in paragraphs 11.13 through 11.19. Except as otherwise permitted, an Employer must elect the Safe Harbor Plan provisions and must satisfy the notice requirements of paragraph 11.19 prior to the beginning of the Plan Year to which the Safe Harbor provisions will be applied. The Employer must apply the Safe Harbor provisions for the entire Plan Year [which shall be at least twelve (12) months long], including any short Plan Year. An Employer who elects in the Adoption Agreement and operationally satisfies the Safe Harbor provisions of paragraphs 11.13 through 11.19 is not subject to the nondiscrimination requirements of paragraph 11.2. An Employer who elects to provide additional Matching Contributions as set forth in paragraph 11.17 will be subject to the nondiscrimination provisions of paragraph 11.4, unless the additional Matching Contributions satisfy the ACP Test safe harbor provisions in paragraph 11.17.

(b) The Employer may elect in the Adoption Agreement either to make a Safe Harbor Non-Elective Contribution on behalf of each eligible Employee who is eligible to participate in the Plan, or to make a Safe Harbor Matching Contribution on behalf of each eligible Employee who is eligible to participate in the Plan and who is making Elective Deferrals or Roth Elective Deferrals. A Plan intending to satisfy the requirements of Code Sections 401(k)(12) and 401(m)(11) (a “Safe Harbor CODA”) generally must satisfy such requirements, including the notice requirement, for the entire Plan Year.

(c) The Safe Harbor Non-Elective Contribution that will be made on behalf of each eligible Employee who is eligible to participate in the Plan will be equal to at least 3% of the Employee’s Compensation.

(d) The Safe Harbor Matching Contribution shall be made under the Basic Matching Formula or an Enhanced Matching Formula as described below.

(1) Basic Matching Contribution Formula – The Basic Matching Formula provides a Matching Contribution on behalf of each eligible Employee who is making Elective Deferrals or Roth Elective Deferrals to the Plan in an amount equal to 100% of the amount of the Employee’s Elective Deferrals or Roth Elective Deferrals that do not exceed 3% of the Employee’s Compensation and 50% of the amount of the Employee’s Elective Deferrals or Roth Elective Deferrals that exceed 3% of the Employee’s Compensation but do not exceed 5% of the Employee’s Compensation. A Plan satisfying the ADP Safe Harbor using the Basic Matching Formula automatically satisfies the ACP Test, if no Voluntary After-tax Contributions or other Matching Contribution is made under the Plan.

(2) Enhanced Matching Formula – The Enhanced Matching Formula provides a Matching Contribution on behalf of each Eligible Employee who is making Elective Deferrals or Roth Elective Deferrals to the Plan under a formula that, at any rate of Elective Deferrals or Roth Elective Deferrals provides an aggregate amount of Matching Contributions at least equal to the aggregate amount of Matching Contributions that would have been provided under the Basic Matching Formula. In no event shall the aggregate amount of Matching Contributions under an Enhanced Matching Formula exceed 6% of an eligible Employee’s Compensation. Under the Enhanced Matching Formula, the rate of Matching Contributions may not increase as a Participant’s rate of Elective Deferrals or Roth Elective Deferrals increases. A Plan satisfying the ADP Safe Harbor using the Enhanced Matching Formula under which Matching Contributions made with respect to Elective Deferrals or Roth Elective Deferrals that are not made in excess of 6% of the eligible Employee’s Compensation, automatically satisfies the ACP Test if no Voluntary After-tax Contributions or other Matching Contribution is made under the Plan.

(3) Additional Discretionary Matching Contribution – An Employer may elect in the Adoption Agreement to provide an additional discretionary Matching Contribution. Any such contribution cannot exceed 4% of a Participant’s Compensation. This is a limit on the total Matching Contribution formula, and is not a limit on the percentage of Compensation which is deferred and taken into account under the matching formula.

(4) Limitation On Matching Contributions To Highly Compensated Employees – The Matching Contribution requirement will not be satisfied if, at any rate of Elective Deferrals or Roth Elective Deferrals, the rate of Matching Contributions that would apply with respect to any Highly Compensated Employee who is making Elective Deferrals or Roth Elective Deferrals under the Plan is greater than the rate of Matching Contributions that would apply with respect to any Non-Highly Compensated Employee who is making Elective Deferrals or Roth Elective Deferrals to the Plan and who has the same rate of Elective Deferrals or Roth Elective Deferrals.

11.14   Safe Harbor 401(k) Plan Definitions

(a) “ACP Test Safe Harbor” is the method described in paragraph 11.17 for satisfying the ACP Test of Code Section 401(m)(2).

(b) “ACP Test Safe Harbor Matching Contributions” are Matching Contributions described in paragraph 11.15.

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(c) “ADP Test Safe Harbor” is the method described in paragraph 11.16 for satisfying the ADP Test of Code Section 401(k)(3).

(d) “ADP Test Safe Harbor Contributions” are Matching Contributions and Non-Elective Contributions described in paragraph 11.15.

(e) “Compensation” is defined in paragraph 1.17 with no dollar limit other than the limit imposed by Code Section 401(a)(17) as it applies to the Compensation of a Non-Highly Compensated Employee. Solely for purposes of determining the Compensation subject to a Participant’s Salary Deferral Agreement, the Employer may use an alternative definition to the one described in the preceding sentence, provided such alternate definition is a reasonable definition with the meaning of Regulations Section 1.414(s)-1(d)(2), and permits each Participant to elect sufficient Elective Deferrals or Roth Elective Deferrals to receive the maximum amount of Matching Contributions (determined using the definition of Compensation described in the preceding sentence) available to the Participant under this Plan.

(f) “Eligible Employee” means an Employee eligible to make Elective Deferrals or Roth Elective Deferrals under the Plan for any part of the Plan Year or who would be eligible to make Elective Deferrals or Roth Elective Deferrals but for a suspension due to a Hardship distribution described in paragraph 6.11 or to statutory limitations, such as Code Sections 402(g) and 415.

(g) “Matching Contributions” are contributions made by the Employer on account of an Eligible Employee’s Elective Deferrals or Roth Elective Deferrals.

11.15   Required Restrictions On Safe Harbor 401(k) Contributions

(a) Safe Harbor Matching Contributions and Safe Harbor Non-Elective Contributions are Matching and Non-Elective Contributions respectively, that are:

(1) nonforfeitable within the meaning of Treasury Regulations Section 1.401(k)-1(c),

(2) subject to the distribution restrictions of Code Section 401(k)(2)(B) and Treasury Regulations Section 1.401(k)-1(d), and

(3) used to satisfy the Safe Harbor 401(k) Contribution requirements.

(b) Pursuant to Code Section 401(k)(2)(B) and Treasury Regulations Section 1.401(k)-1(d), such contributions (and earnings thereon) must not be distributable earlier than severance from employment (separation from Service for Plan Years beginning before 2002), death, Disability, an event described in Code Section 401(k)(10), or in the case of a profit-sharing or stock bonus plan, the attainment of age 59 ¹/2. Pursuant to Code Section 401(k)(2)(B) and Treasury Regulations Section 1.401(k)-1(d)(2)(ii), these contributions shall not be eligible for distribution for reasons of Hardship. A Plan electing to use either of the Safe Harbor Matching or the Safe Harbor Non-Elective Contribution provisions shall not require that an Employee be employed on the last day of the Plan Year or impose an hourly requirement in order for the Employee to be eligible to receive a Safe Harbor Matching Contribution or a Safe Harbor Non-Elective Contribution.

(c) Such contributions must satisfy the ADP Test Safe Harbor without regard to permitted disparity under Code Section 401(l).

(d) Safe Harbor Matching or Safe Harbor Non-Elective Contributions cannot be used to satisfy the Safe Harbor Contribution requirements with respect to more than one (1) Plan. Similarly, a cash or deferred arrangement will not fail to satisfy the requirement of this paragraph (d) if it is added to an existing profit-sharing, stock bonus, or pre-ERISA money purchase pension plan for the first time during that year provided that:

(1) The plan is not a successor plan; and

(2) The cash or deferred arrangement is made effective no later than three (3) months prior to the end of the Plan Year.

(e) A Plan will fail to satisfy the ADP Test Safe Harbor or the ACP Test Safe Harbor for a Plan Year unless the Plan Year is twelve (12) months in duration or in the case of the first Plan Year of a newly established Plan (other than a successor Plan), the Plan Year is at least three (3) months in duration (or any shorter period in the case of a newly established Employer that establishes the Plan as soon as administratively feasible after the Employer came into existence). If the Employer amends an existing Defined Contribution Plan to offer the Safe Harbor provisions, the 401(k) arrangement of the Plan must be at least three (3) months in duration.

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(f) If the Safe Harbor provisions are an amendment and restatement of an existing Plan, any contributions made prior to the adoption of the Safe Harbor provisions which are subject to a vesting schedule will continue to vest according to the vesting schedule in effect prior to the amendment or restatement of the Plan.

(g) A Plan that has a short Plan Year as a result of changing its Plan Year will not fail to satisfy the requirements of this paragraph section merely because the Plan Year has less than twelve (12) months, provided that:

(1) The Plan would satisfy the requirements of this section for the immediately preceding Plan Year; and

(2) The Plan satisfies the requirements of this section [determined without regard to the notice requirement for the immediately following Plan Year or for the immediately following twelve (12) months if the immediately following Plan Year is less then twelve (12) months].

(h) A Plan that terminates during a Plan Year will not fail to satisfy the requirements of this paragraph merely because the final Plan Year is less than twelve (12) months, provided that the Plan satisfies the requirement of this section through the date of termination and either:

(1) The Plan satisfied the notice requirements of this paragraph treating the termination of the Plan as a reduction or suspension of Safe Harbor Matching Contributions, other than the requirement that Employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, Employee contribution elections; or

(2) The Plan termination is in connection with a transaction described in Code Section 410(b)(6)(C) or the Employer incurs a substantial business hardship comparable to a substantial business hardship described in Code Section 412(d).

11.16   ADP Test Safe Harbor

The Employer may elect in the Adoption Agreement to make Basic Safe Harbor Matching Contributions, Enhanced Safe Harbor Matching Contributions or Safe Harbor Non-Elective Contributions to this Plan or to another Defined Contribution Plan as indicated in the Adoption Agreement.

(b) Notwithstanding the requirement in subparagraph 11.16(a) above that the Employer make the ADP Test Safe Harbor Contributions to the Defined Contribution Plan indicated in the Adoption Agreement, such Safe Harbor Contributions will be made to this Plan unless each Employee eligible under this Plan is also eligible under the other Plan and the other Plan has the same Plan Year as this Plan, this Plan is established under a Nonstandardized Adoption Agreement, and complies with the requirements of paragraph 11.20.

(c) The Participant’s accrued benefit derived from ADP Test Safe Harbor Contributions is nonforfeitable and may not be distributed earlier than severance from employment (separation from service, for Plan Years beginning before 2002), death, Disability, an event described in Code Section 401(k)(10), or, in the case of a profit-sharing plan, the attainment of age 59 ¹/2.

11.17   ACP Test Safe Harbor

The Employer maintaining a 401(k) Plan may elect in the Adoption Agreement to make additional Matching Contributions in addition to the Safe Harbor Matching Contributions made to the Plan. These additional Matching Contributions will be subject to the ACP Test Safe Harbor requirements instead of testing the contributions under paragraph 11.4. The ACP Test Safe Harbor will be satisfied if the following conditions are met:

(a) no Matching Contribution may be made with respect to a Participant’s Elective Deferrals or Roth Elective Deferrals and/or Voluntary After-tax Contributions which exceed 6% of Compensation;

the amount of any discretionary Matching Contribution made after the 1999 Plan Year shall not exceed 4% of the Participant’s Compensation;

(c) the rate of Matching Contributions made to the Plan may not increase as the rate of Elective Deferrals or Roth Elective Deferrals increase;

(d) no Highly Compensated Employee may receive a greater rate of match than a Non-Highly Compensated Employee;

(e) Matching Contributions used in the ACP Test Safe Harbor will be vested as indicated in the Adoption Agreement, but, in any event, such contributions shall be fully vested at Death, attainment of Normal Retirement or Early Retirement, if applicable, upon the complete or partial termination of the Plan, or upon the complete discontinuance of Employer contributions. Forfeitures of nonvested ACP Test Safe Harbor Matching Contributions will be used to reduce the Employer’s contribution of such ACP Test Safe Harbor Matching Contributions; and

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(f) Matching Contributions used in the ACP Test Safe Harbor will be vested accordance with a vesting schedule that complies with Code Section 411(a)(12) as elected in the Adoption Agreement. For Plan Years beginning before 2002, Matching Contributions could be vested according to any vesting schedule that satisfied Section 411(a)(2) [Code Section 416(b), if the Plan was top-heavy].

The Participant’s accrued benefit derived from ACP Test Safe Harbor Contributions is nonforfeitable and may not be distributed earlier than severance from employment (separation from Service for Plan Years beginning before 2002), death, Disability, an event described in Code Section 401(k)(10), or in the case of a profit-sharing plan, the attainment of age 59 ¹/2. In addition, such contributions must satisfy the ACP Test Safe Harbor without regard to permitted disparity under Code Section 401(l).

Effective as of the first day of the 2006 Plan Year, if the Employer has elected in the Adoption Agreement other eligibility requirements, any additional Matching Contributions may be subject to the testing requirements of paragraph 11.4 rather than the Safe Harbor rules of paragraph 11.13. The testing requirements of paragraph 11.4 will apply in any year that a Non-Highly Compensated Employee fails to receive the required Matching Contribution.

11.18   Safe Harbor 401(k) Status

The Employer may amend a profit-sharing or Code Section 401(k) plan during a Plan Year to comply with the Safe Harbor provisions of this Article for a Plan Year. In order to comply with these provisions, the Employer must:

use the Current Year testing method;

amend the Plan to add the Safe Harbor provisions no later than thirty (30) days prior to the end of the Plan Year and apply the Safe Harbor provisions for the entire Plan Year;

satisfy the Safe Harbor contribution requirements using the Safe Harbor Non-Elective Contribution;

provide the Safe Harbor notice to Participants prior to the beginning of the Plan Year for which the Plan amendment applies which indicates the Employer will provide Basic or Enhanced Matching Contributions or indicates that the Employer may later amend the Plan to comply with the Safe Harbor provisions by use of the Safe Harbor Non-Elective Contribution;

provide an additional notice to Participants at least thirty (30) days prior to the end of the Plan Year only in the case of Safe Harbor Non-Elective Contribution advising Participants of the amendment; and

actually provide the notice described in (e) above, should the Employer amend the Plan to comply with the Safe Harbor requirements.

A Safe Harbor 401(k) Plan may be amended during a Plan Year to reduce or entirely eliminate on a prospective basis any Safe Harbor Contribution which is either a Basic or Enhanced Matching Contribution conditioned on the Employer providing a notice to the Participants which explains the effect of the amendment and specifies the following:

informs the Participants they will have the opportunity to amend their Salary Deferral Agreements;

the Effective Date of the amendment is specified;

Participants are given the opportunity prior to the Effective Date of the amendment to amend their Salary Deferral Agreement; and

the amendment to the Plan does not take effect until the later of thirty (30) days after the notice of the amendment is provided to the Participant or the date the Employer adopts the amendment.

An Employer who amends a Safe Harbor Plan to either reduce or eliminate the Safe Harbor Matching Contribution under this paragraph or terminates the Plan during the Plan Year, must continue to comply with all of the Safe Harbor requirements of this paragraph until the amendment or Plan termination becomes effective. The Plan must continue to use the Current Year testing method for the entire Plan Year and satisfy the nondiscrimination test under paragraph 11.2, and if applicable the nondiscrimination tests under paragraph 11.4.

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11.19   Safe Harbor 401(k) Notice Requirement

The notice requirement is satisfied if each Eligible Employee is given an annual written notice of the Employee’s rights and obligations under the Plan and the notice provided to the Employee satisfies the content requirement and the timing requirement as follows:

The notice shall be sufficiently accurate and comprehensive to inform the Employee of the Employee’s rights and obligations under the Plan and written in a manner calculated to be understood by the average Employee eligible to participate in the Plan. The notice shall accurately describe:

the Safe Harbor Matching or Non-Elective Contribution Formula (including a description of the levels of Matching Contributions, if any, available under the Plan);

any other contributions under the Plan (including the potential for discretionary Matching Contributions) and the conditions under which such contributions are made;

the Plan to which the Safe Harbor Contributions will be made (if different than the Plan containing the cash or deferred arrangement);

the type and amount of Compensation that may be deferred under the Plan;

how to make cash or deferred elections, including any administrative requirements that apply to such elections;

the periods available under the Plan for making cash or deferred elections; and

withdrawal and vesting provisions applicable to contributions under the Plan.

If the notice is provided to eligible Employees within a reasonable period before the beginning of each Plan Year (or in the Plan Year an Employee becomes eligible within a reasonable period before the Employee becomes eligible), the Plan shall satisfy the Safe Harbor notice requirements. Notwithstanding the foregoing general rule, a notice shall be deemed to have been provided in timely manner if the notice is provided to each Employee who is eligible to participate in the Plan for the Plan Year at least thirty (30) days [but no more than ninety (90) days] before the beginning of the Plan Year. If an Employee does not receive the notice because he or she only becomes eligible to participate in the Plan after the ninetieth day before the beginning of the Plan Year, the requirement to give the notice will be satisfied if the notice is provided not more than ninety (90) days before the Employee becomes eligible to participate, but in no event later than the date the Employee becomes eligible. The preceding sentence shall apply in the case of any Employee eligible for the first Plan Year in which an Employee becomes eligible under an existing Code Section 401(k) cash or deferred arrangement.

(c) In addition to any other election periods provided under the Plan, each eligible Employee may make or modify a deferral election during the thirty (30) day period immediately following receipt of the notice described above.

(d) The Plan may provide the Safe Harbor notice in writing or by electronic means. If provided electronically, the notice must be no less understandable than a written paper document and at the time of delivery of the electronic notice, the Employee is advised that he or she may request to receive the notice in writing at no additional charge. Supplemental notices may also be given electronically under the same conditions.

(e) The Plan may also comply with the notice requirements by use of the Summary Plan Description. The Safe Harbor notice must cross-reference the applicable sections in the Summary Plan Description. The information which may be contained in the Summary Plan Description, as well as the notice, is the Safe Harbor Contribution Formula, including a description of the levels of Matching Contributions, if any, how to make salary deferral elections, including any administrative requirements that apply to such elections, and the periods available under the Plan for making deferral elections.

11.20   Satisfying Safe Harbor 401(k) Contribution Requirements Under Another Defined Contribution Plan

(a) General Requirements – A Safe Harbor Matching or Safe Harbor Non-Elective Contribution may be made to this Plan or to another Defined Contribution Plan maintained by the Employer that satisfies Code Sections 401(a) or 403(a). The Employer electing this option shall do so by identifying the plan that makes the Safe Harbor Contribution in the Adoption Agreement. If the Safe Harbor Contributions are made to another Defined Contribution Plan, the Safe Harbor Contribution requirements must be satisfied in the same manner as if the contributions were being made to this Plan. A Safe Harbor Contribution made to another Defined Contribution Plan shall not satisfy this Safe Harbor requirement unless each Employee eligible to participate in this Plan is eligible to participate in the other Defined Contribution Plan under the same terms and conditions, and this Plan is established under a Nonstandardized Adoption Agreement.

(b) Same Plan Year Requirement – In order to satisfy the Safe Harbor Contribution requirements, this Plan and the other Defined Contribution Plan to which the Safe Harbor Contribution is to be made must have the same Plan Year.

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(c) Aggregation And Disaggregation Rules – The rules that apply for purposes of aggregating and disaggregating cash or deferred arrangement and Plans under Code Sections 401(k) and 401(m) also apply for purposes of Code Sections 401(k)(12) and 401(m)(11), respectively. All cash or deferred arrangements included in a Plan are treated as a single cash or deferred arrangement that must satisfy the Safe Harbor Contribution and notice requirements. Moreover, two (2) Plans within the meaning of Regulations Section 1.410(b)-7(b) that are treated as a single Plan pursuant to the permissive aggregation rules of Regulation Section 1.410(b)-7(d) are treated as a single Plan for purposes of the Safe Harbor requirements. Conversely, a Plan [within the meaning of Code Section 414(l)] that includes a cash or deferred arrangement covering both collectively bargained employees and non-collectively bargained employees is treated as two (2) separate plans for purposes of Code Section 401(k), and the ADP Safe Harbor need not be satisfied with respect to both plans in order for one (1) of the plans to take advantage of the ADP Test Safe Harbor. Similarly, if pursuant to Code Section 410(b)(4)(B), an Employer applies Code Section 410(b) separately to the portion of the plan [within the meaning of Code Section 414(l)] that benefits only Employees who satisfy age and Service conditions under the plan that are lower than the greatest minimum age and Service conditions permitted under Code Section 410(a), the Plan is treated as two (2) separate plans for purposes of Code Section 401(k), and the ADP Test Safe Harbor need not be satisfied with respect to both plans in order for one (1) of the plans to take advantage of the ADP Test Safe Harbor.

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ARTICLE XII

ADMINISTRATION

12.1 Plan Administrator

The Plan shall be administered by the Plan Administrator who shall have the authority to enforce the Plan on behalf of any persons having or claiming any interest under the Plan and who shall be responsible for the operation of the Plan in accordance with its terms. The Plan Administrator shall be the “named fiduciary” for purposes of ERISA Section 402(a)(2) with the sole authority to control and manage the operation and administration of the Plan, and will be responsible for complying with the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA and, unless the Employer has otherwise designated, shall act as agent for service of legal process with respect to the Plan. The Plan Administrator shall determine by rules of uniform application all questions arising out of the administration, interpretation and application of the Plan which determination(s) shall be conclusive and binding on all parties. The Employer will serve as Plan Administrator unless an individual or other entity (excluding the Trustee or Custodian, unless they are the Employer sponsoring the Plan) is named to serve in such capacity. The Plan Administrator may appoint or allocate the duties of the Plan Administrator among several individuals or entities. The Plan Administrator’s duties shall include:

appointing the Plan’s attorney, accountant, Service Provider, actuary, Trustee, Custodian, investment manager, or any other party needed to administer the Plan;

directing the appropriate party with respect to payments from the Trust;

communicating with Employees regarding their participation and benefits under the Plan, including the administration of all claims procedures;

maintaining all necessary records for the administration of the Plan, nondiscrimination testing, and filing any returns and reports with the Internal Revenue Service, Department of Labor, or any other governmental agency;

reviewing and approving any financial reports, investment reviews, or other reports prepared by any party appointed by the Employer under paragraph (a);

establishing a funding policy and investment objectives consistent with the purposes of the Plan and ERISA;

construing and resolving any question of Plan interpretation and questions of fact. The Plan Administrator’s interpretation of Plan provisions and resolution of questions of facts including eligibility and amount of benefits under the Plan is final and unless it can be shown to be arbitrary and capricious, will not be subject to “de novo” review;

monitoring the activities of the Trustee and the performance of, and making changes when necessary to, the portfolio of the Plan;

obtaining a legal determination of the qualified status of all domestic relations orders and complying with the requirements of the law with regard thereto;

administering any loan program including ensuring that any and all loans made by the Plan are in compliance with the requirements of the Internal Revenue Code and the Regulations issued thereunder, and the Regulations issued by the Department of Labor;

determining from the records of the Employer, the Compensation, Service, records, status, and the other facts regarding Participants and Employees;

(l) selecting the insurer to provide any life insurance policy to be purchased for any Participant hereunder; and

(m) the right to employ others, including legal counsel who may, but need not, be counsel to the Employer, to render advice regarding any questions which may arise with respect to its rights, duties and responsibilities under the Plan, and may rely upon the opinions or certificates of any such person.

12.2 Persons Serving As Plan Administrator

If the Employer is no longer in existence, and the Plan or the Employer does not specify the person to take an action or otherwise serve in the place of the Employer in connection with the operation of the Plan, the Plan Administrator shall so act or serve, but if there is no person serving as Plan Administrator, then a successor shall be designated in writing by a majority of Participants whose accounts under the Plan have not yet been fully distributed at such time. A majority of the legally competent Beneficiaries of a deceased Participant then entitled to receive benefits may exercise a deceased Participant’s right to participate in that designation and shall be considered for that purpose to be one Participant, in the Participant’s place.

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12.3 Action By Employer

Any action required of the Employer under the Plan shall be executed by the sole proprietor (if the Employer is a sole proprietorship), by a general partner or member of the Employer (if the Employer is a partnership or limited liability company), or by the board of directors or a duly authorized officer of the Employer (if the Employer is a corporation or other similarly organized business entity). If the Employer is no longer in existence, and the Plan does not specify the person to take an action, or otherwise serve in the place of the Employer in connection with the operation of the Plan, the Plan Administrator shall so act or serve, but if there is no person serving as Plan Administrator, such action shall be taken by a person selected following the approach referred to in paragraph 12.2. The Trustee and/or Custodian shall have no responsibility for inquiring into the authority of any person purporting to act on behalf of an Employer and shall not assume any such responsibility.

12.4 Responsibilities Of The Parties

(a) The Employer and the Plan Administrator shall cooperate with each other in all respects, including the provision to each other of records and other information relating to the Plan, as may be necessary or appropriate for the proper operation of the Plan or as may be required under the Code or ERISA.

(b) The Plan Administrator may delegate in writing all or any part of the Plan Administrator’s responsibilities under the Plan to agents or others by written agreement communicated to the delegate and to the Employer or, if the Employer is no longer in existence, to such person or persons selected following the approach in paragraph 12.2 and, in the same manner, may revoke any such delegation of responsibility. Any action of a delegate in the exercise of such delegated responsibilities shall have the same force and effect for all purposes as if the Plan Administrator had taken such action. The delegate shall have the right, in such person’s sole discretion, by written instrument delivered to the Plan Administrator, to reject and refuse to exercise any such delegated authority. The Trustee and/or Custodian need not act on instructions of such a delegate despite any knowledge of such delegation, but may require the Plan Administrator to directly provide all instructions necessary under the Plan.

(c) Unless otherwise provided in a separate agreement, responsibility with respect to the investment of the Trust shall be as elected in the Adoption Agreement. The Trustee and/or Custodian shall invest the amounts allocated to Participants’ accounts pursuant, as applicable, to the elections in the Adoption Agreement, Articles XII and XIII and/or in accordance with investment directions from authorized parties as provided hereunder.

(d) The Trustee and/or Custodian (or other agent appointed for this purpose) may act upon receipt of directions (including without limitation, directions pursuant to a voice response system, facsimile or other electronic or mechanical means). The Trustee and/or Custodian shall be fully protected and will incur no liability for doing so.

12.5 Promulgating Notices And Procedures

The Employer and Plan Administrator are given the power and responsibility to promulgate certain written notices, policies and/or procedures under the terms of the Plan and disseminate same to the Participants, and the Plan Administrator may satisfy such responsibility by the preparation of any such notice, policy and/or procedure in a written form which can be published and communicated to a Participant in one or more of the following ways:

(a) by distribution in hard copy;

(b) through distribution of a summary plan description or summary of material modifications thereto which sets forth the policy or procedure with respect to a right, benefit or feature offered under the Plan;

(c) by e-mail, either to a Participant’s personal e-mail address or his or her Employer-maintained e-mail address; and

(d) by publication on a web-site accessible by the Participant, provided the Participant is notified of the web-site publication. Any notice, policy and/or procedure provided through an electronic medium will only be valid if the electronic medium which is used is reasonably designed to provide the notice, policy and/or procedure in a manner no less understandable to the Participant than a written document, and under such medium, at the time the notice, policy and/or procedure is provided, the Employee may request and receive the notice, policy and/or procedure in a written paper document at no charge.

12.6 Appointment Of Investment Manager

The Employer or its designate may make the appointment of an investment manager in accordance with this Article. If an investment manager is appointed, such entity or individual must be registered directly or indirectly as an investment manager under the Investment Advisors Act of 1940 or under applicable state law, meet the requirements of ERISA Section 3(38) or be a bank as defined in said Act or an insurance company qualified under the laws of more than one state to perform investment management services. An investment manager shall acknowledge in writing its appointment and fiduciary status hereunder and shall agree to comply with all applicable provisions of this document. The Employer, Plan Administrator, Trustee and any properly appointed investment manager may execute a written agreement which shall be incorporated by reference into the Plan which delineates the duties, responsibilities and any liabilities of the investment manager with respect to any part of the Trust Fund which the Employer manages. The investment manager shall have the investment powers granted the Trustee in paragraph 13.8 except to the extent the investment manager’s powers are limited by the investment management agreement. A copy of the investment management agreement (and any modifications or termination thereof) must be provided to the Trustee or

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Custodian (in the instance where there is no Trustee). Written notice of each appointment of an investment manager shall be given to the Trustee or Custodian (in the instance where there is no Trustee) in advance of the effective date of the appointment. Such notice or agreement shall specify what portion of the Trust Fund will be subject to the investment manager’s discretion.

12.7 Participant Investment Direction

The Employer may elect in the Adoption Agreement to provide Participants with the option to direct the investment of all or any part of their account balances as specified therein. The Employer or the Named Investment Fiduciary from time to time shall select the investments to be made available, including the appointment of any investment manager who meets the requirements of ERISA Section 3(38) to manage the assets of any Participant’s account. The Employer or the Named Investment Fiduciary, independent of the Trustee, shall be responsible for reviewing the performance of such investments. The following administrative procedures shall apply to the administration of investments selected by the Employer or the Employer’s designated Fiduciary:

(a) The Plan Administrator shall administer the program.

(b) At the time an Employee becomes eligible for the Plan, he or she shall provide the Plan Administrator an investment designation stating the percentage of his or her contributions to be invested in the available investments.

(c) A Participant may change his or her election with respect to future contributions by notifying the Employer, or if agreed upon, Trustee and/or Custodian or other Service Provider, as they shall mutually agree, in accordance with the procedures established by the Plan Administrator.

(d) A Participant may transfer or exchange his or her balance from one investment alternative to another by notifying the Employer, Trustee and/or Custodian or other Service Provider, as they shall mutually agree, in accordance with the procedures established by the Plan Administrator.

(e) The investment alternatives offered under the Plan may be limited in a uniform and nondiscriminatory manner. Investments may be restricted to specific investment alternatives selected, including but not limited to, certain mutual funds, investment contracts, collective funds or deposit accounts. If investments outside the alternatives selected are permitted, Participants may not direct that investments be made in collectibles other than U.S. Government or state issued gold and silver coins.

(f) The Plan Administrator may permit, in a uniform and nondiscriminatory manner, a Beneficiary of a deceased Participant or alternate payee under a Qualified Domestic Relations Order [as defined in Code Section 414(p)] to individually direct their account in accordance with this paragraph.

(g) Investment directions will be processed as soon as administratively practicable after proper investment directions are received from the Participant. The Employer, Plan Administrator, Service Provider, Trustee and/or Custodian cannot provide any guarantee of the timing of processing of any investment directive. The Employer, Plan Administrator, Service Provider, Trustee and/or Custodian reserve the right not to value an investment alternative or a Participant’s account on any given Valuation Date for any reason deemed appropriate by the Employer or Plan Administrator. The Employer, Plan Administrator, Service Provider, Trustee and/or Custodian further reserve the right to delay the processing of any investment transaction for any legitimate business reason including but not limited to failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a Service Provider to timely receive values or prices, to correct its errors or omissions or the errors or omissions of any Service Provider.

(h) Notwithstanding the foregoing, and regardless of a Participant’s authority to direct the investment of assets allocated to his or her account, the Named Investment Fiduciary is authorized and empowered to direct the Trustee to invest funds in short term investments pending other investment instructions by the Plan Administrator.

(i) If the Plan permits Participants the right to reallocate their contributions to a different fund and to transfer contributions into and out of investments provided under the Plan, subject to possible restrictions on these types of transactions, the Plan Administrator may decline to implement investment directives where it in its sole discretion deems it appropriate (for example, directives may be declined for excessive trading, market timing, or for any other legitimate reason where the Plan Administrator, in fulfilling its Fiduciary role under ERISA, believes that it would be imprudent to implement the directive). The Plan Administrator has the power to adopt such rules and procedures to govern all Participant elections and directions under the terms of the Plan.

(j) All investment designations made by Participants are to be made subject to and in accordance with such rules or procedures as the Plan Administrator shall adopt. Any such rules or procedures when properly executed in a written document, will be deemed incorporated in this Plan. The rules or procedures therein may be modified or amended by the Plan Administrator without the necessity of amending this paragraph; however, any such modification must be communicated to Participants in a manner described in paragraph 12.5. Notwithstanding the

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foregoing: (1) a summary plan description or summary of material modifications in which the rules or procedures which describe investment designations are outlined shall be considered a separate written document sufficient to satisfy the requirements of this paragraph; and (2) any rules or procedures established under this paragraph must be applied in a uniform nondiscriminatory manner.

12.8 Application Of ERISA Section 404(c)

The Employer may elect in the Adoption Agreement (unless otherwise provided in a separate Trust Agreement) that Participant accounts under the Plan be invested as elected by each Participant in a broad range of investment options made available from time to time by the Employer for this purpose. The Employer may further elect in an addendum to the Plan (or other agreement, which is incorporated by reference) that the Plan is intended to qualify as an “ERISA Section 404(c) Plan” within the meaning of Regulations issued pursuant to such section. Participants shall have the opportunity, at least once in any three (3) month period, to give investment instructions (with an opportunity to obtain written confirmation of such instructions) as to the investment of contributions made on his or her behalf among the available investment options. The Plan Administrator shall be obligated to comply with such instructions except as otherwise provided in the Regulations issued under ERISA Section 404(c).

The Plan Administrator will provide or will make arrangements to provide each Participant with a description of the investment alternatives available under the Plan; and with respect to each designated investment alternative, a general description of the investments objectives, risk and return characteristics of each alternative, including information relating to the type and diversification of assets comprising the investment portfolio.

