-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RZtBPek9yC5TTHo80lSHb0WiffzBEpf16fDp5+Sw8FgS5Vq3Slpdl1uvF7LJxPcT Pf2RgC6CCBnIE8AJ+3/Eog== 0000928385-97-001841.txt : 19971113 0000928385-97-001841.hdr.sgml : 19971113 ACCESSION NUMBER: 0000928385-97-001841 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANDY SPRING BANCORP INC CENTRAL INDEX KEY: 0000824410 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 520312970 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19065 FILM NUMBER: 97715814 BUSINESS ADDRESS: STREET 1: 17801 GEORGIA AVE CITY: OLNEY STATE: MD ZIP: 20832 BUSINESS PHONE: 3017746400 MAIL ADDRESS: STREET 1: 17801 GEORGIA AVENUE CITY: OLNEY STATE: MD ZIP: 20832 10-Q 1 FORM 10-Q FOR 9/30/97 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 ------------------ OR () TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- Commission File Number: 0-19065 Sandy Spring Bancorp, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 52-1532952 ------------------------ --------------------------------------- (State of incorporation) (I.R.S. Employer Identification Number) 17801 Georgia Avenue, Olney, Maryland 20832 301-774-6400 ------------------------------------- --------- ------------------ (Address of principal office) (Zip Code) (Telephone Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. YES X NO --- --- The number of shares of common stock outstanding as of October 21, 1997 is 4,880,202 shares. SANDY SPRING BANCORP INDEX Page - -------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets at September 30, 1997 and December 31, 1996.............................1 Consolidated Statements of Income for the the Three and Nine Month Periods Ended September 30, 1997 and 1996..........................................2 Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 1997 and 1996.............3 Notes to Consolidated Financial Statements...........................5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................6 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................11 SIGNATURES.................................................................12 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Sandy Spring Bancorp and Subsidiaries CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
September 30, December 31, 1997 1996 ------------ ----------- ASSETS Cash and due from banks $ 23,194 $ 32,899 Federal funds sold 5,707 23,278 Interest-bearing deposits with banks 944 861 Residential mortgage loans held for sale 8,264 7,985 Investments available-for-sale (at fair value) 320,529 234,423 Investments held-to-maturity -- fair value of $108,016 (1997) and $123,067 (1996) 106,781 122,272 Other equity securities 9,440 5,111 Total Loans (net of unearned income) 552,389 523,166 Less: Allowance for credit losses (6,634) (6,391) ---------- --------- Net loans 545,755 516,775 Premises and equipment 25,390 20,211 Accrued interest receivable 9,384 7,917 Other real estate owned 201 0 Other assets 11,457 6,863 ---------- --------- TOTAL ASSETS $1,067,046 $ 978,595 ========== ========= LIABILITIES Noninterest-bearing deposits $ 128,325 $ 117,052 Interest-bearing deposits 689,857 689,289 ---------- --------- Total deposits 818,182 806,341 Short-term borrowings 136,886 68,127 Long-term borrowings 4,598 4,820 Accrued interest and other liabilities 3,807 2,726 ---------- --------- TOTAL LIABILITIES 963,473 882,014 STOCKHOLDERS' EQUITY Common stock -- par value $1.00; shares authorized 15,000,000; shares issued and outstanding 4,888,164 (1997) and 4,902,113 (1996) 4,888 4,902 Surplus 32,859 33,474 Retained earnings 64,171 57,669 Net unrealized gain on investments available-for-sale 1,655 536 ---------- --------- TOTAL STOCKHOLDERS' EQUITY 103,573 96,581 ---------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,067,046 $ 978,595 ========== =========
See Notes to Consolidated Financial Statements. 1 Sandy Spring Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- -------------------------- 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Interest income: Interest and fees on loans $ 12,524 $ 11,627 $ 36,917 $ 34,508 Interest on loans held for sale 90 36 206 117 Interest on deposits with banks 19 81 61 180 Interest and dividends on securities: Taxable 5,693 3,841 15,158 10,898 Nontaxable 828 831 2,450 2,525 Interest on federal funds sold 257 357 904 1,087 ---------- --------- --------- --------- TOTAL INTEREST INCOME 19,411 16,773 55,696 49,315 Interest expense: Interest on deposits 7,297 6,973 21,509 20,878 Interest on short-term borrowings 1,702 523 3,652 1,372 Interest on long-term borrowings 84 84 244 239 ---------- --------- --------- --------- TOTAL INTEREST EXPENSE 9,083 7,580 25,405 22,489 ---------- --------- --------- --------- NET INTEREST INCOME 10,328 9,193 30,291 26,826 Provision for Credit Losses 300 -- 525 208 ---------- --------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 10,028 9,193 29,766 26,618 Noninterest Income: Securities gains (losses) 183 (16) 315 (66) Service charges on deposit accounts 856 766 2,434 2,154 Gains on mortgage sales 319 145 843 588 Trust income 331 231 850 670 Other income 843 392 1,933 1,384 ---------- --------- --------- --------- TOTAL NONINTEREST INCOME 2,532 1,518 6,375 4,730 Noninterest Expenses: Salaries and employee benefits 4,234 3,718 12,121 10,746 Occupancy expense of premises 598 525 1,683 1,559 Equipment expenses 550 582 1,601 1,633 Marketing 197 300 909 770 FDIC insurance expense 26 2 76 4 Outside data services 336 429 933 898 Other expenses 1,342 1,310 3,909 3,287 ---------- --------- --------- --------- TOTAL NONINTEREST EXPENSES 7,283 6,866 21,232 18,897 ---------- --------- --------- --------- Income Before Income Taxes 5,277 3,845 14,909 12,451 Income Tax Expense 1,763 1,372 5,072 4,199 ---------- --------- --------- --------- NET INCOME $ 3,514 $2,473 $ 9,837 $ 8,252 ========== ========= ========= ========= PER SHARE DATA: Net Income $ 0.71 $ 0.51 $ 2.00 $ 1.71 Dividends Declared 0.24 0.20 0.68 0.57
See Notes to Consolidated Financial Statements. 2 Sandy Spring Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Nine Months Ended September 30, ----------------------------------- 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income $ 9,837 $ 8,252 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,592 1,374 Provision for credit losses 525 208 Deferred income taxes (4) 152 Origination of loans held for sale (52,838) (40,134) Proceeds from sales of loans held for sale 53,402 42,348 Gains on sales of loans held for sale (843) (653) Securities (gains) losses (315) 66 Net change in: Accrued interest receivable (1,467) (491) Accrued income taxes 324 (550) Other accrued expenses 757 (172) Other -- net (5,573) 515 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,397 10,915 Cash Flows from Investing Activities: Net (increase) decrease in interest-bearing deposits with banks (83) 204 Purchases of investments held-to-maturity (9,074) (24,967) Purchases of other equity securities (4,685) (304) Purchases of investments available-for-sale (263,813) (96,434) Proceeds from sales of investments available-for-sale 58,393 14,798 Proceeds from maturities, calls and principal payments of investments 24,709 25,151 held-to-maturity Proceeds from maturities, calls and principal payments of investments 121,476 40,027 available-for-sale Proceeds from sales of loans 0 291 Proceeds from sales of other real estate owned 359 250 Net increase in loans receivable (29,755) (24,884) Expenditures for premises and equipment (6,614) (1,311) ---------- ---------- NET CASH USED BY INVESTING ACTIVITIES (109,087) (67,179) Cash Flows from Financing Activities: Net increase (decrease) in demand and savings accounts 57 21,579 Net increase (decrease) in time and other deposits 11,784 15,714 Net increase (decrease) in short-term borrowings 68,559 9,463 Proceeds from long-term borrowings 0 1,800 Retirement of long-term borrowings (22) (23) Common stock purchased and retired (1,948) 0 Proceeds from issuance of common stock 1,319 1,344 Dividends paid (3,335) (2,736) ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 76,414 47,141 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (27,276) (9,123) Cash and Cash Equivalents at Beginning of Year 56,177 60,435 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,901 $51,312 ========== ==========
3 Cont'd CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental Disclosures: Interest payments $ 24,237 $ 22,575 Income tax payments 5,111 4,297 Noncash Investing Activities: Transfers from loans to other real estate owned 532 210 Reclassification of borrowings from long-term to short-term 200 2,100 Unrealized gain (loss) on investments available-for-sale net of deferred tax effect of $705 in 1997 and $(499) in 1996 1,119 (793)
*Cash and cash equivalents include amounts of "Cash and due from banks" and "Federal funds sold" on the Consolidated Balance Sheets. See Notes to Consolidated Financial Statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL The foregoing financial statements are unaudited; however, in the opinion of Management, all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of the interim periods have been included. These statements should be read in conjunction with the financial statements and accompanying notes included in Sandy Spring Bancorp's 1996 Annual Report to Shareholders. The results shown in this interim report are not necessarily indicative of results to be expected for the full year 1997. The accounting and reporting policies of Sandy Spring Bancorp (the "Company") conform to generally accepted accounting principles and to general practice within the banking industry. Certain reclassifications have been made to amounts previously reported to conform with current classifications. Consolidation has resulted in the elimination of all significant intercompany accounts and transactions. Financial data for periods prior to the merger with Annapolis Bancshares, Inc. on August 29, 1996 has been retroactively restated under pooling of interests accounting. NOTE 2 - STOCKHOLDERS' EQUITY On April 16, 1997, the Company announced that its Board of Directors had authorized the repurchase of up to 5%, or 246,042 shares, of Bancorp's outstanding common stock, par value $1.00 per share, in connection with shares expected to be issued pursuant to Bancorp's dividend reinvestment, stock option, and employee benefit plans and for other corporate purposes. The share repurchases would be made on the open market and in privately negotiated transactions, from time to time until March 31, 1999, or earlier termination of the program by the Board. Through September 30, 1997, 52,381 shares have been repurchased. NOTE 3 - PER SHARE DATA Net income per common share is based on the weighted average number of shares outstanding which was, for the third quarter, 4,893,962 in 1997 and 4,878,888 in 1996 and, for the first nine months, 4,906,633 in 1997 and 4,860,422 in 1996. 5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Consolidated basis, dollars in thousands except per share data) This Management's Discussion and Analysis contains forward-looking statements, including statements of goals, intentions and expectations, regarding or based upon general economic conditions, interest rates, developments in national and local markets, and other matters, and which, by their nature, are subject to significant uncertainties. Because of these uncertainties and the assumptions on which statements in this report are based, the actual future results may differ materially from those indicated in this report. All financial information reflected in the following discussion for periods prior to the merger with Annapolis Bancshares, Inc. on August 29, 1996 has been retroactively restated. THE COMPANY The Company is the registered bank holding company for Sandy Spring National Bank of Maryland (the "Bank"), headquartered in Olney, Maryland. The Bank operates twenty banking offices in Montgomery, Howard, Anne Arundel and Prince George's Counties in Maryland. On April 16, 1997, the Company announced that its Board of Directors had authorized the repurchase of up to 5%, or 246,042 shares, of its outstanding common stock, par value $1.00 per share, in connection with shares expected to be issued under the Company's dividend reinvestment, stock option, and employee benefit plans and for other corporate purposes. The share repurchases are expected to be made primarily on the open market from time to time until March 31, 1999, or earlier termination of the repurchase program by the Board. Repurchases under the program will be made at the discretion of management based upon market, business, legal, accounting and other factors. The Company has established a strategy of independence, and intends to establish or acquire additional offices or banking organizations as appropriate opportunities may arise. A. FINANCIAL CONDITION The Company's total assets were $1,067,046 at September 30, 1997, compared to $978,595 at December 31, 1996, increasing $88,451 or 9.0% during the first nine months of 1997. Earning assets increased $86,958 or 9.5% to $1,004,054 at September 30, 1997 from $917,096 at December 31, 1996. Total loans rose 5.6% or $29,223 during the first nine months of 1997 to $552,389. The largest percentage increase occurred in construction loans, up 20.3% or $9,694, due to growth in residential construction loans. Mortgage loans increased $14,472 or 3.8%, primarily reflecting a rise in 1-4 family residential credits. Modest growth was achieved in the other loan categories, with commercial loans up 4.0% or $2,750 and consumer loans showing a 7.5% or $2,314 rise. The investment portfolio, consisting of available-for-sale, held-to-maturity and other equity securities, is the other significant category of earning assets. Most of the $74,944 or 20.7% increase in total investments from December 31, 1996 to September 30, 1997 represents leveraging of the balance sheet. Bancorp's derivative activities are limited to the sale of covered call options associated with shares of common stocks in the Bank's investment portfolio. The options are written against equities that have a market value in excess of book value and therefore, the effect of any option being exercised by the holder would be to record a realized gain. The bank employs this practice in order to potentially enhance the yield on the portfolio. Premiums received on the sale of covered call options are deferred and included in noninterest income upon option expiration or included in the computation of realized gains upon option exercise. Total deposits were $818,182 at September 30, 1997, increasing $11,841 or 1.5% from $806,341 at December 31, 1996. Interest-bearing deposits were essentially unchanged while noninterest-bearing demand deposits rose $11,273 or 9.6%. Growth in small business checking accounts was the primary cause of the increase in noninterest-bearing demand deposits. Federal Home Loan Bank of Atlanta advances in connection with a leverage program were largely responsible for the $68,759 increase in short-term borrowings to $136,886 at September 30, 1997 from $68,127 at December 31, 1996. 6 Liquidity and Interest Ratio Sensitivity The Company's liquidity position, considering both internal and external sources available, exceeded anticipated short and long term funding needs at September 30, 1997. In assessing liquidity, management considers operating requirements, the seasonality of loan and deposit flows, investment, loan, borrowing and deposit maturities, expected fundings of loans, deposit withdrawals, and the market values of available-for-sale investments. The Company employs simulation analysis in order to assess the degree of interest rate risk inherent in its asset and liability portfolios. Such risk is monitored in accordance with board of directors' policy limits by the Bank's asset-liability committee. The limit established for the estimated twelve month period impact of a 200 basis point change in interest rates on net interest income is 15%, while the limit for the estimated change in the fair value of the Company's capital is 25%. Simulation modeling measured from September 30, 1997 indicated impacts of 6% on net interest income and 18% on the fair value of capital, both within the policy limits. The simulation model captures optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. Capital Management The Company recorded a total risk-based capital ratio of 17.49% at September 30, 1997, compared to 17.56% at December 31, 1996; a tier 1 risk-based capital ratio of 16.41%, compared to 16.44%; and a capital leverage ratio of 9.53%, compared to 10.38%. Capital adequacy, as measured by these ratios, was well above regulatory requirements. Stockholders' equity totaled $103,573 (including a net unrealized gain of $1,655 on investments available-for-sale) at September 30, 1997, an increase of 7.2% from $96,581 (including a net unrealized gain of $536) at December 31, 1996. Internal capital generation (net income less dividends) provided $6,502 in additional equity during the first nine months of 1997, representing an annualized rate (when considered as a percentage of average total stockholders' equity) of 8.8% versus 8.7% for the year ended December 31, 1996. External capital formation amounted to $1,319 for the nine months ended September 30, 1997, resulting from issuance of 29,097 shares under the Company's dividend reinvestment plan and 9,358 shares from employee purchases through 401K benefit plans. Share repurchases, begun in the second quarter of 1997, have resulted in the retirement of 52,381 shares at an aggregate purchase price of $1,948 through September 30, 1997. Dividends for the first three quarters were $0.68 per share in 1997, compared to $0.57 per share in 1996, for dividend payout ratios of 34.00% and 33.33%, respectively. B. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 Net income for the first nine months of the year rose $1,585 or 19.2% in 1997, to $9,837 ($2.00 per share) from the $8,252 ($1.71 per share) earned in the first nine months of 1996. Excluding nonrecurring merger costs associated with the acquisition of Annapolis Bancshares, Inc. and recorded in third quarter 1996, the increase was 11.5%. The annualized return on average assets for the first nine months of the year was 1.29% in 1997 compared to 1.23% in 1996. The annualized returns on average equity for the same nine month periods were 13.31% and 12.35% in 1997 and 1996, respectively. Net Interest Income Net interest income for the first nine months of the year was $30,291 in 1997, an increase of 12.9% over $26,826 in 1996, reflecting a higher volume of average earning assets. For the first nine months, tax-equivalent interest income increased $6,311 or 12.5% in 1997, compared to 1996. Average earning assets rose 12.1% over the prior year period while the average yield earned on those assets increased to 7.99% from 7.95%. Comparing the first nine months of 1997 versus 1996, average loans grew 6.7% to $537,148 (56.5% of average earning assets) while the average yield on loans remained essentially constant. Commercial mortgage, residential construction and commercial loans were responsible for most of the rise in total loans. Average total securities increased 24.7% to $386,437 (40.6% of average earning assets) and recorded a 19 basis point increase in average yield. 7 Interest expense for the first nine months increased $2,916 or 13.0%, due to higher average interest-bearing liabilities. Credit Risk Management During the first nine months of the year, the provision for credit losses was $525 in 1997, compared to $208 in 1996. Net charge-offs of $282 were recorded for the nine month period ended September 30, 1997 while there were net charge-offs of $261 for the same period a year earlier. Nonperforming loans decreased by $2,169 and total nonperforming assets decreased by $1,968, from December 31, 1996 to September 30, 1997. Expressed as a percentage of total assets, nonperforming assets were 0.25% at September 30, 1997 and 0.48% at December 31, 1996. Because the loan portfolio includes a significant number of loans with large individual balances, the unexpected deterioration of one or a few such loans may cause a significant increase in nonperforming loans and assets or in potential problem loans. This occurred at September 30, 1997 in the potential problem loan category, where three loans were responsible for $3,739 of the $4,290 increase from December 31, 1996. These credits are well collateralized and are not believed to present significant risk of loss. The total balance of impaired loans was $1,136 at September 30, 1997 and the reserve on those loans was $25 compared to $1,280 with a reserve of $127 at December 31, 1996. The Company regularly analyzes the sufficiency of its allowance for credit losses based upon a number of factors, including lending risks associated with growth and entry into new markets, loss allocations for specific problem credits, the level of the allowance to nonperforming loans, historical loss experience, economic conditions, portfolio trends and credit concentrations, and changes in the size and character of the loan portfolio. Management establishes the allowance for credit losses in an amount that it determines, based upon these factors, is sufficient to provide for losses inherent in the loan portfolio. At September 30, 1997, the allowance for credit losses was 1.20% of total loans versus 1.22% at December 31, 1996. Coverage of risk in the loan portfolio may be evaluated using a ratio of the allowance for credit losses to nonperforming loans. Significant variation in this coverage ratio may occur from period to period because the amount of nonperforming loans depends largely upon the condition of a small number of individual loans and borrowers relative to the total loan portfolio. At September 30, 1997, the allowance for credit losses represented 267% of nonperforming loans compared to 137% at December 31, 1996. Management believes the allowance for credit losses at September 30, 1997 was adequate. Noninterest Income and Expenses Noninterest income of $6,375 earned during the nine month period ended September 30, 1997 represented a $1,645 or 34.8% increase over $4,730 achieved over the same time frame in the prior year. The primary categories posting increases were, in order of magnitude, nonrecurring securities gains, gains on mortgage sales, return check charges, debit card fees and trust department fees. For the nine months ended September 30, 1997, noninterest expenses increased $2,335 or 12.4% to $21,232 from $18,897 in 1996. Excluding one-time merger costs of $744 in third quarter 1996, the increase was $3,079 or 17.0%. Categories (excluding merger expenses in 1996) that most significantly impacted the change were "salaries and employee benefits", up $1,547 or 14.6%, and "other expenses", up $952 or 32.2%. The increase in compensation expenses reflected a larger staff and an expanded branch network. The rise in other expenses was primarily attributable to higher communications costs and professional fees and to increased amortization of intangibles relating to a purchase of deposits in late 1996. Outside data services also grew significantly by $234 or 33.5%. The ratio of net income to average full-time-equivalent (FTE) employees was $25 for the nine month period ended September 30, 1997 and $24 for the same period in 1996, despite a 12.8% rise in average FTE employees to 388 from 344. Income Taxes The effective tax rate through the first three quarters of the year was 34.0% in 1997, compared to 33.7% in 1996. 8 ANALYSIS OF CREDIT RISK (Dollars in thousands) Activity in the allowance for credit losses is shown below:
9 Months Ended 12 Months Ended September 30, 1997 December 31, 1996 - ------------------------------------------------------------------------------------------------------------------------- Balance, January 1 $ 6,391 $ 6,597 Provision for credit losses 525 308 Loan charge-offs: Real estate-mortgage (60) (3) Real estate-construction (79) 0 Consumer (80) (143) Commercial (126) (469) ------------------------- -------------------------- Total charge-offs (345) (615) Loan recoveries: Real estate-mortgage 0 0 Real estate-construction 0 0 Consumer 29 37 Commercial 34 64 ------------------------- -------------------------- Total recoveries 63 101 ------------------------- -------------------------- Net charge-offs (282) (514) ------------------------- -------------------------- BALANCE, PERIOD END $ 6,634 $ 6,391 ========================= ========================== Net charge-offs to average loans (annual basis) 0.07% 0.10% Allowance to total loans 1.20% 1.22%
Balance sheet risk inherent in the lending function is presented as follows at the dates indicated:
September 30, December 31, 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- Non-accrual loans $ 1,431 $ 1,291 Loans 90 days past due 1,035 3,337 Restructured loans 20 27 ------------------------- -------------------------- Total Nonperforming Loans* 2,486 4,655 Other real estate owned 201 0 ------------------------- -------------------------- TOTAL NONPERFORMING ASSETS $ 2,687 $ 4,655 ========================= ========================== Nonperforming assets to total assets 0.25% 0.48%
- -------------------------------------------------------------------------------- * Those performing loans considered potential problem loans, as defined and identified by management, amounted to approximately $7,730 at September 30, 1997, compared to $3,440 at December 31, 1996. Although these are loans where known information about the borrowers' possible credit problems causes management to have doubts as to their ability to comply with the present loan repayment terms, most are well collateralized and are not believed to present significant risk of loss. 9 C. RESULTS OF OPERATIONS - THIRD QUARTER 1997 AND 1996 Third quarter earnings of $3,514 ($0.71 per share) in 1997 were $1,041 or 42.1% above results of $2,473 ($0.51 per share) shown for the same quarter of 1996. However, excluding non-recurring merger costs in 1996 of $570 on an after-tax basis, earnings rose $471 or 15.5%. Tax-equivalent net interest income rose 11.9% during the third quarter of 1997 compared to the like three month period of 1996, showing the net effects of a 14.6% increase in the average earning asset base and a 10 basis point decline in net interest spread. The provision for credit losses was $300 for the quarter ended September 30, 1997. No provision for credit losses was believed necessary by management for the third quarter of 1996. There were net charge-offs of $97 and $234 in the respective quarters. Noninterest income for the third quarter increased $1,014 or 66.8% in 1997 versus 1996 with the largest contributors being, in order of importance, higher fees and commissions, nonrecurring securities gains, gains on mortgage sales and service charges on deposit accounts. The increase in fees and commissions primarily related to trust services, mutual funds, debit cards and ATM surcharges. Noninterest expenses rose 6.1%. However, excluding non-recurring merger costs, the rise was 19.0%, attributable largely to the same factors as discussed above for the nine month periods. The third quarter effective tax rate was 33.4% in 1997 versus 35.7% shown in 1996. 10 PART II- OTHER INFORMATION Item 6. EXHIBIT AND REPORTS ON FORM 8-K (a) Exhibits. The following is a list of Exhibit filed as part of this Quarterly Report on Form 10-Q:
No. Exhibit - --- ------- *10(a) Amended and Restated Cash and Deferred Profit Sharing Plan, effective as of July 1, 1997 *10(b) Form of Director Fee Deferral Agreement, August 26, 1997 *10(c) Supplemental Executive Retirement Agreement by and between Sandy Spring National Bank of Maryland and Hunter R. Hollar *10(d) Form of Supplemental Executive Retirement Agreement by and between Sandy Spring National Bank of Maryland and each of James H. Langmead, Lawrence T. Lewis, Stanley L. Merson, and Frank H. Small *10(e) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and Hunter H. Hollar *10(f) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and James H. Langmead *10(g) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and Lawrence T. Lewis *10(h) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and Stanley L. Merson *10(i) Employment Agreement by and among Sandy Spring Bancorp, Inc., Sandy Spring National Bank of Maryland, and Frank H. Small 27 Financial Data Schedule
* Compensatory Plan, Contract or Arrangement. (b) Reports on Form 8-K. None. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized. SANDY SPRING BANCORP, INC. (Registrant) By: /s/ Hunter R. Hollar --------------------- Hunter R. Hollar President and Chief Executive Officer Date: November 13, 1997 By: /s/ James H. Langmead --------------------- James H. Langmead Vice President and Treasurer Date: November 13, 1997 12 EX-10.A 2 EXHIBIT 10(A) Exhibit 10 (a) SANDY SPRING BANCORP CASH AND DEFERRED PROFIT SHARING PLAN (July 1, 1997 Restatement) TABLE OF CONTENTS PREAMBLE ARTICLE I DEFINITIONS 1.1 Plan Definitions ..................................2 1.2 Interpretation ....................................8 ARTICLE II SERVICE 2.1 Definitions .......................................9 2.2 Crediting of Hours of Service ....................10 2.3 Crediting of Continuous Service ..................10 2.4 Eligibility Service ..............................10 2.5 Vesting Service ..................................10 ARTICLE III ELIGIBILITY 3.1 Eligibility ......................................11 3.2 Transfers of Employment ..........................11 3.3 Reemployment .....................................11 3.4 Notification Concerning New Eligible Employees ...12 3.5 Effect and Duration ..............................12 ARTICLE IV TAX-DEFERRED CONTRIBUTIONS 4.1 Tax-Deferred Contributions .......................13 4.2 Amount of Tax-Deferred Contributions .............13 4.3 Changes in Reduction Authorization ...............13 4.4 Suspension of Tax-Deferred Contributions .........14 4.5 Resumption of Tax-Deferred Contributions .........14 4.6 Delivery of Tax-Deferred Contributions ...........14 4.7 Vesting of Tax-Deferred Contributions ............15 (i) ARTICLE V AFTER-TAX AND ROLLOVER CONTRIBUTIONS 5.1 No After-Tax Contributions .........................16 5.2 Rollover Contributions .............................16 5.3 Vesting of Rollover Contributions ..................16 ARTICLE VI EMPLOYER CONTRIBUTIONS 6.1 Contribution Period ................................17 6.2 Profit-Sharing Contributions .......................17 6.3 Allocation of Profit-Sharing Contributions .........17 6.4 Qualified Nonelective Contributions ................17 6.5 Allocation of Qualified Nonelective Contributions ......................................18 6.6 Verification of Amount of Employer Contributions by the Sponsor .......................18 6.7 Payment of Employer Contributions ..................18 6.8 Eligibility to Participate in Allocation ...........18 6.9 Vesting of Employer Contributions ..................19 6.10 Election of Former Vesting Schedule ................19 ARTICLE VII LIMITATIONS ON CONTRIBUTIONS 7.1 Definitions ........................................21 7.2 Code Section 402(g) Limit ..........................24 7.3 Distribution of Excess Deferrals ...................25 7.4 Limitation on Tax-Deferred Contributions of Highly Compensated Employees ....................25 7.5 Distribution of Excess Tax-Deferred Contributions ......................................27 7.6 Determination of Income or Loss ....................28 7.7 Code Section 415 Limitations on Crediting of Contributions and Forfeitures ......................28 7.8 Coverage Under Other Qualified Defined Contribution Plan ..........................29 7.9 Coverage Under Qualified Defined Benefit Plan ......30 7.10 Scope of Limitations ...............................30 (ii) ARTICLE VIII TRUST FUNDS AND PARTICIPANT ACCOUNTS 8.1 General Fund .....................................31 8.2 Investment Funds .................................31 8.3 Loan Investment Fund .............................31 8.4 Income on Trust ..................................32 8.5 Participant Accounts .............................32 8.6 Sub-Accounts .....................................32 ARTICLE IX LIFE INSURANCE CONTRACTS 9.1 No Life Insurance Contracts ......................33 ARTICLE X DEPOSIT AND INVESTMENT OF CONTRIBUTIONS 10.1 Future Contribution Investment Elections .........34 10.2 Deposit of Contributions .........................34 10.3 Election to Transfer Between Funds ...............35 10.4 404(c) Plan ......................................35 ARTICLE XI CREDITING AND VALUING PARTICIPANT ACCOUNTS 11.1 Crediting Participant Accounts ...................36 11.2 Valuing Participant Accounts .....................36 11.3 Plan Valuation Procedures ........................36 11.4 Finality of Determinations .......................37 11.5 Notification .....................................37 ARTICLE XII LOANS 12.1 Application for Loan .............................38 12.2 Reduction of Account Upon Distribution ...........39 12.3 Requirements to Prevent a Taxable Distribution ...39 12.4 Administration of Loan Investment Fund ...........40 12.5 Default ..........................................40 12.6 Loans Granted Prior to Amendment .................41 (iii) ARTICLE XIII WITHDRAWALS WHILE EMPLOYED 13.1 Withdrawals of Rollover Contributions ............42 13.2 Withdrawals of Employer Contributions ............42 13.3 Withdrawals of Tax-Deferred Contributions ........42 13.4 Limitations on Withdrawals Other than Hardship Withdrawals ......................................43 13.5 Conditions and Limitations on Hardship Withdrawals .............................43 13.6 Order of Withdrawal from a Participant's Sub- Accounts .........................................45 ARTICLE XIV TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE 14.1 Termination of Employment and Settlement Date ....46 ARTICLE XV DISTRIBUTIONS 15.1 Distributions to Participants ....................47 15.2 Distributions to Beneficiaries ...................47 15.3 Cash Outs and Participant Consent ................48 15.4 Required Commencement of Distribution ............48 15.5 Reemployment of a Participant ....................49 15.6 Restrictions on Alienation .......................50 15.7 Facility of Payment ..............................50 15.8 Inability to Locate Payee ........................50 15.9 Distribution Pursuant to Qualified Domestic Relations Orders .................................51 ARTICLE XVI FORM OF PAYMENT 16.1 Normal Form of Payment ...........................52 16.2 Optional Form of Payment .........................52 16.3 Change of Option Election ........................53 16.4 Direct Rollover ..................................53 16.5 Notice Regarding Forms of Payment ................54 16.6 Reemployment .....................................54 16.7 Distribution in the Form of Employer Stock .......55 (iv) 16.8 Section 242(b)(2) Elections ........................55 ARTICLE XVII BENEFICIARIES 17.1 Designation of Beneficiary .........................57 17.2 Spousal Consent Requirements .......................57 ARTICLE XVIII ADMINISTRATION 18.1 Authority of the Sponsor ...........................59 18.2 Action of the Sponsor ..............................60 18.3 Claims Review Procedure ............................60 18.4 Qualified Domestic Relations Orders ................61 18.5 Indemnification ....................................62 18.6 Actions Binding ....................................62 ARTICLE XIX AMENDMENT AND TERMINATION 19.1 Amendment ..........................................63 19.2 Limitation on Amendment ............................63 19.3 Termination ........................................63 19.4 Reorganization .....................................65 19.5 Withdrawal of an Employer ..........................66 ARTICLE XX ADOPTION BY OTHER ENTITIES 20.1 Adoption by Related Companies ......................67 20.2 Effective Plan Provisions ..........................67 ARTICLE XXI MISCELLANEOUS PROVISIONS 21.1 No Commitment as to Employment .....................68 21.2 Benefits ...........................................68 21.3 No Guarantees ......................................68 21.4 Expenses ...........................................68 21.5 Precedent ..........................................69 21.6 Duty to Furnish Information ........................69 (v) 21.7 Withholding ........................................69 21.8 Merger, Consolidation, or Transfer of Plan Assets ............................69 21.9 Back Pay Awards ....................................69 21.10 Condition on Employer Contributions ................70 21.11 Return of Contributions to an Employer .............70 21.12 Validity of Plan ...................................71 21.13 Trust Agreement ....................................71 21.14 Parties Bound ......................................71 21.15 Application of Certain Plan Provisions .............72 21.16 Leased Employees ...................................72 21.17 Transferred Funds ..................................73 ARTICLE XXII TOP-HEAVY PROVISIONS 22.1 Definitions ........................................74 22.2 Applicability ......................................77 22.3 Minimum Employer Contribution ......................77 22.4 Adjustments to Section 415 Limitations .............78 22.5 Accelerated Vesting ................................79 ARTICLE XXIII EFFECTIVE DATE 23.1 Effective Date of Amendment and Restatement ........80 (vi) PREAMBLE The Sandy Spring Bancorp Cash and Deferred Profit Sharing Plan, originally effective as of January 1, 1982, and heretofore known as the Sandy Spring Bancorp Cash and Deferred Profit Sharing Plan and Trust, is hereby amended and restated in its entirety. The Plan, as amended and restated hereby, is intended to qualify as a profit-sharing plan under Section 401(a) of the Code, and includes a cash or deferred arrangement that is intended to qualify under Section 401(k) of the Code. The Plan is maintained for the exclusive benefit of eligible employees and their beneficiaries. Notwithstanding any other provision of the Plan to the contrary, a Participant's vested interest in his Participant Account under the Plan on and after the effective date of this amendment and restatement shall be not less than his vested interest in his account on the day immediately preceding the effective date. 1 ARTICLE I DEFINITIONS 1.1 Plan Definitions As used herein, the following words and phrases have the meanings hereinafter set forth, unless a different meaning is plainly required by the context: The "Administrator" means the Sponsor unless the Sponsor designates another person or persons to act as such. An "After-Tax Contribution" means any after-tax employee contribution made by a Participant as may be permitted under Article V. The "Beneficiary" of a Participant means the person or persons entitled under the provisions of the Plan to receive distribution hereunder in the event the Participant dies before receiving distribution of his entire interest under the Plan. The "Code" means the Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. The "Compensation" of a Participant for any period means his regular or base salary for services as an Employee, including amounts deferred under Section 125, 402(e)(3), or 402(h)(1)(B) of the Code, but excluding overtime, bonuses, and commissions. In no event, however, shall the Compensation of a Participant taken into account under the Plan for any Plan Year exceed (1) $200,000 for Plan Years beginning prior to January 1, 1994, or (2) $150,000 for Plan Years beginning on or after January 1, 1994 (subject to adjustment annually as provided in Section 401(a)(17)(B) and Section 415(d) of the Code; provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year). If the Compensation of a Participant is determined over a period of time that contains fewer than 12 2 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months. In determining the Compensation, for purposes of applying the annual compensation limitation described above, of a Participant who is a five percent owner or among the ten Highly Compensated Employees receiving the greatest Compensation for the Plan Year, the Compensation of the Participant's spouse and of his lineal descendants who have not attained age 19 as of the close of the Plan Year shall be included as Compensation of the Participant for the Plan Year. If as a result of applying the family aggregation rule described in the preceding sentence the annual compensation limitation would be exceeded, the limitation shall be prorated among the affected family members in proportion to each member's Compensation as determined prior to application of the family aggregation rules. A "Contribution Period" means the period specified in Article VI for which Employer Contributions shall be made. An "Eligible Employee" means any Employee who has met the eligibility requirements of Article III to have Tax-Deferred Contributions made to the Plan on his behalf. The "Eligibility Service" of an employee means the period or periods of service credited to him under the provisions of Article II for purposes of determining his eligibility to participate in the Plan as may be required under Article III or Article VI. An "Employee" means any common law employee of an Employer, except any employee classified as an "on call" employee or a "10-month" employee. An "Employer" means the Sponsor and any entity which has adopted the Plan as may be provided under Article XX. 3 An "Employer Contribution" means the amount, if any, that an Employer contributes to the Plan as may be provided under Article VI or Article XXII. An "Enrollment Date" means the first day of each payroll period. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to a section of ERISA includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. The "General Fund" means a Trust Fund maintained by the Trustee as required to hold and administer any assets of the Trust that are not allocated among any separate Investment Funds as may be provided in the Plan or the Trust Agreement. No General Fund shall be maintained if all assets of the Trust are allocated among separate Investment Funds. A "Highly Compensated Employee" means an Employee or former Employee who is a highly compensated active employee or highly compensated former employee as defined hereunder. A "highly compensated active employee" includes any Employee who performs services for an Employer during the determination year and who (i) was a five percent owner at any time during the determination year or the look back year, (ii) received compensation from an Employer during the look back year in excess of $75,000 (subject to adjustment annually at the same time and in the same manner as under Section 415(d) of the Code), (iii) was in the top paid group of employees' for the look back year and received compensation from an Employer during the look back year in excess of $50,000 (subject to adjustment annually at the same time and in the same manner as under Section 415(d) of the Code), (iv) was an officer of an Employer during the look back year and received compensation during that year in excess of 50 percent of the dollar limitation in effect for that year under Section 415(b)(1)(A) of the Code or, if no officer received compensation in excess of that amount for the look back year or the determination year, received the greatest compensation for the look back year of any officer, or (v) was one of the 100 employees paid the greatest compensation by an Employer for the 4 determination year land would be described in (ii), (iii), or (iv) above if the term "determination year" were substituted for "look back year". A "highly compensated former employee" includes any Employee who separated from service from an Employer and all Related Companies (or is deemed to have separated from service from an Employer and all Related Companies) prior to the determination year, performed no services for an Employer during the determination year, and was a highly compensated active employee for either the separation year or any determination year ending on or after the date the Employee attains age 55. The determination of who is a Highly Compensated Employee hereunder, including determinations as to the number and identity of employees in the top paid group, the 100 employees receiving the greatest compensation from an Employer, the number of employees treated as officers, and the compensation considered, shall be made in accordance with the provisions of Section 414(q) of the Code and regulations issued thereunder. For purposes of this definition, the following terms have the following meanings: (a) The "determination year" means the Plan Year. (b) The "look back year" means the 12-month period immediately preceding the determination year. An "Hour of Service" with respect to a person means each hour, if any, that may be credited to him in accordance with the provisions of Article II. An "Investment Fund" means any separate investment Trust Fund maintained by the Trustee as may be provided in the Plan or the Trust Agreement or any separate investment fund maintained by the Trustee, to the extent that there are Participant Sub-Accounts under such funds, to which assets of the Trust may be allocated and separately invested. The "Normal Retirement Date" of an employee means the date he attains age 65. 5 A "Participant" means any person who has a Separate Account in the Trust. A "Participant Account" means the account maintained by the Trustee in the name of a Participant that reflects his interest in the Trust and any Sub-Accounts maintained thereunder, as provided in Article VIII. The "Plan" means Sandy Spring Bancorp Cash and Deferred Profit Sharing Plan, as from time to time in effect. A "Plan Year" means the 12-consecutive-month period ending December 31, 1982 and each 12-consecutive-month period thereafter. A "Profit-Sharing Contribution" means any Employer Contribution made to the Plan as provided in Article VI, other than Qualified Nonelective Contributions. A "Qualified Nonelective Contribution" means any Employer Contribution made to the Plan as provided in Article VI that may be taken into account to satisfy the limitations on contributions by Highly Compensated Employees under Article VII. A "Related Company" means any corporation or business, other than an Employer, which would be aggregated with an Employer for a relevant purpose under Section 414 of the Code. A "Rollover Contribution" means any rollover contribution to the Plan made by a Participant as may be permitted under Article V. The "Settlement Date" of a Participant means the date on which a Participant's interest under the Plan becomes distributable in accordance with Article XV. The "Sponsor" means Sandy Spring Bancorp, and any successor thereto. A "Sub-Account" means any of the individual sub-accounts of a Participant's Participant Account that is maintained as provided in Article VIII. 6 A "Tax-Deferred Contribution" means the amount contributed to the Plan on a Participant's behalf by his Employer in accordance with his reduction authorization executed pursuant to Article IV. The "Trust" means the trust, custodial accounts, annuity contracts, or insurance contracts maintained by the Trustee under the Trust Agreement. The "Trust Agreement" means the agreement entered into between the Sponsor and the Trustee relating to the holding, investment, and reinvestment of the assets of the Plan, together with all amendments thereto and shall include any agreement establishing a custodial account, an annuity contract, or an insurance contract (other than a life, health or accident, property, casualty, or liability insurance contract) for the investment of assets if the custodial account or contract would, except for the fact that it is not a trust, constitute a qualified trust under Section 401 of the Code. The "Trustee" means the trustee or any successor trustee which at the time shall be designated, qualified, and acting under the Trust Agreement and shall include any insurance company that issues an annuity or insurance contract pursuant to the Trust Agreement or any person holding assets in a custodial account pursuant to the Trust Agreement. The Sponsor may designate a person or persons other than the Trustee to perform any responsibility of the Trustee under the Plan, other than trustee responsibilities as defined in Section 405(c)(3) of ERISA, and the Trustee shall not be liable for the performance of such person in carrying out such responsibility except as otherwise provided by ERISA. The term Trustee shall 'include any delegate of the Trustee as may be provided in the Trust Agreement. A "Trust Fund" means any fund maintained under the Trust by the Trustee. A "Valuation Date" means the date or dates designated by the Sponsor and communicated in writing to the Trustee for the purpose of valuing the General Fund and each Investment Fund and adjusting Participant Accounts and Sub-Accounts hereunder, which dates need not be uniform with respect to the General Fund, each Investment Fund, Participant Account, or Sub-Account; provided, 7 however, that the General Fund and each Investment Fund shall be valued and each Participant Account and Sub-Account shall be adjusted no less often than once annually. The "Vesting Service" of an employee means the period or periods of service credited to him under the provisions of Article II for purposes of determining his vested interest in his Employer Contributions Sub-Account, if Employer Contributions are provided for under either Article VI or Article XXII. 1.2 Interpretation Where required by the context, the noun, verb, adjective, and adverb forms of each defined term shall include any of its other forms. Wherever used herein, the masculine pronoun shall include the feminine, the singular shall include the plural, and the plural shall include the singular. 