The Plan Administrator by separate document may prescribe the form and the manner in which such direction shall be made, as well as the frequency with which such directions may be made or changed and the dates as of which they shall be effective, in a manner consistent with the foregoing. The Plan Administrator (or a person or entity so designated by the Employer) shall be the Fiduciary identified to furnish the information as contemplated by ERISA Section 404(c), but may designate on its behalf another person or entity to provide such information or to perform any of the obligations of the Plan Administrator under this paragraph.

Except as otherwise provided by law, the Trustee, Custodian, the Employer, or any Fiduciary of the Plan shall not be liable to the Participant or any of his or her Beneficiaries for any loss resulting from action taken at the direction of the Participant.

12.9 Participant Loans

Unless otherwise provided in a loan policy or Trust Agreement, and if permitted by the Employer in the Adoption Agreement, a Plan Participant and Beneficiaries who are parties-in-interest as defined in ERISA Section 3(14) may make application to the Plan Administrator requesting a loan from the Plan. The Plan Administrator shall have the sole right to approve or deny a Participant’s application provided that loans shall be made available to all Participants on a reasonably equivalent basis. Loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants. Any loan granted under the Plan shall be made in accordance with the terms of a written loan policy adopted by the Employer which is hereby incorporated by reference and made a part of this Basic Plan Document #01. The loan policy may be amended in writing from time to time without the necessity of amending this paragraph and shall be subject to the following rules to the extent such rules are not inconsistent with such loan policy.

(a) No loan, when aggregated with any outstanding loan(s) to the Participant, shall exceed the lesser of (i) $50,000 reduced by the excess, if any, of the Participant’s highest outstanding balance of all loans on any day during the one (1) year period ending on the day before the loan is made, over the outstanding balance of loans from the Plan on the date the Participant’s loan is made or (ii) one-half of the fair market value of the Participant’s Vested Account Balance consisting of contributions as specified in the loan policy. An election may be made in the loan policy, that if the Participant’s Vested Account Balance is $20,000 or less, the maximum loan shall not exceed the lesser of $10,000 or 100% of the Participant’s Vested Account Balance. For the purpose of the above limitation, all loans from all plans of the Employer and other members of a group of employers described in Code Sections 414(b), 414(c), and 414(m) are aggregated. An assignment or pledge of any portion of the Participant’s interest in the Plan and a loan, pledge, or assignment with respect to any insurance contract purchased under the Plan, will be treated as a loan under this paragraph.

(b) All applications must be in accordance with procedures adopted by the Plan Administrator.

(c) Any loan shall bear interest at a rate reasonable at the time of application, considering the purpose of the loan and the rate being charged by representative commercial banks in the local area for a similar loan unless the Plan Administrator sets forth a different method for determining loan interest rates in its written loan procedures. The loan agreement shall also provide that the payment of principal and interest be amortized in level payments not less frequently than quarterly.

(d) The term of such loan shall not exceed a period of five (5) years except in the case of a loan for the purpose of acquiring any house, apartment, condominium, or mobile home that is used or is to be used within a reasonable time as the principal residence of the Participant. The Plan Administrator in accordance with the Plan’s loan policy shall determine the term of such loan.

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(e) The principal and interest paid by a Participant on his or her loan shall be credited to the Plan in the same manner as for any other Plan investment. Unless otherwise provided in the loan policy, loans will be treated as segregated investments of the individual Participant on whose behalf the loan was made. This provision is not available if its election will result in discrimination in the operation of the Plan.

(f) If the Plan Administrator approves a Participant’s loan request, it shall be evidenced by a note, loan agreement, and assignment of up to 50% of his or her interest in the Trust as collateral for the loan. The Participant, except in the case of a profit-sharing plan satisfying the requirements of paragraph 8.7, must obtain the consent of his or her Spouse, if any, within the ninety (90) day period before the time his or her account balance is used as security for the loan. A new consent is required if the account balance is used for any renegotiation, extension, renewal or other revision of the loan, including an increase in the loan amount. The consent must be written, must acknowledge the effect of the loan, and must be witnessed by a Plan representative or notary public. Such consent shall subsequently be binding with respect to the consenting Spouse or any subsequent Spouse.

(g) If a valid Spousal consent has been obtained in accordance with paragraph (f), then, notwithstanding any other provision of this Plan, the portion of the Participant’s Vested Account Balance used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the account balance payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100% of the Participant’s Vested Account Balance (determined without regard to the preceding sentence) is payable to the surviving Spouse, then the account balance shall be adjusted by first reducing the Vested Account Balance by the amount of the security used as repayment of the loan, and then determining the benefit payable to the surviving Spouse.

(h) Any loan made hereunder shall be subject to the provisions of a loan agreement, promissory note, security agreement, payroll withholding authorization and, if applicable, financial disclosure. Such documentation may contain additional loan terms and conditions not specifically itemized in this section provided that such terms and conditions do not conflict with this section. Such additional terms and conditions may include, but are not limited to, procedures regarding default, a grace period for missed payments, and acceleration of a loan’s maturity date on specific events such as termination of employment.

(i) Effective for Plan loans made after December 31, 2001, Plan provisions prohibiting loans to any Owner-Employee or Shareholder Employee shall cease to apply.

(j) Liquidation of a Participant’s assets for the purpose of the loan will be allocated on a pro-rata basis across all the investment alternatives in a Participant’s account, unless otherwise specified by the Participant, Plan Administrator, or the Plan’s loan policy.

(k) If the Plan Administrator approves a request for a loan, funds shall be withdrawn from the recordkeeping sub-accounts specified by the Participant, including Roth Elective Deferrals, if applicable, or in the absence of such a specification, from the recordkeeping sub-accounts in the order specified in the loan policy. The Plan Administrator may modify the loan program to provide limitations on the ability to borrow from, or use as security, a Participant’s Elective Deferral account. The loan policy may be amended to provide for ordering rules with respect to the default of a loan that is made from the Participant’s Roth Elective Deferral account as well as other accounts under the Plan.

(l) If a Plan permits loans to Participants, the Trustee and/or Custodian may appoint the Employer as its agent, and if the Employer accepts such appointment, agree to hold all notes and other evidence of any loans made to Participants. If provided in the loan policy, the Plan Administrator may also require additional collateral in order to adequately secure the loan. The Employer shall hold such notes and evidence under such conditions of safekeeping as is prudent and as required by ERISA. The Trustee and/or Custodian may account for all loans in the aggregate so that all Participant loans will be shown collectively as a single asset of the Plan.

(m) Unless otherwise elected in the Adoption Agreement, loan payments shall be suspended under this Plan during periods of military service, as permitted under Code Section 414(u).

12.10  Insurance Policies

If elected by the Employer in the Adoption Agreement and agreed to by the Trustee or Custodian, Participants may purchase life insurance policies under the Plan. Any life insurance premium paid for any Participant out of the Employer contributions will be made on behalf of the Participant unless the amount of such payment, plus all premiums previously paid on behalf of such Participant is (a) with respect to ordinary life insurance policies, which may be contracts with both non-decreasing death benefits and non-increasing premiums, less than 50% of the Employer contributions and forfeitures allocated to the Participant’s account determined on the date the premium is paid, (b) with respect to term and universal life policies and all other life insurance contracts which are not ordinary life, less than 25% of such allocation amounts, or (c) a combination of ordinary life and term and/or universal life

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insurance policies are purchased, the sum of the term and universal life insurance premiums plus one-half of the ordinary life premiums may not exceed 25% of such amounts allocated. Dividends received on life insurance policies shall be considered a reduction of premiums paid in such computations. If the Plan established is a profit sharing plan, the incidental insurance benefit requirement is not applicable if the Plan purchases life insurance benefits from only Employer contributions which have been allocated to the Participant’s account for at least two (2) years.

The Named Investment Fiduciary or its agent shall select the insurance company and the policy and direct the Trustee or Custodian, as applicable, to purchase the insurance contract. Such direction shall include but not be limited to the term, price and the insurance company from which the policy should be purchased.

The Trustee or Custodian, as applicable, shall apply for and will be the owner of any insurance contract and named beneficiary of any policies purchased under the terms of this Plan. The insurance contract(s) must provide that proceeds will be payable to the Trustee or Custodian, as applicable, however the Trustee or Custodian shall be required to pay over all the proceeds of the contract(s) to the Participant’s designated Beneficiary in accordance with the distribution provisions of this Plan. A Participant’s Spouse will be the designated Beneficiary of the proceeds in all circumstances unless a Qualified Election has been made in accordance with paragraph 8.4, if applicable. Under no circumstances shall the Trust or custodial account, as applicable, retain any part of the proceeds. In the event of any conflict between the terms of this Basic Plan Document #01 and the terms of any insurance contract purchased hereunder, these Plan provisions shall control. The Beneficiary of a deceased Participant shall receive, in addition to the proceeds of the Participant’s policy or policies, the amount credited to such Participant’s account.

A Participant who is uninsurable or insurable at substandard rates may elect to receive a reduced amount of insurance, if available, or may waive the purchase of any insurance.

All dividends or other returns received on any policy purchased shall be applied to reduce the next premium due on such policy, or if no further premium is due, such amount shall be credited to the Trust as part of the account of the Participant for whom the policy is held.

If Employer contributions are inadequate to pay all premiums on all insurance policies, the Trustee or Custodian may, at the option of the Employer, utilize other amounts remaining in each Participant’s account to pay the premiums on his or her respective policy or policies, allow the policies to lapse, reduce the policies to a level at which they may be maintained, or borrow against the policies on a pro-rated basis, provided that the borrowing does not discriminate in favor of the policies on the lives of Highly Compensated Employees.

The Named Investment Fiduciary or other Fiduciary responsible for making investment decisions may discontinue the investment in life insurance policies at any time. If the Plan provides for Participant directed investments, life insurance as an investment option may be eliminated by the Plan Administrator. Where life insurance investment options are being discontinued, the Plan Administrator in its sole discretion, may offer to sell the insurance policies to the Participant, or to another person, provided the prohibited transaction exemption requirements of the Department of Labor are satisfied. Such payment shall be credited to the Participant’s account for distribution under the terms of the Plan. All distributions resulting from the application of this paragraph shall be subject to the Joint and Survivor Annuity Rules of Article VIII, if applicable.

The Employer shall be solely responsible to ensure the insurance provisions are administered properly and that if there is any conflict between the provisions of this Plan and any insurance contracts issued, the terms of this document will control.

Notwithstanding the above, in profit-sharing plans, the limitations imposed herein with respect to the purchase of life insurance shall not apply to any Participant who has participated in this Plan for five (5) or more years or to the portion of a Participant’s Vested Account Balance that would be eligible for withdrawal under paragraph 6.10 (whether or not in-service withdrawals are actually allowed under the Plan) that has accumulated for at least two (2) Plan Years. No amount of Qualified Voluntary Contributions made to the Plan may be used to purchase life insurance. In addition, under such plans, a Participant may, subject to the limitations set forth in this subparagraph, elect to have “key man” life insurance purchased on the life of any Participant who is considered essential to the success of the Employer’s business. In such case, the proceeds of such a life insurance contract in excess of such contract’s cash value as of the date of death of such insured shall be paid to the Beneficiaries named with respect to such contract. Death benefits, including those in the previous sentence, payable from a life insurance contract shall be paid in accordance with paragraph 8.7 if this Plan meets the safe harbor provisions in that paragraph, or in accordance with paragraph 8.2 or 8.3, whichever may be applicable. The cash value of the contract shall be added to the Participant’s Vested Account Balance.

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No insurance contract will be purchased under the Plan unless such contract or a separate definite written agreement between the Employer and the insurer provides that no value under contracts providing benefits under the Plan or credits determined by the insurer (on account of dividends, earnings, or other experience rating credits, or surrender or cancellation credits) with respect to such contracts may be paid or returned to the Employer or diverted to or used for other than the exclusive benefit of the Participants or their Beneficiaries. However, any contribution made by the Employer because of a mistake of fact must be returned to the Employer within one (1) year of the contribution.

(j) If this Plan is funded by individual contracts that provide a Participant’s benefit under the Plan, such individual contracts shall constitute the Participant’s account balance. If this Plan is funded by group contracts, under the group annuity or group insurance contract, premiums or other consideration received by the insurance company must be allocated to Participants’ accounts under the Plan.

(k) For Plans funded with individual or group annuity contracts, no Trustee or Custodian is required to hold the assets of the Plan. Accordingly, any references to the Trust, the Trust fund or the fund collectively refers to any contracts issued by an insurance company to fund a Plan established under this document.

12.11  Determination Of Qualified Domestic Relations Order (QDRO Or Order)

Unless otherwise provided in a separate Trust Agreement, or other separate written document such as the Plan’s QDRO procedures, a domestic relations order shall specifically state all of the following in order to be deemed a Qualified Domestic Relations Order (“QDRO”):

(a) The name and last known mailing address (if any) of the Participant and of each alternate payee covered by the QDRO. However, if the QDRO does not specify the current mailing address of the alternate payee, but the Plan Administrator has independent knowledge of that address, the QDRO will still be valid.

(b) The dollar amount or percentage of the Participant’s benefit to be paid by the Plan to each alternate payee, or the manner in which the amount or percentage will be determined.

The number of payments or period for which the order applies.

(d) The specific Plan (by name) to which the domestic relations order applies.

The domestic relations order shall not be deemed a QDRO if it requires the Plan to provide:

(e) any type or form of benefit or any option not already provided for in the Plan;

(f) increased benefits or benefits in excess of the Participant’s vested rights;

(g) payment of a benefit earlier than allowed by the Plan’s earliest retirement provisions or, in the case of a profit-sharing or 401(k) plan, prior to the first date on which an in-service withdrawal is allowed; or

(h) payment of benefits to an alternate payee which are required to be paid to another alternate payee under another QDRO.

Upon receipt of a domestic relations order (“Order”) which may or may not be “qualified”, the Plan Administrator shall notify the Participant and any alternate payee(s) named in the Order of such receipt, and forward either a copy of this paragraph or other written QDRO policies and procedures. The Plan Administrator shall establish written procedures to establish the qualified status of a domestic relations order, which may include forwarding the Order to the Plan’s legal counsel for an opinion as to whether or not the Order is in fact “qualified” as defined in Code Section 414(p). Within a reasonable time after receipt of the Order, not to exceed sixty (60) days, the Plan Administrator shall make a determination as to its “qualified” status and the Participant and any alternate payee(s) shall be promptly notified in writing of the determination.

If the “qualified” status of the Order is in question, there will be a delay in any payout to any payee including the Participant, until the status is resolved. In such event, the Plan Administrator shall segregate the amount that would have been payable to the alternate payee(s) if the Order had been deemed a QDRO. If the Order is not qualified or the status is not resolved (for example, it has been sent back to the court for clarification or modification) within eighteen (18) months beginning with the date the first payment would have to be made under the Order, the Plan Administrator shall pay the segregated amounts plus interest to the person(s) who would have been entitled to the benefits had there been no Order. If a determination as to the qualified status of the Order is made after the eighteen (18) month period described above, then the Order shall only be applied on a prospective basis. If the Order is determined to be a QDRO, the Participant and alternate payee(s) shall again be notified promptly after such determination. Once an Order is deemed a QDRO, the Plan Administrator shall pay to the alternate payee(s) all the amounts due under the QDRO, including segregated amounts plus earnings, if any, which may have accrued during a dispute as to the Order’s qualification.

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Unless specified otherwise in the Adoption Agreement or in a separate Trust Agreement or other written document the QDRO retirement age with regard to the Participant against whom the order is entered shall be the date the order is determined to be qualified. These provisions will only allow distributions to the alternate payee(s) and not the Participant.

The costs of administering the Plan may be shared between Participants and the Employer. In addition other administrative costs which may be deducted from Participant’s contributions or accounts, these additional costs and/or fees associated with the qualification of a domestic relations order may be charged back to the Participant and/or Alternate Payee. The Plan Administrator will notify the parties involved of any costs that are charged to a Plan Account in the operation of the Plan.

12.12  Receipt And Release For Payments

Unless otherwise provided in a separate Trust Agreement, any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan shall be in full satisfaction of all claims hereunder against the Trustee, Employer or Plan Administrator each of whom may require such Participant, legal representative, Beneficiary, guardian or committee as a condition prior to such payment, to execute a receipt and release in such form as shall be determined by the Trustee, Employer or Plan Administrator.

12.13  Resignation And Removal

Unless otherwise provided in a separate Trust Agreement, an individual serving as Plan Administrator may resign by giving written notice to the Employer, or if the Employer is no longer in existence, to the Trustee and/or Custodian, as applicable not less than thirty (30) days before the effective date of the individual’s resignation. The Plan Administrator may be removed with or without cause by the Employer upon thirty (30) days prior written notice to the Plan Administrator, or if the Employer is no longer in existence, by a majority of the Participants and Beneficiaries following the procedure referred to in paragraph 12.2. A notice period provided for in this paragraph may be waived or reduced if acceptable to the parties involved. The Employer, if in existence, shall be the successor Plan Administrator, or the Employer may appoint a successor to a person who has resigned or been removed as Plan Administrator, but if the Employer is no longer in existence, the appointment shall be made by a majority of the Participants and Beneficiaries following the procedure referred to in paragraph 12.2. When the Plan Administrator’s resignation or removal becomes effective, the Plan Administrator shall perform all acts necessary to transfer all relevant records to its successor. A successor Plan Administrator shall have all the rights and powers and all of the duties and obligations of the original Plan Administrator but shall have no responsibility for acts or omissions that occurred before the successor became Plan Administrator.

12.14  Claims And Claims Review Procedure

The procedures in this paragraph will be the sole and exclusive remedy for an Employee, Participant or Beneficiary (“Claimant”) to make a claim for benefits under the Plan. These procedures will be administered and interpreted in a manner consistent with the requirements of ERISA Section 503 and the Regulations thereunder. Any electronic notices provided by the Plan Administrator will comply with the standards imposed under Regulations issued by the Department of Labor. All claims determinations made by the Plan Administrator will be made in accordance with the provisions of this paragraph and the Plan, and will be applied consistently to similarly situated Claimants.

(a) Written Claim – A Claimant, or the Claimant’s duly authorized representative, may file a claim for a benefit to which the Claimant believes that he or she is entitled under the Plan. Any such claim must be filed in writing with the Plan Administrator.

(b) Denial Of Claim – The Plan Administrator, in its sole and complete discretion, will make all initial determinations as to the right of any person to benefits. If the claim is denied in whole or in part, the Plan Administrator will send the Claimant a written or electronic notice, informing the Claimant of the denial. The notice must be written in a manner calculated to be understood by the Claimant and must contain the following information: the specific reason(s) for the denial; a specific reference to pertinent Plan provisions on which the denial is based; if additional material or information is necessary for the Claimant to perfect the claim, a description of such material or information and an explanation of why such material or information is necessary; and an explanation of the Plan’s claim review (i.e., appeal) procedures, the time limits applicable to such procedures, and Claimant’s right to request arbitration if the claim denial is upheld in whole or in part on appeal. Written or electronic notice of the denial will be given within a reasonable period of time [but no later than ninety (90) days] from the date the Plan Administrator receives the claim, unless special circumstances require an extension of time for processing the claim. In no event may the extension exceed ninety (90) days from the end of the initial ninety (90) day period. If an extension is necessary, prior to the expiration of the initial ninety (90) day period, the Plan Administrator will send the Claimant a written notice indicating the special circumstances requiring an extension and the date by which the Plan Administrator expects to render a decision.

(c) Request for Appeal – If the Plan Administrator denies a claim in whole or in part, the Claimant may elect to appeal the denial. If the Claimant does not appeal the denial pursuant to the procedures set forth herein, the denial will be final, binding and unappealable. A written request for appeal must be filed by the Claimant (or the Claimant’s duly authorized representative) with the Plan Administrator within sixty (60) days after the date on which the claimant receives the Plan Administrator’s notice of denial. If a request for appeal is timely filed, the

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Claimant will be afforded a full and fair review of the claim and the denial. As part of this review, the Claimant may submit written comments, documents, records, and other information relating to the claim, and the review will take into account all such comments, documents, records, or other information submitted by the Claimant, without regard to whether such information was submitted or considered in the Plan Administrator’s initial benefit determination. The Claimant also may obtain, free of charge and upon request, records and other information relevant to the claim, without regard to whether such information was relied upon by the Plan Administrator in making the initial benefit determination.

(d) Review of Appeal – The Plan Administrator will determine, in its sole and complete discretion, whether to uphold all or a portion of the initial claim denial. If, on appeal, the Plan Administrator determines that all or a portion of the initial denial should be upheld, the Plan Administrator will send the Claimant a written or electronic notice informing the Claimant of its decision to uphold all or a portion of the initial denial, written in a manner calculated to be understood by the Claimant and containing the following information: the specific reason(s) for the denial; a specific reference to pertinent Plan provisions on which the denial is based; a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents and other information relevant to the claim; and an explanation of the Claimant’s right to request arbitration and the applicable time limits for doing so. Written or electronic notice will be given within a reasonable period of time (but no later than sixty (60) days) from the date the Plan Administrator receives the request for appeal, unless special circumstances require an extension of time for reviewing the claim, but in no event may the extension exceed sixty (60) days from the end of the initial sixty (60) day period. If an extension is necessary, prior to the expiration of the initial sixty (60) day period, the Plan Administrator will send the Claimant a written notice, indicating the special circumstances requiring an extension and the date by which the Plan Administrator expects to render a decision.

(e) Alternative Time for an Appeal to be Decided – Notwithstanding paragraph (d), if the Plan Administrator holds regularly scheduled meetings on a quarterly or more frequent basis, the Plan Administrator may make its determination of the claim on appeal at its next regularly scheduled meeting if the Plan Administrator receives the written request for appeal more than thirty (30) days prior to its next regularly scheduled meeting or at the regularly scheduled meeting immediately following the next regularly scheduled meeting if the Plan Administrator receives the written request for appeal within thirty (30) days of the next regularly scheduled meeting. If special circumstances require an extension, the decision may be postponed to the third regularly scheduled meeting following the Plan Administrator receipt of the written request for appeal if, prior to the expiration of the initial time period for review, the Claimant is provided with written notice, indicating the special circumstances requiring an extension and the date by which the Plan Administrator expects to render a decision. If the extension is required because the Claimant has not provided information that is necessary to decide the claim, the Plan Administrator may suspend the review period from the date on which notice of the extension is sent to the Claimant until the date on which the Claimant responds to the request for additional information.

12.15  Bonding

Every Fiduciary, except for a bank, trust company or an insurance company, unless otherwise exempted by ERISA and the Regulations issued thereunder shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided however, that the minimum bond shall be $1,000 and the maximum bond $1,000,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary either acting alone or in concert with others. The surety shall be a corporate surety company [as the term is used in ERISA Section 412(a)(2)], and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the costs of such bonds shall be an expense of and may, at the election of the Plan Administrator, be paid from the Trust or by the Employer.

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ARTICLE XIII

TRUST PROVISIONS

13.1 Establishment Of The Trust

(a) The Employer shall appoint an individual(s), institution or other party, who may be the Sponsor (or an affiliate) of this Prototype Plan, to serve as Trustee or Custodian (if applicable) of the Plan. The Employer may execute a separate trust or custodial account agreement outlining the Trustee’s or Custodian’s duties and responsibilities that shall be incorporated by reference and made part of this Prototype Plan. Unless otherwise indicated in the ancillary agreement, no such ancillary agreement may conflict with any provision(s) of this document. Any provision that would jeopardize the tax-qualified status of this Plan shall be null and void. Unless otherwise elected in the Adoption Agreement, the Trust and/or Custodial provisions of Article XII and this Article XIII, as applicable, together with any such ancillary agreement shall be operative. Any reference in the Plan to a Trustee is also a reference to a Custodian and where the context of the Plan dictates a limitation of the Trustee’s liability by Plan provision also constitute a limitation of the Custodian’s liability.

(b) The Employer establishes with the Trustee a Trust Fund which shall consist of all money and property received under Articles III and IV of this document, increased by any income on or increment in such value of assets and decreased by any investment loss, expense, benefit payment, withdrawal or other distribution by the Trustee in accordance with the provisions of the Plan. The Trustee and/or the Custodian shall hold the Trust Fund without distinction between principal and income. The Trust Fund will be held, invested, reinvested and administered by the Trustee in accordance with this Article and any ancillary documents as provided for in this Article.

(c) The term “Trust Fund” shall be construed to apply to custodial account(s), annuity contract(s) or other contract(s) which shall be treated as a qualified trust pursuant to Code Section 401(f).

13.2 Control Of Plan Assets

The assets of the Trust or evidence of ownership shall be held by the Trustee and/or the Custodian under the terms contained herein. If the assets represent amounts transferred from another trustee or custodian under a former plan, the Trustee and/or Custodian named hereunder shall not be responsible for any actions of the prior Fiduciary including the propriety of any investment decision made by the prior trustee or custodian, as applicable, under any prior plan. Instead, the Employer shall be responsible for such actions.

13.3 Discretionary Trustee

If the Employer elects in the Adoption Agreement, or otherwise appoints the Trustee to act in the capacity of discretionary Trustee, the Trustee shall invest the Trust in accordance with the Plan’s investment policy statement and the investment alternatives permitted at paragraph 13.8 herein. The Trustee will have the discretion and authority to invest, manage and control those Plan assets except those assets which are subject to the investment direction of the Employer, a Participant (if Participant direction is permitted), or an investment manager or Named Investment Fiduciary, or other agent properly appointed by the Employer. The exercise of any investment direction hereunder shall be consistent with the investment policy of the Plan. The Trustee may also perform custodial functions for the Trust with respect to Plan assets the Trustee does not manage, to the extent agreed to between the Trustee and the Employer, if the Trustee is appointed Custodian for some or all of such assets in accordance with the terms of the Plan. The Trustee may execute any additional documents, as required, which shall be treated as an addendum to this Prototype Plan. No such agreement may conflict with any provision nor shall any provision in such an agreement jeopardize the tax-qualified status of the Plan. Any such provision shall be null and void. The Trustee’s administrative duties shall be limited to those agreed to between the parties. The Employer or its designate shall be responsible for other administrative duties required under the Plan or by applicable law.

13.4 Nondiscretionary Trustee

If the Employer elects in the Adoption Agreement or as otherwise agreed to in writing, the Trustee may act in the capacity of a nondiscretionary Trustee. In this capacity, the Trustee shall have no discretionary authority to invest, manage or control Plan assets and is authorized solely to make and hold investments only as directed pursuant to paragraph 12.4. The nondiscretionary Trustee shall have the same rights, powers and duties as the discretionary Trustee but exercises such authority in accordance with the direction of the party which has the authority to manage and control the investment of Plan assets. If directions are not provided to the Trustee, the Employer will provide such necessary direction.

13.5 Provisions Relating To Individual Trustees

Notwithstanding any other provisions of the Plan to the contrary, the provisions of this paragraph shall apply if one (1) or more individuals are named as Trustee(s) in the Adoption Agreement and shall not apply to any institutional Trustee named in the Adoption Agreement.

(a) If there shall be more than one (1) individual acting in the capacity of Trustee, they shall act by a majority of their number, unless they unanimously decide that one (1) or more of them may act on the matter or category of matters involved without the approval of the others and they may authorize in writing that one (1) or more of them shall act on their behalf including but not limited to executing documents and authorizing distributions on behalf of the Trustees.

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(b) Any person may rely, without having to make further inquiry, upon instructions appearing to be genuine instructions from any individual serving as Trustee as being the will, intent and action of all individuals so serving if no allocation of duties has been made.

The Trustee shall be paid such reasonable compensation for services as shall from time to time be agreed upon in writing by the Employer and the Trustee, provided that an individual serving as Trustee who already receives full-time Compensation from the Employer shall not receive compensation for serving as such from the Plan.

13.6 Investment Instructions

Any investment directive shall be made in writing or such other form as agreed to by the Employer, Trustee and/or Custodian and the investment manager. In the absence of such directive, cash shall be automatically invested in such investment or investments as the Employer or Named Investment Fiduciary shall select from the investments made available for that purpose unless and until the person or persons responsible for giving directions directs otherwise. Such automatic investment shall be made at regular intervals and pursuant to procedures established by the parties (which procedures may without limitation, provide for more frequent intervals only if uninvested balances exceed a stated amount). Absent a contrary direction in accordance with the preceding provisions of this paragraph, such instructions regarding the delegation of investment responsibility shall remain in force until revoked or amended in writing. Neither the Trustee nor the Custodian shall be responsible for the propriety of any directed investment made nor shall they be required to consult with or advise the Employer regarding the investment quality of any directed investment held hereunder. If the Employer fails to designate an investment manager, the Trustee shall have full investment management authority as agreed upon in a duly authorized and executed investment management agreement. If the Employer does not issue investment directions with regard to specific assets held in the Trust, the Trustee shall have authority to invest those assets in the Trust in its sole discretion subject to paragraph 13.8. While the Employer may direct the Trustee with respect to Plan investments, the Employer may not:

borrow from the Plan or pledge any of the assets of the Plan as security for a loan,

buy property or assets from or sell property or assets to the Plan,

charge any fee for services rendered to the Plan, or

receive any services from the Plan on a preferential basis.

13.7 Fiduciary Standards

Subject to paragraphs 13.6 and 13.8 hereof, the Trustee, Employer and Custodian, as applicable, shall invest and reinvest principal and income of the Trust in accordance with the funding policy and investment objectives established by the Employer, provided that:

such investments are prudent under ERISA, as amended, and the Regulations thereunder,

(b) such investments are sufficiently diversified to minimize the risk of large losses,

(c) such investments are made in accordance with the provisions of this Plan and Trust document, and

(d) such investments are made with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character with like aims.