8 ARTICLE II SERVICE 2.1 Definitions For purposes of this Article, the following terms have the following meanings: (a) The "continuous service" of an employee means the service credited to him in accordance with the provisions of Section 2.3 of the Plan. (b) The "employment commencement date" of an employee means the date he first completes an Hour of Service. (c) A "maternity/paternity absence" means a person's absence from employment with an Employer or a Related Company because of the person's pregnancy, the birth of the person's child, the placement of a child with the person in connection with the person's adoption of the child, or the caring for the person's child immediately following the child's birth or adoption. A person's absence from employment will not be considered a maternity/paternity absence unless the person furnishes the Administrator such timely information as may reasonably be required to establish that the absence was for one of the purposes enumerated in this paragraph and to establish the number of days of absence attributable to such purpose. (d) The "reemployment commencement date" of an employee means the first date following a severance date on which he again completes an Hour of Service. (e) The "severance date" of an employee means the earlier of (i) the date on which he retires, dies, or his employment with an Employer and all Related Companies is otherwise terminated, or (ii) the first anniversary of the first date of a period during which he is absent from work with an Employer and all Related Companies for any other reason; provided, however, that if he terminates employment with or is absent from work with an Employer 9 and all Related Companies on account of service with the armed forces of the United States, he shall not incur a severance date if he is eligible for reemployment rights under the Uniformed Services Employment and Reemployment Rights Act of 1994 and he returns to work with an employer or a Related Company within the period during which he retains such reemployment rights. 2.2 Crediting of Hours of Service A person shall be credited with an Hour of Service for each hour for which he is paid, or entitled to payment, for the performance of duties for an Employer or any Related Company. 2.3 Crediting of Continuous Service A person shall be credited with continuous service for the aggregate of the periods of time between his employment commencement date or any reemployment commencement date and the severance date that next follows such employment commencement date or reemployment commencement date; provided, however, that an employee who has a reemployment commencement date within the 12-consecutive-month period following the earlier of the first date of his absence or his severance date shall be credited with continuous service for the period between such severance date and reemployment commencement date. 2.4 Eligibility Service An employee shall be credited with Eligibility Service equal to his continuous service. 2.5 Vesting Service There shall be no Vesting Service credited under the Plan. 10 ARTICLE III ELIGIBILITY 3.1 Eligibility Each Employee who was an Eligible Employee immediately prior to the effective date of this amendment and restatement shall continue to be an Eligible Employee. Each other Employee shall become an Eligible Employee as of the Enrollment Date next following the date on which he has both attained age 18 and completed three full calendar months of Eligibility Service. 3.2 Transfers of Employment If a person is transferred directly from employment with an Employer or with a Related Company in a capacity other than as an Employee to employment as an Employee, he shall become an Eligible Employee as of the date he is so transferred if prior to an Enrollment Date preceding such transfer date he has met the eligibility requirements of Section 3.1. Otherwise, the eligibility of a person who is so transferred to elect to have Tax-Deferred Contributions made to the Plan on his behalf shall be determined in accordance with Section 3.1. 3.3 Reemployment If a person who terminated employment with an Employer and all Related Companies is reemployed as an Employee and if he had been an Eligible Employee prior to his termination of employment, he shall again become an Eligible Employee on the date he is reemployed. otherwise, the eligibility of a person who terminated employment with an Employer and all Related Companies and who is reemployed by an Employer or a Related Company to elect to have Tax-Deferred Contributions made to the Plan on his behalf shall be determined in accordance with Section 3.1 or 3.2. 11 3.4 Notification Concerning New Eligible Employees Each Employer shall notify the Administrator as soon as practicable of Employees becoming Eligible Employees as of any date. 3.5 Effect and Duration Upon becoming an Eligible Employee, an Employee shall be entitled to elect to have Tax-Deferred Contributions made to the Plan on his behalf and shall be bound by all the terms and conditions of the Plan and the Trust Agreement. A person shall continue as an Eligible Employee eligible to have Tax-Deferred Contributions made to the Plan on his behalf only so long as he continues employment as an Employee. 12 ARTICLE IV TAX-DEFERRED CONTRIBUTIONS 4.1 Tax-Deferred Contributions Effective as of the date he becomes an Eligible Employee, or any subsequent Enrollment Date, each Eligible Employee may elect in writing in accordance with rules prescribed by the Administrator to have Tax-Deferred Contributions made to the Plan on his behalf by his Employer as hereinafter provided. An Eligible Employee's written election shall include his authorization for his Employer to reduce his Compensation and to make Tax-Deferred Contributions on his behalf and his election as to the investment of his contributions in accordance with Article X. Tax-Deferred Contributions on behalf of an Eligible Employee shall commence with the first payment of Compensation made on or after the date on which his election is effective. 4.2 Amount of Tax-Deferred Contributions The amount of Tax-Deferred Contributions to be made to the Plan on behalf of an Eligible Employee by his Employer shall be an integral percentage of his Compensation of not less than one percent nor more than 15 percent for non-Highly Compensated Employees and six percent for Highly Compensated Employees. In the event an Eligible Employee elects to have his Employer make Tax-Deferred Contributions on his behalf, his Compensation shall be reduced for each payroll period by the percentage he elects to have contributed on his behalf to the Plan in accordance with the terms of his currently effective reduction authorization. 4.3 Changes in Reduction Authorization An Eligible Employee may change the percentage of his future Compensation that his Employer contributes on his behalf as Tax-Deferred Contributions at such time or times during the Plan Year as the Administrator may prescribe by filing an amended reduction authorization with his Employer such number of days prior to the date such change is to become effective as the Administrator shall prescribe. An Eligible Employee who changes his reduction authorization shall be limited to selecting a 13 percentage of his Compensation that is otherwise permitted hereunder. Tax-Deferred Contributions shall be made on behalf of such Eligible Employee by his Employer pursuant to his amended reduction authorization filed in accordance with this Section commencing with Compensation paid to the Eligible Employee on or after the date such filing is effective, until otherwise altered or terminated in accordance with the Plan. 4.4 Suspension of Tax-Deferred Contributions An Eligible Employee on whose behalf Tax-Deferred Contributions are being made may have such contributions suspended at any time by giving such number of days advance written notice to his Employer as the Administrator shall prescribe. Any such voluntary suspension shall take effect commencing with Compensation paid to such Eligible Employee on or after the expiration of the required notice period and shall remain in effect until Tax-Deferred Contributions are resumed as hereinafter set forth. 4.5 Resumption of Tax-Deferred Contributions An Eligible Employee who has voluntarily suspended his Tax-Deferred Contributions may have such contributions resumed at such time or times during the Plan Year as the Administrator may prescribe, by filing a new reduction authorization with his Employer such number of days prior to the date as of which such contributions are to be resumed as the Administrator shall prescribe. 4.6 Delivery of Tax-Deferred Contributions As soon after the date an amount would otherwise be paid to an Employee as it can reasonably be separated from Employer assets, each Employer shall cause to be delivered to the Trustee in cash all Tax-Deferred Contributions attributable to such amounts. 14 4.7 Vesting of Tax-Deferred Contributions A Participant's vested interest in his Tax-Deferred Contributions Sub-Account shall be at all times 100 percent. 15 ARTICLE V AFTER-TAX AND ROLLOVER CONTRIBUTIONS 5.1 No After-Tax Contributions There shall be no After-Tax Contributions made to the Plan. 5.2 Rollover Contributions An Employee who was a participant in a plan qualified under Section 401 or 403 of the Code and who receives a cash distribution from such plan that he elects either (i) to roll over immediately to a qualified retirement plan or (ii) to roll over into a conduit IRA from which he receives a later cash distribution, may elect to make a Rollover Contribution to the Plan if he is entitled under Section 402(c), Section 403(a)(4), or Section 408(d)(3)(A) of the Code to roll over such distribution to another qualified retirement plan. The Administrator may require an Employee to provide it with such information as it deems necessary or desirable to show that he is entitled to roll over such distribution to another qualified retirement plan. An Employee shall make a Rollover Contribution to the Plan by delivering, or causing to be delivered, to the Trustee the cash that constitutes the Rollover Contribution amount within 60 days of receipt of the distribution from the plan or from the conduit IRA in the manner prescribed by the Administrator. If the Employee does not already have an investment election on file with the Administrator, the Employee shall also deliver to the Administrator his election as to the investment of his contributions in accordance with Article X. 5.3 Vesting of Rollover Contributions A Participant's vested interest in his Rollover Contributions Sub-Account shall be at all times 100 percent. 16 ARTICLE VI EMPLOYER CONTRIBUTIONS 6.1 Contribution Period The Contribution Period for Employer Contributions under the Plan shall be each Plan Year. 6.2 Profit-Sharing Contributions Each Employer may, in its discretion, make a Profit-Sharing Contribution to the Plan for the Contribution Period in an amount determined by the Employer. 6.3 Allocation of Profit-Sharing Contributions Any Profit-Sharing Contribution made by an Employer for a Contribution Period shall be allocated among its Employees during the Contribution Period who are eligible to participate in the allocation of Profit-Sharing Contributions for the Contribution Period, as determined under this Article. The allocable share of each such Employee shall be in the ratio which his Compensation from the Employer for the Contribution Period bears to the aggregate of such Compensation for all such Employees. Notwithstanding any other provision of the Plan to the contrary, Compensation with respect to any period ending prior to the date on which an Employee first became eligible to participate in the allocation of Profit-Sharing Contributions shall be disregarded in determining the amount of the Employee's allocable share. 6.4 Qualified Nonelective Contributions Each Employer may, in its discretion, make a Qualified Nonelective Contribution to the Plan for the Contribution Period in an amount determined by the Sponsor. 17 6.5 Allocation of Qualified Nonelective Contributions Any Qualified Nonelective Contribution made for a Contribution Period shall be allocated among the Employees who are eligible to participate in the allocation of Qualified Nonelective Contributions for the Contribution Period, as determined under this Article, other than any such Employee who is a Highly Compensated Employee. The allocable share of each such Employee shall be in the ratio which his Compensation from the Employer for the Plan Year bears to the aggregate of such Compensation for all such Employees. Notwithstanding any other provision of the Plan to the contrary, Compensation with respect to any period ending prior to the date on which an Employee first became eligible to participate in the allocation of Qualified Nonelective Contributions shall be disregarded in determining the amount of the Employee's allocable share. 6.6 Verification of Amount of Employer Contributions by the Sponsor The Sponsor shall verify the amount of Employer Contributions to be made by each Employer in accordance with the provisions of the Plan. Notwithstanding any other provision of the Plan to the contrary, the Sponsor shall determine the portion of the Employer Contribution to be made by each Employer with respect to an Employee who transfers from employment with one Employer as an Employee to employment with another Employer as an Employee. 6.7 Payment of Employer Contributions Employer Contributions made for a Contribution Period shall be paid in cash to the Trustee within the period of time required under the Code in order for the contribution to be deductible by the Employer in determining its Federal income taxes for the Plan Year. 6.8 Eligibility to Participate in Allocation Each Employee shall be eligible to participate in the allocation of Employer Contributions beginning on the date he becomes, or again becomes, an Eligible Employee in accordance with the provisions of Article III. Notwithstanding the foregoing, no 18 person shall be eligible to participate in the allocation of Profit-Sharing Contributions for a Contribution Period unless he is employed by an Employer or a Related Company on the last day of the Contribution Period; provided, however, that if the Plan would not otherwise meet the minimum coverage requirements of Section 410(b) of the Code in any Plan Year, the group of Employees eligible to participate in the allocation of Profit- Sharing Contributions shall be expanded to include the minimum number of Employees who are not employed by an Employer or a Related Company on the last day of the Contribution Period that is necessary to meet the minimum coverage requirements. The Employees who become eligible to participate under the provisions of the immediately preceding clause shall be those Employees who have completed the greatest number of Hours of Service during the Contribution Period. 6.9 Vesting of Employer Contributions A Participant's vested interest in his Employer Contributions Sub-Account shall be at all times 100 percent. 6.10 Election of Former Vesting Schedule If the Sponsor adopts an amendment to the Plan that directly or indirectly affects the computation of a Participant's vested interest in his Employer Contributions Sub-Account, any Participant with three or more years of Vesting Service shall have a right to have his vested interest in his Employer Contributions Sub-Account continue to be determined under the vesting provisions in effect prior to the amendment rather than under the new vesting provisions, unless the vested interest of the Participant in his Employer Contributions Sub-Account under the Plan as amended is not at any time less than such vested interest determined without regard to the amendment. A Participant shall exercise his right under this Section by giving written notice of his exercise thereof to the Administrator within 60 days after the latest of (i) the date he receives notice of the amendment from the Administrator, (ii) the effective date of the amendment, or (iii) the date the amendment is adopted. Notwithstanding the foregoing, a Participant's vested interest in his Employer Contributions Sub-Account on the effective date of such an amendment shall not be less than his 19 vested interest in his Employer Contributions Sub-Account immediately prior to the effective date of the amendment. 20 ARTICLE VII LIMITATIONS ON CONTRIBUTIONS 7.1 Definitions For purposes of this Article, the following terms have the following meanings: (a) The "actual deferral percentage" with respect to an Eligible Employee for a particular Plan Year means the ratio of the Tax-Deferred Contributions made on his behalf for the Plan Year to his test compensation for the Plan Year, except that to the extent permitted by regulations issued under Section 401(k) of the Code, the Sponsor may elect to take into account in computing the numerator of each Eligible Employee's actual deferral percentage the qualified nonelective contributions made to the Plan on his behalf for the Plan Year; provided, however, that contributions made on a Participant's behalf for a Plan Year shall be included in determining his actual deferral percentage for such Plan Year only if the contributions are made to the Plan prior to the end of the 12-month period immediately following the Plan Year to which the contributions relate. The determination and treatment of the actual deferral percentage amounts for any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (b) The "annual addition" with respect to a Participant for a limitation year means the sum of the Tax-Deferred Contributions and Employer Contributions allocated to his Participant Account for the limitation year (including any excess contributions that are distributed pursuant to this Article), the employer contributions, employee contributions, and forfeitures allocated to his accounts for the limitation year under any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and amounts described in Sections 415(l)(2) and 419A(d)(2) of the Code allocated to his account for the limitation year; provided, however, that the annual 21 addition for limitation years beginning prior to January 1, 1987 shall not be recalculated to treat all employee contributions as annual additions. (c) The "Code Section 402(g) limit" means the dollar limit imposed by Section 402(g)(1) of the Code or established by the Secretary of the Treasury pursuant to Section 402(g)(5) of the Code in effect on January 1 of the calendar year in which an Eligible Employee's taxable year begins. (d) An "elective contribution" means any employer contribution made to a plan maintained by an Employer or any Related Company on behalf of a Participant in lieu of cash compensation pursuant to his written election to defer under a qualified CODA as defined in Section 401(k) of the Code, any simplified employee pension cash or deferred arrangement as described in Section 402(h)(1)(B) of the Code, any eligible deferred compensation plan under Section 457 of the Code, or any plan as described in Section 501(c)(18) of the Code, and any contribution made on behalf of the Participant by an Employer or a Related Company for the purchase of an annuity contract under Section 403(b) of the Code pursuant to a salary reduction agreement. (e) An "excess deferral" with respect to a Participant means that portion of a Participant's Tax-Deferred Contributions that when added to amounts deferred under other plans or arrangements described in Sections 401(k), 408(k), or 403(b) of the Code, would exceed the Code Section 402(g) limit and is includable in the Participant's gross income under Section 402(g) of the Code. (f) A "family member" of an Employee means the Employee's spouse, his lineal ascendants, his lineal descendants, and the spouses of such lineal ascendants and descendants. (g) A "limitation year" means the Plan Year. (h) A "qualified nonelective contribution" means any employer contribution made on behalf of a Participant that the 22 Participant could not elect instead to receive in cash, that is a qualified nonelective contribution as defined in Section 401(k) and Section 401(m) of the Code and regulations issued thereunder, is nonforfeitable when made, and is distributable only as permitted in regulations issued under Section 401(k) of the Code. The "test compensation" of an Eligible Employee for a Plan Year means compensation as defined in Section 414(s) of the Code and regulations issued thereunder, limited, however, to (1) $200,000 for Plan Years beginning prior to January 1, 1994, or (2) $150,000 for Plan Years beginning on or after January 1, 1994 (subject to adjustment annually as provided in Section 401(a)(17)(B) and Section 415(d) of the Code; provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year) and further limited solely to test compensation of an Employee attributable to periods of time when he is an Eligible Employee. If the test compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months. In determining the test compensation, for purposes of applying the annual compensation limitation described above, of a Participant who is a five-percent owner or among the ten Highly Compensated Employees receiving the greatest test compensation for the limitation year, the test compensation of the Participant's spouse and of his lineal descendants who have not attained age 19 as of the close of the limitation year shall be included as test compensation of the Participant for the limitation year. If as a result of applying the family aggregation rule 23 described in the preceding sentence the annual compensation limitation would be exceeded, the limitation shall be prorated among the affected family members in proportion to each member's test compensation as determined prior to application of the family aggregation rules. 7.2 Code Section 402(g) Limit In no event shall the amount of the Tax-Deferred Contributions made on behalf of an Eligible Employee for his taxable year, when aggregated with any elective contributions made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company for his taxable year, exceed the Code Section 402(g) limit. In the event that the Administrator determines that the reduction percentage elected by an Eligible Employee will result in his exceeding the Code Section 402(g) limit, the Administrator may adjust the reduction authorization of such Eligible Employee by reducing the percentage of his Tax-Deferred Contributions to such smaller percentage that will result in the Code Section 402(g) limit not being exceeded. If the Administrator determines that the Tax-Deferred Contributions made on behalf of an Eligible Employee would exceed the Code Section 402(g) limit for his taxable year, the Tax-Deferred Contributions for such Participant shall be automatically suspended for the remainder, if any, of such taxable year. If an Employer notifies the Administrator that the Code Section 402(g) limit has nevertheless been exceeded by an Eligible Employee for his taxable year, the Tax-Deferred Contributions that, when aggregated with elective contributions made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company, would exceed the Code Section 402(g) limit, plus any income and minus any losses attributable thereto, shall be distributed to the Eligible Employee no later than the April 15 immediately following such taxable year. Any Tax-Deferred Contributions that are distributed to an Eligible Employee in accordance with this Section shall not be taken into account in computing the Eligible Employee's actual deferral percentage for the Plan Year in which the Tax-Deferred Contributions were made, unless the Eligible Employee is a Highly Compensated Employee. 24 7.3 Distribution of Excess Deferrals Notwithstanding any other provision of the Plan to the contrary, if a Participant notifies the Administrator in writing no later than the March 1 following the close of the Participant's taxable year that excess deferrals have been made on his behalf under the Plan for such taxable year, the excess deferrals, plus any income and minus any losses attributable thereto, shall be distributed to the Participant no later than the April 15 immediately following such taxable year. Any Tax-Deferred Contributions that are distributed to a Participant in accordance with this Section shall nevertheless be taken into account in computing the Participant's actual deferral percentage for the Plan Year in which the Tax-Deferred Contributions were made. 7.4 Limitation on Tax-Deferred Contributions of Highly Compensated Employees Notwithstanding any other provision of the Plan to the contrary, the Tax-Deferred Contributions made with respect to a Plan Year on behalf of Eligible Employees who are Highly Compensated Employees may not result in an average actual deferral percentage for such Eligible Employees that exceeds the greater of: (a) a percentage that is equal to 125 percent of the average actual deferral percentage for all other Eligible Employees; or (b) a percentage that is not more than 200 percent of the average actual deferral percentage for all other Eligible Employees and that is not more than two percentage points higher than the average actual deferral percentage for all other Eligible Employees. In order to assure that the limitation contained herein is not exceeded with respect to a Plan Year, the Administrator is authorized to suspend completely further Tax-Deferred Contributions on behalf of Highly Compensated Employees for any remaining portion of a Plan Year or to adjust the projected actual deferral percentages of Highly Compensated Employees by reducing their percentage elections with respect to Tax-Deferred Contributions for any remaining portion of a Plan Year to such 25 smaller percentages that will result in the limitation set forth above not being exceeded. In the event of any such suspension or reduction, Highly Compensated Employees affected thereby shall be notified of the reduction or suspension as soon as possible and shall be given an opportunity to make a new Tax-Deferred Contribution election to be effective the first day of the next following Plan Year. In the absence of such an election, the election in effect immediately prior to the suspension or adjustment described above shall be reinstated as of the first day of the next following Plan Year. For purposes of applying the limitation contained in this Section, the Tax-Deferred Contributions, qualified nonelective contributions (to the extent that such qualified nonelective contributions are taken into account in computing actual deferral percentages), and test compensation of any Eligible Employee who is a family member of another Eligible Employee who is a five- percent owner or among the ten Highly Compensated Employees receiving the greatest test compensation for the Plan Year shall be aggregated with the Tax-Deferred Contributions, qualified nonelective contributions, and test compensation of such other Eligible Employee, and such family member shall not be considered an Eligible Employee for purposes of determining the average actual deferral percentage for all other Eligible Employees. In determining the actual deferral percentage for any Eligible Employee who is a Highly Compensated Employee for the Plan Year, elective contributions and qualified nonelective contributions (to the extent that qualified nonelective contributions are taken into account in computing actual deferral percentages) made to his accounts under any other plan of an Employer or a Related Company shall be treated as if all such contributions were made to the Plan; provided, however that if such a plan has a plan year different from the Plan Year, any such contributions made to the Highly Compensated Employee's accounts under the plan for the plan year ending with or within the same calendar year as the Plan Year shall be treated as if such contributions were made to the Plan. Notwithstanding the foregoing, such contributions shall not be treated as if they were made to the Plan if regulations issued under Section 401(k) of the Code do not permit such plan to be aggregated with the Plan. 26 If one or more plans of an Employer or Related Company are aggregated with the Plan for purposes of satisfying the requirements of Section 401(a)(4) or 410(b) of the Code, then actual deferral percentages under the Plan shall be calculated as if the Plan and such one or more other plans were a single plan. For Plan Years beginning after December 31, 1991, plans may be aggregated to satisfy Section 401(k) of the Code only if they have the same plan year. The Administrator shall maintain records sufficient to show that the limitation contained in this Section was not exceeded with respect to any Plan Year and the amount of the qualified nonelective contributions taken into account in computing actual deferral percentages for any Plan Year. 7.5 Distribution of Excess Tax-Deferred Contributions Notwithstanding any other provision of the Plan to the contrary, in the event that the limitation contained in Section 7.4 is exceeded in any Plan Year, the Tax-Deferred Contributions made with respect to a Highly Compensated Employee that exceed the maximum amount permitted to be contributed to the Plan on his behalf under Section 7.4, plus any income and minus any losses attributable thereto, shall be distributed to the Highly Compensated Employee prior to the end of the next succeeding Plan Year. If excess amounts are attributable to Participants aggregated under the family aggregation rules described in Section 7.4, the excess shall be allocated among family members in proportion to the Tax-Deferred Contributions made with respect to each family member. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year for which the excess occurred, an excise tax may be imposed under Section 4979 of the Code on the Employer maintaining the Plan with respect to such amounts. The maximum amount permitted to be contributed to the Plan on a Highly Compensated Employee's behalf under Section 7.4 shall be determined by reducing Tax-Deferred Contributions made on behalf of Highly Compensated Employees in order of their actual deferral percentages beginning with the highest of such percentages. The determination of the amount of excess Tax-Deferred Contributions shall be made after application of Section 7.3, if applicable. 27 7.6 Determination of Income or Loss The income or loss attributable to excess contributions that are distributed pursuant to this Article shall be determined for the preceding Plan Year under the method otherwise used for allocating income or loss to Participant's Participant Accounts. 7.7 Code Section 415 Limitations on Crediting of Contributions and Forfeitures Notwithstanding-any other provision of the Plan to the contrary, the annual addition with respect to a Participant for a limitation year shall in no event exceed the lesser of (i) $30,000 (adjusted as provided in Section 415(d) of the Code, with the first adjustment being made for limitation years beginning on or after January 1, 1996) or (ii) 25 percent of the Participant's compensation, as defined in Section 415(c)(3) of the Code and regulations issued thereunder, for the limitation year. If the annual addition to the Participant Account of a Participant in any limitation year would otherwise exceed the amount that may be applied for his benefit under the limitation contained in this Section, the limitation shall be satisfied by reducing contributions made on the Participant's behalf to the extent necessary in the following order: first by reducing the Tax-Deferred Contributions made on the Participant's behalf for the limitation year; next by reducing Employer Contributions (other than qualified nonelective contributions) otherwise allocable to the Participant's Participant Account for the limitation year; and finally by reducing the qualified nonelective contributions made on the Participant's behalf for the limitation year. The amount of any reduction of Tax-Deferred Contributions (plus any income attributable thereto) shall be returned to the Participant. The amount of any reduction of Employer Contributions shall be deemed a forfeiture for the limitation year. Amounts deemed to be forfeitures under this Section shall be held unallocated in a suspense account established for the limitation year and shall be applied against the Employer's contribution obligation for the next following limitation year (and succeeding limitation years, as necessary). If a suspense account is in existence at any time during a limitation year, all 28 amounts in the suspense account must be allocated to Participants' Participant Accounts (subject to the limitations contained herein) before any further Tax-Deferred Contributions or Employer Contributions may be made to the Plan on behalf of Participants. No suspense account established hereunder shall share in any increase or decrease in the net worth of the Trust. For purposes of this Article, excesses shall result only from the allocation of forfeitures, a reasonable error in estimating a Participant's annual compensation (as defined in Section 415(c)(3) of the Code and regulations issued thereunder), a reasonable error in determining the amount of Tax-Deferred Contributions that may be made with respect to any Participant under the limits of Section 415 of the Code, or other limited facts and circumstances that justify the availability of the provisions set forth above. 7.8 Coverage Under Other Qualified Defined Contribution Plan If a Participant is covered by any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and if the annual addition for the limitation year would otherwise exceed the amount that may be applied for the Participant's benefit under the limitation contained in Section 7.7, such excess shall be reduced first by returning the employee contributions made by the Participant for the limitation year under all of the defined contribution plans other than the Plan and the income attributable thereto to the extent necessary. if the limitation contained in Section 7.7 is still not satisfied after returning all of the employee contributions made by the Participant under all such other plans, the procedure set forth in Section 7.7 shall be invoked to eliminate any such excess. if the limitation contained in Section 7.7 is still not satisfied after invocation of the procedure set forth in Section 7.7, the portion of the employer contributions and of forfeitures for the limitation year under all such other plans that has been allocated to the Participant thereunder, but which exceeds the limitation set forth in Section 7.7, shall be deemed a forfeiture for the limitation year and shall be disposed of as provided in such other plans; provided, however, that if the Participant is covered by a money purchase pension plan, the forfeiture shall be effected first under any other defined contribution plan that is 29 not a money purchase pension plan and, if the limitation is still not satisfied, then under such money purchase pension plan. 7.9 Coverage Under Qualified Defined Benefit Plan If a Participant in the Plan is also covered by a qualified defined benefit plan (whether or not terminated) maintained by an Employer or a Related Company, in no event shall the sum of the defined benefit plan fraction (as defined in Section 415(e)(2) of the Code) and the defined contribution plan fraction (as defined in Section 415(e)(3) of the Code) exceed 1.0 in any limitation year. If, before October 3, 1973, the Participant was an active participant in a qualified defined benefit plan maintained by an Employer or a Related Company and otherwise satisfies the requirements of Section 2004(d)(2) of ERISA, then for purposes of applying this Section, the defined benefit plan fraction shall not exceed 1.0. If the Plan satisfied the applicable requirements of Section 415 of the Code as in effect for all limitation years beginning before January 1, 1987, an amount shall be subtracted from the numerator of the defined contribution plan fraction (not exceeding such numerator) as prescribed by the Secretary of the Treasury so that the sum of the defined benefit plan fraction and the defined contribution plan fraction computed under Section 415(e)(1) of the Code, as revised by the Tax Reform Act of 1986, does not exceed 1.0 for such limitation year. In the event the special limitation contained in this Section is exceeded, contributions and forfeitures allocated to the Participant under the Plan and any other defined contribution plan maintained by an Employer or a Related Company shall be disposed of in the order and manner specified in Section 7.8 to the extent necessary to meet such limitation. 7.10 Scope of Limitations The limitations contained in Sections 7.7, 7.8, and 7.9 shall be applicable only with respect to benefits provided pursuant to defined contribution plans and defined benefit plans described in Section 415(k) of the Code. 30 ARTICLE VIII TRUST FUNDS AND PARTICIPANT ACCOUNTS 8.1 General Fund The Trustee shall maintain a General Fund as required to hold and administer any assets of the Trust that are not allocated among the Investment Funds as provided in the Plan or the Trust Agreement. The General Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in the General Fund shall be an undivided interest. 8.2 Investment Funds The Sponsor shall determine the number and type of Investment Funds and select the investments for such Investment Funds. The Sponsor shall communicate the same and any changes therein in writing to the Administrator and the Trustee. Each Investment Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in any Investment Fund shall be an undivided interest. The Sponsor may determine to offer one or more Investment Funds that are invested in whole or in part in equity securities issued by an Employer or a Related Company that are publicly traded and are "qualifying employer securities" as defined in Section 407(d)(5) of ERISA. 8.3 Loan Investment Fund If a loan from the Plan to a Participant is approved in accordance with the provisions of Article XII, the Sponsor shall direct the establishment and maintenance of a loan Investment Fund in the Participant's name. The assets of the loan Investment Fund shall be held as a separate trust fund. A Participant's loan Investment Fund shall be invested in the note reflecting the loan that is executed by the Participant in accordance with the provisions of Article XII. Notwithstanding any other provision of the Plan to the contrary, income received with respect to a Participant's loan Investment Fund shall be 31 allocated and the loan Investment Fund shall be administered as provided in Article XII. 8.4 Income on Trust Any dividends, interest, distributions, or other income received by the Trustee with respect to any Trust Fund maintained hereunder shall be allocated by the Trustee to the Trust Fund for which the income was received. 8.5 Participant Accounts As of the first date a contribution is made by or on behalf of an Employee, there shall be established a Participant Account in his name reflecting his interest in the Trust. Each Participant Account shall be maintained and administered for each Participant and Beneficiary in accordance with the provisions of the Plan. The balance of each Participant Account shall be the balance of the account after all credits and charges thereto, for and as of such date, have been made as provided herein. 8.6 Sub-Accounts A Participant's Participant Account shall be divided into individual Sub-Accounts reflecting the portion of the Participant's Participant Account that is derived from Tax-Deferred Contributions, Rollover Contributions, or Employer Contributions. Each Sub-Account shall reflect separately contributions allocated to each Trust Fund maintained hereunder and the earnings and losses attributable thereto. The Employer Contributions Sub-Account shall reflect separately that portion of such Sub-Account that is derived from Employer Contributions that may be taken into account to satisfy the limitations on contributions for Highly Compensated Employees contained in Article VII. Such other Sub-Accounts may be established as are necessary or appropriate to reflect a Participant's interest in the Trust. 32 ARTICLE IX LIFE INSURANCE CONTRACTS 9.1 No Life Insurance Contracts There shall be no life insurance contracts purchased under the Plan. 33 ARTICLE X DEPOSIT AND INVESTMENT OF CONTRIBUTIONS 10.1 Future Contribution Investment Elections Each Eligible Employee shall make an investment election in the manner and form prescribed by the Administrator directing the manner in which his Tax-Deferred Contributions, Rollover Contributions, and Employer Contributions shall be invested. An Eligible Employee's investment election shall specify the percentage, in the percentage increments prescribed by the Administrator, of such contributions that shall be allocated to one or more of the Investment Funds with the sum of such percentages equaling 100 percent. The investment election by a Participant shall remain in effect until his entire interest under the Plan is distributed or forfeited in accordance with the provisions of the Plan or until he files a change of investment election with the Administrator, in such form as the Administrator shall prescribe. A Participant's change of investment election may be made effective as of the date or dates prescribed by the Administrator. 10.2 Deposit of Contributions All Tax-Deferred Contributions, Rollover Contributions, and Employer Contributions shall be deposited in the Trust and allocated among the Investment Funds in accordance with the Participant's currently effective investment election. If no investment election is on file with the Administrator at the time contributions are to be deposited to a Participant's Participant Account, the Participant shall be notified and an investment election form shall be provided to him. Until such Participant shall make an effective election under this Section, his contributions shall be allocated among the Investment Funds as directed by the Administrator. 34 10.3 Election to Transfer Between Funds A Participant may elect to transfer investments from any Investment Fund to any other Investment Fund. The Participant's transfer election shall specify either (i) a percentage, in the percentage increments prescribed by the Administrator, of the amount eligible for transfer, which percentage may not exceed 100 percent, or (ii) a dollar amount that is to be transferred. Subject to any restrictions pertaining to a particular Investment Fund, a Participant's transfer election may be made effective as of the date or dates prescribed by the Administrator. 10.4 404(c) Plan The Plan is intended to constitute a plan described in Section 404(c) of ERISA and regulations issued thereunder. The fiduciaries of the Plan may be relieved of liability for any losses that are the direct and necessary result of investment instructions given by a Participant, his Beneficiary, or an alternate payee under a qualified domestic relations order. 35 ARTICLE XI CREDITING AND VALUING PARTICIPANT ACCOUNTS 11.1 Crediting Participant Accounts All contributions made under the provisions of the Plan shall be credited to Participant Accounts in the Trust Funds by the Trustee, in accordance with procedures established in writing by the Administrator, either when received or on the succeeding Valuation Date after valuation of the Trust Fund has been completed for such Valuation Date as provided in Section 11.2, as shall be determined by the Administrator. 11.2 Valuing Participant Accounts Participant Accounts in the Trust Funds shall be valued by the Trustee on the Valuation Date, in accordance with procedures established in writing by the Administrator, either in the manner adopted by the Trustee and approved by the Administrator or in the manner set forth in Section 11.3 as Plan valuation procedures, as determined by the Administrator. 11.3 Plan Valuation Procedures With respect to the Trust Funds, the Administrator may determine that the following valuation procedures shall be applied. As of each Valuation Date hereunder, the portion of any Participant Accounts in a Trust Fund shall be adjusted to reflect any increase or decrease in the value of the Trust Fund for the period of time occurring since the immediately preceding Valuation Date for the Trust Fund (the "valuation period") in the following manner: (a) First, the value of the Trust Fund shall be determined by valuing all of the assets of the Trust Fund at fair market value. (b) Next, the net increase or decrease in the value of the Trust Fund attributable to net income and all profits and losses, realized and unrealized, during the valuation period shall be determined on the basis of the valuation 36 under paragraph (a) taking into account appropriate adjustments for contributions, loan payments, and transfers to and distributions, withdrawals, loans, and transfers from such Trust Fund during the valuation period. (c) Finally, the net increase or decrease in the value of the Trust Fund shall be allocated among Participant Accounts in the Trust Fund in the ratio of the balance of the portion of such Participant Account in the Trust Fund as of the preceding Valuation Date less any distributions, withdrawals, loans, and transfers from such Participant Account balance in the Trust Fund since the Valuation Date to the aggregate balances of the portions of all Participant Accounts in the Trust Fund similarly adjusted, and each Participant Account in the Trust Fund shall be credited or charged with the amount of its allocated share. Notwithstanding the foregoing, the Administrator may adopt such accounting procedures as it considers appropriate and equitable to establish a proportionate crediting of net increase or decrease in the value of the Trust Fund for contributions, loan payments, and transfers to and distributions, withdrawals, loans, and transfers from such Trust Fund made by or on behalf of a Participant during the valuation period. 11.4 Finality of Determinations The Trustee shall have exclusive responsibility for determining the balance of each Participant Account maintained hereunder. The Trustee's determinations thereof shall be conclusive upon all interested parties. 11.5 Notification Within a reasonable period of time after the end of each Plan Year, the Administrator shall notify each Participant and Beneficiary of the balances of his Participant Account and Sub-Accounts as of a Valuation Date during the Plan Year. 37 ARTICLE XII LOANS 12.1 Application for Loan A Participant who is a party in interest may make application to the Administrator for a loan from his Participant Account, other than his Employer Contributions Sub-Account. Loans shall be made to Participants in accordance with written rules prescribed by the Administrator which are hereby incorporated into and made a part of the Plan. As collateral for any loan granted hereunder, the Participant shall grant to the Plan a security interest in his vested interest under the Plan equal to the amount of the loan; provided, however, that in no event may the security interest exceed 50 percent of the Participant's vested interest under the Plan determined as of the date as of which the loan is originated in accordance with Plan provisions. In the case of a Participant who is an active employee, the Participant also shall enter into an agreement to repay the loan by payroll withholding. No loan in excess of 50 percent of the Participant's vested interest in his Tax-Deferred and Rollover Contributions Sub-Accounts under the Plan shall be made from the Plan. Loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other employees. A loan shall not be granted unless the Participant consents to the charging of his Participant Account for unpaid principal and interest amounts in the event the loan is declared to be in default. A Participant's spouse must consent in writing to any loan hereunder. Any spousal consent given pursuant to this Section must acknowledge the effect of the loan and must be witnessed by a Plan representative or a notary public. Such spousal consent shall be binding with respect to the consenting spouse and any subsequent spouse with respect to the loan. A new spousal consent shall be required if the Participant's Participant Account is used for security in any renegotiation, extension, renewal, or other revision of the loan. 38 12.2 Reduction of Account Upon Distribution Notwithstanding any other provision of the Plan, the amount of a Participant's Participant Account that is distributable to the Participant or his Beneficiary under Article XIII or XV shall be reduced by the portion of his vested interest that is held by the Plan as security for any loan outstanding to the Participant, provided that the reduction is used to repay the loan. If distribution is made because of the Participant's death prior to the commencement of distribution of his Participant Account and less than 100 percent of the Participant's vested interest in his Participant Account (determined without regard to the preceding sentence) is payable to his surviving spouse, then the balance of the Participant's vested interest in his Participant Account shall be adjusted by reducing the vested account balance by the amount of the security used to repay the loan, as provided in the preceding sentence, prior to determining the amount of the benefit payable to the surviving spouse. 12.3 Requirements to Prevent a Taxable Distribution Notwithstanding any other provision of the Plan to the contrary, the following terms and conditions shall apply to any loan made to a Participant under this Article: (a) The interest rate on any loan to a Participant shall be a reasonable interest rate commensurate with current interest rates charged for loans made under similar circumstances by persons in the business of lending money. (b) The amount of any loan to a Participant (when added to the outstanding balance of all other loans to the Participant from the Plan or any other plan maintained by an Employer or a Related Company) shall not exceed the lesser of: (i) $50,000, reduced by the excess, if any, of the highest outstanding balance of any other loan to the Participant from the Plan or any other plan maintained by an Employer or a Related Company during the preceding 12-month period over the outstanding balance of such loans on the date a loan is made hereunder; or 39 (ii) 50 percent of the vested portions of the Participant's Participant Account and his vested interest under all other plans maintained by an Employer or a Related Company. (c) The term of any loan to a Participant shall be no greater than five years, except in the case of a loan used to acquire any dwelling unit which within a reasonable period of time is to be used (determined at the time the loan is made) as a principal residence of the Participant. (d) Except as otherwise permitted under Treasury regulations, substantially level amortization shall be required over the term of the loan with payments made not less frequently than quarterly. 12.4 Administration of Loan Investment Fund Upon approval of a loan to a Participant, the Administrator shall direct the Trustee to transfer an amount equal to the loan amount from the Investment Funds in which it is invested, as directed by the Administrator, to the loan Investment Fund established in the Participant's name. Any loan approved by the Administrator shall be made to the Participant out of the Participant's loan Investment Fund. All principal and interest paid by the Participant on a loan made under this Article shall be deposited to his Participant Account and shall be allocated upon receipt among the Investment Funds in accordance with the Participant's currently effective investment election. The balance of the Participant's loan Investment Fund shall be 'decreased by the amount of principal payments and the loan Investment Fund shall be terminated when the loan has been repaid in full. 12.5 Default If a Participant fails to make or cause to be made, any payment required under the terms of the loan within 90 days following the date on which such payment shall become due or there is an outstanding principal balance existing on a loan after the last scheduled repayment date, the Administrator shall direct the Trustee to declare the loan to be in default, and the entire unpaid balance of such loan, together with accrued interest, 40 shall be immediately due and payable. In any such event, if such balance and interest thereon is not then paid, the Trustee shall charge the Participant Account of the borrower with the amount of such balance and interest as of the earliest date a distribution may be made from the Plan to the borrower without adversely affecting the tax qualification of the Plan or of the cash or deferred arrangement. 12.6 Loans Granted Prior to Amendment Notwithstanding any other provision of this Article to the contrary, any loan made under the provisions of the Plan as in effect prior to this amendment and restatement shall remain outstanding until repaid in accordance with its terms or the otherwise applicable Plan provisions. 41 ARTICLE XIII WITHDRAWALS WHILE EMPLOYED 13.1 Withdrawals of Rollover Contributions A Participant who is employed by an Employer or a Related Company may, at any time, elect, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal from his Rollover Contributions Sub-Account. 13.2 Withdrawals of Employer Contributions A Participant who is employed by an Employer or a Related Company and is determined by the Administrator to have incurred a hardship as defined in this Article may elect, subject to the limitations and conditions prescribed in this Article to make a cash withdrawal from his vested interest in his Employer Contributions Sub-Account. Notwithstanding the foregoing, in no event may a Participant withdraw that portion of his Employer Contributions Sub-Account that is attributable to Employer Contributions that may be taken into account to satisfy the limitations on contributions for Highly Compensated Employees contained in Article VII prior to the Participant's attainment of age 59 1/2. 13.3 Withdrawals of Tax-Deferred Contributions A Participant who is employed by an Employer or a Related Company and who is determined by the Administrator to have incurred a hardship as defined in this Article may elect, subject to the limitations and conditions prescribed in this Article, to make a cash withdrawal from his Tax-Deferred Contributions Sub-Account. The maximum amount that a Participant may withdraw pursuant to this Section because of a hardship is the balance of his Tax- Deferred Contributions Sub-Account, exclusive of any earnings credited to such Sub-Account as of a date that is after December 31, 1988. 42 13.4 Limitations on Withdrawals Other than Hardship Withdrawals Withdrawals made pursuant to this Article, other than hardship withdrawals, shall be subject to the following conditions and limitations: A Participant must file a withdrawal application with the Administrator such number of days prior to the date as of which it is to be effective as the Administrator shall prescribe. Withdrawals may be made effective as of the date or dates prescribed by the Administrator. A Participant who makes a withdrawal from his Rollover Contributions Sub-Account may not make a further withdrawal of Rollover Contributions under this Article during the remainder of the Plan Year in which the withdrawal is effective. 13.5 Conditions and Limitations on Hardship Withdrawals A Participant must file an application for a hardship withdrawal with the Administrator such number of days prior to the date as of which it is to be effective as the Administrator may prescribe. Hardship withdrawals may be made effective as of the date or dates prescribed by the Administrator; provided, however, that a Participant may make no more than one hardship withdrawal during a Plan Year. The Administrator shall grant a hardship withdrawal only if it determines that the withdrawal is necessary to meet an immediate and heavy financial need of the Participant. An immediate and heavy financial need of the Participant means a financial need on account of: (a) expenses previously incurred by or necessary to obtain for the Participant, the Participant's spouse, or any dependent of the Participant (as defined in Section 152 of the Code) medical care described in Section 213(d) of the Code; (b) costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; 43 (c) payment of tuition, related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Participant, the Participant's spouse, or any dependent of the Participant; (d) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence; or (e) for hardship withdrawals of Employer Contributions only, any other facts and circumstances that the Administrator determines constitute an immediate and heavy financial need. Furthermore, if the withdrawal is from the Participant's Tax- Deferred Contribution Sub-Account, the withdrawal shall be deemed to be necessary to satisfy an immediate and heavy financial need of a Participant only if all of the following requirements are satisfied: The withdrawal is not in excess of the amount of the immediate and heavy financial need of the Participant. The Participant has obtained all distributions, other than hardship distributions, and all non-taxable loans currently available under all plans maintained by an Employer or any Related Company. The Participant's Tax-Deferred Contributions and the Participant's elective tax-deferred contributions and employee after-tax contributions under all other tax-qualified plans maintained by an Employer or any Related Company shall be suspended for at least twelve months after his receipt of the withdrawal. The Participant shall not make Tax-Deferred Contributions or elective tax-deferred contributions under any other tax-qualified plan maintained by an Employer or any Related Company for the Participant's taxable year immediately following the taxable year of the withdrawal in excess of the applicable limit under Section 402(g) of the Code for such next taxable year less the amount of the 44 Participant's Tax-Deferred Contributions and elective tax-deferred contributions under any other plan maintained by an Employer or any Related Company for the taxable year of the withdrawal. The amount of a hardship withdrawal may include any amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution. A Participant shall not fail to be treated as an Eligible Employee for purposes of applying the limitations contained in Article VII of the Plan merely because his Tax-Deferred Contributions are suspended in accordance with this Section. 13.6 Order of Withdrawal from a Participant's Sub-Accounts Distribution of a withdrawal amount shall be made from a Participant's Sub-Accounts, to the extent necessary, in the order prescribed by the Administrator, which order shall be uniform with respect to all Participants and non-discriminatory. If the Sub-Account from which a Participant is receiving a withdrawal is invested in more than one Investment Fund, the withdrawal shall be charged against the Investment Funds as directed by the Administrator. 45 ARTICLE XIV TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE 14.1 Termination of Employment and Settlement Date A Participant's Settlement Date shall occur on the date he terminates employment with an Employer and all Related Companies because of death, disability, retirement, or other termination of employment. Written notice of a Participant's Settlement Date shall be given by the Administrator to the Trustee. 46 ARTICLE XV DISTRIBUTIONS 15.1 Distributions to Participants A Participant whose Settlement Date occurs shall receive distribution of his vested interest in his Participant Account in the form provided under Article XVI beginning as soon as reasonably practicable following his Settlement Date or the date his application for distribution is filed with the Administrator, if later. 15.2 Distributions to Beneficiaries If a Participant dies prior to the date distribution of his vested interest in his Participant Account begins under this Article, his Beneficiary shall receive distribution of the Participant's vested interest in his Participant Account in the form provided under Article XVI beginning as soon as reasonably practicable following the date the Beneficiary's application for distribution is filed with the Administrator. Unless distribution is to be made over the life or over a period certain not greater than the life expectancy of the Beneficiary, distribution of the Participant's entire vested interest shall be made to the Beneficiary no later than the end of the fifth calendar year beginning after the Participant's death. if distribution is to be made over the life or over a period certain no greater than the life expectancy of the Beneficiary, distribution shall commence no later than: (a) If the Beneficiary is not the Participant's spouse, the end of the first calendar year beginning after the Participant's death; or (b) If the Beneficiary is the Participant's spouse, the later of (i) the end of the first calendar year beginning after the Participant's death or (ii) the end of the calendar year in which the Participant would have attained age 70 1/2. 47 If distribution is to be made to a Participant's spouse, it shall be made available within a reasonable period of time after the Participant's death that is no less favorable than the period of time applicable to other distributions. If a Participant dies after the date distribution of his vested interest in his Participant Account begins under this Article, but before his entire vested interest in his Participant Account is distributed, his Beneficiary shall receive distribution of the remainder of the Participant's vested interest in his Participant Account beginning as soon as reasonably practicable following the Participant's date of death in a form that provides for distribution at least as rapidly as under the form in which the Participant was receiving distribution. Notwithstanding the provisions of this Section, distribution may also be made to a Participant's Beneficiary in accordance with a valid election made by the Participant pursuant to Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982. 15.3 Cash Outs and Participant Consent Notwithstanding any other provision of the Plan to the contrary, if a Participant's vested interest in his Participant Account does not exceed $3,500, distribution of such vested interest shall be made to the Participant in a single sum payment as soon as reasonably practicable following his Settlement Date. If a Participant's vested interest in his Participant Account exceeds $3,500, distribution shall not commence to such Participant prior to his Normal Retirement Date without the Participant's written consent. If at the time of a distribution or deemed distribution to a Participant from his Participant Account, the Participant's vested interest in his Participant Account exceeded $3,500, then for purposes of this Section, the Participant's vested interest in his Participant Account on any subsequent date shall be deemed to exceed $3,500. 15.4 Required Commencement of Distribution Notwithstanding any other provision of the Plan to the contrary, distribution of a Participant's vested interest in his Participant Account shall commence to the Participant no later than the earlier of: 48 (a) unless the Participant elects a later date, 60 days after the close of the Plan Year in which (i) the Participant's Normal Retirement Date occurs, (ii) the 10th anniversary of the year in which he commenced participation in the Plan occurs, or (iii) his Settlement Date occurs, whichever is latest; or (b) the April 1 following the close of the calendar year in which he attains age 70 1/2, whether or not his Settlement Date has occurred, except that if a Participant attained age 70 1/2 prior to January 1, 1988, and was not a five-percent owner (as defined in Section 416 of the Code) at any time during the five-Plan-Year period ending within the calendar year in which he attained age 70 1/2, distribution of such Participant's vested interest in his Participant Account shall commence no later than the April 1 following the close of the calendar year in which he attains age 70 1/2 or retires, whichever is later. Distributions required to commence under this Section shall be made in the form provided under Article XVI and in accordance with Section 401(a)(9) of the Code and regulations issued thereunder, including the minimum distribution incidental benefit requirements. Notwithstanding the provisions of this Section, distribution may also be made to a Participant in accordance with a valid election made by the Participant pursuant to Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982. 15.5 Reemployment of a Participant If a Participant whose Settlement Date has occurred is reemployed by an Employer or a Related Company, he shall lose his right to any distribution or further distributions from the Trust arising from his prior Settlement Date and his interest in the Trust shall thereafter be treated in the same manner as that of any other Participant whose Settlement Date has not occurred. 49 15.6 Restrictions on Alienation Except as provided in Section 401(a)(13) of the Code relating to qualified domestic relations orders and Section 1.401(a)-13(b)(2) of Treasury regulations relating to Federal tax levies and judgments, no benefit under the Plan at any time shall be subject in any manner to anticipation, alienation, assignment (either at law or in equity), encumbrance, garnishment, levy, execution, or other legal or equitable process; and no person shall have power in any manner to anticipate, transfer, assign (either at law or in equity), alienate or subject to attachment, garnishment, levy, execution, or other legal or equitable process, or in any way encumber his benefits under the Plan, or any part thereof, and any attempt to do so shall be void. 15.7 Facility of Payment If the Administrator finds that any individual to whom an amount is payable hereunder is incapable of attending to his financial affairs because of any mental or physical condition, including the infirmities of advanced age, such amount (unless prior claim therefor shall have been made by a duly qualified guardian or other legal representative) may, in the discretion of the Administrator, be paid to another person for the use or benefit of the individual found incapable of attending to his financial affairs or in satisfaction of legal obligations incurred by or on behalf of such individual. The Trustee shall make such payment only upon receipt of written instructions to such effect from the Administrator. Any such payment shall be charged to the Participant Account from which any such payment would otherwise have been paid to the individual found incapable of attending to his financial affairs and shall be a complete discharge of any liability therefor under the Plan. 15.8 Inability to Locate Payee If any benefit becomes payable to any person, or to the executor or administrator of any deceased person, and if that person or his executor or administrator does not present himself to the Administrator within a reasonable period after the Administrator mails written notice of his eligibility to receive a distribution hereunder to his last known address and makes such other diligent 50 effort to locate the person as the Administrator determines, that benefit will be forfeited. However, if the payee later files a claim for that benefit, the benefit will be restored. 15.9 Distribution Pursuant to Qualified Domestic Relations Orders Notwithstanding any other provision of the Plan to the contrary, if a qualified domestic relations order so provides, distribution may be made to an alternate payee pursuant to a qualified domestic relations order, as defined in Section 414(p) of the Code, regardless of whether the Participant's Settlement Date has occurred or whether the Participant is otherwise entitled to receive a distribution under the Plan. 51 ARTICLE XVI FORM OF PAYMENT 16.1 Normal Form of Payment Unless the Participant, or his Beneficiary, if the Participant has died, elects the optional form of payment, distribution shall be made to the Participant, or his Beneficiary, as the case may be, in a single sum payment. 16.2 Optional Form of Payment A Participant, or his Beneficiary, as the case may be, may elect to receive distribution of all or a portion of his Participant Account in a series of installments over a period not exceeding the life expectancy of the Participant, or the Participant's Beneficiary, if the Participant has died, or a period not exceeding the joint life and last survivor expectancy of the Participant and his Beneficiary. Each installment shall be equal in amount except as necessary to adjust for any changes in the value of the Participant's Participant Account, unless the Participant elects a more rapid distribution schedule. The determination of life expectancies shall be made on the basis of the expected return multiples in Table V and VI of Section 1.72-9 of the Treasury regulations and shall be calculated either once at the time installment payments begin or annually for the Participant and/or his Beneficiary, if his Beneficiary is his spouse, as determined by the Participant at the time installment payments begin. Notwithstanding any other provision of this Section to the contrary, a Participant may elect to receive distribution of his Participant Account for periods prior to the April 1 following the close of the calendar year in which he attains age 70 1/2 in a series of installments made pursuant to any formula elected by the Participant, without regard to the life expectancies of the Participant and his Beneficiary. 52 16.3 Change of Option Election A Participant or Beneficiary who has elected the optional form of payment may revoke or change his election at any time prior to the date as of which his benefit commences by filing with the Administrator a written election in the form prescribed by the Administrator. 16.4 Direct Rollover Notwithstanding any other provision of the Plan to the contrary, in lieu of receiving distribution in the form of payment provided under this Article, a "qualified distributes" may elect in writing, in accordance with rules prescribed by the Administrator, to have any portion or all of a distribution made on or after January 1, 1993, that is an "eligible rollover distribution" paid directly by the Plan to the "eligible retirement plan" designated by the "qualified distributes"; provided, however, that this provision shall not apply if the total distribution is less than $200 and that a "qualified distributes,, may not elect this provision with respect to a portion of a distribution that is less than $500. Any such payment by the Plan to another "eligible retirement plan" shall be a direct rollover. For purposes of this Section, the following terms have the following meanings: (a) An "eligible retirement plan" means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code that accepts rollovers; provided, however, that, in the case of a direct rollover by a surviving spouse, an eligible retirement plan does not include a qualified trust described in Section 401(a) of the Code. (b) An "eligible rollover distribution" means any distribution of all or any portion of the balance of a Participant's Participant Account; provided, however, that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic 53 payments made not less frequently than annually for the life or life expectancy of the qualified distributes or the joint lives or joint life expectancies of the qualified distributes and the qualified distributee's designated beneficiary, or for a specified period of ten years or more; and any distribution to the extent such distribution is required under Section 401(a)(9) of the Code. (c) A "qualified distributes" means a Participant, his surviving spouse, or his spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code. 16.5 Notice Regarding Forms of Payment Within the 60 day period ending 30 days before the date as of which distribution of a Participant's Participant Account commences, the Administrator shall provide the Participant with a written explanation of his right to defer distribution until his Normal Retirement Date, or such later date as may be provided in the Plan, his right to make a direct rollover, and the forms of payment available under the Plan. Distribution of the Participant's Participant Account may commence less than 30 days after such notice is provided to the Participant if (i) the Administrator clearly informs the Participant of his right to consider his election of whether or not to make a direct rollover or to receive a distribution prior to his Normal Retirement Date and his election of a form of payment for a period of at least 30 days following his receipt of the notice and (ii) the Participant, after receiving the notice, affirmatively elects an early distribution. 16.6 Reemployment If a Participant is reemployed by an Employer or a Related Company prior to receiving distribution of the entire balance of his vested interest in his Participant Account, his prior election of a form of payment hereunder shall become ineffective. 54 16.7 Distribution in the Form of Employer Stock Notwithstanding any other provision of the Plan to the contrary, a Participant may elect to receive distribution of the fair market value of his Participant Account in the form of Employer stock. 16.8 Section 242(b)(2) Elections Notwithstanding any other provisions of this Article, distribution on behalf of a Participant, including a five-percent owner, may be made pursuant to an election under Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 and in accordance with all of the following requirements: (a) The distribution is one which would not have disqualified the Trust under Section 401(a)(9) of the Code as in effect prior to amendment by the Deficit Reduction Act of 1984. (b) The distribution is in accordance with a method of distribution elected by the Participant whose interest in the Trust is being distributed or, if the Participant is deceased, by a Beneficiary of such Participant. (c) Such election was in writing, was signed by the Participant or the Beneficiary, and was made before January 1, 1984. (d) The Participant had accrued a benefit under the Plan as of December 31, 1983. (e) The method of distribution elected by the Participant or the Beneficiary specifies the time at which distribution will commence, the period over which distribution 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. A distribution upon death shall not be made under this Section unless the information in the election contains the required information described above with respect to the distributions to be made upon the death of the Participant. For any distribution 55 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 this method of distribution was specified in writing and the distribution satisfies the requirements in paragraphs (a) and (e) of this Section. If an election is revoked, any subsequent distribution will be in accordance with the other provisions of the Plan. Any changes in the election will be considered to be a revocation of the election. However, the mere substitution or addition of another Beneficiary (one not designated as a Beneficiary in the election), under the election will not be considered to be a revocation of the election, so long as such substitution or addition does not alter the period over which distributions are to be made under the election directly, or indirectly (for example, by altering the relevant measuring life). 56 ARTICLE XVII BENEFICIARIES 17.1 Designation of Beneficiary A married Participant's Beneficiary shall be his spouse, unless the Participant designates a person or persons other than his spouse as Beneficiary with his spousal written consent; provided, however, that such written spousal consent shall not be required if the Participant is not married to such spouse on the date as of which distribution of the Participant's Participant Account commences. A Participant may designate a Beneficiary on the form prescribed by the Administrator. If no Beneficiary has been designated pursuant to the provisions of this Section, or if no Beneficiary survives the Participant and he has no surviving spouse, then the Beneficiary under the Plan shall be the Participant's surviving children in equal shares or, if none, the Participant's surviving parents in equal shares or, if none, the Participant's estate. If a Beneficiary dies after becoming entitled to receive a distribution under the Plan but before distribution is made to him in full, and if no other Beneficiary has been designated to receive the balance of the distribution in that event, the estate of the deceased Beneficiary shall be the Beneficiary as to the balance of the distribution. 17.2 Spousal Consent Requirements Any written spousal consent given pursuant to this Article must acknowledge the effect of the action taken and must be witnessed by a Plan-representative or a notary public. In addition, the spousal written consent must either (i) specify any non-spouse Beneficiary designated by the Participant and that such Beneficiary may not be changed without written spousal consent or (ii) acknowledge that the spouse has the right to limit consent to a specific Beneficiary, but permit the Participant to change the designated Beneficiary without the spouse's further consent. A Participant's spouse will be deemed to have given written consent to the Participant's designation of Beneficiary if the Participant establishes to the satisfaction of a Plan representative that such consent cannot be obtained because the spouse cannot be located or because of other circumstances set 57 forth in Section 401(a)(11) of the Code and regulations issued thereunder. Any written consent given or deemed to have been given by a Participant's spouse hereunder shall be valid only with respect to the spouse who signs the consent. 58 ARTICLE XVIII ADMINISTRATION 18.1 Authority of the Sponsor The Sponsor, which shall be the administrator for purposes of ERISA and the plan administrator for purposes of the Code, shall be responsible for the administration of the Plan and, in addition to the powers and authorities expressly conferred upon it in the Plan, shall have all such powers and authorities as may be necessary to carry out the provisions of the Plan, including the power and authority to interpret and construe the provisions of the Plan, to make benefit determinations, and to resolve any disputes which arise under the Plan. The Sponsor may employ such attorneys, agents, and accountants as it may deem necessary or advisable to assist in carrying out its duties hereunder. The Sponsor shall be a "named fiduciary" as that term is defined in Section 402(a)(2) of ERISA. The Sponsor may: (a) allocate any of the powers, authority, or responsibilities for the operation and administration of the Plan (other than trustee responsibilities as defined in Section 405(c)(3) of ERISA) among named fiduciaries; and (b) designate a person or persons other than a named fiduciary to carry out any of such powers, authority, or responsibilities; except that no allocation by the Sponsor of, or designation by the Sponsor with respect to, any of such powers, authority, or responsibilities to another named fiduciary or a person other than a named fiduciary shall become effective unless such allocation or designation shall first be accepted by such named fiduciary or other person in a writing signed by it and delivered to the Sponsor. 59 18.2 Action of the Sponsor Any act authorized, permitted, or required to be taken under the Plan by the Sponsor and which has not been delegated in accordance with Section 18.1, may be taken by a majority of the members of the board of directors of the Sponsor, either by vote at a meeting, or in writing without a meeting, or by the employee or employees of the Sponsor designated by the board of directors to carry out such acts on behalf of the Sponsor. All notices, advice, directions, certifications, approvals, and instructions required or authorized to be given by the Sponsor as under the Plan shall be in writing and signed by either (i) a majority of the members of the board of directors of the Sponsor or by such member or members as may be designated by an instrument in writing, signed by all the members thereof, as having authority to execute such documents on its behalf, or (ii) the employee or employees authorized to act for the Sponsor in accordance with the provisions of this Section. 18.3 Claims Review Procedure Whenever a claim for benefits under the Plan filed by any person (herein referred to as the "Claimant") is denied, whether in whole or in part, the Sponsor shall transmit a written notice of such decision to the Claimant within 90 days of the date the claim was filed or, if special circumstances require an extension, within 180 days of such date, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of (i) the specific reasons for the denial of the claim, (ii) specific reference to pertinent Plan provisions on which the denial is based, and (iii) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such information is necessary. The notice shall also include a statement advising the Claimant that, within 60 days of the date on which he receives such notice, he may obtain review of such decision in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Sponsor a written request therefor, which request shall contain the following information: 60 (a) the date on which the Claimant's request was filed with the Sponsor; provided, however, that the date on which the Claimant's request for review was in fact filed with the Sponsor shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this paragraph; (b) the specific portions of the denial of his claim which the Claimant requests the Sponsor to review; (c) a statement by the Claimant setting forth the basis upon which he believes the Sponsor should reverse the previous denial of his claim for benefits and accept his claim as made; and (d) any written material (offered as exhibits) which the Claimant desires the Sponsor to examine in its consideration of his position as stated pursuant to paragraph (c) of this Section. Within 60 days of the date determined pursuant to paragraph (a) of this Section or, if special circumstances require an extension, within 120 days of such date, the Sponsor shall conduct a full and fair review of the decision denying the Claimant's claim for benefits and shall render its written decision on review to the Claimant. The Sponsor's decision on review shall be written in a manner calculated to be understood by the Claimant and shall specify the reasons and Plan provisions upon which the Sponsor's decision was based. 18.4 Qualified Domestic Relations Orders The Sponsor shall establish reasonable procedures to determine the status of domestic relations orders and to administer distributions under domestic relations orders which are deemed to be qualified orders. Such procedures shall be in writing and shall comply with the provisions of Section 414(p) of the Code and regulations issued thereunder. 61 18.5 Indemnification In addition to whatever rights of indemnification the Trustee or the members of the board of directors of the Sponsor or any employee or employees of the Sponsor to whom any power, authority, or responsibility is delegated pursuant to Section 18.2, may be entitled under the articles of incorporation or regulations of the Sponsor, under any provision of law, or under any other agreement, the Sponsor shall satisfy any liability actually and reasonably incurred by any such person or persons, including expenses, attorneys, fees, judgments, fines, and amounts paid in settlement (other than amounts paid in settlement not approved by the Sponsor), in connection with any threatened, pending or completed action, suit, or proceeding which is related to the exercising or failure to exercise by such person or persons of any of the powers, authority, responsibilities, or discretion as provided under the Plan, or reasonably believed by such person or persons to be provided hereunder, and any action taken by such person or persons in connection therewith, unless the same is judicially determined to be the result of such person or persons, gross negligence or willful misconduct. 18.6 Actions Binding Subject to the provisions of Section 18.3, any action taken by the Sponsor which is authorized, permitted, or required under the Plan shall be final and binding upon the Employers, the Trustee, all persons who have or who claim an interest under the Plan, and all third parties dealing with the Employers or the Trustee. 62 ARTICLE XIX AMENDMENT AND TERMINATION 19.1 Amendment Subject to the provisions of Section 19.2, the Sponsor may at any time and from time to time, by action of its board of directors, or such officers of the Sponsor as are authorized by its board of directors, amend the Plan, either prospectively or retroactively. Any such amendment shall be by written instrument executed by the Sponsor. 19.2 Limitation on Amendment The Sponsor shall make no amendment to the Plan which shall decrease the accrued benefit of any Participant or Beneficiary, except that nothing contained herein shall restrict the right to amend the provisions of the Plan relating to the administration of the Plan and Trust. Moreover, no such amendment shall be made hereunder which shall permit any part of the Trust to revert to an Employer or any Related Company or be used or be diverted to purposes other than the exclusive benefit of Participants and Beneficiaries. 19.3 Termination The Sponsor reserves the right, by action of its board of directors, to terminate the Plan as to all Employers at any time (the effective date of such termination being hereinafter referred to as the "termination date"). Upon any such termination of the Plan, the following actions shall be taken for the benefit of Participants and Beneficiaries: (a) As of the termination date, each Investment Fund shall be valued and all Participant Accounts and Sub-Accounts shall be adjusted in the manner provided in Article XI, with any unallocated contributions or forfeitures being allocated as of the termination date in the manner otherwise provided in the Plan. The termination date shall become a Valuation Date for purposes of Article XI. In determining the net worth of the Trust, there shall be included as a 63 liability such amounts as shall be necessary to pay all expenses in connection with the termination of the Trust and the liquidation and distribution of the property of the Trust, as well as other expenses, whether or not accrued, and shall include as an asset all accrued income. (b) All Participant Accounts shall then be disposed of to or for the benefit of each Participant or Beneficiary in accordance with the provisions of Article XV as if the termination date were his Settlement Date; provided, however, that notwithstanding the provisions of Article XV, if the Plan does not offer an annuity option and if neither his Employer nor a Related Company establishes or maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code), the Participant's written consent to the commencement of distribution shall not be required regardless of the value of the vested portions of his Participant Account. (c) Notwithstanding the provisions of paragraph (b) of this Section, no distribution shall be made to a Participant of any portion of the balance of his Tax-Deferred Contributions Sub-Account prior to his separation from service (other than a distribution made in accordance with Article XIII or required in accordance with Section 401(a)(9) of the Code) unless (I) neither his Employer nor a Related Company establishes or maintains another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code, a tax credit employee stock ownership plan as defined in Section 409 of the Code, or a simplified employee pension as defined in Section 408(k) of the Code) either at the time the Plan is terminated or at any time during the period ending 12 months after distribution of all assets from the Plan; provided, however, that this provision shall not apply if fewer than two percent of the Eligible Employees under the Plan were eligible to participate at any time in such other defined contribution plan during the 24-month period beginning 12 months before the Plan termination, and (ii) the distribution the Participant receives is a "lump sum distribution" as defined in 64 Section 402(e)(4) of the Code, without regard to clauses (i), (ii), (iii), and (iv) of sub-paragraph (A), sub-paragraph (B), or sub-paragraph (H) thereof. Notwithstanding anything to the contrary contained in the Plan, upon any such Plan termination, the vested interest of each Participant and Beneficiary in his Employer Contributions Sub-Account shall be 100 percent; and, if there is a partial termination of the Plan, the vested interest of each Participant and Beneficiary who is affected by the partial termination in his Employer Contributions Sub-Account shall be 100 percent. For purposes of the preceding sentence only, the Plan shall be deemed to terminate automatically if there shall be a complete discontinuance of contributions hereunder by all Employers. 19.4 Reorganization The merger, consolidation, or liquidation of any Employer with or into any other Employer or a Related Company shall not constitute a termination of the Plan as to such Employer. If an Employer disposes of substantially all of the assets used by the Employer in a trade or business or disposes of a subsidiary and in connection therewith one or more Participants terminates employment but continues in employment with the purchaser of the assets or with such subsidiary, no distribution from the Plan shall be made to any such Participant prior to his separation from service (other than a distribution made in accordance with Article XIII or required in accordance with Section 401(a)(9) of the Code), except that a distribution shall be permitted to be made in such a case, subject to the Participant's consent (to the extent required by law), if (i) the distribution would constitute a "lump sum distribution" as defined in section 402(e)(4) of the Code, without regard to clauses (i), (ii), (iii), or (iv) of sub-paragraph (A), sub-paragraph (B), or sub-paragraph (H) thereof, (ii) the Employer continues to maintain the Plan after the disposition, (iii) the purchaser does not maintain the Plan after the disposition, and (iv) the distribution is made by the end of the second calendar year after the calendar year in which the disposition occurred. 65 19.5 Withdrawal of an Employer An Employer other than the Sponsor may withdraw from the Plan at any time upon notice in writing to the Administrator (the effective date of such withdrawal being hereinafter referred to as the "withdrawal date"), and shall thereupon cease to be an Employer for all purposes of the Plan. An Employer shall be deemed automatically to withdraw from the Plan in the event of its complete discontinuance of contributions, or, subject to Section 19.4 and unless the Sponsor otherwise directs, it ceases to be a Related Company of the Sponsor or any other Employer. Upon the withdrawal of an Employer, the withdrawing Employer shall determine whether a partial termination has occurred with respect to its Employees. In the event that the withdrawing Employer determines a partial termination has occurred, the action specified in Section 19.3 shall be taken as of the withdrawal date, as on a termination of the Plan, but with respect only to Participants who are employed solely by the withdrawing Employer, and who, upon such withdrawal, are neither transferred to nor continued in employment with any other Employer or a Related Company. The interest of any Participant employed by the withdrawing Employer who is transferred to or continues in employment with any other Employer or a Related Company, and the interest of any Participant employed solely by an Employer or a Related Company other than the withdrawing Employer, shall remain unaffected by such withdrawal; no adjustment to his Participant Accounts shall be made by reason of the withdrawal; and he shall continue as a Participant hereunder subject to the remaining provisions of the Plan. 66 ARTICLE XX ADOPTION BY OTHER ENTITIES 20.1 Adoption by Related Companies A Related Company that is not an Employer may, with the consent of the Sponsor, adopt the Plan and become an Employer hereunder by causing an appropriate written instrument evidencing such adoption to be executed in accordance with the requirements of its organizational authority. Any such instrument shall specify the effective date of the adoption. 20.2 Effective Plan Provisions An Employer who adopts the Plan shall be bound by the provisions of the Plan in effect at the time of the adoption and as subsequently in effect because of any amendment to the Plan. 67 ARTICLE XXI MISCELLANEOUS PROVISIONS 21.1 No Commitment as to Employment Nothing contained herein shall be construed as a commitment or agreement upon the part of any person to continue his employment with an Employer or Related Company, or as a commitment on the part of any Employer or Related Company to continue the employment, compensation, or benefits of any person for any period. 21.2 Benefits Nothing in the Plan nor the Trust Agreement shall be construed to confer any right or claim upon any person, firm, or corporation other than the Employers, the Trustee, Participants, and Beneficiaries. 21.3 No Guarantees The Employers, the Administrator, and the Trustee do not guarantee the Trust from loss or depreciation, nor do they guarantee the payment of any amount which may become due to any person hereunder. 21.4 Expenses The expenses of administration of the Plan, including the expenses of the Administrator and fees of the Trustee, shall be paid from the Trust as a general charge thereon, unless the Sponsor elects to make payment. Notwithstanding the foregoing, the Sponsor may direct that administrative expenses that are allocable to the Participant Account of a specific Participant shall be paid from that Participant Account and the costs incident to the management of the assets of an Investment Fund or to the purchase or sale of securities held in an Investment Fund shall be paid by the Trustee from such Investment Fund. 68 21.5 Precedent Except as otherwise specifically provided, no action taken in accordance with the Plan shall be construed or relied upon as a precedent for similar action under similar circumstances. 21.6 Duty to Furnish Information The Employers, the Administrator, and the Trustee shall furnish to any of the others any documents, reports, returns, statements, or other information that the other reasonably deems necessary to perform its duties hereunder or otherwise imposed by law. 21.7 Withholding The Trustee shall withhold any tax which by any present or future law is required to be withheld, and which the Administrator notifies the Trustee in writing is to be so withheld, from any payment to any Participant or Beneficiary hereunder. 21.8 Merger, Consolidation, or Transfer of Plan Assets The Plan shall not be merged or consolidated with any other plan, nor shall any of its assets or liabilities be transferred to another plan, unless, immediately after such merger, consolidation, or transfer of assets or liabilities, each Participant in the Plan would receive a benefit under the Plan which is at least equal to the benefit he would have received immediately prior to such merger, consolidation, or transfer of assets or liabilities (assuming in each instance that the Plan had then terminated). 21.9 Back Pay Awards The provisions of this Section shall apply only to an Employee or former Employee who becomes entitled to back pay by an award or agreement of an Employer without regard to mitigation of damages. If a person to whom this Section applies was or would have become an Eligible Employee after such back pay award or agreement has been effected, and if any such person who had not previously elected to make Tax-Deferred Contributions pursuant to Section 4.1 shall within 30 days of the date he receives notice 69 of the provisions of this Section make an election to make Tax-Deferred Contributions in accordance with such Section 4.1 (retroactive to any Enrollment Date as of which he was or has become eligible to do so), then such Participant may elect that any Tax-Deferred Contributions not previously made on his behalf but which, after application of the foregoing provisions of this Section, would have been made under the provisions of Article IV, shall be made out of the proceeds of such back pay award or agreement. In addition, if any such Employee or former Employee would have been eligible to participate in the allocation of Employer Contributions under the provisions of Article VI for any prior Plan Year after such back pay award or agreement has been effected, his Employer shall make an Employer Contribution equal to the amount of the Employer Contribution which would have been allocated to such Participant under the provisions of Article VI as in effect during each such Plan Year. The amounts of such additional contributions shall be credited to the Participant Account of such Participant. Any additional contributions made by such Participant and by an Employer pursuant to this Section shall be made in accordance with, and subject to the limitations of the applicable provisions of Articles IV, VI, and VII. 21.10 Condition on Employer Contributions Notwithstanding anything to the contrary contained in the Plan or the Trust Agreement, any contribution of an Employer hereunder is conditioned upon the continued qualification of the Plan under Section 401(a) of the Code, the exempt status of the Trust under Section 501(a) of the Code, and the deductibility of the contribution under Section 404 of the Code. Except as otherwise provided in this Section and Section 21.11 however, in no event shall any portion of the property of the Trust ever revert to or otherwise inure to the benefit of an Employer or any Related Company. 