13.8 Powers Of The Trustee

The Trustee shall be responsible for the investment, administration and safekeeping of assets held in the Trust Fund. The Trustee shall have the following duties and responsibilities, in addition to powers given by law, and may:

(a) receive contributions under the terms of the Plan;

(b) implement an investment program based on the Employer’s investment policy statement, funding policy, investment objectives and ERISA, as amended;

(c) invest the Trust in any form of property, including common and preferred stocks, exchange-traded covered put and call options, bonds, money market instruments, mutual funds (including funds for which the Sponsor, Trustee or its affiliates receive compensation for providing investment advisory, custody, transfer agency or other services), savings accounts, plan loans, certificates of deposit, securities issued by the U.S. government or by governmental agencies, insurance policies and contracts, or in any other property, real or personal, having a ready market, including securities issued by the Trustee and/or affiliates of the Trustee as permitted by law. The Trustee

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may invest in time deposits (including, if applicable, its own or those of affiliates) that bear a reasonable interest rate. No portion of any Qualified Voluntary Contribution, or the earnings thereon, may be invested in life insurance contracts or, as with any Participant-directed investment, in tangible personal property characterized by the IRS as a collectible;

(d) to the extent permitted by law, invest any assets of the Trust in a group or collective trust fund established to permit the pooling of funds of separate pension and profit-sharing trusts, provided the Internal Revenue Service has ruled such group or collective trust to be qualified under Code Section 401(a) and exempt under Code Section 501(a) (or the applicable corresponding provision of any other Revenue Act) or to any other common, collective, or commingled trust fund which has been or may hereafter be established and maintained by the Trustee, affiliate(s) of the Trustee, the Custodian or investment manager. Such commingling of assets of the Trust with assets of other qualified trusts is specifically authorized, and to the extent of the investment of the Trust in such a group or collective trust, the terms of the instrument establishing the group or collective trust shall be a part hereof as though set forth herein. The Employer may but is not required to specify the name(s) of the group or collective trust fund in an addendum to the Adoption Agreement. The Employer expressly understands and agrees that any such collective fund may provide for the lending of its securities by the collective fund trustee and that such collective fund’s trustee will receive compensation from such collective fund for the lending of securities that is separate from any compensation of the Trustee hereunder, or any compensation of the collective fund trustee for the management of such collective fund;

(e) for collective investment purposes, combine into one trust fund the Trust created under this Plan with the trust created under any other qualified retirement plan the Employer maintains. However, the Trustee must maintain separate records of account for the assets of each Trust in order to reflect properly each Participant’s Vested Account Balance under the Plan(s) in which he is a Participant;

(f) invest up to 100% of the Trust in the common stock, debt obligations, or any other security issued by the Employer or by an affiliate of the Employer within the limitations provided under ERISA Sections 406, 407, and 408, as amended, and further provided that such investment does not constitute a prohibited transaction under Code Section 4975. Any such investment in Employer securities shall only be made upon written direction of the Employer who shall be solely responsible for the propriety of such investment. Additional directives regarding the purchase, sale, retention or valuing of such securities may be addressed in an investment management or trust agreement, which is incorporated by reference. If there are any conflicts between this document and the above referenced agreements, this document shall govern;

(g) hold cash uninvested and deposit the same with any banking or savings institution, including its own banking department or the banking department of an affiliate;

(h) utilize a general disbursement account, i.e., in the form of a demand deposit account and/or time deposit account, for distributions from the Trust, without incurring any liability for payment of interest thereon, notwithstanding the Trustee’s receipt of income with respect to float involving the disbursement account;

(i) hold contributions in an omnibus account, i.e., in the form of a demand deposit and/or time deposit account, maintained by the Trustee for up to three (3) business days (or such longer period as may result due to circumstances beyond the Trustee’s control), without liability for interest thereon. (The Employer acknowledges that any float earnings associated with the assets held in such omnibus account are retained by the Trustee as part of its compensation for performing services with respect to the allocation of contributions to Participants’ accounts);

(j) join in or oppose the reorganization, recapitalization, consolidation, sale or merger of corporations or properties, including those in which it or its affiliates are interested as Trustee, upon such terms as it deems advisable;

(k) hold investments in nominee or bearer form;

(l) exercise all ownership rights including the voting of proxies and the exercise of tender offers but only with respect to assets over which the Trustee has investment management responsibility;

(m) hold, manage and control all property forming part of the Trust Fund and sell, convey, transfer, exchange and otherwise dispose of the same from time to time;

(n) apply for and procure from an insurance company as an investment of the Trust such annuity, or other contracts on the life of any Participant as the Plan Administrator shall deem proper; exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other contracts; and collect, receive, and settle for the proceeds of any such annuity, or other contracts as and when entitled to do so under the provisions thereof;

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(o) unless otherwise provided by a directive as described by paragraph 13.6, the Employer will pass through shareholder rights (including voting rights) on Employer securities to Plan Participants. If no directive is provided, the Trustee shall exercise any shareholder rights (including voting rights) with respect to any securities held, but only in accordance with the instructions of the person or persons responsible for the investment of such securities subject to and as permitted by, any applicable rules of the Securities and Exchange Commission and any national securities exchange. Voting rights with respect to shares of registered investment companies held in the Trust shall be directed by the Named Investment Fiduciary responsible for selection of such registered investment companies as permissible investment alternatives. In the event of any conflict with any other provision of this Article or this Basic Plan Document #01, the provision of this paragraph shall control. The Employer shall be responsible for preparing and distributing all required prospectuses for Employer securities and making such materials available to Plan Participants;

(p) retain and employ such attorneys, agents and servants as may be necessary or desirable, in the opinion of the Trustee, in the administration of the Plan, and pay them such reasonable compensation for their services as may be agreed upon as an expense of administration of the Plan, including the power to employ and retain counsel upon any matter of doubt as to the meaning or interpretation to be placed upon this Plan or any provisions thereof with reference to any question arising in the administration of the Plan or pertaining to the rights and liabilities of the Trustee hereunder. The Trustee in any such event, may rely upon the advice, opinions, records, statements and computations of any attorneys and agents and on the records, statements and computations of any servants so selected by it in good faith and shall be released and exonerated of and from all liability to anyone in so doing (except to the extent that liability is imposed under ERISA); and

(q) institute, prosecute and maintain, or defend, any proceeding at law or in equity concerning the Plan or the assets thereof or any claims thereto, or the interests of Participants and Beneficiaries hereunder at the sole cost and expense of the Plan or at the sole cost and expense of the Participant that may be concerned therein or that may be affected thereby, as, in its opinion, shall be fair and equitable in each case; and compromise, settle and adjust all claims and liabilities asserted by or against the Plan or asserted by or against it, or such terms as it, in each such case, shall deem reasonable and proper. The Trustee shall be under no duty or obligation to institute, prosecute, maintain or defend any suit, action or other legal proceeding unless it shall be indemnified to its satisfaction against all expenses and liabilities (including without limitation, legal and other professional fees) which it may sustain or anticipate by reason thereof; and

The Trustee is expressly authorized to the fullest extent permitted by law to (1) retain the services of any broker-dealer, registered investment advisor or other financial services entity (including the Trustee and any of its affiliates) and any future successors in interest thereto collectively, for the purposes of this paragraph referred to as the “Affiliated Entities”), to provide services to assist or facilitate the purchase or sale of investments in the Trust, (2) acquire as assets of the Trust shares of mutual funds to which Affiliated Entities provide, for a fee, services in any capacity and (3) acquire in the Trust any other services or products of any kind or nature from the Affiliated Entities regardless of whether the same or dissimilar services or products are available from other institutions. The Trust may pay directly or indirectly (through mutual funds fees and charges for example) management fees, transaction fees and other commissions to the Affiliated Entities for the services or products provided to the Trust and/or such mutual funds at such Affiliated Entities’ standard or published rates without offset (unless required by law) from any fees charged by the Trustee for its services as Trustee. The Trustee may also deal directly with the Affiliated Entities regardless of the capacity in which it is then acting, to purchase, sell, exchange or transfer assets of the Trust even though the Affiliated Entities are receiving compensation or otherwise profiting from such transaction or are acting as principal in such transaction. Each of the Affiliated Entities is authorized to effect transactions on national securities exchanges for the Trust as directed by the Trustee, and retain any transactional fees related thereto, consistent with Section 11(a)(1) of the Securities and Exchange Act of 1934, as amended and related Rule 11a2-2(T). Included specifically, but not by way of limitation in the transactions authorized by this provision, are transactions in which any of the Affiliated Entities is serving as an underwriting or member of an underwriting syndicate for a security being purchased or is purchasing or selling a security for its own account. In the event the Trustee is directed by the Plan Administrator, any named Fiduciary, designated Investment Manager, Participant and/or Beneficiary, as applicable hereunder (collectively referred to as for purposes of this paragraph as the “Directing Party”), the Directing Party shall be authorized, and expressly retains the right hereunder, to direct the Trustee to retain the services of, and conduct transactions with, Affiliated Entities fully in the manner described above.

13.9 Appointment Of Additional Trustee And Allocation Of Responsibilities

The Employer may appoint one or more additional Trustees to hold specified investments for which the original Trustee is not serving in the capacity of Trustee. In the event that an additional Trustee is appointed, the second Trustee shall have no responsibilities for these specific assets other than as set forth herein. The original Trustee shall have no duties with respect to an investment held by any other person including, without limitation, any other Trustee for the Plan. Any other secondary Trustee of the Plan shall have no duties with respect to assets held in the Plan by the original Trustee or another secondary Trustee.

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13.10  Compensation, Administrative Fees And Expenses

All reasonable fees, charges and expenses incurred by the Trustee or the Custodian in connection with the administration of the Trust and all reasonable fees, charges and expenses incurred by the Plan Administrator in connection with the administration of the Plan (including such reasonable compensation to the Trustee and/or Custodian and the Plan Administrator as may be agreed upon from time to time between the Employer, the Trustee and/or Custodian and Plan Administrator) and fees for legal services rendered to the Trustee and/or Custodian or Plan Administrator shall be paid from the Trust unless:

(a) The payment of such expense would constitute a “prohibited transaction” within the meaning of ERISA Section 406 or Code Section 4975 for which no statutory or administrative exemption is available.

(b) The Employer actually pays such expenses directly. Any and all reasonable additional administrative expenses incurred to effect directives made by the Participants and by each Beneficiary under this Plan shall be paid by the Trust and as determined by the Employer shall either be charged (in accordance with such reasonable nondiscriminatory rules as the Employer deems appropriate under the circumstances) to the account of the individual issuing such directive, or treated as a general expense of the Trust. If charged to a Participant’s account and if the assets of such account are insufficient to satisfy such charges, the Employer shall pay any deficit to the Trustee. Notwithstanding the foregoing, nothing in this section shall prevent the Employer from paying the administrative expenses of the Plan directly.

(c) All related expenses incurred on behalf of a Participant (included but not limited to brokerage commissions and other transaction related expenses), shall, as determined by the Employer, either be paid from or otherwise be charged directly to the account of the Participant providing such direction or treated as a general expense of the Trust.

(d) If there are insufficient liquid assets of the Trust to cover the fees of the Trustee or the Custodian, then assets of the Trust shall be liquidated to the extent necessary to cover fees.

(e) Notwithstanding the foregoing, no compensation other than reimbursement for expenses incurred shall be paid to a Plan Administrator who is the Employer or Employee of the Employer.

(f) In the event any part of the Plan becomes subject to tax, all taxes incurred will be paid from the Plan at the direction of the Plan Administrator.

(g) Any investment gain or loss of the Trust that is not directly attributable to the investment of the account of any Participant (including, but not limited to, for example, any “float” earned on the disbursement account established for the Plan and not treated as part of the compensation of the Trustee or paying agent for the Plan, and any 12b-1 or similar fees paid to the Plan) will be applied to pay administrative expenses of the Plan, with any excess remaining at the close of the Plan Year being allocated among the Participant’s accounts in accordance with the procedure established by the Plan Administrator for this purpose.

13.11  Records

Within ninety (90) days following the close of each Plan Year, or at such other times as may be agreed to between the Employer and the Trustee, and within ninety (90) days following its removal or resignation, the Trustee shall file with the Employer a report of that part of the Trust under the investment management of the Trustee during such year or from the end of the preceding Plan Year to the date of removal or resignation. Such report shall include a statement of receipts and disbursements, the net income or loss of the Trust, the gains or losses realized by the Trust upon sale or other disposition of the assets, the increase or decrease in the value of the Trust, all payments and distributions made from the Trust since the date of its last report, and shall contain a schedule of assets listing the fair market value of investments held in the Trust as of the end of the Plan Year or the date of removal or resignation, as applicable. The fair market value of investments for which there is a ready market shall be determined using the most recent price quoted on a national or other recognized securities exchange or over-the-counter market. The fair market value of illiquid investments shall be obtained by a valuation performed by an independent appraiser appointed by the Trustee or Custodian or appointed by the Employer and approved by the Trustee or Custodian as applicable, for this purpose whose determination shall be final. In the case where there is both a Trustee and Custodian serving the Plan, the Trustee shall have the responsibility for appointing the independent appraiser and obtaining such report. The Trustee shall assume responsibility for the accuracy of any such report, and the Custodian serving hereunder shall have no additional obligation or responsibility to review or verify the accuracy of the report provided to the Custodian. The Employer shall review the Trustee’s report and notify the Trustee in the event of its disapproval of the report within thirty (30) days, providing the Trustee with a written description of the items in question. The Trustee shall have sixty (60) days to provide the Employer with a written explanation of the items in question. If the Employer again disapproves, the Trustee shall have the right to file its report in a court of competent jurisdiction for audit and adjudication. In the event the Employer fails to file a written objection to the Trustee’s report within the ninety (90) day period following receipt of the report, the Employer shall be deemed to have approved the report. In such case, the Trustee shall be released and discharged with respect to all matters contained in the report.

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13.12  Limitation On Liability And Indemnification

The Trustee shall have the authority to manage and govern the Trust to the extent provided in this instrument, but does not guarantee the Trust in any manner against investment loss or depreciation in asset value, or guarantee the adequacy of the Trust to meet and discharge all or any liabilities of the Plan.

The Trustee and/or Custodian shall not be liable for the making, retention, or sale of any investment or reinvestment made by it, as herein provided, or for any loss to, or diminution of the Trust, or for any other loss or damage which may result from the discharge of its duties hereunder except to the extent it is judicially determined such loss or damage is attributable to the Trustee and/or Custodian’s breach of its duties hereunder or under ERISA.

An institution acting as a Custodian or nondiscretionary Trustee shall have no discretion or investment management responsibility, unless otherwise expressly agreed in writing (pursuant to an investment management agreement, for example) and shall only be responsible to perform the functions described at paragraph 13.4 hereof. Neither the Custodian nor Trustee (whether nondiscretionary or discretionary) shall have any responsibility with respect to Plan investments and does not guarantee the adequacy of the Trust to meet and discharge any or all liabilities associated with the Plan.

The Employer warrants that all directions issued to the Trustee and/or Custodian by it or the Plan Administrator will be in accordance with the terms of the Plan and the auxiliary agreement and not contrary to the provisions of ERISA, as amended, and the Regulations issued thereunder.

Neither the Trustee nor the Custodian shall be answerable for any action taken pursuant to any direction, consent, certificate, or other paper or document in the belief that the same is genuine. All directions by the Employer, Participant, the Plan Administrator, Named Fiduciary or an investment manager shall be made pursuant to pre-approved communication procedures to which all such parties, as applicable, shall have consented to in writing. The Employer shall deliver to the Trustee and Custodian as applicable, written notification identifying the individual or individuals authorized to act on behalf the Plan and shall deliver specimens of their signatures to the Trustee and/or Custodian.

The duties and obligations of the Trustee and the Custodian shall be limited to those expressly imposed by this instrument or subsequently agreed upon by the parties in writing. Responsibility for administrative duties required under the Plan or applicable law not expressly imposed upon or agreed to by the Trustee or the Custodian shall rest solely with the Employer.

The Employer shall indemnify the Trustee and/or Custodian as applicable against, and agrees to hold the Trustee and/or Custodian harmless from, all liabilities and claims and expenses including attorney’s fees and expenses incurred in defending against such liability or claims against the Trustee and/or Custodian, unless such liability or claim results from the gross negligent action or inaction of the Trustee and/or Custodian, or where the Trustee or Custodian is found to have breached its duties under this Article or Part 4 of Title I of ERISA by a final judgment of a court of competent jurisdiction. Except as otherwise provided by the preceding sentence, the Employer also shall indemnify the Trustee and/or Custodian as applicable against, and agrees to hold the Trustee and/or Custodian harmless from, all liabilities, claims and expenses including attorney’s fees and other expenses incurred in defending against such liabilities or claims, arising from any actions or breach of responsibility by any party other than the Trustee and/or Custodian, including without limitation by specification any acts of a prior Trustee and/or Custodian or of another Trustee and/or Custodian appointed by the Employer.

(h) Without limiting any provision in the prior paragraph, the Employer expressly agrees to indemnify the Trustee and/or Custodian as applicable, against any liability or claim (including attorney’s fees and expenses in defending against such liabilities or claims) arising as a result of any act taken or failure to act, in accordance with the directions received from the Employer, Plan Administrator, investment manager, Participant, or a designee specified by the Employer directly or transmitted by a designated Service Provider to the Plan and without limitation by specification.

(i) The Trustee and/or Custodian as applicable will take all reasonable steps to assure the security of any data received from the Employer in connection with services provided to the Plan. The Employer will be responsible for retaining duplicate copies of any such data or materials it forwards to the Trustee and/or Custodian and for taking all other reasonable and necessary precautions in event such data or materials are lost or destroyed, regardless of cause, or in the event reprocessing is needed for any reason. The Trustee and/or Custodian will maintain records in connection with the performance of services hereunder for the applicable period as required by law, or if no period is required, for such period as is reasonable under the law.

(j) No waiver of any breach of this agreement shall constitute a waiver of any other breach, whether of the same or any other covenant, term or condition. The subsequent performance of any of the terms, covenants and conditions of this Article shall not constitute a waiver of any preceding breach, nor shall any delay or omission of any party’s exercise of any rights arising from any default effect or impair the party’s rights as to the same or future default.

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(k) Neither the Trustee nor the Custodian shall be responsible in any way for any actions taken, or failure to act, by a prior trustee/custodian. The Employer shall indemnify and hold harmless the Trustee and/or Custodian as applicable, for such prior trustee and/or custodian’s acts or inactions for any periods applicable, including periods for which the Plan must retroactively comply with any tax law or regulations thereunder.

(l) A Fiduciary with respect to the Plan shall not be liable for a breach of Fiduciary responsibility of another Fiduciary with respect to the Plan except to the extent that:

(1) it participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other Fiduciary, knowing such act or omission is a breach;

(2) by its failure to comply with ERISA Section 404(a)(1) in the administration of its specific responsibilities which give rise to its status as a Fiduciary, it has enabled such other Fiduciary to commit a breach; or

(3) it has knowledge of a breach by such other Fiduciary, unless it makes reasonable efforts under the circumstances to remedy the breach.

(m) If the assets of the Plan are held by two (2) or more Trustees, each Trustee will use reasonable care to prevent a co-Trustee from committing a breach of duty under the ERISA and they shall jointly manage and control the assets of the Plan; provided however, that such co-Trustee shall be authorized to allocate specific responsibilities, obligations or duties among the co-Trustees pursuant to a written agreement. If co-Trustees do enter into such an agreement, then a Trustee to whom certain responsibilities, obligations or duties have not been allocated shall not be liable either individually or as Trustee for any loss resulting to the Plan arising from the acts or omissions on the part of another Trustee to which such responsibilities, obligations or duties have been allocated.

13.13  Responsibilities Of A Named Custodian

The Employer may appoint a Custodian as provided for in the Adoption Agreement. A Custodian shall have the same rights, powers and duties as a nondiscretionary Trustee. Any reference in the Plan to a Trustee is also a reference to the Custodian unless the context indicates otherwise. Any limitation of the Trustee’s liability in the Plan shall act as a limitation of the Custodian’s liability. Where a discretionary Trustee has provided direction, any action taken by the Custodian satisfies the requirement in the Plan referencing the Trustee taking that action. The resignation or removal of the Custodian shall be made in accordance with paragraph 13.19 as though the Custodian were the Trustee. The Custodian shall be responsible for the holding and safekeeping of all or a portion of the Plan’s assets. One or more Custodian(s) appointed under this Plan may hold all or any portion of the Plan’s assets. Such separate assets shall be held pursuant to the terms of a separate custodial agreement with such Custodian. The separate custodial agreement shall be treated as an addendum and, as such, may not conflict with any provision of this document. In addition, any provision of a separate custodial agreement that would jeopardize the tax-qualified status of this Defined Contribution Plan shall be null and void. In addition to the holding and safekeeping of Plan assets, the Custodian’s duties shall include:

(a) receiving contributions under the terms of the Plan, but not determining the amount or enforcing the payment thereof,

(b) making distributions from the Plan in accordance with instructions received from the Plan Administrator or an authorized representative of the Employer,

(c) keeping records reflecting its administration of the Trust or the custodial account and making such records, statements and reports available to the Employer for review and audit at such times as agreed to between the Custodian, Plan Administrator, and the Employer, and

(d) retaining and employing such attorneys, agents and servants as may be necessary or desirable, in the opinion of the Custodian, in the administration of the Plan, and to pay them such reasonable compensation for their services as may be agreed upon as an expense of administration of the Plan, including the power to employ and retain counsel upon any matter of doubt as to the meaning or interpretation to be placed upon this Plan or any provisions thereof with reference to any question arising in the administration of the Plan or pertaining to the rights and liabilities of the Trustee hereunder. The Custodian in any such event, may rely upon the advice, opinions, records, statements and computations of any attorneys and agents and on the records, statements and computations of any servants so selected by it in good faith shall be released and exonerated of and from all liability to anyone in so doing (except to the extent that liability is imposed under ERISA).

The Custodian’s duties will be limited to those as agreed to between the Employer and the Custodian. The Employer shall be responsible for any other administrative duties required under the Plan or by applicable law.

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13.14  Investment Alternatives Of The Custodian

(a) The Custodian shall hold any or all assets received from the Employer or the Trustee or its agents. If the Custodian holds title to Plan assets and such ownership requires action on the part of the registered owner, such action will be taken by the Custodian only upon receipt of specific instructions from the Trustee, or its designated agents or the Named Investment Fiduciary. Proxies shall be voted by or pursuant to the express direction of the Trustee, its’ authorized agent or the Named Investment Fiduciary. The Custodian shall not render any investment advice, including any opinion on the prudence of directed investments. The Employer and Trustee and its agents thereof assume all responsibility for adherence to Fiduciary standards under ERISA, as amended, and the Regulations issued thereunder.

(b) Where the Sponsor serves as Custodian, the Trust shall only be invested in investment alternatives the Custodian makes available in the ordinary course of business unless the Custodian is directed otherwise by the Employer, the Trustee or any properly designated agent thereof. The Custodian, under applicable Federal or state laws, may offer investment alternatives including but not limited to savings accounts, savings certificates, or in other savings instruments offered by the Sponsor or its affiliates. Such investments shall be made at the direction of the Employer or Trustee(s) or other Named Investment Fiduciary and the Custodian shall have no responsibility for the propriety of such investments.

(c) If the Custodian is a bank, which under applicable state law does not possess trust powers, an investment in common or collective trust funds is not permitted.

13.15  Prohibited Transactions

Neither the Trustee, Custodian, Employer, investment manager, Named Investment Fiduciary nor the Participant shall knowingly enter into any transaction, engage in any activity, or direct the purchase or acquisition of any investment with respect to the Plan which would constitute a prohibited transaction under ERISA or the Code for which a statutory or administrative exemption is not available. The Trustee and/or Custodian shall not knowingly receive any investment advisory or other fees from a regulated investment company (a mutual fund) that duplicates investment management fees charged by the Trustee and/or Custodian except to the extent the receipt of such fees is fully disclosed and/or a procedure exists for crediting duplicate fees back to the Plan. The Trustee and/or Custodian shall be permitted to receive fees from a regulated investment company to the extent that the receipt of such fees is not a prohibited transaction pursuant to any guidance or exemption issued by the Department of Labor from time to time.

13.16  Exclusive Benefit Rules

No part of the Trust shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants, former Participants with a vested interest, and the Beneficiary or Beneficiaries of deceased Participants who have a vested interest in the Plan at death.

13.17  Assignment And Alienation Of Benefits

Except as provided in paragraphs 12.9 or 12.11, no right or claim to, or interest in, any part of the Plan or any payment from the Plan shall be assignable, transferable, or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution, or levy of any kind. Neither the Trustee nor Custodian shall recognize any attempt to assign, transfer, sell, mortgage, pledge, hypothecate, commute, or anticipate the same, except to the extent required by law. The preceding sentences shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined to be a Qualified Domestic Relations Order, as defined in Code Section 414(p), or any domestic relations order entered before January 1, 1985 which the Plan’s attorney and Plan Administrator deem to be qualified.

Notwithstanding any provision of this paragraph to the contrary, an offset to a Participant’s Vested Account Balance against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order or decree issued, or a settlement entered into, on or after August 5, 1997, shall be permitted in accordance with Code Sections 401(a)(13)(C) and (D).

13.18  Liquidation Of Assets

If the Trustee and/or Custodian must liquidate assets in order to make distributions, transfer assets, or pay fees, expenses or taxes assessed against all or a part of the Trust, and the Trustee and/or Custodian is not instructed as to the liquidation of such assets, assets will be liquidated on a prorated basis across all the investment alternatives in the Trust. The Trustee and/or Custodian are expressly authorized to liquidate assets in order to satisfy the Trust’s obligation to pay the Trustee and/or Custodian’s fees or other compensation if such fees or compensation are not paid on a timely basis.

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13.19  Resignation And Removal Of The Trustee and/or Custodian

The Trustee and/or Custodian may resign upon thirty (30) days written notice to the Employer. The Employer may remove the Trustee and/or Custodian upon sixty (60) days (or such shorter period of time as may be agreed to by the parties) written notice to the Trustee and/or Custodian. The Employer may discontinue its participation in this Prototype Plan effective upon thirty (30) days (or such shorter period of time as may be agreed to by the Sponsor and the Employer) written notice to the Sponsor. To the extent the Employer does not restate and replace the Prototype Plan established under this Plan and applicable Adoption Agreement with either a similar plan of another Sponsor or an individual plan, the Employer shall, prior to the effective date thereof, amend the Plan to eliminate any reference to this Prototype Plan and appoint a successor trustee and/or custodian. The Trustee or Custodian, as applicable, shall deliver the Trust to its successor on the effective date of the resignation or removal, or as soon thereafter as practicable, provided that this shall not waive any lien the Trustee and/or Custodian may have upon the Trust for its compensation or expenses. Following the effective date of the notice of termination, the Trustee and/or Custodian shall have no further responsibility for providing services to the Employer or the Plan. If the Employer fails to amend or replace the Plan and appoint a successor trustee or custodian, as applicable, within the said thirty (30) days, or such longer or shorter period as agreed to by the Trustee and/or Custodian, the Plan shall be deemed individually designed and the highest ranking officer of the Employer shall be deemed the successor trustee or custodian as the case may be. In such event, the Trustee and/or Custodian may, but shall not be required to, continue to hold custody of the assets of the Plan until such time as appropriate arrangements have been made for the security of the Plan assets, upon notification thereof to Plan Participants, and shall no longer have any responsibility for the investment of Plan assets.

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ARTICLE XIV

TOP-HEAVY PROVISIONS

14.1 Applicability Of Rules

If the Plan [except in the case of a SIMPLE 401(k) Plan] is or becomes Top-Heavy in any Plan Year, the provisions of this Article will supersede any conflicting provisions in the Basic Plan Document #01 and accompanying Adoption Agreement. The Top-Heavy requirements of Code Section 416 and this Article shall not apply in any Plan Year beginning after December 31, 2001, in which the Plan consists solely of a cash or deferred arrangement which meets the requirements of Code Section 401(k)(12) and Matching Contributions which meet the requirements of Code Section 401(m)(11).

14.2 Determination Of Top-Heavy Status

This paragraph shall apply for purposes of determining whether the Plan is a Top-Heavy Plan under Code Section 416(g) for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Code Section 416(c) for such years. This paragraph shall apply for purposes of determining the Present Values of accrued benefits and the amounts of account balances of Employees as of the Top-Heavy Determination Date.

Distributions During the Plan Year Ending on the Top-Heavy Determination Date – The Present Value of accrued benefits and the amounts of account balances of an Employee as of the Top-Heavy Determination Date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with this Plan under Code Section 416(g)(2) during the one (1) year period ending on the Top-Heavy Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with this Plan under Code Section 416(g)(2)(A)(i). In the case of a distribution made for a reason other than separation from Service, death, or Disability, this provision shall be applied by substituting “five (5) year period” for “one (1) year period”.

Employees Not Performing Services During the Plan Year Ending on the Top-Heavy Determination Date – The accrued benefits and accounts of any individual who has not performed services for the Employer during the one (1) year period ending on the Top-Heavy Determination Date shall not be taken into account.

(c) Top-Heavy Ratio:

(1) If the Employer maintains one or more Defined Contribution Plans (including any Simplified Employee Pension Plan) and the Employer has not maintained any Defined Benefit Plan which during the one (1) year period [five (5) year period in determining whether the Plan is Top-Heavy for Plan Years beginning before January 1, 2002] ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) [including any part of any account balance distributed in the one (1) year period ending on the Determination Date(s) or five (5) year period ending on the Determination Date in the case of a distribution made for a reason other than severance from employment, death or Disability and in determining whether the Plan is Top-Heavy for Plan Years beginning before January 1, 2002], and the denominator of which is the sum of all account balances [including any part of any account balance distributed in the one (1) year period ending on the Determination Date(s) or five (5) year period ending on the Determination Date in the case of a distribution made for a reason other than severance from employment, death or Disability and in determining whether the Plan is Top-Heavy for Plan Years beginning before January 1, 2002], both computed in accordance with Code Section 416 and the Regulations thereunder. Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Code Section 416 and the Regulations thereunder.

(2) If the Employer maintains one or more Defined Contribution Plans (including any Simplified Employee Pension Plan) and the Employer maintains or has maintained one or more Defined Benefit Plans which during the one (1) year period [five (5) year period in determining whether the Plan is Top-Heavy for Plan Years beginning before January 1, 2002] ending on the Determination Date(s) has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated Defined Contribution Plan or Plans for all Key Employees, determined in accordance with (1) above, and the Present Value of accrued benefits under the aggregated Defined Benefit Plan or Plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated Defined Contribution Plan or Plans for all Participants, determined in accordance with (1) above, and the Present Value of accrued benefits under the Defined Benefit Plan or Plans for all Participants as of the Determination Date(s), all determined in accordance with Code Section 416 and the Regulations thereunder. The accrued benefits under a Defined Benefit Plan in both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the one (1) year period ending on the Determination Date [five (5) year period ending on the Determination Date in the case of a distribution made for a reason other than severance from employment, death or Disability and in determining whether the Plan is Top-Heavy for Plan Years beginning before January 1, 2002].

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(3) For purposes of (1) and (2) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the twelve (12) month period ending on the Determination Date, except as provided in Code Section 416 and the Regulations thereunder for the first and second Plan Years of a Defined Benefit Plan. The account balances and accrued benefits of a Participant (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been credited with at least one (1) Hour of Service with any Employer maintaining the Plan at any time during the one (1) year period [five (5) year period in determining whether the Plan is Top-Heavy for Plan Years beginning before January 1, 2002] ending on the Determination Date will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the Regulations thereunder. Deductible Employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating Plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year.

The accrued benefit of a Participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all Defined Benefit Plans maintained by the Employer, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C).

(d) Permissive Aggregation Group – The Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code Section 401(a)(4) and 410.

(e) Required Aggregation Group – Each Qualified Plan of the Employer in which at least one (1) Key Employee participates or participated at any time during the determination period (regardless of whether the Plan has terminated), and any other Qualified Plan of the Employer which enables a Plan described herein to meet the requirements of Code Section 401(a)(4) or 410.

(f) Determination Date – For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that year is the Determination Date.

(g) Valuation Date – The date elected by the Employer in the Adoption Agreement as of which account balances or accrued benefits are valued for purposes of calculating the Top-Heavy Ratio.

(h) Present Value – Present Value shall be based only on the interest and mortality rates specified in the Adoption Agreement.

14.3 Minimum Contribution

For any Plan Year in which the Plan is Top-Heavy, the aggregate Employer contributions and forfeitures allocated on behalf of any Participant who is not a Key Employee (without regard to any Social Security contribution) under this Plan, the Employer will contribute the lesser of 3% of such Participant’s Compensation or in the case where the Employer has no Defined Benefit Plan which designates this Plan to satisfy Code Section 401, the largest percentage of the Employer contributions and forfeitures, as a percentage of the Key Employee’s Compensation, up to a maximum permitted under Code Section 401(a)(17), as indexed, allocated on behalf of any Key Employee for that year. For this purpose, Elective Deferrals or Roth Elective Deferrals as defined in Code Section 401(k) are used in determining the lesser of 3% of Compensation or the amount allocated on behalf of Key Employees.

Each Participant who is employed by the Employer on the last day of the Plan Year shall be entitled to receive an allocation of the Employer’s minimum contribution for such Plan Year. The minimum allocation applies even though under other Plan provisions the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because the Participant fails to make required contributions to the Plan, the Participant’s Compensation is less than a stated amount, or the Participant fails to complete 1,000 Hours of Service (or such lesser number designated by the Employer in the Adoption Agreement) during the Plan Year. An Employer may elect in the Adoption Agreement by resolution or by Plan amendment whether the Top-Heavy minimum contribution will be made to all Participants or to non-Key Employees.

The Top-Heavy minimum contribution does not apply to any Participant to the extent the Participant is covered under any other plan(s) of the Employer and the Employer has provided in the Adoption Agreement that the minimum allocation or benefit requirements applicable to this Plan will be satisfied in the other plan(s).

If a Key Employee makes an Elective Deferral or Roth Elective Deferral or has an allocation of Matching Contributions credited to his or her account, a Top-Heavy minimum contribution will be required for non-Key Employees who are Participants. For purposes of satisfying the Top-Heavy minimum contribution requirement, Elective Deferrals or Roth Elective Deferrals are not taken into account; Matching Contributions shall be taken into account unless otherwise elected by the Employer in the Adoption Agreement. Employer Matching Contributions that are used to satisfy the minimum contribution requirements shall be treated as Matching Contributions for purposes of the ACP Test and other requirements of Code Section 401(m).

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The Employer may provide in the Adoption Agreement that the minimum benefit requirement shall be met in another plan, including another plan that consists solely of a cash or deferred arrangement which meets the requirements of Code Section 401(k)(12) and Matching Contributions which meet the requirements of Code Section 401(m)(11).

14.4 Minimum Vesting

For any Plan Year during which this Plan is Top-Heavy, the minimum vesting schedule selected by the Employer in the Adoption Agreement will apply to the Plan. If the vesting schedule elected by the Employer in the Adoption Agreement is less liberal than the allowable schedule, the schedule will automatically shift to a vesting schedule that satisfies the Top-Heavy minimum requirements. For those Plans using a graded vesting schedule, the schedule will accelerate to no less than a two (2) to six (6) year graded vesting schedule. For those Plans using a cliff vesting schedule, the schedule will accelerate to a three (3) year cliff vesting schedule. If the vesting schedule under the Employer’s Plan shifts in or out of the Top-Heavy schedule for any Plan Year, such shift is an amendment to the vesting schedule and the election in paragraph 9.9 applies. The minimum vesting schedule applies to all accrued benefits within the meaning of Code Section 411(a)(7) except those attributable to Employee contributions, including benefits accrued before the effective date of Code Section 416 and benefits accrued before the Plan became Top-Heavy. No reduction in vested benefits may occur in the event the Plan’s status as Top-Heavy changes for any Plan Year. This paragraph does not apply to the account balances of any Employee who does not have one (1) Hour of Service after the Plan initially becomes Top-Heavy and such Employee’s account balance attributable to Employer contributions and forfeitures will be determined without regard to this paragraph.

14.5 Limitations On Allocations

In any Limitation Year beginning prior to January 1, 2000 in which the Top-Heavy Ratio exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the denominators of the Defined Benefit Fraction and Defined Contribution Fraction shall be computed using 100% of the dollar limitation instead of 125%.

14.6 Use Of Safe Harbor Contributions To Satisfy Top-Heavy Contribution Rules

If elected in the Adoption Agreement, a 3% Safe Harbor Non-Elective Contribution allocated to all eligible Employees may be used to satisfy the minimum contribution requirement for a Top-Heavy Plan. A Safe Harbor Matching Contribution may also be used to satisfy the minimum contribution requirement for a Top-Heavy Plan, provided no other contribution is made to the Plan for that Plan Year.

14.7 Top-Heavy Rules For SIMPLE 401(k) Plans

A SIMPLE 401(k) Plan is not treated as a Top-Heavy Plan under Code Section 416 for any year for which the Employer maintains a SIMPLE 401(k) Plan.

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ARTICLE XV

AMENDMENT AND TERMINATION

15.1 Amendment By Sponsor

The Sponsor may amend any or all provisions of this Prototype Plan at any time without obtaining the approval or consent of any Employer which has adopted this Plan and Trust provided that no amendment shall authorize or permit any part of the corpus or income of the Plan to be used for or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries, or eliminate an optional form of distribution. For purposes of Sponsor amendments, the mass submitter of this Prototype Plan shall be recognized as the agent of the Sponsor. If the Sponsor does not adopt the amendments made by the mass submitter, it will no longer be identical to or a minor modifier of the mass submitter plan.