21.11 Return of Contributions to an Employer Notwithstanding any other provision of the Plan or the Trust Agreement to the contrary, in the event any contribution of an Employer made hereunder: (a) is made under a mistake of fact, or 70 (b) is disallowed as a deduction under Section 404 of the Code, such contribution may be returned to the Employer within one year after the payment of the contribution or the disallowance of the deduction to the extent disallowed, whichever is applicable. In the event the Plan does not initially qualify under Section 401(a) of the Code, any contribution of an Employer made hereunder may be returned to the Employer within one year of the date of denial of the initial qualification of the Plan, but only if an application for determination was made within the period of time prescribed under Section 403(c)(2)(B) of ERISA. 21.12 Validity of Plan The validity of the Plan shall be determined and the Plan shall be construed and interpreted in accordance with the laws of the State or Commonwealth in which the Trustee has its principal place of business or, if the Trustee is an individual or group of individuals, the State or Commonwealth in which the Sponsor has its principal place of business, except as preempted by applicable Federal law. The invalidity or illegality of any provision of the Plan shall not affect the legality or validity of any other part thereof. 21.13 Trust Agreement The Trust Agreement and the Trust maintained thereunder shall be deemed to be a part of the Plan as if fully set forth herein and the provisions of the Trust Agreement are hereby incorporated by reference into the Plan. 21.14 Parties Bound The Plan shall be binding upon the Employers, all Participants and Beneficiaries hereunder, and, as the case may be, the heirs, executors, administrators, successors, and assigns of each of them. 71 21.15 Application of Certain Plan Provisions A Participant's Beneficiary, if the Participant has died, or alternate payee under a qualified domestic relations order shall be treated as a Participant for purposes of directing investments as provided in Article X. For purposes of the general administrative provisions and limitations of the Plan, a Participant's Beneficiary or alternate payee under a qualified domestic relations order shall be treated as any other person entitled to receive benefits under the Plan. Upon any termination of the Plan, any such Beneficiary or alternate payee under a qualified domestic relations order who has an interest under the Plan at the time of such termination, which does not cease by reason thereof, shall be deemed to be a Participant for all purposes of the Plan. 21.16 Leased Employees Any leased employee, other than an excludable leased employee, shall be treated as an employee of the Employer for which he performs services for all purposes of the Plan with respect to the provisions of Sections 401(a)(3), (4), (7), and (16), and 408(k), 410, 411, 415, and 416 of the Code; provided, however, that no leased employee shall accrue a benefit hereunder based on service as a leased employee except as otherwise specifically provided in the Plan. A "leased employee" means any person who performs services for an Employer or a Related Company (the "recipient") (other than an employee of the recipient) pursuant to an agreement between the recipient and any other person (the "leasing organization") on a substantially full-time basis for a period of at least one year, provided that such services are of a type historically performed, in the business field of the recipient, by employees. An "excludable leased employee" means any leased employee of the recipient who is covered by a money purchase pension plan maintained by the leasing organization which provides for (i) a nonintegrated employer contribution on behalf of each participant in the plan equal to at least ten percent of compensation, (ii) full and immediate vesting, and (iii) immediate participation by employees of the leasing organization (other than employees who perform substantially all of their services for the leasing organization or whose compensation from the leasing organization in each plan year 72 during the four-year period ending with the plan year is less than $1,000); provided, however, that leased employees do not constitute more than 20 percent of the recipient's nonhighly compensated work force. For purposes of this Section, contributions or benefits provided to a leased employee by the leasing organization that are attributable to services performed for the recipient shall be treated as provided by the recipient. 21.17 Transferred Funds If funds from another qualified plan are transferred or merged into the Plan, such funds shall be held and administered in accordance with any restrictions applicable to them under such other plan to the extent required by law and shall be accounted for separately to the extent necessary to accomplish the foregoing. 73 ARTICLE XXII TOP-HEAVY PROVISIONS 22.1 Definitions For purposes of this Article, the following terms shall have the following meanings: (a) The "compensation" of an employee means compensation as defined in Section 415 of the Code and regulations issued thereunder. In no event, however, shall the compensation of a Participant taken into account under the Plan for any Plan Year exceed (1) $200,000 for Plan Years beginning prior to January 1, 1994, or (2) $150,000 for Plan Years beginning on or after January 1, 1994 (subject to adjustment annually as provided in Section 401(a)(17)(B) and Section 415(d) of the Code; provided, however, that the dollar increase in effect on January 1 of any calendar year, if any, is effective for Plan Years beginning in such calendar year). If the compensation of a Participant is determined over a period of time that contains fewer than 12 calendar months, then the annual compensation limitation described above shall be adjusted with respect to that Participant by multiplying the annual compensation limitation in effect for the Plan Year by a fraction the numerator of which is the number of full months in the period and the denominator of which is 12; provided, however, that no proration is required for a Participant who is covered under the Plan for less than one full Plan Year if the formula for allocations is based on Compensation for a period of at least 12 months. In determining the compensation, for purposes of applying the annual compensation limitation described above, of a Participant who is a five-percent owner or one of the ten Highly Compensated Employees receiving the greatest compensation for the Plan Year, the compensation of the Participant's spouse and of his lineal descendants who have not attained age 19 as of the close of the Plan Year shall be included as compensation of the Participant for the Plan Year. If as a result of applying the family aggregation rule described in the preceding sentence the 74 annual compensation limitation would be exceeded, the limitation shall be prorated among the affected family members in proportion to each member's compensation as determined prior to application of the family aggregation rules. (b) The "determination date" with respect to any Plan Year means the last day of the preceding Plan Year, except that the determination date with respect to the first Plan Year of the Plan, shall mean the last day of such Plan Year. (c) A "key employee" means any Employee or former Employee who is a key employee pursuant to the provisions of Section 416(i)(1) of the Code and any Beneficiary of such Employee or former Employee. (d) A "non-key employee" means any Employee who is not a key employee. (e) A "permissive aggregation group" means those plans included in each Employer's required aggregation group together with any other plan or plans of the Employer, so long as the entire group of plans would continue to meet the requirements of Sections 401(a)(4) and 410 of the Code. (f) A "required aggregation group" means the group of tax-qualified plans maintained by an Employer or a Related Company consisting of each plan in which a key employee participates and each other plan that enables a plan in which a key employee participates to meet the requirements of Section 401(a)(4) or Section 410 of the Code, including any plan that terminated within the five-year period ending on the relevant determination date. (g) A "super top-heavy group" with respect to a particular Plan Year means a required or permissive aggregation group that, as of the determination date, would qualify as a top-heavy group under the definition in paragraph (i) of this Section with 1190 percent" substituted for 1160 percent" each place where 1160 percent" appears in the definition. 75 (h) A "super top-heavy plan" with respect to a particular Plan Year means a plan that, as of the determination date, would qualify as a top-heavy plan under the definition in paragraph (j) of this Section with 1190 percent" substituted for 1160 percent" each place where 1160 percent" appears in the definition. A plan is also a "super top-heavy plan" if it is part of a super top-heavy group. (i) A "top-heavy group" with respect to a particular Plan Year means a required or permissive aggregation group if the sum, as of the determination date, of the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group and the aggregate of the account balances of key employees under all defined contribution plans included in such group exceeds 60 percent of a similar sum determined for all employees covered by the plans included in such group. A "top-heavy plan" with respect to a particular Plan Year means (i), in the case of a defined contribution plan (including any simplified employee pension plan), a plan for which, as of the determination date, the aggregate of the accounts (within the meaning of Section 416(g) of the Code and the regulations and rulings thereunder) of key employees exceeds 60 percent of the aggregate of the accounts of all participants under the plan, with the accounts valued as of the relevant valuation date and increased for any distribution of an account balance made in the five-year period ending on the determination date, (ii), in the case of a defined benefit plan, a plan for which, as of the determination date, the present value of the cumulative accrued benefits payable under the plan (within the meaning of Section 416(g) of the Code and the regulations and rulings thereunder) to key employees exceeds 60 percent of the present value of the cumulative accrued benefits under the plan for all employees, with the present value of accrued benefits to be determined under the accrual method uniformly used under all plans maintained by an Employer or, if no such method exists, under the slowest accrual method permitted under the fractional accrual rate of Section 411(b)(1)(C) of the Code and including the present value of any part of any 76 accrued benefits distributed in the five-year period ending on the determination date, and (iii) any plan (including any simplified employee pension plan) included in a required aggregation group that is a top-heavy group. For purposes of this paragraph, the accounts and accrued benefits of any employee who has not performed services for an Employer or a Related Company during the five-year period ending on the determination date shall be disregarded. For purposes of this paragraph, the present value of cumulative accrued benefits under a defined benefit plan for purposes of top-heavy determinations shall be calculated using the actuarial assumptions otherwise employed under such plan, except that the same actuarial assumptions shall be used for all plans within a required or permissive aggregation group. A Participant's interest in the Plan attributable to any Rollover Contributions, except Rollover Contributions made from a plan maintained by an Employer or a Related Company, shall not be considered in determining whether the Plan is top-heavy. Notwithstanding the foregoing, if a plan is included in a required or permissive aggregation group that is not a top-heavy group, such plan shall not be a top-heavy plan. (k) The "valuation date" with respect to any determination date means the most recent Valuation Date occurring within the 12-month period ending on the determination date. 22.2 Applicability Notwithstanding any other provision of the Plan to the contrary, the provisions of this Article shall be applicable during any Plan Year in which the Plan is determined to be a top-heavy plan as hereinafter defined. 22.3 Minimum Employer Contribution If the Plan is determined to be a top-heavy plan, the Employer Contributions allocated to the Participant Account of each non-key employee who is an Eligible Employee and who is employed by an Employer or a Related Company on the last day of such top-heavy Plan Year shall be no less than the lesser of (i) three 77 percent of his compensation or (ii) the largest percentage of compensation that is allocated as an Employer Contribution and/or Tax-Deferred Contribution for such Plan Year to the Participant Account of any key employee; except that, in the event the Plan is part of a required aggregation group, and the Plan enables a defined benefit plan included in such group to meet the requirements of Section 401(a)(4) or 410 of the Code, the minimum allocation of Employer Contributions to each such non-key employee shall be three percent of the compensation of such non-key employee. In lieu of the minimum allocation described in the preceding sentence, the Employer Contributions allocated to the Participant Account of each non-key employee who is employed by an Employer or a Related Company on the last day of a top-heavy Plan Year and who is also covered under a top-heavy defined benefit plan maintained by an Employer or a Related Company will be no less than five percent of his compensation. Any minimum allocation to a non-key employee required by this Section shall be made without regard to any social security contribution made on behalf of the non-key employee, his number of hours of service, his level of compensation, or whether he declined to make elective or mandatory contributions. 22.4 Adjustments to Section 415 Limitations If the Plan is determined to be a top-heavy plan and an Employer maintains a defined benefit plan covering some or all of the Employees that are covered by the Plan, the defined benefit plan fraction and the defined contribution plan fraction, described in Article VII, shall be determined as provided in Section 415 of the Code by substituting 111.011 for 111.2511 each place where 111.2511 appears, except that such substitutions shall not be applied to the Plan if (i) the Plan is not a super top-heavy plan, (ii) the Employer Contribution for such top-heavy Plan Year for each non-key employee who is to receive a minimum top-heavy benefit hereunder is not less than four percent of such non-key employee's compensation, and (iii) the minimum annual retirement benefit accrued by a non-key employee who participates under one or more defined benefit plans of an Employer or a Related Company for such top-heavy Plan Year is not less than the lesser of three percent times years of service with an Employer or a Related Company or thirty percent. 78 22.5 Accelerated Vesting If the Plan is determined to be a top-heavy plan, a Participant's vested interest in his Employer Contributions Sub-Account shall be determined no less rapidly than in accordance with the following vesting schedule: Years of Vesting Service Vested Interest ------------------------ --------------- less than 3 0% 3 or more 1000% 79 ARTICLE XXIII EFFECTIVE DATE 23.1 Effective Date of Amendment and Restatement This amendment and restatement is effective as of July 1, 1997. * * * EXECUTED AT Olney, Maryland this 1st day of July 1997 SANDY SPRING BANCORP By: /s/ Hunter R. Hollar -------------------- Title: President 80 EX-10.B 3 EXHIBIT 10(B) Exhibit 10(b) DIRECTOR FEE DEFERRAL AGREEMENT THIS AGREEMENT is made this day of , 199 by and between Sandy Spring National Bank of Maryland (the "Bank"), and (the "Director"). INTRODUCTION To encourage the Director to remain a member of the Bank's Board of Directors, the Bank is willing to provide the Director an opportunity to defer receipt of Directors' fees and to accumulate interest on the fees so deferred as provided in this Agreement. Amounts payable pursuant to this Agreement are unfunded, and the Bank will pay benefits from its general assets. Deferred fees and interest on them are subject to substantial restrictions and limitations. AGREEMENT The Director and the Bank agree as follows: Article 1 Definitions 1.1 Definitions. Whenever used in this Agreement, the following words and phrases shall have the meanings specified: 1.1.1 "Change in Control" means the transfer of 51% or more of the Bank's outstanding voting common stock followed within twenty-four months by termination of the Director's status as a member of the Bank's Board of Directors. 1.1.2 "Code" means the Internal Revenue Code of 1986, as amended. References to a code section shall be deemed to be that section as it now exists and to any successor provision. 1.1.3 "Election Form" means the form attached as Exhibit I. 1.1.4 "Fees" means the total Directors fees payable to the Director. 1.1.5 "Insurance Policy" means a single premium life insurance policy which may be acquired by the Bank, in its sole discretion, as the sole owner, on the life of the Director in connection with this Agreement. 1.1.6 "Prime Rate" for a calendar year means the lowest Prime Rate reported for the last business day before January 1 of that year in the "Money Rates" column of the Wall Street ----------- Journal, or, if such rate is not published or its definition ------- of such rate in the Wall Street Journal is substantially ------------------- changed, such reasonably equivalent rate that the Board of Directors of the Bank in its good faith discretion shall 1 establish. 1.1.7 "Termination of Service" means the Director's ceasing to be a member of the Bank's Board of Directors (excluding directors emeriti) for any reason whatsoever. Article 2 Deferral Election 2.1 Initial Election. The Director shall make an initial deferral election under this Agreement by filing with the Bank a signed Election Form within 30 days after the date of this Agreement. The Election Form shall set forth the amount of fees to be deferred and the form of benefit payment. The Election Form shall be effective to defer only fees earned after the date the Election Form is received by the Bank. 2.2 Election Changes 2.2.1 Generally. The Director may modify the amount of Fees to be deferred by filing with the Bank a signed Election Form. The Election shall set forth the amount of Fees to be deferred and the form of benefit payment. The modified deferral or form of benefit shall not be effective until the calendar year following the year in which the subsequent Election Form is received by the Bank. The Election Form shall be effective to defer only Fees earned after the date the Election Form is received by the Bank. 2.2.2 Hardship. If an unforeseeable financial emergency arising from the death of a family member, divorce, sickness, injury, catastrophe or similar event outside the control of the Director occurs, the Director, by written instruction to the Bank may cease deferrals under this Agreement. Article 3 Deferral Account 3.1 Establishing and Crediting. The Bank shall establish a Deferral Account on its books for the Director, and shall credit to the Deferral Account the following amounts: 3.1.1 Deferrals. The Fees deferred by the Director as of the time the fees would have otherwise been paid to the Director. 3.1.2 Interest. On the first day of each month and immediately prior to the payment of any benefits, interest on the account balance since the preceding credit under this Section 3.1.2, if any, at an annual rate, compounded monthly, equal to the Prime Rate for the calendar year for the period or periods for which such 2 accrual is recorded. 3.2 Statement of Accounts. The Bank shall provide to the Director, within one-hundred and twenty days after each calendar year-end, a statement setting forth the Deferral Account balance. 3.3 Accounting Device Only. The Deferral Account is solely a device for measuring amounts to be paid under this Agreement. The Deferral Account is not a trust fund of any kind. The Director is a general unsecured creditor of the Bank for the payment of benefits. The benefits represent the mere Bank promise to pay such benefits. The Director's rights are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Director's creditors. ARTICLE 4 Lifetime Benefits 4.1 Normal Termination Benefit. Upon the Director's Termination of Service, the Bank shall pay to the Director the benefit described in this Section 4.1. 4.1.1 Amount of Benefit. The benefit under this Section 4.1 is the Deferral Account balance at the Director's Termination of Service. 4.1.2 Payment of Benefit. The Bank shall pay the benefit to the Director in the form elected by the Director on the Election Form. The Bank shall continue to credit interest under Section 3.1.2 on any unpaid balance of the benefit. 4.2 Change in Control Benefit. Upon a Change in Control while the Director is in the active service of the Bank, the Bank shall pay to the Director the benefit described in this Section 4.2 in lieu of any other benefit under this Agreement. 4.2.1 Amount of Benefit. The benefit under this Section 4.2 is the Deferral Account balance at the date of the Director's termination of Service. 4.2.2 Payment of Benefit. The Bank shall pay the benefit to the Director in a lump sum within ten calendar days after the Director's Termination of Service. 4.3 Hardship Distribution. Upon the Bank's determination (following petition by the Director) that the Director has suffered an unforeseeable financial emergency as described in Section 2.2.2, the Bank shall distribute to the Director all or a portion of the Deferral Account balance as determined by the Bank, but in no event shall the distribution be greater than is necessary to relieve the financial hardship as determined in by majority vote of the Board of Directors of the Bank in its good faith discretion, with the Director abstaining. 3 Article 5 Death Benefits 5.1 Death During Active Service. If the Director dies while in the active service of the Bank, the Bank shall pay to the Director's beneficiary the benefit described in this Section 5.1. 5.1.1 Insurance Policy in Effect. If the Director dies while the Insurance Policy is validly in effect, the benefit under Section 5.1 is the greater of (a) the applicable Projected Benefit for the payment method in effect at death as shown on Exhibit II, or (b) payout of the Deferral Account balance at the date of the Director's death under the payment method in effect at death. 5.1.2 Insurance Policy Not in Effect. If the Director dies while the Insurance Policy is not validly in effect, the benefit under Section 5.1 is the Deferral Account balance at the date of the Director's death. 5.1.3 Payment of Benefit. The Bank shall pay the benefit to the beneficiary in the form elected by the Director on the Election Form and in effect at death. The Bank shall continue to credit interest under Section 3.1.2 on any unpaid balance of the benefit. 5.2 Death During Benefit Period. If the Director dies after benefit payments have commenced under this Agreement but before receiving all such payments, the Bank shall pay the remaining benefits to the Director's beneficiary at the same time and in the same amounts they would have been paid to the Director had the Director survived. The benefits under this Section 5.2 shall be paid in lieu of any benefits payable in the event of death during active service pursuant to Section 5.1. Article 6 Beneficiaries 6.1 Beneficiary Designations. The Director shall designate a beneficiary by filing a written designation with the Bank. The Director may revoke or modify the designation at any time by filing a new designation. Such designation and modifications thereto may be made on a "Beneficiary Designation" in the form shown on page 2 of Exhibit I that is properly completed and filed with and accepted by the Bank. Designations will only be effective if signed by the Director and accepted by the Bank during the Director's lifetime. The Director's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Director, or if the Director names a spouse as beneficiary and the marriage is subsequently dissolved. If the Director dies without a valid beneficiary designation, all payments shall be made to the Director's surviving spouse, if any, and if none, to the Director's surviving children and the descendants of any deceased child by right of representation, and if no children or descendants survive, to the Director's estate. 4 6.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Bank may require proof of incompetency, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit. Article 7 General Limitations Notwithstanding any provision of this Agreement to the contrary, the Bank shall not pay any benefit under this Agreement that is attributable to the interest accrued on Director contributions: 7.1 Excess Parachute Payment. To the extent the benefit would be an excess parachute payment under Section 280G of the Code. 7.2 Suicide. If the Director commits suicide within two years after the date of this Agreement, or if the Director has made any material misstatement of fact on any application for the Insurance Policy. Article 8 Claims and Review Procedures 8.1 Claims Procedure. The Bank shall notify the Director's beneficiary in writing, within ninety days of his or her written application for benefits, of his or her eligibility or non-eligibility for benefits under the Agreement. If the Bank determines that the beneficiary is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) a specific reference to the provisions of the Agreement on which the denial is based, (3) a description of any additional information or material necessary for the claimant to perfect his or her claim, and a description of why it is needed, and (4) an explanation of the Agreement's claims review procedure and other appropriate information as to the steps to be taken if the beneficiary wishes to have the claim reviewed. If the Bank determines that there are special circumstances requiring additional time to make a decision, the Bank shall notify the beneficiary of the special circumstances and the date by which a decision is expected to be made, and may extend the time for up to an additional ninety-day period. 8.2 Review Procedure. If the beneficiary is determined by the Bank not to be eligible for benefits, or if the beneficiary believes that he or she is entitled to greater or different benefits, the beneficiary shall have the opportunity to have such claim reviewed by the Bank by filing a petition for review with the Bank within sixty days after receipt of the notice issued by the Bank. Said petition shall state the specific reasons which the beneficiary believes entitle him or her to benefits or to greater or different benefits. Within sixty days after receipt by the Bank of the 5 petition, the Bank shall afford the beneficiary (and counsel, if any) an opportunity to present his or her position to the Bank orally or in writing, and the beneficiary (or counsel) shall have the right to review the pertinent documents. The Bank shall notify the beneficiary of its decision in writing within the sixty-day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the beneficiary and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Bank, but notice of this deferral shall be given to the beneficiary. Article 9 Amendments and Termination The Bank may amend or terminate this Agreement at any time prior to the Director's Termination of Service by written notice to the Director. In no event shall this Agreement be terminated without payment to the Director of the Deferral Account balance attributable to the Director's deferrals and interest credited on such amounts. Article 10 Miscellaneous 10.1 Binding Effect. This Agreement shall bind the Director and the Bank, and their beneficiaries, survivors, executors, administrators and transferees. 10.2 No Guaranty of Employment or Election. This Agreement is not a contract for services. It does not give the Director the right to remain a Director of the Bank, nor does it interfere with the shareholder's rights to replace the Director. It also does not require the Director to remain a Director nor interfere with the Director's right to terminate services at any time. 10.3 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner. 10.4 Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement. 10.5 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Maryland, except to the extent preempted by the laws of the United States of America. 10.6 Unfunded Arrangement. The Director and beneficiary are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. The Insurance Policy and any other insurance on the Director's life 6 in which the Bank has an interest is a general asset of the Bank to which neither the Director nor any beneficiary has any preferred or secured claim of any kind, and does not represent funding for the benefit under this Agreement. Any representation or assertion contrary to this Section 10.6 is a material breach of this Agreement by the representing or asserting party, which, if such party is the Executive or, following his death, a beneficiary, shall immediately result in the cessation of any and all payments and the elimination of any liability hereunder for any payment not made prior to such assertion or representation, and, if such party is the Bank, shall subject it to liability for actual damages for such breach. 10.7 Successors. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank. IN WITNESS WHEREOF, the Director and a duly authorized Bank officer have signed this Agreement. DIRECTOR SANDY SPRING NATIONAL BANK OF MARYLAND By - ------------------------------------ ------------------------------------- Title ---------------------------------- 7 EX-10.C 4 EXHIBIT 10(C) Exhibit 10(c) SANDY SPRING NATIONAL BANK OF MARYLAND SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT THIS AGREEMENT is made this 14th day of May, 1997 by and between Sandy Spring National Bank of Maryland (the "Bank"), and Hunter R. Hollar (the "Executive"). INTRODUCTION To encourage the Executive to remain a senior officer of the Bank, the Bank is willing to provide salary continuation benefits to the Executive. The Bank will pay the benefits from its general assets. AGREEMENT The Executive and the Bank agree as follows: Article 1 Definitions 1.1 Definitions. Whenever used in this Agreement, the following words and phrases shall have the meanings specified: 1.1.1 "Accrued Benefit" means the amount of liability for benefits to be paid under this Agreement recorded on the books of the Bank in accordance with Generally Accepted Accounting Principles and without reduction for any income tax benefit related thereto. 1.1.2 "Benefit Percentage" means 70%. 1.1.3 "Change in Control" means the earliest of: a. The acquisition by any entity, person or group (other than the acquisition by a tax-qualified retirement plan sponsored by Sandy Spring Bancorp, Inc. ("Bancorp") or the Bank) of beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, of more than 25% of the outstanding capital stock of Bancorp or the Bank entitled to vote for the election of directors ("Voting Stock"); b. The commencement by any entity, person, or group (other than Bancorp or the Bank, a subsidiary of Bancorp or the Bank, or a tax-qualified retirement plan sponsored by Bancorp or the Bank) of 1 a tender offer or an exchange offer for more than 20% of the outstanding Voting Stock of Bancorp or the Bank; c. The effective time of (i) a merger or consolidation of Bancorp or the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of Bancorp or the Bank immediately prior to such merger exercise voting control over less than 80% of the Voting Stock of the surviving or resulting corporation, or (ii) a transfer of substantially all of the property of Bancorp or the Bank other than to an entity of which Bancorp or the Bank owns at least 80% of the Voting Stock; d. Upon the acquisition by any entity, person, or group of the control of the election of a majority of the Bank's or Bancorp's directors; e. At such time that, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Bancorp or the Bank (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. 1.1.4 "Code" means the Internal Revenue Code of 1986, as amended. References to a Code section shall be deemed to be to that section as it now exists and to any successor provisions. 1.1.5 "Disability" means a physical or mental infirmity that impairs the Executive's ability to substantially perform his duties under this Agreement and that results in the Executive's becoming eligible for long-term disability benefits under a long-term disability plan maintained for Bank employees (or, if the Bank has no such plan in effect, that impairs the Executive's ability to substantially perform his duties for a period of one-hundred and eighty consecutive days). The board of directors of the Bank shall determine whether or not the Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that it reasonably believes to be relevant. As a condition to any benefits, the Bank may require the Executive to submit to such physical or mental evaluations and tests as the Bank's Board of Directors deems appropriate. 1.1.6 "Early Retirement Date" means the date on which the Executive has both (a) attained age sixty and (b) completed ten Years of Service. 2 1.1.7 "Final Average Pay" means the Executive's three-year average cash compensation, determined by adding (a) the total base salary paid to the Executive for the thirty-six months preceding the date of termination (or other date specified in this Agreement) divided by three, and (b) one-third of the total cash bonuses (including, without limitation, bonuses awarded under the Bank's Stakeholder Program and similar programs) awarded to the Executive during the three calendar years preceding the date of termination (or other date specified in this Agreement). Final Average Pay shall not be reduced for any pay reduction contributions (x) to cash or deferred arrangements under Section 401(k) of the Code, (y) to a cafeteria plan under Section 125 of the Code, or (z) to a nonqualified deferred compensation plan. Final Average Pay shall not be increased by any reimbursed expenses, credits, or benefits under any plan of deferred compensation to which the Bank contributes, or any additional cash compensation or compensation payable in a form other than cash. 1.1.8 "Good Reason" means the occurrence of any of the following without Executive's express written consent: a. A material breach by Bancorp or the Bank of their obligation under a binding employment agreement with the Executive; b. A material reduction in the Executives's responsibilities or authority, or a requirement that the Executive report to any person or group other than the board of directors of Bancorp and the Bank (or any other effective reduction in reporting responsibilities) in connection with his employment with Bancorp or the Bank; c. Assignment to the Executive of duties of a nonexecutive nature or duties for which he is not reasonably equipped by his skills and experience; d. Failure of the Executive to be elected or reelected to the Board of Bancorp or the Bank; e. Any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to a Change in Control; f. Termination of incentive and benefit plans, programs or arrangements, or reduction of the Executive's participation to such an extent as to materially reduce their aggregate value below their aggregate value immediately prior to a Change in Control. g. A requirement that the Executive relocate his principal business office or his principal place of residence outside Montgomery County, Maryland, or the assignment to the Executive of duties that would reasonably require such a relocation; h. A requirement that the Executive spend more than thirty normal working days away from Montgomery County, Maryland during any consecutive twelve-month period; or i. Failure to provide office facilities, secretarial services, and other administrative services to Executive that are substantially equivalent 3 to the facilities and services provided to the Executive immediately prior to the Change in Control (excluding brief periods during which office facilities may be temporarily unavailable due to fire, natural disaster, or other calamity). Notwithstanding the foregoing a reduction or elimination of the Executive's benefits under one or more benefit plans maintained by Bancorp or the Bank as part of a good faith, overall reduction or elimination of such plan or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against the Executive (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of Bancorp or the Bank or any company that controls either of them under a plan or plans in or under which the Executive is not entitled to participate, and receive benefits, on a fair and nondiscriminatory basis. This provision shall not affect the rights of the Executive to enforce this Agreement. A termination with Good Reason means a Termination of Employment by the Executive by written notice to the Bank, which notice may be immediately effective, given within ninety days of the event of Good Reason. 1.1.9 "Insurance Policy" means a single premium life insurance policy which may be acquired by the Bank, in its sole discretion, as sole owner, on the life of the Executive in connection with this Agreement. 1.1.10 "Just Cause" means, as determined in good faith by the Bank's board of directors, the Executive's: a. Personal dishonesty; b. Incompetence; c. Willful misconduct; d. Breach of fiduciary duty involving personal profit; e. Intentional failure to perform duties under this Agreement; f. Other, continuing material failure to perform his duties after reasonable notification (which shall be stated in writing and given at least fifteen days prior to termination) by the board of directors of the Bank of such failure; g. Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order; or h. Material breach by the Executive of any provision of this Agreement or an Employment Agreement to which he and the Bank are parties. 4 1.1.11 "Normal Retirement Date" means the date on which the Executive has both (a) attained age sixty-five and (b) completed ten Years of Service. 1.1.12 "Termination of Employment" means the Executive's ceasing to be employed by the Bank for any reason whatsoever, voluntary or involuntary, other than by reason of an approved leave of absence. 1.1.13 "Years of Service" means the total number of twelve-month periods during which the Executive is employed on a full-time basis by the Bank prior to and after the date of this Agreement, inclusive of any approved leaves of absence. Article 2 Lifetime Benefits 2.1 Normal Retirement Benefit. If the Executive terminates employment on or after the Normal Retirement Date for reasons other than death, the Bank shall pay the Executive the benefit described in this Section 2.1. 2.1.1. Amount of Benefit. The benefit under this Section 2.1 is one-twelfth of the Executive's Final Average Pay multiplied by the Benefit Percentage, which product is reduced by: 2.1.1.1 Social Security Benefits. One-half of the amount of monthly unreduced primary (not family) retirement benefits under the United States Social Security Act that the Executive would be eligible for if application were made as of the Executive's sixty-fifth birthday, assuming that the Executive had earnings at or above the maximum contribution and benefit base under Section 230 of the United States Social Security Act for his working career; and 2.1.1.2 Bank's Qualified Pension Plan Benefits. The straight life, monthly payment, annuity benefit the Executive would be entitled to receive under the Bank's qualified pension plan as of the Executive's Termination of Employment. 2.1.1.3 Prior Employer's Pension Plan Benefits. The straight life, monthly payment, annuity benefit the Executive would be entitled to receive as of the Executive's Termination of Employment because of employment by any and all other banks or companies prior to the Executive's full time employment by the Bank under any and all qualified, defined benefit pension plans maintained by any and all such other banks or companies. 2.1.1.4 Bank's Qualified 401(k) and Profit Sharing Plan. The straight life, maximum monthly payment, fifteen-year annuity that may be 5 purchased at the date of Termination from an issuer rated superior by A.M. Best (or, in the Bank's discretion, with an equivalent rating from another rating organization of similar reputation) for cash equal to the value of the Executive's account at the date of Termination under the Bank's Cash and Deferred Profit Sharing Plan and Trust (or any successor plan) attributable to Bank contributions, including the earnings thereon. 2.1.2 Payment of Benefit. The Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the Termination of Employment and continuing until the later of the Executive's death or the payment of one-hundred and seventy-nine additional monthly payments. 2.2. Early Retirement Benefit. If the Executive terminates employment on or after the Early Retirement Date but before the Normal Retirement Date, and for reasons other than death or Disability, the Bank shall pay to the Executive the benefit described in this Section 2.2. 2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the amount of the Accrued Benefit at the date of such early retirement divided by one-hundred and eighty. 2.2.2 Payment of Benefit. The Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the Executive's Termination of Employment and continuing until the later of the Executive's death or the payment of one-hundred and seventy-nine additional monthly payments. 2.3 Disability Benefit. If the Executive's employment is terminated for Disability prior to the Normal Retirement Date, the Bank shall pay to the Executive the benefit described in this Section 2.3. 2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the amount of the Accrued Benefit at the date of such early retirement divided by one-hundred and eighty. 2.3.2 Payment of Benefit. The Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the Executive's Termination of Employment and continuing until the later of the Executive's death or the payment of one-hundred and seventy-nine additional months. 2.4 Change in Control Benefits. If within the period beginning six months prior to and ending two years after a Change in Control, (a) the Bank shall terminate the Executive's employment without Just Cause, or (b) the Executive shall terminate his employment with Good Reason, the Bank shall pay to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement. 6 2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the Normal Retirement Benefit described in Section 2.1 calculated as if the date of Termination of Employment were the Executive's Normal Retirement Date, or, if elected by the Executive pursuant to Section 2.4.2.1, the Early Retirement Benefit described in Section 2.4.1 calculated as if the date of Termination of Employment were the Executive's Early Retirement Date. 2.4.2 Payment of Benefits. 2.4.2.1 Approved Change in Control. If the Change in Control was approved in advance by a majority of the Continuing Directors, the Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the day on which: (i) the Executive attains age sixty-five, or, if the Executive so elects in writing within ten days of Termination of Employment, (ii) the Executive attains age sixty, and, in either case, continuing until the later of the Executive's death or the payment of one-hundred and seventy-nine additional monthly payments. 2.4.2.2 Unapproved Change in Control. If the Change in Control was not approved in advance by a majority of the Continuing Directors, the Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the Termination of Employment and continuing until the later of the Executive's death or one-hundred and seventy-nine (179) additional monthly payments. 2.5. Vested Benefits following Other Terminations. Subject to Section 2.4, if (i) the Executive voluntarily terminates employment before the Early Retirement Date for reasons other than Death or Disability, or (ii) the Bank terminates the Executive's Employment without Just Cause, the Bank shall pay to the Executive the benefits described in this section. 2.5.1 Amount of Benefit. The benefit under this Section 2.5 is the straight life, maximum monthly payment, fifteen-year annuity beginning on the first day of the month following the date on which (i) the Executive attains age sixty-five, or, if the Executive so elects in writing within ten days of Termination of Employment, (ii) the Executive attains age sixty, that may be purchased in the two months following the date of Termination from an issuer rated superior by A.M. Best (or, in the Bank's discretion, with an equivalent rating from another rating organization of similar reputation) for cash equal to the amount of the vested Accrued Benefit at the date of such termination. 7 2.5.2 Vested Accrued Benefit. For purposes of this section 2.5, only, the Accrued Benefit shall vest in accordance with the following schedule:
Years of Percentage of Accrued Service Benefit That Is Vested ----------- ---------------------- less than 4 0% 4 20% 5 25% 6 30% 7 35% 8 40% 9 45% 10 50% 11 60% 12 70% 13 80% 14 90% 15 100%
2.5.3 Payment of Benefit. The Bank shall pay the monthly benefit (or cause such benefit to be paid) to the Executive, or his beneficiary after the Executive's death, on the first day of each month commencing with the month following the month in which the Executive attains (i) age sixty-five, or if elected by the Executive pursuant to section 2.5.2. (ii) age sixty. The Bank may, in its sole discretion, purchase such an annuity for or transfer its ownership rights to the Executive in settlement of this obligation, in which case all of the Bank's obligations under this Agreement shall immediately terminate. Article 3 Death Benefits 3.1 Death During Active Service. If the Executive dies while in the active service of the Bank, the Bank shall pay to the Executive's beneficiary the benefit described in this Section 3.1. 3.1.1 Insurance Policy in Effect. If the Executive dies while the Insurance Policy is validly in effect, the benefit under Section 3.1 is the greater of (i) the lifetime benefit that would have been paid to the Executive under Section 2.1 calculated as if the date of the Executive's death were the Normal Retirement Date, or (ii) the straight life, maximum monthly payment, fifteen-year annuity, for payments beginning the month following the Executive's death, that could be purchased from an issuer rated superior by A.M. Best (or, in the Bank's discretion, with an equivalent rating from another rating organization of similar reputation) for cash equal to three times the Executive's Final Average Pay. 3.1.2 Insurance Policy Not in Effect. If the Executive dies while the Insurance Policy is not validly in effect, the benefit under Section 3.1 is the Accrued Benefit at the date of the Executive's death divided by one-hundred and eighty. 8 3.1.3 Payment of Benefit. The Bank shall pay the benefit to the Beneficiary on the first day of each month commencing with the month following the Executive's death and continuing for one-hundred and seventy-nine additional months. Article 4 Beneficiaries 4.1 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Bank. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Bank during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's surviving spouse, if any, and if none, to the Executive's surviving children and to the descendants of any deceased child by right of representation, and if no children or descendants survive, to the Executive's estate. 4.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative, or person having the care or custody of such minor, incompetent person, or incapable person. The Bank may require proof of incompetency, minority, or guardianship as it may deem appropriate prior to the distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit. Article 5 General Limitations Notwithstanding any provision of this Agreement to the contrary, the Bank shall not pay any amount of any benefit under this Agreement: 5.1 Excess Parachute Payment. To the extent the amount of benefit would be an excess parachute payment under Section 280G of the Code, with consideration for any right of the Executive, under an employment agreement with the Bank or otherwise, to waive benefits hereunder or other payments in order to prevent an excess parachute payment. 5.2 Termination for Cause. If the Bank terminates the Executive's employment for Just Cause. 5.3 Suicide. No benefits shall be payable if the Executive commits suicide within two years after the date of this Agreement, or if the Executive has made any material misstatement of fact on any application for the Insurance Policy. 9 Article 6 Claims and Review Procedures 6.1 Claims Procedures. The Bank shall notify the Executive's beneficiary in writing, within ninety days of his or her written application for benefits, of his or her eligibility or noneligibility for benefits under the Agreement. If the Bank determines that the beneficiary is not eligible for benefits or full benefits, the notice shall set forth (a) the specific reasons for such denial, (b) a specific reference to the provisions of the Agreement on which the denial is based, (c) a description of any additional information or material necessary for the claimant to perfect his or her claim, and a description of why it is needed, and (d) an explanation of the Agreement's claims review procedure and other appropriate information as to the steps to be taken if the beneficiary wishes to have the claim reviewed. If the Bank determines that there are special circumstances requiring additional time to make a decision regarding eligibility for benefits, the Bank shall notify the beneficiary of the special circumstances and the date by which a decision is expected to be made, and may extend the time by which notice may be given of such decision for up to an additional ninety-day period. 6.2 Review Procedure. If the beneficiary is determined by the Bank not to be eligible for benefits, or if the beneficiary believes that he or she is entitled to greater or different benefits, the beneficiary shall have the opportunity to have such claim reviewed by the Bank by filing a petition for review with the Bank within sixty days after receipt of the notice issued by the Bank. Such petition shall state the specific reasons that the beneficiary believes entitle him or her to benefits or to greater or different benefits. Within sixty days after receipt by the Bank of the petition, the Bank shall afford the beneficiary (and counsel, if any) an opportunity to present his or her position to the Bank orally or in writing, and the beneficiary (or counsel) shall have the right to review the pertinent documents. The Bank shall notify the beneficiary of its decision in writing within the sixty-day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the beneficiary, and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, notice of such decision may be deferred for up to another sixty-day period at the election of the Bank, but notice of this deferral shall be given to the beneficiary. 10 Article 7 Amendments and Termination This Agreement may be amended or terminated only by a written agreement signed by the Bank and the Executive. Article 8 Miscellaneous 8.1 Binding Effect. This Agreement shall bind the Executive and the Bank, and their beneficiaries, survivors, executors, administrators, and transferees. 8.2 No Guaranty of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Bank, nor does it interfere with the Bank's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time. 8.3 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached, or encumbered in any manner. 8.4 Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement. 8.5 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Maryland, except to the extent preempted by the laws of the United States of America. 8.6 Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. The Insurance Policy and any other insurance on the Executive's life in which the Bank has an interest is a general asset of the Bank to which neither the Executive nor any beneficiary has any preferred or secured claim of any kind, and does not represent funding for the benefit under this Agreement. Any representation or assertion contrary to this section 8.6 is a material breach of this Agreement by the representing or asserting party, which, if such party is the Executive or, following his death, a beneficiary, shall immediately result in the cessation of any and all payments and the elimination of any liability hereunder for any payment not made prior to such assertion or representation, and, if such party is the Bank, shall subject it to liability for actual damages for such breach. 8.7 Non-Competition Provisions. Regardless of anything herein to the contrary, except in the case of a Termination of Employment by the Bank without Just Cause, a Termination of 11 Employment by the Executive with Good Reason, or with the permission of the Bank, during the two years immediately following the Executive's Termination of Employment, the Executive shall not serve as an officer or director or employee of any bank holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a "Financial Institution") which Financial Institution offers products or services competing with those offered by the Bank from offices in any county in the State of Maryland or of any other State in which the Bank or any of its affiliates has a branch, and shall not interfere with the relationship of the Bank and any of its employees, agents, or representatives. In the event of any breach by the Executive of this Covenant Not to Compete, the Board of Directors of the Bank shall direct that any unpaid balance of any payments to the Executive under this Agreement be suspended, and shall thereupon notify the Executive of such suspension, in writing. Thereupon, if the Board of Directors of the Bank shall determine that such breach by the executive exists at any time after a period of one month following notification of the such suspension, all rights of the Executive and his beneficiary under this agreement, including rights to any and all further payments hereunder, shall thereupon terminate. 8.8 Successors. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank. IN WITNESS WHEREOF, the Executive and a duly authorized Bank officer have signed this Agreement. EXECUTIVE SANDY SPRING NATIONAL BANK OF MARYLAND /s/ Hunter R. Hollar By:/s/ W. Drew Stabler -------------------- ------------------- Title: Chairman of the Board --------------------- 12 EX-10.D 5 EXHIBIT 10(D) Exhibit 10(d) 1 SANDY SPRING NATIONAL BANK OF MARYLAND SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT THIS AGREEMENT is made this 14th day of May, 1997 by and between Sandy Spring National Bank of Maryland (the "Bank"), and (the "Executive"). INTRODUCTION To encourage the Executive to remain a senior officer of the Bank, the Bank is willing to provide salary continuation benefits to the Executive. The Bank will pay the benefits from its general assets. AGREEMENT The Executive and the Bank agree as follows: Article 1 Definitions 1.1 Definitions. Whenever used in this Agreement, the following words and phrases shall have the meanings specified: 1.1.1 "Accrued Benefit" means the amount of liability for benefits to be paid under this Agreement recorded on the books of the Bank in accordance with Generally Accepted Accounting Principles and without reduction for any income tax benefit related thereto. 1.1.2 "Benefit Percentage" means 65%. 1.1.3 "Change in Control" means the earliest of: i. The acquisition by any entity, person or group (other than the acquisition by a tax-qualified retirement plan sponsored by Sandy Spring Bancorp, Inc. ("Bancorp") or the Bank) of beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, of more than 25% of the outstanding capital stock of Bancorp or the Bank entitled to vote for the election of directors ("Voting Stock"); j. The commencement by any entity, person, or group (other than Bancorp or the Bank, a subsidiary of Bancorp or the Bank, or a tax- qualified retirement plan sponsored by Bancorp or the Bank) 1 of a tender offer or an exchange offer for more than 20% of the outstanding Voting Stock of Bancorp or the Bank; k. The effective time of (i) a merger or consolidation of Bancorp or the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of Bancorp or the Bank immediately prior to such merger exercise voting control over less than 80% of the Voting Stock of the surviving or resulting corporation, or (ii) a transfer of substantially all of the property of Bancorp or the Bank other than to an entity of which Bancorp or the Bank owns at least 80% of the Voting Stock; l. Upon the acquisition by any entity, person, or group of the control of the election of a majority of the Bank's or Bancorp's directors; m. At such time that, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Bancorp or the Bank (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. 1.1.4 "Code" means the Internal Revenue Code of 1986, as amended. References to a Code section shall be deemed to be to that section as it now exists and to any successor provisions. 1.1.5 "Disability" means a physical or mental infirmity that impairs the Executive's ability to substantially perform his duties under this Agreement and that results in the Executive's becoming eligible for long-term disability benefits under a long-term disability plan maintained for Bank employees (or, if the Bank has no such plan in effect, that impairs the Executive's ability to substantially perform his duties for a period of one-hundred and eighty consecutive days). The board of directors of the Bank shall determine whether or not the Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that it reasonably believes to be relevant. As a condition to any benefits, the Bank may require the Executive to submit to such physical or mental evaluations and tests as the Bank's Board of Directors deems appropriate. 1.1.6 "Early Retirement Date" means the date on which the Executive has both (a) attained age sixty and (b) completed ten Years of Service. 2 1.1.7 "Final Average Pay" means the Executive's three-year average cash compensation, determined by adding (a) the total base salary paid to the Executive for the thirty-six months preceding the date of termination (or other date specified in this Agreement) divided by three, and (b) one-third of the total cash bonuses (including, without limitation, bonuses awarded under the Bank's Stakeholder Program and similar programs) awarded to the Executive during the three calendar years preceding the date of termination (or other date specified in this Agreement). Final Average Pay shall not be reduced for any pay reduction contributions (x) to cash or deferred arrangements under Section 401(k) of the Code, (y) to a cafeteria plan under Section 125 of the Code, or (z) to a nonqualified deferred compensation plan. Final Average Pay shall not be increased by any reimbursed expenses, credits, or benefits under any plan of deferred compensation to which the Bank contributes, or any additional cash compensation or compensation payable in a form other than cash. 1.1.8 "Good Reason" means the occurrence of any of the following without Executive's express written consent: a. A material breach by Bancorp or the Bank of their obligation under a binding employment agreement with the Executive; b. A material reduction in the Executives's responsibilities or authority, or a requirement that the Executive report to any person or group other than the board of directors of Bancorp and the Bank (or any other effective reduction in reporting responsibilities) in connection with his employment with Bancorp or the Bank; c. Assignment to the Executive of duties of a nonexecutive nature or duties for which he is not reasonably equipped by his skills and experience; d. Any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to a Change in Control; e. Termination of incentive and benefit plans, programs or arrangements, or reduction of the Executive's participation to such an extent as to materially reduce their aggregate value below their aggregate value immediately prior to a Change in Control. f. A requirement that the Executive relocate his principal business office or his principal place of residence outside Montgomery County, Maryland, or the assignment to the Executive of duties that would reasonably require such a relocation; g. A requirement that the Executive spend more than thirty normal working days away from Montgomery County, Maryland during any consecutive twelve- month period; or h. Failure to provide office facilities, secretarial services, and other administrative services to Executive that are substantially equivalent to the facilities and services provided to the Executive immediately prior to the Change in Control (excluding brief 3 periods during which office facilities may be temporarily unavailable due to fire, natural disaster, or other calamity). Notwithstanding the foregoing: (i) a reduction or elimination of the Executive's benefits under one or more benefit plans maintained by Bancorp or the Bank as part of a good faith, overall reduction or elimination of such plan or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against the Executive (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of Bancorp or the Bank or any company that controls either of them under a plan or plans in or under which the Executive is not entitled to participate, and receive benefits, on a fair and nondiscriminatory basis; and (ii) a requirement that the Executive report to and be subject to the direction or supervision of a senior officer of Bancorp or the Bank other than the President and Chief Executive shall not constitute an event of Good Reason or a material breach of this Agreement. This provision shall not affect the rights of the Executive to enforce this Agreement. A termination with Good Reason means a Termination of Employment by the Executive by written notice to the Bank, which notice may be immediately effective, given within ninety days of the event of Good Reason. 1.1.9 "Insurance Policy" means a single premium life insurance policy which may be acquired by the Bank, in its sole discretion, as sole owner, on the life of the Executive in connection with this Agreement. 1.1.10 "Just Cause" means, as determined in good faith by the Bank's board of directors, the Executive's: a. Personal dishonesty; b. Incompetence; c. Willful misconduct; d. Breach of fiduciary duty involving personal profit; e. Intentional failure to perform duties under this Agreement; f. Other, continuing material failure to perform his duties after reasonable notification (which shall be stated in writing and given at least fifteen days prior to termination) by the board of directors of the Bank of such failure; g. Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order; or h. Material breach by the Executive of any provision of this Agreement or an Employment Agreement to which he and the Bank are parties. 4 1.1.11 "Normal Retirement Date" means the date on which the Executive has both (a) attained age sixty-five and (b) completed ten Years of Service. 1.1.12 "Termination of Employment" means the Executive's ceasing to be employed by the Bank for any reason whatsoever, voluntary or involuntary, other than by reason of an approved leave of absence. 1.1.13 "Years of Service" means the total number of twelve-month periods during which the Executive is employed on a full-time basis by the Bank prior to and after the date of this Agreement, inclusive of any approved leaves of absence. Article 2 Lifetime Benefits 2.1 Normal Retirement Benefit. If the Executive terminates employment on or after the Normal Retirement Date for reasons other than death, the Bank shall pay the Executive the benefit described in this Section 2.1. 2.1.1. Amount of Benefit. The benefit under this Section 2.1 is one-twelfth of the Executive's Final Average Pay multiplied by the Benefit Percentage, which product is reduced by: 2.1.1.1 Social Security Benefits. One-half of the amount of monthly unreduced primary (not family) retirement benefits under the United States Social Security Act that the Executive would be eligible for if application were made as of the Executive's sixty-fifth birthday, assuming that the Executive had earnings at or above the maximum contribution and benefit base under Section 230 of the United States Social Security Act for his working career; and 2.1.1.2 Bank's Qualified Pension Plan Benefits. The straight life, monthly payment, annuity benefit the Executive would be entitled to receive under the Bank's qualified pension plan as of the Executive's Termination of Employment. 2.1.1.3 Prior Employer's Pension Plan Benefits. The straight life, monthly payment, annuity benefit the Executive would be entitled to receive as of the Executive's Termination of Employment because of employment by any and all other banks or companies prior to the Executive's full time employment by the Bank under any and all qualified, defined benefit pension plans maintained by any and all such other banks or companies. 2.1.1.4 Bank's Qualified 401(k) and Profit Sharing Plan. The straight life, maximum monthly payment, fifteen-year annuity that may be purchased at the date of Termination from an issuer rated superior by A.M. Best (or, in the Bank's discretion, with an equivalent rating 5 from another rating organization of similar reputation) for cash equal to the value of the Executive's account at the date of Termination under the Bank's Cash and Deferred Profit Sharing Plan and Trust (or any successor plan) attributable to Bank contributions, including the earnings thereon. 2.1.2 Payment of Benefit. The Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the Termination of Employment and continuing until the later of the Executive's death or the payment of one-hundred and seventy-nine additional monthly payments. 2.2. Early Retirement Benefit. If the Executive terminates employment on or after the Early Retirement Date but before the Normal Retirement Date, and for reasons other than death or Disability, the Bank shall pay to the Executive the benefit described in this Section 2.2. 2.2.1 Amount of Benefit. The benefit under this Section 2.2 is the amount of the Accrued Benefit at the date of such early retirement divided by one-hundred and eighty. 2.2.2 Payment of Benefit. The Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the Executive's Termination of Employment and continuing until the later of the Executive's death or the payment of one-hundred and seventy-nine additional monthly payments. 2.3 Disability Benefit. If the Executive's employment is terminated for Disability prior to the Normal Retirement Date, the Bank shall pay to the Executive the benefit described in this Section 2.3. 2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the amount of the Accrued Benefit at the date of such early retirement divided by one-hundred and eighty. 2.3.2 Payment of Benefit. The Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the Executive's Termination of Employment and continuing until the later of the Executive's death or the payment of one-hundred and seventy-nine additional months. 2.4 Change in Control Benefits. If within the period beginning six months prior to and ending two years after a Change in Control, (a) the Bank shall terminate the Executive's employment without Just Cause, or (b) the Executive shall terminate his employment with Good Reason, the Bank shall pay to the Executive the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement. 2.4.1 Amount of Benefit. The benefit under this Section 2.4 is the Normal Retirement Benefit described in Section 2.1 calculated as if the date of Termination of 6 Employment were the Executive's Normal Retirement Date, or, if elected by the Executive pursuant to Section 2.4.2.1, the Early Retirement Benefit described in Section 2.4.1 calculated as if the date of Termination of Employment were the Executive's Early Retirement Date. 2.4.2 Payment of Benefits. 2.4.2.1 Approved Change in Control. If the Change in Control was approved in advance by a majority of the Continuing Directors, the Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the day on which: (i) the Executive attains age sixty-five, or, if the Executive so elects in writing within ten days of Termination of Employment, (ii) the Executive attains age sixty, and, in either case, continuing until the later of the Executive's death or the payment of one-hundred and seventy-nine additional monthly payments. 2.4.2.2 Unapproved Change in Control. If the Change in Control was not approved in advance by a majority of the Continuing Directors, the Bank shall pay the benefit to the Executive on the first day of each month commencing with the month following the Termination of Employment and continuing until the later of the Executive's death or one-hundred and seventy-nine (179) additional monthly payments. 2.5. Vested Benefits following Other Terminations. Subject to Section 2.4, if (i) the Executive voluntarily terminates employment before the Early Retirement Date for reasons other than Death or Disability, or (ii) the Bank terminates the Executive's Employment without Just Cause, the Bank shall pay to the Executive the benefits described in this section. 2.5.1 Amount of Benefit. The benefit under this Section 2.5 is the straight life, maximum monthly payment, fifteen-year annuity beginning on the first day of the month following the date on which (i) the Executive attains age sixty-five, or, if the Executive so elects in writing within ten days of Termination of Employment, (ii) the Executive attains age sixty, that may be purchased in the two months following the date of Termination from an issuer rated superior by A.M. Best (or, in the Bank's discretion, with an equivalent rating from another rating organization of similar reputation) for cash equal to the amount of the vested Accrued Benefit at the date of such termination. 7 2.5.2 Vested Accrued Benefit. For purposes of this section 2.5, only, the Accrued Benefit shall vest in accordance with the following schedule:
Years of Percentage of Accrued Service Benefit That Is Vested ------- ---------------------- less than 4 0% 4 20% 5 25% 6 30% 7 35% 8 40% 9 45% 10 50% 11 60% 12 70% 13 80% 14 90% 15 100%
2.5.3 Payment of Benefit. The Bank shall pay the monthly benefit (or cause such benefit to be paid) to the Executive, or his beneficiary after the Executive's death, on the first day of each month commencing with the month following the month in which the Executive attains (i) age sixty-five, or if elected by the Executive pursuant to section 2.5.2. (ii) age sixty. The Bank may, in its sole discretion, purchase such an annuity for or transfer its ownership rights to the Executive in settlement of this obligation, in which case all of the Bank's obligations under this Agreement shall immediately terminate. Article 3 Death Benefits 3.1 Death During Active Service. If the Executive dies while in the active service of the Bank, the Bank shall pay to the Executive's beneficiary the benefit described in this Section 3.1. 3.1.1 Insurance Policy in Effect. If the Executive dies while the Insurance Policy is validly in effect, the benefit under Section 3.1 is the greater of (i) the lifetime benefit that would have been paid to the Executive under Section 2.1 calculated as if the date of the Executive's death were the Normal Retirement Date, or (ii) the straight life, maximum monthly payment, fifteen-year annuity, for payments beginning the month following the Executive's death, that could be purchased from an issuer rated superior by A.M. Best (or, in the Bank's discretion, with an equivalent rating from another rating organization of similar reputation) for cash equal to three times the Executive's Final Average Pay. 3.1.2 Insurance Policy Not in Effect. If the Executive dies while the Insurance Policy is not validly in effect, the benefit under Section 3.1 is the Accrued Benefit at the date of the Executive's death divided by one-hundred and eighty. 8 3.1.3 Payment of Benefit. The Bank shall pay the benefit to the Beneficiary on the first day of each month commencing with the month following the Executive's death and continuing for one-hundred and seventy-nine additional months. Article 4 Beneficiaries 4.1 Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Bank. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and accepted by the Bank during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's surviving spouse, if any, and if none, to the Executive's surviving children and to the descendants of any deceased child by right of representation, and if no children or descendants survive, to the Executive's estate. 4.2 Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative, or person having the care or custody of such minor, incompetent person, or incapable person. The Bank may require proof of incompetency, minority, or guardianship as it may deem appropriate prior to the distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit. Article 5 General Limitations Notwithstanding any provision of this Agreement to the contrary, the Bank shall not pay any amount of any benefit under this Agreement: 5.1 Excess Parachute Payment. To the extent the amount of benefit would be an excess parachute payment under Section 280G of the Code, with consideration for any right of the Executive, under an employment agreement with the Bank or otherwise, to waive benefits hereunder or other payments in order to prevent an excess parachute payment. 5.2 Termination for Cause. If the Bank terminates the Executive's employment for Just Cause. 5.3 Suicide. No benefits shall be payable if the Executive commits suicide within two years after the date of this Agreement, or if the Executive has made any material misstatement of fact on any application for the Insurance Policy. 9 Article 6 Claims and Review Procedures 6.1 Claims Procedures. The Bank shall notify the Executive's beneficiary in writing, within ninety days of his or her written application for benefits, of his or her eligibility or noneligibility for benefits under the Agreement. If the Bank determines that the beneficiary is not eligible for benefits or full benefits, the notice shall set forth (a) the specific reasons for such denial, (b) a specific reference to the provisions of the Agreement on which the denial is based, (c) a description of any additional information or material necessary for the claimant to perfect his or her claim, and a description of why it is needed, and (d) an explanation of the Agreement's claims review procedure and other appropriate information as to the steps to be taken if the beneficiary wishes to have the claim reviewed. If the Bank determines that there are special circumstances requiring additional time to make a decision regarding eligibility for benefits, the Bank shall notify the beneficiary of the special circumstances and the date by which a decision is expected to be made, and may extend the time by which notice may be given of such decision for up to an additional ninety-day period. 6.2 Review Procedure. If the beneficiary is determined by the Bank not to be eligible for benefits, or if the beneficiary believes that he or she is entitled to greater or different benefits, the beneficiary shall have the opportunity to have such claim reviewed by the Bank by filing a petition for review with the Bank within sixty days after receipt of the notice issued by the Bank. Such petition shall state the specific reasons that the beneficiary believes entitle him or her to benefits or to greater or different benefits. Within sixty days after receipt by the Bank of the petition, the Bank shall afford the beneficiary (and counsel, if any) an opportunity to present his or her position to the Bank orally or in writing, and the beneficiary (or counsel) shall have the right to review the pertinent documents. The Bank shall notify the beneficiary of its decision in writing within the sixty-day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the beneficiary, and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, notice of such decision may be deferred for up to another sixty-day period at the election of the Bank, but notice of this deferral shall be given to the beneficiary. Article 7 Amendments and Termination This Agreement may be amended or terminated only by a written agreement signed by the Bank and the Executive. Article 8 Miscellaneous 8.1 Binding Effect. This Agreement shall bind the Executive and the Bank, and their beneficiaries, survivors, executors, administrators, and transferees. 10 8.2 No Guaranty of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Bank, nor does it interfere with the Bank's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time. 8.3 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached, or encumbered in any manner. 8.4 Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement. 8.5 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Maryland, except to the extent preempted by the laws of the United States of America. 8.6 Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. The Insurance Policy and any other insurance on the Executive's life in which the Bank has an interest is a general asset of the Bank to which neither the Executive nor any beneficiary has any preferred or secured claim of any kind, and does not represent funding for the benefit under this Agreement. Any representation or assertion contrary to this section 8.6 is a material breach of this Agreement by the representing or asserting party, which, if such party is the Executive or, following his death, a beneficiary, shall immediately result in the cessation of any and all payments and the elimination of any liability hereunder for any payment not made prior to such assertion or representation, and, if such party is the Bank, shall subject it to liability for actual damages for such breach. 8.7 Non-Competition Provisions. Regardless of anything herein to the contrary, except in the case of a Termination of Employment by the Bank without Just Cause, a Termination of Employment by the Executive with Good Reason, or with the permission of the Bank, during the two years immediately following the Executive's Termination of Employment, the Executive shall not serve as an officer or director or employee of any bank holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a "Financial Institution") which Financial Institution offers products or services competing with those offered by the Bank from offices in any county in the State of Maryland or of any other State in which the Bank or any of its affiliates has a branch, and shall not interfere with the relationship of the Bank and any of its employees, agents, or representatives. In the event of any breach by the Executive of this Covenant Not to Compete, the Board of Directors of the Bank shall direct that any unpaid balance of any payments to the Executive under this Agreement be suspended, and shall thereupon notify the Executive of such suspension, in writing. Thereupon, if the Board of Directors of the Bank shall determine that such breach by the 11 executive exists at any time after a period of one month following notification of the such suspension, all rights of the Executive and his beneficiary under this agreement, including rights to any and all further payments hereunder, shall thereupon terminate. 8.8 Successors. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank. IN WITNESS WHEREOF, the Executive and a duly authorized Bank officer have signed this Agreement. EXECUTIVE SANDY SPRING NATIONAL BANK OF MARYLAND By: - ------------------------ ------------------------------------- Title: --------------------------------- 12 EX-10.E 6 EXHIBIT 10(E) Exhibit 10(e) EMPLOYMENT AGREEMENT - ----------------------------------------------------------------------------- THIS AGREEMENT (the "Agreement"), made this 30th day of January 1997, by and among Sandy Spring Bancorp, Inc., a registered bank holding company ("Bancorp"), Sandy Spring National Bank of Maryland, a national banking association and wholly owned subsidiary of Bancorp with its main office in Olney, Maryland (the "Bank"), and Hunter R. Hollar (the "Officer"). W I T N E S S E T H WHEREAS, the Officer is employed as the President and Chief Executive Officer of the Bank and Bancorp, subject to a certain Employment Agreement made December 1, 1990 (as amended, the "1990 Agreement"). WHEREAS, as a result of the skill, knowledge, and experience of the Officer, the Board of Directors ("Board") of the Bank desires to retain the services of the Officer as the President and Chief Executive Officer of the Bank, and the Board of Bancorp desires to retain the services of the Officer as the President and Chief Executive Officer of Bancorp. WHEREAS, the Officer desires to continue to serve as President and Chief Executive Officer of Bancorp and the Bank. WHEREAS, the Officer and the respective Boards of the Bank and Bancorp desire to enter into a new Agreement setting forth the terms of conditions of the continuing employment of the Officer and the related rights and obligations of each of the parties. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed as follows: 1. Employment. The Officer is employed as the President and Chief ---------- Executive Officer of Bancorp and of the Bank, reporting directly to their respective Boards. Subject to Board direction, the Officer shall have responsibility for the general management and control of the business and affairs of Bancorp, the Bank, and their respective subsidiaries, and shall perform all duties and shall have all powers which are commonly incident to the offices of President and Chief Executive Officer or which, consistent with those offices, are delegated to him by the respective Board. The Officer's duties include, but are not limited to: a. Making recommendations to the Boards concerning the strategies, capital structure, tactics, and general operations of Bancorp and the Bank; b. Managing the day-to-day operations of Bancorp and the Bank; 1 c. Supervising other officers and employees of Bancorp and the Bank; d. Promoting Bancorp and the Bank and their services; e. Managing the efforts of Bancorp and the Bank to comply with applicable laws and regulations; and f. Providing complete, timely, and accurate reports to the Boards of Bancorp and the Bank regarding the material affairs and the condition of Bancorp and the Bank, respectively. 2. Location and Facilities. The Officer will be furnished with the working ----------------------- facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of Bancorp and the Bank, or at such other site or sites customary for such offices. 3. Term; The 1990 Agreement. ------------------------ a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the "Effective Date") and ending immediately prior to the third anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3. b. On each anniversary of the Effective Date prior to a termination of the Agreement, the term under this Agreement shall be extended for an additional one-year period beyond the then effective expiration date without action by any party, provided that neither Bancorp or the Bank, on the one hand, nor the Officer, on the other, shall have given written notice at least sixty (60) days prior to such anniversary date of its or his desire that the term not be extended. The Boards of Bancorp and the Bank will review the Officer's performance and the advisability of extending the term of this Agreement at a meeting or meetings at least ninety (90) days prior to each anniversary date. c. At the Effective Date, this Agreement shall supersede the 1990 Agreement, which shall be deemed terminated by agreement of the parties immediately prior to the Effective Date. 4. Base Compensation. ----------------- a. Bancorp and the Bank agree to pay the Officer during the term of this Agreement a salary at the rate of $190,000 per annum, payable in cash not less frequently than monthly, as may be adjusted in accordance with this Section 4. 2 b. The Human Resources Committee of the Bank (the "Committee") shall perform an annual analysis of the Officer's performance and of the compensation of chief executive officers of independent financial institutions of comparable assets and performance, and based thereon and on such other factors as it deems pertinent, shall recommend to the Boards of Bancorp and the Bank the salary rate to be paid beginning on the next April 1 following such review. The Boards of Bancorp and the Bank shall review annually the rate of the Officer's salary based upon this recommendation of the Committee and other factors they deem relevant, and may maintain, increase or decrease his salary, provided that no such action shall (i) reduce the rate of salary below $190,000, or (ii) reduce the rate of salary paid to the Officer for any months prior to the month in which notice of the reduction is provided in writing to the Officer. c. In the absence of action by the Board of both Bancorp and the Bank, the Officer shall continue to receive salary at the $190,000 per annum rate specified herein or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board of Bancorp or the Bank under the provisions of this Section 4. 5. Bonuses. Unless the Officer agrees otherwise, he shall be entitled to ------- participate in discretionary bonuses that the Board may award from time to time to senior management employees pursuant to bonus plans or otherwise. The Officer also shall participate in any other fringe benefits which are or may become available to senior management employees of Bancorp or the Bank, including for example: any stock option or incentive compensation plans, club memberships, and any other benefits that are commensurate with the responsibilities and functions to be performed by the Officer under this Agreement. No other compensation provided for in this Agreement shall be deemed a substitute for the Officer's right to participate in such discretionary bonuses or fringe benefits. 6. Benefit Plans. The Officer shall be entitled to participate in such ------------- life insurance, medical, dental, pension, profit sharing, and retirement plans and other programs and arrangements as may be approved from time to time by Bancorp or the Bank for the benefit of their respective employees. In addition, the Officer shall be entitled to continued participation in the nonstatutory supplemental retirement plan or arrangement ("SERP") in effect for the Officer at the Effective Date or a similar plan or arrangement established for him that provides benefits of the same character and that are at least as favorable (in terms of vesting, payments in relation to salary or compensation, and otherwise) to the Officer as the current SERP. The Officer also shall be entitled to participate in the Executive Health Expense Reimbursement and Insurance Plans (together, the "HERP") or a successor plan or plans that provide the same or greater level of benefits as those provided to participants under the HERP as in effect on the Effective Date. 7. Vacation and Leave. ------------------ 3 a. The Officer shall be entitled to five weeks (twenty-five working days) of vacation with pay during each consecutive twelve-month period commencing on January 1, 1997 and each January 1 thereafter during the term of this Agreement, to be taken at reasonable times and in reasonable periods as the Officer and Bancorp or the Bank shall mutually determine, and provided that no vacation time shall interfere with the duties required to be rendered by the Officer hereunder. Any vacation time not used during a twelve-month period shall carry over and be useable during the succeeding twelve-month period, but not thereafter. The Officer shall not receive any additional compensation from Bancorp or the Bank on account of his failure to take vacation. b. In addition to paid vacations, the Officer shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the Board of Bancorp and the Bank may in their discretion determine. Further, the Board of Bancorp or the Bank may grant to the Officer a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as such Boards in their discretion may determine. 8. Expense Payments and Reimbursements. The Officer shall be reimbursed ----------------------------------- for all reasonable out-of-pocket business expenses which he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of Bancorp or the Bank. The Officer also shall be entitled to the following: a. Use of an automobile of a make and model consistent with the Officer's duties under this Agreement and reimbursement for the Officer's expenses thereof related to the employment of Officer; and b. Reimbursement for membership dues at Manor Country Club. 9. Loyalty and Confidentiality. --------------------------- a. During the term of this Agreement the Officer: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, the Officer may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with Bancorp or the Bank or any of their subsidiaries or affiliates, unfavorably affect the performance of Officer's duties pursuant to this Agreement, or violate any applicable statute or regulation; and (ii) shall not engage in any business or activity contrary to the business affairs or interests of Bancorp or the Bank. b. Nothing contained in this Agreement shall prevent or limit the Officer's right to invest in the capital stock or other securities of any business dissimilar from that 4 of Bancorp and the Bank, or, solely as a passive, minority investor, in any business. c. The Officer agrees to maintain the confidentiality of any and all information concerning the operation or financial status of Bancorp and the Bank; the names or addresses of any of their borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning Bancorp or the Bank to which he may be exposed during the course of his employment. The Officer further agrees that, unless required by law or specifically permitted by Bancorp or the Bank in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of Bancorp and the Bank. 10. Termination and Termination Pay. Subject to Section 11 of this -------------------------------- Agreement, the Officer's employment under this Agreement may be terminated in the following circumstances: a. Death. The Officer's employment under this Agreement shall ----- terminate upon his death during the term of this Agreement, in which event the Officer's estate shall be entitled to receive the compensation due to the Officer through the last day of the calendar month in which his death occurred. b. Retirement. This Agreement shall be terminated upon the normal ---------- or early retirement of the Officer under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement. c. Disability. Bancorp, the Bank, or the Officer may terminate the ---------- Officer's employment after having established the Officer's Disability. For purposes of this Agreement, "Disability" means a physical or mental infirmity that impairs the Officer's ability to substantially perform his duties under this Agreement and that results in the Officer's becoming eligible for long-term disability benefits under Bancorp's or the Bank's long-term disability plan (or, if Bancorp or the Bank has no such plan in effect, that impairs the Officer's ability to substantially perform his duties under this Agreement for a period of one-hundred-eighty consecutive days). In the event of such Disability, the Officer's obligation to perform services under this Agreement will terminate. In the event of such termination, the Officer shall be entitled to receive the following: i. The compensation and benefits provided for under this Agreement for any period during the term of this Agreement and prior to the date of termination pursuant to this Section 10.c. during which the Officer is unable to work due to physical or mental infirmity (less any amounts 5 which the Officer receives under any disability insurance maintained by Bancorp or the Bank with respect to such period); ii. For the period beginning upon the date of termination pursuant to this Section 10.c. and continuing for the remaining term of this Agreement, (A) salary at the highest rate paid pursuant to Section 4 of this Agreement during the twelve months prior to the establishment of such disability under this Section 10.c., reduced by any payments received by the Officer during such period following termination under a long term disability plan or policy maintained by Bancorp or the Bank, and (B) benefits pursuant to Section 6 of this Agreement. The Boards of Bancorp and the Bank shall determine whether or not the Officer is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant. As a condition to any benefits, such Board may require the Officer to submit to such physical or mental evaluations and tests as it deems reasonably appropriate. d. Just Cause. ---------- i. The Board of Bancorp or the Bank may, by written notice to the Officer in the form and manner specified in this paragraph, immediately terminate his employment with Bancorp or the Bank, respectively, at any time, for Just Cause. The Officer shall have no right to receive compensation or other benefits for any period after termination for Just Cause. Termination for "Just Cause" shall mean termination because of, in the good faith determination of Bancorp's or the Bank's Board, the Officer's: (1) Personal dishonesty; (2) Incompetence; (3) Willful misconduct; (4) Breach of fiduciary duty involving personal profit; (5) Intentional failure to perform duties under this Agreement; (6) Other, continuing material failure to perform his duties under this Agreement after reasonable notification (which shall be stated in writing and given at least fifteen days prior to termination) by the Board of Bancorp or the Bank of such failure; (7) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order; or (8) Material breach by the Officer of any provision of this Agreement. ii. Notwithstanding the foregoing, the Officer shall not be deemed to have been terminated for Just Cause by Bancorp or the Bank unless there shall have been delivered to the Officer a copy of a resolution duly adopted by 6 the affirmative vote of not less than a majority of the entire membership of the Board of Bancorp or the Bank at a meeting of such Board called and held for the purpose (after reasonable notice to the Officer and an opportunity for the Officer to be heard before the Board), finding that in the good faith opinion of such Board the Officer was guilty of conduct described above and specifying the particulars thereof. e. Certain Regulatory Events. ------------------------- i. If the Officer is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. (S)(S)1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected. ii. If the Bank is in default (as defined in Section 3(x)(1) of FDIA), all obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights of the parties shall not be affected. iii. If a notice served under Sections 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. (S)(S)1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Officer from participating in the conduct of the Bank's affairs, the Bank's obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may, in its discretion, (i) pay the Officer all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. The occurrence of any of the events described in paragraphs i, ii, and iii above may be considered by the Board of Bancorp or the Bank in connection with a termination for Just Cause. f. Voluntary Termination by Officer. In addition to his other rights -------------------------------- to terminate under this Agreement, the Officer may voluntarily terminate employment with the Bank and Bancorp during the term of this Agreement upon at least sixty-days' prior written notice to each of their Boards, in which case the Officer shall receive only his compensation, vested rights and employee benefits up to the date of his termination. g. Without Just Cause or With Good Reason. -------------------------------------- i. In addition to termination pursuant to Section 10.a. through 10.f.: the Board of Bancorp or the Bank may, by written notice to the Officer, immediately terminate his employment with Bancorp or the Bank, respectively, at any time for a reason other than Just Cause (a termination "Without Just Cause"); and the 7 Officer may, by written notice to the Boards of Bancorp and the Bank, immediately terminate this Agreement at any time within ninety days following an event of "Good Reason" as defined below (a termination "With Good Reason"). ii. Subject to Section 11 hereof, in the event of termination under this Section 10.g., the Officer shall be entitled to receive the salary for the remaining term of the Agreement, including any renewals or extensions thereof, at the highest annual rate in effect pursuant to Section 4 of this Agreement for any of the twelve months immediately preceding the date of such termination, plus annual cash bonuses for each year (prorated in the event of partial years) remaining under such term at the amount received by the Officer in the calendar year preceding the termination. The sum due under this Section 10.g. shall be paid in one lump sum within ten calendar days of such termination. iii. "Good Reason" shall exist if, without Officer's express written consent, Bancorp or the Bank materially breach any of its respective obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following: (1) A material reduction in the Officers's responsibilities or authority, or a requirement that the Officer report to any person or group other than the Boards of Bancorp and the Bank (or any other effective reduction in reporting responsibilities) in connection with his employment with Bancorp or the Bank; (2) Assignment to the Officer of duties of a nonexecutive nature or duties for which he is not reasonably equipped by his skills and experience; (3) Failure of the Officer to be elected or reelected to the Board of Bancorp or the Bank; (4) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 11 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to the Change in Control; (5) Termination of incentive and benefit plans, programs or arrangements, or reduction of the Officer's participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date. (6) A requirement that the Officer relocate his principal business office or his principal place of residence outside Montgomery County, Maryland, or the assignment to the Officer of duties that would reasonably require such a relocation; 8 (7) A requirement that the Officer spend more than thirty normal working days away from Montgomery County, Maryland during any consecutive twelve- month period; or (8) Failure to provide office facilities, secretarial services, and other administrative services to Officer which are substantially equivalent to the facilities and services provided to the Officer on the Effective Date (excluding brief periods during which office facilities may be temporarily unavailable due to fire, natural disaster, or other calamity). iv. Notwithstanding the foregoing, a reduction or elimination of the Officer's benefits under one or more benefit plans maintained by Bancorp or the Bank as part of a good faith, overall reduction or elimination of such plan or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against the Officer (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of Bancorp or the Bank or any company that controls either of them under a plan or plans in or under which the Officer is not entitled to participate, and receive benefits, on a fair and nondiscriminatory basis. h. Continuing Covenant not to Compete or Interfere with ---------------------------------------------------- Relationships. Regardless of anything herein to the contrary, ------------- following a termination (i) upon retirement pursuant to Section 10.b., (ii) due to Disability pursuant to Section 10.c., (iii) for Just Cause pursuant to Section 10.d., or (iv) by the Officer pursuant to Section 10.f.: i. The Officer's obligations under Section 9.c. of this Agreement will continue in effect; and ii. During the remaining term of this Agreement (determined immediately before such termination), the Officer shall not serve as an officer or director or employee of any bank holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a "Financial Institution") which Financial Institution offers products or services competing with those offered by Bancorp or the Bank from offices in any county in the State of Maryland or of any other State in which the Bank, Bancorp or any of their subsidiaries has a branch, and shall not interfere with the relationship of Bancorp or the Bank and any of its employees, agents, or representatives. 