15.2 Amendment By Employer

The Employer may:

(a) change the choice of options in the Adoption Agreement;

(b) add overriding language in the Adoption Agreement when such language is necessary to satisfy Code Section 415 or 416 because of the required aggregation of multiple plans;

(c) amend administrative provisions of the Trust or custodial document in the case of a Plan established under a Nonstandardized Adoption Agreement and make more limited amendments in the case of a Plan established under a Standardized Adoption Agreement such as the name of the Plan, Employer, Trustee or Custodian, Plan Administrator and other Fiduciaries, the trust year, and the name of any pooled trust in which the Plan’s Trust will participate;

(d) add certain sample or model amendments published by the Internal Revenue Service or other required good faith amendments which specifically provide that their adoption will not cause the Plan to be treated as individually designed; and

(e) add or change provisions permitted under the Plan and/or specify or change the Effective Date of a provision as permitted under the Plan and correct obvious and unambiguous typographical errors and/or cross-references that merely correct a reference but that do not in any way change the original intended meaning of the provisions. An Employer that amends the Plan for any other reason, including a waiver of the minimum funding requirement under Code Section 412(d), will no longer participate in this Prototype Plan and will be considered to have an individually designed plan.

15.3 Protected Benefits

An amendment (including the adoption of this Plan as a restatement of an existing Plan) may not decrease a Participant’s accrued benefit or account balance except to the extent permitted under Code Section 412(c)(8), and may not reduce or eliminate a Code Section 411(d)(6) protected benefit (except as provided by the Code or the Regulations issued thereunder) determined immediately prior to the date of adoption, or if later, the Effective Date of the amendment. Where this Plan is being adopted to amend another plan that contains a protected benefit not provided for in this document, the Employer may attach an addendum to the Adoption Agreement that describes such protected benefit which shall be incorporated in the Plan. Should any early retirement benefit or other optional retirement benefits be changed by an amendment to this Plan, all benefits accrued prior to the date of such amendment may not be reduced.

15.4 Permitted Plan Amendments Affecting Alternative Forms Of Payment

This Plan will not violate the requirements of Code Section 411(d)(6) merely because the adopting Employer amends this Plan to eliminate or restrict the ability of a Participant to receive payment of his or her Vested Account Balance under a particular optional form of benefit if, after the Plan amendment is effective with respect to the Participant, the alternative forms of payment available to such Participant include payment in a lump sum distribution form that is otherwise identical to the optional form of benefit that is being eliminated or restricted.

For purposes of this paragraph, a lump sum distribution form is otherwise identical to an optional form of benefit that is eliminated or restricted pursuant to the paragraph above only if the lump sum distribution form is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the Participant) except with respect to the timing of payments after commencement. A lump sum distribution form is not otherwise identical to a specified installment form of benefit if the lump sum distribution form is not available for distribution on the date on which the installment form would have been available for commencement, is not available in the same medium of distribution as the installment form, or imposes any condition of eligibility that did not apply to the installment form. However, an otherwise identical distribution form need not retain rights or features of the optional form of benefit that is eliminated or restricted to the extent that those rights or features would not be protected from elimination or restriction under Code Section 411(d)(6) or this paragraph.

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15.5 Plan Termination

The Employer shall have the right to terminate its Plan at any time. The Sponsor of this Prototype Plan shall be given sixty (60) days notice in writing of the Employer’s intent to terminate or transfer the assets of the Plan or shall be notified by such other means and/or within such time period as the Sponsor may designate and/or may be agreed upon between the Sponsor and the Employer. If the Plan is terminated, partially terminated, or if there is a complete discontinuance of contributions under a profit-sharing plan maintained by the Employer, all amounts credited to the accounts of Participants shall vest and become nonforfeitable. In the event of a partial termination, only those who are affected by such partial termination shall be fully vested. In the event of termination, the Plan Administrator shall direct the Trustee or Custodian as applicable with respect to the distribution of accounts to or for the exclusive benefit of Participants or their Beneficiaries. Such distribution may be made directly to Participants or, at the direction of the Participant, may be transferred directly to another Eligible Retirement Plan, including an individual retirement account. In the absence of an election by a Participant who has received notice pursuant to paragraph 6.5 from the Plan Administrator, the Plan Administrator may direct the Trustee and/or Custodian as applicable, to transfer the Participant’s benefit to another Defined Contribution Plan maintained by the Employer, other than an employee stock ownership plan. If the Employer does not maintain another Defined Contribution Plan, the Plan Administrator may direct the Trustee or Custodian to transfer the Participant’s benefit to an individual retirement account with an institution selected by the Plan Administrator, but only to the extent provided for in the Adoption Agreement, or make a distribution pursuant to paragraph 7.16. Prior to making any distribution, the Trustee or Custodian, as applicable, may require the Plan Administrator to represent that the Plan has received a favorable determination letter from the Internal Revenue Service approving the Plan termination and authorizing the distribution of benefits to Plan Participants. In the absence of such determination letter and prior to agreeing to make any distributions in accordance with the Plan Administrator’s directions, the Trustee or Custodian may require the Plan Administrator to represent in an manner acceptable to the Trustee or Custodian that the applicable requirements, if any, of ERISA and the Code governing the termination of employee benefit plans have been or are being complied with or that appropriate authorizations, waivers, exemptions, or variances have been or are being obtained. Until final distribution of the assets of the Trust, the Plan Administrator and Trustee shall have all the powers necessary for the orderly administration, liquidation and distribution of the assets of the Trust.

15.6 Involuntary Termination

The Plan shall terminate if:

(a) the Employer is dissolved or adjudicated bankrupt or insolvent in appropriate proceedings, or if a general assignment is made by the Employer for the benefit of creditors, or

(b) the Employer loses its identity by consolidation or merger into one or more corporations or organizations, unless within the time period prescribed by Code Section 410(b)(6)(c)(ii) such corporations(s) or organization(s) elect to continue the Plan. Following the termination of the Plan the Trust will continue until each Participant’s benefit has been distributed.

15.7 Termination Of Participation By Participating Employer

Any Participating Employer may by written resolution terminate participation in the Plan at any time by notification to the Sponsor, the Plan Administrator, and the Trustee and/or Custodian as applicable. Such Participating Employer may thereupon request a transfer of Trust assets attributable to its Employees from this Plan to any successor qualified retirement Plan maintained by the Participating Employer or its successor. The Plan Administrator may, however, refuse to make such transfer if in its considered opinion such transfer would operate to the detriment of any Participant, jeopardize the continued qualification of the Plan, or if such transfer does not comply with any requirements of the Internal Revenue Service. If no transfer is made, the provisions in the definition of Participating Employer in Article I will apply with respect to the payment of benefits for Employees of such Participating Employer.

15.8 Distribution Restrictions Under A Code Section 401(k) Plan

If the Employer’s Plan includes a cash or deferred arrangement or if transferred assets described in paragraph 6.15 are subject to the distribution restrictions of Code Sections 401(k)(2) and 401(k)(10), the special distribution provisions of this paragraph apply. The portion of the Participant’s Vested Account Balance attributable to Elective Deferrals or Roth Elective Deferrals (or to amounts treated under the cash or deferred arrangement as Elective Deferrals such as QNECs and QMACs and income allocable to each) are not distributable earlier than upon the Participant’s severance from employment, death, or Disability. Such amounts may also be distributed upon:

(a) Termination of the Plan without the Employer maintaining another Defined Contribution Plan [other than an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409(a), a Simplified Employee Pension Plan as defined in Code Section 408(k), a SIMPLE IRA Plan as defined in Code Section 408(p), a Plan or contract described in Code Section 403(b), or a Plan described in Code Section 457(b) or (f)] at any time during the period beginning on the date of Plan termination and ending twelve (12) months after all assets have been distributed from the Plan. Such a distribution must be made in a lump sum.

(b) The attainment of age 59 ¹/2 in the case of a profit-sharing plan.

(c) The Hardship of the Participant, as described in paragraph 6.11.

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For Plan Years beginning prior to 2002, such amounts could also be distributed upon:

(d) The disposition by a corporation to an unrelated corporation of substantially all of the assets [within the meaning of Code Section 409(d)(2)] used in trade or business of such corporation if such corporation continues to maintain the Plan after the disposition, but only with respect to the Employees who continue employment with the corporation acquiring such assets. Such a distribution must be made in a lump sum.

(e) The disposition by a corporation to an unrelated entity of such corporation’s interest in a subsidiary [within the meaning of Code Section 409(d)(3)] if such corporation continues to maintain the Plan, but only with respect to Employees who continue employment with such subsidiary. Such a distribution must be made in a lump sum.

All distributions that may be made pursuant to one or more of the foregoing distributable events are subject to the spousal and Participant consent requirements (if applicable) contained in Code Sections 401(a)(11) and 417. Other distribution restrictions include:

(f) If Roth Elective Deferral Accounts are permitted for tax years beginning after 2005, distributions from such accounts (other than corrective distributions) are not includible in the Participant’s gross income if made after five (5) years and after the Participant’s death, Disability, or attainment of age 59 ¹/2. Earnings on corrective distributions of Roth Elective Deferrals are includible in gross income the same as earnings on corrective distributions of pre-tax Elective Deferrals; or

(g) The Participant otherwise is entitled under the terms of the Plan to a distribution of that portion of the Vested Account Balance.

15.9 Qualification Of Employer’s Plan

The Trustee and/or Custodian, if applicable shall have no liabiltiy with respect to any operational or qualification failure of any Plan established hereunder. If the adopting Employer fails to obtain or retain applicable Internal Revenue Service qualification as a Prototype Plan, such Employer’s Plan shall no longer participate in this Prototype Plan and will be considered an individually designed plan.

(a) Employer Reliance Using A Standardized Adoption Agreement – An Employer establishing a Plan under a Standardized Adoption Agreement in conjunction with this Prototype Plan may rely on that Plan’s opinion letter, except as provided in (1) through (3) and paragraph (c) below if the Sponsor of such Plan or Plans has a currently valid favorable opinion letter, the Employer has followed the terms of the Plan(s), and the coverage and contributions or benefits under the Plan(s) are not more favorable for Highly Compensated Employees than for other Employees.

(1) An Employer may not rely on an opinion letter for a Plan established under a Standardized Adoption Agreement with respect to the requirements of Code Sections 415 and 416, without obtaining a determination letter, if the Employer maintains at any time, or has maintained at any time, another plan including a Plan established under a Standardized Adoption Agreement that was qualified or determined to be qualified covering some of the same Participants. For this purpose, a plan that has been properly replaced by the adoption of a Plan established under a Standardized Adoption Agreement is not considered another plan. The plan that has been replaced and the Plan established under a Standardized Adoption Agreement must be of the same type (e.g., both Defined Contribution Plans) in order for the Employer to be able to rely on the Plan established under a Standardized Adoption Agreement with respect to the requirements of Code Sections 415 and 416 without obtaining a determination letter. In addition, an Employer that adopts a Defined Contribution Plan under a Standardized Adoption Agreement will not be considered to have maintained another plan merely because the Employer has maintained another Defined Contribution Plan(s), provided such other plan(s) has been terminated prior to the Effective Date of the Plan established under a Standardized Adoption Agreement and no Annual Additions have been credited to the account of any Participant under such other plan(s) as of any date within a Limitation Year of the Plan established under a Standardized Adoption Agreement. Likewise, an Employer that adopts a Defined Contribution Plan established under a Standardized Adoption Agreement that is first effective on or after the Effective Date of the repeal of Section 415(e) will not be considered to have maintained another plan merely because the Employer has maintained a Defined Benefit Plan(s), provided the Defined Benefit Plan(s) has been terminated prior to the Effective Date of the Defined Contribution Plan established under a Standardized Adoption Agreement.

(2) An Employer that adopts a Plan established under a Standardized Adoption Agreement may not rely on an opinion letter with respect to:

(i) whether the timing of any amendment to the Plan (or series of amendments) satisfies the nondiscrimination requirements of Regulations Section 1.401(a)(4)-5(a), except with respect to Plan amendments granting past Service that meet the safe harbor described in Regulations Section 1.401(a)(4)-5(a)(3) and are not part of a pattern of amendments that significantly discriminate in favor of Highly Compensated Employees; or

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(ii) whether the Plan satisfies the effective availability requirement of Regulations Section 1.401(a)(4)-4(c) with respect to any benefit, right, or feature.

An Employer that adopts a Plan established under a Standardized Adoption Agreement as an amendment to a plan other than a Plan established under a Standardized Adoption Agreement may not rely on an opinion letter with respect to whether a benefit, right, or feature that is prospectively eliminated satisfies the current availability requirements of Regulations Section 1.401(a)(4)-4. Such an Employer may request a determination letter if the Employer wishes to have reliance as to whether the prospectively eliminated benefit, right, or feature satisfies the current availability requirements.

(b) Employer Reliance Using A Nonstandardized Adoption Agreement – An Employer establishing a Plan using a Nonstandardized Adoption Agreement in conjunction with this Basic Plan Document #01 may rely on that Plan’s opinion letter as described below if the Employer’s Plan is identical to the approved Prototype Plan with a currently valid favorable opinion letter, the Employer has selected only options permitted under the terms of the approved Prototype Plan, and the Employer has followed the terms of the Plan [also see paragraph 15.9(c)(3) below]. The Employer may forego filing IRS Form 5307 and rely on the Prototype Plan’s favorable opinion letter with respect to the qualification requirements, except as provided in section (1) through (4) and paragraph 15.9(c) below.

(1) Except as provided in paragraphs 15.9(c)(2), (3) and (4), the adopting Employer of a Plan established under a Nonstandardized Adoption Agreement may not rely on a favorable opinion letter with respect to the requirements of Code Sections 401(a)(4), 401(a)(26), 401(l), 410(b) or 414(s) or if the Employer maintains or has ever maintained another plan covering some of the same Participants, Code Sections 415 or 416. For this purpose, whether an Employer maintains or has ever maintained another plan will be determined using principles consistent with paragraph 15.9(a) above.

(2) An adopting Employer of a Plan established under a Nonstandardized Adoption Agreement may rely on the opinion letter with respect to the requirements of Code Sections 410(b) and 401(a)(26) [other than the Code Section 401(a)(26) requirements that apply to a prior benefit structure] if 100% of all nonexcludable Employees benefit under the Plan.

(3) Plans established using a Nonstandardized Adoption Agreement must give adopting Employers the option to elect a safe harbor allocation or benefit formula and a safe harbor Compensation definition. Adopting Employers of Plans established under a Nonstandardized Adoption Agreement that elect a safe harbor allocation or benefit formula and a safe harbor Compensation definition may rely on an opinion letter with respect to the nondiscriminatory amounts requirement under Code Section 401(a)(4). Adopting Employers of Plans established under a Nonstandardized Adoption Agreement that are Code Section 401(k) and/or Code Section 401(m) plans may rely on an opinion letter with respect to whether the form of the Plan satisfies the ADP Test of Code Section 401(k)(3) or the ACP Test of Code Section 401(m)(2) if the Employer elects to use a safe harbor definition of Compensation in the test. Adopting Employers of Plans established under a Nonstandardized Adoption Agreement described in Code Sections 401(k)(11) and/or 401(m)(12) may rely on an opinion letter with respect to whether the form of the Plan satisfies these requirements unless the Plan provides for the safe harbor contribution to be made under another Plan.

(c) Other Limitations and Conditions on Reliance – The following conditions and limitations apply with respect to Prototype Plans:

(1) An adopting Employer can rely on a favorable opinion letter for a Prototype Plan that amends or restates a Plan of the Employer only if the Plan that is being amended or restated was qualified.

(2) An adopting Employer has no reliance if the Employer’s adoption of the Plan precedes the issuance of an opinion for the Prototype Plan.

(3) An adopting Employer can rely on an opinion letter only if the requirements of this paragraph 15.9 are met, and the Employer’s Plan is identical to an approved Prototype Plan with a currently valid favorable opinion letter, and the Employer has not added any terms to the approved Prototype Plan and has not modified or deleted any terms of the Plan, other than selecting options permitted under the Prototype Plan or amended the document as permitted under paragraph 15.2.

(4) An Employer’s Plan will not fail to be identical to an approved Prototype Plan merely because the Employer modifies or amends the Plan to:

(i) Add or change a provision and/or to specify or change the Effective Date of a provision, provided the Employer is permitted to make the modification or amendment under the terms of the approved Prototype Plan as well as under Code Section 401(a), and, except for the Effective Date, the provision is identical to a provision in the approved Plan. Thus, an Employer is not required to restate its Prototype Plan in order to change options under the Plan or to specify different Effective Dates. The Employer, in it’s ability to amend a Prototype Plan without causing the Plan to be treated as an individually designed plan, must execute a new signature page when the Employer modifies any prior elections or makes a new election in its Adoption Agreement.

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(ii) Correct obvious and unambiguous typographical errors and/or cross-references that merely correct a reference but that do not in any way change the original intended meaning of the provisions. No such changes may affect any qualification requirements of the Plan. The Internal Revenue Service in its discretion may determine that any such changes are not considered identical.

(iii) Adopt model, sample or other required good faith amendments that specifically provide that their adoption by an adopter of a Prototype Plan will not cause the Plan to be treated as an individually designed plan or cause the Plan to fail to be “identical” to the approved Prototype Plan within the meaning of this paragraph.

(5) An adopting Employer cannot rely on an opinion letter if the adopting Employer has modified the terms of the Plan’s approved Trust Agreement in a manner that would cause the Plan to fail to be qualified.

(d) Reliance Equivalent to Determination Letter – If an Employer can rely on a favorable opinion letter pursuant to this paragraph, the opinion letter shall be equivalent to a favorable determination letter. The favorable opinion letter shall be treated as a favorable determination letter for purposes of Section 21 of Revenue Procedure 2005-6, regarding the effect of a determination letter, and Section 5.01(4) of Revenue Procedure 2003-44, regarding the definition of “favorable letter” for purposes of the Employee Plans Compliance Resolution System (and as such Revenue Procedures are subsequently modified or superseded by written guidance issued by the Department of the Treasury or by the Internal Revenue Service); however, the extent of the Employer’s reliance may be limited, as provided above.

15.10  Mergers And Consolidations

(a) In the case of any merger or consolidation of the Employer’s Plan with, or transfer of assets or liabilities of the Employer’s Plan to any other plan, Participants in the Employer’s Plan shall be entitled to receive benefits immediately after the merger, consolidation, or transfer which are equal to or greater than the benefits they would have been entitled to receive immediately before the merger, consolidation, or transfer if the Plan had then terminated.

(b) Any corporation (or other authorized business entity) into which the Trustee, Custodian or any successor thereto may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Trustee, Custodian or any successor thereto may be a party, or any corporation (or other authorized business entity) to which all or substantially all the business of the Trustee, Custodian or any successor thereto may be transferred, shall automatically be the successor without the filing of any instrument or performance of any further act, before any court.

15.11  Qualification Of Prototype

The Sponsor intends that this Prototype Defined Contribution Plan, inclusive of the Basic Plan Document #01 and associated Adoption Agreements, will meet the requirements of the Code and the Regulations thereunder. Should the Commissioner of Internal Revenue or any delegate of the Commissioner at any time determine that this Prototype Plan fails to meet the applicable qualification requirements of the Code and/or the Regulations thereunder, the Sponsor will amend the Basic Plan Document #01 and/or Adoption Agreement(s) as necessary to maintain their qualified status.

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ARTICLE XVI

GOVERNING LAW

16.1 Governing Law

Construction, validity and administration of the Prototype Plan and any Employer Plan established under the terms of this Plan and accompanying Adoption Agreement(s), shall be governed by Federal law to the extent applicable, and, to the extent Federal law is not applicable by the laws of the State or Commonwealth in which the principal office of the Prototype Sponsor or its affiliate is located.

Notwithstanding any provision of the Plan to the contrary, no provision in the Basic Plan Document #01 shall subject a governmental Plan as defined in Code Section 414(d) or a non-electing church plan as described in Code Section 410(d) to the fiduciary provisions of Title I of ERISA or any other provision of ERISA that is not applicable to such governmental or non-electing church plans.

16.2 State Community Property Laws

The terms and conditions of the Prototype Plan and any Employer’s Plan established under the terms of this Basic Plan Document #01 and accompanying Adoption Agreement(s) shall be applicable without regard to community property laws of any state.

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ARTICLE XVII

DEEMED IRAS

RESERVED

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ARTICLE XVII

DEEMED IRAS

This Article shall apply if elected by the Employer in the Adoption Agreement and shall be effective for Plan Years beginning after the date specified in the Adoption Agreement, but in no event earlier than the Plan Year beginning on or after January 1, 2003. Any Traditional or Roth IRA established hereunder to accept Deemed IRA Contributions as permitted by Code Section 408(g) will follow the rules set forth in Code Section 408 and outlined in Article XVIII. Any Roth IRA established hereunder to accept Deemed IRA Contributions as permitted by Code Section 408(g) shall follow the rules set forth in Code Section 408A and outlined in Article XIX. Any account established hereunder is for the exclusive benefit of the Participant or his or her Beneficiaries.

17.1 Deemed IRAs

If the Employer’s Plan allows Participants to make Voluntary Employee Contributions, such Participant may make Voluntary Employee Contributions to the Participant’s Traditional or Roth IRA as elected on the Adoption Agreement under Basic Plan Document #01. Simplified Employee Pension Plans (SEPs) under Code Section 409(k) and SIMPLE IRAs under Code Section 408(p) may not be used as Deemed IRAs.

The Plan may establish an annuity or a trust (whether or not separate from the Employer’s Plan Trust) for the designated IRA contributions of each Participant and any earnings properly allocable to the contributions. A separate recordkeeping account with respect to each such IRA will be maintained for each Participant. If Deemed IRA contributions are made to an annuity contract, such annuity contract shall be separate from the Employer’s Qualified Plan. Contributions may be held under a single annuity contract or under separate annuity contracts. Where a single annuity contract is used, separate accounting for the interest of each Participant is required.

17.2 Individual

The Participant in the Plan who has established a Traditional IRA or a tax-qualified Roth IRA under this Basic Plan Document #01, which may be amended from time to time.

17.3 Investment In Collectibles

If a Deemed IRA established hereunder acquires collectibles within the meaning of Code Section 408(m) after December 31, 1981, assets of the Deemed IRA will be treated as a distribution in an amount equal to the cost of such collectibles.

17.4 Restrictions On Directing Investments

While the Individual may direct the Trustee or Insurer with respect to investments, the Individual may not borrow from the account or pledge any of the assets of the IRA as security for a loan, or buy property or assets from or sell property or assets to the account.

17.5 Prohibition Against Investing In Life Insurance

No part of the Deemed IRA assets (whether or not the Deemed IRA Account is separate from the Employer’s Qualified Plan) used to hold Deemed IRA contributions will be invested in life insurance contacts.

17.6 Commingling Of Assets

The assets of a Deemed IRA may be commingled for investment purposes with those of Employer Qualified Plan. However, the restrictions on the commingling of Plan and IRA assets as outlined in Code Section 408(a)(5) with other assets apply to the assets of the Employer Qualified Plan and the Deemed IRA.

17.7 Nonforfeitability

The balance in an Individual’s Deemed IRA account is nonforfeitable at all times.

17.8 Separate Accounting

Separate records will be maintained for the interest of each Individual under an IRA established by the Employer.

17.9 Separate Trusts

Deemed IRAs established pursuant to this paragraph may be held in a trust separate from the Trust established under the Plan as determined by the Employer’s administrative policy. Any separate trust established to hold Deemed IRA contributions shall satisfy the applicable requirements of Code Sections 408 and 408(A), whose requirements are set forth in Articles XVIII and XIX, and will not be considered an Employer Qualified Plan. All contributions made to a separate trust of a Deemed IRA will be treated as contributions to such Deemed IRA and not to the Employer’s Qualified Plan. Similarly, the requirements of Code Sections 408 and 408(A) and the rules set forth in Articles XVIII and XIX will not be applicable to the Employer’s Qualified Plan established hereunder if the Deemed IRA contributions are made to a separate trust. When a separate Deemed IRA is not established, the Deemed IRA contributions will be included as part of the Employer’s Qualified Plan, but separate accounting of the Deemed IRA contributions must be established as outlined in paragraphs 5.1 and 17.8. Where an Employer Qualified Plan and Deemed IRAs are included in the same Trust, the Trustee of the Plan must be the same Trustee of the IRA; therefore, the Trustee must be either a bank or a non-bank trustee that satisfies the requirements of Code Section 408(a)(2) and the Regulations thereunder.

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17.10  Separate Annuities

Deemed IRAs established pursuant to this paragraph may be held in an annuity contract. Separate annuity contracts must be established for the interest of each Individual to hold Deemed IRA contributions. Such annuity contracts must be held separate from the Employer’s Plan, even if the Employer Qualified Plan also maintains annuity contracts.

17.11  Reporting Duties

The Trustee or Insurer of a Roth IRA shall furnish annual calendar year reports concerning the status of the account as well as information concerning required minimum distributions as is prescribed by the Commissioner of Internal Revenue. The Trustee or Insurer, as applicable, shall be subject to the reporting requirements of Code Section 408(i) with respect to all Deemed IRAs that are established and maintained under the Plan.

17.12  Distributions

The rules applicable to distributions from Employer Qualified Plans under the Internal Revenue Code and the Regulations thereunder do not apply to distributions from Deemed IRAs. Instead, the rules applicable to distributions from IRAs apply to distributions from Deemed IRAs, as outlined in Article XVIII and Article XIX, as applicable. Additionally, any restrictions that a Trustee, Custodian, or insurance company is permitted to impose on distributions from Traditional and Roth IRAs, may be imposed on distributions from Deemed IRAs (i.e., early withdrawal penalties on annuities). The required minimum distribution rules of Code Section 401(a)(9) must be met separately with respect to the Employer Qualified Plan and the Deemed IRA. The determination of whether an Employer Qualified Plan satisfies the required minimum distribution rules of Code Section 401(a)(9) is made without regard to whether a Participant satisfies the required minimum distribution requirements with respect to the Deemed IRA that is established under such Plan.

17.13  Voluntary Employee Contributions

For purposes of this paragraph, a Voluntary Employee Contribution is any contribution [other than a mandatory contribution within the meaning of Code Section 411(c)(2)] that is made by a Participant to an Employer Qualified Plan that allows Participants to elect to make contributions to Deemed IRAs and which the Participant has designated, at or prior to the time of making the contribution, as a contribution to which this Article applies.

17.14  Substitution Of Non-Bank Trustee

If a non-bank Trustee has been appointed by the Employer, such entity shall retain the right to substitute another Trustee or Custodian if such non-bank Trustee receives notice from the Commissioner of Internal Revenue that such substitution is required because it has failed to comply with the requirements of Regulations Section 1.408-2(e).

17.15  Disqualification

The failure of either the Employer Qualified Plan portion or the Deemed IRA portion of the Plan to satisfy the applicable qualification rules of each will not cause the other portion to be automatically disqualified, provided the Deemed IRA portion and the Qualified Plan portion are maintained as separate Trusts (or separate annuity contracts, as required in the case of a Deemed IRA annuity). If both the Deemed IRA portion and the Qualified Plan portion are included in separate Trusts, and the Qualified Plan is disqualified, the IRA portion will not be considered a Deemed IRA under Code Section 408(a), but it will not fail to satisfy the applicable requirements of Code Sections 408 or 408(A) if it satisfies the applicable requirements of those sections, including, with respect to individual retirement accounts the requirements of Code Section 408(a)(5) with regard to commingling of assets. If the IRA assets and the non-IRA assets have been commingled [except in a common trust fund or common investment fund as permitted by Code Section 408(a)(5)], the IRA portion will fail to satisfy the requirements of Code Section 408(a). Additionally, if the IRA assets and the non-IRA assets are commingled [except as permitted by Code Section 408(a)(5)] and the IRA is disqualified, the Employer’s Plan will also be disqualified.

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ARTICLE XVIII

DEEMED TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS

RESERVED

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ARTICLE XVIII

DEEMED TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS

18.1 Deemed IRA

The provisions of this Article and Article XVII shall apply if elected in the Adoption Agreement. A Deemed Individual Retirement Account, or Deemed Individual Retirement Annuity described in Code Section 408(a) where the context so requires, include a Traditional IRA, Rollover IRA and Combined IRA. No account established under the Prototype Plan may accept SEP, SARSEP, SIMPLE IRA or Coverdell Education contributions.

18.2 Maximum Annual Contribution

With respect to Traditional IRA Contributions made by or on behalf of an Individual for a taxable year, Maximum Annual Contribution shall mean an amount that does not exceed the lesser of the deductible amount described in Code Section 219(b)(5)(A) reduced by the amount of any contributions made by or on behalf of the Individual to another Traditional IRA or to a Roth IRA for the same Taxable Year.

18.3 Catch-Up Contribution

In the case of annual contributions to a Traditional IRA or IRA Rollover Account, a Catch-Up Contribution is an amount not to exceed the Applicable Amount as defined in Code Section 219(b)(5)(B)(i).

Catch-Up Contributions that may be made by or on behalf of an Individual for any taxable year to an IRA established under this Plan shall be reduced by the amount of Catch-Up Contributions made by or on behalf of the same Individual to any other IRA or Roth IRA for the same taxable year except that, in the case of Catch-Up Contributions made as salary reduction contributions to a SARSEP IRA Account, the amount of such Catch-Up Contributions allowed for any taxable year shall be reduced by the amount of Catch-Up Contributions made by or on behalf of the same Individual to any other retirement plan described in Code Sections 401(a), 403(b), 408(p) or 457. Catch-Up Contributions may be made by or on behalf of an Individual who has attained the age of fifty (50) on or before the last day of the year for which the contribution is made. The Plan shall be interpreted to deem any Individual’s contribution that exceeds the Maximum Annual Contribution as defined in paragraph 18.2 but not an amount greater than the Applicable Amount to be a Catch-Up Contribution unless the Individual elects to treat such amount as an Excess Contribution described in paragraph 18.8.

18.4 Required Beginning Date

The April 1^st of the calendar year following the calendar year in which the Individual attains age 70 ¹/2.

18.5 Tax Year

The period for which an Individual must report income on his or her Federal income tax return. The tax return of most Individuals is based on the calendar year.

18.6 Trustee

The institution and any successor thereto including by merger or acquisition that has been appointed and accepted as indicated on the Adoption Agreement.

18.7 Traditional IRA Contributions

An Individual may make a cash contribution in any amount up to the Maximum Annual Contribution (reduced by the amount of any contributions made by the Individual or on the Individual’s behalf to another IRA or to a Roth IRA for the same Tax Year) in which the Individual is under the age of 70 ¹/2.

The Trustee is not permitted to accept contributions in excess of the Maximum Annual Contribution amount for any Tax Year unless it is a Rollover Contribution [as permitted by Code Sections 402(c) and 403(a)(4)]. Contributions may be made to an IRA for any Tax Year at any time starting on the first day of the Tax Year and ending on the day the Individual’s Federal income tax return is due for such year (not including any extensions). Except in the case of a Rollover Contribution [as permitted by Code Sections 402(c), 402(e)(6), 403(a)(4), 403(b)(8), 403(b)(10), 408(d)(3) and 457(e)(16)(A)(i)], the total of such contributions shall not exceed the Maximum Annual Contribution amount for each year listed below:

Tax Years	Maximum Annual Contribution Amount
2002 through 2004	$3,000
2005 through 2007	$4,000
2008 and thereafter	$5,000

For years after 2008, the $5,000 limit is subject to cost-of-living adjustments (“COLAs”) under Code Section 219(b)(5)(c). Such adjustments will be in $500 increments.

If by December 31 of any taxable year an Individual is age fifty (50) or over, the Individual may make an additional contribution (a “Catch-Up Contribution”) to all of the Individual’s IRAs in the aggregate (and if the Individual is eligible, Roth IRAs) up to $500 for Tax Years 2002 through 2005, and up to $1,000 for Tax Years 2006 and thereafter.

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If the Individual is eligible, any annual contribution the Individual makes that exceeds the Individual’s Maximum Annual Contribution will be treated as a Catch-Up Contribution (up to the limits described above) unless the Individual elects to treat such amounts as an Excess Contribution described in paragraph 18.8 below.

18.8 Excess Contributions

If the Participant contributes more than allowed with respect to a Tax Year, the Individual must notify the Trustee or Insurer to return to the Individual the excess contribution, together with any investment earnings on that amount, or to apply the excess contribution as a contribution for the Individual’s next succeeding Tax Year. The Participant must notify the Trustee or Insurer in writing prior to the date on which the Individual files, or is required to file, the Individual’s income tax return for the Tax Year for which the excess contribution was made.

18.9 Maintenance Of An Individual’s IRA

The Trustee or Insurer will establish and maintain an IRA in the Individual’s name under this document. The Individual’s Account will be administered separately from any other IRA and the assets of the Individual’s IRA will not be commingled with the assets of any other IRA, except in a common trust fund or common investment fund as described in Code Section 408(a)(5).

18.10  Methods Of Payment

The Individual’s retirement benefits must begin to be paid to the Individual no later than the April 1 following the calendar year in which the Individual reaches age 70 ¹/2. Such distributions shall be made in accordance with Code Sections 408(a)(6) or 408(b)(3) and the Regulations issued thereunder. Not later than March 1 of the year following the calendar year in which the Individual reaches age 70 ¹/2, the Individual may elect to have the balance in the IRA paid to the Individual in:

(a) a single lump-sum payment, or

(b) equal or substantially equal monthly, quarterly, semi-annual, or annual payments. The payments may be computed over any period of time but not longer than the Individual’s life expectancy or the joint life expectancy of the Individual and the Individual’s Designated Beneficiary.

Installment payments will continue only so long as amounts remain in an IRA. Once an IRA is exhausted, payments will stop. If the Individual is receiving installment payments, the Individual may request distribution of all or any part of the remaining balance in the Individual’s IRA at any time upon written notice to the Sponsor.

18.11  Requirements Of Income Tax Regulations

All distributions required under this Article will be determined and made in accordance with the Income Tax Regulations under Code Section 401(a)(9)(1)(2). The requirements of this Article XVI will take precedence over any inconsistent provisions of the Plan.

18.12  Required Beginning Date

Notwithstanding any provision of this Article to the contrary, the distribution of the Individual’s interest in the IRA account shall be made in accordance with the requirements of Code Section 408(a)(6), as modified by Code Section 408A(c)(5), and the Regulations thereunder, the provisions of which are herein incorporated by reference. If distributions are made from an annuity contract purchased from an insurance company, distributions thereunder must satisfy the requirements of Regulations Section 1.401(a)(9)-6 [taking into account Code Section 408A(c)(5)], rather than the distribution rules in paragraphs 18.14(b), (c) and (d) below.

18.13  Forms Of Distributions

Unless the Individual’s interest is distributed in a single sum on or before the Required Beginning Date, as of the First Distribution Calendar Year distributions will be made in accordance with paragraph 18.14 through paragraph 18.16.

18.14  Distributions Upon Death

Upon the death of the Individual, his or her entire interest will be distributed at least as rapidly as follows:

(a) If the Designated Beneficiary is someone other than the Individual’s surviving Spouse, the remaining interest will be distributed, starting by the end of the calendar year following the calendar year of the Individual’s death, over the remaining life expectancy of the Designated Beneficiary, with such life expectancy determined using the Designated Beneficiary’s age as of his or her birthday in the year following the year of the Individual’s death, or, if the distributions are being made over the period described in (c) below if longer.

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(b) If the Individual’s sole Designated Beneficiary is the Individual’s surviving Spouse, the entire interest will be distributed, starting by the end of the calendar year following the calendar year of the Individual’s death (or by the end of the calendar year in which the Individual would have attained age 70 ¹/2, if later), over such Spouse’s life or if elected in accordance with paragraph (c) below. If the surviving Spouse dies before distributions are required to begin, the remaining interest will be distributed, starting by the end of the calendar year following the calendar year of the Spouse’s death, over the Spouse’s Designated Beneficiary’s remaining life expectancy determined using such Beneficiary’s age as of his or her birthday in the year following the death of the Spouse, or if elected will be distributed in accordance with paragraph (c) below. If the surviving Spouse dies after the distributions are required to begin, any remaining interest will be distributed over the Spouse’s remaining life expectancy determined using the Spouse’s age as of his or her birthday in the year of the Spouse’s death.

(c) If there is no Designated Beneficiary, or if applicable by operation of paragraph (a) or (b) above, the remaining interest will be distributed by the end of the calendar year containing the fifth anniversary of the Individual’s death [or of the Spouse’s death in the case of the surviving Spouse’s death before distributions are required to begin under paragraph (b) above] over the Individual’s remaining life expectancy determined in the year of the Individual’s death.

(d) The amount to be distributed each year under paragraph (a), (b) or (c), beginning with the calendar year following the calendar year of the Individual’s death, is the quotient obtained by dividing the value of the IRA as of the end of the preceding year by the remaining life expectancy specified in such paragraph. Life expectancy is determined using the Single Life Table in Q&A-1 of Regulations Section 1.401(a)(9)-9.

(e) If distributions are being made to a surviving Spouse as the sole Designated Beneficiary, such Spouse’s remaining life expectancy for a year is the number in the Single Life Table corresponding to the Spouse’s age in the year. In all other cases, remaining life expectancy for a year is the number in the Single Life Table corresponding to the Beneficiary’s age in the year specified in (a) or (b) and reduced by one (1) for each subsequent year.

(f) The value of the IRA includes the amount of any outstanding rollover, transfer, and recharacterization under Q&As-7 and –8 of Regulations Section 1.408-8.

(g) If the sole Designated Beneficiary is the Individual’s surviving Spouse, the Spouse may elect to treat the IRA as his or her own IRA. The election will be deemed to have been made if such Surviving Spouse makes a contribution to the IRA or fails to take required distributions as a Beneficiary.

18.15  Designated Beneficiary

The individual who is designated as the Beneficiary under paragraphs 1.13 and 1.26 and is the Designated Beneficiary under Code Section 401(a)(9) and Regulations Section 1.401(a)(9).

18.16  Remainder Beneficiary

The Individual’s Beneficiary may, after the Individual’s death, name a person, trust, estate or other entity to receive distributions of any balance remaining in the Individual’s IRA after the death of the Individual’s Beneficiary. Any person or entity so designated will, upon the death of the Individual’s Beneficiary, become the Individual’s Beneficiary for all purposes except for required minimum distributions. This additional designation may not extend the schedule of required minimum distributions established when the Individual attains age 70 ¹/2 or, if sooner, following the Individual’s death.

18.17  Distribution Calendar Year

A calendar year for which a required minimum distribution is required. For distributions beginning before the Individual’s death, the First Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Individual’s Required Beginning Date. For distributions beginning after the Individual’s death, the First Distribution Calendar Year is the calendar year in which distributions are required to begin under paragraph 18.11. The required minimum distribution for the Individual’s First Distribution Calendar Year will be made on or before the Individual’s Required Beginning Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Individual’s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.

18.18  Life Expectancy

Life expectancy as computed by use of one of the following tables, as appropriate:

(a) the Single Life Table,

(b) the Uniform Life Table, or

(c) the Joint and Last Survivor Table found in Section 1.401(a)(9)-9 of the Treasury Regulations.

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18.19  Individual’s Account Balance

The IRA account balance as of December 31 of the calendar year immediately preceding the Distribution Calendar Year. The “value” of the IRA includes the amount of any outstanding rollover, transfer and recharacterization under Q&As-7 and -8 of Regulations Section 1.408-8.

18.20  Duties Of The Trustee

The administrative functions the Trustee will perform include:

(a) setting up and maintaining an IRA in the Individual’s name;

(b) accepting contributions for deposit to the Individual’s IRA. The Trustee does not require the Individual to make annual contributions since they are voluntary. However, the Trustee is not permitted to accept contributions in excess of the Maximum Annual Contribution for any Tax Year unless it is a Rollover Contribution;

(c) investing the Individual’s contributions in accordance with the Individual’s direction;

(d) making payments or distributions from the Individual’s IRA in accordance with the Individual’s written instructions;

(e) preparing and mailing to the Individual an annual report of the Individual’s IRA for each Tax Year. The report will show the contributions received, the payments and distributions made, the investment earnings received, the market value of assets held in the Individual’s Account including gains and/or losses (if applicable) and the balance held in the Account at the end of the Tax Year; and

(f) preparing an annual calendar year statement concerning the status of the account and such information concerning required minimum distributions as is prescribed by the Commissioner of Internal Revenue.

Where the context is appropriate, Trustee also refers to an Insurer.

18.21  Duties Of The Individual

The administrative functions the Individual must perform include:

(a) determining the amount of the Individual’s annual contribution, if any. The Individual is also responsible to make the Individual’s contribution within the time limits set by the Internal Revenue Service;

(b) authorizing any payment or distribution from the Individual’s Account;

(c) filing Form 5329, Return for Additional Taxes Attributable to Retirement Plans (including IRAs), Annuities and Modified Endowment Contracts, if the Individual owes an excise tax with respect to the Individual’s IRA;

(d) furnishing the Trustee with a written explanation of the intended use of any distribution prior to attainment of age 59 ¹/2; and

(e) furnishing the Trustee with any information the Trustee may need to complete any governmental report required at paragraph 18.20(f) above. If the Individual fails to furnish the Trustee with such information and documents the Trustee may reasonably require, the Trustee may in the Trustee’s sole discretion terminate the account and distribute to the Individual the lump sum payment, in an amount equal to the assets in the IRA less an amount deemed reasonably necessary by the Trustee for the payment of all unpaid fees, expenses, charges, taxes or other liabilities of the account, whether or not liquidated.

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ARTICLE XIX

DEEMED ROTH INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS

RESERVED

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ARTICLE XIX

DEEMED ROTH INDIVIDUAL RETIREMENT ACCOUNT PROVISIONS

19.1 Deemed Roth IRA

The provisions of this Article and Article XVII shall apply if Deemed Roth Individual Retirement Account (“IRA”) provisions are elected in the Adoption Agreement. A Deemed Roth IRA is an Individual Retirement Account established under Code Section 408A under which contributions are not tax deductible and where qualifying distributions are not taxable to the Individual.

The Trustee will establish and maintain a Roth Individual Retirement Account or Annuity in the Individual’s name under the terms as contained herein and where applicable, and any other agreement used to establish the Deemed Roth IRA. The account is established for the exclusive benefit of the Individual or that of the Individual’s Beneficiaries. The Individual’s account will be administered separately from any other IRA or Roth IRA and the assets of such Individual’s IRA or Roth IRA will not be commingled with the assets of any other IRA or Roth IRA, except in a common trust fund or common investment fund.

No part of the IRA may be invested in life insurance contracts. If the IRA acquires collectibles within the meaning of Code Section 408(m) after December 31, 1981, IRA assets will be treated as a distribution in an amount equal to the cost of such collectibles. Code Section 408(m) provides an exception to this rule for certain coins and precious metals.

19.2 Compensation

For purposes of paragraph 19.9, Compensation is defined as wages, salaries, professional fees, or other amounts derived from or received for personal services actually rendered (including but not limited to commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses) and includes earned income, as defined in Code Section 401(c)(2) (reduced by the deduction the self-employed individual takes for contributions made to a self-employed retirement plan). For purposes of this definition, Code Section 401(c)(2) shall be applied as if the term trade or business for purposes of Code Section 1402 included service described in such section 9(c)(6). Compensation does not include amounts derived from or received as earnings or profits from property (including but not limited to interest and dividends) or amounts not includible in gross income. Compensation also does not include any amount received as a pension or annuity or as deferred compensation. The term “Compensation” shall include any amount includible in the individual’s gross income under Code Section 71 with respect to a divorce or separation instrument described in subparagraph (A) of Code Section 71(b)(2). In the case of a married individual filing a join return, the greater compensation of his or her Spouse is treated as his or her own Compensation, but only to the extent that such Spouse’s Compensation is not being used for purposes of the Spouse making a contribution to a Roth IRA or a deductible contribution to a non-Roth IRA.

19.3 Age Requirements

Contributions may be made to this Roth IRA even after the Individual has reached age 70 ¹/2.

19.4 Plan Year

The twelve (12) month period starting on January 1 and ending on December 31.

19.5 Timing Of Contributions

An Individual must make his or her contribution for a Taxable Year either during such year or within the time period prescribed by law for filing the Individual’s Federal income tax return for such Taxable Year without extensions.

19.6 Adjusted Gross Income (AGI)

“AGI” shall mean adjusted gross income as reported on an Individual’s Federal income tax return but modified, in accordance with Code Section 219(g)(3), to adjust for Social Security benefits and passive activity losses and credits and to include foreign earned income, adoption assistance or expenses and income from U.S. Savings Bonds used to pay higher education tuition and fees, and further modified, in accordance with Code Section 408(c)(3)(C), to exclude any amount included in income due to a conversion from a Traditional or Regular IRA to a Roth IRA.

19.7 Modified AGI

An Individual’s Modified AGI for a Taxable Year is defined in Code Section 408A(c)(3)(C)(i) and does not include any amount included in Adjusted Gross Income as a result of a rollover from a non-Roth IRA (a “conversion”).

19.8 Applicable Dollar Amount

Applicable Dollar Amount shall mean (i) $150,000, in the case of an individual filing a joint Federal income tax return, (ii) $95,000, in the case of any other Individual (other than a married Individual filing separately), and (iii) $0, in the case of a married Individual filing separately.

19.9 Maximum Permissible Amount

No contribution will be accepted unless it is in cash and the total of such contributions to all the Individual’s Roth IRAs for a Taxable Year does not exceed the applicable amount [as defined in 19.10(b)], or the Individual’s Compensation, if less, for that Taxable Year. The contribution described in the previous sentence that may not exceed the lesser of

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the applicable amount or the Individual’s Compensation is referred to as a “Regular Contribution.” A “Qualified Rollover Contribution” is a rollover contribution that meets the requirements of Code Section 408(d)(3), except the one-rollover-per-year rule of Code Section 408(d)(3)(B) does not apply if the rollover contribution is from an IRA other than a Roth IRA (a “non-Roth IRA”). Contributions may be limited as described in paragraph 19.10(b).

19.10  Roth IRA Contributions

(a) Except in the case of a Qualified Rollover Contribution or a recharacterization [as defined in (f) below], no contribution will be accepted unless it is in cash and the total of such contribution to all the Individual’s Roth IRAs for a taxable year does not exceed the Maximum Permissible Amount described at paragraph 19.9.

(b) When determining the Maximum Permissible Amount, the applicable amount is determined under (i) or (ii) below:

(i) If the Individual is under age fifty (50), the applicable amount is $3,000 for any Taxable Year beginning in 2002 through 2004, $4,000 for any Taxable Year beginning in 2005 through 2007, and $5,000 for any Taxable Year beginning in 2008 and years thereafter.

(ii) If the Individual is age fifty (50) or older, the applicable amount is $3,500 for any Taxable Year beginning in 2002 through 2004, $4,500 for any Taxable Year beginning in 2005, $5,000 for any Taxable Year beginning in 2006 through 2007, and $6,000 for any Taxable Year beginning in 2008 and years thereafter.

(c) If (i) and/or (ii) below apply, the maximum Regular Contribution that can be made to all the Individuals’ Roth IRAs for a Taxable Year is the smaller amount determined under (i) or (ii).

(i) The maximum Regular Contribution is phased out ratably between certain levels of modified Adjusted Gross Income (“Modified AGI,”) in accordance with the following table:

Filing Status	Full Contribution	Phase-Out Range	No Contribution
	Modified AGI
Single or Head of Household	$95,0000 or less	Between $95,000 and $110,000	$110,000 or more
Joint Return Or Qualifying Widow(er)	$150,000 or less	Between $150,000 and $160,000	$160,000 or more
Married-Separate Return	$0	Between $0 and $10,000	$10,000 or more

If the Individual’s Modified AGI for a Taxable Year is in the phase-out range, the maximum Regular Contribution determined under this table for that Taxable Year is rounded up to the next multiple of $10 and is not reduced below $200.

(ii) If the Individual makes Regular Contributions to both Roth and non-Roth IRAs for a Taxable Year, the maximum Regular Contribution that can be made to all the Individual’s Roth IRAs for the Taxable Year is reduced by the Regular Contributions made to the Individual’s non-Roth IRAs for the Taxable Year.

(d) A rollover from a non-Roth IRA cannot be made to this IRA if, for the Taxable Year the amount is distributed from the non-Roth IRA (i) the Individual is married and files a separate return, (ii) the Individual is not married and has Modified AGI in excess of $100,000 or (iii) the Individual is married and together the Individual and the Individual’s Spouse have Modified AGI in excess of $100,000. For purposes of the preceding sentence, a husband and wife are not treated as married for a Taxable Year if they have lived apart at all times during that Taxable Year and file separate returns for the Taxable Year.

(e) No contributions will be accepted under a SIMPLE IRA plan established by any Employer pursuant to Code Section 408(p). Additionally, no transfer or rollover of funds attributable to contributions made by a particular employer under its SIMPLE IRA plan will be accepted from an IRA used in conjunction with a SIMPLE IRA plan, prior to the expiration of the two (2) year period beginning on the date the Individual first participated in that employer’s SIMPLE IRA plan.

(f) A Regular Contribution to a non-Roth IRA may be recharacterized pursuant to the rules in Regulations Section 1.408A-5 as a Regular Contribution to this IRA, subject to the limits in (c) above.

(g) For purposes of this paragraph, an Individual’s Modified AGI for a Taxable Year is defined in Code Section 408A(c)(3)(c)(i) and does not include any amount included in Adjusted Gross Income as a result of a rollover from a non-Roth IRA (a “conversion”).

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19.11  Excess Contribution

If the amount contributed by an Individual exceeds the Maximum Permissible Amount with respect to a Taxable Year, the Individual must notify the Trustee or Insurer to distribute to the Individual the excess contribution, together with any investment earnings on that amount. If any excess is not corrected by the tax filing deadline (including extensions) for the year during which the excess contribution was made, such excess contribution may be applied, on a year-by-year basis, against the annual limit for regular Roth IRA contributions. However, in order to “carry over” the excess contribution and treat it as a contribution made for a subsequent year, the Individual must meet the eligibility requirements for the subsequent year. In addition, the Individual is subject to the 6% excise tax for the initial year and each subsequent year until the excess is used up.

The provisions under Code Section 408(d)(5) for Traditional or Regular IRAs (correcting excesses after the filing deadline) and under Code Section 219(f)(6) for Traditional or Regular IRAs (carrying over excesses to a subsequent year) do not apply to Roth IRAs.

The Individual must notify the Trustee or Insurer of the excess contribution, in writing, before the date on which the Individual files, or is required to file, his or her income tax return for the Taxable Year for which the excess contribution was made.

19.12  Qualified Distributions

A distribution of contributions or rollovers made pursuant to this Roth IRA, that are held in a Roth IRA account for five (5) or more Taxable Years, will be Federal income tax-free and penalty-free if the distribution is made on account of:

(a) the Individual having attained age 59 ¹/2,

(b) the Individual’s death,

(c) the Individual’s Disability, or

(d) a Qualified Special Purpose Distribution.

If the entire Roth IRA account balance is distributed before any other Roth IRA contributions are made, the five (5) year holding period does not start over when future contributions are made. However, in the following situations, the five (5) year holding period will not be considered to have begun if:

(e) the initial Roth IRA contribution is revoked within the initial seven (7) day period;

(f) the initial Roth IRA contribution is recharacterized to a Traditional IRA; or

(g) an excess contribution, plus earnings, is timely distributed in accordance with Code Section 408(d)(4), by the tax filing deadline (including extensions), unless other eligible contributions were made.

19.13  Qualified Special Purpose Distribution

A distribution to an Individual who is a Qualified First-Time Homebuyer, as defined under Code Section 72(t)(8), to the extent such distribution is used by the Individual before the close of the 120th day after the day on which such distribution is received to pay qualified acquisition costs with respect to a principal residence of the Individual, the Spouse of such Individual, or any child, grandchild, or ancestor of such Individual or the Individual’s Spouse.

19.14  Nonqualified Distributions

A distribution will not be considered qualified if such distribution is made within the five (5) year period beginning with the first Taxable Year for which a contribution or rollover is made to this Roth IRA. If a nonqualified distribution is made from this Roth IRA, the amount so distributed shall be subject to tax and applicable penalties to the extent the distribution, when added to previous nonqualified distributions, exceeds the aggregate contributions made by the Individual pursuant to this Roth IRA. For purposes of this determination, contributions shall be deemed to be distributed on a first-in first-out basis.

19.15  Form Of Payment

An Individual may elect to have the balance in his or her Roth IRA paid in the form of a lump sum or installment payments in equal or substantially equal monthly, quarterly, semi-annual, or annual amounts.

19.16  Rollover From A Qualified Retirement Plan

An Individual may not roll over to this or any other Roth IRA any part of a distribution received from a Qualified Retirement Plan.

19.17  Life Expectancy

The life expectancy of the Individual. Life expectancy is determined by reference to the return multiple contained in the tables published at Regulations Section 1.72-9.

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19.18  Distributions Commencing Prior To Death

An Individual may direct the Trustee or Insurer to commence payments in the form of a lump sum or installments at any time without regard to the minimum distribution requirements under Code Section 401(a)(9). Installment payments may be set up over any period selected by the Individual provided that such period is acceptable to the Trustee or Insurer. Installment payments will continue only so long as amounts remain in the Individual’s Roth IRA. The Individual shall have the right at any time to request a lump sum payment of the balance remaining in his or her account.

19.19  Distributions After Death

Benefits payable to a Beneficiary must be distributed or commence to be distributed from the Individual’s account in accordance with one of the following provisions:

(a) Upon the death of the Individual, distribution of the Individual’s entire interest shall be completed by December 31 of the calendar year containing the fifth (5^th) anniversary of the Individual’s death except to the extent that an election is made to receive distributions in accordance with (i) or (ii) below.

(i) If the Individual’s interest is payable to a Beneficiary, then the entire interest of the Individual may be distributed over the life or over a period certain not greater than the life expectancy of the Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Individual died.

(ii) If the Beneficiary is the Individual’s surviving Spouse, the date distributions are required to begin in accordance with (i) above shall not be earlier than the later of (A) December 31 of the calendar year immediately following the calendar year in which the Individual died or (B) December 31 of the calendar year in which the Individual would have attained age 70 ¹/2.

(b) If the Beneficiary is the Individual’s surviving Spouse, the Spouse may elect to treat the account as his or her own Roth IRA. This election will be deemed to have been made if such surviving Spouse makes a regular contribution to the account, makes a rollover to or from such account, or fails to take distributions under (a) above.

(c) The amount to be distributed under paragraph (a)(i) or (a)(ii) is the quotient obtained by dividing the value of the IRA as of the end of the preceding year by the remaining Life Expectancy specified in such paragraph. Life Expectancy is determined using the Single Life Table in Q&A-1 of §1.401(a)(9)-9 of the Income Tax Regulations. If distributions are being made to a surviving Spouse as the sole Designated Beneficiary, such Spouse’s remaining Life Expectancy for a year is the number in the Single Life Table corresponding to such Spouse’s age in the year. In all other cases, remaining Life Expectancy for a year is the number in the Single Life Table corresponding to the Beneficiary’s age in the year specified in paragraph (a)(i) or (ii) reduced by one (1) for each subsequent year.

(d) the “value” of the IRA includes the amounts of any outstanding rollover, transfer and recharacterization under Q&As-7 and -8 of Regulations Section 1.408-9.

(e) If the sole Designated Beneficiary is the Participant’s surviving Spouse, the Spouse may elect to treat the IRA as his or her own IRA. This election will be deemed to have been made if such surviving Spouse makes a contribution to the IRA or fails to take required distributions as a Beneficiary.

19.20  Ordering Rules Upon Death Of Individual

For purposes of the ordering rules upon distribution, a Beneficiary’s inherited Roth IRAs may not be aggregated with any other Roth IRAs maintained by such Beneficiary, except for other Roth IRAs that the Beneficiary inherited from the same decedent. However, if the surviving Spouse is the sole Beneficiary of a Roth IRA and such surviving Spouse elects to treat the Roth IRA as his or her own Roth IRA, the Spouse can aggregate contributions with his or her other Roth IRAs for purposes of determining the ordering rules when distributions are taken.

19.21  Minimum Payment

No amount is required to be distributed from this Roth IRA before the death of the Individual for whose benefit it has been established. Distributions made pursuant to this Roth IRA will not be subject to the required minimum distribution rules under Code Section 401(a)(9)(A), or the incidental death benefit rules under Code Section 401(a).

19.22  Duties Of Trustee

The administrative functions the Trustee will perform include:

(a) setting up and maintaining a Roth IRA in the Individual’s name;

(b) accepting contributions for deposit to the Individual’s Roth IRA. The Trustee will not accept contributions in excess of $2,000 for any Taxable Year or contributions from a SIMPLE IRA unless such contribution is a rollover or direct transfer from another Roth IRA or Traditional or Regular IRA (other than a conduit IRA);

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(c) investing contributions in accordance with the investment options offered by the Trustee;

(d) making payments or distributions from this Roth IRA in accordance with written instructions issued by an authorized party hereunder;

(e) preparing and issuing an annual calendar year report of the Roth IRA for each Plan Year concerning the status of the status of the account and such information concerning required minimum distributions as is prescribed by the Commissioner of Internal Revenue. The report will show the contributions received, the payments and distributions made, the investment earnings received, the market value of assets held in the account and the balance held in the account at the end of the Plan Year, and such information concerning required minimum distributions as is prescribed by the Commissioner of Internal Revenue; and

(f) preparing any reports that may be required by the Internal Revenue Service or by any governmental unit or agency having authority to request reports.

Where the context is appropriate, Trustee also refers to an Insurer.

19.23  Duties Of Individual

The administrative functions the Individual must perform include:

(a) determining the amount and timing of the annual contribution, if any;

(b) notifying the Trustee of any excess contribution made for a Taxable Year and directing the Trustee as to the disposition of such contribution plus the investment earnings thereon;

(c) authorizing any payment or distribution from the account;

(d) filing Form 5329, Return for Additional Taxes Attributable to Qualified Retirement Plans, if an excise tax is owed with respect to the Roth IRA;

(e) furnishing the Trustee with a written explanation of the intended use of any distribution to the Individual prior to the attainment of age 59 ¹/2; and

(f) furnishing the Trustee with any information the Trustee may need to complete any governmental report required under applicable statutes or regulations.

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NONSTANDARDIZED ADOPTION AGREEMENT

PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN

Sponsored by

Pentegra Retirement Services, Inc.

The Employer named below hereby establishes a Cash or Deferred Profit-Sharing Plan for eligible Employees as provided in this Adoption Agreement and the accompanying Basic Plan Document #01.

I. EMPLOYER INFORMATION

If more than one Employer is adopting the Plan, complete this section based on the lead Employer. Additional Employers who are members of the same controlled group or affiliated service group may adopt this Plan by completing and executing a Participation Agreement that, once executed, will become part of this Adoption Agreement.

A. Name And Address:

Fraternity Federal Savings & Loan Association

764 Washington Boulevard

Baltimore, MD 21230

B. Telephone Number: 410-539-1313

C. Employer’s Tax ID Number: 52-0318465

D. Form Of Business:

¨	1.	Sole Proprietor	¨	5.	Limited Liability Company
¨	2.	Partnership	¨	6.	Limited Liability Partnership
x	3.	Corporation	¨	7.
¨	4.	S Corporation

E.	Is The Employer Part Of A Controlled Group?	¨  YES         x  NO
	Part Of An Affiliated Service Group?	¨  YES         x  NO

F. Name Of Plan: Fraternity Federal Savings & Loan Association 401(k) Plan

G. Three Digit Plan Number: 003

H. Employer’s Tax Year End: December 31

I. Employer’s Business Code: ________________________________________________

II. EFFECTIVE DATE

A. New Plan:

This is a new Plan having an Effective Date of January 1, 2011. The Effective Date may be no earlier than the Plan Year beginning after December 31, 2001 or if later, the first day of the Plan Year in which it is adopted.

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B. Amended and Restated Plans:

This is an amendment and/or restatement of an existing Plan. The initial Effective Date of the Plan was N/A. The Effective Date of this amendment and/or restatement is N/A. The Effective Date of the restated Plan may be no earlier than for Plan Years beginning after December 31, 2001.

C. Amended or Restated Plans for EGTRRA:

This is an amendment and/or restatement of an existing Plan to comply with the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-17 (EGTRRA)]. The initial Effective Date of the Plan was N/A. Except as provided for in the Plan, the Effective Date of this amendment and/or restatement is N/A. (The restatement date should be no earlier than the first day of the current Plan Year. The Plan contains appropriate retroactive Effective Dates with respect to provisions of EGTRRA.)

Except to the extent permitted under Code Section 411(d)(6) and the Regulations issued thereunder, an Employer cannot reduce, eliminate or make subject to Employer discretion any Code Section 411(d)(6) protected benefit. Where this Plan document is being adopted to amend another plan that contains a protected benefit not provided for in the Basic Plan Document #01, the Employer may complete Schedule A as an addendum to this Adoption Agreement. Schedule A describes such protected benefits and shall become part of this Plan. If a prior plan document contains a plan feature not provided for in the Basic Plan Document #01, the Employer may attach Schedule B describing such feature. Provisions listed on Schedule B may not be covered by the IRS Opinion Letter issued with respect to the Basic Plan Document #01.

D. Effective Date for Elective Deferrals:

If different from above, the Elective Deferral provisions shall be effective N/A.

E. Effective Date for Safe Harbor 401(k) Contributions:

If different from above, this provision shall be effective N/A. This provision must be adopted prior to the first day of the Plan Year and remain in effect for an entire twelve (12) month period.

F. Effective Date for Roth Elective Deferrals:

If different from above, Roth Elective Deferral provisions shall be effective N/A. The Effective Date of this provision cannot be earlier than January 1, 2006.

G. Frozen Plan:

This Plan was frozen effective N/A. For any period following this Effective Date, neither the Employer nor any Participant may contribute to this Plan, and no otherwise eligible Employee shall become a Participant in this Plan. All existing account balances will become fully vested as of the date specified above.

III. DEFINITIONS

A. “Compensation”

Select the definition of Compensation, the Compensation Computation Period, any Compensation Dollar Limitation and Exclusions from Compensation for each contribution type from the options listed below. Enter the letter of the option selected on the lines provided below. Leave the line blank if no election needs to be made. The Compensation Computation Period must be the same as the Limitation Year defined at Section III(F).

Employer Contribution Type	Compensation Definition		Compensation Computation Period		Compensation Dollar Limitation		Exclusions From Compensation
All Contributions		d		b	$	N/A		a
Elective Deferrals (including Roth Elective Deferrals, if applicable)					$

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Employer Contribution Type	Compensation Definition	Compensation Computation Period	Compensation Dollar Limitation		Exclusions From Compensation
Voluntary After-tax			$
Required After-tax			$
Matching Contribution (Formula 1)			$
Matching Contribution (Formula 2)			$
Non-Elective Contribution (Formula 1)			$
Non-Elective Contribution (Formula 2)			$
Safe Harbor Contribution				N/A		N/A
QNEC			$
QMAC			$
ADP/ACP Tests				N/A		N/A

1. Compensation Definition:

a. Code Section 3401(a) - W-2 Compensation subject to income tax withholding at the source, with all pre-tax contributions excluded.

b. Code Section 3401(a) - W-2 Compensation subject to income tax withholding at the source, with all pre-tax contributions included [Plan defaults to this election].

c. Code Section 6041/6051 - Income reportable on Form W-2, with all pre-tax contributions excluded.

d. Code Section 6041/6051 - Income reportable on Form W-2, with all pre-tax contributions included.

e. Code Section 415 - All income received for services performed for the Employer, with all pre-tax contributions excluded.

f. Code Section 415 - All income received for services performed for the Employer, with all pre-tax contributions included.

The selection of any of the above definitions of Compensation meets the Code Section 414(s) definition of Compensation. The Code Section 415 definition shall always apply with respect to sole proprietors and partners.

¨    2. Deemed Compensation from permitted waiver of group health coverage under a Cafeteria Plan Arrangement: The Employer elects to include deemed Code Section 125 Compensation not available to a Participant in cash in lieu of group health coverage in the Plan’s definition of Compensation.

3. Compensation Computation Period:

a. Compensation paid during a Plan Year while a Participant [Plan defaults to this election].

b. Compensation paid during the entire Plan Year.

c. Compensation paid during the Employer’s fiscal year.

d. Compensation paid during the calendar year.

4. Compensation Dollar Limitation: The dollar limitation section does not need to be completed unless Compensation of less than the Code Section 401(a)(17) limit of $200,000 is to be used. When an integrated allocation formula in Section VI is selected, Compensation cannot be limited to an amount less than the maximum amount under Code Section 401(a)(17).

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5. Exclusions from Compensation (non-integrated plans only):

a. There will be no exclusions from Compensation under the Plan [Plan defaults to this safe harbor election].

b. Overtime

c. Bonuses

d. Commissions

e. Exclusion applies only to Participants who are Highly Compensated Employees [safe harbor].

f. Holiday and vacation pay

g. Reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation, and welfare benefits [safe harbor].

h. Post-severance payments, as described in paragraph 1.17(c)(6) of Basic Plan Document #01. (This exclusion may apply no earlier than the 2005 Limitation Year.)

i. Compensation in excess of $__________________________ for Highly Compensated Employees [safe harbor].

j. Other: __________________________________________________________

Any exclusion of Compensation except (a), (e), (g), (h) and (i) must satisfy the requirements of Section 1.401(a)(4) of the Income Tax Regulations and Code Section 414(s) and the Regulations thereunder. These exclusions do not fall under the “safe harbor” modifications to Compensation and therefore must be tested to determine if the modified definition of Compensation satisfies Code Section 414(s).

B. “Disability”

x 1. As defined in the Basic Plan Document #01 [Plan defaults to this election].

¨ 2. As defined in the Employer’s Disability Insurance Plan.

¨ 3. An individual will be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. An individual shall not be considered to be disabled unless he or she furnishes proof of the existence thereof in such form and manner as the Secretary of the Treasury may prescribe.

C. “Highly Compensated Employees – Top-Paid Group Election”

1. Top-Paid Group Election: In determining who is a Highly Compensated Employee, the Employer may make the Top-Paid Group election. The effect of this election is that an Employee (who is not a 5% owner at any time during the determination year or the look-back year) who earned more than $95,000, as indexed for the look-back year, is a Highly Compensated Employee if the Employee was in the Top-Paid Group for the look-back year. This election is applicable for the Plan Year in which this Plan is effective.

x a. The Employer does not make the Top-Paid Group election.

¨ b. The Employer makes the Top-Paid Group election [Plan defaults to this election].

¨ 2. Calendar Year Data Election: If the Plan Year is not the calendar year, the prior year computation period for purposes of determining if an Employee earned more than $95,000, as indexed, is the calendar year beginning in the prior Plan Year. This election is applicable for the Plan Year in which this Plan is effective.

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D. “Hours Of Service”

Hours shall be determined by the method selected below. The method selected shall be applied to all Employees:

¨ 1. Not applicable. A Year of Service (Period of Service) is defined using the Elapsed Time method.

x 2. On the basis of actual hours for which an Employee is paid or entitled to payment [Plan defaults to this election].

¨ 3. On the basis of days worked. An Employee shall be credited with ten (10) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the day.

¨ 4. On the basis of weeks worked. An Employee shall be credited with forty-five (45) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the week.

¨ 5. On the basis of semi-monthly payroll periods. An Employee shall be credited with ninety-five (95) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the semi-monthly payroll period.

¨ 6. On the basis of months worked. An Employee shall be credited with one-hundred-ninety (190) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the month.

E. “Integration Level”

x 1. Not applicable. Either the Plan’s allocation formula is not integrated with Social Security or there are no Non-Elective Employer Contributions being made to the Plan [Plan defaults to this election].