11. Termination in Connection with a Change in Control. -------------------------------------------------- 9 a. For purposes of this Agreement, a "Change in Control" shall be deemed to occur on the earliest of: i. The acquisition by any entity, person or group (other than the acquisition by a tax-qualified retirement plan sponsored by Bancorp or the Bank) of beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, of more than 25% of the outstanding capital stock of Bancorp or the Bank entitled to vote for the election of directors ("Voting Stock"); ii. The commencement by any entity, person, or group (other than Bancorp or the Bank, a subsidiary of Bancorp or the Bank, or a tax-qualified retirement plan sponsored by Bancorp or the Bank) of a tender offer or an exchange offer for more than 20% of the outstanding Voting Stock of Bancorp or the Bank; iii. The effective time of (a) a merger or consolidation of Bancorp or the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of Bancorp or the Bank immediately prior to such merger exercise voting control over less than 80% of the Voting Stock of the surviving or resulting corporation, or (b) a transfer of substantially all of the property of Bancorp or the Bank other than to an entity of which Bancorp or the Bank owns at least 80% of the Voting Stock; iv. Upon the acquisition by any entity, person, or group of the control of the election of a majority of the Bank's or Bancorp's directors, v. At such time that, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Bancorp or the Bank (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. b. Termination. If within the period beginning six months prior ----------- to and ending two years after a Change in Control, (i) Bancorp or the Bank shall terminate the Officer's employment Without Just Cause, or (ii) the Officer shall voluntarily terminate his employment With Good Reason, Bancorp or the Bank shall, within ten calendar days of the termination of Officer's employment, make a lump-sum cash payment to him equal to 2.99 times the sum of (x) his annual salary at the highest annual rate in effect for any of the twelve months immediately preceding 10 the date of such termination, plus (y) the amount of other compensation received by him during the calendar year preceding the Change in Control. This cash payment is subject to adjustment pursuant to Section 14 of this Agreement, and shall be made in lieu of any payment also required under section 10.g. of this Agreement because of a termination in such period. The Officer's rights under Section 10.g. are not otherwise affected by this Section 11. Also, in such event, the Officer shall, for three calendar years following his termination of employment, continue to participate in any benefit plans of Bancorp and the Bank that provide health (including medical and dental), life or disability insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior officers of the Bank during such period. c. Funding of Trust upon Change in Control. In order to assure --------------------------------------- payment to the Officer of amounts that may become payable by Bancorp or the Bank pursuant to this Section, unless and to the extent the Officer has previously provided a written release of any claims under Section 11 of this Agreement, not later than ten business days after a Change in Control, Bancorp or the Bank shall (i) establish a valid trust under the law of the State of Maryland with an independent trustee that has or may be granted corporate trust powers under Maryland law, (ii) deposit in such trust an amount equal to 2.99 times his "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder (Section 280G and related regulations hereinafter referred to as Section 280G"), at the time of the Change of Control, and (iii) provide the trustee of the trust with a written direction to hold said amount and any investment return thereon in a segregated account, and to pay such amounts as demanded by the Officer from the trust upon written demand from the Officer stating the amount of the payment demanded from the trust and the basis for his rights to such payment under Section 11 of this Agreement. Upon the earlier of the final payment of all amounts demanded by the Officer under this Section 11 or the date thirty-six months after the Change in Control, the trustee of the trust shall pay to Bancorp or the Bank, as applicable, the entire balance remaining in the trust. Payments from the trust to the Officer shall be considered payments made by Bancorp or the Bank for purposes of this Agreement. Payment of such amounts to the Officer from the trust, however, shall not relieve Bancorp or the Bank from any obligation to pay amounts in excess of those paid from the trust, or from any obligation to take actions or refrain from taking actions otherwise required by this Agreement. Unless and until a termination of or by the Officer as described in Section 11.b.(i) or (ii), the Officer's rights under this Agreement shall be those of a general, unsecured creditor, he shall have no claim against the assets of the trust, and the assets of the trust shall remain subject to the claims of creditors of Bancorp or the Bank. Upon the termination of the trust as specified herein, the Officer shall have no further interest in the trust. 12. Indemnification and Liability Insurance. --------------------------------------- 11 a. Indemnification. Bancorp and the Bank agree to indemnify the ---------------- Officer (and his heirs, executors, and administrators) to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or officer of Bancorp or the Bank or any of their subsidiaries (whether or not he continues to be a director or officer at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgements, court costs, and attorney's fees and the cost of reasonable settlements, such settlements to be approved by the Board of Bancorp or the Bank, if such action is brought against the Officer in his capacity as an officer or director of Bancorp or the Bank or any of their subsidiaries. Indemnification for expense shall not extend to matters for which the Officer has been terminated for Just Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 12 shall survive the term of this Agreement by a period of seven years. b. Insurance. During the period in which indemnification of the --------- Officer is required under this Section, Bancorp or the Bank shall provide the Officer (and his heirs, executors, and administrators) with coverage under a directors' and officers' liability policy at the expense of Bancorp or the Bank, at least equivalent to such coverage provided to directors and senior officers of Bancorp or the Bank, whichever is more favorable to the Officer. 13. Reimbursement of Officer's Expenses to Enforce this Agreement. Bancorp ------------------------------------------------------------- or the Bank shall reimburse the Officer for all out-of-pocket expenses, including, without limitation, reasonable attorney's fees, incurred by the Officer in connection with successful enforcement by the Officer of the obligations of Bancorp or the Bank to the Officer under this Agreement up to a maximum of $30,000. Successful enforcement shall mean the grant of an award of money or the requirement that Bancorp or the Bank take some action specified by this Agreement (i) as a result of court order; or (ii) otherwise by Bancorp or the Bank following an initial failure of Bancorp or the Bank to pay such money or take such action promptly after written demand therefor from the Officer stating the reason that such money or action was due under this Agreement at or prior to the time of such demand. 14. Adjustment of Certain Payments and Benefits. ------------------------------------------- a. In the event that payments pursuant to this Agreement (including, without limitation, any payment under any plan, program, or arrangement referred to in Section 5 or 6 hereof) would result in the imposition of a penalty tax pursuant to Section 280G, such payments shall be reduced to equal the maximum amount which may be paid under Section 280G without exceeding such limits. In the event any such reduction in payments is necessary, the Officer may determine, in 12 his sole discretion, which categories of payments (including, without limitation, the value of benefits or of acceleration of vesting or receipt of benefits or amounts) are to be reduced or eliminated. b. Payments made to the Officer pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA (12 U.S.C. (S) 1828 (k), relating to "golden parachute" and indemnification payments and certain other benefits. 15. Injunctive Relief. If there is a breach or threatened breach of Section ----------------- 10.h. of this Agreement or the prohibitions upon disclosure contained in Section 9.c. of this Agreement, Bancorp or the Bank and the Officer agree that there is no adequate remedy at law for such breach, and that Bancorp and the Bank each shall be entitled to injunctive relief restraining the Officer from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Officer shall be entitled to injunctive relief to enforce the obligations of Bancorp and the Bank under Section 11 of this Agreement. 16. Successors and Assigns. ---------------------- a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of Bancorp or the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of Bancorp or the Bank. b. Since the Bank and Bancorp are contracting for the unique and personal skills of the Officer, the Officer shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank and Bancorp. 17. No Mitigation. The Officer shall not be required to mitigate the -------------- amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Officer in any subsequent employment. 13 18. Notices. All notices, requests, demands and other communications in ------- connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed as follows, or to such other address as shall have been designated in writing by the addressee: a. If to Bancorp or the Bank: Sandy Spring Bancorp, Inc. Sandy Spring National Bank of Maryland 17801 Georgia Avenue Olney, Maryland 20832 Attention: The Boards of Directors Copy to: Corporate Secretary b. If to the Officer: Hunter R. Hollar 16935 Continental Court Olney, Maryland 20832 19. Joint and Severally Liability; Payments by Bancorp and the Bank. To the --------------------------------------------------------------- extent permitted by law, except as otherwise provided herein, Bancorp and the Bank shall be jointly and severally liable for the payment of all amounts due under this Agreement. Bancorp hereby agrees that it shall be jointly and severally liable with the Bank for the payment of all amounts due under this Agreement and shall guarantee the performance of the Bank's obligations thereunder, provided that Bancorp shall not be required by this Agreement to pay to the Officer a salary or any bonuses or any other cash payments, except in the event that the Bank does not fulfill the obligations to the Officer hereunder for such payments. Bancorp may, however, pay salary and bonuses as deemed appropriate by its Board in the exercise of its discretion. 20. No Plan Created by this Agreement. The Officer, Bancorp and the Bank --------------------------------- expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and Bancorp, the Bank and the Officer each expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process by or on behalf of the Officer or Bancorp or the Bank that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion. 21. Amendments. No amendments or additions to this Agreement shall ---------- be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 14 22. Applicable Law. Except to the extent preempted by Federal law, the laws -------------- of the State of Maryland shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 23. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 24. Headings. Headings contained herein are for convenience of reference -------- only. 25. Entire Agreement. This Agreement, together with any understanding or ---------------- modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. SANDY SPRING NATIONAL BANK OF MARYLAND By: /s/ W. Drew Stabler Title: Chairman of the Board SANDY SPRING BANCORP, INC. By: /s/ W. Drew Stabler Title: Chairman of the Board OFFICER /s/ Hunter R. Hollar Hunter R. Hollar 15 EX-10.F 7 EXHIBIT 10(F) Exhibit 10(f) EMPLOYMENT AGREEMENT ================================================================================ THIS AGREEMENT (the "Agreement"), made this 30th day of January 1997, by and among Sandy Spring Bancorp, Inc., a registered bank holding company ("Bancorp"), Sandy Spring National Bank of Maryland, a national banking association and wholly owned subsidiary of Bancorp with its main office in Olney, Maryland (the "Bank"), and James H. Langmead (the "Officer"). W I T N E S S E T H WHEREAS, the Officer is employed as the Senior Vice President and Chief Financial Officer of the Bank and the Vice President and Treasurer of Bancorp. WHEREAS, as a result of the skill, knowledge, and experience of the Officer, the Board of Directors ("Board") of the Bank and the Board of Bancorp each desires to retain the services of the Officer. WHEREAS, the Officer desires to continue to serve as an officer of Bancorp and the Bank. WHEREAS, the Officer and the respective Boards of the Bank and Bancorp desire to enter into an Agreement setting forth the terms of conditions of the continuing employment of the Officer and the related rights and obligations of each of the parties. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed as follows: 1. Employment. The Officer is employed as the Vice President and Treasurer ---------- of Bancorp and the Senior Vice President and Chief Financial Officer of the Bank, reporting to the President and Chief Executive Officer. Subject to direction of the President and Chief Executive Officer, the Officer shall have responsibility for the financial affairs of Bancorp, the Bank, and their respective subsidiaries, and shall perform all duties and shall have all powers which are commonly incident to the offices of Chief Financial Officer or which, consistent with those offices, are delegated to him by the President and Chief Executive Officer. The officer shall serve as a member of the Senior Officer Policy Committee and the Asset/Liability Committee of the Bank. The Officer's duties include, but are not limited to: a. Making recommendations to the President and Chief Executive Officer concerning the financial strategies, capital structure, and operations of Bancorp and the Bank; 1 b. Management oversight of the accounting, budgeting, planning and financial reporting operations of the Bancorp and the Bank, including supervision of the officers and employees engaged in these functions; c. Management oversight of the compliance, security, purchasing, and facilities management functions of Bancorp and the Bank, including supervision of the officers and employees engaged in these functions; d. Promoting Bancorp and the Bank and their services; e. Managing the efforts of Bancorp and the Bank to comply with applicable laws and regulations relating to financial reporting, accounting, and capital structure of Bancorp and the Bank; and f. Providing complete, timely, and accurate reports to the President and Chief Executive Officer of Bancorp and the Bank regarding the financial condition, performance, and budget of Bancorp and the Bank, respectively. 2. Location and Facilities. The Officer will be furnished with the working ----------------------- facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of Bancorp and the Bank, or at such other site or sites customary for such offices. 3. Term. ---- a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the "Effective Date") and ending immediately prior to the second anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3. b. On each anniversary of the Effective Date prior to a termination of the Agreement, the term under this Agreement shall be extended for an additional one-year period beyond the then effective expiration date without action by any party, provided that neither Bancorp or the Bank, on the one hand, nor the Officer, on the other, shall have given written notice at least sixty (60) days prior to such anniversary date of its or his desire that the term not be extended. The President and Chief Executive Officer will review the Officer's performance and the advisability of extending the term of this Agreement, and the Boards of Bancorp and the Bank shall, based on such review, determine whether or not to extend the term of this Agreement at a meeting or meetings at least ninety (90) days prior to each anniversary date. 2 4. Base Compensation. ----------------- a. Bancorp and the Bank agree to pay the Officer during the term of this Agreement a salary at the rate of $110,000 per annum, payable in cash not less frequently than monthly, as may be adjusted in accordance with this Section 4. b. The Human Resources Committee of the Bank (the "Committee") with the advice of the President and Chief Executive Officer shall perform an annual analysis of the Officer's performance and of the compensation of officers performing similar functions at independent financial institutions of comparable assets and performance, and based upon this review, the recommendation of the President and Chief Executive Officer, and on such other factors as it deems pertinent, shall recommend to the Boards of Bancorp and the Bank the salary rate to be paid beginning on the next April 1 following such review. The Boards of Bancorp and the Bank shall review annually the rate of the Officer's salary based upon this recommendation of the Committee and other factors they deem relevant, and may maintain, increase or decrease his salary, provided that no such action shall (i) reduce the rate of salary below $110,000 or (ii) reduce the rate of salary paid to the Officer for any months prior to the month in which notice of the reduction is provided in writing to the Officer. c. In the absence of action by the Board of both Bancorp and the Bank, the Officer shall continue to receive salary at the $110,000 per annum rate specified herein or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board of Bancorp or the Bank under the provisions of this Section 4. 5. Bonuses. Unless the Officer agrees otherwise, he shall be entitled to ------- participate in discretionary bonuses that the Board may award from time to time to senior management employees pursuant to bonus plans or otherwise. The Officer also shall participate in any other fringe benefits which are or may become available to senior management employees of Bancorp or the Bank, including for example: any stock option or incentive compensation plans and any other benefits that are commensurate with the responsibilities and functions to be performed by the Officer under this Agreement. No other compensation provided for in this Agreement shall be deemed a substitute for the Officer's right to participate in such discretionary bonuses or fringe benefits. 6. Benefit Plans. The Officer shall be entitled to participate in such ------------- life insurance, medical, dental, pension, profit sharing, and retirement plans and other programs and arrangements as may be approved from time to time by Bancorp or the Bank for the benefit of their respective employees. In addition, the Officer shall be entitled to participate in a nonstatutory supplemental retirement plan or arrangement ("SERP") established for the Officer and in the Executive Health Expense Reimbursement and Insurance Plans (together, the "HERP") or a successor plan or plans 3 that provide the same or greater level of benefits as those provided to participants under the HERP as in effect on the Effective Date. (The resolution of the Board of the Bank approving this Agreement shall serve as a designation of eligibility to participate in the HERP as of the Effective Time, if the Officer had not previously been designated as eligible.) 7. Vacation and Leave. ------------------ a. The Officer shall be entitled to five weeks (twenty-five working days) of vacation with pay during each consecutive twelve-month period commencing on January 1, 1997 and each January 1 thereafter during the term of this Agreement, to be taken at reasonable times and in reasonable periods as the Officer and Bancorp or the Bank shall mutually determine, and provided that no vacation time shall interfere with the duties required to be rendered by the Officer hereunder. Any vacation time not used during a twelve-month period shall carry over and be useable during the succeeding twelve-month period, but not thereafter. The Officer shall not receive any additional compensation from Bancorp or the Bank on account of his failure to take vacation. b. In addition to paid vacations, the Officer shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the President and Chief Executive Officer may in his discretion determine. Further, the President and Chief Executive Officer may grant to the Officer a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the President and Chief Executive Officer in his discretion may determine. 8. Expense Payments and Reimbursements. The Officer shall be reimbursed ----------------------------------- for all reasonable out-of-pocket business expenses which he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of Bancorp or the Bank. 9. Loyalty and Confidentiality. --------------------------- a. During the term of this Agreement the Officer: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, the Officer may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with Bancorp or the Bank or any of their subsidiaries or affiliates, unfavorably affect the performance of Officer's duties pursuant to this Agreement, or violate any applicable statute or regulation; and (ii) shall not engage in any business or activity contrary to the business affairs or interests of Bancorp or the Bank. 4 b. Nothing contained in this Agreement shall prevent or limit the Officer's right to invest in the capital stock or other securities of any business dissimilar from that of Bancorp and the Bank, or, solely as a passive, minority investor, in any business. c. The Officer agrees to maintain the confidentiality of any and all information concerning the operation or financial status of Bancorp and the Bank; the names or addresses of any of their borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning Bancorp or the Bank to which he may be exposed during the course of his employment. The Officer further agrees that, unless required by law or specifically permitted by Bancorp or the Bank in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of Bancorp and the Bank. 10. Termination and Termination Pay. Subject to Section 11 of this ------------------------------- Agreement, the Officer's employment under this Agreement may be terminated in the following circumstances: a. Death. The Officer's employment under this Agreement shall ----- terminate upon his death during the term of this Agreement, in which event the Officer's estate shall be entitled to receive the compensation due to the Officer through the last day of the calendar month in which his death occurred. b. Retirement. This Agreement shall be terminated upon the ---------- normal or early retirement of the Officer under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement. c. Disability. Bancorp, the Bank, or the Officer may terminate ---------- the Officer's employment after having established the Officer's Disability. For purposes of this Agreement, "Disability" means a physical or mental infirmity that impairs the Officer's ability to substantially perform his duties under this Agreement and that results in the Officer's becoming eligible for long-term disability benefits under Bancorp's or the Bank's long-term disability plan (or, if Bancorp or the Bank has no such plan in effect, that impairs the Officer's ability to substantially perform his duties under this Agreement for a period of one-hundred-eighty consecutive days). In the event of such Disability, the Officer's obligation to perform services under this Agreement will terminate. In the event of such termination, the Officer shall be entitled to receive the following: i. The compensation and benefits provided for under this Agreement for any period during the term of this Agreement and prior to the date of termination pursuant to this Section 10.c. during which the Officer is 5 unable to work due to physical or mental infirmity (less any amounts which the Officer receives under any disability insurance maintained by Bancorp or the Bank with respect to such period); ii. For the period beginning upon the date of termination pursuant to this Section 10.c. and continuing for the remaining term of this Agreement, (A) salary at the highest rate paid pursuant to Section 4 of this Agreement during the twelve months prior to the establishment of such disability under this Section 10.c., reduced by any payments received by the Officer during such period following termination under a long term disability plan or policy maintained by Bancorp or the Bank, and (B) benefits pursuant to Section 6 of this Agreement. The Boards of Bancorp and the Bank shall determine whether or not the Officer is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant. As a condition to any benefits, such Board may require the Officer to submit to such physical or mental evaluations and tests as it deems reasonably appropriate. d. Just Cause. ---------- i. The Board of Bancorp or the Bank may, by written notice to the Officer in the form and manner specified in this paragraph, immediately terminate his employment with Bancorp or the Bank, respectively, at any time, for Just Cause. The Officer shall have no right to receive compensation or other benefits for any period after termination for Just Cause. Termination for "Just Cause" shall mean termination because of, in the good faith determination of Bancorp's or the Bank's Board, the Officer's: (1) Personal dishonesty; (2) Incompetence; (3) Willful misconduct; (4) Breach of fiduciary duty involving personal profit; (5) Intentional failure to perform duties under this Agreement; (6) Other, continuing material failure to perform his duties under this Agreement after reasonable notification (which shall be stated in writing and given at least fifteen days prior to termination) by the Board of Bancorp or the Bank of such failure; (7) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order; or (8) Material breach by the Officer of any provision of this Agreement. ii. Notwithstanding the foregoing, the Officer shall not be deemed to have been terminated for Just Cause by Bancorp or the Bank unless there shall have been delivered to the Officer a copy of a resolution duly adopted by 6 the affirmative vote of not less than a majority of the entire membership of the Board of Bancorp or the Bank at a meeting of such Board called and held for the purpose (after reasonable notice to the Officer and an opportunity for the Officer to be heard before the Board), finding that in the good faith opinion of such Board the Officer was guilty of conduct described above and specifying the particulars thereof. e. Certain Regulatory Events. ------------------------- i. If the Officer is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. (S)(S) 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected. ii. If the Bank is in default (as defined in Section 3(x)(1) of FDIA), all obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights of the parties shall not be affected. iii. If a notice served under Sections 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. (S)(S) 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Officer from participating in the conduct of the Bank's affairs, the Bank's obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may, in its discretion, (i) pay the Officer all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. The occurrence of any of the events described in paragraphs i, ii, and iii above may be considered by the Board of Bancorp or the Bank in connection with a termination for Just Cause. f. Voluntary Termination by Officer. In addition to his other -------------------------------- rights to terminate under this Agreement, the Officer may voluntarily terminate employment with the Bank and Bancorp during the term of this Agreement upon at least sixty days' prior written notice to each of them, in which case the Officer shall receive only his compensation, vested rights and employee benefits up to the date of his termination. g. Without Just Cause or With Good Reason. -------------------------------------- i. In addition to termination pursuant to Section 10.a. through 10.f.: the Board of Bancorp or the Bank may, by written notice to the Officer, immediately terminate his employment with Bancorp or the Bank, respectively, at any time for a reason other than Just Cause (a termination "Without Just Cause"); and the 7 Officer may, by written notice to the Boards of Bancorp and the Bank, immediately terminate this Agreement at any time within ninety days following an event of "Good Reason" as defined below (a termination "With Good Reason"). ii. Subject to Section 11 hereof, in the event of termination under this Section 10.g., the Officer shall be entitled to receive the salary for the remaining term of the Agreement, including any renewals or extensions thereof, at the highest annual rate in effect pursuant to Section 4 of this Agreement for any of the twelve months immediately preceding the date of such termination, plus annual cash bonuses for each year (prorated in the event of partial years) remaining under such term at the amount received by the Officer in the calendar year preceding the termination. The sum due under this Section 10.g. shall be paid in one lump sum within ten calendar days of such termination. iii. "Good Reason" shall exist if, without Officer's express written consent, Bancorp or the Bank materially breach any of its respective obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following: (1) A material reduction in the Officers's responsibilities or authority in connection with his employment with Bancorp or the Bank; (2) Assignment to the Officer of duties of a nonexecutive nature or duties for which he is not reasonably equipped by his skills and experience; (3) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 11 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to the Change in Control; (4) Termination of incentive and benefit plans, programs, or arrangements, or reduction of the Officer's participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date; (5) A requirement that the Officer relocate his principal business office or his principal place of residence outside Montgomery County, Maryland, or the assignment to the Officer of duties that would reasonably require such a relocation; (6) A requirement that the Officer spend more than thirty normal working days away from Montgomery County, Maryland during any consecutive twelve-month period; or (7) Failure to provide office facilities, secretarial services, and other administrative services to Officer which are substantially equivalent to the facilities and services provided to the Officer on the 8 Effective Date (excluding brief periods during which office facilities may be temporarily unavailable due to fire, natural disaster, or other calamity). iv. Notwithstanding the foregoing: (A) a reduction or elimination of the Officer's benefits under one or more benefit plans maintained by Bancorp or the Bank as part of a good faith, overall reduction or elimination of such plan or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against the Officer (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of Bancorp or the Bank or any company that controls either of them under a plan or plans in or under which the Officer is not entitled to participate, and receive benefits, on a fair and nondiscriminatory basis; and (B) a requirement that the Officer report to and be subject to the direction or supervision of a senior officer of Bancorp or the Bank other than the President and Chief Executive Officer shall not constitute an event of Good Reason or a material breach of this Agreement. h. Continuing Covenant not to Compete or Interfere with ---------------------------------------------------- Relationships. Regardless of anything herein to the contrary, ------------- following a termination (i) upon retirement pursuant to Section 10.b., (ii) due to Disability pursuant to Section 10.c., (iii) for Just Cause pursuant to Section 10.d., or (iv) by the Officer pursuant to Section 10.f.: i. The Officer's obligations under Section 9.c. of this Agreement will continue in effect; and ii. During the remaining term of this Agreement (determined immediately before such termination), the Officer shall not serve as an officer or director or employee of any bank holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a "Financial Institution") which Financial Institution offers products or services competing with those offered by Bancorp or the Bank from offices in any county in the State of Maryland or of any other State in which the Bank, Bancorp or any of their subsidiaries has a branch, and shall not interfere with the relationship of Bancorp or the Bank and any of its employees, agents, or representatives. 11. Termination in Connection with a Change in Control. -------------------------------------------------- 9 a. For purposes of this Agreement, a "Change in Control" shall be deemed to occur on the earliest of: i. The acquisition by any entity, person or group (other than the acquisition by a tax-qualified retirement plan sponsored by Bancorp or the Bank) of beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, of more than 25% of the outstanding capital stock of Bancorp or the Bank entitled to vote for the election of directors ("Voting Stock"); ii. The commencement by any entity, person, or group (other than Bancorp or the Bank, a subsidiary of Bancorp or the Bank or a tax-qualified retirement plan sponsored by Bancorp or the Bank) of a tender offer or an exchange offer for more than 20% of the outstanding Voting Stock of Bancorp or the Bank; iii. The effective time of (a) a merger or consolidation of Bancorp or the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of Bancorp or the Bank immediately prior to such merger exercise voting control over less than 80% of the Voting Stock of the surviving or resulting corporation, or (b) a transfer of substantially all of the property of Bancorp or the Bank other than to an entity of which Bancorp or the Bank owns at least 80% of the Voting Stock; iv. Upon the acquisition by any entity, person, or group of the control of the election of a majority of the Bank's or Bancorp's directors, v. At such time that, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Bancorp or the Bank (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. b. Termination. If within the period beginning six months ----------- prior to and ending two years after a Change in Control, (i) Bancorp or the Bank shall terminate the Officer's employment Without Just Cause, or (ii) the Officer shall voluntarily terminate his employment With Good Reason, Bancorp or the Bank shall, within ten calendar days of the termination of Officer's employment, make a lump-sum cash payment to him equal to 2.99 times the sum of (x) his annual salary at the highest annual rate in effect for any of the twelve months immediately preceding the date of such termination, plus (y) the amount of other compensation received 10 by him during the calendar year preceding the Change in Control. This cash payment is subject to adjustment pursuant to Section 14 of this Agreement, and shall be made in lieu of any payment also required under section 10.g. of this Agreement because of a termination in such period. The officer's rights under Section 10.g. are not otherwise affected by this Section 11. Also, in such event, the Officer shall, for three calendar years following his termination of employment, continue to participate in any benefit plans of Bancorp and the Bank that provide health (including medical and dental), life or disability insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior officers of the Bank during such period. c. Funding of Trust upon Change in Control. In order to assure ----------------------------------------- payment to the Officer of amounts that may become payable by Bancorp or the Bank pursuant to this Section, unless and to the extent the Officer has previously provided a written release of any claims under Section 11 of this Agreement, not later than ten business days after a Change in Control, Bancorp or the Bank shall (i) establish a valid trust under the law of the State of Maryland with an independent trustee that has or may be granted corporate trust powers under Maryland law, (ii) deposit in such trust an amount equal to 2.99 times his "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder (Section 280G and related regulations hereinafter referred to as Section 280G"), at the time of the Change of Control, and (iii) provide the trustee of the trust with a written direction to hold said amount and any investment return thereon in a segregated account, and to pay such amounts as demanded by the Officer from the trust upon written demand from the Officer stating the amount of the payment demanded from the trust and the basis for his rights to such payment under Section 11 of this Agreement. Upon the earlier of the final payment of all amounts demanded by the Officer under this Section 11 or the date thirty-six months after the Change in Control, the trustee of the trust shall pay to Bancorp or the Bank, as applicable, the entire balance remaining in the trust. Payments from the trust to the Officer shall be considered payments made by Bancorp or the Bank for purposes of this Agreement. Payment of such amounts to the Officer from the trust, however, shall not relieve Bancorp or the Bank from any obligation to pay amounts in excess of those paid from the trust, or from any obligation to take actions or refrain from taking actions otherwise required by this Agreement. Unless and until a termination of or by the Officer as described in Section 11.b.(i) or (ii), the Officer's rights under this Agreement shall be those of a general, unsecured creditor, he shall have no claim against the assets of the trust, and the assets of the trust shall remain subject to the claims of creditors of Bancorp or the Bank. Upon the termination of the trust as specified herein, the Officer shall have no further interest in the trust. 12. Indemnification and Liability Insurance. --------------------------------------- 11 a. Indemnification. Bancorp and the Bank agree to indemnify --------------- the Officer (and his heirs, executors, and administrators) to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or officer of Bancorp or the Bank or any of their subsidiaries (whether or not he continues to be a director or officer at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgements, court costs and attorney's fees and the cost of reasonable settlements, such settlements to be approved by the Board of Bancorp or the Bank, if such action is brought against the Officer in his capacity as an officer or director of Bancorp or the Bank or any of their subsidiaries. Indemnification for expense shall not extend to matters for which the Officer has been terminated for Just Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 12 shall survive the term of this Agreement by a period of seven years. b. Insurance. During the period in which indemnification of --------- the Officer is required under this Section, Bancorp or the Bank shall provide the Officer (and his heirs, executors, and administrators) with coverage under a directors' and officers' liability policy at the expense of Bancorp or the Bank, at least equivalent to such coverage provided to directors and senior officers of Bancorp or the Bank, whichever is more favorable to the Officer. 13. Reimbursement of Officer's Expenses to Enforce this Agreement. Bancorp ------------------------------------------------------------- or the Bank shall reimburse the Officer for all out-of-pocket expenses, including, without limitation, reasonable attorney's fees, incurred by the Officer in connection with successful enforcement by the Officer of the obligations of Bancorp or the Bank to the Officer under this Agreement up to a maximum of $30,000. Successful enforcement shall mean the grant of an award of money or the requirement that Bancorp or the Bank take some action specified by this Agreement (i) as a result of court order; or (ii) otherwise by Bancorp or the Bank following an initial failure of Bancorp or the Bank to pay such money or take such action promptly after written demand therefor from the Officer stating the reason that such money or action was due under this Agreement at or prior to the time of such demand. 14. Adjustment of Certain Payments and Benefits. ------------------------------------------- a. In the event that payments pursuant to this Agreement (including, without limitation, any payment under any plan, program, or arrangement referred to in Section 5 or 6 hereof) would result in the imposition of a penalty tax pursuant to Section 280G, such payments shall be reduced to equal the maximum amount which may be paid under Section 280G without exceeding such limits. In the event any such reduction in payments is necessary, the Officer may determine, in 12 his sole discretion, which categories of payments (including, without limitation, the value of benefits or of acceleration of vesting or receipt of benefits or amounts) are to be reduced or eliminated. b. Payments made to the Officer pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA (12 U.S.C. (S) 1828 (k), relating to "golden parachute" and indemnification payments and certain other benefits. 15. Injunctive Relief. If there is a breach or threatened breach of Section ----------------- 10.h. of this Agreement or the prohibitions upon disclosure contained in Section 9.c. of this Agreement, Bancorp or the Bank and the Officer agree that there is no adequate remedy at law for such breach, and that Bancorp and the Bank each shall be entitled to injunctive relief restraining the Officer from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Officer shall be entitled to injunctive relief to enforce the obligations of Bancorp and the Bank under Section 11 of this Agreement. 16. Successors and Assigns. ---------------------- a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of Bancorp or the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of Bancorp or the Bank. b. Since the Bank and Bancorp are contracting for the unique and personal skills of the Officer, the Officer shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank and Bancorp. 17. No Mitigation. The Officer shall not be required to mitigate the -------------- amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Officer in any subsequent employment. 18. Notices. All notices, requests, demands and other communications in ------- connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed as follows, or to such other address as shall have been designated in writing by the addressee: a. If to Bancorp or the Bank: Sandy Spring Bancorp, Inc. 13 Sandy Spring National Bank of Maryland 17801 Georgia Avenue Olney, Maryland 20832 Attention: President and Chief Executive Officer Copy to: Corporate Secretary b. If to the Officer: James H. Langmead 7112 Chardon Court Clarksville, Maryland 21029 19. Joint and Severally Liability; Payments by Bancorp and the Bank. To the --------------------------------------------------------------- extent permitted by law, except as otherwise provided herein, Bancorp and the Bank shall be jointly and severally liable for the payment of all amounts due under this Agreement. Bancorp hereby agrees that it shall be jointly and severally liable with the Bank for the payment of all amounts due under this Agreement and shall guarantee the performance of the Bank's obligations thereunder, provided that Bancorp shall not be required by this Agreement to pay to the Officer a salary or any bonuses or any other cash payments, except in the event that the Bank does not fulfill the obligations to the Officer hereunder for such payments. Bancorp may, however, pay salary and bonuses as deemed appropriate by its Board in the exercise of its discretion. 20. No Plan Created by this Agreement. The Officer, Bancorp and the Bank --------------------------------- expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and Bancorp, the Bank and the Officer each expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process by or on behalf of the Officer or Bancorp or the Bank that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion. 21. Amendments. No amendments or additions to this Agreement shall ---------- be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 22. Applicable Law. Except to the extent preempted by Federal law, the --------------- laws of the State of Maryland shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 23. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 24. Headings. Headings contained herein are for convenience of reference -------- only. 14 25. Entire Agreement. This Agreement, together with any understanding or ---------------- modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs, or arrangements described in Sections 5 and 6, and supersedes all prior agreements other than with respect to such specific plans, programs, or arrangements. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. SANDY SPRING NATIONAL BANK OF MARYLAND By: /s/ Hunter R. Hollar Title: President and Chief Executive Officer SANDY SPRING BANCORP, INC. By: /s/ Hunter R. Hollar Title: President and Chief Executive Officer OFFICER /s/ James H. Langmead James H. Langmead 15 EX-10.G 8 EXHIBIT 10(G) Exhibit 10(g) EMPLOYMENT AGREEMENT ================================================================================ THIS AGREEMENT (the "Agreement"), made this 30th day of January 1997, by and among Sandy Spring Bancorp, Inc., a registered bank holding company ("Bancorp"), Sandy Spring National Bank of Maryland, a national banking association and wholly owned subsidiary of Bancorp with its main office in Olney, Maryland (the "Bank"), and Lawrence T. Lewis (the "Officer"). W I T N E S S E T H WHEREAS, the Officer is employed as the Senior Vice President of the Bank. WHEREAS, as a result of the skill, knowledge, and experience of the Officer, the Board of Directors of the Bank (the "Board") desires to retain the services of the Officer. WHEREAS, the Officer desires to continue to serve as the Senior Vice President of the Bank. WHEREAS, the Officer and the Board and the Board of Directors of Bancorp desire to enter into an Agreement setting forth the terms of conditions of the continuing employment of the Officer and the related rights and obligations of each of the parties. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed as follows: 1. Employment. The Officer is employed as the Senior Vice President of ---------- the Bank, reporting to the President and Chief Executive Officer. Subject to direction of the President and Chief Executive Officer, the Officer shall perform all duties and shall have all powers which are commonly incident to the office of Senior Vice President or which, consistent with that office, are delegated to him by the President and Chief Executive Officer. The officer shall serve as a member of the Senior Officer Policy Committee and the Asset/ Liability Committee of the Bank, as Chairman of the Trust Investment Committee and the Investment Committee of the Bank, and as an ex official member of the Trust Committee of the Board. The Officer's duties include, but are not limited to: a. Making recommendations to the President and Chief Executive Officer concerning the investment strategies, asset liability position, and capital structure of Bancorp and the Bank and related policies; b. Managing the day-to-day investment functions of the Bank, including supervision of the officers and employees engaged in these functions; 1 c. Management oversight of the Investment Division of the Bank, including trust administration, asset management, financial planning services, and retirement plan services; d. Administrative oversight of the Audit Department (which reports to the Board); e. Promoting the Bank and its services; f. Managing the efforts of Bancorp and the Bank to comply with applicable laws and regulations relating to the investments of the Bank; and g. Providing complete, timely, and accurate reports to the President and Chief Executive Officer of Bancorp and the Bank regarding the Bank's investment portfolio and trust department functions. 2. Location and Facilities. The Officer will be furnished with the working ----------------------- facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Bank, or at such other site or sites customary for such offices. 3. Term. ---- a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the "Effective Date") and ending immediately prior to the second anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3. b. On each anniversary of the Effective Date prior to a termination of the Agreement, the term under this Agreement shall be extended for an additional one-year period beyond the then effective expiration date without action by any party, provided that neither the Bank nor the Officer shall have given written notice at least sixty (60) days prior to such anniversary date of its or his desire that the term not be extended. The President and Chief Executive Officer will review the Officer's performance and the advisability of extending the term of this Agreement, and the Board shall, based on such review, determine whether or not to extend the term of this Agreement at a meeting or meetings at least ninety (90) days prior to each anniversary date. 4. Base Compensation. ----------------- a. The Bank agrees to pay the Officer during the term of this Agreement a salary at the rate of $110,000 per annum, payable in cash not less frequently than monthly, as may be adjusted in accordance with this Section 4. 2 b. The Human Resources Committee of the Bank (the "Committee") with the advice of the President and Chief Executive Officer shall perform an annual analysis of the Officer's performance and of the compensation of officers performing similar functions at independent financial institutions of comparable assets and performance, and based upon this review, the recommendation of the President and Chief Executive Officer, and on such other factors as it deems pertinent, shall recommend to the Board the salary rate to be paid beginning on the next April 1 following such review. The Board shall review annually the rate of the Officer's salary based upon this recommendation of the Committee and other factors they deem relevant, and may maintain, increase or decrease his salary, provided that no such action shall (i) reduce the rate of salary below $110,000 or (ii) reduce the rate of salary paid to the Officer for any months prior to the month in which notice of the reduction is provided in writing to the Officer. c. In the absence of action by the Board, the Officer shall continue to receive salary at the $110,000 per annum rate specified herein or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4. 5. Bonuses. Unless the Officer agrees otherwise, he shall be entitled to ------- participate in discretionary bonuses that the Board may award from time to time to senior management employees pursuant to bonus plans or otherwise. The Officer also shall participate in any other fringe benefits which are or may become available to senior management employees of the Bank, including for example: any stock option or incentive compensation plans and any other benefits that are commensurate with the responsibilities and functions to be performed by the Officer under this Agreement. No other compensation provided for in this Agreement shall be deemed a substitute for the Officer's right to participate in such discretionary bonuses or fringe benefits. 6. Benefit Plans. The Officer shall be entitled to participate in such ------------- life insurance, medical, dental, pension, profit sharing, and retirement plans and other programs and arrangements as may be approved from time to time by Bancorp or the Bank for the benefit of the employees of the Bank. In addition, the Officer shall be entitled to participate in a nonstatutory supplemental retirement plan or arrangement ("SERP") established for the Officer and in the Executive Health Expense Reimbursement and Insurance Plans (together, the "HERP") or a successor plan or plans that provide the same or greater level of benefits as those provided to participants under the HERP as in effect on the Effective Date. (The resolution of the Board of the Bank approving this Agreement shall serve as a designation of eligibility to participate in the HERP as of the Effective Time, if the Officer had not previously been designated as eligible.) 7. Vacation and Leave. ------------------ a. The Officer shall be entitled to five weeks (twenty-five working days) of vacation with pay during each consecutive twelve-month period commencing on January 1, 1997 and each January 1 thereafter during the term of this Agreement, to be 3 taken at reasonable times and in reasonable periods as the Officer and the Bank shall mutually determine, and provided that no vacation time shall interfere with the duties required to be rendered by the Officer hereunder. Any vacation time not used during a twelve-month period shall carry over and be useable during the succeeding twelve-month period, but not thereafter. The Officer shall not receive any additional compensation from the Bank on account of his failure to take vacation. b. In addition to paid vacations, the Officer shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the President and Chief Executive Officer may in his discretion determine. Further, the President and Chief Executive Officer may grant to the Officer a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the President and Chief Executive Officer in his discretion may determine. 8. Expense Payments and Reimbursements. The Officer shall be reimbursed ----------------------------------- for all reasonable out-of-pocket business expenses which he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Bank. 9. Loyalty and Confidentiality. --------------------------- a. During the term of this Agreement the Officer: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, the Officer may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with Bancorp or the Bank or any of their subsidiaries or affiliates, unfavorably affect the performance of Officer's duties pursuant to this Agreement, or violate any applicable statute or regulation; and (ii) shall not engage in any business or activity contrary to the business affairs or interests of Bancorp or the Bank. b. Nothing contained in this Agreement shall prevent or limit the Officer's right to invest in the capital stock or other securities of any business dissimilar from that of Bancorp and the Bank, or, solely as a passive, minority investor, in any business. c. The Officer agrees to maintain the confidentiality of any and all information concerning the operation or financial status of Bancorp and the Bank; the names or addresses of any of their borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning Bancorp or the Bank to which he may be exposed during 4 the course of his employment. The Officer further agrees that, unless required by law or specifically permitted by Bancorp or the Bank in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of Bancorp and the Bank. 10. Termination and Termination Pay. Subject to Section 11 of this ------------------------------- Agreement, the Officer's employment under this Agreement may be terminated in the following circumstances: a. Death. The Officer's employment under this Agreement shall ----- terminate upon his death during the term of this Agreement, in which event the Officer's estate shall be entitled to receive the compensation due to the Officer through the last day of the calendar month in which his death occurred. b. Retirement. This Agreement shall be terminated upon the ---------- normal or early retirement of the Officer under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement. c. Disability. The Bank or the Officer may terminate the ---------- Officer's employment after having established the Officer's Disability. For purposes of this Agreement, "Disability" means a physical or mental infirmity that impairs the Officer's ability to substantially perform his duties under this Agreement and that results in the Officer's becoming eligible for long-term disability benefits under Bancorp's or the Bank's long-term disability plan (or, if Bancorp or the Bank has no such plan in effect, that impairs the Officer's ability to substantially perform his duties under this Agreement for a period of one-hundred-eighty consecutive days). In the event of such Disability, the Officer's obligation to perform services under this Agreement will terminate. In the event of such termination, the Officer shall be entitled to receive the following: i. The compensation and benefits provided for under this Agreement for any period during the term of this Agreement and prior to the date of termination pursuant to this Section 10.c. during which the Officer is unable to work due to physical or mental infirmity (less any amounts which the Officer receives under any disability insurance maintained by Bancorp or the Bank with respect to such period); ii. For the period beginning upon the date of termination pursuant to this Section 10.c. and continuing for the remaining term of this Agreement, (A) salary at the highest rate paid pursuant to Section 4 of this Agreement during the twelve months prior to the establishment of such disability under this Section 10.c., reduced by any payments received by the Officer during such period following termination under a long term disability plan 5 or policy maintained by Bancorp or the Bank, and (B) benefits pursuant to Section 6 of this Agreement. The Board shall determine whether or not the Officer is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that it reasonably believes to be relevant. As a condition to any benefits, such Board may require the Officer to submit to such physical or mental evaluations and tests as it deems reasonably appropriate. d. Just Cause. ---------- i. The Board may, by written notice to the Officer in the form and manner specified in this paragraph, immediately terminate his employment with the Bank at any time for Just Cause. The Officer shall have no right to receive compensation or other benefits for any period after termination for Just Cause. Termination for "Just Cause" shall mean termination because of, in the good faith determination of the Board, the Officer's: (1) Personal dishonesty; (2) Incompetence; (3) Willful misconduct; (4) Breach of fiduciary duty involving personal profit; (5) Intentional failure to perform duties under this Agreement; (6) Other, continuing material failure to perform his duties under this Agreement after reasonable notification (which shall be stated in writing and given at least fifteen days prior to termination) by the Board of such failure; (7) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order; or (8) Material breach by the Officer of any provision of this Agreement. ii. Notwithstanding the foregoing, the Officer shall not be deemed to have been terminated for Just Cause unless there shall have been delivered to the Officer a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting called and held for the purpose (after reasonable notice to the Officer and an opportunity for the Officer to be heard before the Board), finding that in the good faith opinion of the Board the Officer was guilty of conduct described above and specifying the particulars thereof. e. Certain Regulatory Events. ------------------------- i. If the Officer is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. (S)(S) 1818(e)(4) 6 and (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected. ii. If the Bank is in default (as defined in Section 3(x)(1) of FDIA), all obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights of the parties shall not be affected. iii. If a notice served under Sections 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. (S)(S) 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Officer from participating in the conduct of the Bank's affairs, the Bank's obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may, in its discretion, (i) pay the Officer all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. The occurrence of any of the events described in paragraphs i, ii, and iii above may be considered by the Board in connection with a termination for Just Cause. f. Voluntary Termination by Officer. In addition to his other -------------------------------- rights to terminate under this Agreement, the Officer may voluntarily terminate employment with the Bank during the term of this Agreement upon at least sixty days' prior written notice to the Bank, in which case the Officer shall receive only his compensation, vested rights and employee benefits up to the date of his termination. g. Without Just Cause or With Good Reason. -------------------------------------- i. In addition to termination pursuant to Section 10.a. through 10.f.: the Board may, by written notice to the Officer, immediately terminate his employment with the Bank at any time for a reason other than Just Cause (a termination "Without Just Cause"); and the Officer may, by written notice to the Board, immediately terminate this Agreement at any time within ninety days following an event of "Good Reason" as defined below (a termination "With Good Reason"). ii. Subject to Section 11 hereof, in the event of termination under this Section 10.g., the Officer shall be entitled to receive the salary for the remaining term of the Agreement, including any renewals or extensions thereof, at the highest annual rate in effect pursuant to Section 4 of this Agreement for any of the twelve months immediately preceding the date of such termination, plus annual cash bonuses for each year (prorated in the event of partial years) remaining under such term at the amount received by the Officer in the calendar year preceding the termination. The sum due under this Section 10.g. shall be paid in one lump sum within ten calendar days of such termination. 7 iii. "Good Reason" shall exist if, without Officer's express written consent, Bancorp or the Bank materially breach any of its respective obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following: (1) A material reduction in the Officers's responsibilities or authority in connection with his employment with the Bank; (2) Assignment to the Officer of duties of a nonexecutive nature or duties for which he is not reasonably equipped by his skills and experience; (3) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 11 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to the Change in Control; (4) Termination of incentive and benefit plans, programs, or arrangements, or reduction of the Officer's participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date; (5) A requirement that the Officer relocate his principal business office or his principal place of residence outside Montgomery County, Maryland, or the assignment to the Officer of duties that would reasonably require such a relocation; (6) A requirement that the Officer spend more than thirty normal working days away from Montgomery County, Maryland during any consecutive twelve-month period; or (7) Failure to provide office facilities, secretarial services, and other administrative services to Officer which are substantially equivalent to the facilities and services provided to the Officer on the Effective Date (excluding brief periods during which office facilities may be temporarily unavailable due to fire, natural disaster, or other calamity). iv. Notwithstanding the foregoing: (A) a reduction or elimination of the Officer's benefits under one or more benefit plans maintained by Bancorp or the Bank as part of a good faith, overall reduction or elimination of such plan or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against the Officer (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of Bancorp or the Bank or any company that controls either of them under a plan or plans in or under which the Officer is not entitled to 8 participate, and receive benefits, on a fair and nondiscriminatory basis; and (B) a requirement that the Officer report to and be subject to the direction or supervision of a senior officer of Bancorp or the Bank other than the President and Chief Executive Officer shall not constitute an event of Good Reason or a material breach of this Agreement. h. Continuing Covenant not to Compete or Interfere with ---------------------------------------------------- Relationships. Regardless of anything herein to the contrary, ------------- following a termination (i) upon retirement pursuant to Section 10.b., (ii) due to Disability pursuant to Section 10.c., (iii) for Just Cause pursuant to Section 10.d., or (iv) by the Officer pursuant to Section 10.f.: i. The Officer's obligations under Section 9.c. of this Agreement will continue in effect; and ii. During the remaining term of this Agreement (determined immediately before such termination), the Officer shall not serve as an officer or director or employee of any bank holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a "Financial Institution"), which Financial Institution offers products or services competing with those offered by Bancorp or the Bank from offices in any county in the State of Maryland or of any other State in which the Bank, Bancorp or any of their subsidiaries has a branch, and shall not interfere with the relationship of Bancorp or the Bank and any of its employees, agents, or representatives. 11. Termination in Connection with a Change in Control. -------------------------------------------------- a. For purposes of this Agreement, a "Change in Control" shall be deemed to occur on the earliest of: i. The acquisition by any entity, person or group (other than the acquisition by a tax-qualified retirement plan sponsored by Bancorp or the Bank) of beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, of more than 25% of the outstanding capital stock of Bancorp or the Bank entitled to vote for the election of directors ("Voting Stock"); ii. The commencement by any entity, person, or group (other than Bancorp or the Bank, a subsidiary of Bancorp or the Bank or a tax-qualified retirement plan sponsored by Bancorp or the Bank) of a tender offer or an exchange offer for more than 20% of the outstanding Voting Stock of Bancorp or the Bank; 9 iii. The effective time of (a) a merger or consolidation of Bancorp or the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of Bancorp or the Bank immediately prior to such merger exercise voting control over less than 80% of the Voting Stock of the surviving or resulting corporation, or (b) a transfer of substantially all of the property of Bancorp or the Bank other than to an entity of which Bancorp or the Bank owns at least 80% of the Voting Stock; iv. Upon the acquisition by any entity, person, or group of the control of the election of a majority of the Bank's or Bancorp's directors, v. At such time that, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Bancorp or the Bank (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. b. Termination. If within the period beginning six months prior ----------- to and ending two years after a Change in Control, (i) the Bank shall terminate the Officer's employment Without Just Cause, or (ii) the Officer shall voluntarily terminate his employment With Good Reason, the Bank shall, within ten calendar days of the termination of Officer's employment, make a lump-sum cash payment to him equal to 2.99 times the sum of (x) his annual salary at the highest annual rate in effect for any of the twelve months immediately preceding the date of such termination, plus (y) the amount of other compensation received by him during the calendar year preceding the Change in Control. This cash payment is subject to adjustment pursuant to Section 14 of this Agreement, and shall be made in lieu of any payment also required under section 10.g. of this Agreement because of a termination in such period. The Officer's rights under Section 10.g. are not otherwise affected by this Section 11. Also, in such event, the Officer shall, for three calendar years following his termination of employment, continue to participate in any benefit plans of Bancorp and the Bank that provide health (including medical and dental), life or disability insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior officers of the Bank during such period. c. Funding of Trust upon Change in Control. In order to assure --------------------------------------- payment to the Officer of amounts that may become payable by Bancorp or the Bank pursuant to this Section, unless and to the extent the Officer has previously provided a written release of any claims under Section 11 of this Agreement, not later than ten business days after a Change in Control, Bancorp or the Bank shall (i) establish 10 a valid trust under the law of the State of Maryland with an independent trustee that has or may be granted corporate trust powers under Maryland law, (ii) deposit in such trust an amount equal to 2.99 times his "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder (Section 280G and related regulations hereinafter referred to as Section 280G"), at the time of the Change of Control, and (iii) provide the trustee of the trust with a written direction to hold said amount and any investment return thereon in a segregated account, and to pay such amounts as demanded by the Officer from the trust upon written demand from the Officer stating the amount of the payment demanded from the trust and the basis for his rights to such payment under Section 11 of this Agreement. Upon the earlier of the final payment of all amounts demanded by the Officer under this Section 11 or the date thirty-six months after the Change in Control, the trustee of the trust shall pay to Bancorp or the Bank, as applicable, the entire balance remaining in the trust. Payments from the trust to the Officer shall be considered payments made by Bancorp or the Bank for purposes of this Agreement. Payment of such amounts to the Officer from the trust, however, shall not relieve Bancorp or the Bank from any obligation to pay amounts in excess of those paid from the trust, or from any obligation to take actions or refrain from taking actions otherwise required by this Agreement. Unless and until a termination of or by the Officer as described in Section 11.b.(i) or (ii), the Officer's rights under this Agreement shall be those of a general, unsecured creditor, he shall have no claim against the assets of the trust, and the assets of the trust shall remain subject to the claims of creditors of Bancorp or the Bank. Upon the termination of the trust as specified herein, the Officer shall have no further interest in the trust. 12. Indemnification and Liability Insurance. --------------------------------------- a. Indemnification. Bancorp and the Bank agree to indemnify the ---------------- Officer (and his heirs, executors, and administrators) to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or officer of the Bank or any of their subsidiaries (whether or not he continues to be a director or officer at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgements, court costs and attorney's fees and the cost of reasonable settlements, such settlements to be approved by the Board of Bancorp or the Bank, if such action is brought against the Officer in his capacity as an officer or director of Bancorp or the Bank or any of their subsidiaries. Indemnification for expense shall not extend to matters for which the Officer has been terminated for Just Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, 11 the obligations of this Section 12 shall survive the term of this Agreement by a period of seven years. b. Insurance. During the period in which indemnification of --------- the Officer is required under this Section, Bancorp or the Bank shall provide the Officer (and his heirs, executors, and administrators) with coverage under a directors' and officers' liability policy at the expense of Bancorp or the Bank, at least equivalent to such coverage provided to directors and senior officers of Bancorp or the Bank, whichever is more favorable to the Officer. 13. Reimbursement of Officer's Expenses to Enforce this Agreement. ------------------------------------------------------------- Bancorp or the Bank shall reimburse the Officer for all out-of-pocket expenses, including, without limitation, reasonable attorney's fees, incurred by the Officer in connection with successful enforcement by the Officer of the obligations of Bancorp or the Bank to the Officer under this Agreement up to a maximum of $30,000. Successful enforcement shall mean the grant of an award of money or the requirement that Bancorp or the Bank take some action specified by this Agreement (i) as a result of court order; or (ii) otherwise by Bancorp or the Bank following an initial failure of Bancorp or the Bank to pay such money or take such action promptly after written demand therefor from the Officer stating the reason that such money or action was due under this Agreement at or prior to the time of such demand. 14. Adjustment of Certain Payments and Benefits. ------------------------------------------- a. In the event that payments pursuant to this Agreement (including, without limitation, any payment under any plan, program, or arrangement referred to in Section 5 or 6 hereof) would result in the imposition of a penalty tax pursuant to Section 280G, such payments shall be reduced to equal the maximum amount which may be paid under Section 280G without exceeding such limits. In the event any such reduction in payments is necessary, the Officer may determine, in his sole discretion, which categories of payments (including, without limitation, the value of benefits or of acceleration of vesting or receipt of benefits or amounts) are to be reduced or eliminated. b. Payments made to the Officer pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA (12 U.S.C. (S) 1828 (k), relating to "golden parachute" and indemnification payments and certain other benefits. 15. Injunctive Relief. If there is a breach or threatened breach of ----------------- Section 10.h. of this Agreement or the prohibitions upon disclosure contained in Section 9.c. of this Agreement, Bancorp or the Bank and the Officer agree that there is no adequate remedy at law for such breach, and that Bancorp and the Bank each shall be entitled to 12 injunctive relief restraining the Officer from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Officer shall be entitled to injunctive relief to enforce the obligations of Bancorp and the Bank under Section 11 of this Agreement. 16. Successors and Assigns. ---------------------- a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of Bancorp or the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of Bancorp or the Bank. b. Since the Bank and Bancorp are contracting for the unique and personal skills of the Officer, the Officer shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank and Bancorp. 17. No Mitigation. The Officer shall not be required to mitigate the ------------- amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Officer in any subsequent employment. 18. Notices. All notices, requests, demands and other communications in ------- connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed as follows, or to such other address as shall have been designated in writing by the addressee: a. If to Bancorp or the Bank: Sandy Spring Bancorp, Inc. Sandy Spring National Bank of Maryland 17801 Georgia Avenue Olney, Maryland 20832 Attention: President and Chief Executive Officer Copy to: Corporate Secretary b. If to the Officer: Lawrence T. Lewis 4040 Roxmill Court Glenwood, Maryland 21738 13 19. Joint and Severally Liability; Payments by Bancorp and the Bank. To the --------------------------------------------------------------- extent permitted by law, except as otherwise provided herein, Bancorp and the Bank shall be jointly and severally liable for the payment of all amounts due under this Agreement. Bancorp hereby agrees that it shall be jointly and severally liable with the Bank for the payment of all amounts due under this Agreement and shall guarantee the performance of the Bank's obligations thereunder, provided that Bancorp shall not be required by this Agreement to pay to the Officer a salary or any bonuses or any other cash payments, except in the event that the Bank does not fulfill the obligations to the Officer hereunder for such payments. Bancorp may, however, pay salary and bonuses as deemed appropriate by its Board in the exercise of its discretion. 20. No Plan Created by this Agreement. The Officer, Bancorp and the Bank --------------------------------- expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and Bancorp, the Bank and the Officer each expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process by or on behalf of the Officer or Bancorp or the Bank that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion. 21. Amendments. No amendments or additions to this Agreement shall ---------- be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 22. Applicable Law. Except to the extent preempted by Federal law, -------------- the laws of the State of Maryland shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 23. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 24. Headings. Headings contained herein are for convenience of reference -------- only. 25. Entire Agreement. This Agreement, together with any understanding or ---------------- modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs, or arrangements described in Sections 5 and 6, and supersedes all prior agreements other than with respect to such specific plans, programs, or arrangements. 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. SANDY SPRING NATIONAL BANK OF MARYLAND By: /s/ Hunter R. Hollar Title: President and Chief Executive Officer SANDY SPRING BANCORP, INC. By: /s/ Hunter R. Hollar Title: President and Chief Executive Officer OFFICER /s/ Lawrence T. Lewis Lawrence T. Lewis 15 EX-10.H 9 EXHIBIT 10(H) Exhibit 10(h) EMPLOYMENT AGREEMENT ================================================================================ THIS AGREEMENT (the "Agreement"), made this 30th day of January 1997, by and among Sandy Spring Bancorp, Inc., a registered bank holding company ("Bancorp"), Sandy Spring National Bank of Maryland, a national banking association and wholly owned subsidiary of Bancorp with its main office in Olney, Maryland (the "Bank"), and Stanley L. Merson (the "Officer"). W I T N E S S E T H WHEREAS, the Officer is employed as the Senior Vice President of the Bank. WHEREAS, as a result of the skill, knowledge, and experience of the Officer, the Board of Directors of the Bank (the "Board") desires to retain the services of the Officer. WHEREAS, the Officer desires to continue to serve as the Senior Vice President of the Bank. WHEREAS, the Officer and the Board and the Board of Directors of Bancorp desire to enter into an Agreement setting forth the terms of conditions of the continuing employment of the Officer and the related rights and obligations of each of the parties. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed as follows: 1. Employment. The Officer is employed as the Senior Vice President of the ---------- Bank, reporting to the President and Chief Executive Officer. Subject to direction of the President and Chief Executive Officer, the Officer shall perform all duties and shall have all powers which are commonly incident to the office of Senior Vice President or which, consistent with that office, are delegated to him by the President and Chief Executive Officer. The officer shall serve as a member of the Senior Officer Policy Committee and the Asset/Liability Committee, and as Chairman of the Senior Loan Committee of the Bank. The Officer's duties include, but are not limited to: a. Making recommendations to the President and Chief Executive Officer concerning commercial and mortgage lending and related loan quality assurance strategies, policies, needs, and tactics of Bancorp and the Bank; b. Management oversight of the day-to-day commercial lending functions of the Bank, including supervision of the officers and employees engaged in these functions; 1 c. Serving as President of Sandy Spring Mortgage Corporation ("SSMC") and management oversight of the residential mortgage functions of SSMC and the Bank, including supervision of the officers and employees engaged in these functions; d. Promoting the Bank and its services; e. Managing the efforts of the Bank to comply with applicable laws and regulations relating to commercial and mortgage lending; and f. Providing complete, timely, and accurate reports to the President and Chief Executive Officer of Bancorp and the Bank regarding the commercial and mortgage loan portfolio and related lending functions. 2. Location and Facilities. The Officer will be furnished with the working ----------------------- facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Bank, or at such other site or sites customary for such offices. 3. Term. ---- a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the "Effective Date") and ending immediately prior to the second anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3. b. On each anniversary of the Effective Date prior to a termination of the Agreement, the term under this Agreement shall be extended for an additional one-year period beyond the then effective expiration date without action by any party, provided that neither the Bank nor the Officer shall have given written notice at least sixty (60) days prior to such anniversary date of its or his desire that the term not be extended. The President and Chief Executive Officer will review the Officer's performance and the advisability of extending the term of this Agreement, and the Board shall, based on such review, determine whether or not to extend the term of this Agreement at a meeting or meetings at least ninety (90) days prior to each anniversary date. 4. Base Compensation. ------------------ a. The Bank agrees to pay the Officer during the term of this Agreement a salary at the rate of $100,000 per annum, payable in cash not less frequently than monthly, as may be adjusted in accordance with this Section 4. 2 b. The Human Resources Committee of the Bank (the "Committee") with the advice of the President and Chief Executive Officer shall perform an annual analysis of the Officer's performance and of the compensation of officers performing similar functions at independent financial institutions of comparable assets and performance, and based upon this review, the recommendation of the President and Chief Executive Officer, and on such other factors as it deems pertinent, shall recommend to the Board the salary rate to be paid beginning on the next April 1 following such review. The Board shall review annually the rate of the Officer's salary based upon this recommendation of the Committee and other factors they deem relevant, and may maintain, increase or decrease his salary, provided that no such action shall (i) reduce the rate of salary below $100,000 or (ii) reduce the rate of salary paid to the Officer for any months prior to the month in which notice of the reduction is provided in writing to the Officer. c. In the absence of action by the Board, the Officer shall continue to receive salary at the $100,000 per annum rate specified herein or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4. 5. Bonuses. Unless the Officer agrees otherwise, he shall be entitled to ------- participate in discretionary bonuses that the Board may award from time to time to senior management employees pursuant to bonus plans or otherwise. The Officer also shall participate in any other fringe benefits which are or may become available to senior management employees of the Bank, including for example: any stock option or incentive compensation plans and any other benefits that are commensurate with the responsibilities and functions to be performed by the Officer under this Agreement. No other compensation provided for in this Agreement shall be deemed a substitute for the Officer's right to participate in such discretionary bonuses or fringe benefits. 6. Benefit Plans. The Officer shall be entitled to participate in such ------------- life insurance, medical, dental, pension, profit sharing, and retirement plans and other programs and arrangements as may be approved from time to time by Bancorp or the Bank for the benefit of the employees of the Bank. In addition, the Officer shall be entitled to participate in a nonstatutory supplemental retirement plan or arrangement ("SERP") established for the Officer and in the Executive Health Expense Reimbursement and Insurance Plans (together, the "HERP") or a successor plan or plans that provide the same or greater level of benefits as those provided to participants under the HERP as in effect on the Effective Date. (The resolution of the Board of the Bank approving this Agreement shall serve as a designation of eligibility to participate in the HERP as of the Effective Time, if the Officer had not previously been designated as eligible.) 7. Vacation and Leave. ------------------ a. The Officer shall be entitled to five weeks (twenty-five working days) of vacation with pay during each consecutive twelve-month period commencing on January 1, 1997 and each January 1 thereafter during the term of this Agreement, to be 3 taken at reasonable times and in reasonable periods as the Officer and the Bank shall mutually determine, and provided that no vacation time shall interfere with the duties required to be rendered by the Officer hereunder. Any vacation time not used during a twelve-month period shall carry over and be useable during the succeeding twelve-month period, but not thereafter. The Officer shall not receive any additional compensation from the Bank on account of his failure to take vacation. b. In addition to paid vacations, the Officer shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the President and Chief Executive Officer may in his discretion determine. Further, the President and Chief Executive Officer may grant to the Officer a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the President and Chief Executive Officer in his discretion may determine. 8. Expense Payments and Reimbursements. The Officer shall be reimbursed ----------------------------------- for all reasonable out-of-pocket business expenses which he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Bank. 9. Loyalty and Confidentiality. --------------------------- a. During the term of this Agreement the Officer: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, the Officer may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with Bancorp or the Bank or any of their subsidiaries or affiliates, unfavorably affect the performance of Officer's duties pursuant to this Agreement, or violate any applicable statute or regulation; and (ii) shall not engage in any business or activity contrary to the business affairs or interests of Bancorp or the Bank. b. Nothing contained in this Agreement shall prevent or limit the Officer's right to invest in the capital stock or other securities of any business dissimilar from that of Bancorp and the Bank, or, solely as a passive, minority investor, in any business. c. The Officer agrees to maintain the confidentiality of any and all information concerning the operation or financial status of Bancorp and the Bank; the names or addresses of any of their borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning Bancorp or the Bank to which he may be exposed during 4 the course of his employment. The Officer further agrees that, unless required by law or specifically permitted by Bancorp or the Bank in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of Bancorp and the Bank. 10. Termination and Termination Pay. Subject to Section 11 of this ---------------------------------- Agreement, the Officer's employment under this Agreement may be terminated in the following circumstances: a. Death. The Officer's employment under this Agreement shall ----- terminate upon his death during the term of this Agreement, in which event the Officer's estate shall be entitled to receive the compensation due to the Officer through the last day of the calendar month in which his death occurred. b. Retirement. This Agreement shall be terminated upon the ---------- normal or early retirement of the Officer under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement. c. Disability. The Bank or the Officer may terminate the ---------- Officer's employment after having established the Officer's Disability. For purposes of this Agreement, "Disability" means a physical or mental infirmity that impairs the Officer's ability to substantially perform his duties under this Agreement and that results in the Officer's becoming eligible for long-term disability benefits under Bancorp's or the Bank's long-term disability plan (or, if Bancorp or the Bank has no such plan in effect, that impairs the Officer's ability to substantially perform his duties under this Agreement for a period of one-hundred-eighty consecutive days). In the event of such Disability, the Officer's obligation to perform services under this Agreement will terminate. In the event of such termination, the Officer shall be entitled to receive the following: i. The compensation and benefits provided for under this Agreement for any period during the term of this Agreement and prior to the date of termination pursuant to this Section 10.c. during which the Officer is unable to work due to physical or mental infirmity (less any amounts which the Officer receives under any disability insurance maintained by Bancorp or the Bank with respect to such period); ii. For the period beginning upon the date of termination pursuant to this Section 10.c. and continuing for the remaining term of this Agreement, (A) salary at the highest rate paid pursuant to Section 4 of this Agreement during the twelve months prior to the establishment of such disability under this Section 10.c., reduced by any payments received by the Officer during such period following termination under a long term disability plan 5 or policy maintained by Bancorp or the Bank, and (B) benefits pursuant to Section 6 of this Agreement. The Board shall determine whether or not the Officer is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that it reasonably believes to be relevant. As a condition to any benefits, such Board may require the Officer to submit to such physical or mental evaluations and tests as it deems reasonably appropriate. d. Just Cause. ---------- i. The Board may, by written notice to the Officer in the form and manner specified in this paragraph, immediately terminate his employment with the Bank at any time for Just Cause. The Officer shall have no right to receive compensation or other benefits for any period after termination for Just Cause. Termination for "Just Cause" shall mean termination because of, in the good faith determination of the Board, the Officer's: (1) Personal dishonesty; (2) Incompetence; (3) Willful misconduct; (4) Breach of fiduciary duty involving personal profit; (5) Intentional failure to perform duties under this Agreement; (6) Other, continuing material failure to perform his duties under this Agreement after reasonable notification (which shall be stated in writing and given at least fifteen days prior to termination) by the Board of such failure; (7) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order; or (8) Material breach by the Officer of any provision of this Agreement. ii. Notwithstanding the foregoing, the Officer shall not be deemed to have been terminated for Just Cause unless there shall have been delivered to the Officer a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting called and held for the purpose (after reasonable notice to the Officer and an opportunity for the Officer to be heard before the Board), finding that in the good faith opinion of the Board the Officer was guilty of conduct described above and specifying the particulars thereof. e. Certain Regulatory Events. ------------------------- i. If the Officer is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) 6 or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. (S)(S) 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected. ii. If the Bank is in default (as defined in Section 3(x)(1) of FDIA), all obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights of the parties shall not be affected. iii. If a notice served under Sections 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. (S)(S) 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Officer from participating in the conduct of the Bank's affairs, the Bank's obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may, in its discretion, (i) pay the Officer all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. The occurrence of any of the events described in paragraphs i, ii, and iii above may be considered by the Board in connection with a termination for Just Cause. f. Voluntary Termination by Officer. In addition to his other -------------------------------- rights to terminate under this Agreement, the Officer may voluntarily terminate employment with the Bank during the term of this Agreement upon at least sixty days' prior written notice to the Bank, in which case the Officer shall receive only his compensation, vested rights and employee benefits up to the date of his termination. g. Without Just Cause or With Good Reason. -------------------------------------- i. In addition to termination pursuant to Section 10.a. through 10.f.: the Board may, by written notice to the Officer, immediately terminate his employment with the Bank at any time for a reason other than Just Cause (a termination "Without Just Cause"); and the Officer may, by written notice to the Board, immediately terminate this Agreement at any time within ninety days following an event of "Good Reason" as defined below (a termination "With Good Reason"). ii. Subject to Section 11 hereof, in the event of termination under this Section 10.g., the Officer shall be entitled to receive the salary for the remaining term of the Agreement, including any renewals or extensions thereof, at the highest annual rate in effect pursuant to Section 4 of this Agreement for any of the twelve months immediately preceding the date of such termination, plus annual cash bonuses for each year (prorated in the event of partial years) remaining under such term at the amount received by the Officer in the calendar year preceding the termination. The sum due under this Section 10.g. shall be paid in one lump sum within ten calendar days of such termination. 