¨ 2. The Taxable Wage Base.

¨ 3. ________% (not more than 100%) of the Taxable Wage Base.

¨ 4. $            , provided that such amount is not in excess of the amount determined under paragraph (E)(2) above.

¨ 5. One dollar over 80% of the Taxable Wage Base.

¨ 6. 20% of the Taxable Wage Base.

F. “Limitation Year”

Unless elected otherwise below, the Limitation Year shall be the Plan Year.

The twelve (12) consecutive month period commencing on January 1 and ending on December 31.

If applicable, there will be a short Limitation Year commencing on ___________________________ and ending on ___________________________. Thereafter, the Limitation Year shall end on the date specified above.

G. “Net Profit”

x 1. Not applicable. Employer contributions to the Plan are not conditioned on profits [Plan defaults to this election].

¨ 2. Net Profits are required for making Employer contributions and are defined as follows:

¨ a. As defined in the Basic Plan Document #01.

¨ b. Net Profits will be defined in a uniform and nondiscriminatory manner which will not result in a deprivation of an eligible Participant of any Employer Contribution.

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c. Net Profits are required for the following types of contributions:

¨ i. Employer Matching Contributions (Formula 1).

¨ ii. Employer Matching Contributions (Formula 2).

¨ iii. Employer QNEC and QMAC Contributions.

¨ iv. Non-Elective Employer Contributions (Formula 1).

¨ v. Non-Elective Employer Contributions (Formula 2).

Elective Deferrals, Top-Heavy minimums (if required), and Safe Harbor Contributions (if applicable) must be contributed regardless of profits.

H. “Plan Year”

The 12-consecutive month period commencing on January 1 and ending on December 31.

If applicable, there will be a short Plan Year commencing on ___________________________ and ending on ___________________________. Thereafter, the Plan Year shall end on the date specified above.

I. “QDRO Payment Date”

x 1. The date the QDRO is determined to be qualified [Plan defaults to this election].

¨ 2. The statutory age fifty (50) requirement applies for purposes of making distribution to an alternate payee under the provisions of a QDRO.

J. “Qualified Joint and Survivor Annuity”

x 1. Not applicable. The Plan is not subject to Qualified Joint and Survivor Annuity rules. The safe harbor provisions of paragraph 8.7 of the Basic Plan Document #01 apply. The normal form of payment is a lump sum. No annuities are offered under the Plan [Plan defaults to this election].

¨ 2. The normal form of payment is a lump sum. The Plan does provide for annuities as an optional form of payment at Section XVI(D) of the Adoption Agreement. The Plan’s Joint and Survivor Annuity rules are avoided and the safe harbor provisions of paragraph 8.7 of the Basic Plan Document #01 will apply, unless the Participant elects to receive his or her distribution in the form of an annuity. If this option is selected, Section III(K) below must also be completed.

¨ 3. The Joint and Survivor Annuity rules are applicable and the survivor annuity will be ________% (50%, 66-2/3%, 75% or 100%) of the annuity payable during the lives of the Participant and his or her Spouse. If no selection is specified, 50% shall be deemed elected.

K. “Qualified Pre-Retirement Survivor Annuity”

Do not complete this section if paragraph (J)(1) was elected.

¨ 1. The Qualified Pre-Retirement Survivor Annuity shall be 100% of the Participant’s Vested Account Balance in the Plan as of the date of the Participant’s death.

¨ 2. The Qualified Pre-Retirement Survivor Annuity shall be 50% of the Participant’s Vested Account Balance in the Plan as of the date of the Participant’s death.

If this provision applies but no selection is made, the Qualified Pre-Retirement Survivor Annuity shall be 50%.

L. “Valuation of Plan Assets”

The assets of the Plan shall be valued on the last day of the Plan Year and on the following Valuation Date(s):

¨ 1. There are no other mandatory Valuation Dates.

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x 2. The Valuation Dates are applicable for the contribution type specified below:

Contribution Type	Valuation Date
All Contributions		a
Elective Deferrals (including Roth Elective Deferrals, if applicable)
Voluntary After-tax Contributions
Required After-tax Contributions
Deemed IRA Contribution
Matching Contributions (Formula 1)
Matching Contributions (Formula 2)
Non-Elective Contributions (Formula 1)
Non-Elective Contributions (Formula 2)
Safe Harbor Contributions
QNEC
QMAC

a. Daily valued.

b. The last day of each month.

c. The last day of each quarter in the Plan Year.

d. The last day of each semi-annual period in the Plan Year.

e. Other: __________________________________________________________.

(Note: Date must be at least once during the Plan Year.)

IV. ELIGIBILITY REQUIREMENTS

Complete the following using the eligibility requirements as specified for each contribution type. To become a Participant in the Plan, the Employee must satisfy the following eligibility requirements.

Contribution Type	Minimum Age		Service Requirement		Class Exclusions		Eligibility Computation Period		Entry Date
All Contributions		1		5		N/A		3		2
Elective Deferrals (including Roth Elective Deferrals, if applicable)
Voluntary After-tax Contributions
Required After-tax Contributions
Matching Contributions (Formula 1)
Matching Contributions (Formula 2)
Non-Elective Contributions (Formula 1)
Non-Elective Contributions (Formula 2)
Safe Harbor Contributions*
QNECs
QMACs

* If any age or Service requirement selected is more restrictive than that which is imposed on any Employee contribution, that group of Employees will be subject to the ADP and/or ACP testing as prescribed under applicable IRS Regulations

DE3 7 401(k) NS AA #010

A. Age:

1. No age requirement.

2. Insert the applicable age in the chart above. The age may not be more than twenty-one (21).

B. Service:

The maximum Service requirement for Elective Deferrals is one (1) year. For all other contributions, the maximum is two (2) years. If a Service requirement greater than one (1) year is selected, Participants must be 100% vested in that contribution.

1. No Service requirement.

2. Completion of _______ Days of Service. [No more than 730 Days of Service may be required; if more than 365 days are entered here, Participants must be 100% vested upon entering the Plan.]

3. Completion of _______ months of Service [No more than twenty-four (24) months of Service may be required; if more than twelve (12) months are entered here, Participants must be 100% vested upon entering the Plan.]

4. Completion of _______ months of Service [No more than twenty-four (24) months of Service may be required; if more than twelve (12) months are entered here, Participants must be 100% vested upon entering the Plan.]

5. One (1) Year of Service or Period of Service.

6. Two (2) Years of Service or Periods of Service.

7. One (1) Expected Year of Service. An Employee whose position is required as a condition of employment to work a Year of Service may enter after six (6) months of actual Service.

8. One (1) Expected Year of Service. An Employee whose position is required as a condition of employment to work a Year of Service may enter after __________ months of actual Service [must be twelve (12) months or less].

9. One (1) Expected Year of Service. An Employee whose position is required as a condition of employment to work a Year of Service may enter after __________ months of actual Service [must be twelve (12) months or less].

10. Completion of ___________ Hours of Service (1,000 hours or less) within the ___________ month(s) time period [the monthly period must be a pro-ration of twelve (12) months or less] following an Employee’s commencement of employment. An Employee who is otherwise eligible who meets the statutory one (1) Year of Service requirement and any age requirement if applicable, shall participate in the Plan not later than the earlier of the first day of the first Plan Year after the Employee has met the statutory requirements or six (6) months after the day such requirements are met.

11. Completion of ___________ Hours of Service (may not be more than 1,000 Hours).

C. Method for Measuring Service Eligibility Period (do not enter this method in the table above):

A Year of Service for eligibility purposes is defined as follows (choose one):

¨ 1. Not applicable.

x 2. Hours of Service method. A Year of Service will be credited upon completion of 1000 Hours of Service. A Year of Service for eligibility purposes may not be less than one (1) Hour of Service nor greater than 1,000 hours by operation of law. If left blank, the Plan will use 1,000 hours.

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¨ 3. Elapsed Time method

D. Employee Class Exclusions:

The exclusion of any classification may cause the Plan to fail the ratio percentage test under Code Section 410(b)(1)(A) or (B) which may require the Plan to be tested under the average benefits test of Code Section 410(b)(1)(C).

1. Employees included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee Representatives, if benefits were the subject of good faith bargaining and if two percent or less of the Employees are covered pursuant to the agreement are professionals as defined in Regulations Section 1.410(b)-9, unless participation in this Plan is specifically provided for in the collective bargaining agreement. For this purpose, the term “employee representative” does not include any organization more than half of whose members are owners, officers, or executives of the Employer.

2. Employees who are non-resident aliens [within the meaning of Code Section 7701(b)(1)(B)] who receive no Earned Income [within the meaning of Code Section 911(d)(2)] from the Employer which constitutes income from sources within the United States [within the meaning of Code Section 861(a)(3)].

3. Employees compensated on an hourly basis.

4. Employees compensated on a salaried basis.

5. Employees compensated on a commission basis.

6. Leased Employees.

7. Highly Compensated Employees.

8. Key Employees.

9. Employees of any member of the controlled and/or affiliated service group Employer whose Employer does not affirmatively adopt this Plan.

10. The Plan shall exclude from participation any nondiscriminatory classification of Employees determined as follows (any exclusion must pass coverage and nondiscrimination testing):

____________________________________________________________________________________

____________________________________________________________________________________

E. Eligibility Computation Period:

The initial eligibility computation period shall commence on the date on which an Employee first performs an Hour of Service and end with the first anniversary thereof. Each subsequent computation period shall commence on:

1. Not applicable. The Plan has a Service requirement of less than one (1) year or uses the Elapsed Time method to determine eligibility.

2. The anniversary of the Employee’s employment commencement date and each subsequent twelve (12) consecutive month period thereafter.

3. The first day of the Plan Year which commences prior to the first anniversary date of the Employee’s employment commencement date and each subsequent Plan Year thereafter.

F. Entry Date:

1. The Employee’s date of hire.

2. The first day of the month coinciding with or next following the date on which an Employee meets the eligibility requirements.

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3. The first day of the payroll period coinciding with or next following the date on which an Employee meets the eligibility requirements, or as soon as administratively feasible thereafter.

4. When the Days of Service method is selected at Section IV(B)(2), the Entry Date shall be the day the Employee meets the eligibility requirements, or as soon as administratively feasible thereafter.

5. The earlier of the first day of the Plan Year, or the first day of the fourth, seventh or tenth month of the Plan Year coinciding with or next following the date on which an Employee meets the eligibility requirements.

6. The earlier of the first day of the Plan Year or the first day of the seventh month of the Plan Year coinciding with or next following the date on which an Employee meets the eligibility requirements.

7. The first day of the Plan Year following the date on which the Employee meets the eligibility requirements. If this election is made, the Service waiting period cannot be greater than one-half year and the minimum age requirement may not be greater than age twenty and one-half (20 ¹/2).

8. The first day of the Plan Year nearest the date on which an Employee meets the eligibility requirements. This option can only be selected for Employer related contributions.

9. The first day of the Plan Year during which the Employee meets the eligibility requirements. This option can only be selected for Employer related contributions.

10. Other: ________________________.

This option may not require an entry date more than two (2) months following the date on which an Employee meets the eligibility requirements.

G. Employees on Effective Date:

If option (1) is selected, options (2) and (3) should not be selected. Options (2) and (3) can be selected or just option (2) or (3).

¨ 1. All Employees will be required to satisfy both the age and Service requirements specified above.

¨ 2. Employees employed on the Plan’s Effective Date do not have to satisfy the age requirement specified above.

¨ 3. Employees employed on the Plan’s Effective Date do not have to satisfy the Service requirement specified above.

H. Special Waiver of Eligibility Requirements:

The age and/or Service eligibility requirements specified above shall be waived for the eligible Employees specified below who are employed on the specified date for the contribution type(s) specified. This waiver applies to either the age or Service requirement or both as elected below.

Waiver Date	Waiver of Age Requirement	Waiver of Service Requirement	Contribution Type
			All Contributions
			Elective Deferrals (including Roth Elective Deferrals, if applicable)
			Matching Contribution (Formula 1)
			Matching Contribution (Formula 2)
			Non-Elective Contribution (Formula 1)
			Non-Elective Contribution (Formula 2)
			Safe Harbor Contribution
			QNEC
			QMAC

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The waiver above applies to:

¨ 1. All eligible Employees employed on the specified date.

¨ 2. The indicated class of Employees employed on the specified date.

_____________________________________________________________________________________________

_____________________________________________________________________________________________

Note: Any selection here may cause the Plan to be discriminatory in operation and therefore would have to be tested for nondiscrimination.

V. RETIREMENT AGES

A. Normal Retirement:

Select option (1) or (2) and either (3)(a) or (3)(b).

x 1. Normal Retirement Age shall be age 65 [not to exceed sixty-five (65)].

¨ 2. Normal Retirement Age shall be the later of attaining age ________ [not to exceed age sixty-five (65)] or the ________ (not to exceed the fifth) anniversary of the first day of the first Plan Year in which the Participant commenced participation in the Plan.

3. The Normal Retirement Date shall be:

¨ a. as of the date the Participant attains Normal Retirement Age [Plan defaults to this election].

x b. the first day of the month next following the Participant’s attainment of Normal Retirement Age.

B. Early Retirement:

x 1. Not applicable.

¨ 2. The Plan shall have an Early Retirement Age of ________ [not less than age fifty-five (55)] and completion of ________ Years of Service.

3. The Early Retirement Date shall be:

¨ a. as of the date the Participant attains Early Retirement Age [Plan defaults to this election].

¨ b. the first day of the month next following the Participant’s attainment of Early Retirement Age.

VI. CONTRIBUTIONS TO THE PLAN

The Employer shall make contributions to the Plan in accordance with the formula or formulas selected below. The Employer’s contribution shall be subject to the limitations contained in Articles III and X of the Basic Plan Document #01. For this purpose, a contribution for a Plan Year shall be limited by Compensation earned in the Limitation Year that ends with or within such Plan Year. For Limitation Years beginning on or after January 1, 2002, except to the extent permitted under paragraph 4.6(h) of the Basic Plan Document #01 and under Code Section 414(v), the Annual Addition that may be contributed or allocated to a Participant’s account under the Plan for any Limitation Year beginning after December 31, 2001 shall not exceed the lesser of (a) $40,000, as adjusted for increases in the cost-of-living under Code Section 415(d), or (b) 100% of the Participant’s Compensation within the meaning of Code Section 415(c)(3), for the Limitation Year.

A. Elective Deferrals:

1. Participants shall be permitted to make Elective Deferrals:

x a. in any amount up to 50% (may be no more than 100%) of Compensation.

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¨ b. in any amount from a minimum of _______% (may be no less than 1%) to a maximum of _______% (may be no more than 100%) of their Compensation not to exceed $__________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

¨ c. in a flat dollar amount from a minimum of $______________ (may be no less than $500) to a maximum of $            , [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable] not to exceed ______% (no more than 100%) of their Compensation.

¨ d. in any amount up to the maximum percentage of Compensation and dollar amount permissible under Code Section 402(g) and 414(v) not to exceed the limits of Code Section 401(k), 404 and 415.

¨ e. Highly Compensated Employees may defer any amount up to ____% (may be no more than 100%) of Compensation or $__________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

x f. Catch-up Contributions may be made by eligible Participants.

2. Participants shall be permitted to terminate their Elective Deferrals (including Roth Elective Deferrals, if any) at any time upon proper and timely notice to the Employer. Modifications and reinstatement of Participants’ Elective Deferrals will become effective as soon as administratively feasible on a prospective basis as provided for below:

Modifications	Reinstatement	Method
¨	¨	On a daily basis.
¨	¨	On the first day of each quarter.
¨	¨	On the first day of the next month.
x	x	The beginning of the next payroll period.
¨	¨	On the first day of the next semi-annual period.
¨	n/a	Upon _____ days notice to the Plan Administrator.
n/a	¨	Upon _____ days notice to the Plan Administrator.

¨ B. Roth Elective Deferrals:

If Participants are permitted to make Elective Deferrals, they shall also be permitted to make Roth Elective Deferrals. Roth Elective Deferrals may be treated as Catch-Up Contributions.

C. Bonus Option:

x 1. Not applicable. The Plan’s definition of Compensation excludes bonuses from deferrable Compensation for both Elective Deferrals and Roth Elective Deferrals.

¨ 2. Not applicable. Participants are not permitted to make a separate deferral election and the Participant’s deferral amount elected on their Salary Deferral Agreement will also apply to any bonus received by the Participant for any Plan Year.

¨ 3. The Employer permits a Participant to amend his or her deferral election to defer to the Plan an amount not to exceed __________% (may be no more than 100%) or $_________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable] of any bonus received by the Participant for any Plan Year.

¨ D. Automatic Enrollment:

The Employer elects the automatic enrollment provisions for Elective Deferrals as follows. Automatic enrollment in Roth Elective Deferrals is not permitted under the Plan. The automatic enrollment provisions apply to all eligible Employees. Employees and Participants shall have the right to amend the stated automatic Elective Deferral percentage or receive cash in lieu of deferral into the Plan.

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1. RESERVED

¨ 2. Automatic Deferrals:

a. New Employees: Employees who have not met the eligibility requirements shall have Elective Deferrals withheld in the amount of ________% (not more than 10%) of Compensation or $________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable] upon entering the Plan.

¨ i. On an annual basis the Elective Deferral rate under the Plan shall be increased up to a maximum amount determined by the Employer.

¨ ii. After _____ Years of Service, the amount specified above shall increase to ____% (no more than 10%) or $______ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

¨ This requirement is effective for Employees hired on or after ______________________.

¨ b. Current Employees: Employees who are eligible to participate but not deferring shall have Elective Deferrals withheld in the amount of ______ % (not more than 10%) of Compensation or $_________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

¨ i. On an annual basis the Elective Deferral rate under the Plan shall be increased up to a maximum amount determined by the Employer.

¨ ii. After _____ Years of Service, the amount specified above shall increase to _____% (no more than 10%) or $_______ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

¨ c. Current Participants: Current Participants who are deferring at a percentage less than the amount selected herein shall have Elective Deferrals withheld in the amount of ________% (not more than 10%) of Compensation or $________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

¨ i. On an annual basis the Elective Deferral rate under the Plan shall be increased up to a maximum amount determined by the Employer.

¨ ii. After _____ Years of Service, the amount specified above shall increase to _____% (no more than 10%) or $_______ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

Employees and Participants shall have the right to amend the stated automatic Elective Deferral provisions or receive cash in lieu of deferral into the Plan. For purposes of this provision, Employees returning an election form indicating a “zero” deferral amount shall be deemed “Current Participants”.

E. Voluntary After-tax Contributions:

If the Employer wishes to reserve the right to recharacterize Elective Deferrals as Voluntary After-tax Contributions in order to pass the ADP/ACP Test, this section must be completed.

x 1. The Plan does not permit Voluntary After-tax Contributions.

¨ 2. Participants may make Voluntary After-tax Contributions in any amount from a minimum of ________% (may not be less than 1%) to a maximum of ______% (may be no more than 100%) of their Compensation or a flat dollar amount from a minimum of $____________ (may not be less than $1,000) to a maximum of $______________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

¨ 3. Participants may make Voluntary After-tax Contributions in any amount up to the maximum permitted by law.

DE3 13 401(k) NS AA #010

¨ 4. The maximum combined limit of Elective Deferrals, Roth Elective Deferrals, and Voluntary After-tax Contributions will not exceed ______% (may be no more than 100%) of Compensation or $_______ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

F. Required After-tax Contributions (for Thrift Savings Plans only):

x 1. The Plan does not permit Required After-tax Contributions.

¨ 2. Participants shall be required to make Required After-tax Contributions as follows:

¨ a. ________% (may be no more than 100%) of Compensation.

¨ b. A percentage determined by the Employee.

¨ c. A flat dollar amount of $________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

¨ d. The maximum combined limit of Elective Deferrals, Roth Elective Deferrals and Required After-tax Contributions will not exceed ______% (may be no more than 100%) of Compensation or $_______ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

G. Rollover Contributions:

¨ 1. The Plan does not accept Rollover Contributions.

x 2. Rollover Contributions may be made:

¨ a. after meeting the eligibility requirements for participation in the Plan.

x b. prior to meeting the eligibility requirements for participation in the Plan.

3. The Plan will accept a Participant Rollover Contribution of an Eligible Rollover Distribution from (check only those that apply):

x a. A Qualified Plan described in Code Section 401(a) or 403(a).

x b. An annuity contract described in Code Section 403(b).

x c. An eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.

x d. An Individual Retirement Account (which was not used as a conduit from a Qualified Plan) or Annuity described in Code Section 408(a) or 408(b) that is eligible to be rolled over and would otherwise be includable in gross income.

4. The Plan will accept a Direct Rollover of an Eligible Rollover Distribution from (check only those that apply):

x a. A Qualified Plan described in Code Section 401(a) or 403(a), excluding Voluntary After-tax Contributions.

¨ b. A Qualified Plan described in Code Section 401(a) or 403(a), including Voluntary After-tax Contributions.

x c. An annuity contract described in Code Section 403(b), excluding Voluntary After-tax Contributions.

¨ d. An annuity contract described in Code Section 403(b), including Voluntary After-tax Contributions.

x e. An eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state.

¨ f. A Roth Elective Deferral Account if it is a Direct Rollover from another Roth Elective Deferral Account under a Qualified Plan described in Code Section 402A(e)(1) and only to the extent the rollover is permitted under Code Section 402(c).

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H. Deemed IRA Contributions/Reserved:

x 1. The Plan does not accept any Deemed IRA contributions.

¨ 2. Deemed IRA contributions may be made to this Plan for Plan Years beginning ___________ (may be no earlier than January 1, 2003):

¨ a. In accordance with the Traditional IRA rules as described in the Basic Plan Document #01. An Individual must meet the eligibility requirements for participation in the Plan in order to make a “Deemed IRA” contribution.

¨ b. In accordance with the Roth IRA rules as described in the Basic Plan Document #01. An Individual must meet the eligibility requirements for participation in the Plan in order to make a “Deemed IRA” contribution.

x I. Safe Harbor Plan Provisions:

If the Safe Harbor Plan provisions are elected, the nondiscrimination tests at Article XI of the Basic Plan Document #01 are not applicable. Safe Harbor Contributions made are subject to the withdrawal restrictions of Code Section 401(k)(2)(B) and Treasury Regulation Section 1.401(k)-1(d); such contributions (and earnings thereon) must not be distributable earlier than severance from employment, death, Disability, an event described in Code Section 401(k)(10), or in the case of a profit-sharing or stock bonus plan, the attainment of age 59 ¹/2. Safe Harbor Contributions are NOT available for Hardship withdrawals.

The ACP Test Safe Harbor is automatically satisfied if the only Matching Contribution to the Plan is either a Basic Matching Contribution or an Enhanced Matching Contribution that does not provide a match on Elective Deferrals in excess of 6% of Compensation. For Plans that allow Voluntary or Required After-tax Contributions, the ACP Test is applicable with regard to such contributions.

Employees eligible to make Elective Deferrals to this Plan must be eligible to receive the Safe Harbor Contribution in the Plan listed below, to the extent required by applicable IRS Regulations.

The Employer elects to comply with the Safe Harbor Cash or Deferred Arrangement provisions of Article XI of the Basic Plan Document #01 and elects one of the following contribution formulas:

1. Safe Harbor Tests:

¨ a. Only the ADP Test Safe Harbor provisions are applicable. A formula in paragraphs (3), (4) or (5) below has been selected and the ADP Safe Harbor has been satisfied.

¨ b. Only the ACP Test Safe Harbor provisions are applicable. No additional Matching Contributions would be needed in order to satisfy the ACP Safe Harbor if the Plans satisfies the Basic or Enhanced Match.

x c. Both the ADP and ACP Test Safe Harbor provisions are applicable. If both ADP and ACP provisions are applicable:

x i. No additional Matching Contributions will be made in any Plan Year in which the Safe Harbor provisions are used.

¨ ii. The Employer may make Matching Contributions in addition to any Safe Harbor Matching Contributions elected below. [Complete provisions in Section VI(J) regarding Matching Contributions that will be made in addition to those Safe Harbor Matching Contributions made below.]

Safe Harbor Contributions cannot be subject to an Hours of Service or employment on the last day of the Plan Year requirement.

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¨2. Designation of Alternate Plan to Receive Safe Harbor Contribution: If the Safe Harbor Contribution as elected below is not being made to this Plan, the name of the other plan that will receive the Safe Harbor Contribution is:                         .

¨3. Basic Matching Contribution Formula: Matching Contributions will be made on behalf of Participants in an amount equal to 100% of the amount of the Eligible Participant’s Elective Deferrals that do not exceed 3% of the Participant’s Compensation and 50% of the amount of the Participant’s Elective Deferrals that exceed 3% of the Participant’s Compensation but that do not exceed 5% of the Participant’s Compensation.

x4. Enhanced Matching Contribution Formula: Matching Contributions will be made in an amount equal to the sum of:

a. 100% of the Participant’s Elective Deferrals that do not exceed 4% of the Participant’s Compensation [insert a number that is three (3) or greater but not greater than six (6); if a number greater than six (6) is inserted or if left blank, this will not qualify as an Enhanced Matching Contribution Formula and the ADP test will apply], plus

xb. 50% of the Participant’s Elective Deferrals that exceed 4% of the Participant’s Compensation but do not exceed 6% of the Participant’s Compensation [insert a number that is three (3) or greater but not greater than six (6) in the second blank. Both blanks should be completed so that at any rate of Elective Deferrals, the Matching Contribution is at least equal to the Matching Contribution receivable if the Employer were making a Basic Matching Contribution. The rate of match cannot increase as Elective Deferrals increase. If a number greater than six (6) is inserted or if left blank, this will not qualify as an Enhanced Matching Contribution Formula and the ACP Test will apply.]

If an additional discretionary Matching Contribution is made, the dollar amount of that contribution may not exceed 4% of eligible Plan Compensation.

¨5. Guaranteed Non-Elective Contribution Formula: The Employer shall make a Non-Elective Contribution equal to _________% (not less than 3%) of the Compensation of each Eligible Participant.

¨6. Flexible Non-Elective Contribution Formula: This provision provides the Employer with the ability to amend the Plan to comply with the Safe Harbor provisions during the Plan Year. To provide such option, the Employer must amend the Plan and indicate on Schedule C that the Safe Harbor Non-Elective Contribution (not less than 3%) will be made for the specified Plan Year. Such election must comply with all the applicable notice requirements.

Additional non-Safe Harbor Contributions may be made to the Plan pursuant to Section VI(J) hereof. Any additional contributions may be subject to nondiscrimination testing.

    7. Limitations on Safe Harbor Matching Contributions: If a Safe Harbor Matching Contribution is made to the Plan:

¨ a. The Employer elects to match Safe Harbor Matching Contributions on an annual basis.

x b. The Employer elects to match actual Elective Deferrals made:

x i. on a payroll basis [Plan defaults to this election].

¨ ii. on a monthly basis.

¨ iii. on a Plan Year quarterly basis.

¨ iv. The Employer elects to true up Safe Harbor Matching Contributions made to the Plan on the above basis.

If one of the Matching Contribution calculation periods at paragraph (7)(b) above is selected, Matching Contributions must be deposited to the Plan not later than the last day of the calendar quarter next following the quarter to which they relate.

¨ c.     The Employer will only contribute the Safe Harbor Contribution to Non-Highly Compensated Employees.

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¨ J. Matching Employer Contribution:

Do not complete this section of the Adoption Agreement if the Plan only offers a Safe Harbor Contribution. A Plan that offers both a Safe Harbor Contribution as well as an additional Employer Contribution that is specified below, must complete both Sections VI(I) and VI(J) of this Adoption Agreement.

Select the Matching Contribution Formula, Computation Period and special Limitations for each contribution type from the options listed below. Enter the letter of the option(s) selected on the lines provided. Leave the line blank if no election is required.

¨ The Matching Contribution(s) selected below will be deemed an additional discretionary ACP Test Safe Harbor Matching Contribution in accordance with the selection made at Section VI(I). The allocation of any additional Matching Contribution made by the Employer will not exceed 4% of eligible Compensation.

¨ The Matching Contribution(s) selected below will be deemed a discretionary contribution that will be subject to nondiscrimination testing.

Type of Contribution	Matching Contribution (Formula 1)	Matching Computation Period	Limitations	Matching Contribution (Formula 2)	Matching Computation Period	Limitations
Elective Deferrals (including Roth Elective Deferrals, if applicable)
Voluntary After-tax
Required After-tax
403(b) Deferrals

If any election is made with respect to “403(b) Deferrals” above, and if this Plan is used to fund any Employer Contributions, Employer Contributions will be based on the Elective Deferrals made to an existing 403(b) plan sponsored by the Employer.

Name of corresponding 403(b) plan, as applicable:                                                                                  

If the Matching Contribution formula selected by the Employer is 100% vested and may not be distributed to the Participant before the earlier of the date the Participant has a severance from employment, retires, becomes disabled, attains 59 ¹/2, or dies, it may be treated as a Qualified Matching Contribution.

Matching Contribution Formulas may be subject to a minimum or maximum dollar or percentage limit.

1. Matching Contribution Formulas:

Matching Contribution Formulas for Elective Deferrals and Roth Elective Deferrals:

a. Percentage of Deferral Match: The Employer shall contribute to each eligible Participant’s account an amount equal to _________% (no more than 500%) of the Participant’s Elective Deferrals up to a maximum of _________% (no more than the Annual Addition limit for the Plan Year) of Compensation or $_________ [no more than the Annual Addition limit for the Plan Year].

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b. Uniform Dollar Match: The Employer shall contribute to each eligible Participant’s account $________ (no more than the Annual Addition limit for the Plan Year) if the Participant contributes at least ________% (no more than 100%) of Compensation or $__________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable]. The Employer’s contribution will be made up to a maximum of _____% (no more than the Annual Addition limit for the Plan Year) of Compensation.

c. Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer’s Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants. Such contribution shall be in the amount specified and allocated as follows:                         

__________________________________________________________________________________________

__________________________________________________________________________________________

__________________________________________________________________________________________

d. Tiered Match: The Employer shall contribute to each eligible Participant’s account an amount equal to:

________% of the first ________% (no more than 500%) of the Participant’s Compensation contributed, and

________% of the next ________% (no more than 400%) of the Participant’s Compensation contributed, and

________% of the next ________% (no more than 300%) of the Participant’s Compensation contributed.

The Employer’s contribution will be made up to the [    ] greater of (may be no more than 500%) [    ] lesser of (may be no less than 1%) _________% of Compensation, or $__________ (no more than the Annual Addition limit for the Plan Year).

The percentages specified above may not increase as the rate of Elective Deferrals or Employee Contributions increase. This formula must meet Code Section 401(a)(4) and the ACP Test.

e. Percentage of Compensation Match: The Employer shall contribute to each eligible Participant’s account ________% (no less than 1%) of Compensation if the eligible Participant contributes at least ________% (no more than 100%) of Compensation.

The Employer’s contribution will be made up to the [    ] greater of (may be no more than 500%) [    ] lesser of (may be no less than 1%) _________% of Compensation or $__________ (no more than the Annual Addition limit for the Plan Year).

This formula must meet Code Section 401(a)(4) and the ACP Test.

f. Proportionate Compensation Match: The Employer shall contribute to each eligible Participant who defers at least ________% (may be no more than 100%) of Compensation, an amount determined by multiplying such Employer Matching Contribution by a fraction, the numerator of which is the Participant’s Compensation and the denominator of which is the Compensation of all Participants eligible to receive such an allocation.

The Employer’s contribution will be made up to the [    ] greater of (may be no more than 500%) [    ] lesser of (may be no less than 1%) _________% of Compensation or $__________ (no more than the Annual Addition limit for the Plan Year).

This formula must meet Code Section 401(a)(4) and the ACP Test.

x g. Catch-Up Contributions: The Employer elects to match Catch-Up Contributions under the same formula or formulas as elected above.

In the event that an Excess Contribution is recharacterized as a Catch-up Contribution, any Matching Contribution made thereon may remain in the Plan if the Matching Contribution Formula is not otherwise exceeded.

DE3 18 401(k) NS AA #010

Additional Matching Contribution Formulas for Voluntary After-tax Contributions:

h. Percentage of Deferral Match: The Employer shall contribute to each eligible Participant’s account an amount equal to ______% (no less than 1%) of the Participant’s Contribution up to a maximum of ______% (may be no more than 500%) of Compensation or $__________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

i. Uniform Dollar Match: The Employer shall contribute to each eligible Participant’s account $________ (no more than the Annual Addition limit for the Plan Year) if the Participant contributes at least ________% (may be no more than 100%) of Compensation or $________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable]. The Employer’s contribution will be made up to the maximum of _____% (may be no more than 500%) of Compensation.

j. Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer’s Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants. Such contribution shall be in the amount specified and allocated as follows:                         

__________________________________________________________________________________________

__________________________________________________________________________________________

__________________________________________________________________________________________

Additional Matching Contribution Formulas for Required After-tax Contributions:

k. Percentage of Deferral Match: The Employer shall contribute to each eligible Participant’s account an amount equal to ________% no less than 1%) of the Participant’s Contribution up to a maximum of ________% (may be no more than 500%) of Compensation or $__________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

l. Uniform Dollar Match: The Employer shall contribute to each eligible Participant’s account $________ (no more than the Annual Addition limit for the Plan Year) if the Participant contributes at least _______% (may be no more than 100%) of Compensation or $__________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable]. The Employer’s contribution will be made up to the maximum of ______% (may be no more than 500%) of Compensation.

m. Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer’s Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants. Such contribution shall be in the amount specified and allocated as follows:                                                                                                                                                                            

__________________________________________________________________________________________

__________________________________________________________________________________________

__________________________________________________________________________________________

Additional Matching Contribution Formulas for 403(b) Deferrals:

n. Percentage of Deferral Match: The Employer shall contribute to each eligible Participant’s account an amount equal to ________% (no less than 1%) of the Participant’s deferral up to a maximum of ________% (may be no more than 500%) of Compensation or $__________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

o. Uniform Dollar Match: The Employer shall contribute to each eligible Participant’s account $________ (no more than the Annual Addition limit for the Plan Year) if the Participant contributes at least ______% (may be no more than 100%) of Compensation or $___________ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable]. The Employer’s contribution will be made up to the maximum of ______% (may be no more than 500%) of Compensation.

DE3 19 401(k) NS AA #010

p. Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer’s Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants. Such contribution shall be in the amount specified and allocated as follows:                         

__________________________________________________________________________________________

__________________________________________________________________________________________

__________________________________________________________________________________________

2. Matching Contribution Computation Period: The Compensation or any dollar limitation imposed in calculating the Matching Contribution will be based on the period selected below. Matching Contributions will be calculated on the following basis:

a.	Payroll Based	e.	Monthly
b.	Weekly	f.	Quarterly
c.	Bi-weekly	g.	Semi-annually
d.	Semi-monthly	h.	Annually

The calculation of Matching Contributions based on the Computation Period selected above has no applicability as to when the Employer remits Matching Contributions to the Trust.

3. Limitations on Matching Formulas:

a. Contributions to Participants who are not Highly Compensated Employees: Contribution of the Employer’s Matching Contribution will be made only to eligible Participants who are Non-Highly Compensated Employees.

b. Deferrals withdrawn prior to the end of the Matching Computation Period: Matching Contributions (whether or not Qualified) will not be made on Employee contributions withdrawn prior to the end of the [    ] Matching Computation Period, or [    ] Plan Year.

¨ If elected, this requirement shall apply in the event of a withdrawal occurring as the result of a termination of employment for reasons of retirement, Disability or death.

c. Maximum Plan Limit for Matching Contributions: In no event will Matching Contributions exceed ______% (no more than 500%) of Compensation, or $_______ (no more than the Annual Addition limit for the Plan Year).

¨ If elected, this limitation applies to the total of all Elective Deferrals, Roth Elective Deferrals, Catch-Up Contributions, Voluntary After-tax Contributions, Required After-tax Contributions and 403(b) Deferrals made to the Plan for the Plan Year.

d. True Up of Matching Contributions: The Employer elects to true up Matching Contributions made to the Plan.

¨ K. Non-Elective Employer Contributions:

The Employer shall have the right to make a discretionary contribution. If a discretionary contribution is made, the Employer’s contribution for the Plan Year shall be allocated to the accounts of eligible Participants as follows (enter the number of the allocation method being used by the Plan):

Type of Contribution	Allocation Method
Non-Elective Formula 1
Non-Elective Formula 2

1. Pro-Rata Formula: The Employer’s contribution for the Plan Year shall be allocated to each eligible Participant on a pro-rata basis based on the Compensation of the Participant to the total Compensation of all Participants.

2. Uniform Percentage Formula: The Employer’s contribution shall be allocated to each eligible Participant as a uniform percentage of the Employer’s Net Profit.

3. Percentage of Compensation Formula: The Employer’s contribution shall be ______% of each Participant’s Compensation allocated on a pro-rata basis based on the Compensation of the Participant to the total Compensation of all Participants.

DE3 20 401(k) NS AA #010

4. Hours of Service Formula: The Employer’s contribution shall be a discretionary amount allocated in the same dollar amount to each eligible Participant based on each Hour of Service performed or each day that the Participant is entitled to Compensation.

5. Uniform Dollar Amount Formula: The Employer shall contribute and allocate to the account of each eligible Participant an equal dollar amount.

6. Excess Integrated Contribution Formula: The Employer’s contribution shall be allocated as an amount taking into consideration amounts contributed to Social Security using the four-step Excess Integrated Allocation Formula as described in the Basic Plan Document #01; the Integration Level is defined at Section III(E) of this Adoption Agreement.

7. Base Integrated Contribution Formula: The Employer’s contribution shall be allocated as an amount taking into consideration amounts contributed to Social Security using the two-step Base Integrated Allocation Formula as described in the Basic Plan Document #01; Employer Contributions shall be allocated as follows: _____% of each eligible Participant’s Compensation, plus _____% of Compensation in excess of the Integration Level defined at Section III(E) hereof. If the Integration Level selected in Section III(E) is other than the Taxable Wage Base, the maximum disparity rate will be adjusted as follows: (a) if the Integration Level selected is greater than zero (0) but not more than the greater of $10,000 or 20% of the Taxable Wage Base, the maximum disparity rate will be 5.7%; (b) if the Integration Level selected is more than the greater of $10,000 or 20% but not more than 80% of the Taxable Wage Base, the maximum disparity rate will be 4.3%; (c) if the Integration Level selected is more than 80% of the Taxable Wage Base, but not more than any amount more than 80% of the Taxable Wage Base, but less than 100% of the Taxable Wage Base, the maximum disparity rate will be 5.4%.

Only one Plan maintained by the Employer may be integrated with Social Security. Any Plan utilizing a Safe Harbor formula as provided in Section VI(I) of this Adoption Agreement may not apply the Safe Harbor Contributions to the integrated allocation formula.

8. Uniform Points Contribution Formula: The allocation for each eligible Participant will be determined by a uniform points method. Each eligible Participant’s allocation shall bear the same relationship to the Employer contribution as the Participant’s total points bears to all points awarded. The Employer must grant points for at least age or Service. Each eligible Participant will receive _____ points for each of the following:

¨ a. _____ year(s) of age.

¨ b. _____ Year(s) of Service determined:

¨ i. In the same manner as determined for eligibility.

¨ ii. In the same manner as determined for vesting.

¨ iii. Points will not be awarded with respect to Year(s) of Service in excess of _____.

¨ c. $_________ (not to exceed $200) of Compensation.

The contribution formulas must satisfy the design-based safe harbors described in the Regulations under Code Section 401(a)(4).

L. Qualified Matching (QMAC) and Qualified Non-Elective (QNEC) Employer Contribution Formulas:

¨ 1. QMAC Contribution Formula: The Employer may contribute to each eligible Participant’s Qualified Matching Contribution account an amount equal to (select one or more of the following):

¨ a. $_________ or ______% of the Participant’s Elective Deferrals (including Roth Elective Deferrals, if applicable).

¨ b. $_________ or ______% of the Participant’s Elective Deferrals (including Roth Elective Deferrals, if applicable) not to exceed ______% of Compensation.

DE3 21 401(k) NS AA #010

¨ c. $_________ or ______% of the Participant’s Voluntary After-tax Contributions.

¨ d. $_________ or ______% of the Participant’s Required After-tax Contributions.

¨ 2. Discretionary QMAC Contribution Formula: The Employer shall have the right to make a discretionary QMAC contribution. The Employer’s Matching Contribution shall be determined by the Employer with respect to each Plan Year’s eligible Participants. Such contribution shall be in the amount specified and allocated as follows:                                         

__________________________________________________________________________________________________

This part of the Employer’s contribution shall be fully vested when made.

¨ 3. QNEC Contribution Formula: The Employer may contribute to each eligible Participant’s Qualified Non-Elective Contribution account an amount equal to (select one or more of the following):

¨ a. _____% of Compensation of all eligible Participants. This part of the Employer’s contributions shall be fully vested when made.

¨ b. $__________ not to exceed ___% of Compensation. This part of the Employer’s contribution shall be fully vested when made and subject to the limitations specified in the Basic Plan Document #01.

¨ 4. Discretionary Percentage QNEC Contribution Formula: The Employer shall have the right to make a discretionary QNEC contribution which shall be allocated to each eligible Participant’s account in proportion to his or her Compensation as a percentage of the Compensation of all eligible Participants. This part of the Employer’s contribution shall be fully vested when made. This contribution will be made to:

¨ a. All eligible Participants.

¨ b. Only eligible Participants who are Non-Highly Compensated Employees.

¨ 5. Discretionary Uniform Dollar QNEC Contribution Formula: The Employer shall have the right to make a discretionary QNEC contribution which shall be allocated to each eligible Participant’s account in a uniform dollar amount to be determined by the Employer and allocated in a nondiscriminatory manner. This part of the Employer’s contribution shall be fully vested when made. This contribution will be made to:

¨ a. All eligible Participants.

¨ b. Only eligible Participants who are Non-Highly Compensated Employees.

¨ 6. Corrective QNEC Contribution Formula: The Employer shall have the right to make a QNEC contribution in the amount necessary to pass the ADP/ACP Test or the maximum permitted under Code Section 415. This contribution will be allocated to some or all Non-Highly Compensated Participants designated by the Plan Administrator. The allocation will be the lesser of the amount required to pass the ADP/ACP Test, or the maximum permitted under Code Section 415. This part of the Employer’s contribution shall be fully vested when made.

¨ 7. Qualified Matching Contributions (QMAC):

¨ a. For purposes of the ADP and ACP Tests, all Matching Contributions made to the Plan will be deemed “Qualified” for purposes of calculating the Actual Deferral Percentage and/or Actual Contribution Percentage. All Matching Contributions must be fully vested when made.

¨ b. For purposes of the ADP and ACP Tests, only Matching Contributions made to the Plan that are needed to meet the Actual Deferral Percentage or Actual Contribution Percentage Test will be deemed “Qualified” for purposes of calculating the Actual Deferral Percentage and/or Actual Contribution Percentage. All such Matching Contributions used must be fully vested when made.

DE3 22 401(k) NS AA #010

¨ 8. Qualified Non-Elective Contributions (QNEC):

¨ a. For purposes of the ADP and ACP Tests, all Non-Elective Contributions made to the Plan will be deemed “Qualified” for purposes of calculating the Actual Deferral Percentage and/or Actual Contribution Percentage. All Non-Elective Contributions must be fully vested when made.

¨ b. For purposes of the ADP and ACP Tests, only the Non-Elective Contributions made to the Plan that are needed to meet the Actual Deferral Percentage or Actual Contribution Percentage Test will be deemed “Qualified” for purposes of calculating the Actual Deferral Percentage and/or Actual Contribution Percentage. All such Non-Elective Contributions used must be fully vested when made.

¨ M. Additional Adopting Employers:

¨ 1. All participating Employers’ contributions and forfeitures, if applicable, attributable to each specific contribution source made by such Employer shall be pooled together and allocated uniformly among all eligible Participants.

¨ 2. Each participating Employer’s contribution and forfeitures, if applicable, attributable to each specific contribution source made by such Employer shall be allocated only to eligible Participants of the participating Employer.

Where contributions and forfeitures are to be allocated to eligible Participants by participating Employers, each such Employer must maintain data demonstrating that the allocations by group satisfy the nondiscrimination rules under Code Section 401(a)(4).

VII. ALLOCATIONS TO PARTICIPANTS

A. Allocation Accrual Requirements:

No Hours of Service or last day requirement may be imposed on any Employer contribution that is subject to the Safe Harbor Plan rules.

x 1. There are no allocation requirements for Participants to receive any contribution made to the Plan; however, a Participant must have received Compensation from the Employer to be entitled to an allocation of contributions.

¨ 2. Employer contributions will be allocated to all Participants employed on the last day of the Plan Year regardless of hours worked.

¨ 3. The Plan is using the Elapsed Time method; contributions will be allocated to all Participants who have completed _____ [not more than twelve (12)] months of Service regardless of the hours credited. If left blank, the Plan will use twelve (12) months.

¨ 4. Employer contributions for a Plan Year will be allocated to all Participants upon completion of the hours and/or employment requirements below.

a. A Year of Service for allocation accrual purposes cannot be less than one (1) Hour of Service nor greater than 1,000 hours by operation of law. If left blank, the Plan will use 1,000 hours. Enter whole digit numbers only.

Contribution Type	Hours
All contributions
Matching Contribution (Formula 1)
Matching Contribution (Formula 2)
Non-Elective Contribution (Formula 1)
Non-Elective Contribution (Formula 2)
QNEC
QMAC

DE3 23 401(k) NS AA #010

b. Participants must be employed on the last day of each quarter of the Plan Year in order to receive the following contribution(s):

¨ All contributions

¨ Matching Contribution (Formula 1)

¨ Matching Contribution (Formula 2)

¨ Non-Elective Contribution (Formula 1)

¨ Non-Elective Contribution (Formula 2)

¨ QNEC

¨ QMAC

Note: Use of this subsection (b) requires that no more than one (1) Hour of Service be required in subsection (a) above for the contribution types selected.

c. Participants must be employed on the last day of the Plan Year in order to receive the following contribution(s):

¨ All contributions

¨ Matching Contribution (Formula 1)

¨ Matching Contribution (Formula 2)

¨ Non-Elective Contribution (Formula 1)

¨ Non-Elective Contribution (Formula 2)

¨ QNEC

¨ QMAC

¨ d. Participants must complete the Hours of Service indicated above or be employed on the last day of the Plan Year to receive the Employer Contribution(s) selected above.

5. Employer Contributions for a Plan Year will be allocated to terminated Participants who have met the following allocation accrual requirements (check all applicable boxes):

All Contributions

Match Formula 1

Match Formula 2

Non-Elective Formula 1

Non-Elective Formula 2

QNEC

QMAC

a.

The Hours of Service or Period of Service requirement above will be waived if termination is due to:

i.

Retirement

¨

¨

¨

¨

¨

¨

¨

ii.

Disability

¨

¨

¨

¨

¨

¨

¨

iii.

Death

¨

¨

¨

¨

¨

¨

¨

iv.

Other (must be non-Discriminatory in operation):

¨

¨

¨

¨

¨

¨

¨

b.

The last day of employment requirement above will be waived if termination is due to:

i.

Retirement

¨

¨

¨

¨

¨

¨

¨

ii.

Disability

¨

¨

¨

¨

¨

¨

¨

iii.

Death

¨

¨

¨

¨

¨

¨

¨

iv.

Other (must be non- Discriminatory in operation):

¨

¨

¨

¨

¨

¨

¨

¨ B. Contributions to Disabled Participants:

The Employer will make contributions on behalf of a Participant who is permanently and totally disabled. These contributions will be based on the Compensation each such Participant would have received for the Limitation Year if the Participant had been paid at the rate of Compensation paid immediately before becoming permanently and totally disabled. Such imputed Compensation for the disabled Participant may be taken into account only if the Participant is not a Highly Compensated Employee. These contributions will be 100% vested when made.

DE3 24 401(k) NS AA #010

VIII.   DISPOSITION OF FORFEITURES

A. Forfeiture Allocation Alternatives:

x 1. Not applicable; all contributions are fully vested.

¨ 2. Select one or more methods in which forfeitures associated with the contribution type will be allocated (number each item in order of use):

		Employer Contribution Type
		All Non-Safe Harbor	All Other Contributions
Disposition Method		Matching Contributions
a.	Restoration of Participant’s forfeitures.
b.	Used to offset Plan expenses.
c.	Used to reduce the Employer’s Non-Elective Contribution.
d.	Used to reduce the Employer’s Matching Contribution.
e.	Added to the Employer’s contribution (other than Matching Contributions or Base Integration Formula) under the Plan.
f.	Added to the Employer’s Matching Contribution under the Plan (these contributions will be subject to ACP Testing).
g.	Allocate to all Participants eligible to share in the allocations in the same proportion that each Participant’s Compensation for the year bears to the Compensation of all other Participant’s for such year.	N/A
h.	Allocate to all NHCEs eligible to share in the allocations in proportion to each such Participant’s Compensation for the year.	N/A
i.	Allocate to all NHCEs eligible to share in the allocations in proportion to each such Participant’s Elective Deferrals for the year.		N/A
j.	Allocate to all Participants eligible to share in the allocations in the same proportion that each Participant’s Elective Deferrals for the year bears to the Elective Deferrals of all Participants for such year.		N/A

Participants eligible to share in the allocation of other Employer contributions under Section VI shall be eligible to share in the allocation of forfeitures. The selection of (i) or (j) may require that the Plan be tested for nondiscrimination using a general test described in Regulations Section 1.410(b).

B. Timing of Allocation of Forfeitures:

If no timely distribution or deemed distribution [pursuant to paragraph 6.5(c) of the Basic Plan Document #01] has been made to a former Participant, non-vested portions shall be forfeited at the end of the Plan Year during which the former Participant incurs his or her fifth consecutive one (1) year Break in Service or Period of Severance for Plans that use the Elapsed Time Method.

DE3 25 401(k) NS AA #010

If a former Participant has received the full amount of his or her Vested Account Balance, the non-vested portion of his or her account shall be forfeited and be disposed of:

¨ 1. during the Plan Year following the Plan Year in which the forfeiture arose.

¨ 2. as of any Valuation or Allocation Date during the Plan Year (or as soon as administratively feasible following the close of the Plan Year) in which the former Participant receives full payment of his or her vested benefit.

¨ 3. as of the end of the Plan Year during which the former Participant receives full payment of his or her vested benefit.

¨ 4. as of the earlier of the first day of the Plan Year, or the first day of the seventh month of the Plan Year following the date on which the former Participant has received full payment of his or her vested benefit.

¨ 5. as of the next Valuation or Allocation Date following the date on which the former Participant receives full payment of his or her vested benefit.

IX. MULTIPLE PLANS MAINTAINED BY THE EMPLOYER AND TOP-HEAVY CONTRIBUTIONS

¨ A. Plans Maintained By The Employer:

The Employer does maintain another Plan [including a Welfare Benefit Fund or an individual medical account as defined in Code Section 415(l)(2)], under which amounts are treated as Annual Additions and has completed the proper sections below. If the Participant is covered under another qualified Defined Contribution Plan maintained by the Employer, other than a Master or Prototype Plan [option (1) below shall automatically apply if the other plan is a Master or Prototype Plan]:

¨ 1. The provisions of Article X of the Basic Plan Document #01 will apply as if the other plan were a Master or Prototype Plan.

¨ 2. The Employer has specified below the method under which the plans will limit total Annual Additions to the Maximum Permissible Amount, and will properly reduce any Excess Amounts in a manner that precludes Employer discretion:

_________________________________________________________________________

B. Top-Heavy Provisions:

In the event the Plan is or becomes Top-Heavy, the minimum contribution or benefit required under Code Section 416 and paragraph 14.3 of the Basic Plan Document #01 relating to Top-Heavy Plans shall be satisfied in the elected manner:

x 1. The minimum contribution will be satisfied by this Plan.

¨ 2. The minimum contribution will be satisfied by (name of other Qualified Plan): ________

Minimum contribution or benefit to be provided (specify interest rates and mortality table, if applicable): __________

3. For any Plan Year during which the Plan is Top-Heavy, the sum of the contributions (excluding Elective Deferrals) allocated to non-Key Employees shall not be less than the amount required under the Basic Plan Document #01. Top-Heavy minimums will be allocated to:

¨ a. all eligible Participants [Plan defaults to this election].

x b. only eligible non-Key Employees who are Participants.

¨ 4. Matching Contributions shall not be included when satisfying Top-Heavy minimum contributions.

X. NONDISCRIMINATION TESTING

A Plan may use different testing methods for the ADP and ACP Tests provided the Plan does not permit recharacterization of Excess Contributions, Elective Deferrals to be used in the ACP Test, or Qualified Matching Contributions to be used in the ADP Test.

If no election is made, the Plan will use the Current Year testing method for both the ADP and ACP Tests.

DE3 26 401(k) NS AA #010

A. Testing Elections:

x 1. The Plan is not subject to ADP or ACP testing. The Plan does not offer Voluntary After-tax or Required After-tax Contributions and it either meets the Safe Harbor provisions of Section VI(I) of this Adoption Agreement, or it does not benefit any Highly Compensated Employees.

¨ 2. This Plan is using the Current Year testing method for purposes of the ADP Test.

¨ 3. This Plan is using the Current Year testing method for purposes of the ACP Test.

¨ 4. This Plan is using the Prior Year testing method for purposes of the ADP Test.

¨ 5. This Plan is using the Prior Year testing method for purposes of the ACP Test.

B. Testing Elections for the First Plan Year:

Complete only when Prior Year testing method election is made and the Employer is not using the “deemed 3%” rule.

¨ 1. If this is not a successor Plan, then for the first Plan Year this Plan permits any Participant to make Elective Deferrals, the ADP used in the ADP Test for Participants who are Non-Highly Compensated Employees shall be such first Plan Year’s ADP.

¨ 2. If this is not a successor Plan, then for the first Plan Year this Plan permits (a) any Participant to make Employee contributions, (b) provides for Matching Contributions or (c) both, the ACP used in the ACP Test for Participants who are Non-Highly Compensated Employees shall be such first Plan Year’s ACP.

¨ C. Recharacterization:

Elective Deferrals may be recharacterized as Voluntary After-tax Contributions to the extent so provided by this Plan, to satisfy the ADP Test. The Employer must have elected to permit Voluntary After-tax Contributions in the Plan for this election to be operable.

¨ D. Forfeitures of Vested Excess Aggregate Contributions Resulting from ADP Test Failure:

Forfeitures of Excess Aggregate Contributions resulting from failure of the ADP Test and the inability to distribute corresponding Matching Contributions will be allocated to the Matching Contribution accounts of Non-Highly Compensated Employees instead of being used to reduce Employer Contributions for the Plan Year in which the failure occurred.

XI. VESTING

Participants shall always have a fully vested and nonforfeitable interest in their Employee contributions (including Elective Deferrals, Catch-Up Contributions, Roth Elective Deferrals, Deemed IRA Contributions, Required After-tax Contributions, and Voluntary After-tax Contributions), Qualified Matching Contributions (“QMACs”), Qualified Non-Elective Contributions (“QNECs”) or Safe Harbor Contributions, and their investment earnings.

Each Participant shall acquire a vested and nonforfeitable percentage in his or her account balance attributable to Employer contributions and their earnings under the schedule(s) selected below.

A. Vesting Computation Period:

A Year of Service for vesting will be determined on the basis of the (choose one):

x 1. Not applicable. All contributions are fully vested.

¨ 2. Elapsed Time method.

¨ 3. Hours of Service method. A Year of Service will be credited upon completion of __________ Hours of Service. A Year of Service for vesting purposes will not be less than one (1) Hour of Service nor greater than 1,000 hours by operation of law. [If left blank, the Plan will use 1,000 hours.]

DE3 27 401(k) NS AA #010

The computation period for purposes of determining Years of Service and Breaks in Service for purposes of computing a Participant’s nonforfeitable right to his or her account balance derived from Employer contributions:

¨ a. shall commence on the date on which an Employee first performs an Hour of Service for the Employer and each subsequent twelve (12) consecutive month period shall commence on the anniversary thereof.

¨ b. shall commence on the first day of the Plan Year during which an Employee first performs an Hour of Service for the Employer and each subsequent twelve (12) consecutive month period shall commence on the anniversary thereof.

A Participant shall receive credit for a Year of Service if he or she completes the number of hours specified above at any time during the twelve (12) consecutive month computation period. A Year of Service may be earned prior to the end of the twelve (12) consecutive month computation period and the Participant need not be employed at the end of the twelve (12) consecutive month computation period to receive credit for a Year of Service.

B. Vesting Schedules:

The Employer must select either the two-twenty vesting schedule option [(B)(4)] or the three-year cliff vesting schedule [(B)(3)] to apply in any Plan Year in which the Plan is Top-Heavy. The percentages selected for option (B)(5) may not be less for any year than the percentages shown at option (B)(4). Any switch to a Top-Heavy schedule will remain in effect even if the Plan later falls out of Top-Heavy status unless the Employer executes an amendment to this Adoption Agreement. If a Participant has at least three (3) Years of Service for vesting purposes at the time of the amendment, the Plan must provide that Participant the option of remaining on the vesting schedule in effect prior to such amendment.

Select the appropriate schedule for each contribution type and complete the blank vesting percentages from the list below and insert the option number in the vesting schedule chart below. Employer Contributions that are not Safe Harbor Contributions may only choose option (3) or (4) or a schedule where amounts vest faster than at option (4).

	Years of Service
	1			2			3			4			5			6
1.		Full and immediate Vesting
2.		___	%		100	%
3.		___	%		___	%		100	%
4.		___	%		20	%		40	%		60	%		80	%		100	%
5.		___	%		___	%		___	%		___	%		___	%		100	%

Vesting Schedule Chart	Employer Contribution Type
___________________________________	All Employer Contributions
___________________________________	Matching Contribution (Formula 1)
___________________________________	Matching Contribution (Formula 2)
___________________________________	Match on Voluntary After-tax Contributions
___________________________________	Match on Required After-tax Contributions
___________________________________	Match on 403(b) Deferrals
___________________________________	Non-Elective Contribution (Formula 1)
___________________________________	Non-Elective Contribution (Formula 2)
_____________1______________________	Top-Heavy Minimum Contribution

If a different Vesting Schedule than that entered above applies to Employer Contributions made prior to the first day of the Plan’s 2007 Plan Year, it should be entered in Schedule B of this Adoption Agreement.

DE3 28 401(k) NS AA #010

C. Service Disregarded for Vesting:

x 1. Not applicable. All Service is recognized.

¨ 2. Service prior to the Effective Date of this Plan or a predecessor plan is disregarded when computing a Participant’s vested and nonforfeitable interest.

¨ 3. Service prior to a Participant having attained age eighteen (18) is disregarded when computing a Participant’s vested and nonforfeitable interest.

¨ D. Full Vesting of Employer Contributions for Current Participants:

Notwithstanding the elections above, all Employer contributions made to a Participant’s account shall be 100% fully vested if the Participant is employed on the Effective Date of the Plan (or such other date as entered herein): _________________. The operation of this provision may not result in the discrimination in favor of Highly Compensated Employees.

XII. SERVICE WITH PREDECESSOR ORGANIZATION

This option only applies in the situation where the Employer does not or did not maintain the plan of a Predecessor Organization.

x A. Not applicable. The Employer does not maintain the plan of a Predecessor Organization.

¨ B. The Plan will recognize Service with all Predecessor Organizations.

¨ C. Service with the following organization(s) will be recognized for the Plan purpose indicated:

	Eligibility	Allocation Accrual	Vesting
_______________________________________________	¨	¨	¨
_______________________________________________	¨	¨	¨
_______________________________________________	¨	¨	¨
_______________________________________________	¨	¨	¨
_______________________________________________	¨	¨	¨

Attach additional pages as necessary.

¨ D. The Plan shall recognize _____ Years of Service with the Employer(s) named in Section XII(C) above.

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XIII. IN -SERVICE WITHDRAWALS

Distribution restrictions apply in the case of Elective Deferrals (including Roth Elective Deferrals, if applicable), Safe Harbor Contributions, Qualified Matching Contributions and Qualified Non-Elective Contributions, including the withdrawal restrictions prior to attainment of age 59 ¹/2.

If the Participant could withdraw his or her account in the past, this right may not be taken away.

A. In-Service Withdrawals:

¨ 1. In-service withdrawals are not permitted in the Plan.

x 2. In-service withdrawals are permitted in the Plan. Participants may withdraw the following contribution types after meeting the following requirements (select one or more of the following options):

		Withdrawal Restrictions
Contribution Types		A	B	C	D	E	F	G	H
a.	All Contributions	n/a	n/a	n/a	¨	¨	n/a	n/a	n/a
b.	Elective Deferrals	¨	n/a	n/a	¨	x	n/a	n/a	n/a
c.	Roth Elective Deferrals	¨	n/a	n/a	¨	¨	n/a	n/a	n/a
d.	Voluntary After-tax Contributions	¨	¨	¨	¨	¨	n/a	n/a	n/a
e.	Required After-tax Contributions	¨	¨	¨	¨	¨	n/a	n/a	n/a
f.	Rollover Contributions	¨	x	¨	¨	¨	n/a	n/a	n/a
g.	Vested Matching (Formula 1)	¨	n/a	x	¨	x	x	¨	¨
h.	Vested Matching (Formula 2)	¨	n/a	¨	¨	¨	¨	¨	¨
i.	Vested Non-Elective (Formula 1)	¨	n/a	¨	¨	¨	¨	¨	¨
j.	Vested Non-Elective (Formula 2)	¨	n/a	¨	¨	¨	¨	¨	¨
k.	Safe Harbor Matching	¨	n/a	n/a	¨	x	n/a	n/a	n/a
l.	Safe Harbor Non-Elective	¨	n/a	n/a	¨	¨	n/a	n/a	n/a
m.	Qualified Non-Elective	¨	n/a	n/a	¨	¨	n/a	n/a	n/a
n.	Qualified Matching	¨	n/a	n/a	¨	¨	n/a	n/a	n/a

Withdrawal Restriction Key

A. Not available for in-service withdrawals.

B. Available for in-service withdrawals without restrictions.

C. Participants having completed five (5) years of Plan participation may elect to withdraw all or any part of their Vested Account Balance.

D. Participants may withdraw all or any part of their Account Balance after having attained the Plan’s Normal Retirement Age (Normal Retirement Age cannot be less than age 59 ¹/2 for in-service withdrawal of Elective Deferrals, Roth Elective Deferrals, Safe Harbor Contributions, QMACs or QNECs).

E. Participants may withdraw all or any part of their Vested Account Balance after having attained age 59.5 (not less than age 59 ¹/2).

DE3 30 401(k) NS AA #010

F. Participants may elect to withdraw all or any part of their Vested Account Balance which has been credited to their account for a period in excess of two (2) years.

G. Available for withdrawal only if the Participant is 100% vested (an election at (C), (D), (E) or (F) must also be made).

H. All requirements selected in (C) through (G) above must be satisfied prior to a distribution being made from the Plan.

¨ 3. In-service withdrawals may be made to Participants who have attained age 70 ¹/2.

B. Hardship Withdrawals:

Prior to age 59 ¹/2, a Participant may withdraw balances attributable to Elective Deferrals (including Roth Elective Deferrals, if applicable) for reason of Hardship only. Safe Harbor Contributions, Qualified Matching Contributions, and Qualified Non-Elective Contributions are not available for Hardship distributions.

¨ 1. Hardship withdrawals are not permitted in the Plan.

x 2. Hardship withdrawals are permitted in the Plan and will be taken from the Participant’s account as follows (select one or more of these options):

¨ a. Participants may withdraw Elective Deferrals.

x b. Participants may withdraw Elective Deferrals and any earnings credited as of December 31, 1988 (or if later, the end of the last Plan Year ending before July 1, 1989).

¨ c. Participants may withdraw Roth Elective Deferrals.

x d. Participants may withdraw Rollover Contributions plus their earnings.

¨ e. Participants may withdraw vested Non-Elective Contributions (Formula 1) plus their earnings.

¨ f. Participants may withdraw vested Non-Elective Contributions (Formula 2) plus their earnings.

¨ g. Participants may withdraw fully vested Non-Elective Contributions (Formula 1) plus their earnings.

¨ h. Participants may withdraw fully vested Non-Elective Contributions (Formula 2) plus their earnings.

x i. Participants may withdraw vested Employer Matching Contributions (Formula 1) plus their earnings.

¨ j. Participants may withdraw vested Employer Matching Contributions (Formula 2) plus their earnings.

¨ k. Participants may withdraw Qualified Matching Contributions and Qualified Non-Elective Contributions plus their earnings, and the earnings on Elective Deferrals which have been credited to the Participant’s account as of December 31, 1988 (or if later, the end of the last Plan Year ending before July 1, 1989).

XIV. LOAN PROVISIONS

¨ A. Participant loans are not available from the Plan.

x B. Participant loans are permitted in accordance with the Employer’s established loan procedures.

x C. Loan payments will be suspended under the Plan as permitted under Code Section 414(u) in compliance with the Uniformed Services Employment and Reemployment Rights Act of 1994.

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XV. INVESTMENT MANAGEMENT

A. Investment Management Responsibility:

¨ 1. The Employer shall appoint a discretionary Trustee to manage the assets of the Plan.

¨ 2. The Employer shall retain investment management responsibility and/or authority. Unless otherwise appointed, the Trustee shall act in a nondiscretionary capacity.

x 3. The party designated below shall be responsible for the investment of the Participant’s account. By selecting a box, the Employer is making a designation as to who will have authority to issue investment directives with respect to the specified contribution type (check all applicable boxes):

		Trustee	Employer	Participant
a.	All Contributions	n/a	n/a	x
b.	Elective Deferrals/Roth Elective Deferrals	¨	¨	¨
c.	Voluntary After-tax Contributions	¨	¨	¨
d.	Required After-tax Contributions	¨	¨	¨
e.	Safe Harbor Contributions	¨	¨	¨
f.	Matching Contributions (Formula 1)	¨	¨	¨
g.	Matching Contributions (Formula 2)	¨	¨	¨
h.	QMACs	¨	¨	¨
i.	QNECs	¨	¨	¨
j.	Non-Elective Contributions (Formula 1)	¨	¨	¨
k.	Non-Elective Contributions (Formula 2)	¨	¨	¨
l.	Rollover Contributions	¨	¨	¨
m.	Deemed IRA Contributions	¨	¨	¨

To the extent that Participant self-direction was previously permitted, the Employer shall have the right to either make the assets part of the general fund, or leave them as self-directed subject to the provisions of the Basic Plan Document #01.

B. Limitations on Participant Directed Investments:

x 1. Participants are permitted to invest among only those investment alternatives made available by the Employer under the Plan.

¨ 2. Participants are permitted to invest in any investment alternative permitted under the Basic Plan Document #01

¨ C. Insurance:

     The Plan permits life insurance as an investment alternative.

XVI. DISTRIBUTION OPTIONS

A. Timing of Distributions [both (1) and (2) must be completed]:

1. Distributions payable as a result of termination for reasons other than death, Disability or retirement shall be paid c [select from the list at (A)(3) below].

2. Distributions payable as a result of termination for death, Disability or retirement shall be paid c [select from the list at (A)(3) below].