7 iii. "Good Reason" shall exist if, without Officer's express written consent, Bancorp or the Bank materially breach any of its respective obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following: (1) A material reduction in the Officer's responsibilities or authority in connection with his employment with the Bank; (2) Assignment to the Officer of duties of a nonexecutive nature or duties for which he is not reasonably equipped by his skills and experience; (3) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 11 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to the Change in Control; (4) Termination of incentive and benefit plans, programs, or arrangements, or reduction of the Officer's participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date; (5) A requirement that the Officer relocate his principal business office or his principal place of residence outside Montgomery County, Maryland, or the assignment to the Officer of duties that would reasonably require such a relocation; (6) A requirement that the Officer spend more than thirty normal working days away from Montgomery County, Maryland during any consecutive twelve-month period; or (7) Failure to provide office facilities, secretarial services, and other administrative services to Officer which are substantially equivalent to the facilities and services provided to the Officer on the Effective Date (excluding brief periods during which office facilities may be temporarily unavailable due to fire, natural disaster, or other calamity). iv. Notwithstanding the foregoing: (A) a reduction or elimination of the Officer's benefits under one or more benefit plans maintained by Bancorp or the Bank as part of a good faith, overall reduction or elimination of such plan or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against the Officer (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of Bancorp or the Bank or any company that controls either of 8 them under a plan or plans in or under which the Officer is not entitled to participate, and receive benefits, on a fair and nondiscriminatory basis; and (B) a requirement that the Officer report to and be subject to the direction or supervision of a senior officer of Bancorp or the Bank other than the President and Chief Executive Officer shall not constitute an event of Good Reason or a material breach of this Agreement. h. Continuing Covenant not to Compete or Interfere with ---------------------------------------------------- Relationships. Regardless of anything herein to the contrary, ------------- following a termination (i) upon retirement pursuant to Section 10.b., (ii) due to Disability pursuant to Section 10.c., (iii) for Just Cause pursuant to Section 10.d., or (iv) by the Officer pursuant to Section 10.f.: i. The Officer's obligations under Section 9.c. of this Agreement will continue in effect; and ii. During the remaining term of this Agreement (determined immediately before such termination), the Officer shall not serve as an officer or director or employee of any bank holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a "Financial Institution"), which Financial Institution offers products or services competing with those offered by Bancorp or the Bank from offices in any county in the State of Maryland or of any other State in which the Bank, Bancorp or any of their subsidiaries has a branch, and shall not interfere with the relationship of Bancorp or the Bank and any of its employees, agents, or representatives. 11. Termination in Connection with a Change in Control. -------------------------------------------------- a. For purposes of this Agreement, a "Change in Control" shall be deemed to occur on the earliest of: i. The acquisition by any entity, person or group (other than the acquisition by a tax-qualified retirement plan sponsored by Bancorp or the Bank) of beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, of more than 25% of the outstanding capital stock of Bancorp or the Bank entitled to vote for the election of directors ("Voting Stock"); ii. The commencement by any entity, person, or group (other than Bancorp or the Bank, a subsidiary of Bancorp or the Bank or a tax-qualified retirement plan sponsored by Bancorp or the Bank) of a tender offer or an exchange offer for more than 20% of the outstanding Voting Stock of Bancorp or the Bank; 9 iii. The effective time of (a) a merger or consolidation of Bancorp or the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of Bancorp or the Bank immediately prior to such merger exercise voting control over less than 80% of the Voting Stock of the surviving or resulting corporation, or (b) a transfer of substantially all of the property of Bancorp or the Bank other than to an entity of which Bancorp or the Bank owns at least 80% of the Voting Stock; iv. Upon the acquisition by any entity, person, or group of the control of the election of a majority of the Bank's or Bancorp's directors, v. At such time that, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Bancorp or the Bank (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. b. Termination. If within the period beginning six months ----------- prior to and ending two years after a Change in Control, (i) the Bank shall terminate the Officer's employment Without Just Cause, or (ii) the Officer shall voluntarily terminate his employment With Good Reason, the Bank shall, within ten calendar days of the termination of Officer's employment, make a lump-sum cash payment to him equal to 2.99 times the sum of (x) his annual salary at the highest annual rate in effect for any of the twelve months immediately preceding the date of such termination, plus (y) the amount of other compensation received by him during the calendar year preceding the Change in Control. This cash payment is subject to adjustment pursuant to Section 14 of this Agreement, and shall be made in lieu of any payment also required under section 10.g. of this Agreement because of a termination in such period. The Officer's rights under Section 10.g. are not otherwise affected by this Section 11. Also, in such event, the Officer shall, for three calendar years following his termination of employment, continue to participate in any benefit plans of Bancorp and the Bank that provide health (including medical and dental), life or disability insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior officers of the Bank during such period. c. Funding of Trust upon Change in Control. In order to assure --------------------------------------- payment to the Officer of amounts that may become payable by Bancorp or the Bank pursuant to this Section, unless and to the extent the Officer has previously provided a written release of any claims under Section 11 of this Agreement, not later than ten 10 business days after a Change in Control, Bancorp or the Bank shall (i) establish a valid trust under the law of the State of Maryland with an independent trustee that has or may be granted corporate trust powers under Maryland law, (ii) deposit in such trust an amount equal to 2.99 times his "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder (Section 280G and related regulations hereinafter referred to as Section 280G"), at the time of the Change of Control, and (iii) provide the trustee of the trust with a written direction to hold said amount and any investment return thereon in a segregated account, and to pay such amounts as demanded by the Officer from the trust upon written demand from the Officer stating the amount of the payment demanded from the trust and the basis for his rights to such payment under Section 11 of this Agreement. Upon the earlier of the final payment of all amounts demanded by the Officer under this Section 11 or the date thirty-six months after the Change in Control, the trustee of the trust shall pay to Bancorp or the Bank, as applicable, the entire balance remaining in the trust. Payments from the trust to the Officer shall be considered payments made by Bancorp or the Bank for purposes of this Agreement. Payment of such amounts to the Officer from the trust, however, shall not relieve Bancorp or the Bank from any obligation to pay amounts in excess of those paid from the trust, or from any obligation to take actions or refrain from taking actions otherwise required by this Agreement. Unless and until a termination of or by the Officer as described in Section 11.b.(i) or (ii), the Officer's rights under this Agreement shall be those of a general, unsecured creditor, he shall have no claim against the assets of the trust, and the assets of the trust shall remain subject to the claims of creditors of Bancorp or the Bank. Upon the termination of the trust as specified herein, the Officer shall have no further interest in the trust. 12. Indemnification and Liability Insurance. --------------------------------------- a. Indemnification. Bancorp and the Bank agree to indemnify the --------------- Officer (and his heirs, executors, and administrators) to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or officer of the Bank or any of their subsidiaries (whether or not he continues to be a director or officer at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgments, court costs and attorney's fees and the cost of reasonable settlements, such settlements to be approved by the Board of Bancorp or the Bank, if such action is brought against the Officer in his capacity as an officer or director of Bancorp or the Bank or any of their subsidiaries. Indemnification for expense shall not extend to matters for which the Officer has been terminated for Just Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, 11 the obligations of this Section 12 shall survive the term of this Agreement by a period of seven years. b. Insurance. During the period in which indemnification of --------- the Officer is required under this Section, Bancorp or the Bank shall provide the Officer (and his heirs, executors, and administrators) with coverage under a directors' and officers' liability policy at the expense of Bancorp or the Bank, at least equivalent to such coverage provided to directors and senior officers of Bancorp or the Bank, whichever is more favorable to the Officer. 13. Reimbursement of Officer's Expenses to Enforce this Agreement. Bancorp ------------------------------------------------------------- or the Bank shall reimburse the Officer for all out-of-pocket expenses, including, without limitation, reasonable attorney's fees, incurred by the Officer in connection with successful enforcement by the Officer of the obligations of Bancorp or the Bank to the Officer under this Agreement up to a maximum of $30,000. Successful enforcement shall mean the grant of an award of money or the requirement that Bancorp or the Bank take some action specified by this Agreement (i) as a result of court order; or (ii) otherwise by Bancorp or the Bank following an initial failure of Bancorp or the Bank to pay such money or take such action promptly after written demand therefor from the Officer stating the reason that such money or action was due under this Agreement at or prior to the time of such demand. 14. Adjustment of Certain Payments and Benefits. ------------------------------------------- a. In the event that payments pursuant to this Agreement (including, without limitation, any payment under any plan, program, or arrangement referred to in Section 5 or 6 hereof) would result in the imposition of a penalty tax pursuant to Section 280G, such payments shall be reduced to equal the maximum amount which may be paid under Section 280G without exceeding such limits. In the event any such reduction in payments is necessary, the Officer may determine, in his sole discretion, which categories of payments (including, without limitation, the value of benefits or of acceleration of vesting or receipt of benefits or amounts) are to be reduced or eliminated. b. Payments made to the Officer pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA (12 U.S.C. (S) 1828 (k), relating to "golden parachute" and indemnification payments and certain other benefits. 15. Injunctive Relief. If there is a breach or threatened breach of Section ----------------- 10.h. of this Agreement or the prohibitions upon disclosure contained in Section 9.c. of this Agreement, Bancorp or the Bank and the Officer agree that there is no adequate remedy at law for such breach, and that Bancorp and the Bank each shall be entitled to 12 injunctive relief restraining the Officer from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Officer shall be entitled to injunctive relief to enforce the obligations of Bancorp and the Bank under Section 11 of this Agreement. 16. Successors and Assigns. ---------------------- a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of Bancorp or the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of Bancorp or the Bank. b. Since the Bank and Bancorp are contracting for the unique and personal skills of the Officer, the Officer shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank and Bancorp. 17. No Mitigation. The Officer shall not be required to mitigate the -------------- amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Officer in any subsequent employment. 18. Notices. All notices, requests, demands and other communications in ------- connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed as follows, or to such other address as shall have been designated in writing by the addressee: a. If to Bancorp or the Bank: Sandy Spring Bancorp, Inc. Sandy Spring National Bank of Maryland 17801 Georgia Avenue Olney, Maryland 20832 Attention: President and Chief Executive Officer Copy to: Corporate Secretary b. If to the Officer: Stanley L. Merson 8324 Sweet Cherry Lane Laurel, Maryland 20723 19. Joint and Severally Liability; Payments by Bancorp and the Bank. To the --------------------------------------------------------------- extent permitted by law, except as otherwise provided herein, Bancorp and the Bank shall be jointly and severally liable for the payment of all amounts due under this Agreement. Bancorp hereby agrees that it 13 shall be jointly and severally liable with the Bank for the payment of all amounts due under this Agreement and shall guarantee the performance of the Bank's obligations thereunder, provided that Bancorp shall not be required by this Agreement to pay to the Officer a salary or any bonuses or any other cash payments, except in the event that the Bank does not fulfill the obligations to the Officer hereunder for such payments. Bancorp may, however, pay salary and bonuses as deemed appropriate by its Board in the exercise of its discretion. 20. No Plan Created by this Agreement. The Officer, Bancorp and the Bank --------------------------------- expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and Bancorp, the Bank and the Officer each expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process by or on behalf of the Officer or Bancorp or the Bank that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion. 21. Amendments. No amendments or additions to this Agreement shall ---------- be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 22. Applicable Law. Except to the extent preempted by Federal law, --------------- the laws of the State of Maryland shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 23. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 24. Headings. Headings contained herein are for convenience of reference -------- only. 25. Entire Agreement. This Agreement, together with any understanding or ---------------- modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs, or arrangements described in Sections 5 and 6, and supersedes all prior agreements other than with respect to such specific plans, programs, or arrangements. 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. SANDY SPRING NATIONAL BANK OF MARYLAND By: /s/ Hunter R. Hollar Title: President and Chief Executive Officer SANDY SPRING BANCORP, INC. By: /s/ Hunter R. Hollar Title: President and Chief Executive Officer OFFICER /s/ Stanley L. Merson Stanley L. Merson 15 EX-10.I 10 EXHIBIT 10(I) Exhibit 10(i) EMPLOYMENT AGREEMENT ================================================================================ THIS AGREEMENT (the "Agreement"), made this 30th day of January 1997, by and among Sandy Spring Bancorp, Inc., a registered bank holding company ("Bancorp"), Sandy Spring National Bank of Maryland, a national banking association and wholly owned subsidiary of Bancorp with its main office in Olney, Maryland (the "Bank"), and Frank H. Small (the "Officer"). W I T N E S S E T H WHEREAS, the Officer is employed as the Senior Vice President of the Bank. WHEREAS, as a result of the skill, knowledge, and experience of the Officer, the Board of Directors of the Bank (the "Board") desires to retain the services of the Officer. WHEREAS, the Officer desires to continue to serve as the Senior Vice President of the Bank. WHEREAS, the Officer and the Board and the Board of Directors of Bancorp desire to enter into an Agreement setting forth the terms of conditions of the continuing employment of the Officer and the related rights and obligations of each of the parties. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed as follows: 1. Employment. The Officer is employed as the Senior Vice President of the ---------- Bank, reporting to the President and Chief Executive Officer. Subject to direction of the President and Chief Executive Officer, the Officer shall perform all duties and shall have all powers which are commonly incident to the office of Senior Vice President or which, consistent with that office, are delegated to him by the President and Chief Executive Officer. The officer shall serve as a member of the Senior Officer Policy Committee, Senior Loan Committee, and Asset/Liability Committee of the Bank. The Officer's duties include, but are not limited to: a. Making recommendations to the President and Chief Executive Officer concerning the consumer banking and branching strategies, policies, and tactics of the Bank; b. Management oversight of the branching and retail banking functions of the Bank, including supervision of the officers and employees engaged in these functions; c. Management oversight of the Marketing functions of the Bank, including supervision of the officers and employees engaged in these functions; 1 d. Management oversight of the Operations and Communications functions of the Bank, including supervision of the officers and employees engaged in these functions; e. Promoting the Bank and its services; f. Managing the efforts of the Bank to comply with applicable laws and regulations relating to the branching and retail banking; and g. Providing complete, timely, and accurate reports to the President and Chief Executive Officer of Bancorp and the Bank regarding the Bank's retail banking and branching functions. 2. Location and Facilities. The Officer will be furnished with the working ----------------------- facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Bank, or at such other site or sites customary for such offices. 3. Term. ---- a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the "Effective Date") and ending immediately prior to the second anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3. b. On each anniversary of the Effective Date prior to a termination of the Agreement, the term under this Agreement shall be extended for an additional one-year period beyond the then effective expiration date without action by any party, provided that neither the Bank nor the Officer shall have given written notice at least sixty (60) days prior to such anniversary date of its or his desire that the term not be extended. The President and Chief Executive Officer will review the Officer's performance and the advisability of extending the term of this Agreement, and the Board shall, based on such review, determine whether or not to extend the term of this Agreement at a meeting or meetings at least ninety (90) days prior to each anniversary date. 4. Base Compensation. ----------------- a. The Bank agrees to pay the Officer during the term of this Agreement a salary at the rate of $95,000 per annum, payable in cash not less frequently than monthly, as may be adjusted in accordance with this Section 4. 2 b. The Human Resources Committee of the Bank (the "Committee") with the advice of the President and Chief Executive Officer shall perform an annual analysis of the Officer's performance and of the compensation of officers performing similar functions at independent financial institutions of comparable assets and performance, and based upon this review, the recommendation of the President and Chief Executive Officer, and on such other factors as it deems pertinent, shall recommend to the Board the salary rate to be paid beginning on the next April 1 following such review. The Board shall review annually the rate of the Officer's salary based upon this recommendation of the Committee and other factors they deem relevant, and may maintain, increase or decrease his salary, provided that no such action shall (i) reduce the rate of salary below $95,000 or (ii) reduce the rate of salary paid to the Officer for any months prior to the month in which notice of the reduction is provided in writing to the Officer. c. In the absence of action by the Board, the Officer shall continue to receive salary at the $95,000 per annum rate specified herein or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4. 5. Bonuses. Unless the Officer agrees otherwise, he shall be entitled to ------- participate in discretionary bonuses that the Board may award from time to time to senior management employees pursuant to bonus plans or otherwise. The Officer also shall participate in any other fringe benefits which are or may become available to senior management employees of the Bank, including for example: any stock option or incentive compensation plans and any other benefits that are commensurate with the responsibilities and functions to be performed by the Officer under this Agreement. No other compensation provided for in this Agreement shall be deemed a substitute for the Officer's right to participate in such discretionary bonuses or fringe benefits. 6. Benefit Plans. The Officer shall be entitled to participate in such ------------- life insurance, medical, dental, pension, profit sharing, and retirement plans and other programs and arrangements as may be approved from time to time by Bancorp or the Bank for the benefit of the employees of the Bank. In addition, the Officer shall be entitled to participate in a nonstatutory supplemental retirement plan or arrangement ("SERP") established for the Officer and in the Executive Health Expense Reimbursement and Insurance Plans (together, the "HERP") or a successor plan or plans that provide the same or greater level of benefits as those provided to participants under the HERP as in effect on the Effective Date. (The resolution of the Board of the Bank approving this Agreement shall serve as a designation of eligibility to participate in the HERP as of the Effective Time, if the Officer had not previously been designated as eligible.) 7. Vacation and Leave. ------------------ a. The Officer shall be entitled to five weeks (twenty-five working days) of vacation with pay during each consecutive twelve-month period commencing on January 1, 1997 and each January 1 thereafter during the term of this Agreement, to be 3 taken at reasonable times and in reasonable periods as the Officer and the Bank shall mutually determine, and provided that no vacation time shall interfere with the duties required to be rendered by the Officer hereunder. Any vacation time not used during a twelve-month period shall carry over and be useable during the succeeding twelve-month period, but not thereafter. The Officer shall not receive any additional compensation from the Bank on account of his failure to take vacation. b. In addition to paid vacations, the Officer shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the President and Chief Executive Officer may in his discretion determine. Further, the President and Chief Executive Officer may grant to the Officer a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the President and Chief Executive Officer in his discretion may determine. 8. Expense Payments and Reimbursements. The Officer shall be reimbursed ----------------------------------- for all reasonable out-of-pocket business expenses which he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Bank. 9. Loyalty and Confidentiality. --------------------------- a. During the term of this Agreement the Officer: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, the Officer may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with Bancorp or the Bank or any of their subsidiaries or affiliates, unfavorably affect the performance of Officer's duties pursuant to this Agreement, or violate any applicable statute or regulation; and (ii) shall not engage in any business or activity contrary to the business affairs or interests of Bancorp or the Bank. b. Nothing contained in this Agreement shall prevent or limit the Officer's right to invest in the capital stock or other securities of any business dissimilar from that of Bancorp and the Bank, or, solely as a passive, minority investor, in any business. c. The Officer agrees to maintain the confidentiality of any and all information concerning the operation or financial status of Bancorp and the Bank; the names or addresses of any of their borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning Bancorp or the Bank to which he may be exposed during 4 the course of his employment. The Officer further agrees that, unless required by law or specifically permitted by Bancorp or the Bank in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of Bancorp and the Bank. 10. Termination and Termination Pay. Subject to Section 11 of this ------------------------------- Agreement, the Officer's employment under this Agreement may be terminated in the following circumstances: a. Death. The Officer's employment under this Agreement shall ----- terminate upon his death during the term of this Agreement, in which event the Officer's estate shall be entitled to receive the compensation due to the Officer through the last day of the calendar month in which his death occurred. b. Retirement. This Agreement shall be terminated upon the ---------- normal or early retirement of the Officer under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement. c. Disability. The Bank or the Officer may terminate the ---------- Officer's employment after having established the Officer's Disability. For purposes of this Agreement, "Disability" means a physical or mental infirmity that impairs the Officer's ability to substantially perform his duties under this Agreement and that results in the Officer's becoming eligible for long-term disability benefits under Bancorp's or the Bank's long-term disability plan (or, if Bancorp or the Bank has no such plan in effect, that impairs the Officer's ability to substantially perform his duties under this Agreement for a period of one-hundred-eighty consecutive days). In the event of such Disability, the Officer's obligation to perform services under this Agreement will terminate. In the event of such termination, the Officer shall be entitled to receive the following: i. The compensation and benefits provided for under this Agreement for any period during the term of this Agreement and prior to the date of termination pursuant to this Section 10.c. during which the Officer is unable to work due to physical or mental infirmity (less any amounts which the Officer receives under any disability insurance maintained by Bancorp or the Bank with respect to such period); ii. For the period beginning upon the date of termination pursuant to this Section 10.c. and continuing for the remaining term of this Agreement, (A) salary at the highest rate paid pursuant to Section 4 of this Agreement during the twelve months prior to the establishment of such disability under this Section 10.c., reduced by any payments received by the Officer during such period following termination under a long term disability plan 5 or policy maintained by Bancorp or the Bank, and (B) benefits pursuant to Section 6 of this Agreement. The Board shall determine whether or not the Officer is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that it reasonably believes to be relevant. As a condition to any benefits, such Board may require the Officer to submit to such physical or mental evaluations and tests as it deems reasonably appropriate. d. Just Cause. ---------- i. The Board may, by written notice to the Officer in the form and manner specified in this paragraph, immediately terminate his employment with the Bank at any time for Just Cause. The Officer shall have no right to receive compensation or other benefits for any period after termination for Just Cause. Termination for "Just Cause" shall mean termination because of, in the good faith determination of the Board, the Officer's: (1) Personal dishonesty; (2) Incompetence; (3) Willful misconduct; (4) Breach of fiduciary duty involving personal profit; (5) Intentional failure to perform duties under this Agreement; (6) Other, continuing material failure to perform his duties under this Agreement after reasonable notification (which shall be stated in writing and given at least fifteen days prior to termination) by the Board of such failure; (7) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order; or (8) Material breach by the Officer of any provision of this Agreement. ii. Notwithstanding the foregoing, the Officer shall not be deemed to have been terminated for Just Cause unless there shall have been delivered to the Officer a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting called and held for the purpose (after reasonable notice to the Officer and an opportunity for the Officer to be heard before the Board), finding that in the good faith opinion of the Board the Officer was guilty of conduct described above and specifying the particulars thereof. e. Certain Regulatory Events. ------------------------- i. If the Officer is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. (S)(S) 1818(e)(4) 6 and (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected. ii. If the Bank is in default (as defined in Section 3(x)(1) of FDIA), all obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights of the parties shall not be affected. iii. If a notice served under Sections 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. (S)(S) 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Officer from participating in the conduct of the Bank's affairs, the Bank's obligations under this Agreement shall be suspended as of the date of such service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may, in its discretion, (i) pay the Officer all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. The occurrence of any of the events described in paragraphs i, ii, and iii above may be considered by the Board in connection with a termination for Just Cause. f. Voluntary Termination by Officer. In addition to his other -------------------------------- rights to terminate under this Agreement, the Officer may voluntarily terminate employment with the Bank during the term of this Agreement upon at least sixty days' prior written notice to the Bank, in which case the Officer shall receive only his compensation, vested rights and employee benefits up to the date of his termination. g. Without Just Cause or With Good Reason. -------------------------------------- i. In addition to termination pursuant to Section 10.a. through 10.f.: the Board may, by written notice to the Officer, immediately terminate his employment with the Bank at any time for a reason other than Just Cause (a termination "Without Just Cause"); and the Officer may, by written notice to the Board, immediately terminate this Agreement at any time within ninety days following an event of "Good Reason" as defined below (a termination "With Good Reason"). ii. Subject to Section 11 hereof, in the event of termination under this Section 10.g., the Officer shall be entitled to receive the salary for the remaining term of the Agreement, including any renewals or extensions thereof, at the highest annual rate in effect pursuant to Section 4 of this Agreement for any of the twelve months immediately preceding the date of such termination, plus annual cash bonuses for each year (prorated in the event of partial years) remaining under such term at the amount received by the Officer in the calendar year preceding the termination. The sum due under this Section 10.g. shall be paid in one lump sum within ten calendar days of such termination. 7 iii. "Good Reason" shall exist if, without Officer's express written consent, Bancorp or the Bank materially breach any of its respective obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following: (1) A material reduction in the Officer's responsibilities or authority in connection with his employment with the Bank; (2) Assignment to the Officer of duties of a nonexecutive nature or duties for which he is not reasonably equipped by his skills and experience; (3) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 11 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to the Change in Control; (4) Termination of incentive and benefit plans, programs, or arrangements, or reduction of the Officer's participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date; (5) A requirement that the Officer relocate his principal business office or his principal place of residence outside Montgomery County, Maryland, or the assignment to the Officer of duties that would reasonably require such a relocation; (6) A requirement that the Officer spend more than thirty normal working days away from Montgomery County, Maryland during any consecutive twelve-month period; or (7) Failure to provide office facilities, secretarial services, and other administrative services to Officer which are substantially equivalent to the facilities and services provided to the Officer on the Effective Date (excluding brief periods during which office facilities may be temporarily unavailable due to fire, natural disaster, or other calamity). iv. Notwithstanding the foregoing: (A) a reduction or elimination of the Officer's benefits under one or more benefit plans maintained by Bancorp or the Bank as part of a good faith, overall reduction or elimination of such plan or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against the Officer (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of Bancorp or the Bank or any company that controls either of 8 them under a plan or plans in or under which the Officer is not entitled to participate, and receive benefits, on a fair and nondiscriminatory basis; and (B) a requirement that the Officer report to and be subject to the direction or supervision of a senior officer of Bancorp or the Bank other than the President and Chief Executive Officer shall not constitute an event of Good Reason or a material breach of this Agreement. h. Continuing Covenant not to Compete or Interfere with ---------------------------------------------------- Relationships. Regardless of anything herein to the contrary, ------------- following a termination (i) upon retirement pursuant to Section 10.b., (ii) due to Disability pursuant to Section 10.c., (iii) for Just Cause pursuant to Section 10.d., or (iv) by the Officer pursuant to Section 10.f.: i. The Officer's obligations under Section 9.c. of this Agreement will continue in effect; and ii. During the remaining term of this Agreement (determined immediately before such termination), the Officer shall not serve as an officer or director or employee of any bank holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a "Financial Institution"), which Financial Institution offers products or services competing with those offered by Bancorp or the Bank from offices in any county in the State of Maryland or of any other State in which the Bank, Bancorp or any of their subsidiaries has a branch, and shall not interfere with the relationship of Bancorp or the Bank and any of its employees, agents, or representatives. 11. Termination in Connection with a Change in Control. -------------------------------------------------- a. For purposes of this Agreement, a "Change in Control" shall be deemed to occur on the earliest of: i. The acquisition by any entity, person or group (other than the acquisition by a tax-qualified retirement plan sponsored by Bancorp or the Bank) of beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, of more than 25% of the outstanding capital stock of Bancorp or the Bank entitled to vote for the election of directors ("Voting Stock"); ii. The commencement by any entity, person, or group (other than Bancorp or the Bank, a subsidiary of Bancorp or the Bank or a tax-qualified retirement plan sponsored by Bancorp or the Bank) of a tender offer or an exchange offer for more than 20% of the outstanding Voting Stock of Bancorp or the Bank; 9 iii. The effective time of (a) a merger or consolidation of Bancorp or the Bank with one or more other corporations as a result of which the holders of the outstanding Voting Stock of Bancorp or the Bank immediately prior to such merger exercise voting control over less than 80% of the Voting Stock of the surviving or resulting corporation, or (b) a transfer of substantially all of the property of Bancorp or the Bank other than to an entity of which Bancorp or the Bank owns at least 80% of the Voting Stock; iv. Upon the acquisition by any entity, person, or group of the control of the election of a majority of the Bank's or Bancorp's directors, v. At such time that, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Bancorp or the Bank (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof, provided that any individual whose election or nomination for election as a member of the Board was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director. b. Termination. If within the period beginning six months ----------- prior to and ending two years after a Change in Control, (i) the Bank shall terminate the Officer's employment Without Just Cause, or (ii) the Officer shall voluntarily terminate his employment With Good Reason, the Bank shall, within ten calendar days of the termination of Officer's employment, make a lump-sum cash payment to him equal to 2.99 times the sum of (x) his annual salary at the highest annual rate in effect for any of the twelve months immediately preceding the date of such termination, plus (y) the amount of other compensation received by him during the calendar year preceding the Change in Control. This cash payment is subject to adjustment pursuant to Section 14 of this Agreement, and shall be made in lieu of any payment also required under section 10.g. of this Agreement because of a termination in such period. The Officer's rights under Section 10.g. are not otherwise affected by this Section 11. Also, in such event, the Officer shall, for three calendar years following his termination of employment, continue to participate in any benefit plans of Bancorp and the Bank that provide health (including medical and dental), life or disability insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior officers of the Bank during such period. c. Funding of Trust upon Change in Control. In order to --------------------------------------- assure payment to the Officer of amounts that may become payable by Bancorp or the Bank pursuant to this Section, unless and to the extent the Officer has previously provided a written release of any claims under Section 11 of this Agreement, not later than ten 10 business days after a Change in Control, Bancorp or the Bank shall (i) establish a valid trust under the law of the State of Maryland with an independent trustee that has or may be granted corporate trust powers under Maryland law, (ii) deposit in such trust an amount equal to 2.99 times his "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder (Section 280G and related regulations hereinafter referred to as Section 280G"), at the time of the Change of Control, and (iii) provide the trustee of the trust with a written direction to hold said amount and any investment return thereon in a segregated account, and to pay such amounts as demanded by the Officer from the trust upon written demand from the Officer stating the amount of the payment demanded from the trust and the basis for his rights to such payment under Section 11 of this Agreement. Upon the earlier of the final payment of all amounts demanded by the Officer under this Section 11 or the date thirty-six months after the Change in Control, the trustee of the trust shall pay to Bancorp or the Bank, as applicable, the entire balance remaining in the trust. Payments from the trust to the Officer shall be considered payments made by Bancorp or the Bank for purposes of this Agreement. Payment of such amounts to the Officer from the trust, however, shall not relieve Bancorp or the Bank from any obligation to pay amounts in excess of those paid from the trust, or from any obligation to take actions or refrain from taking actions otherwise required by this Agreement. Unless and until a termination of or by the Officer as described in Section 11.b.(i) or (ii), the Officer's rights under this Agreement shall be those of a general, unsecured creditor, he shall have no claim against the assets of the trust, and the assets of the trust shall remain subject to the claims of creditors of Bancorp or the Bank. Upon the termination of the trust as specified herein, the Officer shall have no further interest in the trust. 12. Indemnification and Liability Insurance. --------------------------------------- a. Indemnification. Bancorp and the Bank agree to indemnify --------------- the Officer (and his heirs, executors, and administrators) to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or officer of the Bank or any of their subsidiaries (whether or not he continues to be a director or officer at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgments, court costs and attorney's fees and the cost of reasonable settlements, such settlements to be approved by the Board of Bancorp or the Bank, if such action is brought against the Officer in his capacity as an officer or director of Bancorp or the Bank or any of their subsidiaries. Indemnification for expense shall not extend to matters for which the Officer has been terminated for Just Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, 11 the obligations of this Section 12 shall survive the term of this Agreement by a period of seven years. b. Insurance. During the period in which indemnification of the --------- Officer is required under this Section, Bancorp or the Bank shall provide the Officer (and his heirs, executors, and administrators) with coverage under a directors' and officers' liability policy at the expense of Bancorp or the Bank, at least equivalent to such coverage provided to directors and senior officers of Bancorp or the Bank, whichever is more favorable to the Officer. 13. Reimbursement of Officer's Expenses to Enforce this Agreement. Bancorp ------------------------------------------------------------- or the Bank shall reimburse the Officer for all out-of-pocket expenses, including, without limitation, reasonable attorney's fees, incurred by the Officer in connection with successful enforcement by the Officer of the obligations of Bancorp or the Bank to the Officer under this Agreement up to a maximum of $30,000. Successful enforcement shall mean the grant of an award of money or the requirement that Bancorp or the Bank take some action specified by this Agreement (i) as a result of court order; or (ii) otherwise by Bancorp or the Bank following an initial failure of Bancorp or the Bank to pay such money or take such action promptly after written demand therefor from the Officer stating the reason that such money or action was due under this Agreement at or prior to the time of such demand. 14. Adjustment of Certain Payments and Benefits. ------------------------------------------- a. In the event that payments pursuant to this Agreement (including, without limitation, any payment under any plan, program, or arrangement referred to in Section 5 or 6 hereof) would result in the imposition of a penalty tax pursuant to Section 280G, such payments shall be reduced to equal the maximum amount which may be paid under Section 280G without exceeding such limits. In the event any such reduction in payments is necessary, the Officer may determine, in his sole discretion, which categories of payments (including, without limitation, the value of benefits or of acceleration of vesting or receipt of benefits or amounts) are to be reduced or eliminated. b. Payments made to the Officer pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the FDIA (12 U.S.C. (S) 1828 (k), relating to "golden parachute" and indemnification payments and certain other benefits. 15. Injunctive Relief. If there is a breach or threatened breach of Section ----------------- 10.h. of this Agreement or the prohibitions upon disclosure contained in Section 9.c. of this Agreement, Bancorp or the Bank and the Officer agree that there is no adequate remedy at law for such breach, and that Bancorp and the Bank each shall be entitled to injunctive relief restraining the Officer from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Officer shall be entitled to 12 injunctive relief to enforce the obligations of Bancorp and the Bank under Section 11 of this Agreement. 16. Successors and Assigns. ---------------------- a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of Bancorp or the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of Bancorp or the Bank. b. Since the Bank and Bancorp are contracting for the unique and personal skills of the Officer, the Officer shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank and Bancorp. 17. No Mitigation. The Officer shall not be required to mitigate the -------------- amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Officer in any subsequent employment. 18. Notices. All notices, requests, demands and other communications in ------- connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed as follows, or to such other address as shall have been designated in writing by the addressee: a. If to Bancorp or the Bank: Sandy Spring Bancorp, Inc. Sandy Spring National Bank of Maryland 17801 Georgia Avenue Olney, Maryland 20832 Attention: President and Chief Executive Officer Copy to: Corporate Secretary b. If to the Officer: Frank H. Small 269 Southdale Court Dunkirk, Maryland 20754 19. Joint and Severally Liability; Payments by Bancorp and the Bank. To the --------------------------------------------------------------- extent permitted by law, except as otherwise provided herein, Bancorp and the Bank shall be jointly and severally liable for the payment of all amounts due under this Agreement. Bancorp hereby agrees that it 13 shall be jointly and severally liable with the Bank for the payment of all amounts due under this Agreement and shall guarantee the performance of the Bank's obligations thereunder, provided that Bancorp shall not be required by this Agreement to pay to the Officer a salary or any bonuses or any other cash payments, except in the event that the Bank does not fulfill the obligations to the Officer hereunder for such payments. Bancorp may, however, pay salary and bonuses as deemed appropriate by its Board in the exercise of its discretion. 20. No Plan Created by this Agreement. The Officer, Bancorp and the Bank --------------------------------- expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and Bancorp, the Bank and the Officer each expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process by or on behalf of the Officer or Bancorp or the Bank that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion. 21. Amendments. No amendments or additions to this Agreement shall be ---------- binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided. 22. Applicable Law. Except to the extent preempted by Federal law, the -------------- laws of the State of Maryland shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 23. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 24. Headings. Headings contained herein are for convenience of reference -------- only. 25. Entire Agreement. This Agreement, together with any understanding or ---------------- modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs, or arrangements described in Sections 5 and 6, and supersedes all prior agreements other than with respect to such specific plans, programs, or arrangements. 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. SANDY SPRING NATIONAL BANK OF MARYLAND By: /s/ Hunter H. Hollar Title: President and Chief Executive Officer SANDY SPRING BANCORP, INC. By: /s/ Hunter H. Hollar Title: President and Chief Executive Officer OFFICER /s/ Frank H. Small Frank H. Small 15 EX-27 11 EXHIBIT 27
9 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 23,194 944 5,707 0 320,529 106,781 108,016 554,019 6,634 1,067,046 818,182 136,886 3,807 4,598 0 0 4,888 98,685 1,067,046 36,917 17,608 1,171 55,696 21,509 25,405 30,291 525 315 21,232 14,909 14,909 0 0 9,837 2.00 2.00 4.42 1,431 1,035 20 7,730 6,391 345 63 6,634 2,374 0 4,260
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