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3. Distribution Options:

a. As soon as administratively feasible on or after the Valuation Date following the date on which a distribution is requested or is otherwise payable.

b. As soon as administratively feasible following the close of the Plan Year during which a distribution is requested or is otherwise payable.

c. As soon as administratively feasible following the date on which a distribution is requested or is otherwise payable. (This option is recommended for daily valuation plans.)

d. As soon as administratively feasible after the close of the Plan Year during which the Participant incurs ___________ [cannot be more than five (5)] consecutive one (1) year Breaks in Service.

e. Only after the Participant has attained the Plan’s Normal Retirement Age or Early Retirement Age, if applicable.

B. Required Beginning Date:

The Required Beginning Date of a Participant with respect to the Plan is (select one from below):

¨ 1. The April 1 of the calendar year following the calendar year in which the Participant attains age 70 ¹/2

¨ 2. The April 1 of the calendar year following the calendar year in which the Participant attains age 70 ¹/2 except that distributions to a Participant (other than a 5% owner) with respect to benefits accrued after the later of the adoption of this Plan or Effective Date of the amendment of this Plan must commence no later than the April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 ¹/2 or the calendar year in which the Participant retires.

x 3. The later of the April 1 of the calendar year following the calendar year in which the Participant attains age 70 ¹/2 or retires except that distributions to a 5% owner must commence by the April 1 of the calendar year following the calendar year in which the Participant attains age 70 ¹/2.

Option (3) may only be elected if (i) it corresponds to an amendment previously made to the Plan pursuant to Regulations Section 1.411(d)-4, Q&A-10(b), or (ii) it does not eliminate an age 70 ¹/2 distribution option as described in the preceding Regulations because either (A) the Plan is a new Plan or (B) Section XIII(A)(3) is checked or the Plan already offers a pre-retirement distribution at least as generous as Section XIII(A)(3).

C. Minimum Distribution Requirements:

x 1. Election to Apply Five (5) Year Rule to Distributions to Designated Beneficiaries: If the Participant dies before distributions begin and there is a Designated Beneficiary, distribution to the Designated Beneficiary is not required to begin by the date specified in the Basic Plan Document #01 but the Participant’s entire interest will be distributed to the Designated Beneficiary by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

¨ 2. Election to Allow Participants or Beneficiaries to Elect Five (5) Year Rule: Participants or Beneficiaries may elect on an individual basis whether the five (5) year rule or the life expectancy rule described in the Basic Plan Document #01 applies to distributions after the death of a Participant who has a Designated Beneficiary. The election must be made no later than the earlier of September 30 of the calendar year in which distribution would be required to begin under the Plan, or by September 30 of the calendar year which contains the fifth anniversary of the Participant’s (or, if applicable, surviving Spouse’s) death. If neither the Participant nor Beneficiary makes an election under this paragraph, distributions will be made in accordance with Article VII of the Basic Plan Document #01 and, if applicable, the elections in Section XVI(C)(1) above.

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D. Forms of Payment (select all that apply):

The normal form of payment is determined at Section III(J) of this Adoption Agreement. If option (1) or no selection is made in Section III(J), then options (4), (5) and (6) in this section cannot be selected.

x 1. Lump sum.

x 2. Installment payments.

x 3. Partial payments; the minimum amount will be $1000.

¨ 4. Life annuity.

¨ 5. Term certain annuity with payments guaranteed for ________ years [not to exceed twenty (20)].

¨ 6. Joint and ¨ 50%, ¨ 66-2/3%, ¨ 75% or ¨ 100% survivor annuity.

E. Type of Payment (select all that apply):

x 1. Cash.

x 2. Employer securities.

¨ 3. Other marketable securities.

¨ 4. Other: ____________________________________________________ (fill in the blank with the type of other in-kind distributions allowed under the Plan).

F. Application of Involuntary Cash-out Provisions:

¨ 1. The Plan shall not make involuntary cash-outs to any terminated vested Participant. Distributions will only be made with the consent of the Participant.

x 2. The Plan shall make involuntary cash-outs to a terminated vested Participant as follows:

¨ a. The Plan shall make involuntary cash-out distributions of Vested Account Balances of less than $200. Distribution of amounts $200 or greater shall only be made with the consent of the Participant.

x b. The Plan shall make involuntary cash-out distributions of Vested Account Balances of $1,000 or less. Distribution of amounts greater than $1,000 shall only be made with the consent of the Participant.

3. When determining the value of the Participant’s nonforfeitable account balance for purposes of the Plan’s involuntary cash-out rules, the Plan elects to:

x a. exclude Rollover Contributions.

¨ b. include Rollover Contributions.

If no selection is made, the Plan will exclude Rollover Contributions when determining the value of the Participant’s nonforfeitable account balance for involuntary cash-out purposes. Rollover Contributions, if any, will always be included when determining whether the $1,000 threshold has been exceeded.

G. Automatic Rollovers:

Do not complete if a selection has been made at Section XVI(F)(1) or (2) above.

  ¨ 1. The Plan shall make automatic rollovers of Vested Account Balances that are greater than $1,000 but are not more than $5,000 in accordance with the provisions of Article VI of the Basic Plan Document #01.

DE3 34 401(k) NS AA #010

¨ 2. The Plan shall make automatic rollovers of Vested Account Balances that are not more than $5,000 in accordance with the provisions of Article VI of the Basic Plan Document #01.

H. Distribution Upon Severance from Employment:

¨ 1. Not applicable.

x 2. Distribution upon severance from employment as described in the Basic Plan Document #01 shall apply for distributions after December 31, 2001 regardless of when the severance from employment occurred.

¨ 3. Distribution upon severance from employment as described in the Basic Plan Document #01 shall apply for distributions after ___________________ (no earlier than December 31, 2001) for severance from employment occurring after _______________ (enter the Effective Date if different than the Effective Date above).

XVII. SPONSOR INFORMATION AND ACCEPTANCE

This Plan may not be used and shall not be deemed to be a Prototype Plan unless an authorized representative of the Sponsor has acknowledged the use of the Plan. Such acknowledgment that the Employer is using the Plan does not represent that the Adoption Agreement (as completed) and Basic Plan Document #01 have been reviewed by a representative of the Sponsor or constitute a qualified retirement plan.

Acknowledged and accepted by the Sponsor this __________ day of ________________, __________.

Name: Robert D. Alin

Title: SVP, Secretary & General Counsel

Signature: ________________________________________________

Questions concerning the language contained in and qualification of the Prototype should be addressed to:

_________________________________________________________________________________________

(Position): _________________________ (Phone Number): ________________________________________

In the event that the Sponsor amends, discontinues or abandons this Prototype Plan, notification will be provided to the Employer’s address provided on the first page of this Adoption Agreement.

DE3 35 401(k) NS AA #010

XVIII.  SIGNATURES

Completion of this Adoption Agreement requires consideration of complex tax and legal issues. The Employer should consult with or should obtain the advice of its legal counsel and/or tax advisor before executing this Adoption Agreement. By executing this Adoption Agreement, the Employer acknowledges that it is a legal document with significant tax and legal ramifications. The Employer understands that its failure to properly complete or amend this Adoption Agreement may result in failure of the Plan to qualify or in disqualification of the Plan. Neither the Sponsor nor any of its agents or affiliates assumes any responsibility for the completion and operation of the Plan established under this Adoption Agreement and Basic Plan Document #01.

A. Employer:

This Adoption Agreement and the corresponding provisions of Basic Plan Document #01 are adopted by the Employer this __________ day of _____________________, ___________.

Executed on behalf of the Employer by:      ____________________________________________

Title:                                                               ____________________________________________

Signature:                                                       ____________________________________________

Employer’s Reliance: The adopting Employer may rely on an Opinion Letter issued by the Internal Revenue Service as evidence that the Plan is qualified under Code Section 401 except to the extent provided in Revenue Procedure 2005-16. The Employer may not rely on the Opinion Letter in certain other circumstances or with respect to certain qualification requirements, which are specified in the Opinion Letter issued with respect to the Plan and in Revenue Procedure 2005-16. In order to have reliance in such circumstances or with respect to such qualification requirements, application for a determination letter must be made to Employee Plans Determinations of the Internal Revenue Service. This Adoption Agreement may only be used in conjunction with Basic Plan Document #01.

DE3 36 401(k) NS AA #010

B. Trust Agreement/Custodial Agreement:

¨ Plan assets will be invested in group annuity contracts and the terms of the contract(s) will apply.

¨ Plan assets are held in a tax qualified Trust. The Trust provisions used will be as contained in the Basic Plan Document #01.

x Plan assets are held in a tax qualified Trust. The Trust provisions used will be as contained in the accompanying pre-approved executed Trust Agreement between the Employer and the Trustee attached hereto.

x Plan assets are being held in a Custodial Account arrangement. The Custodial Account provisions used will be as contained in the Basic Plan Document #01.

¨ Plan assets are being held in a Custodial Account arrangement. The Custodial Account provisions used will be as contained in the accompanying pre-approved executed Custodial Account Agreement between the Employer and the Custodian attached hereto.

C. Trustee:

x The Trustee appointed shall act in the capacity of a non-discretionary directed Trustee for all investments other than the employer stock fund.

¨ The Trustee appointed shall act in the capacity of a discretionary Trustee.

Name and address of Trustee:

Pentegra Trust Company

c/o Pentegra Services, Inc.

108 Corporate Park Drive

White Plains, NY 10604

The Employer’s Plan as contained herein is accepted by the Trustee this ____________ day of ____________________, ___________.

Accepted on behalf of the Trustee by:         ____________________________________________

Title:                                                              ____________________________________________

Signature:                                                      ____________________________________________

Accepted on behalf of the Trustee by:         ____________________________________________

Title:                                                              ____________________________________________

Signature:                                                      ____________________________________________

Accepted on behalf of the Trustee by:         ____________________________________________

Title:                                                              ____________________________________________

Signature:                                                      ____________________________________________

DE3 37 401(k) NS AA #010

B. Trust Agreement/Custodial Agreement:

¨ Plan assets will be invested in group annuity contracts and the terms of the contract(s) will apply.

¨ Plan assets are held in a tax qualified Trust. The Trust provisions used will be as contained in the Basic Plan Document #01.

x Plan assets are held in a tax qualified Trust. The Trust provisions used will be as contained in the accompanying pre-approved executed Trust Agreement between the Employer and the Trustee attached hereto.

¨ Plan assets are being held in a Custodial Account arrangement. The Custodial Account provisions used will be as contained in the Basic Plan Document #01.

¨ Plan assets are being held in a Custodial Account arrangement. The Custodial Account provisions used will be as contained in the accompanying pre-approved executed Custodial Account Agreement between the Employer and the Custodian attached hereto.

C. Trustee:

¨ The Trustee appointed shall act in the capacity of a non-discretionary directed Trustee for all investments other than the employer stock fund.

x The Trustee appointed shall act in the capacity of a discretionary Trustee for the employer stock fund.

Name and address of Trustee:

The Employer’s Plan as contained herein is accepted by the Trustee this ____________ day of ____________________, ___________.

Accepted on behalf of the Trustee by:         ____________________________________________

Title:                                                              ____________________________________________

Signature:                                                      ____________________________________________

Accepted on behalf of the Trustee by:         ____________________________________________

Title:                                                              ____________________________________________

Signature:                                                      ____________________________________________

Accepted on behalf of the Trustee by:         ____________________________________________

Title:                                                              ____________________________________________

Signature:                                                      ____________________________________________

DE3 38 401(k) NS AA #010

D. Custodian:

Name and address of Custodian:

Reliance Trust Company

1100 Abernathy Road NE

500 North Park, Suite 400

Atlanta, GA 30328

The Employer’s Plan as contained herein is accepted by the Custodian this __________ day of ________________, __________.

Accepted on behalf of the Custodian by: ____________________________________________

Title:                                                          ____________________________________________

Signature:                                                  ____________________________________________

DE3 39 401(k) NS AA #010

PARTICIPATION AGREEMENT

Each Participating Employer must execute a separate Participation Agreement. If not applicable, do not complete this Participation Agreement.

By executing this Participation Agreement, the undersigned Employer elects to become a Participating Employer in the Plan and accompanying Adoption Agreement as if the Participating Employer were a signatory to the Adoption Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Prototype Plan as made by the signatory sponsoring Employer in Section XVIII(A) of the Adoption Agreement. Further, the Participating Employer hereby appoints the signatory sponsoring Employer as its attorney in fact for the purpose of adopting on its behalf of all future amendments whether required or voluntary and any applicable corresponding documents (e.g., Loan Policy, QDRO procedures, Trust Agreement). This includes the adoption of all future Model Amendments to this Prototype Plan which are required by the U.S. Department of the Treasury or the Internal Revenue Service as a result of a modification or amendment of applicable Federal laws or regulations that become effective subsequent to the execution of this Participation Agreement.

A. PARTICIPATING EMPLOYER:

Name and address of any Participating Employer.

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Phone Number: ________________________ Tax ID Number: ___________________________________

B. EFFECTIVE DATE:

The Effective Date of the Plan for the Participating Employer is: __________________________________.

¨ This is an adoption of a new plan by the Participating Employer.

¨ This is an adoption of an amendment and/or restatement of a plan currently maintained by the Participating Employer identified as follows:

Name of Plan: _________________________________________________________________________

Original Effective Date: __________________________________________________________________

C. SIGNATURES:

Executed on behalf of the Participating Employer by:                __________________________________________

Title:                                                                                                __________________________________________

Signature:                                                                                        __________________________________________

Executed on behalf of the Signatory Sponsoring Employer by:   __________________________________________

Title:                                                                                               __________________________________________

Signature:                                                                                        __________________________________________

Executed on behalf of the Trustee by:                                            __________________________________________

Title:                                                                                                __________________________________________

Signature:                                                                                        __________________________________________

DE3 40 401(k) NS AA #010

SCHEDULE A

PROTECTED BENEFITS

This Schedule describes Code Section 411(d)(6) protected benefits included in the adopting Employer’s prior plan document that are not available in this Prototype Defined Contribution Plan, Basic Plan Document #01. Complete as applicable.

1. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

2. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

3. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

4. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

5. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

DE3 41 401(k) NS AA #010

SCHEDULE B

PRIOR PLAN PROVISIONS

This Schedule should be used by the adopting Employer if a prior plan contains provisions not found in this Prototype Defined Contribution Plan, Basic Plan Document #01, or where the Employer wishes to document transactions or historical provisions of the Employer’s Plan.

1. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

2. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

3. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

4. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

5. Plan Provision:

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

_______________________________________________________________________________________

Effective Date: ___________________________________________

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SCHEDULE C

SAFE HARBOR ELECTIONS FOR FLEXIBLE NON-ELECTIVE CONTRIBUTION

The following elections are made with regard to the Plan’s Safe Harbor status pursuant to Section VII herein. For Plan Years indicated below, the Plan hereby invokes a Safe Harbor status in accordance with IRS Notices 98-52 and 2000-3.

For all Plan Years in which this Safe Harbor election is being made, the limitations and restrictions found in Section VII herein apply.

1. For the Plan Year beginning _____ and ending _____, the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to _____% (not less than 3%) of Compensation. This election is made on this _____ day of _____, _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).

2. For the Plan Year beginning _____ and ending _____, the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to _____% (not less than 3%) of Compensation. This election is made on this _____ day of _____, _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).

3. For the Plan Year beginning _____ and ending _____, the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to _____% (not less than 3%) of Compensation. This election is made on this _____ day of _____, _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).

4. For the Plan Year beginning _____ and ending _____, the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to _____% (not less than 3%) of Compensation. This election is made on this _____ day of _____, _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).

5. For the Plan Year beginning _____ and ending _____, the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to _____% (not less than 3%) of Compensation. This election is made on this _____ day of _____, _____ (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).

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SCHEDULE D

COLLECTIVE AND COMMINGLED FUNDS

The Trustee is authorized to invest all or any part of the Fund in the following Collective and Commingled Funds as provided for in the Basic Plan Document #01:

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

DE3 44 401(k) NS AA #010

SCHEDULE E

MISCELLANEOUS ADMINISTRATIVE ELECTIONS

The following elections are made with regard to the administration of the Plan:

x 1. ERISA Section 404(c): The Employer intends to be covered by the fiduciary liability provisions with respect to Participant-directed investments under ERISA Section 404(c). Under the terms of this Plan, Participants (or their Beneficiaries) have a reasonable opportunity to give instructions to the Plan Administrator in accordance with the policy set by the Plan Administrator (whether written, oral, or in electronic form) regarding the choice of investment of their account balance. The Plan Administrator is obligated to comply with the Participant’s or Beneficiary’s investment instructions unless complying with such instructions would result in a prohibited transaction under the Code, ERISA or the Department of Labor, violate the Plan document, or jeopardize the Plan’s tax-qualified status.

x 2. Fees: Listed below are the charges your account will incur as a condition of the receipt of a benefit under the Plan, depending upon the transaction involved.

x a. Participants have the ability to take a loan from the Plan. x There will be a loan set-up fee of $50 paid from the account prior to obtaining a loan from the Plan. x $40 will be charged on an annual basis until the loan is paid in full. x The loan set-up charge is deducted from the Participant’s account. All other costs of administering the Plan will be paid by the Employer or from Plan assets.

¨ b. The costs of administering the Plan are shared between Participants and the Employer.

¨ c. A service fee equal to $___ / ___% of a Participant’s account balance will be charged per ¨ Plan quarter ¨ Plan Year.

¨ d. All costs of administering the Plan will be paid by the Employer or from Plan assets.

¨ e. In order to maintain a self-directed brokerage option, Participants will be charged an initial fee of $_______ ¨ and annual fee of $                .

¨ f. To obtain a Hardship distribution, Participants will incur a charge of $                .

x g. Qualified Domestic Relations Order (QDRO) presented to the Plan for payment will be charged $500 to the Participant’s/Alternate Payee’s account for processing.

¨ h. Other:

¨ 3. Automatic Rollover Of Distributions: If a Plan Participant does not elect to take a distribution and include it in income or have the distribution rolled over to either a qualified retirement plan or an Individual Retirement Account (“IRA”), the Plan is required to make a Direct Rollover of the distribution to an IRA. The Employer as Plan Sponsor has the authority to execute the documents necessary to establish the IRA account, and once established, the Trustee/Issuer of the IRA will provide the Participant with a Disclosure Statement detailing the terms and conditions as well as any fees imposed on the IRA, including the procedures regarding the seven (7) day revocation period. The Plan has selected the following IRA Trustee/Issuer:

Name:    _____________________________________________________________________________________

Address:

Phone:    ______________________________________________________________________________________

The initial IRA setup fee shall be:    ________________________________________________________________

The initial IRA setup fee shall be paid by:    __________________________________________________________

The IRA Provider’s annual fee shall be:    ____________________________________________________________

The IRA funds shall be invested in:

DE3 45 401(k) NS AA #010

EX-10.12

Exhibit 10.12

FORM OF

FRATERNITY FEDERAL SAVINGS AND LOAN ASSOCIATION

DEFERRED COMPENSATION PLAN

Purpose

The purpose of this Fraternity Federal Savings and Loan Association Deferred Compensation Plan (the “Plan”) is to provide deferred compensation to certain eligible employees of Fraternity Federal Savings and Loan Association (the “Association”). The Plan is intended to be unfunded for tax purposes and to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.

Article 1

Definitions

Whenever used in this Plan, the following words and phrases shall have the meanings specified:

Association means Fraternity Federal Savings and Loan Association.

Board of Directors means the Board of Directors of the Association.

Change in Control means a change in control of the Association or Fraternity Community Bancorp, Inc., as defined in Section 409A of the Code and rules, regulations, and guidance of general application thereunder issued by the Department of the Treasury, including a change in ownership, change in effective control or change in ownership of a substantial portion of assets, as defined for purposes of Section 409A of the Code. A Change in Control shall not include a conversion of the Association from the mutual to stock form of ownership.

Code means the Internal Revenue Code of 1986, as amended, and rules, regulations and guidance of general application issued thereunder by the Department of Treasury.

Deferred Compensation Account means the Association’s accounting of the Participant’s accumulated deferred compensation plus accrued interest.

Effective Date means July 29, 2004, as originally established, and as amended from time to time.

Participant means an employee of the Association who is designated by the Board of Directors as eligible to participate in the Plan by the Board of Directors.

Plan Year means the calendar year.

Section 409A means Section 409A of the Code and the Department of Treasury rules, regulations or other authoritative guidance issued thereunder.

Separation from Service means a Participant’s service (as an executive and/or independent contractor to the Association and any member of a controlled group, as defined in Section 414 of the Code), terminates for any reason, other than because of a leave of absence approved by the Association or the Participant’s death.

Stock-Based Deferral Account means the portion of the Participant’s benefit invested in stock pursuant to Section 3.1.3 of the Plan.

Stock Unit means a means a hypothetical share of stock of Fraternity Community Bancorp, Inc. Each Stock Unit held in a Stock-Based Deferral Stock Account shall be deemed to have the same value, from time to time, as a share of stock of Fraternity Community Bancorp, Inc.

Article 2

Credits and Vesting

2.1 Credits. As of each month, the Association shall credit each Participant’s Deferred Compensation Account with an amount equal to $812.50 or such other amount as may be determined by the Board of Directors from time to time.

2.2 Vesting of Credits. Each Participant’s vested (i.e., nonforfeitable) interest in his Deferred Compensation Account and Stock-Based Deferral Account shall be 100% at all times.

Article 3

Deferred Compensation Account

3.1 Establishing and Crediting. The Association shall establish a Deferred Compensation Account and Stock-Based Deferral Account on its books for each participating Participant and shall credit to the Deferred Compensation Account and Stock-Based Deferral Account the following amounts:

3.1.1 Credits. The credits made on behalf of the Participant each month pursuant to Section 2.1 of the Plan.

3.1.2 Interest. Interest is to be accrued on the Deferred Compensation Account balance of each Participant (including the Deferred Compensation Account balance of a Participant who is receiving installment payments pursuant to the Sections 4.1.2 of the Plan) based on the rate established by the Board of Directors from time to time or as earned by assets held in a trust established under the Plan. The interest shall be credited beginning on the first business day of the Plan Year, compounded monthly, unless actually earned more frequently on assets held in a trust established under the Plan. Unless actually earned on assets held in a trust established under the Plan, the interest rate will be determined as of the first business day of the Plan Year shall be the same rate used for the entirety of the Plan Year. The Board of the Directors may alter the interest crediting rate formula prospectively with respect to any future Plan Year.

3.1.3 One Time Election. Notwithstanding anything in this Plan to the contrary, each Participant may make a one-time election to transfer all or a portion of his Deferred Compensation Account balance to a Stock-Based Deferral Account under the Plan. All accrued balances transferred to the Stock-Based Deferral Account will be subject to the terms and conditions of this Plan. All amounts subject to the election pursuant to this provision shall be held as Stock Units. With respect to all amounts for which an election is made, the Association shall establish separate accounts under the trust entered into in connection with this Plan. All Stock Units credited to a Participant’s Stock-Based Deferral Account shall be credited with hypothetical cash dividends equal to the cash dividends that are declared and paid on company stock, if any. On each record date, the Association shall determine the amount of cash dividends to be paid per share of stock. On the payment date of the dividend, the Association shall credit an equal amount of hypothetical cash dividends to each Stock Unit. The hypothetical cash dividends shall be converted into Stock Units by reference to the reinvestment of the dividends by the trustee of the trust.

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3.2 Statement of Accounts. The Association shall provide to the Participant, within one hundred twenty (120) days after the end of each Plan Year, a statement setting forth the Deferred Compensation Account balance as of the end of such Plan Year.

3.3 Accounting Device Only. The Deferred Compensation Account is solely a device for measuring amounts to be paid under this Plan. The Deferred Compensation Account is not a trust fund of any kind. The Participant is a general unsecured creditor of the Association for the payment of benefits. The benefits represent the mere promise of the Association to pay the benefits. The Participant’s rights are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Participant’s creditors.

3.4 Utilization of a Trust. The Association may engage an independent trustee to maintain a Trust under this Plan and the Trustee shall inform the Association annually prior to the commencement of each calendar year as to the manner in which the Trust assets shall be invested. The Association shall also provide the Trustee with a schedule specifying the amounts payable to Participants, and the time for making such payments. All interest, dividends, or realized gain or losses on Trust assets will be taxed to the Association until distributed to Participants.

Article 4

Payment of Benefits

4.1 Separation from Service Benefit. Upon a Separation from Service for any reason, the Association shall pay to the Participant the benefit described in this Section 4.1 in lieu of any other benefit under the Plan.

4.1.1 Amount of Benefit. The benefit under this Section 4.1 is the Deferred Compensation Account balance and the Stock-Based Deferral Account balance at the Participant’s Separation from Service.

4.1.2 Payment of Benefit. The Association shall pay the benefit credited under the Deferred Compensation Account under this Section 4.1 to the Participant in weekly installments (calculated in the manner set forth below) and payable over a period of up to fifteen (15) years commencing with the week following the Participant’s Separation from Service. The amount of each weekly installment payment shall be (i) calculated as of the first payment date (for the balance of the Plan Year in which the first payment date occurs) and (ii) recalculated as of the first business day of each Plan Year beginning after the initial payment date (for the payments to be made in each month of that Plan Year), as a fixed amount consisting of principal and interest that amortizes the Participant’s Deferred Compensation Account as of such date over the number of months then remaining in the distribution period. For purposes of the foregoing calculation, the interest rate in effect under Section 3.1.2 of the Plan on the applicable date (i.e., the initial payment date or, with respect to each subsequent calculation, the first business day of the Plan Year) shall be used to determine the weekly payment for the applicable period (i.e., the balance of the initial Plan Year in which payments commence and each subsequent Plan Year over the installment period).

4.2 Change in Control Benefit. The Association shall pay to the Participant the benefit described in this Section 4.2 upon a Change in Control.

4.2.1 Amount of Benefit. The benefit under this Section 4.2 is the Deferred Compensation Account balance and the Stock-Based Deferral Account balance at the Change in Control.

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4.2.2 Payment of Benefit. The Association shall pay the benefit credited under the Deferred Compensation Account and all shares credited under the Stock-Based Deferral Account under this Section 4.2 to the Participant in a lump sum as soon as practicable following the Change in Control.

4.3 Distributions Regarding Stock-Based Deferral Account. Payment of Stock Units from the Stock-Based Deferral Account shall be made only in whole shares of Fraternity Community Bancorp, Inc. stock equal to the number of whole Stock Units. Fractional shares shall be disregarded for distribution purposes.

Article 5

Claims and Review Procedures

5.1 Claims Procedure. The Association shall notify any person or entity that makes a claim against the Plan (the “Claimant”) in writing within ninety (90) days of Claimant’s written application for benefits, of his eligibility or non-eligibility for benefits under the Plan. If the Association determines that the Claimant is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) specific reference to the provisions of the Plan on which the denial is based, (3) a description of any additional information or material necessary for the Claimant to perfect his claim and a description of why it is needed and (4) an explanation of the Plan’s claims review procedure and other appropriate information as to the steps to be taken if the Claimant wishes to have the claim reviewed. If the Association determines that there are special circumstances requiring additional time to make a decision, the Association shall notify the Claimant of the special circumstances and the date by which a decision is expected to be made, and may extend the time for up to ninety (90) days.

5.2 Review Procedure. If the Claimant is determined by the Association not to be eligible for benefit, or if the Claimant believes that he or she is entitled to greater or different benefits, the Claimant shall have the opportunity to have such claim reviewed by the Association by filing a petition for review with the Association within sixty (60) days after receipt of the notice issued by the Association. The petition shall state the specific reasons which the Claimant believes entitle him to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Association of the petition, the Association shall afford the Claimant (and counsel, if any) an opportunity to present his or her position to the Association verbally or in writing, and the Claimant (or counsel) shall have the right to review the pertinent documents. The Association shall notify the Claimant of its decision in writing within the 60-day period stating specifically the basis of its decision, written in a manner calculated to be understood by the Claimant and the specific provisions of the Plan on which the decision is based. If, because of the need for a hearing, the 60-day period is not sufficient, the decision may be deferred for up to another sixty (60) days at the election of the Association, but notice of this deferral shall be given to the Claimant.

Article 6

Amendments and Termination

6.1 Termination. Although the Association anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that the Association will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, the Association reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of the Participants, by action of its Board of Directors. The termination of the Plan shall not adversely affect any Participant’s or beneficiary’s right to receive the payment of any benefits under the Plan as of the date of termination, including the right of the Participant or beneficiary to be paid Plan benefits accrued through the date of termination in accordance with the Plan terms and the Participant’s distribution elections in effect at the time of termination.

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6.2 Amendment. The Association may, at any time, amend or modify the Plan in whole or in part, by action of its Board of Directors; provided, however, that no amendment or modification shall be effective to decrease or restrict the rights of a Participant in his Deferred Compensation Account in existence at the time the amendment or modification is made, including the right to be paid Plan benefits accrued through the date of the amendment or modification in accordance with the Plan terms and the Participant’s distribution elections in effect at the time of the amendment or modification.

Article 7

Miscellaneous

7.1 Binding Effect. This Plan shall bind each participating Participant and the Association and their respective beneficiaries, survivors, executors, administrators and transferees.

7.2 No Guarantee of Service. This Plan is not a contract for service. It does not give a Participant the right to remain in the service of the Association, nor does it interfere with the Association’s right to terminate or replace a Participant. It also does not require a Participant to remain in the service of the Association nor interfere with the Participant’s right to terminate service at any time.

7.3 Non-Transferability. Benefits under this Plan cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

7.4 Tax Withholding. The Association shall withhold any taxes that are required to be withheld from the benefits provided under this Plan.

7.5 Applicable Law. The Plan and all rights hereunder shall be governed by the laws of Maryland, except to the extent preempted by federal law.

7.6 Reorganization. The Association shall not merge or consolidate into or with another entity, or reorganize, or sell substantially all of its assets to another entity, firm, or person unless such succeeding or continuing entity, firm, or person agrees to assume and discharge the obligations of the Association under this Plan. Upon the occurrence of such event, the term “Association” as used in this Plan shall be deemed to refer to the successor or survivor entity.

7.7 Entire Agreement. This Plan constitutes the entire agreement between the Association and a participating Participant as to the subject matter hereof. No rights are granted to a Participant by virtue of this Plan other than those specifically set forth herein.

7.8 Severability. If any provision of this Plan is held invalid, such invalidity shall not affect any other provision of this Plan not held invalid, and each such other provision shall continue in full force and effect to the full extent consistent with law. If any provision of this Plan is held invalid in part, such invalidity shall not affect the remainder of the provision not held invalid, and the remainder of such provision together with all other provisions of this Plan shall continue in full force and effect to the full extent consistent with law.

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7.9 Administration. The Board of Directors shall have powers which are necessary to administer this Plan, including but not limited to:

(a) Interpreting the provisions of the Plan;

(b) Establishing and revising the method of accounting for the Plan;

(c) Maintaining a record of benefit payments; and

(d) Establishing rules and prescribing any forms necessary or desirable to administer the Plan.

7.10 Prohibited Acceleration/Distribution Timing. This Section 7.10 shall take precedence over any other provision of the Plan to the contrary. No provision of this Plan shall be followed if following the provision would result in the acceleration of the time or schedule of any payment from the Plan (i) as would require income tax to a Participant prior to the date on which the amount is distributable to or on behalf of the Participant under Article 4 or (ii) which would result in penalties to the Participant under Section 409A. In addition, if the timing of any distribution election would result in any tax or other penalty (other than ordinarily payable Federal, state or local income or payroll taxes), which tax or penalty can be avoided by payment of the distribution at a later time, then the distribution shall be made (or commence, as the case may be) on (or as soon as practicable after) the first date on which such distributions can be made (or commence) without such tax or penalty.

7.11 Aggregation of Employers. To the extent required under Section 409A, if the Association is a member of a controlled group of corporations or a group of trades or businesses under common control (as described in Section 414(b) or (c) of the Code), all members of the group shall be treated as a single employer for purposes of whether there has occurred a Separation from Service and for any other purposes under the Plan as Section 409A shall require.

7.12 Designation of Beneficiary(ies). Each Participant shall have the right to designate a beneficiary or beneficiaries (including contingent beneficiaries) to receive any benefits payable upon the death of a Participant. No such designation shall be effective unless completed and submitted in accordance with rules and procedures established by the Association for this purpose. In the absence of an effective beneficiary designation, the Participant’s designated beneficiary shall be assumed to be the Participant’s surviving spouse or, if none, the Participant’s estate. Beneficiaries shall receive the Participant’s benefits in the same time and manner as the Participant would have received the benefits (or continued to have received the benefits) under Article 4 of the Plan.

7.13 Savings Clause Relating to Compliance with Section 409A of the Code. Despite any contrary provision of this Plan, if, when a Participant’s service terminates, the Participant is a “specified employee,” as defined in Section 409A, and if any payments under this Plan will result in additional tax or interest to the Participant because of Section 409A, the Participant shall not be entitled to the payments until the earliest of (i) the date that is at least six months after termination of the Participant’s employment for reasons other than the Participant’s death, (ii) the date of the Participant’s death, or (iii) any earlier date that does not result in additional tax or interest to the Participant under Section 409A. If any provision of this Plan would subject the Participant to additional tax or interest under Section 409A, the Association shall reform the provision. However, the Association shall maintain to the maximum extent practicable the original intent of the applicable provision without subjecting the Participant to additional tax or interest.

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EX-23.2

Exhibit 23.2

[STEGMAN & COMPANY LETTERHEAD]

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in the Registration Statement on Form S-1 filed with the Securities and Exchange Commission and in the Application for Conversion on Form AC filed with the Office of Thrift Supervision of our report dated May 14, 2010 on the consolidated statements of financial condition of Fraternity Federal Savings and Loan Association, Inc. and Subsidiary as of December 31, 2009 and 2008, and the related consolidated statements of income, comprehensive income, retained earnings and cash flows for each of the years then ended.

We also consent to the reference to our firm under the heading “Experts” in the Prospectus that is part of the Registration Statement and the Application for Conversion.

/s/    Stegman & Company

Baltimore, Maryland

January 4, 2011

CORRESP

Correspondence